10-K/A 1 part2.txt AMENDED 10/K [DUE TO A TECHNICAL PROBLEM, PART I OF THE FORM 10-K FILED ON APRIL 2, 2001 DID NOT APPEAR IN THE SEC'S EDGAR ARCHIVE; THIS FILING IS MADE TO CORRECT THE PROBLEM. THIS FILING ALSO REPLACES EXHIBIT 10.34 OF THE FORM 10-K.] SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________________________________________________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ______________________________________________________ FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 COMMISSION FILE NUMBER 0-8640 SYNCOR INTERNATIONAL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 85-0229124 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 6464 CANOGA AVENUE, WOODLAND 91367-2407 HILLS, CALIFORNIA (Address of principal executive (Zip Code) offices) (818) 737-4000 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK $.05 PAR VALUE (Title of Class) 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 Regulations S-K (section 229.405 of this chapter) 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 the voting stock held by non- affiliates of the Registrant, computed by reference to the average closing bid and asked prices of such stock on March 26, 2001, was $691,511,557. For purposes of the foregoing calculation, each executive officer and director of Registrant was deemed an "affiliate" of Registrant. The number of shares outstanding (excluding treasury shares) of the Registrant's $0.05 par value common stock as of March 26, 2001 was 24,433,588 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's definitive Proxy Statement for Registrant's Annual Meeting of Stockholders to be held on June 19, 2001, are incorporated by reference into Part III of this report. SYNCOR INTERNATIONAL CORPORATION TABLE OF CONTENTS FORM 10-K ANNUAL REPORT DECEMBER 31, 2000 PART I Item 1. BUSINESS 1 Item 2 PROPERTIES 12 Item 3. LEGAL PROCEEDINGS 12 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS N/A PART II Item 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 13 Item 6 SELECTED FINANCIAL DATA 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 15 Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT 21 MARKET RISK Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE N/A PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21 Item 11. EXECUTIVE COMPENSATION 21 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 22 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 22 PART I ITEM 1. BUSINESS. We are a leading provider of high-technology health care services, primarily for the radiopharmacy and medical imaging segments of the health care industry. We are the nation's leading provider of radiopharmacy services. Through our integrated network of 127 domestic radiopharmacies and 19 international radiopharmacies, we compound, dispense and distribute patient-specific unit dose radiopharmaceuticals to customers located in 48 states in the United States and in 14 foreign countries. We also distribute bulk radiopharmaceuticals. Historically, most of the radiopharmaceuticals we dispense and distribute have been for use in diagnosing cardiovascular disease and other heart problems. We have preferred distribution rights in the United States and certain foreign countries to Cardiolite(R), the world's best- selling cardiac imaging agent. Recently, we have undertaken 2 new initiatives for the production and distribution of radiopharmaceuticals used in other diagnostic and therapeutic procedures, including F-18 Fluorodeoxyglucose (FDG), the most common radiopharmaceutical used in positron emission tomography (PET) procedures, and brachytherapy seeds. PET is a highly sensitive radiopharmaceutical imaging technology useful in diagnosing cancer and follow-up monitoring. Brachytherapy is increasingly used for treating prostate cancer, the most frequently diagnosed cancer in United States males. We also are one of the nation's leading providers of outpatient medical imaging services performed outside of hospitals. We currently own and operate 58 free-standing outpatient medical imaging centers in metropolitan areas located in 10 states in the United States and 11 imaging centers in 4 foreign countries. Our centers offer magnetic resonance imaging (MRI) and other medical imaging modalities, including computer axial tomography (CT), mammography, ultrasound, X-ray and fluoroscopy. In 2000, we began providing PET imaging services in the first of our PET centers as part of our integrated PET strategy. RADIOPHARMACY SERVICES MARKET Radiopharmacies are specialized pharmacies that compound, dispense and distribute prescriptions for radiopharmaceuticals used primarily in diagnostic medical imaging procedures. Radiopharmaceuticals combine radioactive isotopes with targeting compounds that concentrate in a particular human organ or in particular types of human tissue and can be detected with the use of special scanning devices. Radiopharmaceutical imaging procedures help physicians detect irregularities in organ tissue in order to identify heart disease, cancer and other diseases without the need for invasive surgery. The predominant current use of radiopharmaceuticals is for cardiac perfusion imaging and other procedures for imaging the heart. These procedures have gained widespread acceptance in recent years as an important tool in diagnosing certain heart conditions. They also are being increasingly used in the fields of oncology and neurology. Through the late 1970s, hospitals offering radiopharmaceutical imaging procedures typically operated their own on-site radiopharmacies, which procured radioisotope products in bulk and compounded and dispensed patient-specific unit doses as needed for their own purposes. The radioisotopes used in radiopharmaceuticals decay, and because they have a short shelf life, this was believed to be the only viable means of having an injection available when the prescribing physician requested a procedure. In 1974, we pioneered the concept of outsourcing radiopharmacy services to lower hospital costs and enhance physician service and support compared with operating an on- site radiopharmacy. Our formula for outsourcing of unit doses has since been widely adopted, and in 2000 an estimated 85% to 90% of radiopharmaceutical patient doses were compounded at offsite pharmacies. As the world's population expands and life expectancies increase, the demand for radiopharmacy and medical imaging services is likely to continue to grow, particularly in the areas of cardiology and oncology where early diagnosis is critical to effectively treat patients. Approximately 12 million radiopharmaceutical imaging procedures were performed in the United States in 2000, including more than 120,000 PET procedures. In 2000, the United States market for all radiopharmacy services was about $925 million, of which about 65% related to heart imaging procedures and 20% related to cancer imaging procedures. We expect the United States market for all radiopharmacy services to grow at a rate of 8% to 10% annually. PET is a clinically proven, safe method for imaging lung cancer, esophageal cancer, colorectal cancer, lymphoma, melanoma, head and neck cancers, myocardial viability, and refractory seizures, all of which have been approved by the Health Care Financing Administration (HCFA) for Medicare reimbursement. PET can be used to visualize rapidly growing tumors, to determine tumor response to radiation or chemotherapy, to diagnose recurrence of tumor growth after surgical removal and to decide the best location for biopsying a suspected tumor. PET also is a useful tool in determining whether exploratory surgery, radiation therapy, organ transplantation or other procedures may be necessary. HCFA's reimbursement policy has helped to stimulate wider acceptance and increasing availability of PET imaging procedures. The United States market for PET imaging procedures in 2000 was estimated at $80 million, and is expected to grow to over $100 million in 2001. Prostate cancer is the most frequently diagnosed cancer in American males. The American Cancer Society estimates there will be 198,100 new cases diagnosed in the United States during 2001. For those with localized cancer of the prostate, about 60% of those diagnosed, the most common treatment is surgical removal of the prostate and some of the surrounding tissue in a procedure called radical prostatectomy, which is expensive and poses serious potential complications. Brachytherapy, which is less invasive, involves the permanent placement into the prostate of tiny pellets or "seeds" containing radioactive material. Brachytherapy seeds deliver a therapeutic dose of radiation to the cancerous tumor, while minimizing radiation dosage to surrounding tissue. We estimate that almost 38,000 brachytherapy procedures were performed in the United States in 2000, accounting for 30% of all therapies for treatable prostate cancer. The United States market for brachytherapy seeds now exceeds $154 million. We believe that the number of brachytherapy procedures for treating prostate cancer will continue to grow as patients and their physicians become familiar with this therapy. Brachytherapy also is used on a limited basis in treating restenosis and solid-tumor cancers other than prostate cancer. MEDICAL IMAGING SERVICES MARKET Total annual spending for medical imaging services in the United States for 2000 was estimated at $55 billion to $60 billion, with services provided in free-standing outpatient centers representing about $15 billion to $17 billion of this amount. There are more than 3,000 free-standing outpatient medical imaging centers nationwide. The medical imaging services industry is being affected by the increased influence of managed care organizations and reimbursement pressures. We believe that reforms in the health care industry emphasizing cost containment and accountability will continue to shift the delivery of outpatient medical imaging services from over 3,000 independent owners and operators of outpatient centers to companies operating networks of regional centers offering multiple medical imaging modalities. We believe there is an opportunity for us to quickly establish a leading position in this highly fragmented market. OUR CORE COMPETENCIES We apply our core competencies in each of our businesses to make complex medical technologies safer and more accessible, convenient and cost-effective for physicians and their patients. Our core competencies include: * Providing highly responsive and reliable services tailored to our customers' specific needs. We process customer orders and deliver patient-specific unit dose prescriptions on a 24-hours-a-day-7-days-a-week basis. Depending on the customer's requirements and location, we can compound, dispense and deliver prescriptions within 1 to 6 hours. This enables our customers to obtain the correct doses at the right time in order to effectively schedule their imaging procedures. * Managing complex, highly decentralized service networks. We operate 127 radiopharmacies in 41 states and 94 distinct markets and 58 medical imaging centers in 10 states. We also operate 19 radiopharmacies in 14 foreign countries and 11 imaging centers in 4 countries. Our large multi-hospital system customers benefit from our ability to provide the same level of service to all of their members regardless of location. All of our domestic radiopharmacies operate under uniform business processes and information systems that allow us to provide consistent and reliable results and rapidly introduce new products and services. * Applying just-in-time scheduling and logistics management skills. Our products and services are highly time-sensitive and must be provided locally. Our scheduling and logistics management skills enable us to reduce waste and avoid unnecessary costs. * Delivering proprietary services and products that add value for our customers. We provide our customers with services and products that improve the safety and efficiency of their businesses, including proprietary radiopharmaceutical delivery systems that set new standards for handling and drug delivery safety. These services and products include our patented tungsten containers, SECURE(R) Safety Insert Systems and our proprietary SYNtrac(TM) and UDM(TM) information systems. * Developing and implementing protocols to achieve a high level of compliance in heavily regulated environments. The markets we serve are highly regulated. We have a long- standing positive working relationship with the United States Nuclear Regulatory Commission, state pharmacy boards, the United States Department of Transportation, the Occupational Safety and Health Administration and numerous local and state regulatory agencies. We regularly perform compliance and regulatory audits at each of our radiopharmacies, and have developed and implemented protocols to achieve a high level of regulatory compliance. We believe that this experience will allow us to successfully operate in other highly regulated market environments. RADIOPHARMACY SERVICES AND PRODUCTS We carry on our domestic radiopharmacy operations through an integrated network of 127 radiopharmacies nationwide. The locations of our domestic radiopharmacies are as follows:
Number of Number of State Radiopharmacies State Radiopharmacies Alabama 3 Missouri 3 Arizona 2 Nebraska 2 Arkansas 2 Nevada 2 California 14 New Jersey 1 Colorado 3 New Mexico 1 Connecticut 2 New York 7 Delaware 1 North Carolina 3 Florida 9 Ohio 7 Georgia 4 Oklahoma 2 Idaho 1 Oregon 1 Illinois 2 Pennsylvania 7 Indiana 2 Rhode Island 1 Iowa 1 South Carolina 1 Kansas 1 Tennessee 6 Kentucky 2 Texas 12 Louisiana 2 Utah 1 Maryland 2 Virginia 2 Massachusetts 1 Washington 2 Michigan 3 West Virginia 2 Minnesota 2 Wisconsin 3 Mississippi 2
We also own or operate 19 radiopharmacies in 14 foreign countries as shown in the following table:
Country Number of Radiopharmacies Australia 3 China 2 Colombia 1 Hong Kong 1 Israel 1 Mexico 1 New Zealand 1 Philippines 1 Puerto Rico 1 South Africa 1 South Korea 1 Spain 1 Taiwan 3 Thailand 1
Radiopharmacy Operations Our radiopharmacies operate or are on call 24 hours a day, 7 days a week. At each of our radiopharmacies, customers can order patient-specific unit doses by telephone or via a direct computer link-up with our radiopharmacy. As orders are received, we enter them into a computer to be scheduled. Orders are compounded, dispensed and delivered to customers, usually the next day, within 1 to 6 hours before the scheduled radiopharmaceutical procedure. We also receive and process same-day orders for unscheduled emergency procedures. Our radiopharmacists compound radiopharmaceuticals for unit doses by mixing a radioactive isotope with the appropriate imaging agents. A unit dose is drawn from the vial into a syringe and packed in a specialized lead-lined or tungsten container. The radioisotope in the syringe is constantly decaying. Depending on the half-life of the particular radioisotope and when the procedure is scheduled, our radiopharmacists calculate the precise amount of radioisotope which will deliver the correct dosage at the scheduled time of use. We deliver the prescribed radiopharmaceutical unit dose directly to customers with our local fleets of delivery vehicles. After the customer has used the radiopharmaceutical, the syringe is typically placed back into the same container to be picked up and returned to our radiopharmacy by our delivery personnel. We take responsibility for disposing of the used syringe product and maintaining records showing that the product was compounded, shipped and disposed of in accordance with myriad regulations covering the use and disposal of radioactive materials. Our principal products in the United States are cardiac imaging agents, including Cardiolite(R), the leading cardiac imaging agent, which we estimate has 62% of the United States market for these products. We act as the primary distributor of Cardiolite for the Radiopharmaceutical Division of DuPont Pharmaceutical Company (DuPont) and of DuPont's other radiopharmaceutical products under the terms of a long-term supply and distribution agreement. Our integrated approach to utilization of PET will focus initially on our manufacture of FDG and distribution of PET radiopharmaceuticals. In August 2000, we acquired two FDG production sites in Florida, and we plan to open 8 to 10 additional FDG production sites in 2001. We also operate an FDG production facility in Israel and another one in Taiwan. As discussed below under "Medical Imaging Services," we expect to add PET imaging services at certain of our existing medical imaging centers or at new centers dedicated to PET imaging. In 1999, we received Food and Drug Administration (FDA) approval to market Iodine-125 brachytherapy seeds in the United States, and in 2000 we began marketing the brachytherapy seeds manufactured by us in selected foreign markets and in the United States. Radioactive Iodine-125 is the most common radioactive element used in prostate cancer brachytherapy procedures. In 2000, we received FDA approval to market Palladium-103 seeds in the United States. Palladium-103 is used in approximately one-third of the prostate cancer brachytherapy procedures. Marketing and Sales of Radiopharmaceuticals We market and sell our radiopharmacy services in the United States directly through a sales force of 72 sales and marketing personnel. Our PET and brachytherapy products also will be marketed and sold directly in the United States and will be distributed through our nationwide radiopharmacy network. We also rely indirectly on sales and marketing by DuPont and other manufacturers of the radiopharmaceuticals we distribute. We will market and distribute our line of Iodine-125 brachytherapy seeds directly in the United States under the trade name PharmaSeed(TM). In July 2000, we entered into an agreement with CIS bio international, a subsidiary of Schering AG, under which it will market and distribute our Iodine-125 brachytherapy seeds in Europe, North Africa and parts of Asia. Competition Our radiopharmacies compete for unit dose sales with a number of distributors, including radiopharmaceutical manufacturers Mallinckrodt Inc. and Nycomed Amersham PLC, which have established their own radiopharmacies to supply unit doses to customers. We also compete for unit dose sales with Central Pharmacy Services, Inc. (a subsidiary of Cardinal Health, Inc.), a regional owner and operator of radiopharmacies, as well as numerous independent radiopharmacies located in cities throughout the United States. In certain markets, we compete with universities which own and operate their own radiopharmacies. In the bulk product market segment, we compete with radiopharmaceutical manufacturers, including Mallinckrodt Inc. and Nycomed Amersham, PLC that sell their products directly to hospitals and clinics. Through distribution agreements with manufacturers, we act as their agent to compete for bulk business. In the United States, our primary supplier of bulk products is DuPont. Our PET radiopharmaceuticals will compete with PET radioisotopes produced and distributed by PETNet Radiopharmaceutical Services, Inc., Eastern Isotopes, Inc., local manufacturers and certain local universities. Our PharmaSeed brachytherapy products compete with brachytherapy products from other suppliers, primarily from Nycomed Amersham PLC, which manufactures and sells Iodine- 125 seeds, Theragenics Corporation, which manufacturers and sells Palladium-103 seeds, Mentor Corporation, which distributes Iodine -125 and Palladium-103 seeds manufactured by North American Scientific,and C.R. Bard, Inc., which distributes Iodine-125 seeds. Several other companies have recently introduced or announced their intention to introduce brachytherapy products, increasing the likelihood of additional competition. MEDICAL IMAGING SERVICES We own or manage 58 free-standing outpatient medical imaging centers in the United States and 11 centers in 4 foreign countries. Our medical imaging centers offer MRI and other medical imaging modalities, including CT, nuclear imaging, mammography, ultrasound, X-ray and fluoroscopy. We also expect to add PET imaging services at our medical imaging centers, and to open PET imaging centers in selected metropolitan areas, the first of which, Desert PET in Rancho Mirage, California, opened in October 2000. Desert PET is affiliated with our Desert CT/MRI centers in Rancho Mirage and Palm Springs and focuses on cancer studies as an additional service to Desert CT/MRI patients. All medical services provided by our imaging centers are performed by licensed radiologists or other qualified professionals affiliated with or employed by us. The radiologists read and interpret diagnostic images and supervise technicians performing medical imaging procedures, while we perform centralized marketing, legal, billing and other administrative and technical functions. We are focusing on developing a leading share in strategic, regional markets for medical imaging services by developing a strong physician referral network, nurturing broad managed care contracts and quality relationships with prominent radiologists, and working closely with local hospitals in meeting their outpatient imaging service needs. Managed care entities and other payers increasingly prefer to work with fewer providers of healthcare services, including medical diagnostic imaging. Regional differentiation combined with a complete offering of medical imaging services may allow us to be the medical diagnostic imaging partner of choice among regional payers seeking to minimize the number of providers under contract. The following tables show the states and foreign countries served by our medical imaging centers:
Domestic Medical Imaging International Medical Imaging Centers Centers State Number of Country Number of Centers Centers Arizona 7 New Zealand 1 California 28 Puerto Rico 2 Florida 12 Taiwan 7 Illinois 1 Trinidad & Tobago 1 Kansas 1 Louisiana 1 North Carolina 1 Pennsylvania 2 Texas 2 Virginia 3
We bill and collect both for technical services provided at our centers and for professional services of physicians affiliated with our centers. We believe payers prefer our ability to provide a single bill for all services performed at our medical imaging centers instead of being billed separately for technical, professional and other services. In the third quarter of 2001, we expect to implement an enterprise-wide integrated medical imaging services information management and billing system for our centers in the United States. This new system will allow us to standardize medical imaging services protocols and implement best practices in billing and collection for all our domestic medical imaging centers. These functions are performed locally at our international medical imaging centers. Marketing and Sales We market and sell our medical imaging services through local marketing personnel and with the help of local radiologists affiliated with our centers. We focus our medical imaging services marketing and sales activities on contracting with health care providers and payers and attracting referrals from physicians representing various medical specialties. Competition The market for diagnostic imaging services is characterized by intense competition and is highly fragmented, with over 3,000 free-standing outpatient medical imaging centers nationwide and no dominant national imaging services provider. Competition varies by market and is generally higher in larger metropolitan areas where there is likely to be more facilities and more managed care organizations exerting pricing pressure. We compete in some local markets with other independent regional owners and operators of free- standing outpatient medical imaging centers, including HEALTHSOUTH Corporation, Medical Resources, Inc. and Radiologix, Inc. We also compete with local hospitals and private clinics and radiology practices that own diagnostic imaging equipment. We believe that competition often focuses on physician referrals at the local level. Successful competition for referrals depends on many factors, including participation in health care plans, quality and timeliness of test results, type and quality of equipment, facility location, convenience of scheduling and availability of patient appointment times. INTERNATIONAL OPERATIONS Through our wholly-owned subsidiary, Syncor Overseas Ltd., we own or manage 19 radiopharmacies, 11 medical imaging centers, and 2 catheterization laboratories in 15 foreign countries. Additional radiopharmacies and medical imaging centers in foreign countries are being considered for development. Our international radiopharmacies and medical imaging centers operate similarly to those in the United States. These operations are managed locally by country managers who are responsible for the marketing, sales, billing and collection and other functions. We have recently begun operations in Argentina and Brazil. In 2000, we acquired Bionuclear, S.A., a distributor, reseller and refurbisher of medical imaging equipment in Argentina. In February 2001, we entered into a partnership with a hospital in Sao Paulo, Brazil to operate a gamma knife facility. A gamma knife is a high technology medical device capable of delivering an extremely accurate, single dose of radiation in treating lesions, tumors and other abnormalities deep within the brain. RADIOPHARMACEUTICAL PRODUCTION OPERATIONS We currently produce Iodine-123 capsules and Iodine-125 brachytherapy seeds dispensed and distributed through our network of radiopharmacies. Our subsidiary in Golden, Colorado manufactures Iodine-123 capsules, and our subsidiary in Shanghai, People's Republic of China, manufactures Iodine-125 brachytherapy seeds. In August 2000, we began the production of FDG isotopes from two cyclotron facilities in Florida, and we intend to open 8 to 10 additional cyclotron facilities in strategic locations across the United States in 2001. PRINCIPAL CUSTOMERS Our principal United States radiopharmacy customers include: * Corporate account customers that negotiate contracts on behalf of regional or national networks of hospitals and clinics, including hospital alliances, hospital systems and group purchasing organizations (GPOs); * Local independent hospitals and clinics that purchase radiopharmaceuticals from us independent of any agreement or membership with a national managed care provider or GPO; and * Community-based, multiple-facility integrated healthcare networks, known as IHNs, that control purchasing for a limited group of hospitals and clinics that may or may not be affiliated or aligned with a corporate account customer. Radiopharmacy sales to corporate account customers and IHNs affiliated with GPOs were approximately $175.0 million in 2000, representing 27.8% of our net sales. Our largest corporate account customers include AmeriNet Inc. and Health Trust Purchasing Group (formerly Columbia/HCA). In 2000, sales to AmeriNet and Health Trust represented 13.6% and 6.1%, respectively, of our net sales. During 2000, no other customer accounted for as much as 5% of our net sales. Our medical imaging sales depend to a large extent upon the acceptance of outpatient diagnostic imaging procedures as covered benefits under various third-party payer programs. In order to be reimbursed for these services, payment must be approved by private insurers or the Medicare and Medicaid reimbursement programs. In 2000, Medicare and Medicaid accounted for about 11.4% of our net sales. The remaining sales were generated from managed care organizations, conventional indemnity insurance companies, workers' compensation and lien cases, and individual payers. PRINCIPAL PRODUCTS Our principal products are cardiac imaging agents, including Cardiolite(R), to which we have preferred distribution rights. Sales of Cardiolite represented 44.8% of our net sales in 2000, compared to 46.3% of our net sales in 1999 and 45.0% in 1998. Our other principal radiopharmacy products include Thallium, a generic cardiac imaging agent, which accounted for 7.4% of our net sales in 2000, compared to 9.2% of our net sales in 1999 and 11.2% in 1998. We act as the primary distributor of Cardiolite and DuPont's other radiopharmaceutical products under the terms of a long- term supply and distribution agreement with DuPont. The agreement, which became effective February 1, 1994, replaced an earlier supply agreement with DuPont which had been in place since 1988. Under the terms of the agreement, we have the exclusive rights to distribute Cardiolite within a prescribed geographic area surrounding substantially all of our existing radiopharmacies. The DuPont agreement will expire on December 31, 2003 unless it is renewed. Both parties are currently discussing whether or not the agreement will be renewed, the terms for any renewal and other possible modifications to the agreement. There is no assurance whether or on what terms the DuPont agreement will be renewed. GOVERNMENT REGULATION Each of our radiopharmacies in the United States is licensed by and must comply with the regulations of the United States Nuclear Regulatory Commission (NRC) or corresponding state agencies. In addition, each pharmacy is licensed and regulated by the Board of Pharmacy in the state where it is located. Our manufacturing facility in Colorado and our Florida PET production facilities are licensed by the State(s) of Colorado and Florida to handle radioactive materials and are registered with the Food and Drug Administration (FDA) as manufacturing facilities. As FDA- registered manufacturing facilities, they must comply with the FDA's "good manufacturing practices" (GMP) standards. Periodic inspections of our radiopharmacies are conducted by the NRC and various other federal and state agencies. Unsatisfactory inspection results could lead to escalated enforcement action, the imposition of fines or the suspension, and/or revocation or denial of renewal of the licenses for the location inspected. We devote substantial human and financial resources to ensure continued regulatory compliance by our radiopharmacies. We are subject to the various federal, state and local regulations relating to occupational safety and health and the use and disposal of bio-hazardous materials. In addition, our products are subject to federal, state and local regulations relating to drugs and medical devices. Our transport of radioactive materials is regulated by the United States Department of Transportation (DOT). We audit our own radiopharmacies for DOT compliance. The DOT and state regulators also conduct periodic and unannounced inspections of our pharmacies for DOT compliance. Failure to correct violations could result in penalties and fines to us. Compliance with the applicable environmental control laws and regulations, such as those regulating the use and disposal of radioactive materials, is inherent in the industry and the normal operations of our radiopharmacies and our manufacturing facility. Historically, compliance with such laws and regulations has not had a material adverse effect on our capital expenditures, earnings or competitive position. The Federal Medicare and Medicaid Anti-Kickback Statute and similar state statutes prohibit the offering, payment, solicitation or receipt of any form of remuneration in return for the purchase, lease or order or provision of any item or service that is covered by Medicare or Medicaid. The Office of Inspector General of the United States Department of Health and Human Services periodically issues Fraud Alerts identifying practices it believes may violate federal fraud and abuse laws. One Fraud Alert addresses joint venture and contractual arrangements between health care providers. Another concerns prescription drug marketing practices. Drug marketing activities may implicate the federal fraud and abuse laws because the cost of drugs are often reimbursed by Medicare and Medicaid. According to the Fraud Alert, questionable practices may include payments to pharmacists to recommend a particular drug or product. We try to structure our business arrangements to comply with federal fraud and abuse laws. However, if we are found to have violated any of these laws, we could suffer penalties, fines or possible exclusion from the Medicare, Medicaid or other governmental programs, which would adversely affect our results of operations. The federal government and all states in which we operate or plan to operate medical imaging centers in the United States regulate various aspects of the medical imaging business. Reimbursement for medical imaging may be undergoing change as third-party payers, such as Medicare and Medicaid, health maintenance organizations and other health insurance carriers, increase efforts to control the cost, utilization and delivery of health care services. Legislation has been proposed or enacted at both the federal and state levels to regulate health care delivery in general and medical imaging services in particular. The Health Care Financing Administration (HCFA), the agency which establishes Medicare reimbursement policies, has considered making significant reductions in reimbursement rates for medical imaging services in the past and has indicated that it is continuing to evaluate these rates. We believe new initiatives by HCFA to lower these reimbursement rates can be expected in the future. Starting August 1, 2000, HCFA also began using prices submitted by manufacturers to set reimbursements for many hospital outpatient drugs, including radiopharmaceuticals, instead of reimbursing these products as a direct cost pass-through. We are not able to predict the long-term impact of this change in the reimbursement system upon our business. The medical imaging business also is subject to state insurance laws governing the presentation and payment of insurance claims for medical imaging services to patients with health insurance. The establishment and operation of outpatient diagnostic imaging centers are subject to various licensure requirements. Some states require a Certificate of Need (CON) in certain circumstances to establish, construct, acquire or expand health care facilities and services. We may also have to comply with federal certification requirements, such as the federal certification requirement to provide mammography examinations. Our imaging centers are also subject to federal and state regulations relating to testing standards, personnel accreditation and compliance with government reimbursement programs. The Federal Medicare and Medicaid Anti-Kickback Statute and similar state statutes prohibit the offering, payment, solicitation or receipt of any form of remuneration in return for the referral of Medicare or Medicaid patients or patient care opportunities, or in return for the purchase, lease, order or provision of any item or service that is covered by Medicare or Medicaid. The Federal False Claims Act and similar state statutes prohibit the presentation of a claim for payment under Medicare, Medicaid and other federally funded programs containing false or misleading information. Violations of the False Claims Act can result in civil penalties of between $5,000 and $10,000 per false claim plus treble damages. The "Stark II" statute, enacted under the Omnibus Budget Reconciliation Act of 1993, prohibits a physician from making a referral to an entity for the furnishing of designated health services (including diagnostic imaging services) for which Medicare may otherwise pay, if the physician has a financial relationship with that entity. In addition, a number of states (including California and Florida) have enacted their own versions of self-referral laws. Our medical imaging services business also may be subject to the laws of certain states which prohibit the practice of medicine by non-physicians or the splitting of fees between physicians and non-physicians. We are also subject to licensing and regulation under federal, state and local laws relating to the handling and disposal of medical specimens, infectious and hazardous waste and radioactive materials, as well as to the safety and health of laboratory employees. The sanctions for failure to comply with these regulations may include denial of the right to conduct business, significant fines and criminal penalties. Our international operations also are subject to various local laws, rules and regulations. We believe that we are in substantial compliance with all material laws and regulations applicable to our businesses. PATENTS, TRADEMARKS AND LICENSES We own a number of United States trademarks and, patents, including patent rights to the SECURE(R) Safety Insert System designed to eliminate the potential for contamination of the lead or tungsten container with the blood from the used syringe. With our system, the risk of needlesticks also is reduced substantially. We also have patent rights to a family of radiopharmaceutical delivery systems referred to as the "Pigs" (Piglet(TM), Piglet2(TM) and PETPig(TM)). Our Pigs are tungsten containers that weigh considerably less than traditional lead containers and set new industry standards for the safe transport and handling of radioactive substances. They also provide enhanced radiation shielding, resulting in a reduction in radiation exposure to our radiopharmacy personnel and customers. We also license our proprietary Windows-based SYNtrac(TM), Unit Dose Manager(TM) and NucLink(TM) integrated software and hardware systems to our customers to assist in the management of their nuclear medicine departments and to facilitate electronic communication between our local radiopharmacies and customers. As of March, 2001, we had licensed our software systems to more than 2,000 customers. Our trademarks, patents and licenses contribute significantly to our ability to operate our pharmacies efficiently, provide high-quality customer service and build mutually beneficial long-term customer relationships. We also have 510(k) clearnace from the Food and Drug Administration to market Iodine-125 and Palladium-103 brachytherapy seeds for the treatment of prostate cancer. EMPLOYEES As of March 2001, we employed over 3,600 people in the United States, of whom approximately 2,900 were employed full-time. We also employ about 350 people outside of the United States, including over 330 full-time employees. Of our full-time domestic employees, about 397 are radiopharmacists or radiopharmacy technicians employed at our radiopharmacies, over 269 are employed as medical imaging technologists at our medical imaging centers and about 842 are employed as customer service assistants to deliver our radiopharmaceuticals. Our employees are among our most important stockholders. Nearly 73% of our domestic full-time employees own our common stock through their participation in our ESSOP, which is our largest stockholder. With limited exceptions in foreign countries, none of our employees are covered by a collective bargaining agreement. We consider our employee relations to be good. RISK FACTORS Except for the historical information and discussions, statements contained in this Form 10-K may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those expressed in or implied by such statements due to a number of factors, including the risk factors below. * One of the products we distribute, Cardiolite, accounted for 44.8% of our net sales in 2000. We have preferred distribution rights for Cardiolite from DuPont, which will expire in December 2003 unless they are renewed. A reduction in our sales of Cardiolite, which could occur if new cardiology imaging agents were to be developed that were functionally equivalent or superior to Cardiolite or if our distribution rights to Cardiolite are allowed to expire at the end of 2003, could have a material adverse effect on our business, results of operations and financial condition. * Our principal supplier in the United States is DuPont, from which we obtain Cardiolite, as well as Thallium, a generic cardiac imaging agent which accounted for 7.4% of our net sales in 2000. Our business, results of operations or financial condition could be materially adversely affected if there were an extended interruption in the supply of products by DuPont and we did not have an adequate inventory of these products, or we encountered delays in obtaining alternative products from other suppliers. Technetium is a radioisotope used to compound products which accounted for 47.3% of our net sales in 2000. We obtain most of our United States supply of technetium from technetium generators supplied by DuPont. Technetium decays, however, and because it has a short half-life, we cannot maintain a substantial inventory of this isotope. An interruption in the supply of technetium generators and our inability to obtain alternative supplies, depending on the length of the interruption, could have a material adverse effect on our business, results of operations or financial condition. * Corporate account customers representing regional or national networks of hospitals accounted for 27.8% of our net sales in 2000, with sales to AmeriNet Inc. and Health Trust Purchasing Group (formerly Columbia/HCA) constituting 19.7% of our net sales. Corporate account customers may cancel some of our contracts on short notice, and the trend toward consolidation of hospital and clinic groups and the use of large purchasing groups may put pressure on our future profit margins. If we lose any significant corporate account customers (whether as a result of a cancellation of our contract, an acquisition of our customer by another company, a material deterioration in the financial condition of our customer or otherwise) and we are not able to retain as customers the individual hospitals and clinics represented by the corporate account, our radiopharmacy net sales may be adversely affected, which could have a material adverse effect on our business, results of operations or financial condition. * We depend in significant part on payment and reimbursement from governmental and nongovernmental third- party payers. This reimbursement directly affects our medical imaging services business and indirectly affects our radiopharmacy services business because it affects the amounts our customers are reimbursed for our radiopharmaceuticals. The primary trend in the United States health care industry is toward cost containment. The increasing prevalence of managed care, centralized purchasing decisions, consolidation among and integration of health care providers and competition for patients is continuing to affect pricing, purchasing and usage patterns. Decisions regarding the use of a particular drug treatment are increasingly influenced by large private payers, managed care organizations, group purchasing organizations, pharmacy benefits management companies, regional integrated delivery systems and other similar organizations, and are becoming more economically focused, with decisions taking into account product cost and whether a product reduces the overall cost of treatment. Cost containment measures exerted by third-party payers, the influence of such organizations over decisions regarding the use of diagnostic tests or drug treatments, the financial inability of any such payers to satisfy their payment obligations to us or a shift in the mix of our private payers to managed care organizations, could have a material adverse effect on our business, results of operations or financial condition. We also derive a significant portion of our revenue from governmental programs such as Medicare and Medicaid. In 2000, we generated 11.4% of our net sales from direct reimbursements from these programs. These programs are highly regulated and subject to periodic changes and cost containment measures. In recent years, changes in these programs have limited and reduced reimbursements to providers, and we believe these trends may continue. The level of reimbursement we are able to obtain for our medical imaging services increasingly will depend on our ability to properly categorize and bill for these items. Further reimbursement reductions by Medicare or Medicaid or any shift in our mix of reimbursements away from private payers to governmental payers could have a material adverse effect on our business, results of operations or financial condition. * Medical diagnostic and treatment technologies are subject to continual changes. Should new radiopharmaceutical products be developed for the diagnosis or treatment of diseases, particularly in the cardiovascular or oncology areas, for which we are unable to obtain marketing rights, or if new diagnostic or treatment modalities are developed for diseases addressed by our products that are not based on nuclear medicine, our radiopharmacy revenues could be adversely affected, which could have a material adverse effect on our business, results of operations or financial condition. The emergence of new types of equipment or significant improvements to the existing types of equipment for medical imaging could render our existing medical imaging equipment obsolete or noncompetitive and require us to significantly modify or abandon our existing imaging equipment. This could have a material adverse effect on our business, results of operations or financial condition. * We own United States patents covering our SECURE(R) Safety Insert System for the delivery of our radiopharmaceutical products, as well as for our PETPig(TM) family of radiopharmaceutical delivery systems. We also license our proprietary integrated software and hardware systems to many of our customers for the management of their nuclear medicine departments and to facilitate communications with our customers. In addition, we rely on certain other trade secrets and other proprietary know-how that are either not patentable or that we choose not to patent. Should any of our competitors successfully challenge or circumvent our patents, or should any of our proprietary nonpatented information be disclosed to or discovered by third parties, our business, results of operations or financial condition could be materially and adversely affected. Should we violate the intellectual property rights of others, we could be subjected to costly litigation and be required to pay significant damages to these parties and to discontinue or substantially modify our business activities that are in violation of these rights, which also could have a material adverse effect on our business, results of operations or financial condition. * Our international operations accounted for 6.3% of our net sales in 2000, and we expect our international operations to contribute a growing percentage of net sales as we expand these operations. Our foreign operations are subject to inherent uncertainties and risks of doing business internationally, which may be increased as the result of our strategy of targeting emerging market countries, including: * Fluctuations in currency rates, which may affect our reported earnings; * Potential need to conduct operations through local joint ventures; * Political, regulatory and economic instability in the countries where we operate; and * Potential imposition of trade restrictions, including duties and import quotas. ITEM 2. PROPERTIES. Our corporate headquarters is located in Woodland Hills, California. We lease approximately 60,967 square feet at that location. Our current lease is for a term of ten years, which commenced on March 1, 1997, with one five-year renewal option. In October 2000, we entered into an agreement to lease an additional 35,886 square feet in a building adjacent to the corporate headquarters. The lease has a term of 6 years, with one 5-year renewal option. Our medical imaging services headquarters is currently located in Westlake Village, California, but will be transferred to the building adjacent to our corporate headquarters in Woodland Hills during the second quarter of 2001. We also lease approximately 19,666 feet of administrative office space in a facility in Duluth, Georgia. The lease, which commenced in October 18, 1996, is for a term of ten years. We lease the space housing all of our radiopharmacies in the United States. Of the 58 locations that house our medical imaging centers in the United States, 4 are owned by us and 54 are leased. Of our international radiopharmacies, we own 4 locations and lease 15 others, and of our international medical imaging centers, we own 2 locations and lease 9 others. We believe our owned and leased facilities are adequate for our current needs. ITEM 3. LEGAL PROCEEDINGS. We are party to a number of lawsuits and legal proceedings involving claims arising in the normal course of our business. We believe that these claims, in the aggregate, will not have a material adverse effect on our business, financial condition or results of operations. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. MARKET INFORMATION. The Common Stock of the Company is traded on the Nasdaq National Market under the symbol "SCOR." The following table sets forth the range of high and low sales prices on the National Market of the Common Stock for the periods indicated, as reported by Nasdaq. Such quotations represent inter-dealer prices without retail market, markdown or commission and may not necessarily represent actual transactions.
HIGH ($) LOW ($) ________ _______ 1999 First Quarter 17.25 12.25 Second Quarter 18.00 12.96 Third Quarter 20.00 14.50 Fourth Quarter 20.36 13.37 2000 First Quarter 16.50 11.02 Second Quarter 36.00 13.00 Third Quarter 43.95 32.75 Fourth Quarter 39.06 23.75
As of December 31, 2000, there were 738 holders of record of the Common Stock. On December 31, 2000, the last sale price reported on the Nasdaq National Market for the Common Stock was $36.37 per share. The Company has never paid cash dividends on its Common Stock and has no present intention to do so. On July 11, 2000, the Company's Board of Directors declared a two-for-one stock split of the Company's Common Stock in the form of a stock dividend. The stock dividend was distributed on August 9, 2000 to stockholders of record on July 26, 2000. All references to per share amounts have been restated to reflect this stock split. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. The following balance sheet data and statements of income for the five years ended December 31, 2000 has been derived from the Company's audited consolidated financial statements. Consolidated balance sheets at December 31, 2000 and 1999 and the related consolidated statements of income and of cash flows for each of the three years in the period ended December 31, 2000 and notes thereto appear elsewhere herein. The data should be read in conjunction with the annual consolidated financial statements, related notes and other financial information appearing elsewhere herein. SELECTED FINANCIAL DATA
TWELVE MONTHS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999 1998 1997 1996 ____________________________________________________________________________________________ Net sales $629,394 $520,309 $449,023 $380,563 $366,447 Gross profit 224,846 169,321 131,950 90,165 80,193 Income: Continuing operations 29,538 19,221 13,931 10,032 6,900 Discontinued operations, net of taxes - - - 1,063 (2,264) Net income $29,538 $19,221 $13,931 $11,095 $4,636 ____________________________________________________________________________________________ Earnings per basic share(1): Continuing operations $1.23 $0.82 $0.65 $0.50 $0.33 Discontinued operations, net of taxes - - - 0.05 (0.11) Net income $1.23 $0.82 $0.65 $0.55 $0.22 ____________________________________________________________________________________________ Earnings per diluted share(1): Continuing operations $1.11 $0.75 $0.61 $0.49 $0.32 Discontinued operations, net of taxes - - - 0.05 (0.10) Net income $1.11 $0.75 $0.61 $0.54 $0.22 ____________________________________________________________________________________________ Cash, cash equivalents and marketable securities $ 29,676 $ 23,073 $ 19,722 $ 29,301 $ 27,711 Working capital $ 80,353 $ 56,326 $ 44,024 $ 34,685 $ 35,515 Total assets $470,571 $312,642 $256,567 $164,563 $145,563 Long-term debt $137,886 $ 76,326 $ 70,322 $ 17,332 $ 7,595 Stockholders' equity $185,880 $140,337 $111,373 $ 87,367 $ 78,532 Weighted average shares outstanding(1): Basic 23,948 23,340 21,452 19,996 20,848 Diluted 26,657 25,478 22,678 20,564 21,258 Current ratio 1.56 1.61 1.59 1.60 1.62 ____________________________________________________________________________________________ Number of domestic radiopharmacies 125 123 120 119 121 Number of domestic imaging centers 58 49 37 - - ____________________________________________________________________________________________
(1) All share and per share amounts reflect the August 9, 2000 two-for-one stock split for all periods presented. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. FORWARD LOOKING STATEMENTS Except for the historical information and discussions contained herein, statements contained in this Annual Report on Form 10-K may constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, including: changes in the regulation of the healthcare industry at either or both of the federal and state levels; changes or delays in the Company's reimbursement for services by governmental or private payers; the Company's failure to continue to develop and market new products and services and to keep pace with technological change; competitive pressures; failure to obtain or protect intellectual property rights; quarterly fluctuations in revenues and volatility of the Company's stock price; the Company's ability to attract and retain key personnel; currency risks; dependence on certain suppliers; the Company's ability to successfully manage acquisitions and alliances; legal, political and economic changes; and other risks, uncertainties and factors discussed in the "Risk Factors" section above and elsewhere herein, in the Company's other filings with the SEC or in materials incorporated by reference. Given these uncertainties, undue reliance should not be placed on such forward looking statements. RESULTS OF OPERATIONS CALENDAR YEAR 2000 AND 1999 NET SALES Consolidated sales in fiscal year 2000 totaled $629.4 million, an increase of 21 percent over fiscal year 1999. The Company's growth was the result of strong contributions from all operating groups. Sales were affected by continued cardiac imaging growth, price increases, improvement in product mix, and the continued expansion of our medical imaging and international markets. U.S. Pharmacy Services Business Sales for this group were approximately $489.0 million, an increase of 11.1 percent or $48.7 million over the 1999 results. Favorable market trends, the Company's dedication to customer service and our extensive service network continue to have a positive impact on the Company's revenues. The Company supplies radiopharmaceutical products that are used primarily for diagnostic purposes in the fields of cardiology, oncology, and neurology. The most significant factor affecting the Company is the continuing growth of diagnostic cardiac imaging. This technology has shown continuing growth as a result of its efficacy as a tool in the management of cardiovascular disease. The Company's annual revenue growth from cardiac imaging continues at the rate of 12 percent. There are three agents, two proprietary and one generic, that physicians can use in performing cardiac imaging. The principal imaging agent used for cardiac imaging is DuPont's proprietary product, Cardiolite(R), to which the Company has preferred U.S. distribution rights. The other proprietary product is marketed by a competing manufacturer/distributor. It is the Company's belief that this competing product has not gained any significant market share during fiscal year 2000. The generic agent, to which the Company also has access, continues to lose market share due to the switching to the newer proprietary agents. The Company implemented a price increase on Cardiolite(R) and several other products in both 1999 and 2000. These price increases of approximately 3.5 percent also contributed to the sales growth for these respective years. The Company believes that with the progressive aging of the United States population and the prevalence of cardiovascular disease within this age group, the market potential for sustained growth of cardiac imaging remains favorable. Revenues from the sales of cardiac imaging agents represent 71 percent of the revenues generated by this operating group. The Company has also realigned its resources to more effectively manage the complex medical technologies in our progression to "disease state management." The Company views its role as a critical link that will allow for expanded use of complex technologies in the diagnosis and treatment of patients. U.S. Medical Imaging Business Sales for 2000 were $100.8 million and grew at an annual rate of 82.7 percent or $45.6 million over the 1999 results. This growth is the result of acquisitions and existing store growth. Existing store growth accounted for $6.9 million of the change with acquisitions and start-up sites accounting for the remainder. Syncor, through its subsidiary CMI, provides imaging services, magnetic resonance imaging (MRI) scans and computerized tomography (CT) which are used in diagnostic medicine. The Company has been successful in growing the business with same store procedure volume increasing 18 percent for MRI and 21 percent for CT compared to 1999. This success is due to expansion of the scope of the clinical applications and growth of the physician referral base. In 2000, the Company focused its efforts on expanding its range of clinical applications for MRI procedures and improving the scope of its network penetration in selected markets. The Company continued to grow its Florida, California and Arizona networks through acquisitions during 2000. International Operations Sales for 2000 were $39.6 million and grew at an annual rate of 59.5 percent or $14.8 million over the 1999 results. This growth is a combination of acquisitions, start-ups, existing store growth and the expansion in the type of products and services offered. Year over year same store revenue growth amounted to approximately 25 percent. Radiopharmacy services supporting cardiology and oncology continue to represent the most substantial portion of the revenues at 36 percent of the group's 2000 revenues. There has been a continued expansion into the radiology product and service areas. Radiology includes the operation of nuclear medicine departments and equipment, as well as the ownership and operation of freestanding MRI centers. Revenues from radiology account for approximately 21 percent of this group's 2000 revenues. The group opened a seeds production facility in China in August 2000 and two PET production sites in Florida in 2000, contributing $1.5 million of the increased sales. Another four PET production sites are either under construction or in the planning phases. The Company believes that a significant market exists for this product and is further encouraged by Medicare's approval of PET for certain cancer diagnoses. GROSS PROFIT The Company's gross profit increased in 2000 to $224.8 million, an increase of 32.8 percent when compared to 1999. A number of factors impacted this growth, including continued improvement in product mix (primarily the continuing shift to Cardiolite(R)) and price increases. Margin increase is also a result of the increased revenue share from the medical imaging and international businesses, both of which have higher gross profit margins than the traditional radiopharmaceutical business. U.S. Pharmacy Services Business The Pharmacy Services Group realized a year over year growth in gross profits from $117.0 million to $136.6 million, a gain of 16.8 percent. The growth in cardiac imaging continues to shift revenues into this segment of the business. This growth, when combined with the targeted cardiology price increases, has been a factor in producing these favorable results. The Company expects gains to continue from both pricing and a continuation of the product mix shift. The Company leveraged its percentage sales increases (11 percent in 2000) into a relatively higher gross profit growth (16.8 percent in 2000). This is due in part to the Company's focus on increasing efficiencies in the areas of direct material and labor utilization. The Company believes that these favorable trends will continue. U.S. Medical Imaging Business CMI's gross profit increased to $70.2 million in 2000. This represents an increase of 71.0 percent when compared to 1999. The increase in gross profit was principally derived from increased sales due to acquisition and same store growth, offset by increases in radiologists reading fees. Acquisitions accounted for $16.5 million of the difference with the remainder due to same store growth and new start-up sites. International Operations Syncor Overseas Ltd. showed a year over year growth in gross profits from $11.3 million to $18.1 million, a gain of 60.5 percent. The margin gains are due to the strong sales growth from existing pharmacies, which contributed $1.3 million of this increase, additional revenues from imaging services, which contributed $2.2 million, and acquisitions and new businesses, which contributed the remainder of the increase. Additionally, the increased sales levels in 2000 contributed to more efficient utilization of direct costs leading to increased gross profit. This group incurred start-up costs for both positron emission tomography (PET) and brachytherapy seeds production of $2.1 million in 2000. OPERATING, SELLING AND ADMINISTRATIVE COSTS Operating, selling and administrative expenses increased $31.9 million in 2000 over 1999 and as a percentage of net sales increased to 22.6 percent in 2000 compared to 21.2 percent in 1999. In general, the increase is associated with the start-up and acquisition of certain businesses in 2000, the continued expansion of existing services, increased corporate staffing to support the Company's continued expansion, and general corporate infrastructure costs. In addition, the medical imaging business operates with higher costs in this category when compared to the radiopharmacy business. U.S. Pharmacy Services Business The increase in the Pharmacy Services Group was approximately 14.2 percent or $9.2 million. The change is primarily related to increased expenditures for an expanded sales force and increased labor-related expenses including annual merit increases and certain bonuses. U.S. Medical Imaging Business The increase in the Comprehensive Medical Imaging Group was approximately 62.2 percent or $17.1 million. Of this amount, $8.9 million relates to costs at acquired sites. This increase compares favorably with the sales increase of 82.7 percent and demonstrates leverage of CMI's sites to better operating margins. The Company hopes to continue this trend through strategic acquisitions in existing markets. International Operations The increase in the Syncor Overseas Ltd. Group was approximately 50.2 percent or $4.3 million. Approximately $1.5 million is associated with the start-up or acquisition of sites during 2000. The remainder of the increase is attributable to the continued expansion of existing sites and the addition of new management resources. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased $6.8 million in 2000 or 34.8 percent over 1999. The majority of the increase, or approximately $5.5 million, is due to the acquisition of new facilities by CMI. The balance of the increase relates to the expansion of the international operations and continued spending for corporate information systems. RESULTS OF OPERATIONS CALENDAR YEAR 1999 AND 1998 NET SALES Consolidated sales in fiscal year 1999 totaled $520.3 million, an increase of 15.9 percent over fiscal year 1998. All of the Company's operating groups contributed to this significant growth rate. Different factors within each group combined to positively affect sales. These factors included continued strong cardiac imaging growth, increases in price for products and services, acquisitions, improvement in product and service mix, and the continued strong expansion of the medical imaging and international markets. U.S. Pharmacy Services Business Sales for this group were approximately $440 million, an increase of 11 percent or $43 million over the 1998 results. Favorable market trends and the Company's dedication to customer service continue to have a positive impact on the Company's revenues. The Company supplies radiopharmaceutical products that are used primarily for diagnostic purposes in the fields of cardiology, oncology, and neurology. The largest factor affecting the Company is the continuing growth of diagnostic cardiac imaging. This technology has been shown to be a cost-effective tool in the management of cardiovascular disease. Annual revenue growth from cardiac imaging continues at the rate of 13 percent. Two proprietary and one generic agent represent the choices that physicians have in performing cardiac imaging. The principal imaging agent used for cardiac imaging is DuPont's proprietary product Cardiolite(R), to which the Company has preferred distribution rights. The other proprietary product is marketed by a competing manufacturer/distributor. It is the Company's belief that this competing product has not gained any significant market share during fiscal year 1999. The generic agent, to which the Company also has access, continues to lose market share and experienced price declines due to the switching to the newer imaging agents. In 1998, the Company implemented a price increase on Cardiolite(R) and several other products. This price increase also contributed to the sales growth for this group in 1999. A similar price increase was announced in 1999 to become effective in January 2000. The Company believes that with the progressive aging of the general population in the United States and the prevalence of cardiovascular disease within this age group, the market potential for sustained growth of cardiac imaging remains favorable. Revenues from the sales of cardiac imaging agents represent approximately 67 percent of the revenues generated by this operating group. The Company believes that as a result of its superior full-service business model, it has been able to show revenue gains in excess of the 6 to 8 percent for the overall market growth rate. In addition, the Company has also been able to retain and service a large portion of its managed care business despite the loss of a formal contract to supply some of the needs of these same managed care groups. The Company believes that this trend will continue. U.S. Medical Imaging Business Sales for 1999 were $55.2 million and grew at an annual rate of 56 percent or $19.9 million over the 1998 results. This growth is a combination of acquisitions and existing store growth. Syncor, through CMI, provides services in computerized tomography (CT) and magnetic resonance imaging (MRI) scans, which are used primarily in diagnostic medicine. The Company has been successful in growing the business with same store procedure volume increasing 7.5 percent for MRI and 14 percent for CT compared to 1998. The Company has focused its efforts in expanding its range of clinical applications for MRI procedures and improving the quality of its payer mix, both of which have increased the average value of the procedures performed. As a result, the Company has been successful in offsetting historical price erosion and ended the year with increases in MRI and CT net reimbursement rates over the corresponding rates in 1998. In addition, the Company continues to benefit from 1999 additions to its California network and the divestiture of three imaging centers in the second half of 1999 in non-strategic markets. International Operations Sales for 1999 were $28.9 million and grew at an annual rate of 72 percent or $12.1 million over the 1998 results. This growth is a combination of acquisitions, start-ups, existing store growth and the expansion in the offering of its products and services. Year over year same store revenue growth amounted to approximately 40 percent. Radiopharmacy services supporting cardiology and oncology continue to represent a substantial portion of the revenues. In addition, there has also been expansion into the radiology product and service areas. Radiology includes the operation of nuclear medicine departments and equipment, as well as the ownership and operation of freestanding MRI centers. Revenues from radiology account for approximately 14 percent of this group's 1999 revenues. In 1999, this group received approval from the FDA to market brachytherapy seeds. Beginning in the year 2000, brachytherapy seeds will begin a new category of radiotherapy. Brachytherapy seeds are used primarily in therapy for prostate cancer and will be distributed both through direct sales from this group and the pharmacy services group. The Company believes that a significant market exists for this product. The Company expects to add additional products and services in this category in the coming year, which will be offered by this group. GROSS PROFIT The Company's gross profit increased in 1999 to $169.3 million, an increase of 28.3 percent when compared to 1998. A number of factors impacted this growth, including continued improvement in product mix and price increases. Margin expansion is also a result of increased revenue share from the medical imaging and international businesses, both of which have higher gross profit margins than the radiopharmacy business. U.S. Pharmacy Services Business The Pharmacy Services Group realized a year over year growth in gross profits from $100 million to $117 million, a gain of 16.7 percent. This gain resulted from a number of business decisions and trends. The growth in cardiac imaging continues to shift revenues into this profitable segment of the business. This shift, when combined with the targeted cardiology price increase in late 1998, has been a factor in producing these favorable results. The Company also received some favorable materials acquisition pricing. In December 1999, the Company received a combination of price increases and decreases on certain products from one of its major suppliers. Assuming similar growth, the Company estimates that the net effect of these price changes will be approximately $3 million, which the Company has offset with price increases mentioned above. The Company expects gains to continue from both pricing and a continuation of the product mix shift. The Company leveraged its percentage sales increases (11 percent in 1999) into a relatively higher gross profit growth (16.7 percent in 1999). This is due in part to the Company's focus on increasing efficiencies in the areas of direct material and labor utilization. The Company believes that these favorable trends will continue. U.S. Medical Imaging Business CMI's gross profit increased to $41.1 million in 1999. This represents an increase of 57 percent when compared to 1998. The increase in gross profit was principally derived from an improvement in productivity of 14% and reductions in film and contrast costs due to the benefit of national supply contracts. International Operations Syncor Overseas Ltd. showed a year over year growth in gross profits from $5.7 million to $11.3 million, a gain of 99 percent. The margin gains are due primarily to the strong sales growth from existing pharmacies. In 1998, many of the international sites were in their embryonic stages of development. The Company has always believed that significant growth opportunities existed in the overseas markets. In 1999, the sales levels contributed to more efficient utilization of the direct materials and labor leading to increased gross profit. The Company expects the growth opportunities to continue. OPERATING, SELLING AND ADMINISTRATIVE COSTS Operating, selling and administrative expenses increased $18.2 million in 1999 over 1998 and as a percentage of net sales increased to 21.2 percent in 1999 compared to 20.5 percent in 1998. In general, the increase is associated with the start-up and acquisition of certain businesses in 1999, the continued expansion of existing services, labor-related costs to support the continued expansion, and general corporate infrastructure costs. U.S. Pharmacy Services Business The increase in the Pharmacy Services Group was approximately 11.6 percent or $3.8 million. The change is primarily related to increased expenditures for an expanded sales force and increased labor-related expenses including annual merit increases and certain bonuses. U.S. Medical Imaging Business The increase in the Comprehensive Medical Imaging Group was approximately 41 percent or $8 million. Increased costs of approximately $2.1 million resulted from a full year's worth of expenses in 1999 compared to approximately nine months in 1998. Acquisition related expenses contributed approximately $3.2 million of the increase in 1999. International Operations The increase in the Syncor Overseas Ltd. Group was approximately 77 percent or $3.5 million. Approximately $1.5 million is associated with the start-up or acquisition of sites during 1999. In addition, the remainder of the increase is attributable to the continued expansion of existing sites and the addition of new management resources to support the expansion of this group. DEPRECIATION AND AMORTIZATION Depreciation and amortization increased $4.3 million in 1999 or 28 percent over 1998. The majority of the increase, or approximately $2.7 million, is attributable to CMI, which incurred a full year's worth of expense in 1999 and acquired certain facilities. The balance of the increase relates to the expansion and growth of the international operations and continued information systems related expenses. LIQUIDITY The Company's strategies have improved operations in terms of both profitability and cash flow. These improvements have led to better liquidity for the Company. In 2000, the Company saw year over year improvements in its cash flow from operations and working capital. The growth in trade receivables is comparable to the sales growth while the growth in patient receivables is primarily related to receivables acquired in acquisitions. In December, the Company made a purchase of a four months' supply of Cardiolite(R) inventory at favorable terms. This inventory is expected to be completely utilized by mid to late April 2001. The Company's growth in the medical imaging and international businesses was primarily a result of start-ups and acquisitions. In 2000, the Company acquired additional imaging centers or consolidated ownership in existing centers for approximately $51 million of additional borrowings under the existing line of credit and the assumption of approximately $16 million in debt. The results of these acquisitions are partly reflected in the change in the categories of "Property and Equipment", Goodwill, and "Other" assets. The Company expects to finance continuing growth in both the medical imaging business and certain foreign operations through additional borrowings. As a result of these decisions, the Company increased its line of credit from $100 million in the prior year to $150 million as of December 31, 2000. The Company had approximately $41 million available for borrowing under the line of credit at December 31, 2000. The Company also has the authority from its Board of Directors to increase the amounts available under the line of credit to $200 million. The Company believes that sufficient resources are available through a combination of internal and external sources to fund all of its operating and business expansion needs in the coming year. CAPITAL RESOURCES The Company's medical imaging operations, both foreign and domestic, are extremely capital intensive. The Company may, from time to time, purchase new equipment, or update or enhance existing equipment. The costs of these purchases or enhancements can be relatively minor or well over $1 million per piece of equipment. The Company is constantly evaluating its needs for acquiring new equipment or improving existing equipment. RECENT DEVELOPMENTS IN MEDICARE REIMBURSEMENT Changes to the current framework by which the Federal government reimburses healthcare providers for healthcare services could have an impact on the Company's revenues. In June 1998, the Health Care Financing Administration (HCFA), acting pursuant to the Balanced Budget Act of 1997, published a proposed reimbursement schedule that, if implemented, would have resulted in reductions in Medicare reimbursement for medical imaging services over a four-year phase-in period. HCFA did not enact these reductions but has indicated that it is still continuing to evaluate these rates. The final outcome to the proposed fee restructuring and the impact on diagnostic facilities, and on the Company, cannot be predicted at this time. Starting August 1, 2000 HCFA began using prices submitted by manufacturers to set reimbursement for many hospital outpatient drugs, including radiopharmeuticals, rather than reimbursing these products as a direct pass-through. The Company's pharmacy services business does not get reimbursement from HCFA; however, the introduction of set reimbursemnt rates could have an impact on the hospitals that purchase their radiopharmaceuticals from Syncor, and that impact, in turn, could affect the Company's revenues. The Company cannot predict at this time what impact these changes will have on the radiopharmacy business. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Interest income earned on the Company's investment portfolio is affected by changes in the general level of U.S. interest rates. The Company's line of credit borrowings effectively bear interest at variable rates and therefore, changes in U.S. interest rates affect interest expense incurred thereon. Changes in interest rates do not affect interest expense incurred on the Company's fixed rate debt. The following table provides information about the Company's financial debt instruments that are sensitive to changes in interest rates. The table presents principal cash flows and related weighted-average interest rates by expected maturity dates. The Company did engage in a minor interest rate swap during this period. Any gain or loss on this transaction would not materially affect the financial results. The fair value of the financial instruments approximate the carrying value.
DECEMBER 31, 2000 (IN THOUSANDS) 2001 2002 2003 2004 2005 Thereafter Total ___________________________________________________________________________________________ Long-term debt Fixed rate $9,706 $7,785 $5,994 $4,964 $ 3,680 $2,788 $ 34,917 Average interest rate 9.48% 9.42% 9.11% 8.69% 8.03% 5.34% Variable rate $2,385 $4,575 $ - $ - $108,100 $ - $115,060 Average interest rate 8.29% 8.31% 8.35% 8.35% 8.35% ___________________________________________________________________________________________
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Company's consolidated financial statements at December 31, 2000 and 1999 and the Report of KPMG LLP, Independent Accountants, are included in this Annual Report on Form 10-K on pages F-1 through F-20. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information called for by this Item 10 is incorporated by reference from our definitive Proxy Statement for our Annual Meeting of Stockholders, to be held on June 19, 2001, which will be filed with the Commission pursuant to Regulation 14A of the Securities and Exchange Commission ("Regulation 14A") within 120 days from December 31, 2000. Based solely upon our review of Forms 3, 4 and 5 furnished to us, we believe that all reports required to be filed during 2000 pursuant to Section 16(b) of the Securities Exchange Act of 1934 were timely filed. ITEM 11. EXECUTIVE COMPENSATION. The information called for by this Item 11 is hereby incorporated by reference from our definitive Proxy Statement for our Annual Meeting of Stockholders to be held on June 19, 2001. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by this Item 12 is hereby incorporated by reference from our definitive Proxy Statement for our Annual Meeting of Stockholders to be held on June 19, 2001. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by this Item 13 is hereby incorporated by reference from our definitive Proxy Statement for our Annual Meeting of Stockholders to be held on June 19, 2001. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. The following documents are filed as part of this report: (a) 1. Consolidated Financial Statements. Page ____ Independent Auditors' Report F-1 Consolidated Balance Sheets F-2 Consolidated Statements of Income F-3 Consolidated Statements of Stockholders' Equity and Comprehensive Income F-4 Consolidated Statements of Cash Flows F-5 Notes to Consolidated Financial Statements F-6 2. Financial Statement Schedules. The following schedule supporting the financial statements of the Company is included herein: Page ____ Schedule II Valuation and Qualifying Accounts S-1 All other schedules and financial statements of the Company are omitted because they are not applicable or not required or because the required information is included in the consolidated financial statements or notes thereto. (b) Reports on Form 8-K filed in the Quarter Ended December 31, 2000. None. (c) Exhibits. Exhibit No. Description 3. Certificate of Incorporation and By-Laws 3.1 Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to the Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference. 3.2 Restated By-Laws of the Company, filed as Exhibit 3.2 to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference. 4. Instruments Defining the Rights of Security Holders 4.1 Stock Certificate for Common Stock of the Company filed as Exhibit 4.1 to the Form 10-K for the year ended May 31, 1986, and incorporated herein by reference. 4.2 Rights Agreement dated as of September 28, 1999 between the Company and American Stock Transfer & Trust Company filed as Exhibit 4 to the Form 8-K dated September 28, 1999 and filed on October 12, 1999, and incorporated herein by reference. 10. Material Contracts 10.1 Syncor International Corporation 1981 Master Stock Option Plan, as amended, filed as part of the Company's Proxy Statement dated November 5, 1985, for its Annual Meeting of Stockholders held November 26, 1985, and incorporated herein by reference.* 10.2 Form of Indemnity Agreement substantially as entered into between the Company and each Director and Officer, filed as Exhibit 3.2 Appendix A to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.* 10.3 Form of Benefits Agreement substantially as entered into between the Company and each Director, filed as Exhibit 10.8 to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.* 10.4 Form of Benefits Agreement substantially as entered into between the Company and certain employees, filed as Exhibit 10.8 to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.* 10.5 Syncor International Corporation 1990 Master Stock Incentive Plan, as amended and restated as of June 18, 1997, filed as Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997, and incorporated herein by reference.* 10.6 First Amendment to the Syncor International Corporation 1990 Master Stock Incentive Plan, as amended and restated as of June 23, 1999, filed as Exhibit 10.4 to the Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference.* 10.7 Form of Stock Option Agreement substantially as entered into between the Company and certain employee Directors and employees filed as Exhibit 10.15 to the Form 10-K for year ended December 31, 1993, and incorporated herein by reference.* 10.8 Form of Stock Option Agreement substantially as entered into between the Company and certain non-employee Directors filed as Exhibit 10.16 to the Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.* 10.9 Non-Employee Director 1995 Stock Incentive Award Agreement dated January 24, 1995 entered into between the Company and Arnold E. Spangler, filed as Exhibit 10.17 to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.* 10.10 Non-Employee Director 1995 Stock Incentive Award Agreement dated January 24, 1995 entered into between the Company and George S. Oki, filed as Exhibit 10.18 to the Form 10-K for the year ended December 31, 1995, and incorporated herein by reference.* 10.11 Non-Employee Director 1995 Stock Incentive Award Agreement dated April 29, 1996, entered into between the Company and Gail Wilensky, filed as Exhibit 4.3(b) to the Registration Statement on Form S-8 filed on December 20, 1996 to register the shares underlying said Award Agreement, and incorporated herein by reference.* 10.12 Non-Employee Director 1995 Stock Incentive Award Agreement dated April 29, 1996, entered into between the Company and Steven Gerber, filed as Exhibit 4.3(a) to the Registration Statement on Form S-8 filed on December 20, 1996 to register the shares underlying said Award Agreement, and incorporated herein by reference.* 10.13 Subscription Agreement, dated July 15, 1996, executed by Syncor Management Corporation in favor of American Tax Credit Corporate Fund III, L.P., together with a Promissory Note, dated July 15, 1996, executed by Syncor Management Corporation in favor of John Hancock Mutual Life Insurance Company, as assignee of Corporate Credit, Inc., and the Guarantee of Parent Corporation, dated July 15, 1996, executed by the Company in favor of John Hancock Mutual Life Insurance Company, as assignee of Corporate Credit, Inc. These agreements were filed as Exhibit 10.15 to the Form 10-K for the year ended December 31, 1996, and are incorporated herein by reference. 10.14 The Office Lease, dated as of September 30, 1996, between Massachusetts Life Insurance Company and the Company, relating to the office lease for the Company's corporate headquarters in Woodland Hills, California, filed as Exhibit 10.19 to the Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. 10.15 Lease, dated May 30, 1996, between the Company and Technology Park/Atlanta, Inc., relating to the office lease for the Company's administrative office in Duluth, Georgia, filed as Exhibit 10.20 to the Form 10-K for the year ended December 31, 1996, and incorporated herein by reference. 10.16 Office Lease, dated October 19, 2000, between the Company and Nomura-Warner Center Associates, L.P. 10.17 Non-employee Director Stock Compensation Plan, dated August 27, 1996, filed as Exhibit 4.3 to the Form S-8 Registration Statement filed by the Company with the SEC on December 20, 1996, and incorporated herein by reference.* 10.18 Loan Agreement, dated March 31, 1997, among Syncor Pharmaceuticals, Inc., as borrower, the Company, as guarantor, and Bank One, NA (formerly The First National Bank of Chicago), as lender, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference. 10.19 Credit Agreement, dated August 8, 1997, between Syncor International Corporation and Mellon Bank, N.A., filed as Exhibit 10.2 to the Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference. 10.20 Syncor International Corporation Deferred Compensation Plan effective January 1, 1998, filed as Exhibit 10.24 to the Form 10-K for the year ended December 31, 1997, and incorporated herein by reference.* 10.21 Amendment No. 1 to Syncor International Corporation Deferred Compensation Plan, dated November 21, 2000. 10.22 Executive Long-Term Performance Equity Plan, effective as of January 1, 1998, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 1998, and incorporated herein by reference.* 10.23 First Amendment to Executive Long-Term Performance Equity Plan, dated as of November 17, 1998, filed as Exhibit 10.25 to the Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.* 10.24 Second Amendment to Executive Long-Term Performance Equity Plan, dated as of June 23, 1999, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference.* 10.25 Third Amendment to Executive Long-Term Performance Equity Plan, dated as of June 20, 2000, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference. 10.26 Fourth Amendment to Executive Long-Term Performance Equity Plan, dated as of June 20, 2000, filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference.* 10.27 Fifth Amendment to Executive Long-Term Performance Equity Plan, dated August 22, 2000, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 2000, and incorporated herein by reference.* 10.28 1998 Senior Management Stock Purchase Plan, effective as of June 16, 1998, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.* 10.29 Universal Performance Equity Participation Plan, effective as of June 16, 1998, filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.* 10.30 First Amendment to the Universal Performance Equity Participation Plan, dated as of June 16, 1998, filed together with the Universal Performance Equity Plan that was filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 1998, and incorporated herein by reference.* 10.31 Second Amendment to the Universal Performance Equity Participation Plan, dated as of June 23, 1999, filed as Exhibit 10.2 to the Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference.* 10.32 Third Amendment to the Universal Performance Equity Participation Plan, dated as of June 23, 1999, filed as Exhibit 10.3 to the Form 10-Q for the quarter ended June 30, 1999, and incorporated herein by reference.* 10.33 New Employee Stock Option Plan, dated as of June 1, 1998, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended September 30, 1998, and incorporated herein by reference.* 10.34 First Amendment to the Syncor International Corporation New Employee Stock Option Plan, dated December 5, 2000. 10.35 Form of Stock Option Agreement under the New Employee Stock Option Plan as entered into between the Company and certain employees, filed as Exhibit 10.31 to the Form 10-K for the year ended December 31, 1998, and incorporated herein by reference.* 10.36 Non-Qualified Stock Option Award Agreement, dated February 24, 1999, between the Company and Robert G. Funari, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference.* 10.37 Non-Employee Director 1999 Stock Incentive Plan, dated November 11, 1999, filed as Exhibit 10.35 to the Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.* 10.38 Form of Non-Employee Director 1999 Stock Incentive Award Agreement, dated November 11, 1999, entered into between the Company and each of the non-employee directors (excluding Ronald Williams), filed as Exhibit 10.36 to the Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.* 10.39 Split Dollar Agreement between the Company and the Monty and Wendy Fu 1998 Irrevocable Trust, dated January 8, 1999, filed as Exhibit 10.37 to the Form 10-K for the year ended December 31, 1999, and incorporated herein by reference.* 10.40 Employment Agreement of Robert G. Funari, dated as of January 1, 2000, filed as Exhibit 10.1 to the Form 10-Q for the quarter ended March 31, 2000, and incorporated herein by reference.* 10.41 Employment Agreement of Monty Fu, dated as of January 1, 2000, filed as Exhibit 10.2 to the Form 10-Q for the quarter ended March 31, 2000, and incorporated herein by reference.* 10.42 Term Loan Credit Agreement, dated as of May 5, 2000, between Bank One, N.A. and Syncor Management Corporation, filed as Exhibit 10.7 to the Form 10-Q for the quarter ended June 30, 2000, and incorporated herein by reference. 10.43 Credit Agreement, dated as of October 17, 2000, among the Company, Bank One, N.A., as Administrative Agent, Bank One Capital Markets, Inc., as Lead Arranger, The Bank of Nova Scotia, as Documentation Agent, and other lenders signatories thereto. 10.44 Letter Amendment to Credit Agreement, dated February 5, 2001, between the Company and Bank One, N.A. 21. Subsidiaries of the Registrant 23. Independent Auditors' Consent and Report on Schedule _______________________________ * Management contract or compensatory plan 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. Date: March 31, 2001 SYNCOR INTERNATIONAL CORPORATION By /s/ Robert G. Funari Robert G. Funari President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
/s/ Monty Fu __________________________ Chairman of the Board Date: March 31, 2001 Monty Fu and Director /s/ Robert F. Funari __________________________ President, Chief Executive Date: March 31, 2001 Robert G. Funari Officer (Principal Executive Officer) and Director /s/ Michael E. Mikity __________________________ Senior Vice President, Chief Date: March 31, 2001 Michael E. Mikity Financial Officer and Treasurer (Principal Financial and Accounting Officer) /s/ Steven B. Gerber, M.D. __________________________ Director Date: March 31, 2001 Steven B. Gerber, M.D. /s/ George S. Oki __________________________ Director Date: March 31, 2001 George S. Oki /s/ Bernard Puckett __________________________ Director Date: March 31, 2001 Bernard Puckett /s/ Arnold E. Spangler __________________________ Director Date: March 31, 2001 Arnold E. Spangler /s/ Henry N. Wagner, Jr., M.D. __________________________ Director Date: March 31, 2001 Henry N. Wagner, Jr., M.D. /s/ Dr. Gail R. Wilensky __________________________ Director Date: March 31, 2001 Dr. Gail R. Wilensky /S/ Ronald A. Williams __________________________ Director Date: March 31, 2001 Ronald A. Williams
INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Syncor International Corporation: We have audited the accompanying consolidated financial statements of Syncor International Corporation and subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 Syncor International Corporation and subsidiaries as of December 31, 1999 and 2000 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. 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 respects, the information set forth therein. /s/ KPMG LLP Los Angeles, California February 14, 2001 MANAGEMENT'S REPORT The Management of Syncor International Corporation is responsible for the consolidated financial statements and all other information presented in this report. The consolidated financial statements have been prepared in conformity with generally accepted accounting principles appropriate in the circumstances and, therefore, included in the consolidated financial statements are certain amounts based on management's informed estimates and judgments. Management is responsible for establishing and maintaining a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal control, and that the cost of such systems should not exceed the benefits to be derived therefrom. Other financial information in this report is consistent with that in the consolidated financial statements. The consolidated financial statements have been examined by Syncor International Corporation's independent certified public accountants and have been reviewed by the Audit Committee of the Board of Directors.
CONSOLIDATED BALANCE SHEETS DECEMBER 31, DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999 ________________________________________________________________________________________ ASSETS Current Assets: Cash and cash equivalents $ 24,330 $ 13,352 Short-term investments 4,156 8,536 Trade receivables, less allowance for doubtful accounts of $2,485 and $1,449, respectively 81,716 73,962 Patient receivables, less allowance for doubtful accounts of $6,543 and $3,199, respectively 37,686 15,924 Inventory 59,926 21,727 Prepaids and other current assets 16,023 14,446 _______________________________________________________________________________________ Total current assets 223,837 147,947 _______________________________________________________________________________________ Marketable investment securities 1,190 1,185 Property and equipment, net 114,286 66,640 Excess of purchase price over net assets acquired, net of accumulated amortization of $14,524 and $11,577, respectively 108,530 75,308 Other 22,728 21,562 _______________________________________________________________________________________ $470,571 $312,642 ======================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 83,683 $ 53,205 Accrued liabilities 22,371 9,682 Accrued wages and related costs 19,796 16,997 Federal and state taxes payable 5,543 2,425 Current maturities of long-term debt 12,091 9,312 ______________________________________________________________________________________ Total current liabilities 143,484 91,621 ______________________________________________________________________________________ Long-term debt, net of current maturities 137,886 76,326 Deferred taxes 3,321 4,358 Stockholders' Equity: Common stock $.05 par value; authorized 40,000 shares; issued 27,497 and 26,612 shares at December 31, 2000 and 1999, respectively 1,376 1,330 Additional paid-in capital 107,268 90,604 Notes receivables from related parties (16,796) (18,692) Accumulated other comprehensive loss (1,245) (410) Employee savings and stock ownership loan guarantee (1,685) (3,370) Retained earnings 114,019 84,481 Treasury stock, at cost, 3,072 and 2,786 shares at December 31, 2000 and 1999, respectively (17,057) (13,606) ______________________________________________________________________________________ Total stockholders' equity 185,880 140,337 ______________________________________________________________________________________ $470,571 $312,642 ======================================================================================
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999 1998 _____________________________________________________________________________________ Net sales $629,394 $520,309 $449,023 Cost of sales 404,548 350,988 317,073 _____________________________________________________________________________________ Gross profit 224,846 169,321 131,950 Operating, selling and administrative expenses 142,222 110,308 92,146 Depreciation and amortization 26,309 19,515 15,254 _____________________________________________________________________________________ Operating income 56,315 39,498 24,550 Other income (expense): Interest income 2,298 2,188 1,643 Interest expense (10,248) (7,014) (5,291) Other, net 863 (756) 3,283 _____________________________________________________________________________________ Other income (expense), net (7,087) (5,582) (365) Income before income taxes 49,228 33,916 24,185 Provision for income taxes 19,690 14,695 10,254 _____________________________________________________________________________________ Net income $ 29,538 $ 19,221 $ 13,931 ===================================================================================== Net income per share - basic: Net income $ 1.23 $ 0.82 $ 0.65 ===================================================================================== Weighted average shares outstanding 23,948 23,340 21,452 ===================================================================================== Net income per share - diluted: Net income $ 1.11 $ 0.75 $ 0.61 ===================================================================================== Weighted average shares outstanding 26,657 25,478 22,678 =====================================================================================
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME ACCUMULATED OTHER COMPREHENSIVE INCOME ____________________ EMPLOYEE SAVINGS & NOTES STOCK FOREIGN RECIVABLE TOTAL ADDITIONAL OWNERSHIP UNREALIZED CURRENCY FROM STOCK- COMMON STOCK PAID-IN LOAN LOSS ON TRANSLATION RETAINED TREASURY RELATED HOLDERS' (IN THOUSANDS) SHARES AMOUNT CAPITAL GUARANTEE INVESTMENTS ADJUSTMENT EARNINGS STOCK PARTIES EQUITY ___________________________________________________________________________________________________________________________________ BALANCE AT DECEMBER 31, 1997 20,158 $1,144 $54,489 $(6,741) $ (17) $ (313) $51,329 $(12,524) $ - $ 87,367 Issuance of common stock 2,164 108 17,062 (9,028) 8,142 Tax benefit from the exercise of stock options 445 445 Amortization of loan guarantee 1,685 1,685 Comprehensive Income: Unrealized loss on investments (300) Foreign currency translation adjustment 103 Net income 13,931 Total Comprehensive Income: 13,734 ___________________________________________________________________________________________________________________________________ BALANCE AT DECEMBER 31, 1998 22,322 $1,252 $71,996 $(5,056) $ (317) $(210) $65,260 $(12,524) $(9,028) $111,373 Issuance of common stock 1,578 78 15,865 (9,664) 6,279 Tax benefit from the exercise of stock options 2,743 2,743 Reacquisition of common stock for treasury (74) (1,082) (1,082) Amortization of loan guarantee 1,686 1,686 Comprehensive Income: Unrealized loss on investments 172 Foreign currency translation adjustment (55) Net income 19,221 Total Comprehensive Income: 19,338 ___________________________________________________________________________________________________________________________________ BALANCE AT DECEMBER 31, 1999 23,826 $1,330 $99,604 $(3,370) $(145) $(265) $84,481 $(13,606) $(18,692) $140,337 Issuance of common stock 885 46 10,400 10,446 Tax benefit from the exercise of stock options 6,264 6,264 Reacquisition of common stock for treasury (286) (3,451) (3,451) Amortization of loan guarantee 1,685 1,685 Payment from related parties 1,896 1,896 Comprehensive Income: Unrealized loss on investments 138 Foreign currency translation adjustment (973) Net income 29,538 Total Comprehensive Income: 28,703 ___________________________________________________________________________________________________________________________________ BALANCE AT DECEMBER 31, 2000 24,425 $1,376 $107,268 $(1,685) $ (7) $(1,238) $114,019 $(17,057) $(16,796) $185,880 ===================================================================================================================================
See accompanying Notes to Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999 1998 ________________________________________________________________________________________ Cash flows from operating activities: Net income $ 29,538 $ 19,221 $ 13,931 Adjustments to reconcile net income to net cash provided operating activities: Depreciation and amortization 26,309 19,515 15,254 Provision for losses on receivables 7,232 466 2,734 Amortization of loan guarantee 1,685 1,686 1,685 Decrease (increase) in: Accounts receivable - trade (9,690) (9,592) (9,459) Accounts receivable - patient (20,615) (1,348) (1,401) Inventory (38,153) (10,219) (5,935) Prepaids and other current assets (626) (2,369) (2,223) Other assets (3,966) (9,032) (4,846) Increase (decrease) in: Accounts payable 29,969 8,647 5,566 Accrued liabilities 5,102 1,597 (456) Accrued wages and related costs 2,821 4,427 (1,110) Deferred compensation - (312) (1,658) Federal and state tax payable 9,408 4,001 630 ________________________________________________________________________________________ Net cash provided by operating activities 39,014 26,688 12,712 Cash flows from investing activities: Purchase of property and equipment, net (31,389) (24,463) (15,986) Acquisitions, net of cash acquired (51,498) (18,031) (45,338) Net increase in short-term investments 4,368 (3,823) (2,124) Net decrease (increase) in long-term investments (5) 6 (11) Unrealized gain (loss) in investments 138 171 (300) ________________________________________________________________________________________ Net cash used in investing activities (78,386) (46,140) (63,759) Cash flows from financing activities: Issuance of common stock 10,445 6,279 3,142 Reacquisition of common stock (3,451) (1,082) - Proceeds from long-term debt 44,270 23,643 46,271 Repayment of long-term debt (2,420) (9,955) (10,070) Note receivable related parties 1,896 - - ________________________________________________________________________________________ Net cash provided by financing activities 50,740 18,885 39,343 Net (decrease) increase in cash and cash equivalents 11,368 (567) (11,704) Effect of exchange rate on cash (390) 95 (10) Cash and cash equivalents at beginning of period 13,352 13,824 25,538 Cash and cash equivalents at end of period $24,330 $13,352 $13,824 ========================================================================================
See accompanying Notes to Consolidated Financial Statements NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The Company's business is primarily concentrated in three business segments. The first is the compounding, dispensing and distributing of radiopharmaceuticals to hospitals and clinics located within the United States. The second is the management and provision of medical diagnostic imaging services located within the United States. The third is providing both radiopharmaceuticals and radiology services outside of the United States. The consolidated financial statements include the assets, liabilities and operations of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated in consolidation. CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Short-term investments consist principally of time deposits and tax-exempt municipal securities and are carried at cost, which approximates market value. FINANCIAL INSTRUMENTS: The carrying value of financial instruments such as cash and cash equivalents, trade receivables, payables and floating rate short and long-term debt, approximate fair value. PATIENT RECEIVABLES: The Company receives payment for services rendered from federal and state agencies (under the Medicare, Medicaid and Champus programs), managed health care plans, commercial insurance companies, employers and patients. During the year ended December 31, 2000, approximately 11.4% of the Company's patient revenues related to patients participating in the Medicare and Medicaid programs. The Company does not believe that there are any other significant concentrations of revenues from any particular payer that would subject the Company to any significant credit risk in the collection of its patient accounts receivable. INVENTORY: Inventories, consisting of purchased products, are stated at the lower of cost (first-in, first-out) or market. PROPERTY AND EQUIPMENT: Property and equipment are stated at cost and depreciated or amortized on a straight-line basis over estimated useful lives ranging from two to fifteen years. SELF INSURANCE: The Company historically has purchased insurance in excess of self-insured retentions or deductibles for losses and liabilities related to vehicle claims, medical claims and general product liability claims. Losses accrued under self-insured and deductible plans are based upon the Company's estimates of aggregated liability claims incurred using certain actuarial assumptions followed in the insurance industry and the Company's own experience. EXCESS OF PURCHASE PRICE OVER NET ASSETS ACQUIRED: The cost in excess of net assets of acquired businesses is being amortized on a straight-line basis over periods of 15 to 40 years. The Company periodically evaluates the carrying value of these assets and, accordingly, considers the ability to generate positive cash flow through projected undiscounted future operating cash flows from the related operation as the key factor in determining whether the assets have been impaired. MARKETABLE INVESTMENT SECURITIES: Marketable investment securities consist primarily of corporate debt and United States government obligations. The Company classifies debt and marketable equity securities in one of three categories: trading, available-for-sale or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities that the Company has the ability and intent to hold until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses on trading securities are included in earnings. Unrealized holding gains and losses, net of the related tax effect, on available-for-sale securities are excluded from earnings and are reported as a component of accumulated other comprehensive income until realized. FOREIGN CURRENCY TRANSLATION: Assets and liabilities of foreign operations are translated into U.S. dollars based upon the prevailing exchange rates in effect at the balance sheet date. Foreign exchange gains and losses resulting from these translations are included as a component of accumulated other comprehensive income. Actual gains or losses incurred on currency transactions in other than the country's functional currency are included in net income currently. STOCK OPTIONS: The Company measures stock-based compensation using the intrinsic value method which assumes that options granted at market price at the date of grant have no intrinsic value. Proforma net income and earnings per share are presented in Note 9 as if the fair value method had been applied. INCOME TAXES: Income taxes are accounted for under the asset and liability method. 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. 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. REVENUES: The Company's medical imaging facilities have entered into agreements with third-party payers, including government programs and managed care health care plans, under which the facilities are paid based upon established charges, predetermined rates per service or discounts from established charges. Revenues are recorded at estimated amounts collectible from patients and third-party payers for the services provided. Management believes that adequate provisions have been made for any potential adjustments. USE OF ESTIMATES: Company management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the reporting of sales and expenses and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. RECLASSIFICATIONS: Certain items in the prior years' consolidated financial statements have been reclassified to conform to the current year's presentation. NOTE 2. ACQUISITIONS During 1999 and 2000, the Company made several acquisitions, predominantly in the medical imaging industry. The 1999 and 2000 acquisitions were made primarily by the Company's U.S. medical imaging subsidiary, CMI. International acquisitions were made by Syncor Overseas Ltd. In April 1999, the Company acquired two imaging centers for a total purchase price of $2.5 million plus the assumption of $1.0 million in debt. The Company also purchased the minority interests in certain open MRI sites for $6.8 million in 1999. During September 1999, the Company acquired a three-site operation in the Victorville, California area for $3.4 million plus the assumption of $1.7 million in debt. In addition, the Company completed the purchase of the remaining interest that the Company does not already own in two sites for $2.7 million plus the assumption of $2.5 million in debt. The remaining site acquisition was in Santa Maria, California for a total purchase price of $2.8 million. During March 2000, the Company acquired four imaging center sites. The first was the acquisition of three sites previously managed by the Company for a price of $2.7 million plus the assumption of $2.1 million in debt. The second was a site acquisition in Boynton Beach, Florida for a purchase price of $0.2 million plus the assumption of $1.3 million in debt. During April 2000, the Company acquired the remaining interest in seven managed imaging center sites for a total acquisition price of $8.7 million plus the assumption of $1.0 million of debt. During September 2000, the Company acquired 13 imaging centers located in California and Florida for a total acquisition price of $31 million plus the assumption of $1.3 million in debt. In addition, the Company acquired certain PET production facilities for an acquisition price of $.9 million plus the assumption of $5.8 million in debt. During November 2000, the Company acquired an imaging center and a catheterization laboratory in Trinidad and Tobago for an acquisition price of $2.0 million. In addition, the Company acquired a nuclear medicine business in Puerto Rico for $.75 million. In December 2000, the Company acquired an imaging center in Phoenix, Arizona for an acquisition price of $4.7 million plus the assumption of $4.2 million in debt. The Company accounted for these transactions as purchases and the purchase prices were allocated to accounts receivable, fixed assets and goodwill. Goodwill for these acquisitions is being amortized from 15 to 20 years. The results of operations related to the above 2000 and 1999 transactions are included in the Company's consolidated financial statements from the effective acquisition dates. The following unaudited pro forma information presents a summary of our consolidated results of operation as if the acquisitions had occurred on January 1, 1999:
YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE) 2000 1999 ________________________________________________________________________________ Sales $676,196 $577,545 Net Earnings $ 34,303 $ 22,260 Net Earnings per diluted share (continuing operations) $ 1.29 $ 0.87 ________________________________________________________________________________
These unaudited proforma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that would have occurred or the future results of operations of the consolidated entities. NOTE 3. PROPERTY AND EQUIPMENT, NET The major classes of property were as follows:
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 ____________________________________________________________________________ Land and buildings $ 14,197 $ 7,785 Furniture and equipment 142,486 96,383 Leasehold improvements 27,290 18,411 Construction in progress 7,463 4,161 ____________________________________________________________________________ 191,436 126,740 Less accumulated depreciation and amortization (77,150) (60,100) ____________________________________________________________________________ $114,286 $ 66,640 ============================================================================
NOTE 4. MARKETABLE INVESTMENT SECURITIES Marketable investment securities consist of:
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 _________________________________________________________________________________ Available-for-sale, at fair value, net of tax effect $ 690 $ 685 Held-to-maturity, at amortized cost 500 500 _________________________________________________________________________________ $1,190 $1,185 =================================================================================
The amortized cost, gross unrealized holding gains and losses and fair value for available-for-sale and held-to-maturity securities by major security type at December 31, 2000 and 1999 were as follows:
2000 UNREALIZED AMORTIZED HOLDING HOLDING FAIR (IN THOUSANDS) COST GAINS LOSSES VALUE ___________________________________________________________________________ Available-for-sale: Corporate debt securities $ 697 $ - $ (7) $690 ___________________________________________________________________________ Held-to-maturity: U.S. Treasury securities 500 - - 500 ___________________________________________________________________________ $1,197 $ - $ (7) $1,190 ===========================================================================
1999 UNREALIZED AMORTIZED HOLDING HOLDING FAIR (IN THOUSANDS) COST GAINS LOSSES VALUE ___________________________________________________________________________ Available-for-sale: Corporate debt securities $ 697 $ 55 $(67) $ 685 ___________________________________________________________________________ Held-to-maturity: U.S. Treasury securities 500 - - 500 ___________________________________________________________________________ $1,197 $ 55 $(67) $1,185 ===========================================================================
The unrealized holding losses on held-to-maturity securities have not been recognized in the accompanying consolidated financial statements. Maturities of investment securities classified as available-for-sale and held-to-maturity at December 31, 2000 and 1999 were as follows:
2000 1999 _________________________________________________________________________________ AMORTIZED FAIR AMORTIZED FAIR (IN THOUSANDS) COST VALUE COST VALUE _________________________________________________________________________________ Available-for-sale: Due after one year through five years $499 $499 $499 $493 Due after five years through ten years $198 $191 $198 $192 Held-to-maturity: Due within one year $500 $500 $500 $500 =================================================================================
NOTE 5. LINE OF CREDIT At December 31, 2000, the Company had an unsecured revolving line of credit for short-term borrowings aggregating $150,000,000, which is available through October 17, 2005. The line of credit was increased from $100,000,000 to $150,000,000 effective October 17, 2000. The terms of this revolving credit line include two interest rate borrowing options, the Eurodollar rate plus an applicable margin or the bank's Prime rate (9.5 percent at December 31, 2000). As of December 31, 2000, the availability of the line of credit was reduced by $1.2 million as a result of outstanding standby letters of credit resulting in available credit of $40.7 million. To maintain this line of credit, the Company is required to pay a quarterly commitment fee of 1/4 of one percent per annum on the unused portion. The line of credit agreement specifies that certain covenants (including limitations on investments and acquisitions, new borrowings and issuance of new stock) be maintained. Certain financial ratios (including minimum Net Worth, EBITDA ratio and Fixed Charge Coverage ratio) also need to be maintained under this agreement. As of December 31, 2000, the Company was in compliance with all debt covenants under the credit line agreement. NOTE 6. LONG TERM DEBT The Company's long-term debt was as follows:
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 ____________________________________________________________________________________________ Notes payable, unsecured, payable in installments through 2012, with effective interest rates ranging from 8.19% to 9% $ 905 $ 919 ____________________________________________________________________________________________ Note payable, unsecured, payable in installments through 2001, with a floating interest rate of either the lower of prime or LIBOR plus .75%, 6.97% and 6.57% at December 31, 2000 and 1999, respectively 1,685 3,371 ____________________________________________________________________________________________ Notes payable, secured, payable in installments through 2003, with a non-interest bearing rate, net of unamortized discount at 8.38% to 9.58% of $47 and $110 at December 31, 2000 and 1999, respectively 2,519 1,575 ____________________________________________________________________________________________ Note payable, unsecured, payable in installments through 2002, with a floating interest rate of LIBOR plus .95%, 7.39% and 6.95% at December 31, 2000 and 1999, respectively 5,275 5,975 ____________________________________________________________________________________________ Line of credit, unsecured, payable in lump sum on October 1, 2005 with a floating interest rate of LIBOR plus 1.50% or prime rate, with interest rates ranging from 8.18% to 9.50% and with average interest rate for 2000 of 7.82% 108,100 52,700 ____________________________________________________________________________________________ Notes payable, payable in varying installments through 2012 with effective interest rates ranging from 5.28% to 11.5% 6,817 7,878 ____________________________________________________________________________________________ Non-Compete agreement paid in varying installments through 2002, with effective interest rate of 6% 264 668 ____________________________________________________________________________________________ Capital Lease obligations, payable in installments through 2005, with effective interest rates from 5.51% to 15.57% 24,412 12,552 ____________________________________________________________________________________________ Total debt 149,977 85,638 ____________________________________________________________________________________________ Less current maturities of long-term debt 12,091 9,312 ____________________________________________________________________________________________ Long-term debt, net of current maturities $137,886 $ 76,326 ============================================================================================
At December 31, 2000, long-term debt maturing over the next five years is as follows: 2001, $12,091; 2002, $12,360; 2003, $5,994; 2004, $113,064; 2005, $3,680 and $2,788 thereafter. Interest paid was $10,128, $6,945, and $5,392 for the years ended December 31, 2000, 1999 and 1998, respectively. NOTE 7. INCOME TAXES Total income tax expense for the years ended December 31, 2000 and 1999 was allocated as follows:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 _______________________________________________________________________________________ Domestic income $18,155 $13,914 $10,254 Foreign income 1,536 781 - Total income from continuing operations 19,691 14,695 10,254 Stockholders' equity for compensation expense for for tax purposes in excess of amounts recognized for financial reporting (6,262) (2,743) (445) _______________________________________________________________________________________ $13,429 $11,952 $9,809 =======================================================================================
Income tax expense (benefit) attributable to income from continuing operations consisted of:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 _______________________________________________________________ Current: Federal $16,963 $ 9,281 $ 8,022 Foreign 1,551 781 0 State 3,863 2,324 1,715 _______________________________________________________________ 22,377 12,386 9,737 Deferred: Federal (2,212) 2,163 625 Foreign (15) 0 0 State (459) 146 (108) _______________________________________________________________ (2,686) 2,309 517 _______________________________________________________________ $19,691 $14,695 $10,254 ===============================================================
The amounts differed from the amounts computed by applying the federal income tax rate of 35 percent to pretax income from continuing operations as a result of the following:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 1998 ____________________________________________________________________________________________ Federal income taxes at "expected" rate $17,230 $ 11,871 $ 8,465 Increase (reduction) in income taxes resulting from: Meals and entertainment 273 221 205 Tax exempt interest (53) (50) (95) Non-deductible amortization of intangible assets 407 365 343 Foreign losses and foreign tax rate differential 926 1,027 789 State taxes, net of Federal benefit 2,213 1,605 1,045 Utilization of general business credits (1,340) (631) (578) Other 34 287 80 ____________________________________________________________________________________________ $19,690 $14,695 $10,254 ============================================================================================
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999, are presented below:
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 ___________________________________________________________________________________________ Deferred tax assets: Net operating loss and credit carryforwards $ 66 $ 232 Compensated absences, principally due to accrual for financial reporting purposes 2,253 1,799 Accounts receivable, due to allowance for doubtful accounts 3,469 1,490 Accrued liabilities, primarily due to self-insurance and other contingency accruals for financial reporting purposes 3,536 1,881 Deferred compensation, due to accrual for financial reporting purposes 3,341 3,159 Covenant not to compete due to difference in amortization 542 602 Other 754 481 ___________________________________________________________________________________________ Total gross deferred tax asset $13,961 $9,644 ===========================================================================================
DECEMBER 31, DECEMBER 31, (IN THOUSANDS) 2000 1999 ___________________________________________________________________________________________ Deferred tax liabilities: Plant and equipment, due to difference in depreciation $1,801 $1,203 Partnership basis, due to book to tax differences at partnership level 621 501 Deferred expenses 126 150 Goodwill 3,147 2,420 Other 255 45 ___________________________________________________________________________________________ Total gross deferred tax liabilities $5,950 $4,319 ___________________________________________________________________________________________ Net deferred tax asset $8,011 $5,325 ===========================================================================================
Management has reviewed the recoverability of deferred income tax assets and has determined that it is more likely than not that the deferred tax assets will be fully realized through future taxable earnings. The net deferred tax asset is recorded on the balance sheet in Prepaid and other current assets. Income tax payments amounted to $12,299, $7,704, and $9,613 for the years ended December 31, 2000, 1999, and 1998 respectively. Deferred income taxes have not been provided on the undistributed earnings of foreign subsidiaries and other foreign investments carried at equity. The amount of such earnings included in consolidated retained earnings at December 31, 2000 was approximately $4,325. These earnings have been substantially reinvested, and we do not plan to initiate any action that would precipitate the payment of income taxes thereon. NOTE 8. COMMITMENTS The Company leases facilities, vehicles and equipment with terms ranging from three years to fifteen years. The majority of property leases contain renewal options and some have escalation clauses for increases in property taxes, Consumer Price Index and other items. The Company leases certain items of equipment under capital leases which had an approximate cost of $29,039, $17,144, and $13,148, at December 31, 2000, 1999 and 1998 respectively, and accumulated depreciation of $7,139, $5,603, and $4,702, respectively. The cost increase over the prior year was due primarily to the acquisition of the medical imaging businesses of CMI and their related capital leases. The Company was not fully utilizing a building and, accordingly, sublet a portion of it to a third party for the balance of the lease term. Future minimum lease payments under capital leases and noncancelable operating leases with terms greater than one year and related sublease income at December 31, 2000 were as follows:
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES SUBLEASE INCOME (IN THOUSANDS) ________________________________________________________________________________________ 2001 $ 8,486 $11,871 $ 85 2002 7,563 9,421 5 2003 5,987 7,780 - 2004 4,738 5,966 - 2005 2,263 4,152 - Thereafter - 6,526 - ________________________________________________________________________________________ $29,037 $45,716 $ 90 ======================================================================================== Less amount representing interest (4,625) ________________________________________________________ Present value of net minimum lease payments $24,412 ========================================================
Rental expense under operating leases was $11,450, $10,173, and $8,199 for the years ended December 31, 2000, 1999 and 1998, respectively. NOTE 9. STOCK OPTIONS AND RIGHTS Options to purchase common stock have been granted under various plans to officers, directors and other employees at prices equal to the market prices at date of grant. An aggregate of 11,082,000 shares have been authorized for issuance under the various plans as of December 31, 2000. Options are generally exercisable at a rate of 25 percent per year beginning one year from the date of grant and expire ten years after the date of grant. At December 31, 2000, 3,205,000 shares were reserved for issuance under the various plans. The per share weighted-average fair value of stock options granted during 2000, 1999 and 1998 was $20.14, $21.47, and $11.34, respectively, on the date of grant using the Black Scholes option- pricing model with the following weighted-average assumptions: 2000 expected dividend yield of 0%, risk-free interest rate of 6.33%, expected volatility of 63.25% and an expected life of 5.63 years. 1999 expected dividend yield of 0%; risk-free interest rate of 5.62%; expected volatility of 58.7% and an expected life of 5.21 years; 1998 expected dividend yield of 0%; risk-free interest rate of 4.8%; expected volatility of 60.4% and an expected life of 5.19 years. The Company applies APB Opinion No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the Consolidated Statements of Operations. Had the Company determined compensation cost based on the fair value at the grant date for its stock options under SFAS No. 123, the Company's net income would have been reduced to the pro forma amounts indicated in the following table:
YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 1998 __________________________________________________________________________________ Net income As reported $29,538 $19,221 $13,931 Pro forma $11,307 $15,545 $11,343 Earnings per share Basic: As reported $ 1.23 $ 0.82 $ 0.65 Pro forma $ 0.47 $ 0.66 $ 0.53 Diluted: As reported $ 1.11 $ 0.75 $ 0.61 Pro forma $ 0.42 $ 0.61 $ 0.50 ==================================================================================
A summary of employee stock options is as follows:
WEIGHTED NUMBER OF AVERAGE (IN THOUSANDS, EXCEPT SHARE PRICE) SHARES EXERCISE PRICE ___________________________________________________________________________ Outstanding at December 31, 1997 2,822 $ 5.11 Granted 3,370 $ 8.28 Exercised (408) $ 6.02 Cancelled (86) $ 5.10 ___________________________________________________________________________ Outstanding at December 31, 1998 5,698 $ 6.88 Granted 2,144 $15.60 Exercised (806) $ 4.63 Cancelled (482) $ 8.68 ___________________________________________________________________________ Outstanding at December 31, 1999 6,554 $ 9.47 Granted 2,818 $29.71 Exercised (865) $ 6.87 Cancelled (630) $10.46 ___________________________________________________________________________ Outstanding at December 31, 2000 7,877 $16.70 ===========================================================================
At December 31, 2000, the range of exercise prices and weighted average remaining contractual life of outstanding options was $4.25 to $38.00 and eight years, respectively. At December 31, 2000, 1999, and 1998, the number of options exercisable was approximately 3,269,000, 1,976,000 and 2,008,000, respectively, and the weighted average exercise price of those options was $14.86, $6.40, and $5.58, respectively. The Company derives a tax benefit from the options exercised and sold by employees and the benefit is credited to additional paid-in capital. In September 1999, the Company adopted a new Rights Plan and declared a dividend distribution of one right for each outstanding share of the Company's common stock. The new Rights Plan replaced the Company's original rights plan, which was set to expire in September 1999. The rights under the new Rights Plan are set to expire in September 2009, unless redeemed earlier by the Board. At least once every three years, an independent committee of the Board will review the Rights Plan and, if the committee deems it appropriate, recommend to the entire Board that the Rights Plan be modified or terminated. Each right represents the right to purchase, if and when the right becomes exercisable, a unit consisting of one share of Syncor common stock at a per unit price of $90 (the "Purchase Price"). The rights generally will be exercisable only if a person or group (an "Acquiring Person") acquires beneficial ownership of 15% or more of Syncor's common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 15% or more of Syncor's common stock (other than as a result of repurchases of stock by Syncor, or certain purchases by institutional or similar stockholders so long as they do not own 20% or more). In the event any person becomes an Acquiring Person (other than pursuant to an offer for all shares that the majority of the independent directors not associated or affiliated with the Acquiring Person determines to be adequate and otherwise in the best interest of the Company and its stockholders), each of the rights becomes a discount right entitling the holder (other than the Acquiring Person) upon payment of the Purchase Price, to common stock having a value equal to twice the Purchase Price (i.e., $180 worth of Syncor stock for a purchase price of $90). If following someone becoming an Acquiring Person, the Company engages in a merger or other business combination in which the Company does not survive or the common stock is changed or exchanged, or transfers more than 50% of its assets, cash flow or earning power in one transaction or a series of related transactions, each right becomes a right (except for the Acquiring Person) to acquire common shares of the other party to the transaction having a value equal to twice the Purchase Price. NOTE 10. EMPLOYEE BENEFIT PLANS The Company's 401(k) plan is open to all employees who are at least 18 years of age and have a minimum of twelve consecutive months of service. In 1989, the Company's Board of Directors amended the plan to an Employees' Savings and Stock Ownership Plan (ESSOP) to allow the plan to acquire two million of the Company's shares through a leveraged employee stock ownership plan transaction. In June 1995, September 1996, and August 1997, an additional 1,500,000 shares, in total, which were purchased in the open market, were contributed to the plan. These shares were originally classified as "treasury stock." The contributions totaled $8,657,000 and reflected the fair market value at the time of contribution. In connection with these transactions, the Company made a loan to the ESSOP. The ESSOP loan had an outstanding balance of $1,685,000 at December 31, 2000. Under the ESSOP, participants may contribute one percent to fourteen percent of their compensation to 401(k) investment options and an additional two percent of their compensation to purchase Company stock. The Company makes matching contributions to 50 percent of the employees' 401(k) investment contributions up to a maximum of four percent of the employees' compensation and to 100 percent of the employees' Company stock purchases up to two percent of the employees' compensation. The Company's matching contribution is made in Company stock and reflects the ESSOP loan payment. The number of shares of stock available to match employee contributions is directly related to the amount of principal payments made on the ESSOP loan. Once the number of available shares is determined, the Company matches the employees' contributions as described above by determining the fair market value of the available stock. The remainder of any shares not allocated after all matching is complete will be allocated to all eligible employees based on relative compensation. Participants are fully and immediately vested in their contributions and vest in employer contributions over a five-year period of continuous employment. After five years of continuous employment, any further employer contributions are fully and immediately vested. The Company's contributions for the years ended December 31, 2000, 1999 and 1998 amounted to $1,895,000, $1,957,000, and $2,091,000, respectively, of which $1,685,000, $1,686,000, and $1,685,000, respectively, were used to pay down principal on the ESSOP loan and $210,000, $271,000, and $406,000, respectively, to pay interest. NOTE 11. NET INCOME PER SHARE The following table presents the computation of basic earnings per share (EPS):
(IN THOUSANDS, FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED EXCEPT PER SHARE DATA) DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 Income Shares Per Share Income Shares Per Share Income Shares Per Share (Numerator)(Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ______________________________________________________________________________________________________________________________ Income from continuing Operations $29,538 $19,221 $13,931 Basic EPS $29,538 23,948 $1.23 $19,221 23,340 $0.82 $13,931 21,452 $0.65 ===== ===== ===== Effect of Dilutive Stock Options 2,709 2,138 1,226 _____ _____ _____ Diluted EPS $29,538 26,657 $1.11 $19,221 25,478 $0.75 $13,931 22,678 $0.61 ===== ===== =====
NOTE 12. LITIGATION AND CONTINGENCIES There are various litigation proceedings in which the Company and its subsidiaries are involved. Many of the claims asserted against the Company in these proceedings are covered by insurance. The results of litigation proceedings cannot be predicted with certainty. However, in the opinion of the Company's general counsel, such proceedings either are without merit or do not have a potential liability which would materially affect the financial condition of the Company and its subsidiaries on a consolidated basis. NOTE 13. BUSINESS SEGMENTS The Company is currently in three different business segments: The first segment is the compounding, dispensing, and distribution of radiopharmaceuticals in the United States. The second segment is the provision of medical diagnostic imaging services in the United States. The third segment is the compounding, dispensing, and distribution of radiopharmaceuticals and the provision of radiology services outside of the United States. Prior to 1998, the Company had only minimal participation in segments other than the radiopharmaceuticals segment.
(IN THOUSANDS) U.S. PHARMACY SERVICES BUSINESS 2000 1999 ___________________________________________________________________________ Revenues $488,983 $440,322 Operating Income $ 58,706 $ 48,090 Total Assets $160,256 $106,010 Capital Expenditures $ 4,707 $ 3,714 Depreciation/Amortization $ 4,097 $ 4,256 U.S. MEDICAL IMAGING BUSINESS 2000 1999 ___________________________________________________________________________ Revenues $100,848 $ 55,187 Operating Income $ 12,467 $ 5,881 Total Assets $192,826 $122,020 Capital Expenditures $ 9,815 $ 5,961 Depreciation/Amortization $ 13,132 $ 7,674 INTERNATIONAL OPERATIONS 2000 1999 ___________________________________________________________________________ Revenues $ 39,563 $ 24,800 Operating Income $ 1,864 $ 55 Total Assets $ 66,806 $ 38,478 Capital Expenditures $ 9,300 $ 8,002 Depreciation/Amortization $ 3,503 $ 2,742 UNALLOCATED CORPORATE 2000 1999 ___________________________________________________________________________ Operating Loss $(16,722) $(14,528) Total Assets $ 50,683 $ 46,134 Capital Expenditures $ 7,567 $ 6,786 Depreciation/Amortization $ 5,577 $ 4,843
OPERATING TOTAL GEOGRAPHIC SEGMENTS REVENUES INCOME ASSETS ___________________________________________________________________________ United States 2000 $589,831 $ 54,451 $403,765 1999 $495,509 $ 39,443 $274,164 Rest of World 2000 $ 39,563 $ 1,864 $ 66,806 1999 $ 24,800 $ 55 $ 38,478 ============================================================================
SELECTED QUARTERLY RESULTS OF OPERATIONS The unaudited quarterly operating results in the Selected Quarterly Results of Operations have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, include all adjustments necessary for a fair presentation for the periods presented. Unaudited calendar quarterly information is summarized below:
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2000 __________________________________________________________________________________________ Net sales $148,958 $154,366 $155,462 $170,608 $629,394 Gross profit $ 50,958 $ 55,479 $ 55,418 $ 62,991 $224,846 Net income $ 7,480 $ 9,078 $ 6,258 $ 6,722 $ 29,538 Net income per share: Basic $ .32 $ .38 $ .26 $ .28 $ 1.23 Diluted $ .30 $ .34 $ .23 $ .25 $ 1.11 Weighted average shares outstanding: Basic $ 23,726 $ 23,772 $ 24,091 $ 24,201 $ 23,948 Diluted $ 25,190 $ 26,328 $ 27,374 $ 26,936 $ 26,657 __________________________________________________________________________________________ Market price per share High $ 16.50 $ 36.00 $ 43.95 $ 39.06 $ 43.95 Low $ 11.02 $ 13.00 $ 32.75 $ 23.75 $ 11.02 __________________________________________________________________________________________
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 1999 __________________________________________________________________________________________ Net sales $123,868 $130,290 $131,508 $134,643 $520,309 Gross profit $ 38,582 $ 43,245 $ 42,705 $ 44,789 $169,321 Net income $ 5,029 $ 6,387 $ 3,194 $ 4,611 $ 19,221 Net income per share: Basic $ 0.22 $ 0.27 $ 0.14 $ 0.19 $ 0.82 Diluted $ 0.20 $ 0.25 $ 0.12 $ 0.18 $ 0.75 Weighted average shares outstanding: Basic 22,726 23,350 23,610 23,692 23,340 Diluted 24,786 25,514 25,874 25,682 25,478 __________________________________________________________________________________________ Market price per share: High $ 17.25 $ 18.00 $ 20.00 $ 20.36 $ 20.36 Low $ 12.25 $ 12.96 $ 14.50 $ 13.37 $ 12.25 __________________________________________________________________________________________