------------------------------------------------------------------------------ ------------------------------------------------------------------------------ SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR QUARTER ENDED JUNE 30, 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 June 30, 2001, 24,410,743 shares of $.05 par value common stock were outstanding. ------------------------------------------------------------------------------ ------------------------------------------------------------------------------ SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX _____ PAGE ____ Part I. Financial Information Item 1. Condensed Consolidated Financial Statements Balance Sheets as of June 30, 2001 and December 31, 2000 . . . . . . . . . . . 3 Statements of Income for Three Months Ended June 30, 2001 and 2000 . . . . . . . . . . . . . . . 4 Statements of Income for Six Months Ended June 30, 2001 and 2000 . . . . . . . . . . . . . . . 5 Statements of Cash Flows for Six Months Ended June 30, 2001 and 2000 . . . . . . . . . . . . . . . 6 Notes to Condensed Consolidated Financial Statements . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition . . . . . . . . . . . . . . . . . 11 Item 3. Quantitative and Qualitative Disclosures about Market Risks . . . . . . . . . . . . . . . . . 13 Part II. Other Information . . . . . . . . . . . . . . . . . . 14 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands) JUNE 30, DECEMBER 31, 2001 2000 _________ ____________ ASSETS Current assets: Cash and cash equivalents $ 28,907 $ 24,330 Short-term investments 11,855 4,156 Trade receivables, net 96,949 81,716 Patient receivables, net 48,362 37,686 Inventory 17,848 59,926 Prepaids and other current assets 29,644 16,023 ________ ________ Total current assets 233,565 223,837 Marketable investment securities 1,193 1,190 Property and equipment, net 144,843 114,286 Excess of purchase price over net assets acquired, net 114,162 108,530 Other assets 19,416 22,728 ________ ________ $513,179 $470,571 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 58,374 $ 83,683 Accrued liabilities 22,873 22,371 Accrued wages and related costs 13,279 19,796 Federal and state taxes payable 4,107 5,543 Current maturities of long-term debt 10,816 12,091 ________ ________ Total current liabilities 109,449 143,484 Long-term debt, net of current maturities 184,452 137,886 Deferred taxes 5,456 3,321 Stockholders' equity: Common stock, $.05 par value 1,396 1,376 Additional paid-in capital 115,671 107,268 Notes receivable-related parties (5,327) (16,796) Employee stock ownership loan guarantee (843) (1,685) Accumulated other comprehensive income (1,299) (1,245) Retained earnings 135,208 114,019 Treasury stock, at cost; 3,483 shares at June 30, 2001 and 3,072 shares at December 31, 2000 (30,984) (17,057) ________ ________ Net stockholders' equity 213,822 185,880 ________ ________ $513,179 $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 JUNE 30, ___________________________ 2001 2000 ________ ________ Net sales $187,692 $154,366 Cost of sales 115,513 98,887 ________ ________ Gross profit 72,179 55,479 Operating, selling and administrative expenses 41,807 32,944 Depreciation and amortization 9,041 6,489 ________ ________ Operating income 21,331 16,046 Other expense, net (3,608) (911) ________ ________ Income before taxes 17,723 15,135 Provision for income taxes 6,741 6,057 ________ ________ Net income $ 10,982 $ 9,078 ======== ======== Net income per share - Basic $ .45 $ .38 ======== ======== Weighted average shares outstanding - Basic 24,405 23,772 ======== ======== Net income per share - Diluted $ .41 $ .34 ======== ======== Weighted average shares outstanding - Diluted 26,936 26,328 ======== ======== See notes to condensed consolidated financial statements. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands, except per share data) SIX MONTHS ENDED JUNE 30, _________________________ 2001 2000 ________ ________ Net sales $369,108 $303,324 Cost of sales 228,240 196,887 ________ ________ Gross profit 140,868 106,437 Operating, selling and administrative expenses 80,818 64,952 Depreciation and amortization 17,700 11,771 ________ ________ Operating income 42,350 29,714 Other expense, net (7,616) (2,108) ________ ________ Income before taxes 34,734 27,606 Provision for income taxes 13,545 11,048 ________ ________ Net income $ 21,189 $ 16,558 ======== ======== Net income per share - Basic $ 0.87 $ 70 ======== ======== Weighted average shares outstanding - Basic 24,439 23,748 ======== ======== Net income per share - Diluted $ 0.78 $ .64 ======== ======== Weighted average shares outstanding - Diluted 27,008 25,838 ======== ======== See notes to condensed consolidated financial statements. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands) SIX MONTHS ENDED JUNE 30, _________________________ 2001 2000 ________ ________ Cash flows from operating activities: Net income $21,189 $16,558 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,700 11,771 Provision for losses on receivables 4,085 3,023 Amortization of ESSOP loan guarantee 842 843 Decrease (increase) in: Accounts receivable, trade (15,723) (8,773) Accounts receivable, patient (11,844) (9,366) Inventory 42,151 4,653 Other current assets (11,771) (3,314) Other assets 3,374 994 Increase (decrease) in: Accounts payable (25,327) 1,041 Accrued liabilities 2,495 (676) Accrued wages and related costs (6,543) (2,602) Federal and state taxes payable 1,678 (1,877) ________ ________ Net cash provided by operating activities 22,306 12,275 ________ ________ Cash flows from investing activities: Purchase of property and equipment, net (27,477) (12,885) Acquisitions of businesses, net of cash acquired (18,132) (11,471) Net increase in short-term investments (7,672) (2,075) Net increase in long-term investments (3) 1 Unrealized gain on investments 3 133 ________ ________ Net cash used in investing activities (53,281) (26,297) ________ ________ Cash flow from financing activities: Proceeds from long-term debt 39,362 9,884 Repayment of long-term debt (6,622) (1,140) Note receivable-related parties 11,469 1,453 Issuance of common stock 5,320 9,373 Reacquisition of common stock for treasury (13,927) (3,431) ________ ________ Net cash provided by financing activities 35,602 16,139 ________ ________ Net increase in cash and cash equivalents 4,627 2,117 Effect of exchange rate on cash (50) (89) Cash and cash equivalents at beginning of period 24,330 13,352 ________ ________ Cash and cash equivalents at end of period $28,907 $15,380 ======== ======== 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 generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The results of the six months ended June 30, 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 unit's 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____________________________ * 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. and the Company must perform the second step of the transitional impairment test. 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 it 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 $114,162, unamortized identifiable intangible assets in the amount of $19,416, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $3,220 and $3,083 for the year ended December 31, 2000 and the six months ended June 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. 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 __________________ June 30, 2001 June 30, 2000 _____________ _____________ Tax Tax Before-tax (expense) Net of Tax Before-Tax (expense) Net-of Tax Amount or benefit Amount Amount or Benefit Amount ____________________________________________________________________ Foreign currency translation adjustments 82 - 82 165 - 165 Unrealized gains (losses) on investments: Unrealized holding gains (losses) arising during period - - - 110 (44) 66 ____________________________________________________________________ Other comprehensive income 82 - 82 275 (44) 231 Net income 17,723 (6,741) 10,982 15,135 (6,057) 9,078 ____________________________________________________________________ Total comprehensive income $17,805 $(6,741) $11,064 $15,410 $(6,101) $9,309 ==================================================================== SIX MONTHS ENDED ________________ June 30, 2001 June 30, 2000 _____________ _____________ Tax Tax Before-tax (expense) Net of Tax Before-Tax (expense) Net-of Tax Amount or benefit Amount Amount or Benefit Amount ____________________________________________________________________ Foreign currency translation adjustments 57 - 57 91 - 91 Unrealized gains (losses) on investments: Unrealized holding gains (losses) arising during period 4 (1) 3 222 (89) 133 ____________________________________________________________________ Other comprehensive income 61 (1) 60 313 (89) 224 Net income 34,734 (13,545) 21,189 27,606 (11,048) 16,558 ____________________________________________________________________ Total comprehensive income $34,795 $(13,546) $21,249 $27,919 $(11,137) $16,782 ==================================================================== 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 June 30, 2001 June 30, 2000 _______________________________ _____________ _____________ Revenues $137,715 $123,802 Operating Income $ 20,356 $ 15,930 U.S. Medical Imaging Business _____________________________ Revenues $ 39,169 $ 22,541 Operating Income $ 4,073 $ 3,124 International Operations ________________________ Revenues $ 10,808 $ 8,023 Operating Income $ 859 $ 101 Unallocated Corporate _____________________ Operating Loss $ (3,957) $ (3,109) SIX MONTHS ENDED ________________ U.S. Pharmacy Services Business June 30, 2001 June 30, 2000 _______________________________ _____________ _____________ Revenues $271,024 $246,012 Operating Income $ 40,160 $ 30,695 U.S. Medical Imaging Business _____________________________ Revenues $ 76,811 $ 40,468 Operating Income $ 8,290 $ 4,810 International Operations ________________________ Revenues $ 21,273 $ 16,844 Operating Income $ 1,212 $ 885 Unallocated Corporate _____________________ Operating Loss $ (7,312) $ (6,676) 5. NET INCOME PER SHARE. Basic earnings per share (EPS) amounts are computed by dividing earnings applicable to common stockholders by the 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 have been excluded from the diluted calculation. The reconciliation of the numerator and denominators of the basic and diluted earnings per share computations are as follows for the three and six months ended June 30, 2001 and 2000: THREE MONTHS ENDED __________________ June 30, 2001 June 30, 2000 __________________________________________________________________________ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ____________________________________________________________________________________________ Net income $10,982 $9,078 Basic EPS $10,982 24,405 $.45 $9,078 23,772 $.38 ____ ____ Effect of Dilutive Stock Options 2,531 2,556 _____ _____ Diluted EPS $10,982 26,936 $.41 $9,078 26,328 $.34 ____ ____ SIX MONTHS ENDED ________________ June 30, 2001 June 30, 2000 __________________________________________________________________________ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount _____________________________________________________________________________________________ Net income $21,189 $16,558 Basic EPS $21,189 24,439 $.87 $16,558 23,748 $.70 ____ ____ Effect of Dilutive Stock Options 2,569 2,090 _____ _____ Diluted EPS $21,189 27,008 $.78 $16,558 25,838 $.64 ____ ____ 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 second quarter of 2001, we made two international division investments. We acquired the exclusive right to provide management services to an oncology center in Brazil in exchange for $1.95 million. We also acquired a distributor and manufacturer of diagnostic radiopharmaceuticals in Australia for a purchase price of $.7 million. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2000 NET SALES _________ Consolidated net sales for the three months ended June 30, 2001 increased 21.6% or $33.3 million to $187.7 million versus $154.4 million for the second quarter of 2000. Consolidated net sales for the six months ended June 30, 2001 increased 21.7% or $65.8 million to $369.1 million versus $303.3 million for the same period of the prior year. U.S. PHARMACY SERVICES BUSINESS Our Pharmacy Services business grew at a pace of 11.2% for the current quarter and 10.2% year-to-date, which is a result of continued growth in both the overall market place and the Cardiology sector of the Company's business. Our overall year- over-year growth rate for the Cardiology sector was approximately 12% for the quarter and year-to-date. 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 We continue to grow the medical imaging business both as a result of the acquisition of sites and growth at existing sites. Overall, sales have increased year-over-year 73.8% for the quarter and nearly 90% year-to-date. Same-store sales growth for the six months ended June 30, 2001 was approximately 15% or $4.5 million and represented 12% of the increase. Sales growth has also been due to a large imaging center acquisition in late September 2000 which accounts for $11.8 million or 52.2% for the quarter and $23.4 million or 57.9% year-to-date. Quarterly revenues associated with this acquisition are included in operating results for the six months ended June 30, 2001 but not for the corresponding period of the prior year. At quarter end, we had 63 domestic imaging centers compared to 42 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 management positions, 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 for the quarter increased 34.7% as compared to the prior year and increased 26.7% on a year-to-date basis. Same-store growth was 8.3% for the quarter and was impacted by Taiwan sites, which reported lower sales due to a slowdown in government health funding. Excluding Taiwan, same-store sales growth was 18.4% for the quarter. We generated $4.5 million of additional revenues for the six months ended June 30, 2001 from sites that we opened ourselves and acquired during 2000. 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 June 30, 2001 increased $16.7 million or 30.1% to $72.2 million. Year to date gross profit increased $34.4 million or 32.3% to $140.9 million. As a percentage of net sales, gross margins reached 38.5% for the second quarter ended June 30, 2001 and 38.2% year-to-date compared to 35.9% and 35.1% 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 28.8% in the second quarter of 2000 to 29.8% in 2001. Year to date, this margin increased from 28.7% in 2000 to 29.6% 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 delivery resources. U.S. MEDICAL IMAGING BUSINESS The gross profit margin for this group decreased from 72.3% to 67.1% for the second quarter of 2001 as compared to the prior year and has declined from 71.2% to 66.8% on a year to date basis. This decline is principally from two factors. The first is the increase in the number of full modality sites as compared to the previous year. We increased the number of full modality sites from nine at June 30, 2000 to twenty at June 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 full 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 to 45.2% from 43.2% in the second quarter of 2001 as compared to the second quarter of 2000 and to 44.1% from 42.2% on a year-to-date basis. 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 Administration costs increased 27.1% or $11.4 million for the second quarter 2001 as compared to the prior year. These costs increased 21.9% or $27.3 million on a year-to-date basis. The ratio of these expenses to sales increased slightly to 22.3% from 21.3% in the comparative quarter in 2000. Year-to-date, these costs increased from 21.4% in 2000 to 21.9% 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 levels, and certain other performance bonuses at a higher rate during 2000 than in 2001. DEPRECIATION AND AMORTIZATION _____________________________ Depreciation and amortization increased by $2.6 million or 39.3% to $9.0 million for the quarter ended June 30, 2001, compared to the second quarter of 2000 and $5.9 million or 50.4% to $17.7 million year-to-date. These increases were primarily the result of depreciation, goodwill and non-compete costs associated with our imaging business acquisitions, which accounts for $1.9 million of this increase for the quarter and $4.4 million year-to-date. Additionally, we have invested capital in international sites (primarily imaging equipment), which contributed about $.6 million additionally of this increase on a year-to-date basis. OTHER EXPENSE, Net ___________________ The change in Other Expense, Net was primarily the result of increased interest expense for acquisition debt incurred since the second quarter of 2000. ACQUISITION OF BUSINESSES _________________________ During the second quarter of 2001, we made two international division investments. We acquired the exclusive right to provide management services to an oncology center in Brazil in exchange for $1.95 million. We also acquired a distributor and manufacturer of diagnostic radiopharmaceuticals in Australia for a purchase price of $.7 million. LIQUIDITY AND CAPITAL RESOURCES _______________________________ We had cash, cash equivalents and investments of $41.3 million at June 30, 2001 compared with $29.7 million at December 31, 2000. Our total debt of $195.3 million at June 30, 2001 reflects an increase of $45.3 million when compared to the balance of $150.0 million at December 31, 2000. The increase for the six months ended June 30, 2001 results primarily from the financing of acquisitions, which required approximately $18.1 million and capital additions which exceeded cash provided by operations by $5.1 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 $43.8 million to $124.1 million at June 30, 2001 compared to $80.3 million at December 31, 2000. We believe that sufficient internal and external sources exist to fund operations and future expansion plans. We have $41.9 million in available credit on the $190 million credit line available at June 30, 2001. We increased our credit line facility to $200 million on July 25, 2001. RECENT DEVELOPMENTS ___________________ In June 2001, the Company and DuPont announced that they agreed to forego the automatic renewal provision in their current distribution agreement, which remains in effect through 2003. The automatic renewal provision would have caused the distribution agreement to automatically renew in 2004. Both companies announced that they are working together to explore the development of an extended distribution agreement that would take effect after the expiration of the existing distribution agreement at the end of 2003. Under the distribution agreement, we have preferred distribution rights for Cardiolite(R) from DuPont. Cardiolite(R) accounted for 44.8% of our net sales in 2000. 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. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 19, 2001, the Company held its annual meeting of stockholders. Three proposals were presented to the stockholders for their approval. The following summarizes the proposals and the results of the voting: 1. Election of Directors The first proposal was to elect Robert G. Funari, George S. Oki, and Bernard Puckett as directors for an additional three-year term. The stockholders voted to re-elect the three directors: FOR AGAINST Robert G. Funari 17,645,928 5,217,520 George S. Oki 21,405,279 1,458,169 Bernard Puckett 21,427,592 1,435,856 2. Selection of Independent Auditors The second proposal was to ratify the selection of KPMG LLP as the Company's independent auditors for the 2001 fiscal year. The stockholders ratified the selection: FOR AGAINST 22,689,594 93,645 3. The third proposal was to approve an amendment to the formula plan for non-employee directors unter the 2000 Master Stock Incentive Plan. The proposal was approved as follows: FOR AGAINST 10,986,794 9,406,037 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10. Material Contracts 10.1 First Amended and Restated Credit Agreement, dated as of May 10, 2001, among Syncor Management Corporation, the Company, Bank One, NA, as Administrative Agent, LC Issuer and Lender, The Bank of Nova Scotia, as Document Agent and Lender, Fleet National Bank, as Lender, Mellon Bank, as Lender, The Northern Trust Company, as Lender, Sanwa Bank California, as Lender, and Union Bank of California, NA, as Lender 10.2 2001 Syncor Officer Incentive Plan 10.3 First Amendement to Syncor International Corporation 2000 Master Stock Incentive 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) August 14, 2001 By: /s/ William P. Forster _________________________________________________ William P. Forster Senior Vice President and Chief Financial Officer (Principal Financial/Accounting Officer)