-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, ZBXiplz9m8/99IVPZJW4w8gs70nBfsMYXR8XUPklUHPGBItivHMPbnkrNv7JBA5R RjhtZOoeMA3tvIoIzM2uYw== 0000202763-94-000011.txt : 19940810 0000202763-94-000011.hdr.sgml : 19940810 ACCESSION NUMBER: 0000202763-94-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940809 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNCOR INTERNATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000202763 STANDARD INDUSTRIAL CLASSIFICATION: 5122 IRS NUMBER: 850229124 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-08640 FILM NUMBER: 94542377 BUSINESS ADDRESS: STREET 1: 20001 PRAIRIE ST CITY: CHATSWORTH STATE: CA ZIP: 91311 BUSINESS PHONE: 8188867400 FORMER COMPANY: FORMER CONFORMED NAME: NUCLEAR PHARMACY INC DATE OF NAME CHANGE: 19860309 10-Q 1 ======================================================================== 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 JUNE 30, 1994 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) 20001 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311 (Address of principal executive offices) (Zip Code) (818) 886-7400 (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 June 30, 1994 10,551,536 shares of $.05 par value common stock were outstanding. ======================================================================== 2 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX _____ Page ____ Part I. Financial Information Item 1. Consolidated Condensed Financial Statements Balance Sheets as of June 30, 1994 and December 31, 1993. . . . . . . . . . . . . 2 Statements of Income for three months ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 3 Statements of Income for six months ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 4 Statements of Cash Flows for six months ended June 30, 1994 and 1993. . . . . . . . . . . . . . . . . 5 Notes to Consolidated Condensed Financial Statements. . . . . . 6 Item 2. Management's Discussion and Analysis of Financial Condition. . .7 Part II. Other Information. . . . . . . . . . . . . . . . . . . . . . . 9 SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 3 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share data) JUNE 30, DECEMBER 31, 1994 1993 ___________ _____________ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 12,576 $ 15,110 Short-term investments 1,655 3,590 Accounts receivable, net 51,057 35,052 Inventory 6,473 4,522 Prepaids and other current assets 5,492 5,415 ________ ________ Total current assets 77,253 63,689 Property and equipment, net 26,825 25,122 Excess of purchase price over net assets acquired, net 13,884 14,123 Other assets 10,262 11,652 _______ ________ $128,224 $114,586 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,218 $ 20,817 Accrued alliance development costs 410 4,066 Accrued liabilities 2,950 3,073 Accrued wages and related costs 4,675 5,332 Federal and state taxes payable 1,112 - Short-term debt 500 - Current maturities of long-term debt 2,084 3,280 ________ ________ Total current liabilities 46,949 36,568 ________ ________ Long-term debt, net of current maturities 5,911 6,837 Stockholders' equity: Common stock, $.05 par value 528 518 Additional paid-in capital 44,637 43,786 Unrealized loss on investments (32) - Employee stock ownership loan guarantee (2,417) (2,970) Foreign currency translation adjustment 98 131 Retained earnings 32,550 29,716 ________ ________ Net stockholders' equity 75,364 71,181 ________ ________ $128,224 $114,586 ======== ======== See notes to consolidated condensed financial statements. 4 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) THREE MONTHS ENDED JUNE 30, __________________________________ 1994 1993 ____ ____ (UNAUDITED) Net sales $81,888 $59,656 Cost of sales 64,873 39,614 _______ _______ Gross profit 17,015 20,042 Operating, selling and administrative expenses 15,788 15,106 _______ _______ Operating income 1,227 4,936 Other income, net 52 278 ________ ________ Income from continuing operations before income taxes and discontinued operations 1,279 5,214 Provision for income taxes 535 2,092 _______ ________ Income from continuing operations before discontinued operations 744 3,122 Discontinued operations, net of taxes - 567 _________ ________ Net income $ 744 $ 3,689 ======= ======= Net income per share: Income from continuing operations $ .07 $ .29 Discontinued operations, net - .05 ______ _____ Net income per share $ .07 $ .34 ===== ===== Weighted average shares outstanding 10,830 10,729 ====== ====== See notes to consolidated condensed financial statements. 5 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) SIX MONTHS ENDED JUNE 30, __________________________ 1994 1993 ____ ____ (UNAUDITED) Net sales $156,688 $119,405 Cost of sales 121,252 79,108 _______ _______ Gross profit 35,436 40,297 Operating, selling and administrative expenses 30,891 31,371 _______ _______ Operating income 4,545 8,926 Other income, net 178 563 ________ ________ Income from continuing operations before income taxes and discontinued operations 4,723 9,489 Provision for income taxes 1,889 3,778 _______ ________ Income from continuing operations before discontinued operations 2,834 5,711 Discontinued operations, net of taxes - 120 _________ ________ Net income $ 2,834 $ 5,831 ======== ======= Net income per share: Income from continuing operations $ .26 $ .53 Discontinued operations, net - .01 ______ _____ Net income per share $ .26 $ .54 ====== ===== Weighted average shares outstanding 10,800 10,739 ====== ====== See notes to consolidated condensed financial statements. 6 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) SIX MONTHS ENDED JUNE 30, _____________________________ 1994 1993 ____ ____ (UNAUDITED) Cash flows from operating activities: Net income $ 2,834 $5,831 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,205 3,997 Amortization of ESSOP loan guarantee 553 460 Decrease (increase) in: Accounts receivables, net (16,005) 3,149 Inventory (1,951) 886 Other current assets (77) (1,073) Other assets 202 (2,177) Increase (decrease) in: Accounts payable 14,401 1,687 Accrued alliance development costs (3,656) - Accrued liabilities (123) (188) Accrued wages and related costs (657) 2,896 Federal and state taxes payable 1,112 (234) Deferred income taxes - (101) Foreign currency translation adjustment (33) (81) ________ ________ Net cash provided by operating activities 1,805 15,052 _______ ______ Cash flows from investing and financing activities: Purchase of property and equipment, net (5,481) (2,342) Decrease in short-term investments 1,935 661 Issuance of common stock 861 1,715 Proceeds of short term debt 500 (503) Repayment of long-term debt (2,122) (955) Unrealized loss on investments (32) - ______ ______ Net cash used in investing and financing activities (4,339) (1,424) _______ ______ Net increase in cash and cash equivalents (2,534) 13,628 Cash and cash equivalents at beginning of period 15,110 4,108 _______ ______ Cash and cash equivalents at end of period $12,576 $17,736 ======= ======= See notes to consolidated condensed financial statements. 7 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. GENERAL. The accompanying unaudited consolidated condensed 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 six months ended June 30, 1994, 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 and Form 10-K for the transition period ended December 31, 1993. 2. CHANGE IN FISCAL YEAR. The Company announced a change in its fiscal year-end to December 31 from May 31, beginning with the seven month transition period ended December 31, 1993. The calendar quarters of 1993 have been restated to reflect comparable periods. 3. DISCONTINUED OPERATIONS. On May 31, 1993, the Company completed the divestiture of a minor segment of its business, referred to as its Home Infusion business. The Company's consolidated statements of income reflected a net gain from discontinued operations of $.1 million for the six months ended June 30, 1993. 4. ACCRUED ALLIANCE DEVELOPMENT COSTS. On December 3, 1993, the Company entered into a long-term supplier distribution agreement (the Strategic Alliance) with its principal supplier of radiopharmaceutical products, the Radiopharmaceutical Division of the DuPont Merck Pharmaceutical Company (DuPont Merck). The agreement, which became effective February 1, 1994, replaced an existing supply agreement between the companies which has been in place since 1988. Under the terms of the new agreement, DuPont Merck will rely upon Syncor as the primary distribution channel for its radiopharmaceutical products in the United States. In connection with this agreement, the Company established a reserve for alliance development costs of $4.5 million during the seven months ended December 31, 1993. Included in these charges were $2.8 million of costs related to the launch and implementation of the Strategic Alliance program, $1.1 million of employee-related expenses associated with the consolidation, relocation and reorganization of certain sales and service operations and $.6 million for incremental accounting, legal and regulatory fees. Cash outlays for the six months ended June 30, 1994 amounted to approximately $3.7 million. The remaining reserve of $.4 million at June 30, 1994 is expected to be used during 1994 as the Strategic Alliance is implemented. 5. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115. In May 1993, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115). This Statement supersedes Statement No. 12, "Accounting for Certain marketable Securities." Statement 115 addresses the accounting and reporting for certain investments in debt and equity securities, and expands the use of fair value accounting for these securities. Statement 115 retains the use of the cost method for investment in debt securities when there is intent and ability to hold the securities to maturity. Statement No. 115 is effective for fiscal years beginning after December 15, 1993. The Company adopted Statement 115 in the first quarter of calendar 1994. However, the adoption of this Statement is determined to be immaterial and is not reported separately in the consolidated financial statements. 8 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NET SALES Consolidated net sales for the second quarter of 1994 rose 37.3% or $22.2 million to $81.9 million versus $59.7 million for the second calendar quarter of 1993. For the six months ended June 30, 1994, net sales increased to $156.7 million, a $37.3 million or 31.2% increase. The Company's net sales growth is primarily the result of activity associated with the Strategic Alliance entered into with its principal supplier of radiopharmaceutical products, as discussed in Note 4 of Notes to Consolidated Condensed Financial Statements. The second quarter of 1994 included a full three months of net sales from the Strategic Alliance. Net sales growth also continues to be the result of an increase in procedures performed in the cardiology sector of nuclear medicine (representing approximately 57% of the Company's net sales), the opening and acquisition of new pharmacies and increased market share, offset by aggressive price competition, including a strategic decision made during the first quarter of this year, to reduce the price of the Company's largest single product. This price reduction was deemed necessary as part of a product penetration strategy prior to the expected introduction of a competing cardiac imaging agent. GROSS PROFIT Gross profit for the second quarter of 1994 decreased to $17.0 million, a reduction from $20.0 million for the comparable 1993 period. Gross profit as a percentage of net sales also declined during the current quarter to 20.8% versus 33.6% in 1993. For the six months ended June 30, 1994, gross profit decreased to $35.4 million or 22.6% of sales, down from $40.3 million or 33.7% of sales. The decline in the gross profit percentage is the result of a variety of factors. These factors include aggressive price reductions across the majority of Syncor's product line due to competitive pressures, material cost increases and initial lower margins as a result of the implementation of the Strategic Alliance with DuPont Merck, as well as a higher mix of national account contracts which offer discounted prices in exchange for volume. The Company has also experienced a decline in the volume and pricing in some of its core (non-cardiology) products, due to changes in certain physician practice patterns. Other protocol changes have also emerged in cardiology which have caused a change in mix within this sector of the Company's business. Material costs, as a percentage of pharmacy sales, have been rising due to price increases from suppliers. Current government focus on health care cost containment and managed care, as well as aggressive price competition, has made it difficult to cover these costs through price increases. In response to health care reform pressures and overall changes in the market, the Company made a strategic decision in the first quarter to reduce the pricing of its largest single product in order to increase market penetration, as discussed above. The Company anticipates most of these trends to continue throughout the balance of the year. The Company continues to invest in the start-up and opening of new centralized radiopharmacies. These pharmacies have a dilutive effect on gross margin until they reach a certain level of net sales. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES Operating, selling and administrative expenses rose 4.5% for the second quarter or $.7 million to $15.8 million and declined as a percentage of sales to 19.3% from 25.3% for the same period of 1993. For the six month period ended June 30, 1994, these expenses declined 1.5% or $.5 million and also decreased as a percentage of sales to 19.7% from 26.3%. The 4.5% increase for the second quarter is due primarily to depreciation and amortization expense associated with the acquisition and start-up of new radiopharmacies, and a full three months of operating and administrative costs from implementation of the strategic alliance. The six month overall decrease reflects the Company's continued success in its efforts to tightly control operating expenses. The Company was able to produce a significant increase in net sales without corresponding increases in operating expenses. 9 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OPERATING, SELLING AND ADMINISTRATIVE EXPENSES (CONTINUED) The Company continues, as a part of its overall business strategy, to invest in developmental business opportunities. These opportunities require ongoing resources in the area of operating, selling and administrative expenses. LIQUIDITY AND CAPITAL RESOURCES The Company had cash, cash equivalents and short-term investments of $ 14.2 million at June 30, 1994, compared with $18.7 million at December 31, 1993. Working capital increased $3.2 million to $30.3 million while the current ratio decreased to 1.65 from 1.74. Days Sales Outstanding increased to 56 days at June 30, 1994 compared to 52 days at December 31, 1993. This increase results from a slight erosion in the Company's unit dose business and the Company's expanded customer base associated with implementing the Strategic Alliance. The decrease in the Company cash position is the result of continued expenditures for the alliance implementation, such as financing of accounts receivable, acquisition of independent radiopharmacies, start-up of new radiopharmacies, the re-equipping of existing radiopharmacies and information technology for both internal and customer uses. These programs are expected to continue through 1994 and will be funded with proceeds from operations. The nature of the Company's business is not capital intensive and, as new products become available, the capital requirement to accommodate these products will be minimal. The Company believes sufficient internal and external capital sources exist to fund operations and future expansion programs. At June 30, 1994, the Company had unused lines of credit of $14.3 to fund short-term cash needs. Borrowings outstanding on the line of credit at June 30, 1994 were $.5 million, compared to no borrowings at December 31, 1993. Finally, the Company reduced its debt position from $10.1 million at December 31, 1993 to $8 million, a decrease of $2.1 million for the six months ended June 30, 1994. During the quarter, the Company announced that the Board of Directors approved the repurchase of up to 500,000 shares of its common stock from time to time in the open market. At June 30, 1994, 100,000 shares had been purchased at an average price of $9.08 per share. 10 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES PART II. OTHER INFORMATION ESSOP SHARES ____________ On June 15, 1994, the Company announced that the Board of Directors has approved the repurchase of up to 500,000 shares of its common stock from time to time in the open market. Up to 250,000 shares could be contributed to the Syncor Employees' Savings and Stock Ownership Plan (ESSOP). As of this filing, the Company has purchased 250,000 shares in the open market at an average price of $9.06 per share. These shares of common stock will be contributed to Syncor's Employees' Savings and Stock Ownership Plan. 11 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) August 9, 1994 By: /s/ Michael A. Piraino _______________________ Michael A. Piraino Sr. Vice President and Chief Financial Officer (Principal Financial/Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----