HALTOM CITY, Texas, Aug. 15, 2001 (PRIMEZONE) -- PharmChem, Inc. (Nasdaq:PCHM) announced that second quarter 2001 net sales were $10,789,000, a decrease of 6.8% vs. last year's second quarter net sales of $11,580,000. The Company reported a net loss for the second quarter of $5,557,000, or $0.95 per share, vs. net income of $374,000, or $0.06 per diluted share, earned in the same quarter a year ago.
Net sales for the six months ended June 30, 2001, were $22,338,000, an increase of 0.7% over net sales in the first six months of 2000 of $22,188,000. The net loss for the first six months of 2001 was $6,257,000, or $1.07 per share, compared to net income of $656,000 or $0.11 per diluted share, for the same period last year.
In March of this year, we announced plans to move our headquarters and main laboratory from Northern California to the Fort Worth, Texas area. The economic and logistical disadvantages of operating in California have previously been reported by the Company. These factors, coupled with ongoing uncertainties regarding the availability of uninterruptible electricity and the significant increases in rent and utility costs at our then existing facility, left the Company with no choice but to relocate.
The Company could not holdover or extend its lease (which expired on June 1, 2001) on a short-term basis at its existing facility and, since the new facility was not ready, the existing Fort Worth laboratory was expanded to handle the combined specimen load. We rapidly deployed equipment, managers and new employees. On average, we were staffed in Texas at 140% of normal levels while our labor force in California continued to process specimens through the end of May. The second quarter and first six months of 2001, therefore, were burdened with sizeable non-recurring costs including a duplicate labor force as well as higher labor and training costs, and significant relocation, temporary housing and subsistence expenses.
For the second quarter and first six months of 2001, these non-recurring expenses amounted to $3,445,000, or $0.58 per share, and $4,006,000, or $0.68 per share, respectively. In addition, the Company recorded a restructuring charge in the second quarter of 2001 of $1,029,000, or $0.18 per share, to provide for costs associated with closing its Northern California facility, including severance, environmental evaluation and clean-up, legal and related expenses.
On a pro-forma basis, the loss in the second quarter and first six months of 2001 would have been $1,083,000, or $0.19 per share, and $1,222,000, or $0.21 per share, respectively, if the foregoing non-recurring charges and restructuring provision were excluded.
The completion of the Company's new Haltom City, Texas facility (which will house the corporate headquarters and main laboratory) has been delayed by over 90 days due to construction interruptions, weather and other factors. As a consequence, the Company's Fort Worth laboratory fell behind in specimen processing and its service to customers was temporarily hampered. These factors lowered expected revenues in the second quarter by approximately $1,100,000, even though nearly all of the costs to process these specimens were incurred in the second quarter. Most of these temporary processing problems have been resolved.
Domestic sales in the second quarter were lower by 7.5% with laboratory specimen volume down by over 18%. Sales of products and non-laboratory services rose 41%.
Medscreen, the Company's London-based subsidiary, saw its quarterly sales in local currency rise by 4.5%. Screening volume in the second quarter was down 4.9% vs. the same quarter a year ago offset by an 8.5% increase in average selling prices. Product sales were up 22.2% in the current quarter. However, lower currency translation rates of 7.2% negatively impacted Medscreen's second quarter performance in U.S. dollars.
Consolidated sales of products and non-laboratory services comprised 18.7% of net sales for the first six months of 2001 compared to 12.3% in 2000.
Capital expenditures were $1,865,000 and $2,732,000, respectively, for the second quarter and the first six months of 2001. Depreciation and amortization were $564,000 and $1,132,000, respectively, for the same periods.
Excluding the current year's non-recurring costs and the restructuring provision described above, EBITDA, on a pro forma basis, would have been a negative $332,000 (3.1% of net sales) in the second quarter of 2001 and $275,000 (1.2% of net sales) for the first six months of 2001. Last year's EBITDA was $1,161,000 (10.0% of net sales) for the second quarter and $2,218,000 (10.0% of net sales) for the six-month period.
Because of the significant losses in the second quarter and first six months of 2001, the Company was not in compliance with various bank loan covenants at the end of 2001's second quarter. The Company is currently negotiating waivers from its bank.
Joe Halligan, President and Chief Executive Officer of the Company, said, "This move was tough on both us and our customers. Their patience has provided us with the added incentive to quickly restore our operations to historical high standards. The setbacks in specimen processing and customer service were temporary and we are confident that services are being restored right now to the levels our customers have come to expect. All members of our senior management team have been committed to lab operations to ensure this challenge is met successfully."
Mr. Halligan added, "We continue to firmly believe that our decision to move to Texas will generate the benefits we expected. Staying in California was not an option. The intense competition for people, employee turnover and the other factors described earlier in this release would have made ongoing operations there prohibitively costly. Once our new facility is fully operational, we will benefit from a much lower cost structure. This will give us even more resources to grow our franchise and build our expanded customer base."
Mr. Halligan concluded, "Lab operations have commenced moving into the new facility and, when completed in September, we will have all of our major functions under one roof, thereby putting this relocation effort behind us."
The foregoing may include certain forward-looking statements that involve risks and uncertainties, including, without limitation, competitive conditions and the possibility that contracts may be terminated or not renewed, customer acceptance of new products, regulatory issues and other factors affecting operating results included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
PharmChem, Inc. is a leading independent laboratory providing integrated drug testing services to corporate and governmental clients seeking to detect and deter the use of illegal drugs. PharmChem, Inc operates fully certified forensic drug testing laboratories in Fort Worth, Texas; Menlo Park, Calif.; and London.
PHARMCHEM, INC.
Consolidated Statements of Operations
(000's omitted except for per share amounts and percentages)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2001 2000 2001 2000
------------------- -------------------
Net sales $ 10,789 $ 11,580 $ 22,338 $ 22,188
Cost of sales 10,166* 8,060 18,873* 15,270
-------- -------- ------- --------
Gross profit 623 3,520 3,465 6,918
Operating expenses
and goodwill
amortization 4,964* 2,906 8,328* 5,788
Restructuring charge 1,029 -- 1,029 --
-------- -------- ------- --------
5,993 2,906 9,357 --
-------- -------- ------- --------
Income (loss)
from operations (5,370) 614 (5,892) 1,130
Interest expense 86 80 155 160
Other expense
(income), net (2) (52) (40) (67)
-------- -------- ------- --------
84 28 115 93
-------- -------- ------- --------
Income (loss)
before income
taxes (5,454) 586 (6,007) 1,037
Provision for
income taxes 103 212 250 381
-------- -------- ------- --------
Net income (loss) $ (5,557) $ 374 $ (6,257) $ 656
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Net income
(loss) per
share** $ (0.95) $ 0.06 $ (1.07) $ 0.11
======== ======== ======== ========
Weighted average
shares** 5,851 5,986 5,849 6,088
======== ======== ======== ========
EBITDA:***
Amount $ (332) $ 1,161 $ 275 $ 2,218
======== ======== ======== ========
Margin (3.1%) 10.0% 1.2% 10.0%
======== ======== ======== ========
* Includes $2,028 in the second quarter's cost of sales ($2,504 for the six month period) and $1,417 in the second quarter's operating expenses ($1,502 for the six month period) of non-recurring costs associated with relocating to Texas.
** Per share earnings and weighted average shares included in this press release are on a diluted basis.
*** Earnings before taxes, interest, other expense (income), depreciation and amortization and, for 2001, before nonrecurring costs and restructuring provision.
Condensed Consolidated Balance Sheets
(000's omitted)
June 30, December 31,
2001 2000
--------------------------------------
Current assets $11,407 $12,793
Non-current assets 16,021 14,472
------- -------
Total $27,428 $27,265
======= =======
Current liabilities $17,032 $10,386
Non-current liabilities 1,734 1,884
Stockholders' equity 8,662 14,995
------- -------
Total $27,428 $27,265
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