HALTOM CITY, Texas, Nov. 14, 2001 (PRIMEZONE) -- PharmChem, Inc. (Nasdaq:PCHM), reported a net sales decrease of 2.9% in the third quarter versus the same quarter last year. Net sales for the quarter ending September 30, 2001 were $11,610,000 compared to last year's third quarter net sales of $11,956,000. The net loss for this year's third quarter was $1,672,000 or $0.29 per share, compared to net income of $403,000 or $0.07 per diluted share for the same period last year.
The current quarter's net loss includes non-recurring expenses related to the Company's relocation to Texas from California of $1,861,000 or $0.32 per share. On a pro-forma basis, third quarter results would have been net income of $189,000 or $0.03 per diluted share if these non-recurring expenses were excluded.
For the nine months ending September 30, 2001, net sales for the Company stood at $33,948,000 which were 0.6% lower than net sales in the same period last year of $34,144,000. PharmChem reported a net loss for the first nine months of this year of $7,929,000 or $1.36 per share, compared to last year's net income of $1,059,000 or $0.17 per diluted share.
The year-to-date loss for 2001 includes non-recurring expenses associated with the relocation to Texas of $5,867,000 or $1.00 per share, as well as a restructuring charge recorded in the second quarter of $1,029,000 or $0.18 per share, to provide for costs related to closing the Company's Northern California facility, including severance, environmental evaluation and clean-up, legal and related expenses. On a pro-forma basis, the net loss for the first nine months of 2001 would have been $1,033,000 or $0.18 per share, if these non-recurring expenses and the restructuring provision were excluded.
Domestic revenues in the third quarter were lower by 3.2% as specimen volume fell by 8.5% resulting from weak hiring in the workplace caused by the overall economic downturn which worsened after the September 11 tragedy. Workplace specimen volume was down in September and is expected to be lower in October as well. However, sales of products and other non-laboratory services in the third quarter rose 16.1% over the same period a year ago. Nevertheless, because of the linkage between pre-employment drug testing and the contraction of the economy, the Company laid-off 15% of its U.S. workforce in October. The Company anticipates these and other cost reduction programs should enable it to return to profitability in the near term and position it well once the economy recovers.
Medscreen, the Company's London-based affiliate, saw its third quarter net sales rise 1.5% in local currency in spite of weakened economic conditions overseas. Medscreen continues to successfully market its portfolio of services aggressively and is expected to exit 2001 with record results.
Consolidated sales of products and other non-laboratory services totaled 16.4% of consolidated sales for the nine months this year, up from 12.5% for the same period in 2000.
Excluding the current year's non-recurring expenses and the restructuring provision described above, EBITDA, on a pro-forma basis, would have been $941,000 (8.1% of sales) for the third quarter of 2001 and $1,216,000 (3.6% of sales) for the nine months ended September 30, 2001, versus $1,215,000 (10.2% of sales) and $3,433,000 (10.1% of sales) respectively, for the same periods last year.
Capital expenditures were $1,812,000 and $4,544,000 for the third quarter and for the first nine months of 2001, respectively. Depreciation and amortization were $560,000 and $1,692,000, respectively, for those same time periods.
During the third quarter, the Company closed transactions with three stockholders whereby a total of $1.5 million of subordinated debt was issued. The debt includes warrants to purchase 150,000 shares of the Company's common stock.
Because of the significant losses in the third quarter and first nine months of 2001, the Company was not in compliance with various bank loan covenants at the end of 2001's third quarter. The Company is currently negotiating waivers from its bank.
Joe Halligan, President and Chief Executive Officer of the Company, said, "We started to see improvements in our lab operations during the third quarter as all of our processes were consolidated under one roof and the extensive training of new employees began to pay off. But the dramatic downturn in the economy during the third quarter and the tragic events in September saw lower specimen receipts and this condition continued into October. It, therefore, became necessary to shrink our cost structure and layoffs were implemented."
PharmChem is a leader in the field of providing services to clients seeking to detect and deter the use of illegal drugs. PharmChem operates fully certified forensic drug testing laboratories in Fort Worth, Texas and London, England.
The foregoing may include certain forward-looking statements which involve risks and uncertainties including, without limitation, competitive conditions, the possibility that contracts may be terminated or not renewed, economic conditions, customer acceptance of new products and regulatory issues. These and other factors affecting operating results are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2000.
PHARMCHEM, INC.
Consolidated Statements of Operations
(000's omitted except for per share amounts and percentages)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
2001 2000 2001 2000
-------- -------- -------- --------
Net sales $ 11,610 $ 11,956 $ 33,948 $ 34,144
Cost of sales 9,907 * 8,463 28,780 * 23,711
-------- -------- -------- --------
Gross profit 1,703 3,493 5,168 10,433
Operating expenses and
goodwill amortization 3,183 * 2,844 11,511 * 8,654
Restructuring charge -- -- 1,029 --
-------- -------- -------- --------
3,183 2,844 12,540 8,654
-------- -------- -------- --------
Income (loss) from operations (1,480) 649 (7,372) 1,779
Interest expense 121 67 276 227
Other expense (income), net (3) 7 (43) (60)
-------- -------- -------- --------
118 74 233 167
-------- -------- -------- --------
Income (loss)
before income taxes (1,598) 575 (7,605) 1,612
Provision for income taxes 74 172 324 553
-------- -------- -------- --------
Net income (loss) $ (1,672) $ 403 $ (7,929) $ 1,059
======== ======== ======== ========
Net income
(loss) per share** $ (0.29) $ 0.07 $ (1.36) $ 0.17
======== ======== ======== ========
Weighted average shares** 5,853 6,063 5,850 6,080
======== ======== ======== ========
EBITDA:***
Amount $ 941 $ 1,215 $ 1,216 $ 3,433
======== ======== ======== ========
Margin 8.1% 10.2% 3.6% 10.1%
======== ======== ======== ========
* Includes $1,602 in the third quarter's cost of sales ($4,106 for
the nine month period) and $259 in the third quarter's operating
expenses ($1,761 for the nine month period) of non-recurring
expenses 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, amortization and, for 2001, before non-recurring
expenses and restructuring provision.
Condensed Consolidated Balance Sheets
(000's omitted)
September 30, December 31,
2001 2000
--------- ---------
Current assets $ 12,453 $ 12,793
Non-current assets 17,207 14,472
--------- ---------
Total $ 29,660 $ 27,265
========= =========
Current liabilities $ 18,905 $ 10,386
Non-current liabilities 2,205 1,884
Subordinated debt 1,158 --
Stockholders' equity 7,392 14,995
--------- ---------
Total $ 29,660 $ 27,265
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