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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR QUARTER ENDED SEPTEMBER 30, 1994 COMMISSION FILE NUMBER 0-8640
SYNCOR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 85-0229124
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
20001 PRAIRIE STREET, CHATSWORTH, CALIFORNIA 91311
(Address of principal executive offices) (Zip Code)
(818) 886-7400
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter
period that the Registrant was required to file such reports), and (2)
has been subject to such filing
requirements for the past 90 days.
YES X NO
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the
latest practicable date. As of September 30, 1994, 10,566,583 shares of
$.05 par value common stock
were outstanding.
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<PAGE>2
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
_____
Page
____
Part I. Financial Information
Item 1. Consolidated Condensed Financial Statements
Balance Sheets as of
September 30, 1994 and December 31, 1993. . . . . . . . . 2
Statements of Income for three months
ended September 30, 1994 and 1993 . . . . . . . . . . . . 3
Statements of Income for nine months
ended September 30, 1994 and 1993 . . . . . . . . . . . . 4
Statements of Cash Flows for nine months
ended September 30, 1994 and 1993 . . . . . . . . . . . . 5
Notes to Consolidated Condensed Financial Statements. . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition . 7
Part II. Other Information . . . . . . . . . . . . . . . . . . . . . 9
SIGNATURE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>3
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(in thousands, except per share data)
SEPTEMBER 30, DECEMBER 31,
_____________ ____________
1994 1993
__________ _____________
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 12,022 $ 15,110
Short-term investments 1,543 3,590
Accounts receivable, net 50,923 35,052
Inventory 5,849 4,522
Prepaids and other current assets 4,058 5,415
_________ ________
Total current assets 74,395 63,689
Property and equipment, net 27,046 25,122
Excess of purchase price over net assets
acquired, net 13,797 14,123
Other assets 10,674 11,652
_________ ________
$125,912 $114,586
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 33,662 $ 20,817
Accrued alliance development costs 195 4,066
Accrued liabilities 2,928 3,073
Accrued wages and related costs 4,932 5,332
Federal and state taxes payable 749 -
Short-term debt 2,700 -
Current maturities of long-term debt 1,867 3,280
__________ ________
Total current liabilities 47,033 36,568
__________ ________
Long-term debt, net of current maturities 5,637 6,837
Stockholders' equity:
Common stock, $.05 par value 529 518
Additional paid-in capital 43,326 43,786
Unrealized loss on investments (39) -
Employee stock ownership loan guarantee (2,176) (2,970)
Foreign currency translation adjustment 136 131
Retained earnings 31,466 29,716
________ ________
Net stockholders' equity 73,242 71,181
________ ________
$125,912 $114,586
======== ========
See notes to consolidated condensed financial statements.
<PAGE>4
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30,
________________________________
1994 1993
---- ----
(UNAUDITED)
Net sales $81,635 $60,356
Cost of sales 66,639 39,819
________ _______
Gross profit 14,996 20,537
Operating, selling and administrative expenses 16,998 15,800
________ _______
Operating income (loss) (2,002) 4,737
Other income, net 53 158
_________ ________
Income (loss) from operations before income tax (1,949) 4,895
Provision for income taxes (865) 1,934
________ _______
Net income (loss) $ (1,084) $ 2,961
======== ========
Net income (loss) per share ($ .10) $ .28
======= =======
Weighted average shares outstanding 10,684 10,779
======== =======
See notes to consolidated condensed financial statements.
<PAGE>5
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
NINE MONTHS ENDED SEPTEMBER 30,
_______________________________
1994 1993
---- ----
(UNAUDITED)
Net sales $238,323 $179,761
Cost of sales 187,891 118,927
_______ _______
Gross profit 50,432 60,834
Operating, selling and administrative expenses 47,889 47,171
_______ _______
Operating income 2,543 13,663
Other income, net 231 721
________ ________
Income from continuing operations before
income taxes and discontinued operations 2,774 14,384
Provision for income taxes 1,024 5,712
_______ ________
Income from continuing operations before
discontinued operations 1,750 8,672
Discontinued operations, net of taxes - 120
_________ ________
Net income $ 1,750 $ 8,792
======= =======
Net income per share:
Income from continuing operations $ .16 $ .81
Discontinued operations, net - .01
______ _____
Net income per share $ .16 $ .82
===== =====
Weighted average shares outstanding 10,920 10,750
====== ======
See notes to consolidated condensed financial statements.
<PAGE>6
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
_______________________________
1994 1993
____ ____
(UNAUDITED)
Cash flows from operating activities:
Net income $ 1,750 $8,792
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 7,872 6,148
Amortization of ESSOP loan guarantee 818 690
Decrease (increase) in:
Accounts receivables, net (15,871) 3,100
Inventory (1,327) 1,231
Other current assets 1,357 (1,772)
Other assets (835) (4,409)
Increase (decrease) in:
Accounts payable 12,845 (127)
Accrued alliance development costs (3,871) -
Accrued liabilities (169) (809)
Accrued wages and related costs (400) (1,328)
Federal and state taxes payable 749 (688)
Deferred income taxes - (63)
Foreign currency translation adjustment 5 (103)
________ ________
Net cash provided by operating activities 2,923 10,662
_______ ________
Cash flows from investing and financing activities:
Purchase of property and equipment, net (7,767) (5,113)
(Increase) decrease in short-term investments 2,047 778
Issuance of common stock 1,814 2,345
Reacquisition of common stock (2,263) -
Proceeds from (repayment of) short-term debt 2,700 (480)
Repayment of long-term debt (2,613) (584)
Unrealized loss on investments (39) -
_________ _________
Net cash used in investing and financing
activities (6,011) (3,054)
_______ _______
Net increase (decrease) in cash and cash equivalents (3,088) 7,608
Cash and cash equivalents at beginning of period 15,110 4,108
_______ _______
Cash and cash equivalents at end of period $12,022 $11,716
======== =======
See notes to consolidated condensed financial statements.
<PAGE>7
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. GENERAL. The accompanying unaudited consolidated condensed financial
statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the
instructions to form 10-Q. Accordingly, they do not include all of the
information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been
included. The results of the nine months ended September 30, 1994, are not
necessarily indicative of the results
to be expected for the full year. For further information, refer to the
consolidated financial statements and
footnotes thereto included in the Company's Annual Report and Form 10-K
for the transition period ended
December 31, 1993.
2. CHANGE IN FISCAL YEAR. The Company announced a change in its fiscal
year-end to December 31 from
May 31, beginning with the seven month transition period ended December
31, 1993. The calendar quarters of
1993 have been restated to reflect comparable periods.
3. DISCONTINUED OPERATIONS. On May 31, 1993, the Company completed the
divestiture of a minor segment
of its business, referred to as its Home Infusion business. The
Company's consolidated statements of income
reflected a net gain from discontinued operations of $.1 million for the
nine months ended September 30, 1993.
4. ACCRUED ALLIANCE DEVELOPMENT COSTS. On December 3, 1993, the Company
entered into a
long-term supplier distribution agreement (the Strategic Alliance) with
its principal supplier of
radiopharmaceutical products, the Radiopharmaceutical Division of the
DuPont Merck Pharmaceutical Company
(DuPont Merck). The agreement, which became effective February 1, 1994,
replaced an existing supply
agreement between the companies which has been in place since 1988.
Under the terms of the new agreement,
DuPont Merck will rely upon Syncor as the primary distribution channel
for its radiopharmaceutical products
in the United States.
In connection with this agreement, the Company established a reserve for
alliance development costs of $4.5
million during the seven months ended December 31, 1993. Included in
these charges were $2.8 million of costs
related to the launch and implementation of the Strategic Alliance
program, $1.1 million of employee-related
expenses associated with the consolidation, relocation and reorganization
of certain sales and service operations
and $.6 million for incremental accounting, legal and regulatory fees.
Cash outlays for the nine months ended September 30, 1994 amounted to
approximately $3.8 million. The
remaining reserve of $.2 million at September 30, 1994 is expected to be
used during 1994 as the Strategic
Alliance is implemented.
5. STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 115. In May 1993, the
Financial Accounting
Standards Board issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115). This
Statement supersedes Statement No. 12,
"Accounting for Certain marketable Securities." Statement 115 addresses
the accounting and reporting for certain
investments in debt and equity securities, and expands the use of fair
value accounting for these securities.
Statement 115 retains the use of the cost method for investment in debt
securities when there is intent and ability
to hold the securities to maturity. Statement No. 115 is effective for
fiscal years beginning after December 15,
1993.
The Company adopted Statement 115 in the first quarter of calendar 1994.
However, the adoption of this
Statement is determined to be immaterial and is not reported separately
in the consolidated financial statements.
<PAGE>8
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NET SALES
Consolidated net sales for the third quarter of 1994 rose 35.3% or $21.2
million to $81.6 million versus $60.4 million
for the third calendar quarter of 1993. For the nine months ended September
30, 1994, net sales increased to $238.3
million, a $58.5 million or 32.6% increase. The Company's net sales growth
is primarily the result of activity
associated with the Strategic Alliance entered into with its principal
supplier of radiopharmaceutical products, as
discussed in Note 4 of Notes to Consolidated Condensed Financial Statements.
Net sales growth also continues to
be the result of an increase in procedures performed in the cardiology sector
of nuclear medicine (representing
approximately 56% of the Company's net sales), the opening and acquisition of
new pharmacies and increased market
share, offset by aggressive price competition, including a strategic decision
made during the first quarter of this year,
to reduce the price of the Company's largest single product. This price
reduction was deemed necessary as part of
a product penetration strategy prior to the expected introduction of a
competing cardiac imaging agent.
GROSS PROFIT
Gross profit for the third quarter of 1994 decreased to $15.0 million, a
reduction from $20.5 million for the
comparable 1993 period. Gross profit as a percentage of net sales also
declined during the current quarter to 18.4%
versus 34% in 1993. For the nine months ended September 30, 1994, gross
profit decreased to $50.4 million or 21.2%
of sales, down from $60.8 million or 33.8% of sales.
The decline in the gross profit percentage is the result of a variety of
factors. These factors include aggressive price
reductions across the majority of Syncor's product line due to competitive
pressures, material cost increases and initial
lower margins as a result of the implementation of the Strategic Alliance
with DuPont Merck, and a higher mix of
national account contracts which offer discounted prices in exchange for
volume. The Company has also experienced
a decline in the volume and pricing in some of its core (non-cardiology)
products, due to changes in certain physician
practice patterns. In response to health care reform pressures and overall
changes in the market, the Company
made a strategic decision in the first quarter to reduce the pricing of its
largest single product in order to increase
market penetration, as discussed above. Material costs, as a percentage of
pharmacy sales, have been rising due to
price increases from suppliers. Current government focus on health care cost
containment and managed care, as well
as aggressive price competition, has made it difficult to cover these costs
through price increases.
The Company anticipates most of these trends to continue throughout the
balance of the year. The Company
continues to invest in the start-up and opening of new centralized
radiopharmacies through 1994. These pharmacies
have a dilutive effect on gross margin until they reach a certain level of
net sales.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
Operating, selling and administrative expenses rose 7.6% for the third
quarter or $1.2 million to $17 million but
declined as a percentage of sales to 20.8% from 26.2% for the same period of
1993. For the nine month period
ended September 30, 1994, these expenses increased slightly by $.7 million or
1.5% and decreased as a percentage
of sales to 20.1% from 26.2%.
The 7.6% increase for the third quarter is due primarily to depreciation and
amortization expense associated with
the acquisition and start-up of new radiopharmacies, nuclear regulatory
licenses fees, and operating and
administrative costs from implementation of the strategic alliance. The nine
month increase reflects approximately
$2.3 million in increased operating expenses associated with the opening of
13 new or acquired radiopharmacies since
May 1993. Had this not occured, the Company would have experienced a net
decrease of 3.4% in operating, selling
and administrative expenses.
<PAGE>9
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES (continued)
The actual downward trend is a result of expense control measures implemented
by the Company. Currently,
Management expects operating, selling and administrative expenses as a
percent of sales to remain below previous years'
levels.
The Company continues, as a part of its overall business strategy, to invest
in developmental business opportunities.
These opportunities require ongoing resources in the area of operating,
selling and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of $13.6
million at September 30, 1994,
compared with $18.7 million at December 31, 1993. Days Sales Outstanding
increased to 58 days at September 30,
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.
The decrease in the Company cash position is the result of continued
expenditures for the alliance implementation,
such as financing of accounts receivable, acquisition of independent
radiopharmacies, start-up of new
radiopharmacies, the re-equipping of existing radiopharmacies and information
technology for both internal and
customer uses. These programs are expected to continue through 1994 and will
be funded with proceeds from
operations.
The nature of the Company's business is not capital intensive and, as new
products become available, the capital
requirement to accommodate these products will be minimal. The Company
believes sufficient internal and external
capital sources exist to fund operations and future expansion programs.
At September 30, 1994, the Company had
unused lines of credit of approximately $12.1 million to fund short-term cash
needs. At September 30, 1994, the
Company violated a certain debt covenant and has obtained a bank waiver.
Finally, the Company reduced its debt
position from $10.1 million at December 31, 1993 to $7.5 million, a decrease
of $2.6 million for the nine months
ended September 30, 1994.
<PAGE>10
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
New Chief Financial Officer. On August 5, 1994, Michael A. Piraino
___________________________
resigned as Senior Vice President, Chief Financial Officer and Treasurer.
Effective August 5, 1994, Michael E. Mikity was appointe Chief Financial
Officer and Treasurer.
<PAGE>11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SYNCOR INTERNATIONAL CORPORATION
(Registrant)
November 14, 1994 By: /s/ Michael E. Mikity
________________________
Michael E. Mikity
Vice President and
Chief Financial Officer
(Principal Financial /
Accounting Officer)
