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STERIS Corporation Announces Fiscal 2010 Fourth Quarter and Full Year Results

  • Board of Directors Approves Quarterly Dividend

MENTOR, Ohio, May 06, 2010 (BUSINESS WIRE) --STERIS Corporation (NYSE: STE) today announced financial results for its fiscal 2010 year ended March 31, 2010. Revenues for fiscal 2010 decreased 3% on both a reported and constant currency basis to $1.26 billion compared with $1.3 billion in the prior year. Life Sciences revenues grew 1%, while Healthcare and Isomedix Services declined 4% and 1%, respectively.

During the fourth quarter the Company continued its efficiency efforts, taking restructuring actions primarily related to its European Healthcare manufacturing operations as well as certain European and North American back office functions. These efforts are anticipated to generate annualized savings of approximately $4.0 million, which will be realized over the next several years, with approximately $1.0 million benefiting fiscal 2011, and approximately $3.0 million benefiting future years.

For fiscal 2010, net income was $128.5 million, or $2.16 per diluted share, compared with $110.7 million, or $1.86 per diluted share in fiscal 2009. Included in net income for fiscal 2010 are restructuring charges of $4.8 million, primarily related to the fourth quarter 2010 restructuring action. Included in net income for fiscal 2009 are restructuring charges related to the third quarter 2009 cost reduction program, as well as the impact of benefits changes which resulted in additional pre-tax income during the third quarter. Combined, these two factors resulted in a net pre-tax charge of $6.1 million during fiscal year 2009.

Excluding the previously described restructuring charges and benefit changes, net of tax, net income for fiscal 2010 increased 15% to $131.3 million, or $2.21 per diluted share, compared with fiscal 2009 net income of $114.5 million, or $1.92 per diluted share. A detailed reconciliation of these items can be found in the attached financial tables.

"Our people have performed admirably in a year filled with uncertainty," said Walt Rosebrough, President and Chief Executive Officer of STERIS. "We substantially improved profitability and cash flow during fiscal 2010 and delivered record earnings per share even in the face of revenue declines. As we look at fiscal 2011, we are entering the year with strong backlog and more normalized order patterns in our core markets compared to last year, in particular in the Healthcare segment. However, our ability to grow earnings will be somewhat hampered during fiscal 2011 as Customers transition away from SYSTEM 1."

Fourth Quarter Results

Fiscal 2010 fourth quarter revenues declined 4% to $332.1 million compared with $344.4 million in the fourth quarter of fiscal 2009, primarily reflecting the timing of shipments in the Healthcare segment. On a constant currency basis, fourth quarter revenues declined 5%.

Fiscal 2010 fourth quarter net income was $29.8 million, or $0.50 per diluted share, compared with net income of $27.8 million, or $0.47 per diluted share, in the fourth quarter of fiscal 2009. Included in net income for the fourth quarter of fiscal 2010 are pre-tax restructuring charges totaling $5.2 million. Included in net income for the fourth quarter of fiscal 2009 are pre-tax restructuring charges totaling $1.8 million related to the third quarter 2009 cost reduction program, of which $0.8 million were recorded as restructuring expenses and $1.0 million were recorded in cost of goods sold.

Excluding the restructuring charges net of tax, fiscal 2010 fourth quarter net income was $33.2 million, or $0.55 per diluted share, compared with net income of $28.9 million, or $0.49 per diluted share in the fourth quarter of fiscal 2009.

Segment Results

Healthcare revenues in the quarter were $235.6 million compared with $249.2 million in the fourth quarter of fiscal 2009, a decline of 5%. Growth in consumables and service of 3% and 4%, respectively, was more than offset by a 13% decline in capital equipment as the Company has worked to reduce the seasonal variability of capital shipments. Backlog levels at quarter end were $127.8 million, an increase of 7% compared with the same time last year. Operating income was $37.8 million, compared with $38.3 million in the fourth quarter of fiscal 2009. Excluding restructuring charges, segment operating income increased 6% to $42.4 million compared with $39.9 million in the prior year quarter.

Life Sciences fourth quarter revenues were essentially flat at $58.8 million compared with $58.7 million in the fourth quarter of fiscal 2009. Consumables had another strong quarter, with growth of 11%, while service increased 6%, and capital equipment declined 10%. Backlog levels at quarter end were $41.8 million, a decline of 8% compared with the prior year period. Life Sciences operating income was $7.5 million in the quarter compared with $4.0 million in the fourth quarter of fiscal 2009. Excluding restructuring charges, segment operating income increased to $8.1 million compared with $4.2 million in the prior year quarter, primarily due to product mix and continued efficiencies in the business.

Fiscal 2010 fourth quarter revenues for Isomedix Services increased 5% to $35.7 million compared with $34.2 million in the same period last year. Revenue growth was driven primarily by increased demand from medical device Customers. Operating income was $8.4 million in the quarter compared with $7.9 million in the fourth quarter of last year. Included in operating income for the fourth quarter of fiscal 2009 was a gain of $1.7 million related to the sale of the segment's Rhode Island facility.

Cash Flow

Net cash provided by operations for fiscal 2010 increased 34% to $224.9 million, compared with net cash provided by operations of $167.4 million in fiscal 2009. Free cash flow (see note 1) for fiscal 2010 was a record $184.0 million. Free cash flow for fiscal 2010 benefited from the increase in earnings and continued improvements in working capital management.

Quarterly Dividend Announced

The Company also announced today that STERIS's Board of Directors has authorized a quarterly dividend in the amount of $0.11 per common share. The dividend is payable June 15, 2010 to shareholders of record at the close of business on May 27, 2010.

Outlook

Based upon current trends, the Company expects fiscal 2011 revenue growth of approximately 5%, and earnings per diluted share in the range of $2.00 to $2.30 for the full fiscal year. This outlook reflects certain key assumptions, some of which are listed below:

  • Healthcare revenue growth is expected to be in the mid-single digits.
  • Life Sciences revenue is expected to be flat.
  • Isomedix revenue growth is expected to be in the low-single digits.
  • Excludes the one-time reduction of revenue and operating income related to the previously announced SYSTEM 1 Rebate Program.
  • The Company has assumed the average forward exchange rates for the U.S. dollar and key international currencies as of March 31, 2010.
  • The Company has assumed a modest increase in raw material costs.
  • Excludes restructuring expenses from the Company's ongoing efficiency efforts.
  • EBIT as a percent of revenue is anticipated to be in the range of 15-16%.
  • The anticipated effective tax rate is approximately 35%.

For the full fiscal year 2011, free cash flow (see note 1) is anticipated to be approximately $125 million and capital expenditures are anticipated to be approximately $70 million.

Conference Call

In conjunction with this press release, STERIS Corporation management will host a conference call today at 10:00 a.m. Eastern time. The conference call can be heard live over the Internet at www.steris-ir.com or via phone by dialing 1-800-369-8428 in the United States and Canada, and 1-773-799-3378 internationally, then referencing the password "STERIS".

For those unable to listen to the conference call live, a replay will be available from 12:00 p.m. Eastern time on May 6, 2010, until 5:00 p.m. Eastern time on May 20, 2010, either over the Internet at www.steris-ir.com or via phone by calling 1-888-568-0662 in the United States and Canada, and 1-402-998-1542 internationally.

Annual Meeting of Shareholders

The Company will hold its annual meeting of shareholders on July 29, 2010. Further information regarding the time and location will be provided in the Company's annual report and proxy materials.

About STERIS

The mission of STERIS Corporation is to provide a healthier today and safer tomorrow through knowledgeable people and innovative infection prevention, decontamination and health science technologies, products and services. The Company's more than 5,000 dedicated employees around the world work together to supply a broad array of solutions by offering a combination of equipment, consumables and services to healthcare, pharmaceutical, industrial and government customers. The Company is listed on the New York Stock Exchange under the symbol STE. For more information, visit www.steris.com.

(1) Free cash flow is a non-GAAP number used by the Company as a measure to gauge its ability to fund future growth opportunities, repurchase common shares, and pay cash dividends. Free cash flow is defined as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net, plus proceeds from the sale of property, plant, equipment and intangibles. STERIS's calculation of free cash flow may vary from other companies.

This news release and the referenced conference call may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to the Company or its industry or products that are intended to qualify for the protections afforded "forward-looking statements" under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date of this report, and may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," "outlook," "potential," "confidence," "improve," "optimistic," "comfortable," "trend", and "seeks," or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in laws, government regulations, labeling or product approvals, or the application or interpretation thereof. Other risk factors are described in the Company's Form 10-K and other securities filings. Many of these important factors are outside STERIS's control. No assurances can be provided as to any outcome from litigation, regulatory action, administrative proceedings, government investigations, warning letters, consent decree, rebate program, transition, cost reductions, business strategies, earnings and revenue trends, expense reduction or other future financial results. Reference to the consent decree, transition, rebate program, or products are summaries only and do not alter or modify the specific terms of the decree, program or product clearance or literature.Unless legally required, the Company does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the potential for increased pressure on pricing that leads to erosion of profit margins, (b) the possibility that market demand will not develop for new technologies, products or applications, or the Company's rebate program, transition plan, or other business initiatives will take longer, cost more or produce lower benefits than anticipated, (c) the possibility that application of or compliance with laws, court rulings, certifications, regulations, regulatory actions, including without limitation previously disclosed FDA warning letters, government investigations, the December 3, 2009 FDA notice, the April 20, 2010 consent decree and related transition plan, or other requirements or standards, may delay, limit or prevent new product introductions, affect the production and marketing of existing products, or otherwise affect Company performance, results, or value, (d) the potential of international unrest or effects of fluctuations in currencies, tax assessments or rates, raw material costs, benefit or retirement plan costs, or other regulatory compliance costs, (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Company's products and services, (f) the possibility that anticipated cost savings or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with the matters described in this release, may adversely impact Company performance, results, or value, (g) the effect of the contraction in credit availability, as well as the ability of our customers and suppliers to adequately access the credit markets when needed, and (h) those risks described in our Annual Report on Form 10-K for the year ended March 31, 2009 and the Form 10-Q for the quarter ended December 31, 2009.

STERIS Corporation
Consolidated Condensed Statements of Income
(In thousands, except per share data)
Three Months Ended Twelve Months Ended
March 31, March 31,
2010 2009 2010 2009
(Unaudited) (Unaudited) (Unaudited)
Revenues $ 332,129 $ 344,366 $ 1,257,733 $ 1,298,525
Cost of revenues 189,921 204,555 718,551 771,783
Gross profit 142,208 139,811 539,182 526,742
Operating expenses:
Selling, general, and administrative 75,717 83,073 296,614 314,983
Research and development 9,973 8,291 34,008 32,760
Restructuring expense 5,161 828 4,848 3,554
Total operating expenses 90,851 92,192 335,470 351,297
Income from operations 51,357 47,619 203,712 175,445
Non-operating expense, net 3,423 2,749 11,896 8,960
Income tax expense 18,099 17,054 63,349 55,800
Net income $ 29,835 $ 27,816 $ 128,467 $ 110,685
Earnings per common share (EPS) data:
Basic $ 0.50 $ 0.48 $ 2.18 $ 1.88
Diluted $ 0.50 $ 0.47 $ 2.16 $ 1.86
Cash dividends declared per common share outstanding $ 0.11 $ 0.08 $ 2.44 $ 0.30

Weighted average number of common shares outstanding used in EPS computation:

Basic number of common shares outstanding 59,173 58,445 58,826 58,778
Diluted number of common shares outstanding 59,851 58,688 59,423 59,448
STERIS Corporation
Consolidated Condensed Balance Sheets
(In thousands)
March 31, March 31,
2010 2009
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 214,971 $ 154,180
Accounts receivable, net 214,940 238,438
Inventories, net 121,135 130,218
Other current assets 25,411 30,294
Total Current Assets 576,457 553,130
Property, plant, and equipment, net 346,858 350,996
Goodwill and intangible assets, net 305,311 305,189
Other assets 9,776 7,624
Total Assets $ 1,238,402 $ 1,216,939
Liabilities and Equity
Current liabilities:
Accounts payable $ 66,035 $ 68,573
Other current liabilities 131,094 133,453
Total Current Liabilities 197,129 202,026
Long-term debt 210,000 210,000
Other liabilities 76,779 86,748
Equity 754,494 718,165
Total Liabilities and Equity $ 1,238,402 $ 1,216,939
STERIS Corporation
Segment Data
(In thousands)
Three Months Ended Twelve Months Ended
March 31, March 31,
2010 2009 2010 2009
(Unaudited) (Unaudited) (Unaudited)
Segment Revenues:
Healthcare $ 235,587 $ 249,185 $ 892,474 $ 931,263
Life Sciences 58,782 58,724 218,209 216,701
STERIS Isomedix Services 35,742 34,169 140,871 142,645
Total Reportable Segments 330,111 342,078 1,251,554 1,290,609
Corporate and Other 2,018 2,288 6,179 7,916
Total Segment Revenues $ 332,129 $ 344,366 $ 1,257,733 $ 1,298,525
Segment Operating Income (Loss):
Healthcare $ 37,798 $ 38,267 $ 151,520 $ 132,601
Life Sciences 7,510 3,987 30,952 18,413
STERIS Isomedix Services 8,434 7,912 31,103 34,763
Total Reportable Segments 53,742 50,166 213,575 185,777
Corporate and Other (2,385) (2,547) (9,863) (10,332)
Total Segment Operating Income $ 51,357 $ 47,619 $ 203,712 $ 175,445
STERIS Corporation
Consolidated Condensed Statements of Cash Flows
(In thousands)
Twelve Months Ended
March 31,
2010 2009
(Unaudited)
Operating Activities:
Net income $ 128,467 $ 110,685
Non-cash items 69,414 58,422
Working capital adjustments 27,073 (1,723)
Net cash provided by operating activities 224,954 167,384
Investing Activities:
Purchases of property, plant, equipment, and intangibles, net (44,087) (40,889)
Proceeds from sale of property, plant, equipment and intangibles 3,105 19,341
Equity investment in joint venture (1,500) (4,150)
Net cash used in investing activities (42,482) (25,698)
Financing Activities:
Proceeds from the issuance of long-term obligations - 150,000
Payments on long-term obligations - (40,800)
Proceeds (payments) under credit facilities, net - (79,180)
Deferred financing fees and debt issuance costs - (476)
Repurchases of common shares (310) (80,466)
Cash dividends paid to common shareholders (144,017) (17,657)
Stock option and other equity transactions, net 14,047 33,621
Tax benefit from stock options exercised 2,467 6,982
Net cash used in financing activities (127,813) (27,976)
Effect of exchange rate changes on cash and cash equivalents 6,132 (11,398)
Increase in cash and cash equivalents 60,791 102,312
Cash and cash equivalents at beginning of period 154,180 51,868
Cash and cash equivalents at end of period $ 214,971 $ 154,180
STERIS Corporation
Non-GAAP Disclosures (Unaudited)
(In thousands, except per share data)

The following table presents financial measures which are considered to be "non-GAAP financial measures" under Securities Exchange Commission rules. The Company has referred to results of operations excluding restructuring charges and a change in a benefit policy in order to provide meaningful comparative analysis between the periods. Free cash flow is defined by the Company as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net (capital expenditures) plus proceeds from the sale of property, plant, equipment and intangibles. The Company uses free cash flow as a measure to gauge its ability to fund future growth opportunities, repurchase common shares, and pay cash dividends. STERIS's calculation of free cash flow may vary from other companies.

Twelve Months Ended

 Outlook
March 31, Fiscal
2010 2009 2011
(Unaudited) (Unaudited)
Calculation of Free Cash Flow:
Cash flows from operating activities $ 224,954 $ 167,384 $ 195,000
Purchases of property, plant, equipment, and intangibles, net (44,087) (40,889) (70,000)
Proceeds from the sale of property, plant, equipment, and intangibles 3,105 19,341 -
Free Cash Flow $ 183,972 $ 145,836 $ 125,000
The following tables reconcile reported net income to net income excluding restructuring charges and a change in benefit policy:
Three Months Ended March 31,
2010 2009
Amount Diluted EPS Amount Diluted EPS
Net Income as Reported $ 29,835 $ 0.50 $ 27,816 $ 0.47
Restructuring, Net of Tax $ 3,322 $ 0.05 $ 1,111 $ 0.02
$ 33,157 $ 0.55 $ 28,927 $ 0.49
Twelve Months Ended March 31,
2010 2009
Amount Diluted EPS Amount Diluted EPS
Net Income as Reported $ 128,467 $ 2.16 $ 110,685 $ 1.86
Restructuring, Net of Tax $ 2,812 $ 0.05 $ 8,750 $ 0.14
Change in Benefit Policy, Net of Tax $ - $ - $ (4,948) $ (0.08)
$ 131,279 $ 2.21 $ 114,487 $ 1.92
Three Months Ended March 31,
2010 2009
Segment Operating Income (Loss) Excluding Restructuring Charges: As Reported

Restructuring
Charges

 Total As Reported

Restructuring
Charges

 Total
Healthcare $ 37,798 $ 4,606 $ 42,404 $ 38,267 $ 1,606 $ 39,873
Life Sciences 7,510 585 8,095 3,987 172 4,159
STERIS Isomedix Services 8,434 - 8,434 7,912 - 7,912
Total Reportable Segments 53,742 5,191 58,933 50,166 1,778 51,944
Corporate and Other (2,385) - (2,385) (2,547) - (2,547)
Total Operating Income $ 51,357 $ 5,191 $ 56,548 $ 47,619 $ 1,778 $ 49,397
Twelve Months Ended March 31,
2010 2009
Operating Income (Loss) Excluding Restructuring Charges: As Reported

Restructuring
Charges

 Total As Reported

Restructuring
Charges

 Total
Healthcare $ 151,520 $ 3,839 $ 155,359 $ 132,601 $ 11,399 $ 144,000
Life Sciences 30,952 555 31,507 18,413 2,562 20,975
STERIS Isomedix Services 31,103 31,103 34,763 40 34,803
Total Reportable Segments 213,575 4,394 217,969 185,777 14,001 199,778
Corporate and Other (9,863) - (9,863) (10,332) (1) (10,333)
Total Operating Income $ 203,712 $ 4,394 $ 208,106 $ 175,445 $ 14,000 $ 189,445
STERIS Corporation
Supplemental Financial Data
Fourth Quarter Fiscal 2010
As of March 31, 2010
FY 2010
Q1 Q2 Q3 Q4 Total
Total Company Revenues
Capital $ 92,703 $ 119,146 $ 132,541 $ 137,137 $ 481,527
Consumables 80,797 79,989 81,531 75,158 317,475
Service 110,043 115,094 113,760 119,834 458,731
Total Recurring 190,840 195,083 195,291 194,992 776,206
Total Revenues $ 283,543 $ 314,229 $ 327,832 $ 332,129 $ 1,257,733
United States Revenues $ 223,806 $ 238,292 $ 244,067 $ 243,472 $ 949,637
United States Revenues as a % of Total 79% 76% 74% 73% 76%
International Revenues $ 59,737 $ 75,937 $ 83,765 $ 88,657 $ 308,096
International Revenues as % of Total 21% 24% 26% 27% 24%
Segment Data Q1 Q2 Q3 Q4 Total
Healthcare
Revenues
Capital $ 76,837 $ 99,737 $ 106,835 $ 112,732 $ 396,141
Consumables 66,731 64,038 66,494 59,321 256,584
Service 57,036 59,231 59,948 63,534 239,749
Total Recurring 123,767 123,269 126,442 122,855 496,333
Total Healthcare Revenues $ 200,604 $ 223,006 $ 233,277 $ 235,587 $ 892,474
Operating Income (Loss) 32,102 36,366 45,254 37,798 151,520
Life Sciences
Revenues
Capital $ 15,866 $ 19,374 $ 25,697 $ 23,671 $ 84,608
Consumables 14,066 15,951 15,037 15,829 60,883
Service 16,184 19,076 18,176 19,282 72,718
Total Recurring 30,250 35,027 33,213 35,111 133,601
Total Life Sciences Revenues $ 46,116 $ 54,401 $ 58,910 $ 58,782 $ 218,209
Operating Income (Loss) 4,779 8,540 10,123 7,510 30,952
Isomedix Services
Revenues $ 35,407 $ 34,735 $ 34,987 $ 35,742 $ 140,871
Operating Income (Loss) 8,339 7,401 6,929 8,434 31,103
Corporate and Other
Revenues $ 1,416 $ 2,087 $ 658 $ 2,018 $ 6,179
Operating Income (Loss) (2,358) (2,242) (2,878) (2,385) (9,863)
Other Data Q1 Q2 Q3 Q4 Total
Healthcare Backlog $ 132,391 $ 129,937 $ 134,400 $ 127,825 $ 127,825
Life Sciences Backlog 46,257 46,492 45,362 41,795 41,795
Total Backlog $ 178,648 $ 176,429 $ 179,762 $ 169,620 $ 169,620
Free Cash Flow $ 24,440 $ 49,934 $ 55,029 $ 54,569 $ 183,972
Net Debt $ 33,928 $ (13,758) $ 44,581 $ (4,971) $ (4,971)
This supplemental data is consistent with publicly disclosed information provided in quarterly conference calls, earnings releases and SEC filings, and is subject to all definitions, precautions and limitations contained in those disclosures. Please see the Company's most recent 10-K for definitions (and reconciliation where appropriate) of backlog, free cash flow and net debt.

SOURCE: STERIS Corporation 

STERIS Corporation
Julie Winter, Director, Investor Relations, 440-392-7245