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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, 2001 COMMISSION FILE NUMBER 0-8640
SYNCOR INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 85-0229124
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6464 CANOGA AVENUE, WOODLAND HILLS, CALIFORNIA 91367
(Address of principal executive offices) (Zip Code)
(818) 737-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
___ ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. As of
September 30, 2001, 24,761,491 shares of $.05 par value common stock
were outstanding.
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SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
INDEX
_____
Page
____
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements
Balance Sheets as of
September 30, 2001 and December 31, 2000............................3
Statements of Income for Three Months
Ended September 30, 2001 and 2000...................................4
Statements of Income for Nine Months
Ended September 30, 2001 and 2000...................................5
Statements of Cash Flows for Nine Months
Ended September 30, 2001 and 2000...................................6
Notes to Condensed Consolidated Financial Statements..................7
Item 2. Management's Discussion and Analysis of Financial Condition......12
Item 3. Quantitative and Qualitative Disclosures about Market Risk.......14
Part II. Other Information................................................15
SIGNATURE...................................................................16
ITEM 1.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
2001 2000
_____________ ____________
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 25,607 $ 24,330
Short-term investments 11,381 4,156
Trade receivables, net 108,032 81,716
Patient receivables, net 50,362 37,686
Inventory 22,828 59,926
Prepaids and other current assets 30,372 16,023
__________ __________
Total curent assets 248,582 223,837
Marketable investment securities 1,209 1,190
Property and equipment, net 168,697 114,286
Excess of purchase price over net assets acquired, net 133,846 108,530
Other assets 18,468 22,728
__________ __________
$570,802 $470,571
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 59,312 $ 83,683
Accrued liabilities 24,156 22,371
Accrued wages and related costs 15,315 19,796
Federal and state taxes payable 6,560 5,543
Current maturities of long-term debt 10,753 12,091
__________ __________
Total current liabilities 116,096 143,484
Long-term debt, net of current maturities 220,163 137,886
Deferred taxes 6,243 3,321
Stockholders' equity:
Common stock, $.05 par value 1,412 1,376
Additional paid-in capital 123,444 107,268
Notes receivable-related parties (6,998) (16,796)
Employee stock ownership loan guarantee (421) (1,685)
Accumulated other comprehensive income (1,195) (1,245)
Retained earnings 143,042 114,019
Treasury stock, at cost; 3,483 shares at September
30, 2001 and 3,072 shares at December 31, 2000 (30,984) (17,057)
__________ __________
Net stockholders' equity 228,300 185,880
__________ __________
$570,802 $470,571
========== ==========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
THREE MONTHS ENDED SEPTEMBER 30,
2001 2000
______ ______
Net sales $193,794 $155,462
Cost of sales 121,005 100,044
_________ _________
Gross profit 72,789 55,418
Operating, selling and administrative expenses 47,100 36,191
Depreciation and amortization 10,317 6,951
_________ _________
Operating income 15,372 12,276
Other expense, net (2,527) (1,857)
_________ _________
Income before taxes 12,845 10,419
Provision for income taxes 5,011 4,161
_________ _________
Net income $ 7,834 $ 6,258
========= =========
Net income per share - Basic $ .32 $ .26
========= =========
Weighted average shares outstanding - Basic 24,603 24,091
========= =========
Net income per share - Diluted $ .29 $ .23
========= =========
Weighted average shares outstanding - Diluted 27,024 27,374
========= =========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except per share data)
NINE MONTHS ENDED SEPTEMBER 30,
2001 2000
______ ______
Net sales $562,902 $458,786
Cost of sales 349,245 296,931
________ ________
Gross profit 213,657 161,855
Operating, selling and administrative expenses 127,918 101,144
Depreciation and amortization 28,017 18,721
________ ________
Operating income 57,722 41,990
Other expense, net (10,143) (3,965)
________ ________
Income before taxes 47,579 38,025
Provision for income taxes 18,556 15,209
________ ________
Net income $ 29,023 $ 22,816
======== ========
Net income per share - Basic $ 1.18 $ .96
======== ========
Weighted average shares outstanding - Basic 24,494 23,864
======== ========
Net income per share - Diluted $ 1.07 $ .86
======== ========
Weighted average shares outstanding - Diluted 27,047 26,543
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30,
2001 2000
______ ______
Cash flows from operating activities:
Net income $29,023 $22,816
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 28,017 18,721
Provision for losses on receivables 6,283 4,307
Amortization of ESSOP loan guarantee 1,264 1,263
Decrease (increase) in:
Accounts receivable, trade (24,016) (8,014)
Accounts receivable, patient (12,676) (13,901)
Inventory 43,815 (15,139)
Other current assets (12,133) (5,631)
Other assets 7,517 (3,443)
Increase (decrease) in:
Accounts payable (27,123) 20,157
Accrued liabilities 1,291 3,257
Accrued wages and related costs (4,639) (536)
Federal and state taxes payable 5,604 (1,496)
________ ________
Net cash provided by operating activities 42,227 22,361
________ ________
Cash flows from investing activities:
Purchase of property and equipment, net (46,332) (18,461)
Acquisitions of businesses, net of cash acquired (52,015) (42,535)
Net increase in short-term investments (7,225) (3,080)
Net increase (decrease) in long-term investments (19) 1
Unrealized gain on investments 20 133
________ ________
Net cash used in investing activities (105,571) (63,942)
________ ________
Cash flow from financing activities:
Proceeds from long-term debt 65,337 37,279
Repayment of long-term debt (8,212) (3,174)
Note receivable-related parties 9,798 1,341
Issuance of common stock 11,625 14,362
Reacquisition of common stock for treasury (13,927) (3,451)
________ ________
Net cash provided by financing activities 64,621 46,357
________ ________
Net increase in cash and cash equivalents 1,277 4,776
Effect of exchange rate on cash - (85)
Cash and cash equivalents at beginning of period 24,330 13,352
________ ________
Cash and cash equivalents at end of period $25,607 $18,043
======== ========
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
1. GENERAL. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting principles
generally accepted in the United States of America 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 accounting
principles generally accepted in the United States of America 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 for the nine months
ended September 30, 2001, are not necessarily indicative of the results to
be expected for the full year. For further information, refer to the
consolidated financial statements and footnotes thereto included in our
Annual Report on Form 10-K for the year ended December 31, 2000. Certain
line items in the prior year's consolidated condensed financial statements
have been reclassified to conform to the current year's presentation.
2. NEW ACCOUNTING STANDARDS. In July 2001, the FASB issued Statement No.
141, Business Combinations, and Statement No. 142, Goodwill and Other
Intangible Assets. Statement 141 requires that the purchase method of
accounting be used for all business combinations initiated after June
30, 2001 as well as all purchase method business combinations completed
after June 30, 2001. Statement 141 also specifies criteria intangible
assets acquired in a purchase method business combination must meet to
be recognized and reported apart from goodwill, noting that any purchase
price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible
assets with indefinite useful lives no longer be amortized, but instead
tested for impairment at least annually in accordance with the
provisions of Statement 142. Statement 142 will also require that
intangible assets with definite useful lives be amortized over their
respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of.
The Company is required to adopt the provisions of Statement 141
immediately, except with regard to business combinations initiated prior
to July 1, 2001, which it expects to account for using the pooling-of-
interests method, and Statement 142 effective January 1, 2002.*
Furthermore, any goodwill and any intangible asset determined to have an
indefinite useful life that are acquired in a purchase business
combination completed after June 30, 2001 will not be amortized, but
will continue to be evaluated for impairment in accordance with the
appropriate pre-Statement 142 accounting literature. Goodwill and
intangible assets acquired in business combinations completed before
July 1, 2001 will continue to be amortized prior to the adoption of
Statement 142.
Statement 141 will require upon adoption of Statement 142, that the
Company evaluate its existing intangible assets and goodwill that were
acquired in a prior purchase business combination, and to make any
necessary reclassifications in order to conform with the new criteria in
Statement 141 for recognition apart from goodwill. Upon adoption of
Statement 142, the Company will be required to reassess the useful lives
and residual values of all intangible assets acquired in purchase
business combinations, and make any necessary amortization period
adjustments by the end of the first interim period after adoption. In
addition, to the extent an intangible asset is identified as having an
indefinite useful life, the Company will be required to test the
intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will
be measured as of the date of adoption and recognized as the cumulative
effect of a change in accounting principle in the first interim period.
In connection with the transitional goodwill impairment evaluation,
Statement 142 will require the Company to perform an assessment of
whether there is an indication that goodwill is impaired as of the date
of adoption. To accomplish this the Company must identify its reporting
units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill
and intangible assets, to those reporting units as of the date of
adoption. The Company will then have up to six months from the date of
adoption to determine the fair value of each reporting unit and compare
it to the reporting unit's carrying amount. To the extent a reporting
unit's carrying amount exceeds its fair value, an indication exists that
the reporting unit's goodwill may be impaired and the Company must
perform the second step of the transitional impairment test.
______________________
* Companies with fiscal year ends beginning after March 15, 2001, who have
not yet issued financial statements for their first interim period, may
early adopt Statement 142.
In the second step, the Company must compare the implied fair value of
the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in
accordance with Statement 141, to its carrying amount, both of which
would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end
of the year of adoption. Any transitional impairment loss will be
recognized as the cumulative effect of a change in accounting principle
in the Company's statement of earnings.
As of the date of adoption, the Company expects to have unamortized
goodwill in the amount of $132,472, unamortized identifiable intangible
assets in the amount of $7,112, all of which will be subject to the
transition provisions of Statements 141 and 142. Amortization expense
related to goodwill was $3,793 and $4,456 for the year ended December
31, 2000 and the nine months ended September 30, 2001, respectively.
Because of the extensive effort needed to comply with adopting
Statements 141 and 142, it is not practicable to reasonably estimate the
impact of adopting these Statements on the Company's financial
statements at the date of this report, including whether any
transitional impairment losses will be required to be recognized as the
cumulative effect of a change in accounting principle.
In August 2001, the Financial Accounting Standards Board issued FASB
Statement No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets (Statement 144), which supersedes both FASB Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of (Statement 121) and the accounting
and reporting provisions of APB Opinion No. 30, Reporting the Results
of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events
and Transactions (Opinion 30), for the disposal of a segment of a
business (as previously defined in that Opinion). Statement 144
retains the fundamental provisions in Statement 121 for recognizing and
measuring impairment losses on long-lived assets held for use and
long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with Statement 121.
Statement 144 retains the basic provisions of Opinion 30 on how to
present discontinued operations in the income statement but broadens
that presentation to include a component of an entity (rather than a
segment of a business). Unlike Statement 121, an impairment assessment
under Statement 144 will never result in a write-down of goodwill.
Rather, goodwill is evaluated for impairment under Statement No. 142,
Goodwill and Other Intangible Assets.
The Company is required to adopt Statement 144 no later than the
year beginning after December 15, 2001. Accordingly, the Company
will adopt Statement 144 in the first quarter of 2002. Management
does not expect the adoption of Statement 144 for long-lived assets
held for use to have a material impact on the Company's financial
statements because the impairment assessment under Statement 144 is
largely unchanged from Statement 121. The provisions of the
Statement for assets held for sale or other disposal generally are
required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, management cannot
determine the potential effects that adoption of Statement 144 will
have on the Company's financial statements.
3. COMPREHENSIVE INCOME. Other comprehensive income includes foreign
currency translation adjustments and net unrealized gains and losses on
investments in equity securities. Such amounts are as follows:
THREE MONTHS ENDED
__________________
September 30, 2001 September 30, 2000
__________________ __________________
Before-tax Tax Net-of-Tax Before-Tax Tax Net-of-Tax
Amount Expense Amount Amount Expense Amount
____________________________________________________________________
Foreign currency translation
adjustments 87 - 87 260 - 260
Unrealized gains (losses) on
investments:
Unrealized holding gains
(losses) arising during
period 28 (11) 17 - - -
____________________________________________________________________
Other comprehensive income 115 (11) 104 260 - 260
Net income 12,845 (5,011) 7,834 10,419 (4,161) 6,258
______ _______ _____ ______ _______ _____
Total comprehensive income $12,960 $(5,022) $7,938 $10,679 $(4,161) $6,518
======= ======== ====== ======= ======== ======
NINE MONTHS ENDED
_________________
September 30, 2001 September 30, 2000
__________________ __________________
Before-tax Tax Net-of-Tax Before-Tax Tax Net-of-Tax
Amount Expense Amount Amount Expense Amount
____________________________________________________________________
Foreign currency translation
adjustments 30 - 30 351 - 351
Unrealized gains (losses) on
investments:
Unrealized holding gains
(losses) arising during
period 32 (12) 20 222 (89) 133
____________________________________________________________________
Other comprehensive income 62 (12) 50 573 (89) 484
Net income 47,579 (18,556) 29,023 38,025 (15,209) 22,816
______ ________ ______ ______ ________ ______
Total comprehensive income $47,641 $(18,568) $29,073 $38,598 $(15,298) $23,300
======= ======== ======= ======= ======== ======
4. SEGMENT INFORMATION. Syncor has identified three primary operating
segments: U.S. Pharmacy Services, U.S. Medical Imaging and International
Operations. Segment selection was based upon internal organizational
structures, the process by which these operations are managed and
evaluated, the availability of separate financial results, and materiality
considerations. Segment detail is summarized as follows:
THREE MONTHS ENDED
__________________
U.S. Pharmacy Services Business September 30, 2001 September 30, 2000
_______________________________ __________________ __________________
Revenues $142,284 $120,858
Operating Income $ 15,358 $ 12,997
U.S. Medical Imaging Business
_____________________________
Revenues $ 39,432 $ 26,475
Operating Income $ 4,228 $ 3,251
International Operations
________________________
Revenues $ 12,078 $ 8,129
Operating Income $ 342 $ 388
Unallocated Corporate
_____________________
Operating Loss $ (4,556) $ (4,360)
NINE MONTHS ENDED
_________________
U.S. Pharmacy Services Business September 30, 2001 September 30, 2000
_______________________________ __________________ __________________
Revenues $413,308 $366,791
Operating Income $ 55,525 $ 44,482
U.S. Medical Imaging Business
_____________________________
Revenues $116,243 $ 66,943
Operating Income $ 12,518 $ 8,062
International Operations
________________________
Revenues $ 33,351 $ 25,052
Operating Income $ 1,554 $ 1,615
Unallocated Corporate
_____________________
Operating Loss $(11,875) $ (12,169)
5. NET INCOME PER SHARE. Basic earnings per share (EPS) amounts are
computed by dividing earnings applicable to common stockholders by the
weighted average number of shares outstanding. Diluted EPS amounts assume
the issuance of common stock for all potentially dilutive equivalents
outstanding. Anti-dilutive outstanding stock options of 2,309 and zero for
the three months and 2,307 and 779 for the nine months ended September 30,
2001 and 2000 have been excluded from the diluted calculation, respectively.
The reconciliation of the numerator and denominators of the basic and
diluted earnings per share computations are as follows for the three and
nine months ended September 30, 2001 and 2000:
THREE MONTHS ENDED
__________________
September 30, 2001 September 30, 2000
__________________________________________________________________________
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
____________________________________________________________________________________________
Net income $7,834 $6,258
Basic EPS $7,834 24,603 $.32 $6,258 24,091 $.26
____ ____
Effect of Dilutive
Stock Options 2,421 3,283
_____ _____
Diluted EPS $7,834 27,024 $.29 $6,258 27,374 $.23
____ ____
NINE MONTHS ENDED
_________________
September 30, 2001 September 30, 2000
__________________________________________________________________________
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
____________________________________________________________________________________________
Net income $29,023 $22,816
Basic EPS $29,023 24,494 $1.18 $22,816 23,864 $.96
_____ ____
Effect of Dilutive
Stock Options 2,553 2,679
_____ _____
Diluted EPS $29,023 27,047 $1.07 $22,816 26,543 $.86
_____ ____
6. NOTES RECEIVABLE-RELATED PARTIES. We initiated a Senior Management
Stock Purchase Plan effective June 16, 1998, pursuant to which our
officers and key employees purchased shares of Syncor stock. The shares
were paid with a five-year interest bearing promissory note payable to
us. Interest on each note is payable on each anniversary date, with the
entire outstanding principal and unpaid interest due on the fifth
anniversary date.
7. ACQUISITION OF BUSINESSES. During the third quarter of 2001, we made
four acquisition investments. We acquired a company that provides
cardiovascular services through three sites in North Carolina and
Virginia for a purchase price of $13.8 million. For the second
acquisition, we acquired two domestic companies that design, manufacture
and sell radiation detection and measurement equipment for the medical
and nuclear power plant industry for a purchase price of $10.8 million.
In addition, our medical imaging business acquired three centers via two
acquisitions in the quarter. The first of these was a multi-MRI site in
Ft. Lauderdale, Florida for a purchase price of $5.1 million plus the
assumption of $1.5 million of debt. Secondly, we acquired two MRI centers
in El Paso, Texas for a purchase price of $4.3 million plus the
assumption of $3.6 million of debt.
ITEM 2.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
NET SALES
_________
Consolidated net sales for the three months ended September 30, 2001
increased 24.7% or $38.3 million to $193.8 million versus $155.5 million
for the third quarter of 2000. Consolidated net sales for the nine months
ended September 30, 2001 increased 22.7% or $104.1 million to $562.9 million
versus $458.8 million for the same period of the prior year.
U.S. PHARMACY SERVICES BUSINESS
Our Pharmacy Services business grew year-over-year 17.7% to $142.3
million for the current quarter and 12.7% year-to-date to $413.3 million.
This increase is primarily the result of continued growth in both the
overall marketplace and the Cardiology sector of the Company's business.
In addition, our acquisitions accounted for $5.7 million or 4.7% of the
increase for the quarter. Our overall year-over-year growth rate for the
Cardiology sector was approximately 12% for the quarter and year-to-date.
Unit dose sales of Cardiolite(R), a proprietary technetium-based heart
imaging agent to which the Company has preferential U.S. distribution
rights, led the growth in Cardiology with approximately a 15% growth rate
for both the quarter and year-to-date. We implemented price increases of
approximately 3.5% in both 2000 and 2001, which contributed to the sales
growth.
U.S. MEDICAL IMAGING BUSINESS
Our Medical Imaging business continues to grow both as a result of the
acquisition of sites and growth at existing sites. Overall, sales have
increased year-over-year 48.9% to $39.4 million for the current quarter and
73.6% year-to-date to $116.2 million. Same-store sales growth for the three
months ended September 30, 2001 was approximately 8% or $1.9 million and
represented 14.7% of the increase. Same store sales growth year to date was
approximately 13% and represented 13.0% of the increase. Sales associated
with prior acquisitions were responsible for the remainder of the growth.
At quarter end, we had 65 domestic imaging centers compared to 55 for the
comparable quarter in 2000. We expect to continue to grow this business
through a combination of growth in existing sites and acquisitions in
certain strategic geographic regions. In order to accomplish these goals,
we continue to devote capital for key strategic systems initiatives,
equipment upgrades and replacements at imaging centers, and the purchase of
new imaging equipment such as PET scanners.
INTERNATIONAL OPERATIONS
Our international operations continue to grow and sales increased
year-over-year 48.6% to $12.1 million for the current quarter and 33.6%
year-to-date to $33.4 million. Same-store growth was 3.4% for the
quarter and was again impacted by Taiwan sites, which continued to report
lower sales due to a slowdown in government healthcare funding. Excluding
Taiwan, same-store sales growth was 6.8% for the quarter. We generated $9.2
million of additional revenues for the nine months ended September 30, 2001
from sites that we opened ourselves and acquired. We look for the continued
expansion of this segment as our existing operations mature and we complete
further strategic acquisitions.
GROSS PROFIT
____________
Gross profit for the three months ended September 30, 2001 increased year-
over-year 31.3% or $17.4 million to $72.8 million. Year-to-date gross
profit increased year-over-year by 32.0% or $51.8 million to $213.7
million. As a percentage of net sales, gross margins reached 37.6% for the
third quarter ended September 30, 2001 and 38.0% year-to-date compared to
35.6% and 35.3% for the respective periods in 2000.
U.S. PHARMACY SERVICES BUSINESS
The gross profit for the pharmacy services business continues to improve.
Our margin increased from 27.9% or $33.8 million in the third quarter of
2000 to 29.0% or $41.2 million in the third quarter of 2001.Year to date,
this margin increased from 28.4% or $104.4 million in 2000 to 29.4% or
$121.4 million in 2001. These improvements are due to price increases on
products, the shift from lower margin products to Cardiolite(R) and continued
leverage of our labor and material resources.
U.S. MEDICAL IMAGING BUSINESS
The gross profit margin for this group decreased from 69.6% or $18.4
million to 66.6% or $26.2 million in the third quarter of 2001 as compared
to the third quarter of 2000. Year to date, this margin decreased from 70.5%
or $47.2 million in 2000 to 66.7% or $77.6 million in 2001. This decline is
principally from two factors. The first is the increase in the number of
multi-modality sites as compared to the previous year. We increased the number
of multi-modality sites from twelve at June 30, 2000 to twenty-five at
September 30, 2001 because many local insurance groups prefer to contract with
imaging centers that offer all modalities. Consequently, insurance groups do
not have to enter into multiple contracts. Our multi-modality sites generally
have a lower gross profit margin due to lower average scan fees and higher
operating costs. The second reason for the margin decline is that we
experienced an increase in reading fees that we pay to our contracted
radiologists.
INTERNATIONAL OPERATIONS
The gross profit margin for this segment increased from 40.5% or $3.3 million
to 44.5% or $5.4 million in the third quarter of 2000 as compared to the
third quarter of 2001. Year to date, this margin increased from 41.6% or
$10.4 million in 2000 to 44.3% or $14.8 million in 2001. These margins have
improved as volumes increase and efficiencies improve at our pharmacy sites.
Our overall mix of revenues from imaging centers has also contributed to
higher margins, as imaging margins are traditionally higher than pharmacy
margins.
OPERATING, SELLING AND ADMINISTRATIVE EXPENSES
______________________________________________
Operating, Selling and Administrative costs increased 30.1% or $10.9
million for the third quarter of 2001 as compared to the third quarter of
2000. These costs increased 26.5% or $26.8 million on a year-to-date
basis. The ratio of these expenses to sales increased slightly to 24.3%
from 23.3% in the comparative quarter in 2000. Year-to-date, these costs
increased from 22.0% in 2000 to 22.7% in 2001. The primary reason this
percentage remained relatively flat in the quarter and year-to-date was
that we accrued bonuses, which are linked to reaching certain stock price
and earnings levels at a higher rate during 2000 than in 2001. These
smaller accrued bonus amounts were offset in the current year by increased
headcount, yearly wage increases, and increases in other expenses.
DEPRECIATION AND AMORTIZATION
_____________________________
Depreciation and amortization increased by 48.4% or $3.4 million to $10.3
million for the third quarter 2001 as compared to the third quarter of
2000. These costs increased 49.7% or $9.3 million to $28.0 million on a
year-to-date basis. These increases were primarily the result of
depreciation, goodwill and non-compete costs associated with our imaging
business acquisitions, which accounts for $2.1 million of this increase for
the quarter and $6.5 million year-to-date. Additionally, we have invested
capital in international sites (primarily imaging equipment), which
contributed about $1.2 million of this increase on a year-to-date basis.
OTHER EXPENSE, NET
__________________
The increase in Other Expense, Net of $6.2 million to $10.1 million on a
year-to-date basis was primarily the result of increased interest expense for
acquisition debt incurred since the prior year offset by lower interest rates
on the variable portion of the debt.
ACAUISITION OF BUSINESSES
_________________________
During the third quarter of 2001, we made four acquisition investments. We
acquired a company that provides cardiovascular services through three
sites in North Carolina and Virginia for a purchase price of $13.8 million.
We also acquired a domestic company that designs, manufactures and sells
radiation detection and measurement equipment for the medical and nuclear
power plant industry for a purchase price of $10.8 million. In addition,
our medical imaging business acquired three centers via two acquisitions in
the quarter. The first of these was a multi-MRI site in Ft. Lauderdale,
Florida for a purchase price of $5.1 million plus the assumption of $1.5
million of debt. Secondly we acquired two MRI centers in El Paso, Texas for
a purchase price of $4.3 million plus the assumption of $3.6 million of
debt.
LIQUIDITY AND CAPITAL RESOURCES
_______________________________
We had cash, cash equivalents and investments of $38.1 million at September
30, 2001 compared with $42.0 million at December 31, 2000. Our total debt
of $230.9 million at September 30, 2001 reflects an increase of $80.9
million when compared to the balance of $150.0 million at December 31,
2000. The increase for the nine months ended September 30, 2001 results
primarily from the financing of acquisitions, which required approximately
$52.0 million and capital additions, which exceeded cash provided by
operations by $4.1 million. In addition, since December 31, 2000, we
repurchased 411,000 shares of our stock at a value of $13.9 million for
treasury stock. Working capital increased by $52.1 million to $132.5
million at September 30, 2001 compared to $80.4 million at December 31,
2000. We believe that sufficient internal and external sources exist to
fund operations and future expansion plans. We have $21.3 million in
available credit on the $200 million credit line at September 30, 2001.
FORWARD-LOOKING STATEMENTS
__________________________
Except for the historical information and discussions contained herein,
statements contained in this Report on Form 10-Q may constitute "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks,
uncertainties and other factors that could cause actual results to differ
materially, including: changes in the regulation of the healthcare industry
at either or both of the federal and state levels; changes or delays in
reimbursement for our services by governmental or private payers; our
failure to continue to develop and market new products and services and to
keep pace with technological change; competitive pressures; failure to
obtain or protect intellectual property rights; quarterly fluctuations in
revenues and volatility of our stock price; our ability to attract and
retain key personnel; currency risks; dependence on certain suppliers; our
ability to successfully manage acquisitions and alliances; legal, political
and economic changes; and other risks, uncertainties and factors discussed
in the "Risk Factors" section in the Annual Report on Form 10-K and
elsewhere herein, in our other filings with the SEC or in materials
incorporated by reference. Given these uncertainties, undue reliance
should not be placed on such forward-looking statements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
___________________________________________________________
Interest income earned on our investment portfolio is affected by changes
in the general level of U.S. interest rates. Our line of credit borrowings
effectively bear interest at variable rates and therefore, changes in U.S.
interest rates affect interest expense incurred thereon. Changes in
interest rates do not affect interest expense incurred on our fixed rate
debt. There have been no significant changes in the debt instruments from
the table as filed on December 31, 2000.
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10. Material Contracts
10.1 First Amendment to First Amended and Restated Credit Agreement
dated as of September 13, 2001, among Bank One, NA as Lender,
The Bank of Nova Scotia as Document Agent, the Company and Syncor
Management Corporation
10.2 Severance Agreement dated August 24, 2001 between Haig
Bagerdjian and the Company
10.3 Severance Agreement dated August 24, 2001 between John S.
Baumann and the Company
10.4 Severance Agreement dated August 24, 2001 between Rodney
Boone and the Company
10.5 Severance Agreement dated August 24, 2001 between Jack Coffey
and the Company
10.6 Severance Agreement dated August 24, 2001 between Sheila Coop
and the Company
10.7 Severance Agreement dated August 24, 2001 between William
Forster and the Company
10.8 Severance Agreement dated August 24, 2001 between Monty Fu
and the Company
10.9 Severance Agreement dated August 24, 2001 between Robert
Funari and the Company
10.10 Severance Agreement dated August 24, 2001 between Lewis William
Terry, Jr. and the Company
10.11 Severance Agreement dated August 24, 2001 between David Ward
and the Company
10.12 Syncor International Corporation Special Severance Plan
11. Statement re: Computation of Per Share Earnings
Computation can be clearly determined from the material contained in
Part I of this Form 10-Q.
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, 2001 By: /s/ William P. Forster
_________________________________________________
William P. Forster
Senior Vice President and Chief Financial Officer
(Principal Financial/Accounting Officer)