Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. STERIS CORP (815065) 10-Q published on Oct 30, 2015 at 11:47 am
Reporting Period: Sep 29, 2015
On December 19, 2014 a purported shareholder of STERIS filed a Verified Stockholder Derivative Complaint in the Court of Common Pleas, Cuyahoga County, Ohio (the “Court”), against the members of STERIS’s board of directors and certain officers of STERIS, challenging the excise tax make-whole payments approved by STERIS’s board of directors in connection with the proposed combination of Synergy Health plc (“Synergy”) and STERIS (the “Combination”). STERIS was named as a nominal defendant in the action. The case is captioned St. Lucie County Fire District Firefighters’ Pension Trust Fund v. Rosebrough, Jr., et al., Case No. CV 14 837749 (the “Action”). On September 28, 2015, the defendants reached an agreement in principle with plaintiff, regarding a settlement of the Action, and that agreement is reflected in a memorandum of understanding. In connection with the contemplated settlement, STERIS agreed to make certain additional disclosures related to the make-whole payments, which disclosures were reported on the Company’s Form 8-K dated September 28, 2015, and also agreed not to grant any new stock compensation subject to Section 4985 of the Internal Revenue Code to any of the individual defendants in the Action until six months following the closing date of the Combination. The memorandum of understanding contemplates that the parties will enter into a stipulation of settlement, which will be subject to customary conditions, including the approval of the Court. In addition, in connection with the settlement, the parties have agreed to negotiate in good faith regarding the amount of attorneys’ fees and expenses that shall be paid to plaintiff’s counsel in connection with the Action. There can be no assurance that the parties will ultimately enter into a stipulation of settlement or that the Court will approve
On May 28, 2015, the Federal Trade Commission (“FTC”) brought an administrative complaint against STERIS and Synergy, seeking to block the Combination. The next day the FTC filed suit against STERIS and Synergy in the United District Court for the Northern District of Ohio (“District Court”) seeking to enjoin the Combination until the administrative challenge was adjudicated. Both complaints alleged that Synergy was an “actual potential competitor” with STERIS in the market for contracted sterilization services. The FTC contended that, but for the Combination, Synergy would enter the U.S. market with a new sterilization modality and compete against STERIS at some point in the future. On September 24, 2015, the District Court issued an Opinion and Order that denied the FTC’s request to enjoin the Combination. On October 1, 2015, the FTC stated publicly that it has decided to not appeal the decision of the District Court. Also on October 1, 2015, STERIS and Synergy filed a motion in the FTC’s administrative law proceeding requesting that the FTC withdraw its administrative challenge to the Combination. On October 7, 2015, the FTC issued an order withdrawing the matter from adjudication, the effect of which is to stay the administrative proceeding until the FTC determines whether it will proceed with the administrative challenge. The FTC has not issued its decision to date.
Life Sciences revenues increased $11.9 million, or 20.1%, to $71.0 million for the quarter ended September 30, 2015, as compared to $59.1 million for the same prior year quarter. This increase is attributable to $7.2 million, or 31.6%, growth in consumable revenues which includes revenues from of our fiscal 2016 acquisition, Gepco, and growth in both capital equipment and service revenues of 25.3% and 3.0%, respectively. Life Science revenues for the first half of fiscal 2016 increased $10.1 million or 8.5% to $127.8 million as compared to $117.8 million for the first half of fiscal 2015. This increase is attributable to $8.5 million, or 19.1%, growth in consumable revenues, which includes revenues from of our fiscal 2016 acquisition, Gepco, and growth in both capital equipment and service revenues of 1.4% and 2.7%, respectively. At September 30, 2015, Life Sciences backlog amounted to $47.3 million, increasing $1.2 million, or 2.7%, compared to the backlog of $46.1 million at September 30, 2014. Life Sciences backlog at September 30, 2015 increased by $1.8 million, or 4.0%, compared to the backlog of $45.5 million at March 31, 2015.
The Life Sciences business segment’s operating income increased $5.0 million or 38.7% to $18.1 million for the second quarter of fiscal 2016 as compared to $13.0 million for the same prior year period. The Life Sciences business segment's operating income for the first half of fiscal 2016 increased by $6.3 million or 25.3% to $31.3 million as compared to $25.0 million in the first half of fiscal 2015. The segment’s operating margin was 25.5% for the second quarter of fiscal 2016 compared to 22.1% for the second quarter of fiscal 2015. The segment's operating margin was 24.5% for the first half of fiscal 2016 compared to 21.2% for the first half of fiscal 2015. The increases in operating margins in both the second quarter and the first half of fiscal 2016 were primarily attributable to increased volumes in consumable and service offerings which generate higher margins, including results from our recent acquisition of Gepco.
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 parties’ ability to meet expectations regarding the timing, completion and accounting and tax treatments of the transaction, (b) the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in connection with the transaction within the expected time-frames or at all and to successfully integrate Synergy’s operations into those of STERIS, (c) the integration of Synergy’s operations into those of STERIS being more difficult, time-consuming or costly than expected, (d) operating costs, customer loss and business disruption (including, without limitation, difficulties in maintaining relationships with employees, customers, clients or suppliers) being greater than expected following the transaction, (e) the retention of certain key employees of Synergy being difficult, (f) changes in tax laws or interpretations that could increase our consolidated tax liabilities, including, if the transaction is consummated, changes in tax laws that would result in New STERIS being treated as a domestic corporation for United States federal tax purposes, (g) the potential for increased pressure on pricing or costs that leads to erosion of profit margins, (h) the possibility that market demand will not develop for new technologies, products or applications or services, or business initiatives will take longer, cost more or produce lower benefits than anticipated, (i) the possibility that application of or compliance with laws, court rulings,
certifications, regulations, regulatory actions, including without limitation those relating to FDA warning notices or letters, government investigations, the outcome of any pending FDA requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product introductions, affect the production and marketing of existing products or services or otherwise affect STERIS’s or Synergy’s performance, results, prospects or value, (j) the potential of international unrest, economic downturn or effects of currencies, tax assessments, adjustments or anticipated rates, raw material costs or availability, benefit or retirement plan costs, or other regulatory compliance costs, (k) the possibility of reduced demand, or reductions in the rate of growth in demand, for STERIS’s or Synergy’s products and services, (l) the possibility that anticipated growth, cost savings, new product acceptance, performance or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with STERIS and Synergy’s businesses, industry or initiatives including, without limitation, those matters described in STERIS’s Form 10-K for the year ended March 31, 2015 and other securities filings, may adversely impact STERIS’s or Synergy’s performance, results, prospects or value, (m) the possibility that anticipated financial results or benefits of recent acquisitions, or of STERIS’s restructuring efforts will not be realized or will be other than anticipated, (n) the effects of the contractions in credit availability, as well as the ability of STERIS’s and Synergy’s customers and suppliers to adequately access the credit markets when needed, and (o) those risks described in STERIS’s Annual Report on Form 10-K for the year ended March 31, 2015, and other securities filings.