SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from June 1, 1993 to December 31, 1993
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
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (181) 886-7400
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to 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 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 is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information state-
ments incorporated by reference in Part III of this Form 10-K or any amend-
ment 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 11, 1993 is $188,698,131. The number of shares out-
standing of the Registrant's $0.05 par value common stock as of March 11,
1994, was 10,527,834 shares.
THIS DOCUMENT IS A COPY OF THE EXHIBIT 13 FILED AS A PART OF
FORM 10-K FILED ON MARCH 31, 1994, PURSUANT TO A RULE 201
TEMPORARY HARDSHIP EXEMPTION
INDEX TO EXHIBITS
Exhibit No.
___________
3. Certificate of Incorporation and By-Laws
3.1 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.
3.2 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.
10. Material Contracts
10.1 Employment Agreement dated 2/1/89, between the Company and Gene
R. McGrevin filed as Exhibit 10.2 to 1/27/89 Form 8K and
incorporated herein by reference.
10.2 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.
10.3 Second Amendment dated 10/16/89 to Employment Agreement dated
2/1/89 between the Company and Gene R. McGfevin filed as
Exhibit 10.6 to 8/30/90 Form 10-K and incorporated herein by
reference.
10.4 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.
10.5 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.
10.6 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.
10.7 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.
10.8 Form of Benefits Agreement substantially as entred into between
Company and each Director filed as Exhibit 10.31 to 8/30/90
Form 10-K and incorporated herein by reference.
10.9 Form of Benefits Agreement substantially as entered into
between Company and certain employees as Exhibit 10.8.
10.10 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.
10.11 Syncor International Corporation Deferred Compensation Plan
effective July 1. 1991 as Amended and Restated effective
April 19, 1993.**
10.12 Employment Agreement dated July 21, 1993 between the Company
and Robert G. Funari.**
10.13 Syncor International Corporation McGrevin Deferred Compensation
Plan effective June 10, 1993.**
10.14 Split Ownership/Split Dollar Life Insurance Assignment Agreement
effective June 10, 1993 between the Company and Gene R.
McGrevin.**
10.15 Form of Stock Option Agreement substantially as entered into
between Company and certain employee Directors and employees.**
10.16 Form of Stock Option Agreement substantially as entered into
between Company and certain non-employee Directors.**
11. Statement Re: Computation of Per Share Earnings
Computation can be clearly determined from the material contained in
Company's Annual Report to Shareholders for fiscal year ended
December 31, 1993.
13. Annual Report to Security Holders (CE)
Syncor International Corporation Annual Report to Shareholders for
the fiscal year ended December 31, 1993, except for specific infor-
mation 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. (CE)
21. Subsidiaries of the Registrant
State of
Name of Company Incorporation
_______________ _____________
Syncor Michigan Corp. Michigan
Syncor Corp. New York New York
Syncor Management Corporation California
Syncor Hong Kong Limited Hong Kong
Syncor Taiwan, Inc. Taiwan
Syncor Midland, Inc. Texas
23. Consents of Experts and Counsel
Consent of KPMG Peat Marwick.**
** Included herewith
CE Filed on paper pursuant to temporary hardship.
EXHIBIT 13
Syncor International Corporation operates an expanding nationwide network
of more than 109 radiopharmacies. These pharmacies specialize in compounding
and dispensing patient-specific radiopharmaceutical prescriptions, as well as
distributing bulk radiopharmaceutical products for diagnostic imaging, and
provide a complete range of advanced pharmacy services to over 7,000 customers.
Syncor is the only national pharmacy network that provides this combination of
diagnostic, therapeutic and monitoring services to hospitals and alternate
sites.
In 1974, the founders of Syncor International Corporation introduced a new
service concept to the Nuclear Medicine community, the delivery of time-critical
pharmaceuticals through centralized radiopharmacies. Over the last 20 years,
Syncor has grown through numerous mergers and acquisitions into a multimillion
dollar international corporation. It is with a continuing spirit of adventure
that we go forward to embrace the next 20 years.
In January 1994, to celebrate Syncor's 20th Anniversary, the Officers and
Directors of the Company gathered in Albuquerque, New Mexico, to honor 13
individuals for their contributions to the concept of centralized radiopharmacy.
The founders pictured from left to right, front row: Richard Keesee, Ph.D.,
Ronald Arellano; middle row: Mark T. Hebner, William J. Baker, Sydney Ackerman,
David A. Hurwitz; back row: Monty Fu, Dr. Carman Bliss, Samuel C. Augustine,
Nunzio P. DeSantis, Francisco Urrea, Jr.; not pictured: Robert L. Sanchez.
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
<TABLE>
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31, YEAR ENDED MAY 31,
(In thousands, except per share data)
1993 1992 1993 1992 1991 1990
____ ____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net sales $142,237 $131,897 $230,949 $195,989 $145,139 $118,929
Gross profit 45,187 43,567 77,306 67,451 49,501 37,161
Income from continuing operations(1) 1,684 5,242 10,191 7,709 5,870 3,216
Cumulative effect of change in method
of accounting for income taxes 1,020 -- -- -- -- --
Net income(1) 2,704 4,743 9,812 6,899 4,755 3,596
=================================================================================================================================
Earnings per share:
Continuing operations(1) $.16 $.49 $.95 $.70 $.57 $.32
Discontinued operations, net -- (.05) (.03) (.07) (.11) --
Extraordinary item -- -- -- -- -- .03
Cumulative effect of accounting change .09 -- -- -- -- --
____ ____ ____ ____ ____ ____
Net income per share(1) $.25 $.44 $.92 $.63 $.46 $.35
=================================================================================================================================
Weighted average shares outstanding 10,762 10,668 10,708 10,865 10,246 10,140
Cash, cash equivalents and
short-term investments $ 18,700 $ 8,389 $ 20,937 $ 9,970 $ 9,309 $ 9,609
Working capital 27,121 22,964 27,430 20,279 20,220 17,324
Total assets 114,586 95,422 103,953 90,847 74,591 65,744
Long-term debt 6,837 5,421 4,515 6,008 7,881 8,475
Stockholders' equity 71,181 58,848 65,784 52,359 42,790 35,805
Current ratio 1.74 1.75 1.82 1.64 1.89 1.85
Number of domestic radiopharmacies 109 97 100 95 87 83
Days sales outstanding 52 53 52 59 68 62
=================================================================================================================================
<FN>
(1) Seven months ended December 31, 1993, includes a charge for alliance development costs of $4,500 (or $.26 per share).
</TABLE>
To Our Shareholders:
Our Annual Report is unique. It covers an abbreviated financial year, the
seven-month transition period from June 1 to December 31, 1993. Our new fiscal
year end is December 31. This change in fiscal year came about because of our
important new strategic alliance with the Radiopharmaceutical Division of the
DuPont Merck Pharmaceutical Company (DuPont Merck) that was announced on
December 3, 1993. Many exciting opportunities will result from this alliance.
By now it is clear that the delivery of affordable, quality health care in
the '90s will be very different from that of the recent past. Payers and
providers alike face challenges and serious threats in a highly dynamic
environment where past experience has very little predictive value in setting
successful paths for the future. The risks are great. Many professional,
institutional and commercial participants who choose to rely on traditional
practices of the past, or wait for hard definitions of the future, may not
succeed.
Some health care companies view this change as presenting abundant
opportunities for innovation. They are taking bold initiatives by playing to
their inherent strengths and assuming the added risk of acting now, rather than
reacting later. We at Syncor believe these are the strategic characteristics of
the leaders and winners who are already shaping real health care reform in the
United States and will continue to do so for the remainder of this decade.
That is why, in December 1993, Syncor announced a strategic initiative, in
the form of a new alliance with DuPont Merck. The essence of this alliance,
nearly two years in the making, is to facilitate expansion of our past
long-standing relationship into one of commitment in which we truly have common,
shared goals. Our mutual goals are directed toward growing the Nuclear Medicine
market so that it may more fully realize its potential of contributing to
affordable, quality health care.
The unique and independent strengths of our two great Companies are now
focused to:
o More effectively utilize aggregate resources to produce immediate and
long-term cost value benefits for our customers.
o Accelerate expansion of Syncor's pharmacy network to broaden availability
of commercial radiopharmacy and bring the advantages of Syncor's unit dose
services to new customers.
o Effectively concentrate resources on our respective strengths, from product
development, manufacturing and product marketing to distribution and
advanced pharmacy services marketing.
o Meet the demands of economic competitiveness while sustaining profitable
growth in a changing health care environment.
Our strategic alliance with DuPont is financially sound and represents a
leadership initiative that is responsive and highly relevant to the fundamental
elements of health care reform and to the common market we serve. It is not
without risk; it is not without challenge. But the greater risk is to wait and
place one's destiny in the hands of others.
If Syncor is to fulfill the commitment to continue to achieve profitable
growth and to attain our stated goal of reaching $500 million in sales with 10
percent pretax income by 1997, we will have to find new ways to ring increased
value to our customers. A value-added relationship, such as the strategic
alliance with DuPont, is one important way to achieve our goals. We also expect
this alliance to serve as a catalyst that may foster alliances, partnerships and
innovations with leading organizations other than DuPont.
It remains our belief that by continuing to earn and advance our leadership
role with our customers, we will be rewarded with continued long-term financial
prosperity. Syncor's leadership role will depend upon our ability to create
multiple successful new business opportunities that leverage Syncor's unique
strengths in advanced pharmacy services. We are confident that our alliance with
DuPont will create substantial value for our customers, our partner, our
employees and our shareholders.
The initial action of the alliance is the transfer to Syncor of end-user
customers who formerly purchased radiopharmaceutical products in bulk form
directly from DuPont. This key change became effective February 1, 1994, and is
the first of many important practical and strategic advantages for Syncor, for
DuPont, for the Nuclear Medicine community and, more importantly, for our
customers.
The addition of DuPont's nearly 2,000 customers to Syncor's customer base
is expected to increase sales by an estimated $50 million to $60 million in
calendar 1994 alone. A change of this magnitude necessitated significant advance
investment in certain business systems and practices essential to making the
alliance successful.
Now, let's examine our financial performance. Net sales for the seven month
transition period ended December 31, 1993, increased 7.8 percent to $142.2
million, up from $131.9 million for the corresponding period of the prior year.
Net income for the seven month transition period ended December 31, 1993,
exclusive of a previously announced charge of $4.5 million (or $.26 per share)
for alliance development costs, was $5.4 million or $.51 per share. This
represents a 14.6 percent increase when compared to $4.7 million or $.44 per
share (inclusive of $.05 loss per share for discontinued operations) for the
corresponding period of the prior year.
Net income for the seven month transition period ended December 31, 1993,
including the charge for alliance development costs, was $2.7 million or $.25
per share. Net income of $2.7 million also included a credit for the cumulative
effect of a change in method of accounting relating to the implementation of the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" of $1,020,000 (or $.09 per share).
Our strong balance sheet was enhanced during the period as cash and
equivalents totaled $18.7 million and working capital totaled $27.1 million
while the current ratio stood at 1.74:1.00. The Company also extended its line
of credit financing to $20 million from $8 million to improve its position to
take advantage of future growth opportunities.
Our financial performance remained healthy with growth in profits outpacing
sales growth, prior to the $4.5 million charge for alliance development costs,
which is consistent with past trends. Management remains committed to sustaining
profitable long-term growth for the Company.
Syncor's nationwide network of radiopharmacies also experienced its most
aggressive growth ever in our 20-year history. Our national network increased
from 100 at May 31, 1993, to 109 radiopharmacies. Six of these radiopharmacies
were new openings and three were acquisitions. Our goal to expand to 130
radiopharmacies by 1997 will be a reality.
Syncor has positioned itself for a positive response to changes in the
health care system. We will continue to work hard to build a Company that earns
the trust of our customers, employees and shareholders.
Gene R. McGrevin
President & Chief Executive Officer
Monty Fu
Chairman of the Board
CORPORATE HEADQUARTERS: Chatsworth, California - DOMESTIC RADIOPHARMACIES:
Akron, Ohio - Albany, New York - Albuquerque, New Mexico - Allentown,
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 - Forth Worth, Texas -
Fresno, California - Fort Myers, Florida - Fort Lauderdale, Florida - Fort
Wayne, Indiana - Gainesville, Florida - Grand Rapids, Michigan - 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 - 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 - 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 - Youngstown, Ohio - INTERNATIONAL
RADIOPHARMACIES: Hong Kong - Taipei, Taiwan - POSITRON EMISSION TOMOGRAPHY
PHARMACIES: Phoenix, Arizona - Los Angeles, California - Sacramento, California
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 percent 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 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 radio-pharmaceutical 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:
On December 3, 1993, the Company entered into a long-term supplier
distribution agreement with its principal supplier of radio-pharmaceutical
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 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 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. Accrued alliance development costs of $4.1 million at December 31, 1993,
are expected to be utilized throughout 1994 as the strategic alliance is
implemented.
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
the $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 benefitted
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.
RESULTS OF OPERATIONS FISCAL YEARS 1992 AND 1991
NET SALES:
The Company's consolidated net sales in fiscal 1992 increased 35 percent to
$196 million or $50.8 million over net sales of fiscal 1991. The record increase
is due primarily to the substantial growth in radiopharmacy sales which
increased 34.5 percent or $47.6 million.
The increase in the Company's radio-pharmacy sales is being driven primarily
by the continued expansion of the cardiology market. The expansion was fueled by
the introduction of three new cardiac imaging agents which became available
during the Company's fourth quarter in fiscal 1991. The Company maintains
exclusive commercial radiopharmacy distribution rights to the three new
products, and has been aggressively introducing its services for these products
to the medical community. Market penetration of these products during fiscal
1992 was very favorable. In addition to the growth in the cardiology market,
the Company's sales benefitted in fiscal 1992 from recording a full year of
net sales from the four radiopharmacies acquired during fiscal 1991, and the
incremental net sales of one newly-acquired facility and two new start-up
radiopharmacies.
GROSS PROFIT:
The Company's gross profit as a percentage of net sales grew to 34.4 percent
in fiscal 1992 compared to 34.1 percent in fiscal 1991. This increase is the
result of a variety of factors. Higher dollar value on the new cardiac agents,
compared to traditional products, has allowed the Company to gain leverage from
its existing labor force. The Company has been successful in many work-related
programs including staffing, training and pharmacy design, all of which have
reduced turnover and enabled employees to improve both their effectiveness and
efficiency. Finally, programs designed to increase utilization of the material
component of its products have also contributed to improved margins. These gains
have been partially offset by higher material acquisition costs from suppliers,
and reduced margins due to changes in the net sales mix of the Company's
products.
The Company has several programs to improve margins through more aggressive
pricing and continued efficient use of the material component of its products.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES:
Operating, selling and administrative expenses as a percent of net sales
increased slightly to 25.5 percent, up from 25.1 percent in fiscal 1991. The
Company invested in a number of strategic programs which included improving the
structure and effectiveness of the field management, improving customer service
with value-added products, information and management systems, and the continued
upgrading of field facilities. The penetration of the new cardiac products into
the marketplace was accomplished through expanded sales and marketing efforts.
In addition, shortages of qualified professional personnel and a very
competitive compensation structure continue to necessitate a focused effort on
recruiting to maintain an adequate level of staffing and provide for future
growth. These programs are long-term in nature and the Company expects to
continue to commit resources in order to maintain our competitive advantage.
DEPRECIATION AND AMORTIZATION:
Depreciation and amortization in fiscal 1992 increased to $4.7 million or 41
percent over $3.3 million in fiscal 1991. The increase is due to the extensive
remodeling and relocation program of the Company's facilities which was
initiated in prior years.
PROVISION FOR INCOME TAXES:
The provision for income taxes as a percentage of income before taxes
decreased to 40.6 percent in fiscal 1992 from 41.7 percent in fiscal 1991. 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 the 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 plans to apply the
provisions of the statement without restating prior years' consolidated
financial statements. The Company does not expect a material effect on its
consolidated financial position upon implementing this new standard.
LIQUIDITY AND CAPITAL RESOURCES:
The Company's balance sheet was significantly strengthened with the
divestiture in May 1993 of the home infusion business with a resulting cash
infusion of $9.1 million. The Company had cash, cash equivalents and short-term
investments of $18.7 million at December 31, 1993, compared with $20.9 million
at May 31, 1993. Working capital remained essentially unchanged at $27.1 million
at December 31, 1993. In addition, the Company's line of credit was increased to
$20 million from $8 million. Days sales outstanding were 52 days at December 31,
1993, and May 31, 1993. The Company continues expenditures for alliance
implementation, acquisition of independent radiopharmacies, start-up of new
radiopharmacies, the re-equipping of existing pharmacies and information
technology for both internal and customer uses. These programs are expected to
continue through fiscal 1994 and will be funded with proceeds from operations.
The nature of the Company's business is not capital intensive and as new
products become available the capital requirement to accommodate these products
will be minimal. The Company believes sufficient internal and external capital
sources exist to fund operations and future expansion programs.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
DECEMBER 31, MAY 31,
1993 1993 1992
________ ________ ________
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,110 $ 19,093 $ 4,900
Short-term investments 3,590 1,844 5,070
Accounts receivable, less allowance
for doubtful accounts of $1,200,
$1,502, $1,681, respectively 35,052
Inventory 4,522 4,569 4,064
Prepaid taxes 3,198 -- --
Other current assets 2,217 847 69
_______________________________________________________________________________________________________________________________
Total current assets 63,689 60,731 52,031
Property and equipment, net 25,122 23,362 18,970
Excess of purchase price over net
assets acquired, net of accumulated
amortization of $3,373, $3,130,
$2,721, respectively 14,123 13,256 13,520
Other 11,652 6,604 6,326
________________________________________________________________________________________________________________________________
$114,586 $103,953 $90,847
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,817 $ 19,858 $ 19,748
Accrued alliance development costs 4,066 -- --
Accrued liabilities 3,073 2,655 2,275
Accrued wages and related costs 5,332 8,472 6,861
Federal and state taxes payable -- 619 --
Current maturities of long-term debt 3,280 1,697 1,868
Short-term debt -- -- 1,000
________________________________________________________________________________________________________________________________
Total current liabilities 36,568 33,301 31,752
Deferred income taxes -- 353 728
Long-term debt, net of current maturities 6,837 4,515 6,008
Stockholders' equity:
Common stock, $.05 par value; authorized
20,000 shares, issued and outstanding,
10,355, 10,191 and 9,979 shares at
December 31, 1993, May 31, 1993 and 1992,
respectively 518 510 499
Additional paid-in capital 43,786 41,553 38,689
Employee savings and stock ownership loan
guarantee (2,970) (3,430) (4,350)
Foreign currency translation adjustment 131 139 321
Retained earnings 29,716 27,012 17,200
________________________________________________________________________________________________________________________________
Total Stockholders' equity 71,181 65,784 52,359
================================================================================================================================
$114,586 $103,953 $90,847
================================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31, YEAR ENDED MAY 31,
1993 1992 1993 1992 1991
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $142,237 $131,897 $230,949 $195,989 $145,139
Cost of sales 97,050 88,330 153,643 128,538 95,638
______________________________________________________________________________________________________________________________
Gross profit 45,187 43,567 77,306 67,451 49,501
Operating, selling and administrative expenses 32,949 31,132 53,879 50,047 36,458
Depreciation and amortization 5,248 3,856 7,156 4,734 3,349
Alliance development costs 4,500 -- -- -- --
______________________________________________________________________________________________________________________________
Operating income 2,490 8,579 16,271 12,670 9,694
Other income (expense):
Interest income 450 260 614 651 733
Interest expense (311) (396) (613) (842) (976)
Other, net 145 221 622 510 611
______________________________________________________________________________________________________________________________
Other income, net 284 85 623 319 368
Income from continuing operations before income
taxes and cumulative effect of accounting change 2,774 8,664 16,894 12,989 10,062
Provision for income taxes 1,090 3,422 6,703 5,280 4,192
______________________________________________________________________________________________________________________________
Income from continuing operations before
cumulative effect of accounting change 1,684 5,242 10,191 7,709 5,870
Discontinued operations:
Discontinued operations, net of taxes -- (499) (661) (810) (1,115)
Gain on sale of discontinued operations, net -- -- 282 -- --
Cumulative effect of change in method
of accounting for income taxes 1,020 -- -- -- --
______________________________________________________________________________________________________________________________
Net income $ 2,704 $ 4,743 $ 9,812 $ 6,899 $ 4,755
==============================================================================================================================
Net income per share:
Income from continuing operations $.16 $.49 $.95 $ .70 $.57
Discontinued operations:
Discontinued operations, net -- (.05) (.06) (.07) (.11)
Gain on sale of discontinued operations -- -- .03 -- --
Cumulative effect of change in method
of accounting for income taxes .09 -- __ __ __
______________________________________________________________________________________________________________________________
Net income per share $.25 $.44 $.92 $.63 $.46
==============================================================================================================================
Weighted average shares outstanding 10,762 10,668 10,708 10,865 10,246
==============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
(In thousands)
<CAPTION>
Employee
Savings and Foreign
Additional Stock Owner- Currency Total
Common Stock Paid-In ship Loan Translation Retained Stockholders'
Shares Amount Capital Guarantee Adjustment Earnings Equity
______ ______ __________ ____________ ___________ ________ _____________
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 1, 1990 9,666 $483 $35,825 $(6,250) $201 $ 5,546 $35,805
Issuance of common stock 180 9 820 829
Tax benefit from the exercise
of stock options 403 403
Foreign currency translation
adjustment 18 18
Amortization of loan guarantee 980 980
Net income 4,755 4,755
_______________________________________________________________________________________________________________________________
BALANCE AT MAY 31, 1991 9,846 492 37,048 (5,270) 219 10,301 42,790
Issuance of common stock 133 7 847 854
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
==============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
<CAPTION>
SEVEN MONTHS ENDED
DECEMBER 31, YEAR ENDED MAY 31,
1993 1992 1993 1992 1991
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,704 $4,743 $ 9,812 $ 6,899 $ 4,755
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,248 3,856 7,156 4,734 3,349
Provision for losses on receivables (302) 49 (179) (390) (70)
Amortization of loan guarantee 460 460 920 920 980
Net gain on assets from discontinued operations -- -- (282) -- --
Loss on discontinued operations -- -- 661 810 1,115
Cumulative effect of change in method of
accounting for income taxes 1,020 -- -- -- --
Decrease (increase) in:
Accounts receivable (372) 477 795 (6,724) (4,828)
Inventory 47 (1,441) (951) (885) (1,003)
Prepaid taxes (2,580) -- -- -- --
Other current assets (1,370) (2,140) (713) 54 903
Other assets (5,885) (770) (1,266) (1,798) 297
Increase (decrease) in:
Accounts payable 959 (3,310) 110 6,500 4,487
Accrued alliance development costs 4,066 -- -- -- --
Accrued liabilities 418 2,063 (253) 696 (1,628)
Accrued wages and related costs (3,140) (1,413) 1,611 1,036 (300)
Federal and state taxes payable (619) 1,459 1,824 769 260
Deferred income taxes (1,373) (116) (375) (577) 257
Foreign currency translation adjustment (8) (101) (182) 102 18
______________________________________________________________________________________________________________________________
Net cash provided by (used in) operating activities (727) 3,676 18,688 12,146 8,592
______________________________________________________________________________________________________________________________
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (5,538) (6,047) (10,646) (11,220) (6,230)
Payments for acquisitions (1,500) (140) (563) (176) (982)
Net decrease (increase) in short-term investments (1,746) 789 3,226 1,620 (3,521)
Proceeds from sales of discontinued operations -- -- 9,100 -- --
Disposition of assets from discontinued operations -- -- (4,618) -- --
______________________________________________________________________________________________________________________________
Net cash used in investing activities (8,784) (5,258) (3,501) (9,776) (10,733)
______________________________________________________________________________________________________________________________
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 1,623 1,387 1,670 854 829
Proceeds from (repayment of) short-term debt -- (10) (1,000) 1,000 --
Proceeds from (repayment of) long-term debt 3,905 (587) (1,664) (1,943) (2,509)
______________________________________________________________________________________________________________________________
Net cash provided by (used in) financing activities 5,528 790 (994) (89) (1,680)
______________________________________________________________________________________________________________________________
Net increase (decrease) in cash and cash equivalents (3,983) (792) 14,193 2,281 (3,821)
Cash and cash equivalents at beginning of period 19,093 4,900 4,900 2,619 6,440
______________________________________________________________________________________________________________________________
Cash and cash equivalents at end of period $15,110 $4,108 $19,093 $ 4,900 $ 2,619
==============================================================================================================================
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
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.
Change in Fiscal Year:
The Company announced a change in its fiscal year-end to December 31 from
May 31, beginning with the seven month transition period ended December 31,
1993.
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 corporate and government bonds and equity
securities and are carried at cost, which approximates market 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:
Goodwill is being amortized over 40 years utilizing the straight-line
method.
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:
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(Statement 109). Statement 109 requires a change from the deferred method of
accounting for income taxes under APB Opinion 11 to the asset and liability
method of accounting for income taxes. 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.
Effective June 1, 1993, the Company adopted 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.
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.
Statement of Financial Accounting Standards No. 115:
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (Statement 115). This Statement supersedes Statement
No. 12, "Accounting for Certain Marketable Securities." Statement 115 addresses
the accounting and reporting for certain investments in debt and equity
securities, and expands the use of fair value accounting for these securities.
Statement 115 retains the use of the cost method for investments in debt
securities when there is intent and ability to hold the securities to maturity.
Statement No. 115 is effective for fiscal years beginning after December
15, 1993. Upon adoption in the first quarter 1994, the Company plans to apply
the provisions of the statement without restating prior years financial
statements. The adoption of Statement No. 115 is not expected to result in a
material change to the Company's consolidated financial position.
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.
2. ACQUISITIONS
During the year, 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.
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 $14,116,000,
$14,229,000 and $11,573,000 for the three years ended May 31, 1993, 1992 and
1991 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 $1,212,000 and expenses associated with sale and closure of
facilities offset by a net gain on disposal of assets. Net tax benefits of
$247,000, $555,000 and $797,000 for the years ended May 31, 1993, 1992 and 1991
respectively were recognized as a result. The remaining net assets are not
material.
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:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, MAY 31,
1993 1993 1992
____ ____ ____
<S> <C> <C> <C>
Land and buildings $ 3,089 $ 3,089 $ 3,091
Furniture and equipment 4,923 30,574 25,924
Leasehold improvements 11,364 10,175 7,363
__________________________________________________________________________________________________
49,376 43,838 36,378
Less accumulated depreciation
and amortization 24,254 20,476 17,408
__________________________________________________________________________________________________
$25,122 $23,362 $18,970
==================================================================================================
</TABLE>
5. 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 Radio-pharmaceutical Division of the DuPont Merck Pharmaceutical
Company (DuPont Merck). The agreement, which became effective February 1, 1994,
replaces an existing supply agreement between the companies which has been in
place since 1988. Under the terms of the new agreement, DuPont Merck will rely
upon 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. Included in these charges are $2.8 million of costs 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. The remaining reserve of
$4.1 million at December 31, 1993 is expected to be used throughout 1994 as the
strategic alliance is implemented.
6. LINE OF CREDIT
At December 31, 1993, the Company had an unsecured line of credit for
short-term borrowings aggregating $20 million, bearing interest at the bank's
reference rate (6 percent at December 31, 1993) and expiring on May 1, 1996. The
availability of this line of credit, at December 31, 1993, has been reduced by
$5.9 million as a result of standby letters of credit. To maintain this line of
credit, the Company is required to pay a commitment fee of 1/8 of one percent
per annum on the unused portion. The fee is due on April 1, 1994, and quarterly
thereafter. There were no amounts outstanding under the line of credit at
December 31, 1993.
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, 1993, the
Company violated a certain debt covenant and has obtained a bank waiver.
7. LONG-TERM DEBT
The Company's long-term debt was as follows:
<TABLE>
<CAPTION>
(In thousands) DECEMBER 31, MAY 31,
1993 1993 1992
____ ____ ____
<S> <C> <C> <C>
Capital lease obligations, payable in varying
installments through 1999, with interest rates
ranging from 10.5% to 12% $ 2,001 $2,145 $2,946
Notes payable, unsecured, payable in
installments through 1999, with effective
interest rates ranging from 6% to 12.75% 3,569 637 1,030
Notes payable, unsecured, payable in
installments through 1997 with a floating
interest rate of either the lower of prime,
LIBOR, or six month Treasury bill rates
plus 1.4% 2,970 3,430 4,350
Notes payable, secured, payable in
installments through 2000 with a non-interest
bearing rate, net of unamortized discount
of $413 at 6% 1,577 -- --
_________________________________________________________________________________________________
10,117 6,212 7,876
Less current maturities of long-term debt 3,280 1,697 1,868
_________________________________________________________________________________________________
Long-term debt, net of current maturities $ 6,837 $4,515 $6,008
=================================================================================================
</TABLE>
At December 31, 1993, long-term debt maturing over the next five years is
as follows: 1994, $3,280,000; 1995, $1,982,000; 1996, $2,013,000; 1997,
$1,124,000; 1998, $1,172,000, and thereafter, $546,000.
Interest paid was $268,000 and $280,000 for the seven months ended December
31, 1993 and 1992 (unaudited), and $601,000, $806,000 and $1,046,000 for years
ended May 31, 1993, 1992 and 1991, respectively.
8. 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
$1,020,000 is 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 have not been restated to apply the
provisions of Statement 109. Total income tax expense for the seven months ended
December 31, 1993 was allocated as follows (in thousands):
Income from continuing operations $1,090
Stockholders' equity for compensation expense for
tax purposes in excess of amounts recognized for
financial reporting purposes (618)
______
$ 472
======
Income tax expense (benefit) attributable to income from continuing operations
consisted of:
<TABLE>
<CAPTION>
(In thousands) SEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, MAY 31,
1993 1992 1993 1992 1991
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 717 $3,093 $6,411 $4,456 $2,472
State 48 585 1,240 1,152 1,006
_________________________________________________________________________________________________
765 3,678 7,651 5,608 3,478
Deferred:
Federal 241 (219) (800) (269) 740
State 84 (37) (148) (59) (26)
_________________________________________________________________________________________________
325 (256) (948) (328) 714
_________________________________________________________________________________________________
$1,090 $3,422 $6,703 $5,280 $4,192
=================================================================================================
</TABLE>
The amounts differed from the amounts computed by applying the federal
income tax rate of 34 percent (35 percent for the seven months ended December
31, 1993) to pretax income from continuing operations as a result of the
following:
<TABLE>
<CAPTION>
(In thousands) SEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, MAY 31,
1993 1992 1993 1992 1991
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
Federal income taxes at
"expected" rate $ 971 $2,946 $5,744 $4,416 $3,421
Increase (reduction) in income
taxes resulting from:
Tax exempt interest (29) (10) (45) (68) (51)
Amortization of intangible assets 84 80 139 101 130
State taxes, net of Federal benefit 86 350 721 721 647
Utilization of general business
credits (10) -- -- -- (40)
Other (12) 56 144 110 85
_________________________________________________________________________________________________
$1,090 $3,422 $6,703 $5,280 $4,192
=================================================================================================
</TABLE>
For the seven months ended December 31, 1993, 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 on the following page. For the
seven months ended December 31, 1992, and for the years ended May 31, 1993, May
31, 1992, and May 31, 1991, 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 on the following page.
<TABLE>
<CAPTION>
(In thousands) SEVEN MONTHS ENDED YEAR ENDED
DECEMBER 31, MAY 31,
1993 1992 1993 1992 1991
____ ____ ____ ____ ____
(unaudited)
<S> <C> <C> <C> <C> <C>
Net operating losses $ -- $ -- $ 12 $ (65) $ --
Depreciation and amortization (22) (26) (81) 57 (173)
Allowances and other reserves 256 (140) (880) (280) 34
General business credits -- -- -- -- 813
Other, net 91 (90) 1 (40) 40
_______________________________________________________________________________________________
$325 $(256) $(948) $(328) $ 714
===============================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993, are presented below (in thousands):
DEFERRED TAX ASSETS:
Compensated absences, principally due to
accrual for financial reporting purposes $ 632
Accounts receivable, due to allowance for
doubtful accounts 472
Accrued liabilities, primarily due to
self-insurance accrual and reserve for
alliance costs for financial reporting
purposes 921
Deferred compensation, due to accrual for
financial reporting purposes 577
Other 13
_____________________________________________________________________
Total gross deferred tax assets 2,615
DEFERRED TAX LIABILITIES:
Plant and equipment, principally due to
difference in depreciation and lease
capitalization 903
Other assets, principally due to difference
in intangible capitalization and amortization
for income tax and financial reporting purposes 1,427
_____________________________________________________________________
Total gross deferred tax liabilities 2,330
_____________________________________________________________________
Net deferred tax asset $ 285
=====================================================================
Income tax payments amounted to $4,056,000, $2,607,000, $4,753,000,
$4,514,000 and $2,902,000 for the seven months ended December 31, 1993, and 1992
(unaudited), and for the years ended May 31, 1993, 1992 and 1991, respectively.
9. 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 $3,744,000 at December 31, 1993 and May
31, 1993, and $4,023,000 at May 31, 1992, and accumulated depreciation of
$2,357,000, $2,185,000 and $2,111,000, 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, 1993:
<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASE
LEASES LEASES INCOME
_______ _________ ________
<S> <C> <C> <C>
Year ending December 31,
1994 $ 496 $ 5,545 $ 203
1995 496 4,997 190
1996 496 4,306 190
1997 496 2,992 175
1998 496 1,897 166
Remainder 248 1,542 97
______ _______ ______
2,728 $21,279 $1,021
======= ======
Less amount representing interest 727
______
Present value of net minimum lease payments $2,001
======
</TABLE>
Rental expense under operating leases was $3,208,000 and $2,152,000, for
the seven months ended December 31, 1993, and 1992 (unaudited), and $4,861,000,
$3,868,000 and $3,321,000 for years ended May 31, 1993, 1992 and 1991,
respectively.
10. 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, 1993, 493,800 shares are reserved for
issuance under the various plans. A summary of employee stock options is as
follows:
<TABLE>
<CAPTION>
NUMBER PRICE RANGE
(In thousands, except per share data) OF SHARES PER SHARE
<S> <C> <C> <C> <C>
Outstanding at June 1, 1990 1,372 $ 3.90 - $ 7.92
Granted 405 $ 8.90 - $ 9.12
Exercised (183) $ 3.90 - $ 6.58
Cancelled (163) $ 4.80 - $ 6.54
__________________________________________________________________________________________________
Outstanding at May 31, 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
==================================================================================================
Exercisable at December 31, 1993 1,005
==================================================================================================
</TABLE>
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.
11. 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 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
has an outstanding balance of $3.0 million at December 31, 1993. Prior to the
ESSOP transaction, participants were able to contribute one percent to 10
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
ten percent of their compensation to 401(k) investment options and an additional
two percent of their compensation to purchase Company stock. The Company may
make discretionary matching contributions to 50 percent of the employees 401(k)
investment contributions 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 will be made in the form of
Company common stock and will come 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 will match 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.
The Company's contribution during the seven months ended December 31, 1993,
amounted to $546,000 of which $460,000 was used to pay down principal on the
ESSOP loan and $86,000 to pay interest. For the years ended May 31, 1993, 1992
and 1991, contributions to the ESSOP amounted to $1,098,000, $1,214,000 and
$1,511,000 respectively, and were used to satisfy principal and interest
obligations in those years.
12. LITIGATION AND CONTINGENCIES
There are various litigation proceedings in which the Company and its
subsidiaries are involved. Many of the claims asserted against the Company in
these proceedings are covered by insurance. The results of litigation
proceedings cannot be predicted with certainty. However, in the opinion of the
Company's general counsel, such proceedings either are without merit or do not
have a potential liability which would materially affect the financial condition
of the Company and its subsidiaries on a consolidated basis.
13. SELECTED QUARTERLY RESULTS OF OPERATIONS
Unaudited calendar quarterly data is summarized below:
<TABLE>
<CAPTION>
(In thousands, except
per share data) MAR. 31 JUN. 30 SEPT. 30 DEC. 31(1) 1993(1)
_______ _______ ________ _______ ____
<S> <C> <C> <C> <C> <C>
Net sales $59,749 $59,656 $60,356 $61,528 $241,289
Gross profit 20,255 20,042 20,537 18,092 78,926
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
===================================================================================================
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) $ .20 $.34 $.28 $(.10) $.72
Weighted average
shares outstanding 10,749 10,729 10,779 10,860 10,779
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
(In thousands, except
per share data) MAR. 31 JUN. 30 SEPT. 30 DEC. 31 1992
_______ _______ ________ _______ ____
<S> <C> <C> <C> <C> <C>
Net sales $52,894 $55,431 $55,411 $57,434 $221,170
Gross profit 18,813 19,100 18,831 18,515 75,259
Income:
Continuing operations 2,896 2,521 2,278 2,174 9,869
Discontinued operations (219) (227) (269) (255) (970)
___________________________________________________________________________________________________
Net income $ 2,677 $ 2,294 $ 2,009 $ 1,919 $ 8,899
===================================================================================================
Income (loss) per share:
Continuing operations $ .27 $ .24 $ .21 $ .20 $ .92
Discontinued operations (.02) (.02) (.03) (.02) (.09)
___________________________________________________________________________________________________
Net income $ .25 $ .22 $ .18 $ .18 $ .83
===================================================================================================
Weighted average
shares outstanding 10,757 10,591 10,666 10,717 10,683
===================================================================================================
<FN>
(1) Includes a charge for alliance development costs of $4,500 (or $.26 per share).
</TABLE>
REPORTS
INDEPENDENT AUDITORS' REPORT:
The Board of Directors and Stockholders
Syncor International Corporation
We have audited the accompanying consolidated balance sheets of Syncor
International Corporation as of December 31, 1993, May 31, 1993 and 1992, and
the related consolidated statements of income, stockholders' equity and cash
flows for the seven month period ended December 31, 1993, and for each of the
years in the three-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 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, 1993, May 31, 1993 and 1992, and
the results of their operations and their cash flows for the seven month period
ended December 31, 1993, and for each of the years in the three-year period
ended May 31, 1993, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 8 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 provisions of the Financial
Accounting Standards Board's Statement No. 109, "Accounting for Income Taxes."
KPMG Peat Marwick
Los Angeles, California
March 10, 1994
MANAGEMENT'S REPORT:
The management of Syncor International Corporation is responsible for the
consolidated financial statements and all other information presented in this
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles appropriate in the circumstances
and, therefore, included in the consolidated financial statements are certain
amounts based on management's informed estimates and judgments. Other financial
information in this report is consistent with that in the consolidated financial
statements. The consolidated financial statements have been examined by Syncor
International Corporation's independent certified public accountants and have
been reviewed by the Audit Committee of the Board of Directors.
CORPORATE INFORMATION
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 A. Piraino
Senior Vice President and Chief Financial Officer
Jack L. Coffey
Vice President, Syncor Pharmacy Services
Sheila H. Coop
Vice President, Human Resources
Richard E. Keesee
Vice President, Quality & Regulatory
William A. Kemmel, Jr
Vice President and General Counsel
Michael E. Mikity
Vice President and Chief Information Officer
Charles A. Smith
Vice President, Corporate Development
BOARD OF DIRECTORS:
Monty Fu
Chairman of the Board
Gene R. McGrevin
President and Chief Executive Officer
George S. Oki
Chairman of the Board, Meta Information Services, Inc.
Joseph Kleiman
Retired Executive, Financial Consultant
Arnold E. Spangler
Private Investor, Financial Consultant
Steven B. Gerber, M.D.
Senior Vice President
Oppenheimer and Co.
Henry N. Wagner, Jr., M.D.
Professor of Medicine and
Director of Nuclear Medicine,
The Johns Hopkins Medical Institutions
Gail R. Wilensky, Ph.D.
Senior Fellow, Project HOPE,
former HCFA Administrator and
Deputy Assistant to President Bush
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,
May 10, 1994, at the Harbor Court Hotel, 550 Light Street, Baltimore, MD 21202.
Shareholders of record on March 11, 1994, 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, 20001 Prairie Street, Chatsworth, California 91311.
Market for the Registrant's Common Equity and Related Stockholder Matters -
The Company's common stock is quoted on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) under the symbol SCOR.
Set forth are the ranges of daily high and low last sales prices for the
Company's common stock for the periods indicated, as reported by the National
Quotations Bureau, Inc. These prices represent quotations between dealers in
securities, do not include retail markdowns or commissions, and do not
necessarily represent actual transactions.
Quarterly Stock Price Data -
1993 1992
High Low High Low
____ ___ ____ ___
First Quarter $25 5/8 $16 3/4 $32 $23 1/2
Second Quarter $21 1/4 $16 $24 1/4 $16
Third Quarter $22 1/2 $14 7/8 $22 1/2 $14 7/8
Fourth Quarter $22 1/2 $15 1/4 $25 3/4 $18 1/2
On March 11, 1994, the closing price of Syncor's Common Stock was $20 3/8.
Independent Auditors -
KPMG Peat Marwick
725 South Figueroa Street
Los Angeles, California 90017
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 11, 1994, there were 10,527,834 shares of common
stock outstanding. Shareholders of record at that date amount to 1,588. The
Company has not paid cash dividends on its stock and has no current intention of
paying cash dividends in the foreseeable future.
