FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1996 COMMISSION FILE NUMBER 1-9800
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
INCSTAR CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1254731
(State of Incorporation) (I.R.S. Employer Identification No.)
1990 Industrial Boulevard
Stillwater, Minnesota 55082
(Address of principal executive offices) (Zip Code)
(612) 439-9710
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Common Stock, $.01 Par Value
Per Share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days, Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K, [ X ].
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 27, 1996 was approximately $47,736,000.
The number of shares of the Registrant's Common Stock outstanding on March
27, 1997 was 16,505,457.
PART I.
ITEM 1. BUSINESS
GENERAL
INCSTAR Corporation and its subsidiaries (the "Company" and
"INCSTAR") develop, manufacture, and market test kits and related products
used by major hospitals, clinical reference laboratories and researchers
involved in diagnosing and treating immunological conditions. Since
December 1989, the Company has been majority-owned by BioFin Holding
International B.V. ("BFHI"), a subsidiary of Sorin Biomedica Diagnostics
S.p.A. (Sorin) which is an Italian affiliate of Fiat, Inc. The Company was
incorporated in Minnesota in 1975 under the name of Immuno Nuclear
Corporation. The Company's principal executive offices are located at 1990
Industrial Boulevard, Stillwater, Minnesota, 55082.
On March 10, 1997, INCSTAR and the other parties to the Merger
executed the Agreement and Plan of Merger (the "Merger Agreement"), among
American Standard Inc., a Delaware corporation ("ASI"), American Standard
Medical Systems, Inc., a Delaware corporation and a wholly owned subsidiary
of ASI ("ASM"), ISTR Merger Corporation, a Minnesota corporation and a
wholly owned subsidiary of ASM ("Mergeco"), and INCSTAR, pursuant to which
each share of INCSTAR Common Stock issued and outstanding immediately prior
to the time when the Merger becomes effective, other than shares of Common
Stock with respect to which dissenters' rights have been properly
exercised, will be converted into and become the right to receive $6.32 per
share in cash. Pursuant to the Merger, Mergeco will merge with and into
INCSTAR, with INCSTAR as the surviving corporation (the "Merger").
Consummation of the Merger is subject to the affirmative vote of a majority
of shareholders entitled to vote at a special meeting of the shareholders
of INCSTAR scheduled to be held in May 1997.
The Merger Agreement has been signed concurrently with the signing
of the Agreement, dated March 10, 1997, by and among Sorin Biomedica
S.p.A., an Italian corporation, Sienna Biotech International Inc., a
Delaware corporation ("Sienna"), and ASI (the "European Agreement"). The
European Agreement provides for the sale to Sienna and ASI by Sorin of such
assets, as defined in the European Agreement, associated with Sorin's
European Diagnostics Division.
Under to the Merger Agreement the consummation of transactions under
the European Agreement is a condition to the closing of the Merger
Agreement.
It is currently anticipated that the Merger will be effected prior
to June 30, 1997.
PRODUCTS
The Company currently markets, develops and manufactures individual
test reagents and test kits, using primarily radioimmunoassay ("RIA"),
enzyme immunoassay ("EIA"), immunoturbidimetric assay ("ITA") and
immunofluorescent assay ("IFA") technologies for clinical diagnostic and
medical research purposes. The Company also produces and markets
histochemical antisera and natural and synthetic peptides also used in
clinical diagnostic and medical research. The Company's product focus is
on diagnostic tests for autoimmune, infectious disease, endocrinology and
bone and mineral metabolism product segments, utilizing a variety of
technologies. The immunodiagnostic market is shifting away from manual
testing to automated or semi-automated testing in an effort to reduce
laboratory costs involved in processing medical diagnostic tests. As a
result, the research and development activities of the Company are mainly
focused on developing non-isotopic tests that can be run on open instrument
systems that are either currently in the customers labs, or can be placed
there in a cost effective manner.
DIAGNOSTIC AND RESEARCH KITS. The Company believes that it is one of
the largest producers of RIA products in the world. The total RIA market,
however, has been significantly decreasing in recent years due to two
factors: (1) isotopic technologies such as RIA are not easily convertible
to automated instrument testing systems and (2) disposal issues relative to
radioactive materials. Current trends in the immunodiagnostic market are
to employ technologies such as EIA, which require less labor to process
test results. Consequently, the challenge facing the Company is, and will
continue to be, to develop products that are non-isotopic and amiable to
semi and fully automated assay systems. Although the current trend in the
domestic market, and to a lesser degree in the international market, is
away from manual, RIA testing, the Company feels that its' strengths in RIA
manufacturing and marketing will allow it to maintain or grow its share of
this declining market. The Company believes that in the near-term its RIA
products will provide it with the capital resources necessary to pursue new
research and development activities.
RIA test procedures are used to precisely measure the extremely low
levels of certain hormones, peptides and other substances present in the
human body. Antibodies are proteins produced by higher animals in response
to some foreign material, known as the "antigen," entering the blood or
tissue. The antibody protects the animal by binding to the antigen and
helping other body mechanisms destroy it. When human hormones and peptides
are injected as antigens into a laboratory animal, the animal develops
antibodies to eliminate the antigens. Serum containing these antibodies
(antiserum) is taken from the laboratory animals and processed into a
binding reagent for the specific human hormone or peptide. The reagent is
then combined with other reagents in a test kit to create an analytical
system to measure the level of that human hormone or peptide present in the
specimen to be tested.
Precise amounts of antiserum, which act as the binder, are mixed with
radioactively-labeled (isotopic) tracer antigen and a lower concentration
unlabeled antigen. The tracer antigen and the unlabeled antigen compete for
binding locations on the antibody in the antiserum. The bound antigen is
measured by a radiation counter and the level of bound antigen is
calculated. The results of this controlled procedure are repeated for
several concentrations of known antigen and a standard curve is plotted. A
fluid specimen is then taken from a patient for testing and substituted for
the unlabeled antigen. The results of the competitive binding of the tracer
antigen and the antigen in the fluid specimen are compared with the
standard curve, and the precise quantity of hormone or peptide being
measured is determined. The sensitivity and accuracy of RIA tests depend
primarily upon the quality of the binding antisera and tracer antigen.
The Company currently markets approximately 80 RIA products,
primarily used in the analysis of endocrine, neuroendocrine, bone and
mineral metabolism, therapeutic drug monitoring and thyroid function. The
majority of thyroid function testing products are marketed under the
Clinical Assays trademark product line that the Company, together with
Sorin, acquired in 1990 from Baxter International Inc. ("Baxter"). Each
RIA kit contains the following: an antiserum consisting of primary
antibodies and, in most cases, a reagent used to precipitate the primary
antigen antibody complex; a radioactively-labeled antigen to act as tracer;
a non-radioactive or cold antigen to act as test calibrators; and a
protocol booklet that provides specific test instructions. The tracers in
the RIA kits have shelf lives of six to twelve weeks depending on the
product. The process of RIA testing requires the use of skilled labor in
diagnostic laboratories.
The Company markets approximately 55 EIA products primarily for
infectious disease and autoimmune disorders. The basic principles of EIA
technology is very similar to RIA in that a highly specific and sensitive
reaction of an antigen and antibody must take place. With EIA, the result
is measured by color development intensity rather than radioactivity. EIA
technology uses standard laboratory procedures and facilitates throughput
of large testing volumes such as those of a large reference laboratory.
EIA product lines include the Epstein Barr Virus ("EBV") and TheraTest
products, as discussed below, and the ToRCH group of tests (toxoplasmosis,
rubella, cytomegalovirus and herpes).
The Company also markets approximately 20 products based on IFA
technology for infectious disease and autoimmune disorders. The kits based
on IFA technology are employed in sophisticated diagnostic laboratories for
antibody detection and semi-quantitation in infectious disease and
autoimmune disorders. Patient serum samples are incubated on microscope
slides containing prepared antigen substrate, for example, virus-infected
mammalian cells. The antibody, if present, will bind to the antigen.
After a saline rinse, which removes unbound serum, the microscope slide is
reacted with a fluorescein conjugate that binds to antigen-antibody
complexes, which formed during initial incubation. Following a saline
rinse, the slides are viewed under a fluorescence microscope and examined
for fluorescent staining on the specific antigen sites. Immunofluorescence
kits provide prepared multi-sample slides, positive and negative reference
serum controls, fluorescein conjugate, buffered saline and mounting medium
as ready-to-use stabilized reagents. The Company's infectious disease IFA
assays include Toxoplasmosis, Cytomegalovirus, Herpes and a confirmatory
test for syphilis. The autoimmune product offerings incorporate a broad
range of kits and components intended for detection of antinuclear
antibodies and anti-native DNA antibodies (useful in systemic lupus
erythematosus testing), antimitochondrial antibody testing and antithyroid
antibodies intended for diagnosis of primary biliary cirrhosis and Grave's
disease, respectively.
In addition to the distribution of those products that the Company
develops and manufactures, the Company is the exclusive distributor in the
United States and Canada of certain of Sorin's hepatitis in vitro
diagnostic products. Sorin has developed RIA and EIA hepatitis tests that
are used worldwide in the diagnosis of Hepatitis A and Hepatitis B.
SERUM PROTEIN MEASUREMENT. The Company currently markets 23 ITA
kits for the assessment of specific human serum proteins. Sold under the
trade name "SPQ Test System," the tests are designed for use on common
automated clinical chemistry analyzers. The ITA kits are utilized on a
large number of different automated analyzers. Consequently, the
development of new instrument-specific applications is required on an
ongoing basis. Each assay is based on the principle of immunoturbidimetric
or immunonephelometric measurement of antigen-antibody complexes. These
antigen-antibody complexes are formed when patient samples are combined
with the specific antibody of the test kit. As a part of the SPQ Test
System, specific human protein controls, patient sample diluents and
specific antibodies are provided as separate products. ITA technology
offers the clinical laboratory the advantages of superior speed, precision
and automation. Included in the ITA product line are specific assays for
Apolipoprotein A-1, Apolipoprotein B and Lipoprotein(a), which are useful
in cardiac risk assessment. The remaining ITA assays in the SPQ Test
System are used in the assessment of immunological disorders, nutritional
status, acute response and kidney failure.
ANTISERA PRODUCTS. The antisera product lines from the Company are
used for the analysis of human serum proteins present in the human serum.
Common clinical laboratory procedures using the antisera products include
immunofixation electrophoresis, immunoelectrophoresis and radial
immunodiffusion methods. The techniques utilized by the laboratory result
in the determination of specific protein levels and the assessment of
specific protein components following the binding of the antiserum to a
specific serum protein. The presence of the serum protein is determined by
protein staining or through the use of fluorescent or enzyme staining
procedures.
BULK AND CUSTOM ANTISERA PRODUCTS. The bulk and custom antisera
products produced by the Company are used by major medical diagnostic
instrumentation manufacturers worldwide in the production of diagnostic
test kits to be used on their instruments. The Company offers an extensive
line of antisera products to human serum proteins that are monospecific,
avid, and of high titer. Antisera products are produced as nephelometric
quality, standard antisera, IgG fractions and fluorescent or enzyme
conjugated preparations. The Company also produces calibrators to be used
as reference standards in conjunction with the various antisera products
offered.
Custom antisera from the Company's standard supply are also produced
according to specifications provided by customers. The Company also
performs custom immunization and development of specific antibodies upon
customer request.
HISTOCHEMICAL ANTISERA. Unlike RIA, ITA and EIA methods, which are
used to analyze fluid samples taken from the human body, histochemical
antisera are utilized in an in vitro procedure to determine the presence of
hormones or peptides in body tissue. A histochemical antiserum is used as
a binding reagent for a specific hormone or peptide. Once binding has
occurred, the presence of the hormone or peptide is determined by
fluorescent or enzyme staining procedures performed on the tissue specimen.
The Company's histochemical products are used in clinical diagnoses and
medical research, frequently in conjunction with RIA, ITA or EIA
technologies.
RECENT DEVELOPMENTS
During the fourth quarter of 1996 the Company announced its receipt
of Food and Drug Administration ("FDA") approval for its second generation
tests for the detection of the infectious diseases, rubella,
cytomegalovirus ("CMV") and herpes simplex. These products have been
marketed in Europe for several years through the Company's affiliate and
have been widely accepted as the gold standard in the industry, offering
high sensitivity and ease of use.
Also during the fourth quarter, the Company received FDA approval
for its 25-OH-D RIA assay, the first test method on the market to be
cleared by the FDA for the detection of 25-Hydroxyvitamin D in the
bloodstream. This detection is becoming an increasingly important tool to
determine levels of vitamin D, which is necessary for the body's metabolism
of calcium.
During the second quarter of 1995 the Company announced the
completion of the manufacturing transfer of its TheraTest1 trademark
product line of diagnostic assays to its Stillwater facility. INCSTAR
acquired this FDA-cleared EIA panel of autoimmune diagnostic assays in May
1994 from TheraTest Laboratories, Inc. of Chicago. The TheraTest products
are used as a confirmatory test for the diagnosis of rheumatoid arthritis
and other connective tissue diseases such as systemic lupus erythematosus
and scleroderma. The TheraTest products are also an extension of the
Company's existing immunofluorescence autoimmunity product line and
complement the Company's EIA product offerings.
Also during the second quarter of 1995 the Company received approval
from the FDA for its second generation EBV diagnostic tests. EBV is the
causative agent of infectious mononucleosis, and can cause lymphomas,
chronic fatigue syndrome and a variety of other diseases in patients with a
weakened immune system. International market introduction of these tests
began in the third quarter of 1994.
The Company launched two autoimmune products in the international
market during the second quarter of 1995, a quantitative thyroid receptor
autoantibodies assay, which is used for the diagnosis of Grave's disease
and the complement activation enzyme assay ("CAE") which provides general
information about the immune system in disease states such as rheumatic and
rare connective tissue disorders as well as tissue injury. The Company
received 510(k) clearance from the FDA in the fourth quarter of 1995 for
its CAE kit.
During the third quarter of 1995 the Company launched worldwide its
second generation Parathyroid Hormone-related Protein ("PTHrP") assay.
PTHrP is the agent responsible for the condition of humoral hypercalcemia
of malignancy. This is a condition in which serum calcium is increased to
potentially life threatening levels. This assay provides customers with a
superior product that has significantly improved sensitivity and better
definition of the protein under investigation than the first generation
product. This product is being distributed as a "research use only"
product in the US and is targeted to the clinical research market.
Internationally, the Company is pursuing registration in several European
countries as well as Japan.
During the third quarter of 1995, the Company experienced an
increase in demand for one of its hepatitis assays due to a competitor's
kit becoming unavailable to the market. This opportunity resulted in
approximately $2.9 million in sales during 1995. The competitor re-entered
the marketplace during the first quarter of 1996. Sales of this assay were
approximately $2.2 million during 1996. While a portion of these sales has
been maintained since the competitor re-entered the market, the impact on
future sales is uncertain at this time.
During the fourth quarter of 1995 the Company received the approved
licensure from the FDA for the final two assays within the Hepatitis line
which gave the Company a complete panel of seven EIA approved/licensed
assays used in the diagnosis of hepatitis A and B infections.
MARKETING
The Company's medical products are sold to commercial and public
health laboratories, blood banks, research and teaching institutions and
hospital laboratories, which use the Company's kits to conduct tests
ordered by physicians. Increased frequency of use of the Company's kits
will depend, in part, upon the acceptance by practicing physicians of the
need and desirability for measuring certain therapeutic drug, hormone,
peptide and serology levels in the evaluation of diseases and body
disorders.
In North America, the Company's principal market for its medical
products includes approximately 1,200 clinical reference laboratories and
2,500 hospitals, which have laboratories that perform immunodiagnostic
testing. In the United States and Canada, the Company utilizes a direct
sales force, combined with selected independent distributors, to market its
products.
The Company also utilizes foreign distributors in conjunction with a
subsidiary in the United Kingdom to market its products abroad. Since 1989
Sorin has been the distributor for many of the Company's products in Italy,
Spain, Portugal, Germany and the Benelux countries. As part of the 1990
acquisition from Baxter, the Company manufactures and sells to Sorin the
Clinical Assays products for distribution in the above mentioned countries
and France. Pursuant to these arrangements, the Company recorded sales to
Sorin of $7,965,000 for the year ended December 31, 1996, which comprised
18% of total sales. Other transactions entered into with Sorin and its
subsidiaries are set forth in Note 6 of the Company's consolidated
financial statements contained elsewhere herein. Other than Sorin, the
Company is not dependent on any single customer for more than 15% of its
business.
The Company's international sales constitute 50% of sales for the
year ended December 31, 1996; 48% of sales for the year ended December 31,
1995 and 50% of sales for the year ended December 31, 1994.
Because of the limited shelf life of the Company's radioactive
tracer, the Company delivers products by international air freight to its
foreign markets.
RESEARCH AND PRODUCT DEVELOPMENT
The ability of the Company to compete effectively in the marketplace
will depend upon the success of its efforts to improve existing products
and to develop new products, primarily non-isotopic and conducive to
instrumentation, that are useful to the medical diagnostic and research
markets. The levels of research and development expenditures by the Company
during the periods shown below were as follows:
Percent of
Amount Net Sales
Year ended December 31, 1996 $4,163,000 9.4%
Year ended December 31, 1995 $3,748,000 8.2%
Year ended December 31, 1994 $5,069,000 11.9%
The reduction in research spending in 1995 from the level in 1994,
resulted primarily from the discontinuance of a development program
discussed in Note 2 of the financial statements contained elsewhere herein.
The Company has established scientific advisory panels for its
autoimmune and bone and mineral metabolism product lines. In addition, the
Company intends to establish a third scientific panel in its infectious
disease segment. These panels are overseen by a scientific advisory board.
Prior to his death in March 1997, the scientific advisory board was led by
Dr. Pierre M. Galletti, the Company's Chairman of the Board. Also, Dr.
Michael Steffes, a director of the Company, is a member of the Scientific
Advisory Board.
MANUFACTURING
The Company manufactures its immunoassay kits and serum protein
products in two locations within the United States. It maintains
manufacturing and administration activities in its principal facility in
Stillwater, Minnesota, which consists of 120,000 square feet.
Additionally, the Company is vertically integrated into the production of
bulk antisera and maintains a USDA licensed animal facility on 116 acres in
Windham, Maine (the Serum Proteins segment of the Company's business).
Management believes that it will have adequate capability to meet its
anticipated manufacturing needs in all current product lines for the
foreseeable future.
The steps involved in manufacturing the Company's immunoassay and
serum protein kits include the following: i) the isolation and production
of antigens; ii) the development and production of antibodies; iii) the
design and development of the required reagent system; iv) the iodination
or conjugation of precursors; v) the manufacture and packaging of the
components in the kit format; and vi) ongoing quality control to meet all
regulatory requirements.
As a result of strategic alliances and acquisitions over the past
several years, the Company has an extensive line of immunoassay and serum
protein assays that are manufactured in a cost effective manner in a
quality environment. The Company's products and kits consist of the
components necessary to perform specific assays in consistent and
reproducible fashion. Antisera are a critical component in the products
which are manufactured using RIA, ITA, EIA and IFA technologies and the
Company insures the quality of this raw material from its source in its
Serum Protein segment of the business. In addition to these antiserums,
the components of the immunoassay kits include specialized chemical
reagents, reference standards and performance data required to properly
calibrate test results. Raw materials used in these components meet design
specifications. The Company is not dependent on any particular supplier
for ongoing operations. Some raw materials critical in the production of
the Company's products have extensive lead times for supply. Lack of
supply of critical raw materials would have a materially adverse affect on
the Company. For this reason the Company continually strives to maintain
multiple sources for its most critical raw materials.
The Company maintains quality controls for the assurance of accurate
and reliable test kits and to meet FDA good manufacturing practices
("GMP"). The Company also complies with procedures mandated by the Nuclear
Regulatory Commission (NRC) for the use and disposal of radioactive
materials.
COMPETITION
Historically the Company has developed and marketed diagnostic and
research products serving specialized markets not adequately served by its
largest competitors. Included here are the fields of endocrinology, bone
and mineral metabolism and therapeutic drug monitoring. However, as a
result of the Company's acquisition of the Clinical Assay product lines
from Baxter and relationship with Sorin, the Company now competes with a
number of the larger immunodiagnostic companies offering similar lines of
RIA and EIA products.
The Company's major competition, outside the specialty product area,
includes Abbott Diagnostics, Diagnostic Products Corporation, Hybritech,
Ares-Serono, and CIBA Corning Diagnostic Corporation. The principle
elements of competition for the Company are based upon providing quality,
consistent and reliable products and services. Price is only a factor for
those tests in the larger, more competitive markets. The Company intends
to maintain its competitive differentiation in the market by selecting new
and innovative technology approaches to both the routine and specialty
market analytes. Also, the Company intends to develop and maintain quality
customer relationships with health care professionals.
GOVERNMENT REGULATION
Under the Medical Device Amendments of 1976, the Company is required
to file an annual registration statement with the FDA and to provide
updated device listings. The Company is also required to submit a pre-
market notification submission to the FDA for each new diagnostic product.
This submission may be either a 510(k), a premarket approval application,
or a product license application, unless the product is being distributed
for research or investigational use only. The FDA also imposes rules with
respect to GMP. The Company believes it is in compliance with FDA
regulations. The Company also complies with foreign government
regulations, specifically for Japan, France, Germany, Canada, England and
other countries where required. These requirements include adherence to
GMP, device listings, premarket notifications, or product licenses where
applicable. Additionally, the Company is in the process of certifying its
Quality Assurance system to ISO 9000 standards and hopes to complete the
registration process under this standard by the end of 1997.
Because the Company uses radioactive isotopes in the manufacture of
some of its products, it is required to maintain licenses authorizing the
possession, use and distribution of radioactive material. The licenses
were renewed in 1993 and will expire by their terms in 1998. To maintain
the licenses, the Company is required to keep certain records and to
demonstrate continued compliance with NRC regulations and the conditions of
its radioactive licenses. Although not expected, loss of these licenses
would have a materially adverse affect on the Company.
The Company believes it is in compliance with all federal, state and
local regulations regarding the discharge of material into the environment.
Additionally, the cost to maintain licenses and meet environmental and
safety requirements is not material to the Company's consolidated financial
statements and the Company does not expect any material financial
commitment in the near-term.
FOREIGN AND DOMESTIC OPERATIONS AND INTERNATIONAL SALES
Company information with respect to foreign and domestic operations
and international sales is set forth in Note 12 to the Company's
consolidated financial statements contained elsewhere herein.
PATENTS
The Company has been issued patents covering (i) the method and
radioactive tracers used for the immunoassay of C-terminal parathyroid
hormone, (ii) bioassay for parathyroid hormone, and (iii) usage of
iodinated or fluorescent forms of cyclosporin in immunoassay kits. These
patents expire on July 26, 1999; January 17, 2000; and April 1, 2002,
respectively.
The Company does not believe that patent protection will be a
material factor for its current product line offering, because of the
Company's proprietary know-how regarding the production and development of
its product lines. Going forward, the Company has filed patent
applications for several new product development programs, and has also
negotiated exclusive licenses to patent applications filed by outside
product development collaborators. Certain other companies may have been
issued or applied for patents with respect to products or technology
manufactured by, or of interest to the Company. Management is unable at
this time to determine the impact, if any, which any such patents may have
on the Company.
LICENSES AND TRADEMARKS
The Company holds certain licenses for technology, intellectual
property and distribution rights. The Company also holds certain
registered trademarks such as CYCLO-Trac registered trademark, N-tact
registered trademark and PTH-MM registered trademark as well as several
other non-registered trademarks. The terms of these licenses and
trademarks vary. The Company does not believe that any of these licenses
or trademarks is material to its business or operations.
EMPLOYEES
As of December 31, 1996 the Company had 282 employees, including part-
time employees.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below:
John J. Booth President and Chief Executive Officer since
September, 1994 and Senior Vice President
and Chief Financial Officer since May,
1992, age 42. Mr. Booth joined the Company
in December, 1989 as Vice President of
Finance and Administration and prior to
that was Vice President, Controller and
Secretary of CSI from October, 1989 to
December, 1989.
Stephen P. Gouze Vice President of Sales and Marketing of
the Company since February 1997, age 45.
From October 1994 to February 1997, Mr.
Gouze was Vice President of Sales and
Marketing at PATHCOR, Inc., a Pathologist
Practice Management Company. Prior to
joining PATHCOR, Mr. Gouze held a number of
sales and marketing positions, with Sanofi
Pasteur's Diagnostics Division, most
recently as Director of Marketing.
Fabio Lunghi Executive Vice President and Chief
Operating Officer of the Company since
September, 1994, age 52. Prior to joining
the Company, from 1986 to 1994 Mr. Lunghi
was Vice President and General Manager of
the radiopharmaceutical business unit at
Sorin Biomedica, S.p.A.
Gerald L. Majewski, Ph.D. Vice President of Research and Development
since October 1992, age 47. Prior to
joining the Company, from 1983 to 1992 Dr.
Majewski held a variety of positions at
Fisher Scientific/Instrumentation
Laboratory, most recently as Director of
Research and Development, Reagents
Development from 1989 to 1992.
Thomas P. Maun Vice President and Chief Financial Officer
of the Company since September, 1994 and
Director of Finance since January, 1990,
age 43. Mr. Maun joined the Company in
1987 as Corporate Controller.
George E. Wellock Vice President of Manufacturing of the
Company since March 1991, age 47. From
June 1988 to March 1991, Mr. Wellock was
Vice President of Operations of Baxter Dade
in Cambridge, Massachusetts, a subsidiary
of Baxter International. From June
1984 to June 1988, he served as
Manufacturing Manager for Travenol
Genentech Diagnostics and Baxter Dade.
At each annual meeting of the Board of Directors, the board elects
executive officers as necessary. Such elected officers hold office until
the next annual meeting of the directors or until their successors are
elected and qualified.
ITEM 2. PROPERTIES
The Company presently owns three adjacent concrete buildings
totaling approximately 120,000 square feet located on a 14 acre site in
Stillwater, Minnesota, which is part of the metropolitan area of
Minneapolis-St. Paul. One building houses all manufacturing operations. A
second building houses a research laboratory. The third building houses
the Company's executive offices. The Company believes this capacity to be
adequate for present and future needs. The Company owns a farm operation
of 116 acres and related buildings in Windham, Maine, which houses
laboratory animals.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in ordinary routine litigation incident to
its business, which management believes will not have an adverse effect
upon its operations or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq National
Market under the symbol "ISTR". As of December 31, 1996, there were
approximately 1,134 shareholders of record holding 16,505,457 shares. The
following table sets forth for the calendar quarters indicated the high and
low sales prices as reported by the American Stock Exchange for the periods
prior to May 28, 1996 and by the Nasdaq National Market for the periods
thereafter.
High Low
1995
First Quarter $ 2 3/4 $ 1 1/2
Second Quarter 3 3/4 2 1/2
Third Quarter 5 5/16 2 7/8
Fourth Quarter 5 3 3/4
1996
First Quarter 6 1/4 4
Second Quarter 6 3/4 4 1/4
Third Quarter 5 5/8 3 5/8
Fourth Quarter 4 7/8 2 5/8
DIVIDENDS. The Company did not pay cash dividends on its common stock
during 1995 or 1996. It is not currently anticipated that cash dividends
will be paid in the future on the Company's Common Stock. The Board of
Directors of the Company will review its dividend policy from time to time.
Any future determination as to the payment of dividends on the Company's
Common Stock will depend upon future earnings, results of operations,
capital requirements, the financial condition of the Company and any other
factors the Board of Directors of the Company may consider relevant.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected consolidated historical financial
information of the Company derived from the audited consolidated financial
statements of the Company for the fiscal years ended December 31, 1996,
1995, 1994, 1993 and 1992.
SUMMARY OPERATIONS STATEMENT
Year Ended
December 31,
1996 1995 1994 1993 1992
Domestic sales $22,017,000 $23,832,000 $21,282,000 $23,321,000 $24,712,000
International sales 22,287,000 21,928,000 21,221,000 19,967,000 21,272,000
Net sales 44,304,000 45,760,000 42,503,000 43,288,000 45,984,000
Cost of goods sold 21,599,000 23,271,000 22,039,000 23,007,000 22,052,000
Inventory valuation
adjustment --- --- 750,000 (a) --- ---
Gross profit 22,705,000 22,489,000 19,714,000 20,281,000 23,932,000
Operating expenses:
Selling, general and
administrative 13,206,000 12,592,000 12,853,000 12,761,000 13,621,000
Research and
development 4,163,000 3,748,000 5,069,000 5,719,000 3,277,000
Unusual items --- --- 5,750,000 (a) 750,000 (a) ---
Total operating
expenses 17,369,000 16,340,000 23,672,000 19,230,000 16,898,000
Operating income(loss) 5,336,000 6,149,000 (3,958,000) 1,051,000 7,034,000
Interest income
(expense), net 96,000 (348,000) (365,000) (472,000) (656,000)
Investment and other
income (expense) (21,000) 33,000 11,000 (42,000) 73,000
INCOME (LOSS) BEFORE
INCOME TAXES 5,411,000 5,834,000 (4,312,000) 537,000 6,451,000
Provision for income
taxes 1,299,000 1,571,000 193,000 284,000 1,577,000
NET INCOME (LOSS) $ 4,112,000 $ 4,263,000 $ (4,505,000) $ 253,000 $ 4,874,000
NET INCOME (LOSS)
PER SHARE $ .25 $ 0.26 $ (0.28) $ 0.02 $ 0.30
Weighted average
shares and equivalents 16,661,367 16,491,501 16,322,301 16,432,883 16,337,857
BALANCE SHEET INFORMATION December 31,
1996 1995 1994 1993 1992
Total assets $41,958,000 $38,761,000 $38,154,000 $43,426,000 $45,069,000
Working capital 19,189,000 14,947,000 13,873,000 14,555,000 13,863,000
Long-term debt --- 3,000 4,143,000 6,501,000 8,167,000
Shareholders' equity 33,141,000 28,384,000 23,889,000 28,240,000 27,277,000
Book value per share 1.99 1.72 1.46 1.73 1.69
<FN>
Note 1.For information with respect to dividends, see Item 5 above.
(a) Relates to the write off of certain tangible and intangible costs,
severance and related costs and inventory write downs as discussed in Note
2 to the consolidated financial statements contained elsewhere herein.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales in 1996 were $44,304,000, a 3 percent decrease from
$45,760,000 in 1995. 1995 and 1996 results included sales from a single
test that resulted from a competitor's product becoming unavailable to the
market from June 1995 until March 1996. In the absence of this
development, 1995 and 1996 total sales would have remained relatively
unchanged. 1995 sales were 8 percent above 1994 sales of $42,503,000.
This increase was due primarily to sales from the Company's hepatitis
assays, as previously discussed, combined with sales from new products
introduced during 1995 and the latter part of 1994 in the Company's
autoimmune disease, bone and mineral metabolism and infectious disease
market segments. Increased sales were partially offset by declines in the
Company's oncology and endocrinology market segments due to the continued
shift in the diagnostic industry from isotopic, manual testing to non-
isotopic, automated and semi-automated testing.
Domestic sales decreased 8% from $23,832,000 to $22,017,000. As
discussed above, through February 1996, the Company experienced an increase
in demand for one of its hepatitis assays due to a competitor's kit
becoming unavailable to the market in June 1995. Since the competitor's re-
entry during the first quarter of 1996, the Company has experienced a
decline of these product sales from their levels during the second half of
1995. This opportunity resulted in approximately $2.2 million and $2.9
million in sales during 1996 and 1995, respectively. In addition, domestic
sales have continued to be negatively impacted by declines in the Company's
oncology and endocrinology market segments, as discussed above. Partially
offsetting these declines were continued increases in the autoimmune
disease market segment, increases in the Company's serum protein market
segment and increases in the Company's Vitamin D assays, which are part of
the bone and mineral metabolism market segment. 1995 sales increased 12%
from $21,282,000 in 1994 due primarily to the increase in sales from the
hepatitis assay described above, as well as increases in the autoimmunity
segment offset with declines in the endocrinology and oncology market
segments.
1996 international sales increased 2% to $22,287,000 compared with
1995 sales of $21,928,000. 1995 sales increased 3% from 1994 sales of
$21,221,000. Sales were favorably impacted in 1996 and 1995 due primarily
to the introduction of second generation Epstein Barr Virus diagnostic kits
during 1995. Sales were negatively impacted in both years due to the
continued declines in the routine endocrinology and transplantation
segments.
Gross margins were 51 percent of sales in 1996 compared with 49
percent of sales in 1995 and 46 percent in 1994. The decline in 1994
margins is attributable to the $750,000 charge for excess inventories as
discussed in Note 2 of the Company's consolidated financial statements
contained elsewhere herein. Exclusive of the inventory write down, gross
margins were 48 percent of sales in 1994. Gross margins have improved
during the last two years due to improved product mix as well as
efficiencies derived from an operational restructuring. Notwithstanding
this improvement, the Company's margins continue to be highly sensitive to
product mix and volume changes.
The Company's ratio of selling, general and administrative expenses
to sales was 30 percent in 1996, 28 percent in 1995 and 30 percent in 1994.
These expenses, as a percentage of sales, are expected to remain relatively
consistent with 1996.
Research and development expenses were $4,163,000 in 1996, compared
with $3,748,000 in 1995 and $5,069,000 in 1994. The increase in 1996 is
primarily due to increased emphasis on new product development, including
the establishment of scientific advisory panels for the Company's
autoimmune and bone and mineral metabolism segments. These panels are
intended to strengthen the Company's ties with the scientific community.
The decrease in 1995 spending compared with 1994 levels is attributable to
the discontinuance during 1994 of the Fluorescence Polarization Immunoassay
("FPIA") development project as discussed in Note 2 of the Company's
consolidated financial statements contained elsewhere herein. Exclusive of
FPIA, these expenses represent 9 percent, 8 percent and 9 percent of sales
in 1996, 1995 and 1994, respectively. Research and development expenses
are projected to increase slightly due to the Company's increased emphasis
on new development activities and increased scientific panel activity.
Interest income net of expense was $96,000 in 1996 compared with
interest expense of $348,000 in 1995 and $365,000 in 1994. The interest
income was attributable to the elimination of all long term debt during
1995 and higher average cash balances in 1996. 1995 expense includes
interest on certain tax obligations.
Income tax expense was 24 percent of income before taxes or
$1,299,000, compared with 27 percent or $1,571,000 in 1995 and $193,000 in
1994. The decline in the effective tax rate is due to the recognition of
certain deferred tax assets during 1996. The tax expense in 1994 related
primarily to book reserves and liabilities not deductible for tax purposes
until paid. The effective rate is expected to remain relatively consistent
with 1996.
Net income in 1996 was $4,112,000, or 25 cents per share, compared
with a net income of $4,263,000, or 26 cents per share, in 1995 and net
loss of $4,505,000, or 28 cents per share, in 1994. The 1994 loss results
from $6.5 million in charges, as discussed in Note 2 to the Company's
consolidated financial statements contained elsewhere herein.
LIQUIDITY AND CAPITAL RESOURCES
INCSTAR's free cash flow (operating cash flow less investment
activities) was $905,000 in 1996, compared to $5,190,000 in 1995 and
$3,118,000 in 1994. This decrease is attributable to increased capital
spending associated with instrumentation, manufacturing improvements and
computer upgrades as well as spending associated with the purchase of
intellectual property and purchased technology. The Company's ratio of
total debt to total capital was 16 percent in 1994.
Working capital increased to $19,189,000 at year-end 1996, from
$14,947,000 at the end of 1995, resulting from increased cash levels and
higher inventory balances combined with lower accrued compensation due to
timing of payroll disbursements.
Capital expenditures for 1996 were $2,645,000, compared with
$1,557,000 in 1995 and $923,000 in 1994. For 1997, capital expenditures
are expected to be approximately $3.8 million, primarily for a new
enterprise resource planning system, manufacturing improvements and
instrumentation.
The Company's primary sources of liquidity are a $1 million
revolving bank credit line secured by Company assets and a $4.0 million
unsecured credit line with Fiat Finance N.A., Inc. (Fiat). At year-end,
the Company had no outstanding borrowings under these credit lines. The
Company anticipates that the generation of free cash flow and the resources
available within the Fiat Group will provide sufficient sources of
liquidity for planned capital and research and development expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and financial
statement schedules are listed under Items 6, 14 (a) (1) and 14 (a) (2) of
this report and contained elsewhere herein.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[The remainder of this page left blank intentionally.]
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
John J. Booth 42 President, Chief Executive Officer,
Director and Acting Chairman of the Board
Thomas P. Maun 43 Vice President and Chief Financial
Officer
Fabio Lunghi 54 Executive Vice President and Chief
Operating Officer
Stephen P. Gouze 47 Vice President of Sales and Marketing
Gerald L. Majewski, Ph.D. 49 Vice President of Research and
Development
George E. Wellock 49 Vice President of Manufacturing
Ennio Denti 64 Director
George H. Dixon 76 Director
Franco Fornasari 46 Director
Ezio Garibaldi 59 Director
D. Ross Hamilton 59 Director
Umberto Rosa 63 Director
Michael W. Steffes, M.D., Ph.D. 53 Director
Carlo Vanoli 47 Director
JOHN J. BOOTH was appointed Acting Chairman of the Board on March 8,
1997, following the death of Pierre M. Galletti, M.D., Ph.D., who had been
the Chairman of the Board of the Company since March 1995. Mr. Booth has
been President, Chief Executive Officer, and a director of the Company
since September 1994, Senior Vice President and Chief Financial Officer
from May 1992 to September 1994, and Vice President of Finance and
Administration from 1989 to 1992. Mr. Booth was Vice President, Controller
and Secretary of Clinical Sciences, Inc. ("CSI") prior to joining the
Company in 1989.
THOMAS P. MAUN has been Vice President and Chief Financial Officer of
the Company since September, 1994 and Director of Finance since January,
1990. Mr. Maun joined the Company in 1987 as Corporate Controller.
FABIO LUNGHI has been Executive Vice President and Chief Operating
Officer of the Company since September, 1994. Prior to joining the
Company, from 1986 to 1994, Mr. Lunghi was Vice President and General
Manager of the radiopharmaceutical business unit at Sorin.
STEPHEN P. GOUZE has been Vice President of Sales and Marketing of the
Company since February 1997. From October 1994 to February 1997, Mr. Gouze
was Vice President of Sales and Marketing at PATHCOR, Inc., a Pathologist
Practice Management Company. Prior to joining PATHCOR, Mr. Gouze held a
number of sales and marketing positions, with Sanofi Pasteur's Diagnostics
Division, most recently as Director of Marketing.
GERALD L. MAJEWSKI, PH.D. has beenVice President of Research and
Development since October 1992. Prior to joining the Company, from 1983 to
1992, Dr. Majewski held a variety of positions at Fisher
Scientific/Instrumentation Laboratory, most recently as Director of
Research and Development, Reagents Development from 1989 to 1992.
GEORGE E. WELLOCK has been Vice President of Manufacturing of the
Company since March 1991. From June 1988 to March 1991, Mr. Wellock served
as Vice President of Operations of Baxter Dade in Cambridge, Massachusetts,
a subsidiary of Baxter International. From June 1984 to June 1988, he
served as Manufacturing Manager for Travenol Genentech Diagnostics and
Baxter Dade.
ENNIO DENTI has been a director since December 1989. Mr. Denti was
Chairman of the Company from December 1989 to September 1994. Mr. Denti is
Chairman of the Board of SNIARICERCHE S.p.A., a research and development
company affiliated with SNIA. Mr. Denti was General Manager of Sorin from
1990 to 1992. From 1981 to 1990, he was Vice President of External Affairs
of Sorin. Mr. Denti is also a director of Conbiotec S.p.A., an affiliate
of Sorin involved in research and development activities relating to
medical diagnostics. Prior to December 1989, Mr. Denti was Chairman of the
Board of CSI.
GEORGE H. DIXON has been a director since February 1987. Prior to his
retirement in November 1985, Mr. Dixon held various management positions
with First Bank System, Inc., including Chairman and Chief Executive
Officer from November 1983 to November 1985.
FRANCO FORNASARI has been a director since May 1995. Mr. Fornasari is
Executive Vice President of Fiat U.S.A., Inc. He was Vice President for
International Trade at Fiat from 1990 to 1995 and has served as Secretary
General of the International Advisory Board of Fiat since March 1994. From
1985 to 1990, Mr. Fornasari held a variety of positions with the World Bank
organization.
EZIO GARIBALDI has been a director since September 1994. Mr. Garibaldi
has been President and Chief Executive Officer of Sorin since 1990.
D. ROSS HAMILTON has been a director since December 1989. Mr. Hamilton
was a director of CSI. He is President and a director of Hamilton Research
Inc., a financial consulting firm. Mr. Hamilton is also Chairman of the
Board of Altris Software, Inc., an electronic document management company.
He is also a director of Luther Medical Products, Inc., a medical device
company.
UMBERTO ROSA has been a director since December 1989. Professor Rosa
has been the Chief Executive Officer of SNIA since 1990. Prior to that he
was Chief Executive Officer and General Manager of Sorin. Professor Rosa
is also President of Biofin, a wholly owned subsidiary of Sorin, and
Executive Vice President of Technobiomedica S.p.A., a biotechnology
research holding company. He is also a member of the Board of Directors of
Tecnogen S.p.A., a biotechnology research company, and President of SNIA
Fibre S.p.A., a nylon fibers manufacturer.
MICHAEL W. STEFFES, M.D., PH.D. has been a director since September
1984. Dr.Steffes served as the Director of Clinical Laboratories at the
University of Minnesota Hospital from October 1984 to July 1992 and has
been a Professor in the Department of Laboratory Medicine and Pathology at
the University of Minnesota since 1981.
CARLO VANOLI has been a director since September 1994. Mr. Vanoli has
been Vice President of Corporate Development of SNIA since 1994. From 1992
to 1994, he served as President and Chief Executive Officer of Sorin
Biomedical, Inc., in Irvine, California, and, from 1987 to 1992, he served
as Strategic Planning Manager of merger and acquisition activities for
SNIA.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the cash and noncash compensation
for each of the last three years awarded to or earned by the Chief
Executive Office of the Company and the four highest paid executive
officers of the Company whose salaries and other compensation earned in
1996 exceeded $100,000.
Long-Term
Annual Compensation Compensation
Securities
Underlying All Other
Name and Principal Positions Year Salary Bonus Options Compensation(1)
John J. Booth (2) 1996 $251,900 0 0 4,500
President and Chief Executive 1995 226,600 116,900 0 4,500
Officer 1994 166,800 0 50,000 4,500
Fabio Lunghi (3) 1996 197,700 0 0 0
Executive Vice President and 1995 187,000 77,200 0 0
Chief Operating Officer 1994 _ _ _ _
Gerald L. Majewski 1996 160,300 0 0 4,500
Vice President of Research 1995 153,000 63,100 0 4,500
and Development 1994 147,900 0 0 4,500
George E. Wellock 1996 141,600 0 0 4,500
Vice President of Operations 1995 137,700 56,800 0 4,100
1994 133,400 0 0 4,400
Thomas P. Maun (4) 1996 111,500 0 0 4,100
Vice President and Chief 1995 100,000 41,300 0 3,000
Financial Officer 1994 76,100 0 27,000 2,400
___________________
(1)Includes Company contributions under a Salary Savings Plan qualified
under Section 401(k) of the Internal Revenue Code of 1986, as amended.
In 1996, Company contributions equaled 50% of the first 6% of
compensation (or the allowable IRS limit, if less) contributed by the
employee.
(2)Mr. Booth began serving as the Company's Chief Executive Officer in
September 1994; prior to that, he served as its Senior Vice President
and Chief Financial Officer.
(3)Mr. Lunghi was named Executive Vice President and Chief Operating
Officer of the Company in September 1994.
(4)Mr. Maun was named Vice President and Chief Financial Officer in
September 1994; prior to that, he served as the Company's Director of
Finance.
EMPLOYMENT AGREEMENTS
The Company has a written employment agreement with Mr. Booth, the
initial term of which expired in December 1993 and which provides for
automatic one year extensions unless one of the parties gives notice at
least 30 days prior to the expiration date that the agreement will
terminate at the end of the current extension. The employment agreement
includes provisions with respect to base salary level, annual cost of
living increases, annual bonus and termination of employment. The
employment agreement also provides that one year of Mr. Booth's base salary
shall be paid to him in the event the Company terminates his employment
without cause.
RETIREMENT ARRANGEMENTS
The Company has retirement arrangements with Mr. Booth which is
intended to provide continued compensation to an individual or his
respective beneficiaries upon the later of (1) an individual's retirement
from the Company after attainment of 60 years of age, (2) his attainment of
60 years of age following termination of employment or (3) his death during
the term of employment (each one a "triggering event"). Subject to vesting
requirements (the annual benefit amounts vest at the rate of 10% per year
of employment), the retirement agreement provides for the payment to the
individuals or their beneficiaries of annual benefits for a period of 15
years following the occurrence of a triggering event. The amount of the
benefit is adjusted annual to reflect changes in the cost of living. The
annual benefit amount at December 31, 1996 for Mr. Booth was $62,800.
The Company maintains an executive income continuation plan for the
benefit of Dr. Majewski, Mr. Wellock and Mr. Maun. The plan provides
payments for 15 years to such officers or their respective beneficiaries
upon the later of (1) an officer's retirement from the Company after
attainment of 60 years of age, (2) his attainment of 60 years of age
following termination of employment or (3) his death during the term of
employment. The annual retirement payment is the product of an annual
benefit rate set by the Board of Directors ( in 1996) multiplied by the
number of years of employment, up to a maximum of 15 years, and as adjusted
to reflect cost of living changes during the payment period. An officer's
rights under the plan are fully vested after 10 years of employment. As of
December 31, 1996, the estimated annual retirement payment amounts were as
follows: Dr. Majewski, $13,800; Mr. Wellock, $28,300 and Mr. Maun, $7,500.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information is furnished as of March 21, 1997, to indicate
beneficial ownership of the Common Stock of the Company by (i) each person
who is known by the Company to be the beneficial owner of more than 5% of
the outstanding shares, (ii) shares beneficially owned by each of the
Company's directors (including shares subject to stock options that will
become exercisable as a result of the Merger), and (iii) shares
beneficially owned by directors and executive officers as a group. Except
as otherwise indicated, the persons listed have sole voting and investment
power over such shares.
Amount and Nature
of Beneficial Percent of
Name of Beneficial Owner Ownership (1)(2)(3) Outstanding Shares
D. Ross Hamilton (4) 198,461 1.2%
130 East End Avenue
New York, NY 10028
John J. Booth dagger 172,738 *
George Wellock dagger 56,000 *
Gerald L. Majewski, Ph.D.dagger 40,000 *
Ennio Denti 24,035 *
SNIARICHERCHE
VIA Borgonuovo, 14
20100 Milano
Italy
Thomas P. Maun dagger 37,127 *
Michael W. Steffes, M.D., Ph.D. 19,900 *
1583 Fulham Street
St. Paul, MN 55108
George A. Dixon 15,000 *
121 Washington Avenue South, #617
Minneapolis, MN 55401
Umberto Rosa 10,000 *
SNIA BPD S.p.A.
VIA Borgonuovo, 14
20100 Milano
Italy
Fabio Lunghi dagger 6,000 *
Franco Fornasari 10,000 *
FIAT USA
375 Park Avenue
New York, NY 10152
Ezio Garibaldi 10,000 *
Sorin Biomedica S.p.A.
Via Crescentino
13040 Saluggia (VC)
Italy
Carlo Vanoli 10,000 *
SNIA BPD S.p.A.
VIA Borgonuovo, 14
20121 Milano
Italy
All directors and executive
officers as a group (13 persons) 609,261 3.7
______________
* Less than 1%
dagger INCSTAR Corporation, P.O. Box 285, Stillwater, MN 55082
(1) Includes the following shares held by wives or children: Mr. Hamilton,
27,108 shares; Mr. Booth, 2,385 shares; Mr. Maun, 1,727 shares; Dr.
Steffes, 3,600 shares.
(2) Includes the following shares that could be acquired within 60 days
upon exercise of outstanding options: Mr. Hamilton, 17,018 shares; Mr.
Booth, 123,333 shares; Mr. Wellock, 50,000 shares; Dr. Majewski, 40,000
shares; Dr. Denti, 24,035 shares; Mr. Maun, 25,567 shares; Dr. Steffes,
10,000 shares; Mr. Dixon, 10,000 shares; Prof. Rosa, 10,000 shares; Mr.
Fornasari, 3,333 shares; Mr. Garibaldi, 6,667 shares; Mr. Vanoli, 6,667
shares and all directors and executive officers as a group, 326,620
shares.
(3) Includes the following shares subject to stock options that will become
exercisable as a result of the Merger: Mr. Booth, 16,667 shares; Mr.
Maun, 9,333 shares; Mr. Garibaldi, 3,333 shares; Mr. Vanoli, 3,333
shares and Mr. Fornasari, 6,667 shares.
(4) Includes 51,000 shares held by R & C Partners, a partnership of which
Mr. Hamilton is a general partner and 7,500 shares held by Leeds
Security, Inc., a corporation of which Mr. Hamilton is principal owner.
PRINCIPAL SHAREHOLDERS
As of March 21, 1997, Biofin holds 8,507,707 shares of Common Stock
which consists of approximately 52% of the outstanding shares of Common
Stock, which excludes 730,720 shares that could be acquired within 60 days
upon exercise of outstanding warrants and 105,404 shares that could be
acquired within 60 days upon exercise of outstanding options, which Biofin
has agreed not to exercise pursuant to the European Agreement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has an agreement with Fiat Finance N.A., Inc., an affiliate
of the Company, pursuant to which the Company may borrow up to $4,000,000
at an interest rate of LIBOR plus 1.00%. At December 31, 1996, the Company
had no outstanding borrowings pursuant to the agreement.
Pursuant to two distributorship agreements between the Company and
Sorin, which provide for the distribution by the Company and Sorin of
certain of each other's diagnostic products in specified areas, the Company
had product sales to and product purchases from Sorin in the amounts of
$7,965,000 and $2,272,000, respectively, for the year ended December 31,
1995. Pursuant to certain other product distribution agreements between
the Company and Sorin, the Company accrued royalties to Sorin of $582,000
during the year ended December 31, 1995.
Reference is also made to the second through fifth paragraphs under
Part I, Item 1. Business, General Section, describing the Merger Agreement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations -
Years Ended December 31, 1996, December 31, 1995,
and December 31, 1994
Consolidated Balance Sheets - As of December
31, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, December 31, 1995;
and December 31, 1994
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1996; December 31, 1995;
and December 31, 1994
Consolidated Quarterly Results (unaudited)
for the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of
INCSTAR Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended
to date [incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 33-37805)].
4.2 Form of Warrant Certificate issued by the
Registrant in favor of Bioengineering International B.V.
(now BioFin Holding International B.V.) [incorporated by
reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
4.3 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated by
reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.1* INCSTAR Corporation Stock Option Plan
[incorporated by reference to Exhibit 10.1 of the
Registrant's Report on From 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.2* Economic Value Sharing Plan [incorporated
by reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and certain
of its employees [incorporated by reference to Exhibit
10.4 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income
Continuation Plan covering certain executive officers of
the Registrant [incorporated by reference to Exhibit 10.4
of the Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the
Registrant and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between
the Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.7* Employment Continuation Agreement between
the Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report on
Form 10-Q for the quarter ended September 30, 1994 (File
No. 1-9800)].
10.8* Separation Agreement between the
Registrant and Jacques A. Bagdasarian [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.9 Form of Scientific Advisory Board
agreement between the Registrant and Dr. Pierre M.
Galletti and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.9 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.10 Consulting Agreement between the
Registrant and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.10 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.11 Form of Distributorship Agreement between
the Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between
Sorin Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.13 Distribution Agreement, dated October 30,
1986, between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to Exhibit
10.17 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement
between the Registrant and Sorin Biomedica S.p.A.
[incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4 (File No.
33-30785)].
10.15 Distribution and Supply Agreement between
Baxter International Inc. and the Registrant dated
September 19, 1990 [incorporated by reference to Exhibit
10(b) of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between
Centocor, Inc. and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and
February 19, 1993 amending the product distribution
agreement filed as Exhibit 10.15 [incorporated by
reference to Exhibit 10.14.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.18 Revolving Credit, Security and Note
Agreement, with exhibits thereto, dated as of December 27,
1993 between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995
to Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.3 Third Amendment dated January 29, 1996 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.18.4+Fourth Amendment dated January 31, 1997 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16.
10.19 Agreement for Purchase, Sale and
Distribution of Assets between TheraTest Laboratories Inc.
and the Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.20+ Agreement and Plan of Merger, dated March
10, 1997, among American Standard Inc., American Standard
Medical Systems, Inc., ISTR Merger Corporation and INCSTAR
Corporation.
11+ Statement Re: Computation of Net Income (Loss) Per Common
Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
*Executive Compensation Plans and Arrangements
+Filed with this Annual Report on Form 10-K
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter
ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
INCSTAR CORPORATION
Dated: March 27, 1997 By: /s/ John J. Booth
John J. Booth
President
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities indicated on March 27, 1997.
/s/John J. Booth Acting Chairman of the Board,
John J. Booth President and Director
(Principal Executive Officer)
/s/Thomas P. Maun Vice President and Chief Financial
Thomas P. Maun Officer
(Principal Accounting and Financial
Officer)
/s/Ennio Denti Director
Ennio Denti
/s/Michael W. Steffes Director
Michael W. Steffes, M.D., Ph.D.
/s/George H. Dixon Director
George H. Dixon
/s/Unberto Rosa Director
Umberto Rosa
/s/Carlo Vanoli Director
Carlo Vanoli
/s/D. Ross Hamilton Director
D. Ross Hamilton
/s/Franco Fornasari Director
Franco Fornasari
/s/Ezio Garibaldi Director
Ezio Garibaldi
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1996 1995 1994
Net sales $44,304,000 $45,760,000 $42,503,000
Cost of goods sold 21,599,000 23,271,000 22,039,000
Inventory valuation adjustment -- -- 750,000
Gross profit 22,705,000 22,489,000 19,714,000
Operating expenses:
Selling, general and
administrative 13,206,000 12,592,000 12,853,000
Research and development 4,163,000 3,748,000 5,069,000
Unusual items -- -- 5,750,000
Total operating expenses 17,369,000 16,340,000 23,672,000
Operating income (loss) 5,336,000 6,149,000 (3,958,000)
Interest income (expense), net 96,000 (348,000) (365,000)
Investment and other income
(expense) (21,000) 33,000 11,000
INCOME (LOSS) BEFORE INCOME
TAXES 5,411,000 5,834,000 (4,312,000)
Provision for income taxes 1,299,000 1,571,000 193,000
NET INCOME (LOSS) $ 4,112,000 $ 4,263,000 $(4,505,000)
INCOME (LOSS) PER SHARE:
Net income (loss) per share $ 0.25 $ 0.26 $ (0.28)
Weighted average shares and
equivalents 16,661,367 16,491,501 16,322,301
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,554,000 $ 460,000
Restricted cash 250,000 251,000
Accounts receivable, net of allowance
for doubtful accounts of $190,000 and
$107,000, respectively 7,573,000 7,575,000
Other receivables 413,000 24,000
Inventories 14,302,000 13,445,000
Other current assets 629,000 294,000
TOTAL CURRENT ASSETS 24,721,000 22,049,000
PROPERTY AND EQUIPMENT:
Land and land improvements 1,573,000 1,573,000
Buildings and improvements 13,531,000 13,252,000
Equipment and furniture 19,993,000 18,170,000
Construction in progress 41,000 6,000
35,138,000 33,001,000
Less allowance for depreciation and
amortization (20,032,000) (18,387,000)
15,106,000 14,614,000
INTANGIBLE ASSETS, NET 791,000 1,105,000
OTHER ASSETS 1,340,000 993,000
$41,958,000 $38,761,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,000 $ 76,000
Accounts payable 1,819,000 1,914,000
Accrued compensation 898,000 1,972,000
Accrued expenses 2,448,000 2,928,000
Income taxes payable 364,000 212,000
TOTAL CURRENT LIABILITIES 5,532,000 7,102,000
LONG-TERM DEBT --- 3,000
OTHER NON-CURRENT LIABILITIES 3,285,000 3,272,000
SHAREHOLDERS' EQUITY:
Undesignated stock, authorized
5,000,000 shares - - - - - -
Common stock, par value $.01,
authorized 25,000,000 shares; issued
and outstanding 16,505,457 and
16,363,477 shares, respectively 165,000 164,000
Additional paid-in capital 18,531,000 17,940,000
Foreign currency translation
adjustment (98,000) (151,000)
Retained earnings 14,543,000 10,431,000
TOTAL SHAREHOLDERS' EQUITY 33,141,000 28,384,000
$41,958,000 $38,761,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1996 1995 1994
OPERATING ACTIVITIES:
Net income (loss) $ 4,112,000 $ 4,263,000 $(4,505,000)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Provision for deferred income taxes (555,000) -- --
Provision (payments) for unusual items and (590,000) (1,060,000) 5,371,000
inventory valuation adjustment
Provision for retirement plans 261,000 272,000 529,000
Depreciation and amortization 2,882,000 2,910,000 3,395,000
Changes in operating assets and liabilities:
Accounts receivable 2,000 (816,000) 39,000
Other receivables (389,000) 95,000 (29,000)
Inventories (857,000) (1,077,000) 194,000
Other current assets (77,000) 212,000 (21,000)
Accounts payable (95,000) 254,000 (229,000)
Accrued compensation (1,074,000) 554,000 (108,000)
Accrued expenses (105,000) 975,000 90,000
Income taxes payable 481,000 320,000 (56,000)
Other, net 53,000 (33,000) 35,000
Net cash provided by operating activities 4,049,000 6,869,000 4,705,000
INVESTING ACTIVITIES:
Additions to property and equipment, net (2,645,000) (1,557,000) (923,000)
Payments for product distribution rights -- -- (599,000)
Payments for intellectual property and (407,000) (86,000) --
purchased technology
Increase in other assets (92,000) (36,000) (65,000)
Net cash used in investing activities (3,144,000) (1,679,000) (1,587,000)
FINANCING ACTIVITIES:
Net repayments under lines of credit -- -- (422,000)
Net decrease in cash overdraft -- (602,000) (512,000)
(Increase) decrease in restricted cash 1,000 -- (11,000)
Payments on long-term debt (76,000) (4,342,000) (2,364,000)
Issuance of common stock to employees 264,000 61,000 119,000
Net cash provided by (used in) financing
activities 189,000 (4,883,000) (3,190,000)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,094,000 307,000 (72,000)
Cash and cash equivalents at beginning of year 460,000 153,000 225,000
Cash and cash equivalents at end of year $ 1,554,000 $ 460,000 $ 153,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Foreign
Additional Currency
Number of Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings
Balance at December 31, 1993 16,281,057 $ 163,000 $17,557,000 $ (153,000) $10,673,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options 41,464 _ 119,000 _ _
Translation adjustments _ _ _ 35,000 _
Net loss _ _ _ _ (4,505,000)
Balance at December 31, 1994 16,322,521 $ 163,000 $17,676,000 $ (118,000) $ 6,168,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options 40,956 1,000 61,000 _ _
Translation adjustments _ _ _ (33,000) _
Compensation expense on
executive stock options _ _ 203,000 _ _
Net income _ _ _ _ 4,263,000
Balance at December 31, 1995 16,363,477 $ 164,000 $17,940,000 $ (151,000) $10,431,000
Common stock issued under
employee stock purchase plan
and upon exercise of stock
options, net of tax effect 97,873 1,000 199,000 _ _
Issuance of shares to BFHI 44,107 _ 64,000 _ _
Translation adjustments _ _ _ 53,000 _
Compensation expense on
executive stock options _ _ 328,000 _ _
Net income _ _ _ _ 4,112,000
Balance at December 31, 1996 16,505,457 $ 165,000 $18,531,000 $ (98,000) $14,543,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
QUARTERLY RESULTS (UNAUDITED):
(in thousands, except per share data)
Net Gross
Sales Profit
Year Ended Year Ended
December 31, December 31,
Quarter 1996 1995 Quarter 1996 1995
First $ 11,455 $ 11,117 First $ 5,916 $ 5,130
Second 11,355 11,041 Second 5,679 5,319
Third 10,604 11,664 Third 5,479 5,873
Fourth 10,890 11,938 Fourth 5,631 6,167
Net Income Net Income Per Share
Year Ended Year Ended
December 31, December 31,
Quarter 1996 1995 Quarter 1996 1995
First $1,158 $ 799 First $ 0.07 $ 0.05
Second 1,119 827 Second 0.07 0.05
Third 986 1,092 Third 0.06 0.07
Fourth 849 1,545 Fourth 0.05 0.09
INCSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1_SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
INCSTAR Corporation (the "Company") is a medical immunodiagnostics
company focused on the development, production and worldwide marketing of
reagents, particularly for bone/mineral metabolism, endocrinology,
infectious and autoimmune diseases. The Company predominantly markets
these products in North America, Europe and Asia.
Since December 1989, the Company has been majority-owned by BioFin
Holding International B.V. ("BFHI"), a subsidiary of Sorin Biomedica
Diagnostics S.p.A. ("Sorin") which is an Italian affiliate of Fiat, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of INCSTAR Corporation and its wholly-owned subsidiaries,
Atlantic Antibodies, Inc., INCSTAR Ltd. and Immuno Nuclear Export Ltd. All
material inter-company accounts and transactions have been eliminated in
consolidation. Certain amounts for periods prior to the year ended
December 31, 1996 have been reclassified to conform with the current
classifications.
CASH EQUIVALENTS
Cash equivalents consist primarily of investments in money market
accounts with current maturities.
RESTRICTED CASH
Through December 31, 1995 the Company maintained a self insured
workers compensation insurance plan. Pursuant to the plan, the Company
holds a certificate of deposit with current maturity as a compensating
balance with a bank. These funds are restricted to assure future credit
availability for the potential self insured aggregate limits under the
plan. The funds are required to be on deposit with a bank under Minnesota
state regulations and are expected to be released in the fourth quarter of
1997. As of January 1, 1996, the Company is no longer self insured.
INVENTORIES
Inventories are valued at the lower of average cost, which
approximates the first-in, first-out (FIFO) method, or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
All financial instruments are carried at amounts that approximate
estimated fair value.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, is
reported at cost less accumulated depreciation and amortization.
Maintenance and repairs are charged to expense as incurred. The Company
computes depreciation and amortization using the straight-line method based
on estimated useful lives of three to seven years for equipment and
furniture and seven to thirty years for buildings and improvements.
INTANGIBLE ASSETS
Intangible assets includes patents, trademarks, intellectual property
and purchased technology, goodwill and product distribution rights. Patents
and trademarks are amortized using the straight-line method over a five-
year period. Goodwill, which represents the cost in excess of the fair
value of net assets acquired, is amortized using the straight-line method
over a ten-year period. Intellectual property and purchased technology is
amortized using the straight line method over the properties estimated
useful lives which range from seven to ten years. Product distribution
rights are amortized using the straight line method over the life of the
agreement or the estimated product life, whichever is shorter. The
carrying value of intangible assets is regularly reviewed by the Company,
and a loss is recognized when the net realizable value falls below the
unamortized cost.
RESEARCH and Development
Research and development costs are expensed when incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard ("SFAS") No. 109. Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under SFAS No. 109, the effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income (loss) by
the weighted average number of shares of common stock and common stock
equivalents, consisting of stock options and warrants, outstanding during
the period. For all periods presented, fully diluted and primary income or
loss per share are the same. For 1994, the effects of stock options and
warrants were excluded from the computation of weighted average shares
outstanding because their effects were antidilutive.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at rates
of exchange in effect at period end. Statement of operations amounts are
translated at the average rate of exchange for the period. Gains and losses
resulting from translation are accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and losses, which
are not material, are included in the consolidated statements of
operations.
STOCK BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25 (APB
No. 25), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations in accounting for its plans. Accordingly, no compensation
expense has been recognized for its stock-based compensation plans. The
Company has adopted the disclosure requirements under SFAS No. 123,
Accounting and Disclosure of Stock-Based Compensation.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2_ UNUSUAL ITEMS AND INVENTORY VALUATION ADJUSTMENTS
In December, 1994 the Company recorded a $750,000 charge related to the
write down of excess inventories and a $2,450,000 unusual charge related to
the termination of certain distribution and supply agreements ($540,000) as
well as severance and other costs related to senior management changes
($1,910,000). The amount remaining to be paid at December 31, 1996,
exclusive of amounts included in noncurrent liabilities (Note 9, Executive
Retirement Plans) is $10,000, which is included in accrued expenses in the
accompanying consolidated balance sheet.
In May, 1994 the Company discontinued the development of certain
purchased technology acquired in 1992 from Robert Dowben Associates, a
diagnostic research company, and incurred a one-time pre-tax charge of
$3,300,000. The majority of this charge related to the write off of
tangible and intangible assets ($1,560,000), costs incurred to terminate
contracts with outside vendors and consultants ($797,000), as well as
severance and related costs for terminated employees ($943,000). None of
these amounts remain to be paid on December 31, 1996.
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31,
1996 1995
Raw materials $ 2,458,000 $ 2,281,000
Work in progress 9,515,000 9,421,000
Finished goods 2,329,000 1,743,000
$14,302,000 $13,445,000
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31
1996 1995
Patents $ 717,000 $ 717,000
Trademarks 17,000 17,000
Goodwill 619,000 619,000
Intellectual property and purchased 1,141,000 734,000
technology
Product distribution rights 2,700,000 2,700,000
5,194,000 4,787,000
Less accumulated amortization (4,403,000) (3,682,000)
$ 791,000 $ 1,105,000
NOTE 5_LINE OF CREDIT, LEASE AND ROYALTY COMMITMENTS
Long-term debt consists of the following:
December 31,
1996 1995
Capitalized lease obligations, 8.0%, due
through 1996 --- 72,000
Other 3,000 7,000
3,000 79,000
Less current portion (3,000) (76,000)
Total long-term debt $ --- $ 3,000
The Company has a revolving line of credit from a bank which provides
for maximum borrowings of $1,000,000 through January 31, 1997, is secured
by accounts receivable, and has an interest rate based on the prime
interest rate or LIBOR plus 2.50%. In addition, the Company has a
$4,000,000 revolving line of credit with Fiat Finance N.A., Inc. which
expires on October 1, 1997.
At December 31, 1996 and 1995, property and equipment includes
capital lease costs of $288,000 and $842,000, respectively, and accumulated
amortization of $288,000 and $773,000, respectively. Lease amortization
included in depreciation was $40,000 for the year ended December 31, 1996
and $158,000 for the year ended December 31, 1995.
The Company leases certain manufacturing and other equipment in
connection with its normal operations. Rent expense under these operating
leases was $226,000, $295,000 and $238,000 for the years ended December 31,
1996, 1995 and 1994, respectively. Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one
year are as follows: 1997_$173,000; 1998_$116,000; 1999_$44,000;
2000_$5,000.
The Company is obligated to make royalty payments under several
distribution and licensing agreements. The majority of these agreements
call for payments based on a percentage of sales and contain no minimum
royalty clause. Royalty expense under these agreements was $1,563,000 in
1996, $1,715,000 in 1995 and $1,099,000 in 1994.
NOTE 6 - RELATED PARTY TRANSACTIONS
As part of the ongoing operations of the Company, various
transactions were entered into during 1996, 1995 and 1994 with its
affiliates, Sorin, an affiliate of the Fiat group, and Fiat Finance N.A.,
Inc. The following tables summarize transactions and related balances:
OPERATING Sorin Fiat Finance N.A., Inc.
STATEMENT DATA: Year Ended December 31,
1996 1995 1994 1996 1995 1994
Product sales $ 7,965,000 $ 7,625,000 $ 6,903,000 $ --- $ --- $ ---
Product purchases 2,272,000 1,807,000 1,248,000 --- --- ---
Royalty expense 432,000 582,000 176,000 --- --- ---
Interest expense --- --- --- 6,000 170,000 312,000
BALANCE SHEET DATA: Sorin
December 31,
1996 1995
Assets
Trade receivables $ 2,442,000 $ 1,965,000
Other receivables 59,000 6,000
Liabilities
Accounts payable $ 353,000 $ 675,000
Accrued royalty 798,000 480,000
NOTE 7_INCOME TAXES
The provision for income taxes is summarized as follows:
Year Ended December 31, Federal State Foreign Total
1996
Current $ 1,644,000 $ 212,000 $ (2,000) $1,854,000
Deferred (491,000) (64,000) - - - (555,000)
Provision for Income Taxes $ 1,153,000 $ 148,000 $ (2,000) $1,299,000
1995
Current $ 1,505,000 $ 89,000 $(23,000) $1,571,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $ 1,505,000 $ 89,000 $(23,000) $1,571,000
1994
Current $ 123,000 $ 34,000 $ 36,000 $ 193,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $ 123,000 $ 34,000 $ 36,000 $ 193,000
The provision for income taxes differs from the statutory federal tax
rate of 34% applied to income (loss) before income taxes as follows:
Year Ended December 31,
1996 1995 1994
Federal tax calculated at the
statutory rate $ 1,840,000 $ 1,984,000 $(1,466,000)
Change in the valuation allowance
for deferred taxes (914,000) (532,000) 1,872,000
Exempt income attributable to
foreign sales (266,000) (333,000) (288,000)
State taxes, net of federal
benefit 98,000 59,000 22,000
Compensation expense on executive
stock options 328,000 203,000 - - -
Other, net 213,000 190,000 53,000
Provision for income taxes $ 1,299,000 $ 1,571,000 $ 193,000
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are as follows:
December 31, December 31,
1996 1995
Deferred tax assets:
Accounts receivable, principally due to
allowance for doubtful accounts $ 56,000 $ 29,000
Accrued vacation pay 33,000 27,000
Inventories, reserves and additional
costs inventoried for tax purposes 637,000 728,000
Patents, due to different book and tax lives 24,000 27,000
Retirement plans 1,117,000 1,066,000
Tax credits 60,000 492,000
Accrual not currently deductible 265,000 ---
Severance and related costs not currently --- 189,000
deductible
Other 35,000 26,000
Gross deferred tax assets 2,227,000 2,584,000
Valuation allowance (1,639,000) (2,553,000)
Net deferred tax asset $ 588,000 $ 31,000
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation and $ 44,000 $ 41,000
capitalized interest
Other 4,000 5,000
Deferred tax liability $ 48,000 $ 46,000
Total net deferred tax asset (liability) $ 540,000 $ ( 15,000)
The valuation allowance for deferred tax assets as of December 31,
1996 and 1995 was $1,639,000 and $2,553,000, respectively. The net change
in the valuation allowance for the year ended December 31, 1996 was a
decrease of $914,000. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers its
projected future taxable income and tax planning strategies in making this
assessment.
NOTE 8_EMPLOYEE SAVINGS RETIREMENT AND VALUE SHARING PLAN
The Company adopted a Salary Savings Plan under Section 401(k) of the
Internal Revenue Code, effective November 1, 1985. Participants make pre-
tax contributions of up to 15% of their wages subject to an annual limit of
$9,500. The Company is required to match 50% of that portion of the
participant's pre-tax contribution which does not exceed 6% of the
participant's compensation. The Company contributed $270,000 for the year
ended December 31, 1996, $262,000 for the year ended December 31, 1995, and
$273,000 for the year ended December 31, 1994.
In 1994 the Company changed its profit sharing plan to a non-
contributory value sharing plan. Cash payments to all eligible employees
are based on the improvement in economic value as well as a targeted
performance factor for economic value added. The Company incurred $0
expense for the year ended December 31, 1996, $984,000 expense for the year
ended December 31, 1995 and $0 for the year ended December 31, 1994.
NOTE 9_EXECUTIVE RETIREMENT PLANS
The Company has individual retirement agreements with certain
current and prior executive officers which are intended to provide
continued compensation to such individuals or their respective
beneficiaries upon the later of their retirement from the Company after
attainment of sixty years of age (fifty-five years of age for one plan
participant) or attainment of sixty years of age (fifty-five years of age
for one plan participant) following termination of employment, or upon
death during the term of employment (the "triggering events"). Subject to
vesting requirements, the retirement agreements provide for the payment to
these individuals or their respective beneficiaries, of annual benefits for
a period of fifteen years following the occurrence of a triggering event.
The amount of annual benefits is adjusted annually to reflect changes in
the cost of living. The annual benefit amounts vest at the rate of 10% per
year.
The Company maintains an executive income continuation plan for the
benefit of executive officers not covered under the agreements discussed
above. The plan provides payments for fifteen years to such officers or
their respective beneficiaries upon the later of an officer's retirement
from the Company after attainment of sixty years of age or attainment of
sixty years of age following termination of employment, or upon death
during the term of employment. The annual retirement payment is the
product of an annual benefit rate set by the Board of Directors ($3,333 for
1996) multiplied by the number of years of employment, up to a maximum of
fifteen years, and as adjusted to reflect the cost of living changes during
the payment period. An officer's rights under the plan are fully vested
after ten years of employment or upon change in the controlling interest of
the Company.
In connection with both of the above plans, included in other
noncurrent liabilities at December 31, 1996 and 1995 is $3,285,000 and
$3,136,000, respectively, representing the present value of the future
liability. Also, included in accrued expenses at December 31, 1996 and
December 31, 1995 is $145,000 and $31,000, respectively, representing the
current portion of this liability. The Company intends to fund this
obligation through life insurance contracts on the individual executives.
Included in Other assets at December 31, 1996 and 1995 is $1,020,000 and
$934,000, respectively, of cash surrender value in connection with these
policies.
NOTE 10_EMPLOYEE STOCK PURCHASE AND OPTION PLAN
Under the Company's stock option plans, officers, directors,
consultants and key employees may be granted options to purchase the
Company's common stock at no less than 100% of the market price on the date
the option is granted. Options generally become exercisable over two to
four years and have terms of five or ten years.
Option activity in the Company's various option plans is summarized as
follows:
Options Outstanding
Weighted-
Shares Average
reserved Option
for grant Shares price
Balance December 31, 1993 337,168 842,175 $ 3.88
Exercised --- (1,500) 1.79
Canceled 136,000 (136,000) 4.05
Granted (119,000) 119,000 2.60
Balance December 31, 1994 354,168 823,675 $ 3.68
Exercised outside the plan (1,000) 1.44
Canceled 206,000 (206,000) 3.40
Canceled outside the plan (14,035) 1.85
Granted (103,000) 103,000 2.95
Balance December 31, 1995 457,168 705,640 $ 3.66
Exercised --- (48,000) 2.50
Canceled 30,000 (30,000) 3.30
Granted (42,000) 42,000 4.39
Balance December 31, 1996 445,168 669,640 $ 3.81
As of December 31, 1996 options for 538,140 shares were exercisable
at prices ranging from $1.44 to $8.25 per share.
At December 31, 1996, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was $1.44-$8.25
and 6.12 years, respectively.
The Company also had an Employee Stock Purchase Plan. This plan
enabled eligible employees to purchase the Company's Common Stock at the
lower of 85% of the fair market value on the first or the last day of each
plan year. The number of shares reserved for sale under this plan was
300,000, of which all shares have been sold. The Company does not intend
to issue more shares under this plan.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation." The Company has adopted the disclosure-only
provisions. Had compensation cost for the Company's stock option grants
and employee stock purchase plan been determined consistent with SFAS 123,
the Company's net income and earnings per share would have been changed to
the pro forma amounts indicated below:
1996 1995
Net income (in 000s) As reported $ 4,112 $ 4,263
Pro forma 4,032 4,209
Earnings per share As reported $ 0.25 $ 0.26
Pro forma 0.24 0.26
The effects of applying SFAS No. 123 in this pro forma disclosure
are not indicative of future amounts as compensation expense applicable to
awards made prior to 1995 are not considered.
The fair value of stock options used to compute pro forma net
income and earnings per share disclosures is the estimated present value at
grant date using a Black-Scholes option-pricing model with the following
weighted average assumptions for 1996 and 1995: dividend yield of 0%;
expected weighted average volatility of 63.7%; a weighted average risk free
interest rate of 5.9% and an expected holding period of 9.3 years. The
weighted average values of the options granted are $3.40 and $1.98 for 1996
and 1995, respectively.
NOTE 11_SUPPLEMENTARY CASH FLOW INFORMATION
Year Ended December 31,
1996 1995 1994
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 17,000 $ 192,000 $ 369,000
Income taxes, net 1,295,000 1,151,000 242,000
NOTE 12_GEOGRAPHIC SEGMENT DATA
Comparative geographical data for the Company's operations is
summarized as follows:
1996 1995 1994
SALES
United States $ 22,017,000 $ 23,832,000 $ 21,282,000
Europe 13,824,000 13,518,000 12,478,000
Asia 5,022,000 4,948,000 5,290,000
Other Foreign 3,441,000 3,462,000 3,453,000
Total $ 44,304,000 $ 45,760,000 $ 42,503,000
OPERATING INCOME
United States $ 2,305,000 $ 3,052,000 $ 877,000
Europe 1,361,000 1,223,000 639,000
Asia 903,000 1,076,000 290,000
Other Foreign 767,000 798,000 736,000
5,336,000 6 ,149,000 2,542,000
Unusual items --- --- (5,750,000)
Inventory valuation adjustment --- --- (750,000)
Other income(expenses), net 75,000 (315,000) (354,000)
Income(loss) before income taxes$ 5,411,000 $ 5,834,000 $ (4,312,000)
Total assets
United States $ 41,021,000 $ 38,059,000 $ 37,272,000
Europe 937,000 702,000 882,000
Total $ 41,958,000 $ 38,761,000 $ 38,154,000
NOTE 13_WARRANTS AND STOCK PURCHASE RIGHTS
The Company has issued to BFHI a warrant to purchase up to 730,720
shares of Common Stock at the prevailing market price and has granted BFHI
the right to purchase additional Common Stock at a price identical to any
new issuances. These agreements enable BFHI to maintain a minimum 51%
ownership in the Company.
NOTE 14_SUBSEQUENT EVENT
On January 24, 1997, the Company announced that it has signed a
Memorandum of Understanding ("the Memorandum") with American Standard
Inc.("ASI"), a subsidiary of American Standard Companies Inc., which
contemplates acquisition of the Company by a subsidiary of ASI. Pursuant
to the Memorandum, each INCSTAR common share would be converted into the
right to receive $6.32 in cash, and INCSTAR would become a wholly-owned
subsidiary of ASI. Under the merger proposal, INCSTAR would become part of
a newly formed Medical Systems Group within ASI.
The Memorandum of Understanding has been approved by a Special
Committee of independent INCSTAR directors and the boards of directors of
INCSTAR and ASI.
The proposed merger is subject to negotiation and execution of
mutually satisfactory definitive documentation, receipt by the Special
Committee and the board of directors of INCSTAR of a fairness opinion,
approval of the definitive merger agreement by the Special Committee and
the boards of directors of INCSTAR and ASI, approval of the merger by the
holders of a majority of the issued and outstanding shares of INCSTAR
common stock, and receipt of all required regulatory approvals and material
third party consents.
The Merger Agreement further provides for the payment by the
Company to ASI of a $2.5 million termination fee if the Company terminates
the merger as defined in the Agreement.
The Company also announced that BFHI, the majority shareholder of
INCSTAR and a wholly owned subsidiary of Sorin, has informed INCSTAR that
Sorin has entered into a Memorandum of Understanding with ASI regarding the
proposed sale of Sorin's European Diagnostics Division to ASI. The
Memorandum of Understanding between ASI and INCSTAR contemplates that the
simultaneous closing of the Sorin sale of its European Diagnostics Division
will be a condition to the proposed merger.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of INCSTAR Corporation:
We have audited the consolidated financial statements of INCSTAR
Corporation and subsidiaries as listed in the accompanying index in Item
14(a)(1) on page 24. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule
as listed in the accompanying index in Item 14(a)(2) on page 24. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
INCSTAR Corporation and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material aspects, the information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 24, 1997
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INCSTAR CORPORATION AND SUBSIDIARIES
Column A Column B Column C Column D Column E
Balance at
the Charged to
Beginning Charged Other Balance at
of to Costs Accounts Deductions_ the
Period & Expenses Describe (Describe) End of Period
Allowance for doubtful
accounts receivable:
Year ended December 31, 1996 $107,000 $118,000 $ - - $ 35,000(A) $190,000
Year ended December 31, 1995 113,000 16,000 - - 22,000(A) 107,000
Year ended December 31, 1994 195,000 23,000 - - 105,000(A) 113,000
<FN>
(A) Uncollectible accounts written off, net of recoveries
</FN>
EXHIBIT INDEX
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations -
Years Ended December 31, 1996, December 31, 1995, and
December 31, 1994
Consolidated Balance Sheets - As of December
31, 1996 and 1995
Consolidated Statements of Cash Flows -
Years Ended December 31, 1996, December 31, 1995; and
December 31, 1994
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1996; December 31, 1995;
and December 31, 1994
Consolidated Quarterly Results (unaudited)
for the Years Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of
INCSTAR Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's Registration
Statement on Form S-8 (File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended
to date [incorporated by reference to Exhibit 4.2 to the
Registrant's Registration Statement on Form S-8 (File No.
33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by reference to
Exhibit 4.1 to the Registrant's Registration Statement on
Form S-3 (File No. 33-37805)].
4.2 Form of Warrant Certificate issued by the
Registrant in favor of Bioengineering International B.V.
(now BioFin Holding International B.V.) [incorporated by
reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
4.3 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated by
reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.1* INCSTAR Corporation Stock Option Plan
[incorporated by reference to Exhibit 10.1 of the
Registrant's Report on From 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.2* Economic Value Sharing Plan [incorporated
by reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and certain
of its employees [incorporated by reference to Exhibit
10.4 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income
Continuation Plan covering certain executive officers of
the Registrant [incorporated by reference to Exhibit 10.4
of the Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the
Registrant and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between
the Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.7* Employment Continuation Agreement between
the Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report on
Form 10-Q for the quarter ended September 30, 1994 (File
No. 1-9800)].
10.8* Separation Agreement between the
Registrant and Jacques A. Bagdasarian [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.9 Form of Scientific Advisory Board
agreement between the Registrant and Dr. Pierre M.
Galletti and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.9 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.10 Consulting Agreement between the
Registrant and Dr. Michael Steffes [incorporated by
reference to Exhibit 10.10 of the Registrant's Report on
Form 10-K for the year ended December 31, 1995 (File No. 1-
9800)].
10.11 Form of Distributorship Agreement between
the Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration Statement
on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between
Sorin Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4 (File No. 33-30785)].
10.13 Distribution Agreement, dated October 30,
1986, between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to Exhibit
10.17 of the Registrant's Registration Statement on Form S-
4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement
between the Registrant and Sorin Biomedica S.p.A.
[incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4 (File No.
33-30785)].
10.15 Distribution and Supply Agreement between
Baxter International Inc. and the Registrant dated
September 19, 1990 [incorporated by reference to Exhibit
10(b) of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between
Centocor, Inc. and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and
February 19, 1993 amending the product distribution
agreement filed as Exhibit 10.15 [incorporated by
reference to Exhibit 10.14.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1993 (File No. 1-
9800)].
10.18 Revolving Credit, Security and Note
Agreement, with exhibits thereto, dated as of December 27,
1993 between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to Exhibit
10.1 of the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995
to Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1994 (File No. 1-9800)].
10.18.3 Third Amendment dated January 29, 1996 to
Revolving Credit, Security and Note Agreement filed as
Exhibit 10.16 [incorporated by reference to Exhibit 10.1
of the Registrant's Report on Form 10-K for the year ended
December 31, 1995 (File No. 1-9800)].
10.18.4+Fourth Amendment dated January 31,
1997 to Revolving Credit, Security and Note Agreement
filed as Exhibit 10.16.
10.19 Agreement for Purchase, Sale and
Distribution of Assets between TheraTest Laboratories Inc.
and the Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report on
Form 10-K for the year ended December 31, 1994 (File No. 1-
9800)].
10.20+ Agreement and Plan of Merger, dated March
10, 1997, among American Standard Inc., American Standard
Medical Systems, Inc., ISTR Merger Corporation and INCSTAR
Corporation.
11+ Statement Re: Computation of Net Income
(Loss) Per Common Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
*Executive Compensation Plans and Arrangements
+ Filed with this Annual Report on Form 10-K