10-Q 1 firstq.txt 1ST QTR 2001 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 _______________________ FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 _______________________ For Quarter Ended March 31, 2001 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 Identification No.) incorporation or organization) 6464 Canoga Avenue, Woodland Hills, California 91367 (Address of principal executive offices) (Zip Code) (818) 737-4000 (Registrant's telephone number, including area code) 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. As of March 31, 2001, 24,449,788 shares of $.05 par value common stock were outstanding. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX _____ PAGE ____ Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Balance Sheets as of March 31, 2001 and December 31, 2000 . . . . . . . . . . . . . 3 Statements of Income for Three Months Ended March 31, 2001 and 2000 . . . . . . . . . . . . . . . . 4 Statements of Cash Flows for Three Months Ended March 31, 2001 and 2000 . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition . . 9 Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . 12 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Condensed Consolidated Balance Sheets (in thousands) March 31, December 31, 2001 2000 _________ ___________ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 19,487 $ 24,330 Short-term investments 5,722 4,156 Trade receivables, net 89,826 81,716 Patient receivables, net 48,990 37,686 Inventory 22,715 59,926 Prepaids and other current assets 20,007 16,023 Total current assets 206,747 223,837 ______________________ Marketable investment securities 1,192 1,190 Property and equipment, net 126,840 114,286 Excess of purchase price over net assets acquired, net 115,249 108,530 Other assets 21,896 22,728 ______________________ $471,924 $470,571 ====================== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 30,629 $ 83,683 Accrued liabilities 22,061 22,371 Accrued wages and related costs 13,353 19,796 Federal and state taxes payable 9,323 5,543 Current maturities of long-term debt 10,435 12,091 ______________________ Total current liabilities 85,801 143,484 Long-term debt, net of current maturities 181,559 137,886 Deferred Taxes 4,423 3,321 Stockholders' equity: Common stock, $.05 par value 1,386 1,376 Additional paid-in capital 111,431 107,268 Notes receivable-related parties (11,307) (16,796) Employee savings and stock ownership loan guarantee (1,264) (1,685) Accumulated other comprehensive income (loss) (1,381) (1,245) Retained earnings 124,226 114,019 Treasury stock, at cost; 3,248 shares at March 31, 2001 and 3,072 shares at December 31, 2000 (22,950) (17,057) ______________________ Net stockholders' equity 200,141 185,880 ______________________ $471,924 $470,571 ====================== See notes to condensed consolidated financial statements.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Income (in thousands, except per share data) Three Months Ended March 31, ____________________________ 2001 2000 ____ ____ (Unaudited) Net sales $181,416 $148,958 Cost of sales 112,727 98,000 ______________________ Gross profit 68,689 50,958 Operating, selling and administrative expenses 39,011 32,008 Depreciation and amortization 8,659 5,282 ______________________ Operating income 21,019 13,668 Other expense, net (4,008) (1,197) ______________________ Income before taxes 17,011 12,471 Provision for income taxes 6,804 4,991 ______________________ Net income $10,207 $ 7,480 ====================== Net income per share - Basic $0.42 $0.32 ====================== Weighted average shares outstanding - Basic 24,473 23,726 ====================== Net income per share - Diluted $0.38 $0.30 ====================== Weighted average shares outstanding - Diluted 27,101 25,190 ====================== See notes to condensed consolidated financial statements.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) Three Months Ended March 31, ____________________________ 2001 2000 ____ ____ (Unaudited) Cash flows from operating activities: Net income $ 10,207 $ 7,480 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,659 5,282 Provision for losses on receivables 1,882 1,124 Amortization of ESSOP loan guarantee 421 421 Deferred taxes 1,102 - Decrease (increase) in: Accounts receivable, trade (8,180) (9,036) Accounts receivable, patient (10,630) (4,412) Inventory 37,225 10,807 Other current assets (4,279) (453) Other assets 619 185 Increase (decrease) in: Accounts payable (53,025) (1,724) Accrued liabilities (265) 1,056 Accrued wages and related costs (6,480) (1,184) Federal and state taxes payable 5,651 4,735 _______________________ Net cash provided by (used in) operating activities (17,093) 14,281 _______________________ Cash flows from investing activities: Purchase of property and equipment, net (10,219) (5,727) Acquisitions of businesses, net of cash acquired (15,678) (2,738) Net increase in short-term investments (1,569) (3,257) Net decrease in long-term investments 1 69 _______________________ Net cash used in investing activities (27,465) (11,653) _______________________ Cash flow from financing activities: Proceeds from long-term debt 38,682 5,591 Repayment of long-term debt (1,098) (2,460) Notes receivable-related parties 5,489 - Issuance of common stock 2,288 1,354 Reacquisition of common stock for treasury (5,893) (3,431) _______________________ Net cash provided by financing activities 39,468 1,054 _______________________ Net increase (decrease) in cash and cash equivalents (5,090) 3,682 Effect of changes in exchange rates on cash 247 (1) Cash and cash equivalents at beginning of period 24,330 13,352 _______________________ Cash and cash equivalents at end of period $19,487 $17,033 ======================= See notes to condensed consolidated financial statements.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements GENERAL _______ The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the three months ended March 31, 2001, are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. Certain line items in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. COMPREHENSIVE INCOME (LOSS) ___________________________ Other comprehensive income includes foreign currency translation adjustments and net unrealized gains and losses on investments in equity securities. Such amounts are as follows:
Three Months Ended __________________ March 31, 2001 March 31, 2000 ______________ ______________ Tax Tax Before-Tax (expense) Net of Tax Before-Tax (expense) Net of Tax Amount or benefit Amount Amount or benefit Amount _______________________________ _______________________________ Foreign currency translation Adjustments (139) - (139) (74) - (74) Unrealized gains (losses) on investments: Unrealized holding gains (losses) arising during period 4 (1) 3 112 (45) 67 _______________________________________________________________ Other comprehensive income (loss) (135) (1) (136) 38 (45) (7) Net income (loss) 17,011 (6,804) 10,207 12,471 (4,991) 7,480 _______ ________ _______ _______ ________ ______ Total comprehensive income $16,876 $(6,805) $10,071 $12,509 $(5,036) $7,473 ======= ======== ======= ======= ======== ======
SEGMENT INFORMATION ___________________ Syncor has identified three primary operating segments: U.S.Pharmacy Services, U.S. Medical Imaging and International Operations. Segment selection was based upon internal organizational structures, the way these operations are managed and evaluated, the availability of separate financial results, and materiality considerations. Segment detail is summarized as follows:
Three Months Ended __________________ March 31, 2001 March 31, 2000 ______________ ______________ Pharmacy Services Business __________________________ Revenues $133,309 $122,210 Operating Income $ 19,811 $ 15,131 Medical Imaging Business ________________________ Revenues $ 37,642 $ 17,927 Operating Income $ 4,217 $ 1,686 International Operations ________________________ Revenues $ 10,465 $ 8,821 Operating Income $ 353 $ 783 Unallocated Corporat ____________________ Operating Loss $ (3,362) $ (3,932)
NET INCOME PER SHARE ____________________ Basic earnings per share (EPS) amounts are computed by dividing earnings applicable to common stockholders by the average number of shares outstanding. Diluted EPS amounts assume the issuance of common stock for all potentially dilutive equivalents outstanding. Anti-dilutive outstanding stock options have been excluded from the diluted calculation. The reconciliation of the numerator and denominators of the basic and diluted earnings per share computations are as follows for the three months ended March 31, 2001 and 2000:
Three Months Ended __________________ March 31, 2001 March 31, 2000 __________________________________ __________________________________ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount __________________________________________________________________________________________ Net income $10,207 $7,480 Basic EPS $10,207 24,473 $.42 $7,480 23,726 $.32 ____ ____ Effect of Dilutive Stock Options 2,628 1,464 _____ _____ Diluted EPS $10,207 27,101 $.38 $7,480 25,190 $.30 ____ ____
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations For the Three Months Ended March 31, 2001 and 2000 NET SALES _________ Consolidated net sales for the three months ended March 31, 2001 increased 21.8% or $32.4 million to $181.4 million versus $149.0 million for the first quarter of 2000. U.S. PHARMACY SERVICES BUSINESS The Pharmacy Services business grew at a pace of 9.1% for the current quarter, which is a result of continued growth in both the overall radiopharmacy market and the Cardiology sector of the Company's business. The overall year-over-year growth rate for the quarter for the Cardiology sector was approximately 12%. Sales of Cardiolite(R), a proprietary technetium-based heart imaging agent to which the Company has preferential U.S. distribution rights, led the growth in Cardiology with approximately a 15% growth rate over the corresponding period. Sales of Cardiolite(R) increased by approximately 12% in volume coupled with a 3.5% price increase. U.S. MEDICAL IMAGING BUSINESS The Company continues to grow the medical imaging business both as a result of the acquisition of sites and growth at existing sites. Overall, sales have increased year-over-year 110% for the first quarter. Growth in this segment of the business has been driven primarily by the US Diagnostic, Inc. acquisition that took place after the first quarter of 2000. Same store sales growth for the quarter was 16.7% or $2.6 million and represented 15% of the increase. At quarter end the Company had 58 domestic imaging centers compared to 42 for the comparable quarter in 2000. The Company expects to continue to grow this business through a combination of growth in existing sites and strategic acquisitions in areas of the country that fit within the Company's overall strategy of becoming a significant provider in certain geographic regions. In order to accomplish these goals, the Company continues to devote additional resources for certain sales and operations positions and consolidation of the billing and collection functions on one platform. INTERNATIONAL OPERATIONS The Company's international operations continue to grow, with sales for the quarter increasing 18.6% as compared to the prior year. Same store growth was flat for the quarter and was impacted by lower sales in the Taiwan sites due to a temporary slowdown in government health care spending. Excluding Taiwan, same store sales growth was 5.4% for the quarter. A number of acquired and start-up sites completed in 2000 generated $3.2 million in additional sales in the quarter. We look for the continued expansion of this segment as these operations mature, and through further strategic acquisitions. GROSS PROFIT ____________ Gross profit for the first quarter increased $17.7 million to $68.7 million. As a percentage of net sales, gross margins reached 37.9% for the first quarter compared to 34.2% for the respective period in 2000. U.S. PHARMACY SERVICES BUSINESS The gross profit from this group continues to increase (from 28.5% in the first quarter of 2000 to 29.4% in the first quarter of 2001) due to the shift from lower margin products to Cardiolite(R) and increased leverage of labor and delivery dollars. Material costs, as a percentage of sales, decreased by 0.2% due to the continued product mix shift to Cardiolite(R) and a price increase that was instituted in January, 2001. Direct labor costs as a percent of sales were reduced in this quarter as compared to the first quarter of 2000 by 0.3% as a result of the continued commitment to staffing controls at the pharmacy locations. U.S. MEDICAL IMAGING BUSINESS The gross profit margin for this group decreased from 69.7% to 66.5% for the first quarter in 2001 as compared to the prior year. This decline is principally from two factors. The first is the conversion of sites from managed sites and the resultant loss of "management fee income" which does not have any "cost of goods sold component" to owned sites. At present, the Company has converted the majority of sites to owned sites so this trend should dissipate in future quarters. The second is an increase in reading fees paid to contracted radiologists. INTERNATIONAL OPERATIONS The gross profit margin for this segment increased from 41.2% in the first quarter of 2000 to 43.0% in the first quarter of 2001. These margins have improved as volumes have increased and efficiencies have improved at the pharmacy sites. The increasing share of revenues generated from owning and managing imaging centers also increased these margins as imaging centers traditionally have lower cost of materials. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES ______________________________________________ Operating, Selling and Administration costs showed a year-over- year increase for the quarter ended March 31, 2001 of approximately 21.9% or $7.0 million. The ratio of these expenses to sales was flat at 21.5% for the comparative quarters. The primary reason this percentage remained flat in the quarter was that the Company accrued certain performance bonuses at a higher rate during the first quarter of 2000 than in the first quarter of 2001, which offset increased expenses associated with the CMI sales growth and acquisitions. DEPRECIATION AND AMORTIZATION _____________________________ Depreciation and amortization increased by $3.4 million for the first quarter of 2001, compared to the first quarter of 2000. The increase is primarily the result of depreciation, goodwill and non-compete costs associated with the Medical Imaging business acquisitions, which accounts for $2.5 million of this increase. In addition, the Company has invested capital in international sites (primarily imaging equipment), which contributed about $0.5 million additionally of this increase. OTHER EXPENSE, NET __________________ The change in Other Expense, Net was primarily the result of increased borrowings and the resultant interest for acquisition debt incurred since the first quarter of 2000. ACQUISITION OF BUSINESSES _________________________ During the first quarter of 2001, the Company made three acquisitions, two of which were outside of the U.S. The first of these was by CMI, which acquired three sites in California at a purchase price of $13.4 million. This completed a series of previously announced acquisitions from US Diagnostic, Inc. The second acquisition was in Brazil for a purchase price of $2.0 million. The third was in New Zealand for a purchase price of $0.3 million. LIQUIDITY AND CAPITAL RESOURCES _______________________________ The Company had cash, cash equivalents and investments of $26.4 million at March 31, 2001 compared with $29.7 million at December 31, 2000. The Company's total debt of $192.0 million at March 31, 2001 reflects an increase of $42.0 million when compared to the balance of $150.0 million at December 31, 2000. The increase for the three months ended March 31, 2001 resulted primarily from the financing of acquisitions which required approximately $16 million and the advance purchase payment of Cardiolite(R) inventory which required approximately $19 million in short-term financing. Working capital increased by $40.6 million to $120.9 million at March 31, 2001 compared to $80.3 million at December 31, 2000. The Company believes that sufficient internal and external sources exist to fund operations and future expansion plans. The Company increased its credit line facility to $190 million on May 10, 2001. Of the original $150 million credit line facility, $1.2 million was available on March 31, 2001. FORWARD LOOKING STATEMENTS __________________________ Except for the historical information and discussions contained herein, statements contained in this Report on Form 10-Q 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 in the Annual Report on Form 10-K 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. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None (b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements 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. SYNCOR INTERNATIONAL CORPORATION (Registrant) /s/ William P. Forster May 15, 2001 By: ________________________________________ William P. Forster Senior Vice President and Chief Financial Officer (Principal Financial/Accounting Officer)