10-K 1 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 [FEE REQUIRED] FOR THE YEAR ENDED DECEMBER 31, 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 incorporation or organization) Identification No.) 20001 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311-2185 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (818) 886-7400 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 ______ The aggregate market value of the voting stock held by non- affiliates of the Registrant, computed by reference to the average bid and asked prices of such stock on March 1, 1995, is $78,557,456. The number of shares outstanding of the Registrant's $0.05 par value common stock as of March 1, 1995, was 10,570,333 shares. DOCUMENTS INCORPORATED BY REFERENCE Portions of Registrant's Annual Report to shareholders for the period ended December 31, 1994, are incorporated by reference into Parts I, II and IV of this report. Portions of Registrant's definitive Proxy Statement for Registrant's Annual Meeting of Shareholders on June 20, 1995 are incorporated by reference into Part III of this report. SYNCOR INTERNATIONAL CORPORATION TABLE OF CONTENTS FORM 10-K ANNUAL REPORT December 31, 1994 Item 1. BUSINESS..............................................1 Item 2. PROPERTIES............................................6 Item 3. LEGAL PROCEEDINGS.....................................7 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...7 Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS...................................7 Item 6. SELECTED FINANCIAL DATA...............................7 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................8 Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA..................................................8 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE...................8 Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....8 Item 11. EXECUTIVE COMPENSATION................................8 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................9 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........9 Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K..............................................9 PART I ______ ITEM 1. BUSINESS. Unless otherwise indicated, the term "Syncor" or the "Company" as used in this report refers to Syncor International Corporation, incorporated in 1985 under the laws of the State of Delaware, and its consolidated subsidiaries. GENERAL DEVELOPMENT OF BUSINESS The general development of the Company's business for the year ended December 31, 1994 is covered in the Chairman of the Board and President's letter to the Company's shareholders in the Company's Annual Report to Shareholders for said year and is hereby incorporated by reference. A copy of the Company's Annual Report to Shareholders is attached hereto as Exhibit 13. DESCRIPTION OF BUSINESS PRINCIPAL PRODUCTS PRODUCED AND SERVICES RENDERED _________________________________________________ The Company is a pharmacy services company primarily engaged in compounding, dispensing and distributing radiopharmaceutical products to hospitals and clinics through its nationwide network of 117 pharmacies. Four of the pharmacies also include Positron Emission Tomography ("PET") pharmacy services. The radiopharmaceuticals provided by the Company are principally used for diagnostic imaging of physiological functions and organ systems. In addition, the Company provides various services in connection with the sale of radiopharmaceuticals, including radiopharmaceutical record keeping required by federal and state government agencies, and radiopharmaceutical technical consulting. The Company estimates that its pharmacies service approximately 7,000 hospitals and clinics in 39 states throughout the United States. During each of the last three fiscal years, the pharmacies contributed more than 95 percent of the consolidated net sales of the Company. Other activities of the Company include the marketing and distribution of imaging cold kits, isotopes and medical reference sources in addition to nuclear and pharmacy equipment and accessories. The description of Syncor's various activities in the Company's Annual Report to Shareholders for the year are hereby incorporated by reference. SOURCES AND AVAILABILITY OF RAW MATERIALS _________________________________________ The Company pharmacies dispense approximately 60 different radiopharmaceutical products which are obtained primarily from six suppliers, however majority of the products are supplied by The Radiopharmaceutical Division of The DuPont Merck Pharmaceutical Company ("DuPont"). If DuPont is not able to supply its proprietary products to the Company, it could have a short term negative impact. Management believes that if any one of the other suppliers of radiopharmaceuticals failed to supply products, then the other suppliers would be able to supply additional products to make up most of the shortfall. The failure of two or more suppliers to provide products at a particular time, however could have an adverse effect on the Company's business. Although periodic product outages and shortages accurse, to date, the Company's pharmacies have not experienced any difficulty in securing sufficient supplies of radiopharmaceutical products. One of Company's suppliers, Medi-Physics Inc., ("Medi-Physics"), the U.S. healthcare arm of Amersham International, a United Kingdom-based healthcare concern, has chosen to stop selling its proprietary radiopharmaceutical products through Syncor's national pharmacy network. The decision by Medi-Physics was effective January 16, 1995 and is the result of a network that it has formed with other radiopharmacies. In 1994, Syncor had approximately $19 million in sales and earned approximately $2.4 million from Medi- Physics' proprietary products. During 1995, management will seek to mitigate the loss in sales and income from Medi-Physics by providing its current customers with substitute products and services. PATENTS, TRADEMARKS, LICENSES AND DISTRIBUTION AGREEMENTS _________________________________________________________ The Company owns a number of trademarks and has a variety of license agreements. In addition, the Company has entered into exclusive radiopharmacy distribution agreements with two suppliers for certain proprietary radiopharmaceutical products. While certain of the foregoing trademarks and agreements are considered to be of value to the Company, management believes at present its competitive position is dependent principally on the efficient operation of its pharmacies and high quality of its customer service. On December 3, 1993, the Company entered into a long-term distribution agreement with its principal supplier of radiopharmaceutical products, DuPont. Under the terms of the agreement, DuPont will rely upon the Company as the primary distributor channel for its radiopharmaceutical products in the United States. The agreement became effective February 1, 1994, replacing an existing supply agreement between the companies which had been in place since 1988. In 1994, this agreement resulted in approximately $64 million in new incremental sales for Syncor. After the new agreement was implemented, both companies determined there was an opportunity to improve the original terms of the agreement to the benefit of each company. During 1994, Syncor concluded a joint review of its distribution agreement with DuPont. As a result of the DuPont agreement, Syncor recently began distribution of the newly approved radiopharmaceutical agent Neurolite, which is manufactured by DuPont. Neurolite, which is utilized in Single Photon Emission Computed Tomography ("SPECT") brain imaging, is distributed in unit-dose and bulk form. DEPENDENCE ON CUSTOMERS _______________________ The Company's operations are such that none of its business is dependent upon a single customer or a very few customers to the extent that the loss of such would have a material impact on financial condition or results of operations. COMPETITIVE CONDITIONS ______________________ The Company's pharmacies compete primarily with large manufacturers of radiopharmaceuticals, which directly supply radiopharmaceutical products to the hospitals. Two of such manufacturers have set up their own centralized radiopharmacies to supply customers. As stated above, Medi-Physics's decision to form a network with other radiopharmacies to distribute its proprietary products is expected to result in additional competitive pressures. The Company also competes with a number of other independent entities, each of which operates one or more radiopharmacies. In certain markets, there is competition with universities which own and operate centralized radiopharmacies. The principal competitive practices of the manufacturers and others involve price and service. Management believes that the advantages to a hospital of using a centralized radiopharmacy rather than preparing its own radiopharmaceutical products include: (i) reduced risk of radiation exposure to hospital personnel; (ii) cost savings due to Syncor's volume purchasing power; (iii) better utilization of time-sensitive products purchased from the radiopharmaceutical manufacturers; and, (iv) reduction in the time needed to maintain extensive records required by the regulatory agencies. In addition, the Company's pharmacies provide quality controlled unit-dose radiopharmaceuticals, comprehensive nuclear medicine product-line availability, professional consultation and delivery services, and computer hardware and proprietary software products for use in nuclear medicine department operations. GOVERNMENT REGULATION _____________________ Each of the Company's pharmacies 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. Periodic inspections of the Company's pharmacies are conducted by the NRC and various other federal and state agencies. Inspection results which lead to escalated enforcement action could lead to the imposition of fines or the suspension, revocation or denial of renewal of the licenses for the location inspected. The Company devotes substantial human and financial resources to ensure continued regulatory compliance and believes that it is currently in compliance with all material rules and regulations. In addition to the Company being subject to the various federal and state regulations relating to occupational safety and health, and the use and disposal of bio-hazardous materials, the Company's products are subject to the federal and state regulations relating to drugs and medical devices. Compliance with the applicable environmental control laws or regulations, such as those regulating the use and disposal of radioactive materials, is inherent in the industry and the normal operations of the Company's pharmacies. Historically, compliance with such laws and regulations has not had a material adverse effect on the capital expenditures, earnings or competitive position of the Company. FOREIGN OPERATIONS Syncor owns and operates nuclear pharmacies in Taipei and Kaoshiung, Taiwan, Hong Kong and Manila, Philippines. In 1993, the Company also entered into joint venture agreements with various parties in the People's Republic of China to open and operate nuclear pharmacies. So far, sites have been opened and are operating in Beijing and Shanghai. The Company plans to open a new radiopharmacy in Mexico City, Mexico in 1995 and anticipates further expansion of its operations internationally in the future. The Company's foreign operations are not immune to the inherent uncertainties and risks of currency fluctuations, political instability, trade restrictions, inconsistent product regulations associated with the such marketplace. EMPLOYEES As of December 31, 1994, Syncor employed approximately 2,048 people. However, the full-time equivalent personnel for the same period was approximately 1,724 people. ITEM 2. PROPERTIES. The Company and its consolidated subsidiaries lease (and in one location owns) and operate a number of pharmacies whose locations are set forth in the following table:(1) STATE LOCATION _____ ________ Alabama Birmingham Mobile Arizona Gilbert (Mesa) Phoenix* Tucson Arkansas Little Rock California Bakersfield Berkeley Colton Fresno Los Angeles* Modesto Orange Sacramento* San Diego San Jose San Francisco Torrance Van Nuys (Los Angeles) Colorado Colorado Springs Denver Connecticut Glastonbury (Hartford) Stamford Delaware Seaford Florida Fort Myers Gainesville Jacksonville Jupiter (West Palm Beach) Miami Lakes (Miami) Pensacola Pompano Beach (Ft.Lauderdale) St. Petersburg Tampa Winter Park Georgia (Orlando) Georgia Augusta Columbus Doraville (Atlanta) Illinois Des Plaines Chicago Springfield Indiana Ft. Wayne Indianapolis Munster West Lafayette (Purdue) Iowa Des Moines Kansas Wichita Kentucky Lexington Louisville Louisiana New Orleans Maryland Lanham (Washington DC) Timonium (Baltimore) Massachusetts Woburn (Boston) Michigan Grand Rapids Southfield (Detroit) Swartz Creek (Flint) Minnesota Moorhead (Fargo ND) St. Paul Mississippi Flowood (Jackson) Gulfport Missouri Kansas City Overland (St. Louis) Nebraska Lincoln Omaha* Nevada Las Vegas Reno New Hampshire Bedford New Jersey Fairfield (Newark) New Mexico Albuquerque New York The Bronx Cheektowaga (Buffalo) Franklin Square(Long Island) Newburgh Rochester Syracuse Troy (Albany) North Carolina Charlotte Greensboro Ohio Cincinnati Columbus Girard (Youngstown) Holland (Toledo) Miamisburg (Dayton) Uniontown (Akron) Valley View (Cleveland) Oklahoma Oklahoma City Tulsa Oregon Portland Pennsylvania Allentown Bloomsburg Bristol (N. Philadelphia) Duncansville (Altoona) Hummelstown (Harrisburg) Pittsburgh Sharon Hill (Philadelphia) South Carolina Columbia Tennessee Chattanooga Knoxville Memphis Nashville Texas Amarillo Austin Beaumont Corpus Christi Dallas El Paso Fort Worth Houston Lubbock North Dallas San Antonio Virginia Richmond Virginia Beach Washington Seattle Spokane West Virginia Huntington Wisconsin Appleton Wauwatosa (Milwaukee) (1) The Company also owns an interest in pharmacies in Salt Lake City, Utah; Midland, Texas; and Huntsville, Alabama. * Cities where the Company has both a nuclear and PET pharmacy. Pharmacy lease terms vary from less than one year up to approximately ten years, and average approximately five years. Leased areas average approximately 4,500 square feet. The Company leases its Corporate Office facilities in Chatsworth, California, pursuant to a lease that commenced on March 1, 1987. The lease is for the term of ten years with two successive five- year renewal options. Presently, the Company leases approximately 76,464 square feet at such location, which is adequate for the Company's current needs. ITEM 3. LEGAL PROCEEDINGS. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the last quarter of the year. PART II _______ ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The stock information which appears in the Company's Annual Report to Shareholders under the heading of "Quarterly Stock Price Data", included in this Form 10-K Annual Report as Exhibit 13, is incorporated herein by reference. Item 6. SELECTED FINANCIAL DATA. The selected financial data which appears in the Company's Annual Report to Shareholders for the year ended December 31, 1994, under the heading of "Selected Financial Data", included in this Form 10- K Annual Report as Exhibit 13, is incorporated herein by reference. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Management's discussion and analysis of financial condition and results of operations which appears in the Company's Annual Report to Shareholders for the year, under the heading of "Management's Discussion and Analysis of Financial Conditions and Results of Operations" included in this Form 10-K Annual Report as Exhibit 13, is incorporated herein by reference. Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA. The consolidated financial statements and the notes thereto which appear in the Company's Annual Report to Shareholders for the year under the headings of "Consolidated Statements of Income" and "Consolidated Balance Sheets" included in this Form 10-K Annual Report as Exhibit 13, are incorporated herein by reference. Schedules containing certain supporting information are also included. See Index to Financial Statement Schedules on page 10. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. PART III ________ Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Except as noted below in this Item, the information called for by Item 10 of Form 10-K is incorporated by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders, to be held on June 20, 1995, which will be filed with the Commission pursuant to Regulation 14A within 120 days from December 31, 1994. The Form 5 of Director Monty Fu were filed a few days late due to the error of the Company's Legal Department who filed the same on their behalf. Item 11. EXECUTIVE COMPENSATION. The information called for by Item 11 of Form 10-K is incorporated by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 20, 1995, which will be filed with the Commission pursuant to Regulation 14A within 120 days from December 31, 1994. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information called for by Item 12 of Form 10-K is incorporated by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 20, 1995, which will be filed with the Commission pursuant to Regulation 14A within 120 days from December 31, 1994. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information called for by Item 13 of Form 10-K is incorporated by reference from the Company's definitive Proxy Statement for its Annual Meeting of Shareholders to be held on June 20, 1995, which will be filed with the Commission pursuant to Regulation 14A within 120 days from December 31, 1994. PART IV _______ Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) 1. CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements listed below, together with the report thereon of KPMG Peat Marwick LLP, dated March 10, 1995, appear in the Company's Annual Report to Shareholders included in this Form 10-K Annual Report as Exhibit 13, is incorporated herein by reference. Independent Auditors' Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Stockholders' Equity Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES The following schedule supporting the financial statements of the Company are included herein: Page ____ Schedule VIII Valuation and Qualifying Accounts and Reserves............12 All other schedules and financial statements of the Company are omitted because they are not applicable, not required or because the required information is included in the consolidated financial statements or notes thereto. 3. INDEX TO EXHIBITS The list of exhibits filed as part of this report on Form 10-K or incorporated herein be reference appear as Index to Exhibits on page 13. (b) REPORTS ON FORM 8-K FILED IN THE QUARTER ENDED DECEMBER 31, 1994. None. (c) EXHIBITS The exhibits required by Item 601 of Regulation S-K are filed herewith or are incorporated by reference and the list of the Index to Exhibits on page 13. 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. SYNCOR INTERNATIONAL CORPORATION By /s/ Gene R. McGrevin _____________________________________ Gene R. McGrevin President, Chief Executive Officer Date: 3/31/95 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 __________________________________________________________________ Monty Fu, Chairman of the Board and Director Date: 3/31/95 /s/ Gene R. McGrevin __________________________________________________________________ Gene R. McGrevin, President, Chief Executive Officer (Principal Executive Officer) and Director Date: 3/31/95 /s/ Michael E. Mikity __________________________________________________________________ Michael E. Mikity, Vice-President, (Principal Financial and Accounting Officer) Date: 3/31/95 /s/ Robert G. Funari ________________________________________________________________ Robert G. Funari, Executive Vice-President, Chief Operating Officer and Director Date: 3/31/95 /s/ George S. Oki __________________________________________________________________ George S. Oki, Director Date: 3/31/95 /s/ Joseph Kleiman __________________________________________________________________ Joseph Kleiman, Director Date: 3/31/95 /s/ Arnold E. Spangler __________________________________________________________________ Arnold E. Spangler, Director Date: 3/31/95 /s/ Steven B. Gerber __________________________________________________________________ Steven B. Gerber, Director Date: 3/31/95 /s/ Henry N. Wagner, Jr. __________________________________________________________________ Henry N. Wagner, Jr., Director Date: 3/31/95 /s/ Gail R. Wilensky __________________________________________________________________ Gail R. Wilensky, Director Date: 3/31/95 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Schedule VIII. Valuation and Qualifying Accounts and Reserves
(In thousands) ================================================================= Balance Balance at Costs at End Beginning and Deductions of Description of Period Expenses (A) Period ================================================================= Year Ended December 31, 1994 Allowance for doubtful accounts $1,200 $ 358 $ 404 $1,154 Seven-Months Ended December 31, 1993 Allowance for doubtful accounts $1,502 $ 224 $ 526 $1,200 Year Ended May 31, 1993 Allowance for doubtful accounts $1,681 $1,123 $1,302 $1,502 Year Ended May 31, 1992 Allowance for doubtful accounts $2,071 $ 605 $ 995 $1,681 (A) Uncollectible accounts written-off, net of recoveries, and reduction of reserve.
INDEX TO EXHIBITS Exhibit No. ___________ 1. Certificate of Incorporation and By-Laws ________________________________________ 2. Restated Certificate of Incorporation of the Company filed as Exhibit 3.1 to the 8/28/87 Form 10-K and incorporated herein by reference. 3. Restated By-Laws of the Company filed as Exhibit 3.2 to the 8/28/87 Form 10-K 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 8/26/86 Form 10-K and incorporated herein by reference. 4.2 Rights Agreement dated as of 11/8/89 between the Company and American Stock Transfer & Trust Company filed as Exhibit 2.1 to the Registration Statement on Form 8-A dated 11/3/89 and incorporated herein by reference. 1. Material Contracts __________________ 1.1 Employment Agreement dated 2/1/89, between the Company and Gene R. McGrevin filed as Exhibit 10.2 to 1/27/89 Form 8-K and incorporated herein by reference.* 1.2 First Amendment dated 7/11/89 to Employment Agreement dated 2/1/89 between the Company and Gene R. McGrevin filed as Exhibit 10.5 to 8/30/90 Form 10-K and incorporated herein by reference.* 1.3 Second Amendment dated 10/16/89 to Employment Agreement dated 2/1/89 between the Company and Gene R. McGrevin filed as Exhibit 10.6 to 8/30/90 Form 10-K and incorporated herein by reference.* 1.4 Third amendment dated 1/1/91 to Employment Agreement dated 2/1/89 between the Company and Gene R. McGrevin filed as Exhibit 10.7 to 8/29/91 Form 10-K and incorporated herein by reference.* 1.5 Syncor International Corporation 1981 Master Stock Option Plan as amended filed as part of Company's Proxy Statement dated 11/5/85, for its Annual Meeting of Shareholders held 11/26/85 and incorporated herein by reference.* 1.6 Stock Option Agreement of Gene R. McGrevin dated 1/2/92 filed as Exhibit 10.16 to 8/27/92 Form 10-K and incorporated herein by reference.* 1.7 Form of Indemnity Agreement substantially as entered into between Company and each Director and Officer filed as Exhibit 3.2 Appendix A to the 8/28/87 Form 10-K and incorporated herein by reference.* 1.8 Form of Benefits Agreement substantially as entered into between Company and each Director filed as Exhibit 10.31 to 8/30/90 Form 10-K and incorporated herein by reference.* 1.9 Form of Benefits Agreement substantially as entered into between Company and certain employees see Exhibit 10.8.* 1.10 Syncor International Corporation 1990 Master Stock Incentive Plan As Amended and Restated filed as part of Company's Proxy Statement dated 10/4/93 for its Annual Meeting of Shareholders held 11/15/93 and incorporated herein by reference.* 1.11 Syncor International Corporation Deferred Compensation Plan effective July 1, 1991 as Amended and Restated effective April 19, 1993, filed as Exhibit 10.11 to 3/30/93 Form 10-K and incorporated herein by reference.* 1.12 Employment Agreement dated July 21, 1993 between the Company and Robert G. Funari filed as Exhibit 10.12 to 3/30/94 Form 10-K and incorporated herein by reference.* 1.13 Syncor International Corporation McGrevin Deferred Compensation Plan effective June 10, 1993 filed as Exhibit 10.13 to 3/30/94 Form 10-K and incorporated herein by reference.* 1.14 Split Ownership/Split Dollar Life Insurance Assignment Agreement effective June 10, 1993 between the Company and Gene R. McGrevin filed as Exhibit 10.14 to 8/30/90 Form 10-K and incorporated herein by reference.* 1.15 Form of Stock Option Agreement substantially as entered into between Company and certain employee Directors and employees filed as Exhibit 10.15 to 3/30/94 Form 10-K and incorporated herein by reference.* 1.16 Form of Stock Option Agreement substantially as entered into between Company and certain non-employee Directors filed as Exhibit 10.16 to 3/30/94 Form 10-K and incorporated herein by reference.* 2. Statement Re: Computation of Per Share Earnings ________________________________________________ Computation can be clearly determined from the material contained in Company's Annual Report to Shareholders for year ended December 31, 1994. 13. Annual Report to Security Holders _________________________________ Syncor International Corporation Annual Report to Shareholders for the year ended December 31, 1994, except for specific information in such Annual Report expressly incorporated herein by reference, is furnished for the information of the Commission and is not to be deemed "filed" as part hereof. 21. Subsidiaries of the Registrant ______________________________ State of Name of Company Incorporation _______________ _____________ Syncor Management Corporation California Syncor Investment Management Crop Delaware Syncor Taiwan, Inc. Taiwan Syncor Midland, Inc. Texas Syncor Global Holdings, Inc. British Virgin Islands Syncor Hong Kong Limited Hong Kong** Syncor Philippines, Inc. Philippines** Syncor de Mexico Mexico** 23. Consents of Experts and Counsel Consent of KPMG Peat Marwick _______________________________ LLP.*** __________________________________________ * Management contracts or compensatory plan ** Subsidiaries of Syncor Global Holdings, Inc. *** Included herewith EXHIBIT 23 INDEPENDENT AUDITORS' REPORT ON SCHEDULES AND CONSENT The Board of Directors and Stockholders Syncor International Corporation: The audits referred to in our report dated March 10, 1995, included the related financial statement schedules as of December 31, 1994, and 1993, and for the year ended December 31, 1994, and the seven- month ended December 31, 1993, and for each of the years in the tow-year period ended May 31, 1993, included in the registration statement of Syncor International Corporation. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. We consent to incorporation by reference in the registration statement on Form S-3 (no.33-44395) and Forms S-8 (no.'s 33-7325, 33-39251, 33-43692, 33-57762, 33-52607) of Syncor International Corporation of our report dated March 10, 1995, relating to the consolidated balance sheets of Syncor International Corporation and subsidiaries as of December 31, 1994, and 1993, and the related consolidated statements of income, stockholders' equity and cash flows and related schedules for the year ended December 31, 1994, and the seven-month ended December 31, 1993, and for each of the years in the tow-year period ended May 31, 1993 which report appears in the December 31, 1994 annual report on Form 10-K of Syncor International Corporation. Our report refers to changes in accounting methods to adopt Financial Accounting Standard Board's Statements No. 109 and No. 115. KPMG Peat Marwick LLP Los Angeles, California March 31, 1995 EX-13 2 ANNUAL REPORT P/E 12/31/94 EXHIBIT 13 SYNCOR INTERNATIONAL CORPORATION ANNUAL REPORT TO SHAREHOLDERS FOR THE TWELVE MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1994 CORPORATE PROFILE Syncor International Corporation operates an expanding network of 117 domestic and six international nuclear pharmacy service centers. The Company compounds and dispenses patient-specific unit dose radiopharmaceutical prescriptions, as well as distributing bulk radiopharmaceutical products, for use in diagnostic imaging and provides a complete range of advanced pharmacy services. Syncor services over 7,000 customers and is the only national pharmacy network of its kind that provides a combination of diagnostic and information services to hospitals and alternate site markets. SYNCOR'S MISSION Syncor's mission is to be the premier provider of prepared time-critical pharmaceuticals and comprehensive value-added pharmacy services which meet the needs of the professional health care community and their patients. SELECTED FINANCIAL DATA
Twelve Seven Twelve Months Months Months Ended Ended Ended In thousands, except per share December 31, December 31, May 31, and other data 1994 1993 1993 1993 1992 1991 1990 ______________________________ ______________________ ________ __________________________________________________ (unaudited) Net sales $319,994 $241,289 $142,237 $230,949 $195,989 $145,139 $118,929 Gross profit 66,026 78,926 45,187 77,306 67,451 49,501 37,161 Income: Continuing operations(1) 1,213 6,633 1,684 10,191 7,709 5,870 3,216 Discontinued operations, net - 120 - (379) (810) (1,115) - Extraordinary item - - - - - - 334 Cumulative effect of accounting change - 1,020 1,020 - - - - Net income(1) $1,213 $7,773 $2,704 $9,812 $6,899 $4,755 $3,596 Earnings per share: Continuing operations(1) $.11 $.62 $.16 $.95 $.70 $.57 $.32 Discontinued operations, net - .01 - (.03) (.07) (.11) - Extraordinary item - - - - - - (.03) Cumulative effect of accounting change - .09 .09 - - - - _________ _________ _________ _________ _________ _________ Net income per share(1) $.11 $.72 $.25 $.92 $.63 $.46 $.35 Cash, cash equivalents and investments $19,201 $18,700 $18,700 $20,937 $9,970 $9,309 $9,609 Working capital 26,616 27,121 27,121 27,430 20,279 20,220 17,324 Total assets 128,684 114,586 114,586 103,953 90,847 74,591 65,744 Long-term debt 5,154 6,837 6,837 4,515 6,008 7,881 8,475 Stockholders' equity $73,850 $71,181 $71,181 $65,784 $52,359 $42,790 $35,805 Current ratio 1.54 1.74 1.74 1.82 1.64 1.89 1.85 Weighted average shares outstanding 10,889 10,779 10,762 10,708 10,865 10,246 10,140 Number of domestic radiopharmacies 117 109 109 100 95 87 83 Days sales outstanding 55 52 52 52 59 68 62 (1) Seven months ended December 31, 1993 includes a charge for alliance development costs of $4,500. /TABLE PHARMACY LOCATIONS __________________ Corporate Headquarters: Chatsworth, California Domestic Radiopharmacies: Akron, Ohio ; Albany, New York ; Albuquerque, New Mexico ; Allentown, Pennsylvania ; Altoona, Pennsylvania ; Amarillo, Texas ; Appleton, Wisconsin ; Atlanta, Georgia ; Augusta, Georgia ; Austin, Texas ; Bakersfield, California ; Baltimore, Maryland ; Beaumont, Texas ; Berkeley, California ; Birmingham, Alabama ; Boston, Massachusetts ; Bristol, Pennsylvania ; Bronx, New York ; Buffalo, New York ; Charlotte, North Carolina ; Chattanooga, Tennessee ; Chicago, Illinois ; Cincinnati, Ohio ; Cleveland, Ohio ; Colorado Springs, Colorado ; Colton, California ; Columbia, South Carolina ; Columbus, Georgia ; Columbus, Ohio ; Corpus Christi, Texas ; Dallas, Texas ; North Dallas, Texas ; Dayton, Ohio ; Denver, Colorado ; Des Moines, Iowa ; Des Plaines, Illinois ; Detroit, Michigan ; El Paso, Texas ; Fargo, North Dakota ; Flint, Michigan ; Fort Lauderdale, Florida ; Fort Myers, Florida ; Fort Wayne, Indiana ; Fort Worth, Texas ; Fresno, California ; Gainesville, Florida ; Grand Rapids, Michigan ; Greensboro, North Carolina ; Gulfport, Mississippi ; Harrisburg, Pennsylvania ; Hartford, Connecticut ; Houston, Texas ; Huntington, West Virginia ; Indianapolis, Indiana ; Jackson, Mississippi ; Jacksonville, Florida ; Kansas City, Missouri ; Knoxville, Tennessee ; Las Vegas, Nevada ; Lexington, Kentucky ; Lincoln, Nebraska ; Little Rock, Arkansas ; Long Island, New York ; Louisville, Kentucky ; Lubbock, Texas ; Manchester, New Hampshire ; Memphis, Tennessee ; Mesa, Arizona ; Miami, Florida ; Milwaukee, Wisconsin ; Mobile, Alabama ; Modesto, California ; Munster, Indiana ; Nashville, Tennessee ; Newburgh, New York ; New Orleans, Louisiana ; Newark, New Jersey ; Oklahoma City, Oklahoma ; Omaha, Nebraska ; Orange, California ; Orlando, Florida ; Palm Beach, Florida ; Pensacola, Florida ; Philadelphia, Pennsylvania ; Phoenix, Arizona ; Pittsburgh, Pennsylvania ; Portland, Oregon ; Reno, Nevada ; Richmond, Virginia ; Rochester, New York ; Sacramento, California ; Saint Louis, Missouri ; Saint Paul, Minnesota ; Saint Petersburg, Florida ; San Antonio, Texas ; San Diego, California ; San Francisco, California ; San Jose, California ; Seaford, Delaware ; Seattle, Washington ; Spokane, Washington ; Springfield, Illinois ; Stamford, Connecticut ; Syracuse, New York ; Tampa, Florida ; Toledo, Ohio ; Torrance, California ; Tucson, Arizona ; Tulsa, Oklahoma ; Van Nuys, California ; Virginia Beach, Virginia ; Washington, District of Columbia ; West Lafayette, Indiana ; Wichita, Kansas ; Youngstown, Ohio ; International Radiopharmacies: Beijing, Republic of China ; Kowloon, Hong Kong ; Kaoshiung, Taiwan ; Manila, Philippines ; Shanghai, Republic of China ; Taipei, Taiwan ; Positron Emission Tomography Pharmacies: Los Angeles, California ; Omaha, Nebraska ; Phoenix, Arizona ; Sacramento, California SYNCOR'S VISION: ________________ Making a difference in people's lives through service. LETTER TO SHAREHOLDERS Dear Shareholder, 1994 was a year of significant highs and lows for our Company. The year commenced with Syncor's twentieth anniversary. In January 1974, the founders of Syncor International Corporation introduced a new service concept to the nuclear medicine community: the delivery of time-critical unit dose pharmaceuticals through centralized radiopharmacies. Twenty years later, Syncor International Corporation is an established, international leader in the distribution of high-tech pharmacy services. Today, we are a $320 million corporation with a national network of 117 domestic and six international radiopharmacies. In February 1994, we launched our alliance with the Radiopharmaceutical Division of The DuPont Merck Pharmaceutical Company ("DuPont Merck"). This alliance positioned Syncor as the primary distribution channel for DuPont Merck's radiopharmaceutical products in the United States, adding $64 million in incremental sales in 1994. We had high expectations for our performance; however, health care reform initiatives led to severe price erosion and intense competition throughout the year. While we were able to report a substantial 32.6% increase in net sales for the year, our profit margins deteriorated significantly, and we reported losses for the third and fourth quarters of 1994, though we maintained overall profitability for the year. We believe we have made substantial progress toward identifying and implementing profit improvement programs which should improve our operating performance. We are dedicated to revitalizing our Company and will be focusing on the following key objectives during 1995: . Maintaining a strong financial position: We must achieve an acceptable profit level for enhanced shareholder value. . Diversifying our core business: We must broaden the foundation of our core business in order to adapt to the ever changing needs of the marketplace. . Building effective partnerships: We will continue to improve the nature of the DuPont Merck Alliance to foster the best interests of both companies. We demonstrated our commitment to this partnership when we announced the successful joint review of this agreement, effective January 1995. We will continue to explore similar arrangements with other quality companies. . Strengthening our marketing strategy: We must develop creative and innovative marketing approaches which will provide Syncor with a competitive advantage in a changing and demanding health care market. Syncor International Corporation's net sales in 1994 increased 32.6 percent to $320 million, up from $241.3 million in 1993. Net income from continuing operations in 1994 totaled $1.2 million or $.11 per share compared to net income of $6.6 million or $.62 per share in 1993. Despite the financial challenges of 1994, our balance sheet remained strong. At December 31, 1994, cash, cash equivalents and investments totaled $19.2 million and working capital totaled $26.6 million. The current ratio stands at 1.54:1.00. We initiated several programs in 1994 to mitigate the negative market factors that depressed our profit performance: . We significantly reduced our corporate overhead. . We reassessed our marketing strategy and placed greater emphasis on adding profitable business. . We reorganized our field organization to obtain greater focus on teamwork and new product conversions. . We postponed scheduled salary increases. Throughout 1994, Syncor's management met with representatives from DuPont Merck in order to reassess and review the original terms of the alliance. In January, 1995, Syncor and DuPont Merck successfully concluded this joint review and modified the agreement accordingly. The resulting changes will help both companies achieve the long-term full potential of this alliance; that being to grow the nuclear medicine market so it may fully realize its potential of contributing to affordable, quality health care. The expected financial impact of the modified agreement on the Company for 1995 is to improve margins and cash flow. During the past year, our national pharmacy network continued its accelerated expansion program, with the addition of eight radiopharmacies. This brings our domestic total to 117. Our international radiopharmacy presence also increased. In 1994, we accelerated our international market expansion program and opened radiopharmacies in Beijing and Shanghai in the Republic of China, a second pharmacy in Taiwan and, in January 1995, a pharmacy in the Philippines. In 1995, we look forward to additional international openings in Mexico and Thailand. We are truly an "International" company and will continue to pursue business opportunities in foreign markets. Despite all our difficulties, challenges and organizational changes, our employees never lost focus on servicing our customers. They dealt with the reductions in staffing and the lack of salary increases, and they continued to provide the highest level of quality service to our customers. In fact, an independent market research audit documented that Syncor's customer service continued to improve in 1994 while competing companies' performance declined or stayed the same. We would like to personally commend all of our 2,000-plus employees for their professionalism and dedication to our Customer Value: OUR CUSTOMERS ARE NUMBER ONE. WE ARE DEDICATED TO PROVIDING QUALITY SERVICE WHICH EXCEEDS THEIR EXPECTATIONS AND MAINTAINS THEIR TRUST. We expect to continue to be challenged in 1995. The market-based initiatives stimulated by health care reform will continue. Cost effective medicine is becoming a reality in the private sector. Competition will continue to be intense. However, we are optimistic that Syncor's performance should improve in spite of these obstacles. Our optimism is based on four factors: 1.The health care market overreaction to health care reform initiatives will diminish. Nuclear medicine departments will expand and order new equipment. New products should be approved by the FDA. Market penetration and market expansion of existing products will continue. 2.We have successfully completed the implementation phase of our alliance with DuPont Merck. Both companies can now concentrate on expanding the nuclear medicine market by demonstrating that nuclear medicine is superior clinically and is cost-effective versus other modalities. Both companies are now focused on profitably converting customers to Syncor's unit dose system, which is more efficient than purchasing in bulk. Both companies are now focused on increasing penetration and conversion of DuPont Merck's Cardiolite(R), the cardiac imaging product, and Neurolite(R), the new brain imaging agent. 3.We have streamlined our corporate and field organizations. Our entire organization is focused on profit improvement as our primary objective in 1995. All of our incentive programs are based on achieving our profit goals. 4.Our people continue to demonstrate their ability to deliver quality cost-effective services to our customers. We are convinced that quality, cost effective services will be rewarded in the long run by the majority of customers. We would be remiss if we did not recognize our shareholders for their understanding, patience and support in 1994. The strategies and plans we have initiated should continue to earn your support. We remain committed to exceeding the expectations of our customers and rewarding our employees and shareholders for their continued dedication to our Vision, Values and Mission. Sincerely, Gene R. McGrevin President & Chief Executive Officer Monty Fu Chairman of the Board FINANCIAL CONTENTS __________________ Management's Discussion and Analysis 8 Consolidated Balance Sheets 13 Consolidated Statements of Income 14 Consolidated Statements of Stockholders' Equity 15 Consolidated Statements of Cash Flows 16 Notes to Consolidated Financial Statements 17 Selected Quarterly Results of Operations 27 Independent Auditors' Report 28 Officers and Directors 29 MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF OPERATIONS RESULTS OF OPERATIONS CALENDAR YEARS 1994 AND 1993 NET SALES: Consolidated net sales in 1994 totaled $320 million, an increase of 32.6%, or $78.7 million, over 1993. The Company's net sales growth is primarily the result of activity associated with the strategic alliance that the Company entered into with its principal supplier of radiopharmaceutical products, as discussed in Note 6 of Notes to Consolidated Financial Statements. Sales in the cardiology sector of the business continue to be the driving force in nuclear medicine and the Company's sales growth. Cardiology sales represent approximately 56% of the Company's net sales. Other favorable factors affecting sales growth include the addition of significant sales volume due to the expansion of certain large managed care contracts, plus the opening and acquisition of eight new pharmacies during 1994. Sales growth was negatively affected by recent trends in national health care economics, primarily aggressive price competition, plus the strategic decision made during the first quarter of this year to reduce the price of the Company's leading cardiology product. GROSS PROFIT: The Company's gross profit as a percentage of net sales decreased to 20.6% in 1994 compared to 32.7% in 1993. The decline in gross profit percentage is the result of a variety of factors. These factors include general price reductions across most of Syncor's product line including the Cardiology area, in response to competitive market pressures, in addition to the acquisition of several large managed care contracts that traditionally have lower profit margins. The Company also experienced a decline in the volume of some of its core (non-cardiology) products, due to changes in certain physician practice patterns. Material costs, as a percentage of pharmacy sales, have been rising due to price increases from suppliers, while the current government focus on cost containment and managed care has made it difficult to recover these material cost increases through price increases to customers. Beginning in 1995, the Company believes pricing is stabilizing in the marketplace. In early January 1995, the Company concluded a joint review and modification of the strategic alliance agreement with the Radiopharmaceutical Division of the (DuPont Merck). The resulting changes are anticipated to improve the gross margin as a percentage of sales in early 1995 and the Company expects this trend to continue. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES: Operating, selling and administrative expenses decreased $1.9 million in 1994 compared to 1993, despite a significant increase in net sales, and decreased as a percentage of net sales from 23.1% to 16.8%. The decline was a direct result of several programs initiated by the Company in 1994 to reduce losses, reduce certain overhead, and improve control over radiopharmacy expenditures. The Company continues, as a part of its business strategy, to invest in developmental business opportunities. These opportunities require ongoing resources in the area of operating, selling and administrative expenses. The Company does not believe there will be a significant increase in the level of operating, selling and administrative expenditures during 1995. DEPRECIATION AND AMORTIZATION: Depreciation and amortization in 1994 increased to $10.6 million or 24 percent over $8.5 million in 1993. The increase is due to the opening or acquiring of eight new radiopharmacies since December 31, 1993, and an extensive remodeling and relocation program of the Company's facilities which was initiated in prior years. ALLIANCE DEVELOPMENT COSTS: On December 3, 1993, the Company entered into a long-term supplier distribution agreement with its principal supplier of radiopharmaceutical products, DuPont Merck. The agreement, which became effective February 1, 1994, replaced an existing supply agreement between the companies which had been in place since 1988. Under the terms of the new agreement, DuPont Merck will rely upon the Company 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. These costs, which resulted in cash outlays, included $2.8 million related to 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. Accrued alliance development costs of $4.1 million at December 31, 1993, were fully utilized in 1994 as the strategic alliance with DuPont Merck was implemented. PROVISION FOR INCOME TAXES: The provision for income taxes as a percentage of income before taxes increased to 41.8 percent in 1994 from 39.7 percent in 1993. The increase in the effective tax rate is due to an increase in goodwill amortization and other non-tax deductible expenses as a percentage of pre-tax book income. .............................................................................. RESULTS OF OPERATIONS SEVEN MONTH TRANSITION PERIOD ENDED DECEMBER 31, 1993 AND 1992 NET SALES: Consolidated net sales for the seven month transition period ended December 31, 1993, increased 7.8 percent to $142.2 million or $10.3 million over net sales for the comparable 1992 period. This steady growth was attributed to continued expansion in the cardiology market, which constitutes a significant portion of the Company's net sales, and from incremental revenue growth associated with the acquisition and start-up of new radiopharmacies. Despite the increased growth in net sales described above, the Company believes that the uncertainty surrounding health care reform will continue to impact companies providing health care related products and services. Current government focus on health care cost containment has made it difficult to cover rising costs and expenses through price increases. This has created pressure on the selling prices of several major products in the diagnostic imaging market. Management believes the Company's 1994 revenue growth will continue to be impacted by these forces. The Company is responding to these challenges by developing health care alliances which will concentrate resources, expand the Nuclear Medicine market as a whole and deliver increased value to the customer. In addition, the Company is focusing its marketing efforts on attracting and retaining national accounts, which currently represent a significant portion of the Company's annual net sales. GROSS PROFIT: The Company's gross profit increased to $45.2 million, an increase of 3.7 percent over the seven months ended December 31, 1992. However, the Company experienced a continued decline in its gross profit as a percentage of net sales from 33.0 percent to 31.8 percent for the seven months ended December 31, 1992, and 1993, respectively. The decrease is due to a combination of competitive pricing pressures in several key markets, material cost increases and initial lower margins for start up radiopharmacies. Material costs, as a percentage of pharmacy net sales, have been rising consistently in recent periods. In addition, as the cardiology marketplace expands and the strategic alliance, as discussed below, is implemented, the Company's traditional net sales mix continues to change. This changing mix delivers a higher volume of dollars to the gross profit line, but at a lesser rate as a percentage of net sales when compared to the Company's traditional radiopharmaceutical margins. In addition to those factors mentioned above, the Company's management will continue to be challenged by the competitive marketplace and uncertainty in health care reform. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES: Although operating, selling and administrative expenses as a percentage of net sales decreased slightly from 23.6 percent for the seven months ended December 31, 1992, to 23.2 percent for the seven months ended December 31, 1993, the components of operating, selling and administrative expenses were somewhat different in each of the periods. The increase of $1.8 million for the seven months ended December 31, 1993, over the comparable 1992 period was attributable to several factors including increases in administrative staff, recruitment of additional sales and pharmacy personnel, and continued commitment to a number of long-term strategic management programs. During the seven months ended December 31, 1993, the Company's nationwide network increased from 100 to 109 radiopharmacies. Six of these radiopharmacies were new openings and three were acquisitions. See Note 2 of Notes to Consolidated Financial Statements. The Company continues, as a part of its overall business strategy, to invest in developmental business opportunities. These opportunities require ongoing resources in the areas of operating, selling and administrative expenses. DEPRECIATION AND AMORTIZATION: Depreciation and amortization increased by $1.4 million in the seven month period ended December 31, 1993, from the same period in 1992. The increased dollar amount reflects additional expense in 1993 for the remodeling and relocation program of the Company's field facilities and costs associated with acquisitions and start-up of new radiopharmacies. ALLIANCE DEVELOPMENT COSTS: As stated on page eight under "Alliance Development Costs", the Company entered into a long-term supplier distribution agreement with its principal supplier of radiopharmaceutical products, DuPont Merck. The agreement, which became effective February 1, 1994, replaced an existing supply agreement between the companies which had been in place since 1988. In connection with this agreement, the Company established a reserve for alliance development costs of $4.5 million. These costs, which are expected to result in cash outlays, include $2.8 million related to 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. PROVISION FOR INCOME TAXES: The provision for income taxes as a percentage of income before taxes decreased to 39.3 percent for the seven months ended December 31,1993, from 39.5 percent for the comparable 1992 period. The decrease in the effective tax rate is due to the continued benefit from state tax planning strategies implemented in 1992. In February 1992, Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109) was issued. This Statement required changes in accounting for income taxes from the deferred method (APB 11) to an asset and liability method. The Company adopted the provisions of Statement 109 in the seven months ended December 31, 1993, which increased net income by approximately $1 million for the cumulative effect of a change in method of accounting for income taxes. .............................................................................. RESULTS OF OPERATIONS FISCAL YEARS 1993 AND 1992 NET SALES: Consolidated net sales increased to $230.9 million in fiscal 1993, up from $196.0 million in fiscal 1992, an increase of 17.8 percent. This revenue growth is being fueled primarily by the continued growth in the cardiology market and, to a much smaller extent, by price increases to customers. Cardiology revenue growth is related to the overall penetration of the marketplace by the new cardiology imaging agents introduced two years ago and by new protocols resulting from use of these new products. The Company maintains exclusive distribution rights to these new cardiology imaging agents through its commercial radiopharmacies. Fiscal 1993 reflects a slowing in the rate of net sales growth (from 35 percent in 1992 to 17.8 percent in 1993) due to the penetration of new cardiac imaging agents. Cardiac imaging now constitutes a significant portion of the Company's net sales. In addition to the growth from cardiology, the Company has also benefited from the full year incremental revenue growth associated with the acquisition and start-up of new radiopharmacies in fiscal 1992, the acquisition of three new radiopharmacies in fiscal 1993 and, to a lesser extent, moderate price increases. The Company expects to continue to acquire and start-up new radiopharmacies in the future. Uncertainty surrounding health care reform has impacted companies providing health care related products and services. Management believes the Company's fiscal 1994 revenue growth may also be impacted by these forces. GROSS PROFIT: The Company's gross profit in fiscal 1993 increased to $77.3 million, an increase of 14.6 percent when compared to fiscal 1992; however, as a percentage of net sales, gross profit declined to 33.5 percent of net sales in the current fiscal year from 34.4 percent of net sales in the prior fiscal year. This decline is attributable to a number of factors. The Company was unable to pass along all of the price increases received from its suppliers due to strong price-based competition. In addition, as the cardiology marketplace expands, the Company's traditional net sales mix is changing. This changing mix delivers a higher volume of dollars to the gross profit line, but at a lesser rate as a percentage of net sales when compared to the Company's traditional radiopharmaceutical margins. In addition to those factors mentioned above, the Company's management will continue to be challenged by the competitive marketplace and uncertainty in health care reform. The Company continues to implement meaningful new programs designed to improve productivity, efficiency and contain direct costs. Programs designed to improve material utilization and reduce delivery costs figure prominently in the near and longer term strategic focus of the Company. The Company is also focused on contracting with national buying groups in order to stabilize margins and secure business on a longer term basis. Contracts with national buying groups currently represent a significant portion of the Company's annual net sales. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES: Operating, selling and administrative expenses increased 7.7 percent in fiscal 1993 compared to fiscal 1992, but decreased as a percentage of net sales from 25.5 percent to 23.3 percent of net sales. In prior years, the Company made significant investments in infrastructure to improve efficiencies. These investments included additional sales and pharmacy personnel, management at all levels of the organization, training, education and development costs, systems that added value and improved customer service, information and management systems, and the continued upgrading of the pharmacies. All of these investments were designed to support a much larger organization than existed at the time of these investments. With the Company's infrastructure in place, the current year's net sales growth did not require the same level of expenditures. Certain strategic management programs were expanded in fiscal 1993. Shortages of qualified professional pharmacists, coupled with the need for a competitive compensation structure, will continue to impact the Company and necessitate the continuation of extensive recruiting efforts. Focused sales and marketing efforts and the continued improvement of management and information systems will continue to be a priority. The Company considers these programs to be of long-term strategic importance and will require the continued commitment of resources in order to maintain a competitive advantage. The Company continues, as a part of its overall business strategy, to invest in developmental business opportunities. These opportunities require ongoing resources in the areas of operating, selling and administrative expenses. DEPRECIATION AND AMORTIZATION: Depreciation and amortization in fiscal 1993 increased to $7.2 million or 51.2 percent over $4.7 million in fiscal 1992. The increase is due to a number of factors, although it primarily results from the extensive remodeling and relocation program of the Company's facilities which was initiated in prior years and is expected to continue. The cost of this remodeling and relocation program includes both the physical surroundings and the related furniture and equipment. To a lesser extent, costs associated with acquisitions and start-up of facilities also impacted this category during fiscal 1993. PROVISION FOR INCOME TAXES: The provision for income taxes as a percentage of income before taxes decreased to 39.7 percent in fiscal 1993 from 40.6 percent in fiscal 1992. The decrease in the effective tax rate is due to a slight reduction in state taxes brought about by various state tax planning strategies. RECENT ACCOUNTING PRONOUNCEMENTS: 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 investments in debt securities when there is intent and ability to hold these securities to maturity. Statement 115 is effective for fiscal years beginning after December 15, 1993. Upon adoption in the first quarter of 1994, the Company applied the provisions of the statement without restating prior years' consolidated financial statements. The implementation of this new standard did not have a material effect on the Company's consolidated financial position for the year ended December 31, 1994. LIQUIDITY AND CAPITAL RESOURCES: In 1994, total cash and investments, which includes cash and cash equivalents and short and long-term investments, increased to $19.2 million from $18.7 million at December 31, 1993. The Company's debt position of $7.4 million at December 31, 1994 was $2.7 million lower than the debt position at December 31, 1993. Working Capital decreased from $27.1 million in 1993 to $26.6 million in 1994.This change reflects continued expenditures for alliance implementation, including the financing of bulk radiopharmaceutical products, acquisition of independent radiopharmacies, the start-up of new radiopharmacies, and the re-equipping of existing radiopharmacies and information technology for both internal and customer systems. Days Sales Outstanding were 55 days at December 31, 1994 compared to 52 days at December 31, 1993. This increase results from the Company's expanded customer base associated with implementing the strategic alliance with DuPont Merck. The nature of the Company's business is not capital intensive and, as new products become available, the capital requirements 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 December 31, 1994, the Company has unused lines of credit of pproximately $16.2 million to fund short-term needs.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except per share data) December 31, December 31, 1994 1993 ______________________________ ASSETS Current assets: Cash and cash equivalents $ 17,761 $ 15,110 Short-term investments 230 3,590 Accounts receivable, less allowance for doubtful accounts of $1,154, and $1,200, respectively 49,972 35,052 Inventory 5,369 4,522 Prepaid taxes 1,191 3,198 Other current assets 1,773 2,217 ________ ________ Total current assets 76,296 63,689 Marketable investment securities 1,210 - Property and equipment, net 26,766 25,122 Excess of purchase price over net assets acquired, net of accumulated amortization of $3,810 and $3,373, respectively 13,874 14,123 Other 10,538 11,652 ________ ________ $128,684 $114,586 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 39,105 $ 20,817 Accrued alliance development costs - 4,066 Accrued liabilities 2,928 3,073 Accrued wages and related costs 5,494 5,332 Current maturities of long-term debt 2,153 3,280 ________ ________ Total current liabilities 49,680 36,568 ________ ________ Long-term debt, net of current maturities 5,154 6,837 Stockholders' equity: Common stock, $.05 par value; authorized 20,000 shares, issued, 10,320 and 10,355 shares at December 31, 1994 and 1993, respectively 529 518 Additional paid-in capital 46,508 43,786 Unrealized loss on investments (52) - Employee savings and stock ownership loan guarantee (1,934) (2,970) Foreign currency translation adjustment 133 131 Retained earnings 30,929 29,716 Treasury stock, at cost; 250 shares at December 31, 1994 (2,263) - _________ ________ Net stockholders' equity 73,850 71,181 ________ ________ $128,684 $114,586 ======== ======== See accompanying Notes to Consolidated Financial Statements. /TABLE SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME
Twelve Months Ended Seven Months Ended Twelve Months Ended December 31, December 31, May 31, In thousands, except per share data 1994 1993 1993 1992 1993 1992 ___________________________________ _______________________ _______________________ _______________________ (unaudited) (unaudited) Net sales $319,994 $241,289 $142,237 $131,897 $230,949 $195,989 Cost of sales 253,968 162,363 97,050 88,330 153,643 128,538 ________ ________ ________ ________ ________ ________ Gross profit 66,026 78,926 45,187 43,567 77,306 67,451 Operating, selling and administrative expenses 53,802 55,696 32,949 31,132 53,879 50,047 Depreciation and amortization 10,592 8,548 5,248 3,856 7,156 4,734 Alliance development costs - 4,500 4,500 - - - ________ ________ ________ ________ ________ ________ Operating income 1,632 10,182 2,490 8,579 16,271 12,670 Other income (expense): Interest income 658 804 450 260 614 651 Interest expense (747) (528) (311) (396) (613) (842) Other, net 542 546 145 221 622 510 ________ ________ ________ ________ ________ ________ Other income, net 453 822 284 85 623 319 Income from continuing operations before income taxes and cumulative effect of accounting change 2,085 11,004 2,774 8,664 16,894 12,989 Provision for income taxes 872 4,371 1,090 3,422 6,703 5,280 ________ ________ ________ ________ ________ ________ Income from continuing operations before cumulative effect of accounting change 1,213 6,633 1,684 5,242 10,191 7,709 Discontinued operations: Discontinued operations, net of taxes - (162) - (499) (661) (810) Gain on sale of discontinued operations, net of taxes - 282 - - 282 - Cumulative effect of change in method of accounting for income taxes - 1,020 1,020 - - - ________ ________ ________ ________ ________ ________ Net income $1,213 $7,773 $2,704 $4,743 $9,812 $6,899 ======== ======== ========= ======== ======== ======== Net income per share: Income from continuing operations $.11 $.62 $.16 $.49 $.95 $.70 Discontinued operations: Discontinued operations, net - - - (.05) (.06) (.07) Gain on sale of discontinued operations - .01 - - .03 - Cumulative effect of change in method of accounting for income taxes - .09 .09 - - - ________ ________ ________ ________ ________ ________ Net income per share $.11 $.72 $.25 $.44 $.92 $.63 ======== ======== ========= ======== ======== ======== Weighted average shares outstanding 10,889 10,779 10,762 10,668 10,708 10,865 ======== ======== ========= ======== ======== ======== See accompanying Notes to Consolidated Financial Statements. /TABLE SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Employee Savings & Stock Foreign Additional Unrealized Ownership Currency Total Common Stock Paid-In Loss on Loan Translation Retained Treasury Stockholders' In thousands Shares Amount Capital Investments Guarantee Adjustment Earnings Stock Equity _____________________________ ________________________________________________________________________________________________ BALANCE AT JUNE 1, 1991 9,846 $492 $37,048 - $(5,270) $219 $10,301 - $42,790 Issuance of common stock 133 7 847 Tax benefit from the exercise of stock options 794 794 Foreign currency translation adjustment 102 102 Amortization of loan guarantee 920 920 Net income 6,899 6,899 __________________________________________________________________________________________________________________________________ BALANCE AT MAY 31, 1992 9,979 499 38,689 - (4,350) 321 17,200 - 52,359 Issuance of common stock 212 11 1,659 1,670 Tax benefit from the exercise of stock options 1,205 1,205 Foreign currency translation adjustment (182) (182) Amortization of loan guarantee 920 920 Net income 9,812 9,812 _________________________________________________________________________________________________________________________________ BALANCE AT MAY 31, 1993 10,191 510 41,553 - (3,430) 139 27,012 - 65,784 Issuance of common stock 164 8 1,615 1,623 Tax benefit from the exercise of stock options 618 618 Foreign currency translation adjustment (8) (8) Amortization of loan guarantee 460 460 Net income 2,704 2,704 ________________________________________________________________________________________________________________________________ BALANCE AT DECEMBER 31, 1993 10,355 518 43,786 - (2,970) 131 29,716 - 71,181 Issuance of common stock 215 11 1,827 1,838 Tax benefit from the exercise of stock options 895 895 Unrealized loss on investments (52) (52) Foreign currency translation adjustment 2 2 Amortization of loan guarantee 1,036 1,036 Reacquisition of common stock for treasury (2,263) (2,263) Net income 1,213 1,213 ------------------------------------------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994 10,570 $529 $46,508 $(52) $(1,934) $133 $30,929 $(2,263) $73,850 ======= ======= ======= ======= ======== ======= ======= ======== ======= See accompanying Notes to Consolidated Financial Statements. /TABLE SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended Seven Months Ended Twelve Months Ended December 31, December 31, May 31, In thousands 1994 1993 1993 1992 1993 1992 _____________________________________ ____________________ ____________________ ____________________ (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,213 $ 7,773 $ 2,704 $ 4,743 $ 9,812 $ 6,899 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 10,592 8,548 5,248 3,856 7,156 4,734 Provision for losses on receivables (46) (530) (302) 49 (179) (390) Amortization of loan guarantee 1,036 920 460 460 920 920 Net gain on assets from discontinued operations - (282) - - (282) - Loss on discontinued operations - 162 - 499 661 810 Cumulative effect of change in method of accounting for income taxes - 1,020 1,020 - - - Decrease (increase) in: Accounts receivable (14,874) (54) (372) 477 795 (6,724) Inventory (874) 529 47 (1,441) (951) (885) Prepaid taxes 2,902 (2,580) (2,580) - - - Other current assets 444 1,492 (1,370) (2,140) (713) 54 Other assets (1,328) (10,577) (5,885) (770) (1,266) (1,798) Increase (decrease) in: Accounts payable 18,288 4,379 959 (3,310) 110 6,500 Accrued alliance development costs (4,066) 4,066 4,066 - - - Accrued liabilities (145) (1,898) 418 2,063 (253) 696 Accrued wages and related costs 162 (116) (3,140) (1,413) 1,611 1,036 Federal and state taxes payable - (1,459) (619) 1,459 1,824 769 Deferred income taxes - (1,632) (1,373) (116) (375) (577) Foreign currency translation adjustment 2 (89) (8) (101) (182) 102 _______ ________ ________ _______ _______ _______ Net cash provided by (used in) operating activities 13,333 9,672 (727) 4,315 18,688 12,146 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (9,209) (7,292) (5,538) (6,546) (10,646) (11,220) Payments for acquisitions (336) (1,500) (1,500) (140) (563) (176) Net decrease (increase) in short-term investments 3,343 691 (1,746) 789 3,226 1,620 Net decrease (increase) in long-term investments (1,245) - - - - - Proceeds from sales of discontinued operations - 9,100 - - 9,100 - Disposition of assets from discontinued operations - (4,618) - - (4,618) - _______ ________ ________ _______ _______ _______ Net cash used in investing activities (7,447) (3,619) (8,784) (5,897) (3,501) (9,776) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of common stock 1,838 3,111 1,623 1,387 1,670 854 Reacquisition of common stock (2,263) - Proceeds from (repayment of) short-term debt - (1,094) - (10) 1,000 (1,000) Proceeds from (repayment of) long-term debt (2,810) 2,932 3,905 (587) (1,664) (1,943) _______ ________ ________ _______ _______ _______ Net cash provided by (used in) financing activities (3,235) 4,949 5,528 790 (994) (89) _______ ________ ________ _______ _______ _______ Net increase (decrease) in cash and cash equivalents 2,651 11,002 (3,983) (792) 14,193 2,281 Cash and cash equivalents at beginning of period 15,110 4,108 19,093 4,900 4,900 2,619 _______ ________ ________ _______ _______ _______ Cash and cash equivalents at end of period $17,761 $15,110 $15,110 $4,108 $19,093 $4,900 ======= ======== ======== ======= ======== ======= See accompanying Notes to Consolidated Financial Statements. /TABLE SYNCOR INTERNATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Dollars in Thousands, Except Per Share Data NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: PRINCIPLES OF CONSOLIDATION: The consolidated financial statements of Syncor International Corporation include the assets, liabilities and operations of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The Company's business is primarily compounding, dispensing and distributing radiopharmaceuticals to hospitals and clinics. GENERAL: The unaudited operating results 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. CHANGE IN FISCAL YEAR: The Company changed its fiscal year-end to December 31 from May 31, beginning with the seven month transition period ended December 31, 1993. 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 their fair value. 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 the estimated useful lives ranging from two to 15 years. 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 a period 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 undiscounted future operating cash flows of the acquired operation as the key factor in determining whether the assets have been impaired. The Company has not experienced an impairment of value of any of its intangible assets as of December 31, 1994. MARKETABLE INVESTMENT SECURITIES: Marketable investment securities are carried at cost, and consist primarily of corporate debt and United States government obligations. In the first quarter 1994, the Company adopted the provisions of Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115) on a prospective basis. Under Statement 115, the Company classifies its 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 in which the Company has the ability and intent to hold the security 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 separate component of stockholders' equity 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 separate component of stockholders' equity. Actual gains or losses incurred on currency transactions in other than the country's functional currency are included in net income currently. NET INCOME PER SHARE: Income per share amounts are based upon the weighted average number of shares outstanding during each period adjusted for common stock equivalents. RECLASSIFICATIONS: Certain items in the prior years' consolidated financial statements have been reclassified to conform to the current year's presentation. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 109: Effective June 1, 1993, the Company adopted the Financial Accounting Standard Board Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes," (Statement 109) and has reported the cumulative effect of that change in the method of accounting for income taxes in the consolidated statement of income for the seven months ended December 31, 1993. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Pursuant to the deferred method under APB Opinion 11, which was applied in the fiscal year ended May 31, 1993, and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. PRE-OPENING COSTS: Costs, included in "Other" in the consolidated balance sheets relating to the opening of new radiopharmacies, are deferred and amortized ratably over a 24 month period commencing at the date of opening. NOTE 2: ACQUISITIONS: In 1993, the Company acquired certain net assets of three existing radiopharmacies in Florida and Nebraska for total consideration of approximately $4.9 million. The consideration consisted of $1.5 million in cash and $3.4 million in promissory notes payable over a three- to five-year period. These acquisitions have been accounted for as purchases and the purchase price was allocated to fixed assets, non-compete and consulting agreements and goodwill. The results of these operations are included in the Company's consolidated financial statements at December 31, 1993, from the effective date of the acquisition. Pro forma information is not presented since the acquisitions are not material to the accompanying consolidated financial statements. NOTE 3: DISPOSITION OF BUSINESS: On May 31, 1993, the Company divested itself of nine home infusion sites for $9.1 million in cash and closed four remaining sites. Accordingly, this business segment was classified as a discontinued operation in the consolidated financial statements. All prior periods have been restated to conform to this presentation. Net sales for the home infusion business were $14,116 and $14,229 for the years ended May 31, 1993 and 1992 respectively. The net loss from discontinued operations for the year ended May 31, 1993, included losses from operations up to the measurement date, losses during the phase-out period of $1,212 and expenses associated with sale and closure of facilities offset by a net gain on disposal of assets. Net ax benefits of $247 and $555 for the years ended May 31, 1993 and 1992 respectively were recognized as a result. The remaining net assets are not material. NOTE 4: PROPERTY AND EQUIPMENT, NET: Depreciation and amortization are provided at rates based on the estimated useful lives of the various assets, principally utilizing the straight-line method. The major classes of property and equipment are:
December 31, December 31, 1994 1993 ________________________________ Land and buildings $ 3,089 $ 3,089 Furniture and equipment 41,674 34,923 Leasehold improvements 13,822 11,364 _____________ ___________ 58,585 49,376 Less accumulated depreciation and amortization 31,819 24,254 _____________ ___________ $ 26,766 $ 25,122 ============= =========== /TABLE NOTE 5: MARKETABLE INVESTMENT SECURITIES: Marketable investment securities consists of:
December 31, 1994 ______ Available-for-sale, at fair value, net of tax effect $ 645 Held-to-maturity, at amortized cost 565 ____________ $ 1,210 ============
The amortized cost, gross unrealized holding gains, gross unrealized holding losses and fair value for available-for-sale and held-to-maturity securities by major security type at December 31, 1994 were as follows:
________________________ Unrealized ________________ Amortized Holding Holding Fair Cost Gains Losses Value _________ ________ _______ _______ Available-for-sale Corporate debt securities $ 645 $ --- $ --- $ 645 645 --- --- 645 ________ _______ _______ ______ Held-to-maturity: U.S. Treasury securities 500 --- (19) 481 Mortgage-backed securities 65 --- (16) 49 $ 565 $ --- $ (35) $ 530 ========= ======== ======== ========
Maturities of investment securities classified as available-for-sale and held-to-maturity were as follows at December 31, 1994:
Amortized Cost Fair Value ______________________________________ _________________________________ Available-for-sale: Due after one year through five years --- ---- Due after five years through ten years $476 $470 Due after ten years 169 166 Held-to-maturity: Due after one year through five years $565 $530 ======= =======
At December 31, 1993, equity securities are stated at the lower of aggregate cost or market and debt securities are carried at aggregate cost. NOTE 6: ACCRUED ALLIANCE DEVELOPMENT COSTS: On December 3, 1993, the Company entered into a long-term supplier distribution agreement 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 had been in place since 1988. Under the terms of the new agreement, DuPont Merck relies upon the Company 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 $4,500 during the seven months ended December 31, 1993. Included in these charges were $2,800 of costs related to launch and implementation of the strategic alliance program, $1,100 of employee-related expenses associated with the consolidation, relocation and reorganization of certain sales and service operations and $600 for incremental accounting, legal and regulatory fees. Accrued alliance development costs of $4,066 at December 31, 1993 were fully utilized in 1994 as the strategic alliance was implemented. NOTE 7: LINE OF CREDIT: At December 31, 1994, the Company had an unsecured line of credit for short-term borrowings aggregating $20,000, bearing interest at the bank's reference rate (8.5 percent at December 31, 1994) and expiring on May 1, 1996. The availability of this line of credit, at December 31, 1994, has been reduced by $3,800 as a result of standby letters of credit. To maintain this line of credit, the Company is required to pay a quarterly commitment fee of 1/8 of one percent per annum on the unused portion. There were no amounts outstanding under the line of credit at December 31, 1994. The line of credit agreement contains covenants that include requirements to maintain certain financial covenants and ratios (including minimum current ratio, working capital and tangible net worth) and limitations on payments of dividends, new borrowings and purchases of its stock. At December 31, 1994, the Company violated certain debt covenants and has obtained a bank waiver. NOTE 8: LONG-TERM DEBT: The Company's long-term debt was as follows:
December 31, December 31, 1994 1993 _________________________________________________ __________________________ Capital lease obligations, payable in varying installments through 1999, with interest rates ranging from 10.5% to 12% $ 1,742 $ 2,001 Notes payable, unsecured, payable in installments through 1999, with effective interest rates ranging from 6% to 12.75% 2,054 3,569 Notes payable, unsecured, payable in installments through 1996 with a floating interest rate of either the lower of prime, LIBOR plus .75%, or six month Treasury bill rates plus 1.4% 1,934 2,970 Notes payable, secured, payable in installments through year 2000 with a non-interest bearing rate, net of unamortized discount of $413 at 6% of $222 and $413 at December 31, 1994 and 1993, respectively 1,577 1,577 ________ _______ 7,318 10,117 Less current maturities of long-term debt 2,153 3,280 ________ ________ Long-term debt, net of current maturities $ 5,154 $ 6,837 ======== ========
At December 31, 1994, long-term debt maturing over the next five years is as follows: 1995, $2,153; 1996, $2,163; 1997, $982; 1998, $1,246; 1999, $602; and thereafter, $172. Interest paid was $694 and $725 for the years ended December 31, 1994 and 1993 (unaudited), $268 and $280 for the seven months ended December 31, 1993 and 1992 (unaudited). Interest paid for the years ended May 31, 1993 and 1992 were $601 and $806, respectively. NOTE 9: INCOME TAXES: As discussed in Note 1, the Company adopted Statement 109 as of June 1, 1993. The cumulative effect of this change in method of accounting of $1,020 was determined as of June 1, 1993, and is reported separately in the consolidated statement of income for the seven month period ended December 31, 1993. Prior years' financial statements were not restated to apply the provisions of Statement 109. Total income tax expense for the years ended December 31, 1994; (and 1993 unaudited), was allocated as follows (in thousands):
Twelve Months Ended December 31, 1994 1993 _________________________________________________ _______________________ (unauthorized) Income from continuing operations $ 872 $ 4,371 Stockholders' equity for compensation expense for tax purposes in excess of amounts recognized for financial reporting (895) (1,153) $ (23) $ 3,218
Income tax expense (benefit) attributable to income from continuing operations consisted of:
Twelve Months Ended Seven Months Ended Twelve Months Ended December 31, December 31, May 31, 1994 1993 1993 1992 1993 1992 ____________ _____________________ ___________________ __________________ (unaudited) (unaudited) Current: Federal $ 1,329 $ 3,859 $ 717 $ 3,093 $ 6,411 $ 4,456 State 127 583 48 585 1,240 1,152 _______ _______ ______ _______ _______ _______ 1,456 4,442 765 3,678 7,651 5,608 Deferred: Federal (505) (156) 241 (219) (800) (269) State (79) 85 84 (37) (148) (59) _______ ________ _______ ________ ________ _______ (584) (71) 325 (256) (948) (328) _______ ________ _______ ________ ________ _______ $ 872 $ 4,371 $ 1,090 $ 3,422 $ 6,703 $ 5,280 ======= ======== ======= ======== ======== =======
The amounts differed from the amounts computed by applying the federal income tax rate of 35 percent (34 percent for the periods ending prior to December 31, 1993) to pretax income from continuing operations as a result of the following:
Twelve Months Ended Seven Months Ended Twelve Months Ended December 31, December 31, May 31, 1994 1993 1993 1992 1993 1992 ______________________________ _____________________ ___________________ __________________ (unaudited) (unaudited) Federal income taxes at "expected" rate $ 730 $3,851 $ 971 $2,946 $5,744 $4,416 Increase (reduction) in income taxes resulting from: Tax exempt interest (92) (50) (29) (10) (45) (68) Amortization of intangible assets 143 146 84 80 139 101 State taxes, net of Federal benefit 31 434 86 350 721 721 Utilization of general business credits - (10) (10) - - - Other 60 - (12) 56 144 110 _____ ______ ______ ______ ______ ______ $ 872 $4,371 $1,090 $3,422 $6,703 $5,280 ===== ====== ====== ====== ====== ====== /TABLE Deferred taxes are recorded based upon differences between the financial statement and tax basis of assets and liabilities. Temporary differences which give rise to a significant portion of deferred tax expense (benefit) are presented. For the seven months ended December 31, 1992, and for the years ended May 31, 1993 and May 31, 1992, deferred income tax expense results from timing differences in the recognition of income and expense for income tax and financial reporting purposes. The sources and tax effects of those timing differences are also presented below:
Twelve Months Ended Seven Months Ended Twelve Months Ended December 31, December 31, May 31, 1994 1993 1993 1992 1993 1992 ______________________________ _____________________ ___________________ __________________ (unaudited) (unaudited) Net operating losses $ 81 $ - $ - $ - $ 12 $ (65) Depreciation and amortization (814) (182) (22) (26) (81) 57 Allowances and other reserves 126 40 256 (140) (880) (280) Other, net 23 71 91 (90) 1 (40) _______ _______ _______ _______ _______ ______ $ (584) $ (71) $ 325 $ (256) $ (948) $(328) ======= ======= ======= ======= ======= ======
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1994 and 1993, are presented below (in thousands):
December 31, 1994 1993 ____________________________________________________ _______________________ DEFERRED TAX ASSETS: Compensated absences, principally due to accrual for financial reporting purposes $ 873 $ 632 Accounts receivable, due to allowance for doubtful accounts 420 472 Accrued liabilities, primarily due to self- insurance accrual for financial reporting purposes 712 921 Deferred compensation, due to accrual for financial reporting purposes 796 577 Deferred subsidiary start-up expenses 178 --- Other 137 13 ________ ________ Total gross deferred tax assets 3,116 2,615 DEFERRED TAX LIABILITIES: Plant and equipment, principally due to difference in depreciation and lease capitalization 653 903 Other assets, principally due to difference in intangible capitalization and amortization for income tax and financial reporting purposes 1,342 1,427 ________ ________ Total gross deferred tax liabilities 1,995 2,330 ________ ________ Net deferred tax asset $ 1,121 $ 285 ======== ========
Income tax payments amounted to $539, $6,036, $4,056, $2,607, $4,753 and $4,514, for the years ended December 31, 1994 and 1993, (unaudited) the seven months ended December 31, 1993, and 1992 (unaudited), and for the years ended May 31, 1993 and 1992, respectively. NOTE 10: COMMITMENTS: The Company leases facilities, vehicles and equipment with terms ranging from three years to 15 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 a building and certain items of equipment under capital leases which had an approximate cost of $3,744 at December 31, 1994 and 1993 and accumulated depreciation of $2,647 and $2,357, respectively. The Company was not utilizing this building and, accordingly, sublet this building to a third party for the balance of the lease term. Future minimum lease payments under capital leases and noncancellable operating leases with terms greater than one year and related sublease income were as follows at December 31, 1994:
Capital Operating Sublease Leases Leases Income ____________________________ _________________________________ Year ending December 31, 1995 $ 496 $ 5,779 $ 198 1996 496 5,239 175 1997 496 3,768 175 1998 496 2,510 166 1999 248 1,766 97 Remainder 0 2,747 8 _______ ________ _______ 2,232 $ 21,809 $ 819 ======== ======= Less amount representing interest (490) ________ Present value of net minimum lease payments $1,742 ========
Rental expense under operating leases was $6,573 and $5,470 for the years ended December 31, 1994 and 1993 (unaudited), and $3,208 and $2,152 for the seven months ended December 31, 1993 and 1992, respectively. Rental expense for the years ended May 31, 1993 and 1992 were $4,861 and $3,868, respectively. NOTE 11: STOCK OPTIONS AND RIGHTS: Options to purchase common stock have been granted under various plans to officers, directors and other key employees at prices equal to the fair market value at date of grant. At December 31, 1994, 414,339 shares are reserved for issuance under the various plans. In July 1994, the Company's Board of Directors authorized Syncor to offer to its current employees holding stock options under the Syncor 1990 Master Stock Incentive Plan, the opportunity to exchange their options within a certain price range for a reduced number of option shares at the price as of the close of market on July 14, 1994. All option holders who were employees and held unexercised option shares exercisable at prices of $9.125 or greater were offered exchange options at the price of $8.50, with the replacement option being for a lesser number of shares, in accordance with a formula approved by the Board of Directors. To further enhance the exchange program, the new options are valid for a period of ten years instead of five years with an accelerated vesting schedule. The Company cancelled 831,240 option shares and reissued 675,752 option shares as a result of this exchange offer. A summary of employee stock options is as follows:
Number of Shares Price Range Per Share _____________________________ ________________________________________ Outstanding at June 1, 1991 1,431 $ 3.90 - $ 9.12 Granted 680 $ 15.25 - $ 26.50 Exercised (119) $ 3.90 - $ 9.13 Cancelled (44) $ 5.40 - $ 21.75 _______ _______ ________ Outstanding at May 31, 1992 1,948 $ 3.90 - $ 26.50 Granted 66 $ 17.12 - $ 23.75 Exercised (204) $ 3.90 - $ 21.75 Cancelled (50) $ 4.15 - $ 21.75 _______ _______ ________ Outstanding at May 31, 1993 1,760 $ 4.75 - $ 26.50 Granted 205 $ 17.12 - $ 21.00 Exercised (164) $ 5.28 - $ 21.00 Cancelled (40) $ 9.12 - $ 21.75 _______ _______ ________ Outstanding at December 31, 1993 1,761 $ 4.75 - $ 26.50 Granted 964 $ 8.25 - $ 23.25 Exercised (215) $ 5.10 - $ 21.75 Cancelled (885) $ 4.80 - $ 26.50 _______ _______ ________ Outstanding at December 31, 1994 1,625 $ 4.75 - $ 21.88 ======= ======= ======== Exercisable at December 31, 1994 733 $ 4.75 - $ 21.88 ======= ======= ========
The Company derives a tax benefit from the options exercised and sold by employees and as such the benefit is credited to additional paid-in capital when realized. In November 1989, the Company made a rights distribution of one common share purchase right on each outstanding share of common stock. When exercisable, each right will entitle its holder to buy from the Company one-fourth of a share of the Company's common stock at a price of $5 per share subject to adjustment (the "Purchase Price"). The rights expire on September 30, 1999. With certain exceptions, subject to the approval of the Board of Directors, the rights will become exercisable if a person has acquired or makes an offer, the consummation of which will result in beneficial ownership of 20 percent or more of the Company's general voting power ("Acquiring Person"). At such time (the "Distribution Date"), the rights will be evidenced by the certificates representing the common shares and will be transferred with and only with the common shares. Except for certain transactions approved by the Board of Directors, in the event: (i) the Company is acquired in a merger; (ii) 50 percent or more of its consolidated assets or earning power are sold; or (iii) any person becomes an Acquiring Person, proper provisions shall be made so that each holder of the right (other than rights beneficially owned by the Acquiring Person) receive, upon the exercise thereof at the adjusted exercise price of the right, which shall be four times the Purchase Price, that number shares of common stock of the acquiring company which at the time of such transaction will have a market value of two times the adjusted exercise price of the right. NOTE 12: EMPLOYEE BENEFIT PLAN: On July 31, 1986, the Company adopted a defined contribution 401(k) plan. The plan is open to all employees who are at least 21 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 Employee Savings and Stock Ownership Plan (ESSOP) to allow the plan to purchase one million of the Company's shares through a leveraged employee stock ownership plan transaction. In connection with this transaction, the Company has guaranteed the repayment of the ESSOP loan which had an outstanding balance of $1,934 at December 31, 1994. Prior to the ESSOP transaction, participants were able to contribute one percent to ten percent of their compensation to the plan. The Company made matching contributions to 50 percent of the employees' contributions up to a maximum of four percent of the employees' compensation. Matching contributions were used to purchase Company stock. With the adoption of 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. Employees become eligible to participate in the plan after six consecutive months of service. The Company may make discretionary matching contributions to 50 percent of the employees 401(k) investment contributions of up to a maximum of four percent of the employees' compensation and may make discretionary matching contributions 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 the form of Company common stock and partially comes from the one million shares of Company stock which the plan purchased during 1989. The number of shares of stock available to match employee contributions is directly related to the amount of principal and interest 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 employee 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 vest. The Company's contribution for the years ended December 31, 1994 and 1993 (unaudited), amounted to $1,165 and $1,086, of which $1,036 and $920 were used to pay down principal on the ESSOP loan and $129 and $146 to pay interest. For the seven months ended December 31, 1993 and the years ended May 31, 1993 and 1992, contributions to the ESSOP amounted to $1,006, $1,098 and $1,214, respectively, and were used to satisfy principal and interest obligations in those years. NOTE 13: 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 14: SELECTED QUARTERLY RESULTS OF OPERATIONS: Unaudited calendar quarterly data is summarized below:
__________________________________________________________ March June September December 31 30 30 31 1994 ___________________________________ __________________________________________________________ Net sales $ 74,800 $ 81,888 $ 81,625 $ 81,671 $ 319,994 Gross profit (loss) $ 18,421 $ 17,015 $ 14,996 $ 15,594 $ 66,026 Net income (loss) $ 2,090 $ 744 $ (1,084) $ (537) $ 1,213 Net income (loss) per share $ .19 $ .07 $ (.10) $ (.05) $ .11 Weighted average shares outstanding 10,981 10,830 10,684 10,567 10,889 ======== ======== ======== ========= ========= Market price per share: High $ 24 $ 20 1/2 $ 9 1/2 $ 8 3/4 $ 24 Low $ 20 $ 8 1/2 $ 6 3/4 $ 6 3/4 $ 6 3/4 ======== ======== ======== ========= ========= __________________________________________________________ March June September December 31 30 30 31 1994 ___________________________________ __________________________________________________________ Net sales $ 59,749 $ 59,656 $ 60,356 $ 61,528 $ 241,289 Gross profit $ 20,255 $ 20,042 $ 20,537 $ 18,092 $ 78,926 Net income (loss): Continuing operations $ 2,589 $ 3,122 $ 2,961 $ (2,039) $ 6,633 Discontinued operations $ (447) $ 567 --- --- $ 120 Cumulative effect of accounting change --- --- --- 1,020 1,020 ________ ________ ________ _________ _________ Net income (loss) $ 2,142 $ 3,689 $ 2,961 $(1,019) $ 7,773 ======== ======== ======== ========= ========= Net income (loss) per share: Continuing operations $ .24 $ .29 $ .28 $(.19) $ .62 Discontinued operations (.04) .05 --- --- .01 Cumulative effect of accounting change --- --- --- .09 .09 ________ ________ ________ _________ _________ Net income (loss) per share $ .20 $ .34 $ .28 $ (.10) $ .72 ======== ======== ======== ========= ========= Net income (loss) per share 10,749 10,729 10,779 10,860 10,779 ======== ======== ======== ========= ========= Weighted average shares outstanding 10,749 10,729 10,779 10,860 10,779 ======== ======== ======== ========= ========= Market price per share: High $ 25 5/8 $ 21 1/4 $ 22 1/2 $ 22 1/2 $ 25 5/8 Low $ 16 3/4 $ 16 $ 14 7/8 $ 15 1/4 $ 14 7/8 ======== ======== ======== ========= ========= /TABLE The Board of Directors and Stockholders Syncor International Corporation We have audited the accompanying consolidated balance sheets of Syncor International Corporation and Subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity and cash flows for the year ended December 31, 1994, the seven month period ended December 31, 1993, and each of the years in the two-year period ended May 31, 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Syncor International Corporation and Subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for the year ended December 31, 1994 and the seven month period ended December 31, 1993, and for each of the years in the two year period ended May 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 9 to the consolidated financial statements, the Company changed its method of accounting for income taxes in the seven month period ended December 31, 1993 to adopt the provision of the Financial Accounting Standard Board's Statement No. 109, "Accounting for Income Taxes." As discussed in Notes 1 and 5 to the consolidated financial statements, the Company changed its method of accounting for investments to adopt the provisions of the Financial Standards Board's Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," on January 1, 1994. KPMG Peat Marwick LLP Los Angeles, California March 10, 1995 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, include 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 interal 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 Intenational Corporation's independent certified public accountants and have been reviewed by the Audit Committee of the Board of Directors. CORPORATE INFORMATION BOARD OF DIRECTORS __________________ Monty Fu, Chairman of the Board Director since 1985 Gene R. McGrevin, President and Chief Executive Officer Director since 1989 Robert G. Funari, Executive Vice President and Chief Operating Officer Director since 1995 George S. Oki, Chairman of the Board, Meta Information Services, Inc. Director since 1985 Joseph Kleiman, Retired Executive, Financial Consultant Director since 1985 Arnold Spangler, Managing Director, Mancuso & Company Director since 1985 Steven B. Gerber, MD Senior Vice President, Oppenheimer & Co. Director since 1990 Henry N. Wagner, Jr., MD Professor of Medicine and Director of Nuclear Medicine, The John Hopkins Medical Institutions Director since 1992 Gail R. Wilensky, PhD Senior Fellow, Project HOPE, former HCFA Administrator and Deputy Assistant to President Bush Director since 1993 OFFICERS ________ Monty Fu Chairman of the Board Gene R. McGrevin President and Chief Executive Officer Robert G. Funari Executive Vice President and Chief Operating Officer Michael E. Mikity Vice President and Chief Financial Officer Jack L. Coffey Vice President, Quality and Regulatory Sheila H. Coop Vice President, Human Resources Haig Bagerdjian Vice President and General Counsel Charles A. Smith Vice President, Corporate Development SHAREHOLDER INFORMATION _______________________ INQUIRIES Shareholders, interested investors and investment professionals are invited to contact the Company for further information throughout the year. ANNUAL MEETING The Company's Annual Meeting of Shareholders will be held at 1:00 pm, Tuesday, June 20, 1995, at the Warner Center Marriott Hotel, 21800 Oxnard Street, Woodland Hills, California 91367. Shareholders of record on April 21, 1995, are invited to attend and vote at that meeting. FORM 10-K To receive a copy of the Company's Annual Report or form 10-K, filed with the Securities and Exchange Commission, contact the Corporate Headquarters, Syncor International Corporation, Attn: Investor Relations Department, 20001 Prairie Street, Chatsworth, California 91311. INDEPENDENT AUDITORS KPMG Peat Marwick LLP 725 South Figueroa Street Los Angeles, California 90017 STOCK DATA The Company's common stock is quoted on the National Association of Securities Dealers Automated Quotation System (NASDAQ) under the symbol SCOR. TRANSFER AGENT AND REGISTRAR Stockholders wishing to report a change of address may forward details, including both the old and new address, to: American Stock Transfer & Trust Company 40 Wall Street, 46th Floor New York, New York 10005 (212) 936-5100 STOCK MARKET INFORMATION Stock price quotations are printed daily in major newspapers, including the Wall Street Journal. As of March 31, 1995, there were 10,570,333 shares of common stock outstanding. Shareholders of record at that date amounted to 1,553. The Company has not paid cash dividends on its stock and has no current intention of paying cash dividends in the foreseeable future. SYNCOR'S VALUES Syncor's Values reflect our shared beliefs as a Company of people. Our Values are our code of conduct in working together, setting priorities and making decisions. They guide us individually and as a team to make the best decisions each day for our customers, employees and shareholders. CUSTOMERS: Our customers are number one. We are dedicated to providing quality services which exceed their expectations and maintain their trust. TEAMWORK: Teamwork is the result of open communication and the free exchange of ideas and information in an enviornment which values and encourages respect and dignity for every individual. PROFESSIONALISM: Our employees are professionals who demonstrate knowledge, skills and accountability in performing their jobs. HEALTH AND SAFETY: The health and safety of our employees, customers and community will never be compromised. EMPLOYEE OWNERSHIP: We support employee ownership to share responsibility in creating future value for all shareholders. COMMUNITY SERVICE: We believe in community service and encourage employee participation in community activities.