-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UDQin3+AXCNNxYQWDBlVOs8OuaBFO0Rdcys40qcm/Q90rYnIqkrh3BlsVTvNMMzk /OVLVBb45FM/5p+5CnryKg== 0000202763-98-000027.txt : 19981113 0000202763-98-000027.hdr.sgml : 19981113 ACCESSION NUMBER: 0000202763-98-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYNCOR INTERNATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000202763 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 850229124 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-08640 FILM NUMBER: 98743660 BUSINESS ADDRESS: STREET 1: 6464 CANOGA AVENUE CITY: WOODLAND HILLS STATE: CA ZIP: 91367 BUSINESS PHONE: 8187574000 MAIL ADDRESS: STREET 2: 20001 PRAIRIE ST CITY: CHATSWORTH STATE: CA ZIP: 91311 FORMER COMPANY: FORMER CONFORMED NAME: NUCLEAR PHARMACY INC DATE OF NAME CHANGE: 19860309 10-Q 1 ============================================================================== ============================================================================== 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, 1998 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, 1998, 10,982,482 shares of $.05 par value common stock were outstanding. ============================================================================== ============================================================================== SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES INDEX _____ PAGE ____ Part I. Financial Information Item 1. Consolidated Condensed Financial Statements Balance Sheets as of September 30, 1998 and December 31, 1997 . . . . . . . . . . . 3 Statements of Income for Three Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . . 4 Statements of Income for Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . . 5 Statements of Cash Flows for Nine Months Ended September 30, 1998 and 1997 . . . . . . . . . . . . . . 6 Notes to Consolidated Condensed Financial Statements . . . . . . 7 Item 2. Management's Discussion and Analysis of Financial Condition . . 10 Part II. Other Information . . . . . . . . . . . . . . . . . . . . . . . 14 SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands, except per share data) September 30, December 31, 1998 1997 _____________ ____________ (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 18,654 $ 25,538 Short-term investments 4,541 2,583 Accounts receivable, net 75,879 54,972 Inventory 7,475 5,574 Prepaids and other current assets 15,437 9,288 _________ _________ Total current assets 121,986 97,955 Marketable investment securities 693 1,180 Property and equipment, net 46,131 28,870 Excess of purchase price over net assets acquired, net 62,125 14,319 Other assets 20,231 22,239 _________ _________ $251,166 $164,563 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 37,805 $ 34,755 Accrued liabilities 10,436 4,353 Accrued wages and related costs 16,717 13,680 Federal and state taxes payable 1,312 1,129 Current maturities of long-term debt 8,345 3,978 _________ _________ Total current liabilities 74,615 57,895 Long-term debt, net of current maturities 69,539 17,332 Deferred compensation 1,969 1,969 Stockholders' equity: Common stock, $.05 par value 618 572 Additional paid-in capital 69,455 55,061 Notes receivable related parties (8,360) - Employee stock ownership loan guarantee (5,477) (6,741) Accumulated other comprehensive income (132) (17) Translation adjustment (345) (313) Retained earnings 61,808 51,329 Treasury stock, at cost; 1,356 shares at September 30, 1998 and at December 31, 1997 (12,524) (12,524) _________ _________ Net stockholders' equity 105,043 87,367 _________ _________ $251,166 $164,563 ========= ========= SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) Three Months Ended September 30, ________________________________ 1998 1997 ______ ______ (Unaudited) Net sales $114,102 $94,493 Cost of sales 79,236 72,233 ________ ________ Gross profit 34,866 22,260 Operating, selling and administrative expenses 29,288 19,708 ________ ________ Operating income 5,578 2,552 Other income/expense, net (889) 371 ________ ________ Income before taxes 4,689 2,923 Provision for income taxes 1,963 1,169 ________ ________ Net income $ 2,726 $ 1,754 ======== ========= Net income per share - Basic ____________________________ Net income $ .25 $ .18 Weighted average shares outstanding - Basic 10,982 9,920 ======== ========= Net income per share - Diluted ______________________________ Net income $ .24 $ .17 Weighted average shares outstanding - Diluted 11,504 10,323 ======== ========= SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF INCOME (in thousands, except per share data) Nine Months Ended September 30, _______________________________ 1998 1997 ______ ______ (Unaudited) Net sales $330,071 $285,764 Cost of sales 233,458 219,534 ________ ________ Gross profit 96,613 66,230 Operating, selling and administrative expenses 77,357 55,847 ________ ________ Operating income 19,256 10,383 Other income/expense, net (989) 3,511 ________ ________ Income before taxes 18,267 13,894 Provision for income taxes 7,788 5,557 ________ ________ Income from continuing operations 10,479 8,337 Discontinued operations, net of taxes - 1,063 ________ ________ Net income $ 10,479 $ 9,400 ======== ======== Net income per share - Basic ____________________________ Income from continuing operations $ .99 $ .83 Discontinued operations, net of taxes $ - $ .11 ________ ________ Net income $ .99 $ .94 Weighted average shares outstanding - Basic 10,607 9,998 ======== ======== Net income per share - Diluted ______________________________ Income from continuing operations $ .94 $ .82 Discontinued operations, net of taxes $ - $ .10 ________ ________ Net income $ .94 $ .92 Weighted average shares outstanding - Diluted 11,129 10,178 ======== ======== SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (in thousands) Nine Months Ended September 30, _______________________________ 1998 1997 ______ ______ (Unaudited) Cash flows from operating activities: Net income $ 10,479 $9,400 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 11,401 7,184 Provision for losses on receivables 3,545 - Amortization of ESSOP loan guarantee 1, 264 945 Decrease (increase) in: Accounts receivable, net (11,617) (4,831) Inventory (1,881) 1,689 Net assets of discontinued operations - 1,198 Other current assets (5,292) 1,381 Other assets 1,304 - Increase (decrease) in: Accounts payable (1,303) (328) Accrued liabilities 2,840 2,049 Accrued wages and related costs 3,039 2,067 Federal and state taxes payable 430 (973) _________ _________ Net cash provided by operating activities 14,209 19,781 _________ _________ Cash flows from investing activities: Purchase of property and equipment, net (9,800) (7,645) Acquisitions of businesses, net of cash acquired (45,338) (6,550) Net increase in short-term investments (1,960) (1,347) Net decrease (increase) in long-term investments 487 (6,453) Unrealized gain on investments (115) (8) _________ _________ Net cash used in financing activities (56,726) (22,003) _________ _________ Cash flow from financing activities: Increase in ESSOP Guarantee - (3,563) Proceeds from long-term debt 42,121 9,033 Repayment of long-term debt (7,199) (299) Issuance of common stock 837 1,638 Reacquisition of common stock for treasury - (1,911) _________ _________ Net cash provided by financing activities 35,759 4,898 _________ _________ Net (decrease) increase in cash and cash equivalents (6,758) 2,676 Effect of exchange rate on cash (126) (69) Cash and cash equivalents at beginning of period $25,538 $25,214 _________ _________ Cash and cash equivalents at end of period $18,654 $27,821 ========= ========= Non-cash transaction: 521,000 shares of common stock were issued ____________________ on June 16, 1998 in exchange for notes receivables from related parties. SEE NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS. 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, 1998, 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 period ended December 31, 1997. 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 1997, the Financial Accounting and Standards Board issued SFAS 130,"Reporting Comprehensive Income," which became effective for fiscal years beginning after December 15, 1997. SFAS 130 requires that the components of comprehensive income be disclosed. Such amounts are as follows for the three and nine months ended September 30, 1998 and 1997:
Three months ended Three months ended Sept. 30, 1998 Sept. 30, 1997 _________________________ _________________________ 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 (98) - (98) (179) - (179) ____________________________________________________________________ Unrealized gains/(losses) on investments: Unrealized holding gains/(losses) arising during period (218) 92 (126) (5) 2 (3) ____________________________________________________________________ Net unrealized holding gains (218) 92 (126) (5) 2 (3) ____________________________________________________________________ Other comprehensive income (316) 92 (224) (184) 2 (182) ====================================================================
SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
Three months ended Three months ended Sept. 30, 1998 Sept. 30, 1997 _________________________ _________________________ 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 (32) - (32) (113) - (113) ____________________________________________________________________ Unrealized gains/(losses) on investments: Unrealized holding gains/(losses) arising during period (199) 84 (115) (14) 6 (8) ____________________________________________________________________ Net unrealized holding gains (199) 84 (115) (14) 6 (8) ____________________________________________________________________ Other comprehensive income (231) 84 (147) (127) 6 (121) ====================================================================
In June 1997, SFAS No. 131 - "Disclosure about Segments of an Enterprise and Related Information" was issued and became effective for periods beginning after December 15, 1997. SFAS No. 131 establishes standards for reporting financial and descriptive information regarding an enterprise's operating segments. In February 1998, SFAS No. 132 - "Employers" Disclosure about Pensions and Other Post Retirement Benefits' was issued and became effective for fiscal years beginning after December 15, 1997. These standards increase disclosure in the financial statements, and will have no impact on the Company' financial position or results of operations. In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued and is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The Company is currently evaluating the impact SFAS No. 133 will have on its financial statements, if any. 3. ACQUISITIONS: In January 1998, the Company acquired a medical imaging business from National Diagnostic Services, Inc. and an affiliate ("NDS"). The purchase price for the acquisition was $12 million, including the assumption of $4.8 million in debt. This acquired business included nine medical imaging centers owned or managed by NDS. This transaction has been accounted for as a purchase for the quarter ended March 31, 1998. Also in January 1998, a subsidiary of Syncor merged with and into TME, Inc. a company based in Houston, Texas, pursuant to which TME, Inc. became a wholly owned subsidiary of Syncor. TME owns, operates and/or manages freestanding medical imaging centers through joint ventures and partnerships. It has 20 facilities in its network, with five additional facilities in development. As consideration for the merger, Syncor paid $14.5 million in cash to TME's stockholders. This transaction was accounted for as a purchase for the quarter ended March 31, 1998. In April 1998, Syncor acquired the medical imaging business of International Magnetic Imaging, Inc. a subsidiary of Consolidated Technology Group Ltd. The business acquired includes ten outpatient medical imaging centers and an imaging referral network operating in 35 states. The purchase price of the acquisition was $20.5 million, plus the assumption of approximately $24.3 million in liabilities and trade payables. The acquisition was accounted for as a purchase and closed on April 2, 1998. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) The new medical imaging services segment operates under the name of Comprehensive Medical Imaging, Inc. ("CMI"), which is a wholly owned subsidiary of Syncor International Corporation. 4. NET INCOME PER SHARE: In 1997, the Financial Accounting Standard Board issued SFAS No. 128, "Earnings Per Share" (EPS). SFAS No. 128 replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effect of options. Diluted earnings per share is very similar to the previously reported primary earnings per share. All earnings per share amounts for all periods have been restated to conform to SFAS No. 128 requirements. The reconciliation of the numerator and denominators of the basic and diluted earnings per share computations are as follows for the three months ended September 30, 1998 and 1997:
Three months ended Three months ended Sept. 30, 1998 Sept. 30, 1997 _________________________ __________________________ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ________________________________________________________________________________ Net income $2,726 $1,754 Basic EPS $2,726 10,982 $.25 $1,754 9,920 $.18 ______ ______ Effective of Dilutive Stock Options 522 403 _____ _____ Diluted EPS $2,726 11,504 $.24 $1,754 10,323 $.17 ------ ------
The reconciliation of the numerator and denominators of the basic and diluted earnings per share computations are as follows for the nine months ended September 30, 1998 and 1997:
Three months ended Three months ended Sept. 30, 1998 Sept. 30, 1997 _________________________ __________________________ Income Shares Per Share Income Shares Per Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ________________________________________________________________________________ Net income $10,479 $9,400 Basic EPS $10,479 10,607 $.99 $9,400 9,998 $.94 ______ ______ Effective of Dilutive Stock Options 522 180 _____ _____ Diluted EPS $10,479 11,129 $.94 $9,400 10,178 $.92 ______ ______
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 1998 increased 20.8 percent or $19.6 million to $114.1 million versus $94.5 million for the third quarter of 1997. For the nine months ended September 30, 1998, net sales increased 15.5 percent or $44.3 million to $330.1 million compared to $285.8 million for the same period in 1997. The primary driving force behind the sales growth for the first nine months of 1998, is the continued expansion in the Company's radiopharmaceutical business. Cardiology sales for the three months ended September 30, 1998, increased by 11 percent to $67.2 million compared to $60.3 million for the corresponding quarter of the prior year. Sales of Cardiolite(R), a proprietary heart imaging agent to which the Company has preferential distribution rights, increased approximately 20 percent for both the third quarter and nine months ended September 30, 1998, when compared to the corresponding periods of the prior year. Additional, the number of unit dose prescriptions for Cardiolite(R) for the three months ended September 30, 1998 increased by 20 percent when compared to the corresponding period of the prior year. However, the growth in the technetium-based heart agent Cardiolite(R) has been partially offset by a decrease in sales of two other generic cardiology agents, thallium and I.V. Persantine(R). Thallium sales have declined due to a combination of competitive pressures and customers switching to technetium- based heart agents. A competing radiopharmaceutical manufacturer/distributor is also currently marketing a rival product to Cardiolite(R),which is also a technetium based heart agent. During the first nine months of 1998, this competing product continued to gain market share, currently estimated at 18 percent of the total profusion market, compared to a market share of approximately 54% for Cardiolite(R). Total cardiology sales for the three months and nine months ended September 30, 1998 were approximately 65 percent of the Company's total radiopharmaceutical sales. Sales for the three months ended September 30, 1998 were also positively impacted as a result of a moderate price increase instituted in August 1998. The Company increased the price of both unit dose and bulk Cardiolite(R) and Miraluma(R). A general price increase on all other products is also being implemented over the remaining months of 1998. The quarter three 1998 price increases resulted in incremental net sales for the three months ended September 30, 1998 of approximately $1.3 million. The Company continues to forecast additional lost sales within the radiopharmaceutical segment associated with the 1997 loss, through the process of competitive bidding, of a contract to supply products to a large hospital buying group. The Company estimates it has retained approximately 70 percent of sales associated with this contract. For 1998, the Company estimates the loss to sales to be approximately $7.0 million in net sales. Sales for the nine months ended September 30, 1998 were also negatively affected as a result of a temporary interruption in the supply of molybdenum, the parent isotope of technetium. The nuclear medicine community experienced this interruption due to a labor dispute by one of North America's major suppliers of molybdenum. This interruption in the supply of molybdenum impacted the Company's sales for the second quarter of 1998 by an estimated $2.5 million. The estimated impact on net income was in the range of $.1 million to $.2 million and the estimated impact on earnings per share was approximately $.01 per share. The Company anticipates sales growth during the current year in the radiopharmacy services business to be above the 1997 levels. For the nine months ended September 30, 1998, sales from this business segment were approximately 6.5 percent or $18.7 million above the corresponding period of the prior year. The Company completed the acquisition of three medical imaging businesses during the first half of 1998. Sales from these three newly acquired businesses and the Company's "open" MRI business contributed $25.6 million in sales for the nine months ended September 30, 1998. The Company anticipates the medical imaging business segment to contribute approximately $40 million in net sales for 1998. GROSS PROFIT Gross profit for the third quarter of 1998 increased $12.6 million to $34.9 million, and as a percentage of net sales to 30.6 percent, compared to 23.6 percent of net sales or $22.3 million for the comparable quarter in 1997. For the nine months ended September 30, 1998, gross profit increased $30.4 million to $96.6 million and as a percentage of net sales to 29.3 percent, compared to 23.2 percent of net sales for the comparable period in 1997. The reasons for the substantial improvement in gross profit margin over the comparable quarter are three fold. First, the medical imaging businesses contributed $8.2 million and $19.0 million to gross profit for the three months and nine months ended September 30, 1998. Secondly, gross profit from the Company's radiopharmaceutical business increased due to a price increase initiated during the second quarter of 1998. This price increase resulted in incremental gross margin dollars of $.7 million for the three months ended September 30, 1998. Thirdly, a reduction in certain material acquisition costs positively impacted the gross margin. In 1997, the Company completed contract re-negotiations with one of its major suppliers and received significant material savings beginning in the second quarter of 1997. Although some of these price concessions were due to expire in early 1998, the Company has been successful in extending terms and in some cases negotiating additional savings into 1998. OPERATING, SELLING AND ADMINISTRATIVE EXPENSES Operating, selling and administrative expenses increased by 48.6 percent for the third quarter of 1998 or $9.6 million to $29.3 million, and as a percentage of sales increased to 25.7 percent from 20.9 percent for the same period in 1997. For the nine months ended September 30, 1998, operating, selling and administrative expenses increased by 38.5 percent or $21.5 million to $77.4 million, or 23.4 percent of sales, compared to $55.8 million or 19.5 percent of sales for the same period in 1997. A significant portion of the increase in operating, selling and administrative expenses for the nine months ended September 30, 1998 is the result of the Company's acquisition of certain medical imaging businesses. Included in the total increase for the three months and nine months ended September 30, 1998 is $7.3 million and $16.9 million in expenses associated with the medical imaging business. Other additional expenses associated with the increase are: increased amortization of costs associated with the 1997 acquisition of a manufacturing business, increased depreciation from hardware and software acquisitions associated with system conversions and upgrades, increased depreciation associated with the relocation to a new corporate headquarters, and increased consulting costs for employee incentive plans and recruiting. The Company expects the increased level of expenditures in these areas to continue as the medical imaging business is expanded, new systems are implemented as a result of a re-engineering effort, field systems are upgraded and expansion in the international marketplace continues. LIQUIDITY AND CAPITAL RESOURCES The Company had cash, cash equivalents and investments of $23.9 million at September 30, 1998, compared with $29.3 million at December 31, 1997. The Company's total debt position of $77.9 million at September 30, 1998, reflects an increase of $56.6 million when compared to the debt position at December 31, 1997 of $21.3 million. The increase in debt for the quarter ended September 30, 1998 is the direct result of financing three acquisitions in the medical imaging business and debt assumed as a result of these acquisitions. Working capital increased by $7.3 million to $47.4 million at September 30, 1998, compared to $40.1 million at December 31, 1997. The Company believes sufficient internal and external sources exist to fund operations and future expansion programs. On January 5, 1998, a new credit line facility became effective in the amount of $75 million to fund working capital and acquisitions. At September 30, 1998, the Company had an unused line of credit of $32.6 million, before reductions in letters of credit. YEAR 2000 _________ Like many other companies, the Year 2000 computer issue creates risk for the Company. If the Company's computer systems do not correctly recognize date information when the year changes to 2000, there could be an adverse impact on the Company's operations. The Company has therefore initiated a comprehensive project to prepare its computer systems for the year 2000. Information Technology (IT) Systems ___________________________________ Introduction of SAP System and Migration of Legacy Systems. The Company's financial information IT systems include an SAP system implemented in 1997. This system is believed to be "Year 2000" compliant. The Company is testing this system, and is analyzing its remaining computer systems to identify any potential "Year 2000" issues, and will take appropriate corrective action based on the results of such analysis. Such actions will include migrating other corporate legacy systems from a two-character year to a four-character year. The estimated cost of migrating such corporate legacy systems, including amounts spent to date, is $500,000. This effort is scheduled to be completed in January of 1999. Company Field Based IT Systems and Company Supplied Customer IT Systems. The Company's field based pharmacy systems have been modified and are believed to be Year 2000 compliant and are currently undergoing testing. The Company expects the rollout of these systems to all field locations will be completed in March of 1999. All IT systems supplied by the Company for use in customer locations were either designed as Year 2000 compliant or are being converted to be Year 2000 compliant and are currently being tested. The Company expects to have the system changes available for rollout to all customer sites by January 1999. The estimated cost of such modifications to field and customer-installed systems, including amounts spent to date, is $250,000. The actual implementation will be dependent on customer cooperation; however, the Company expects this roll out to be completed by mid-1999. Residual Systems ________________ The effort to determine the Year 2000 compliance of residual systems (i.e. software supplied by external vendors and other "embedded" systems), including CMI imaging equipment and systems, is estimated to be completed by year-end 1998. The imaging systems are critical to CMI's business and may require replacing of certain equipment or systems or hardware upgrades, in addition to those scheduled and budgeted for upgrade/ replacement in the ordinary course of business. Many of the vendor supplied residual systems are small (e.g., alarm systems, postage meters, etc.), while some are more sophisticated (e.g., desktops, desktop applications, and LAN applications). The estimated cost of such Year 2000 driven modifications/replacements to residual systems and CMI, including amounts spent to date, is not expected to exceed $750,000. This effort is scheduled to be completed in the third quarter of 1999. Year to Date Status on Non-Company IT Systems _____________________________________________ The Company is also contacting significant suppliers, other vendors and fiscal payers, including federal and state governments, Medicare fiscal intermediaries, insurance companies and managed care companies to determine the state of their Year 2000 compliance or to monitor their progress toward Year 2000 preparedness. In addition, the Company is exploring contingency arrangements pursuant to which certain of such entities would continue to make timely payments for services through alternative means in the event of potential Year 2000 caused system failures. Such payments would be followed by reconciliation at a later date, and would be consistent with certain of such entities past practices during periodic computer system outages. Notwithstanding the foregoing, there can be no assurance that another entity's failure to ensure Year 2000 capability would not have an adverse effect on the Company. Risk Mitigation Strategy ________________________ A key to the Company's risk mitigation strategy is the establishment of a Year 2000 Program Office. The Program Office has positioned the organization to proactively prepare the enterprise infrastructure (both technical and contractual) as well as educate appropriate staff members for what is a high- risk situation. Once educated about the pervasiveness of the Year 2000 issue, each operational area was called upon to participate in the risk mitigation effort, and to participate in the development of contingency plans to minimize potential disruptions to their operational area. Such contingency plans are expected to be in place by the third quarter of 1999. The charter for the Program Office has been to identify all likely areas of Year 2000 impact. This has involved undertaking technical and business challenges. Additionally, the Program Office is also focusing on the potential legal ramifications and liabilities for potential non-compliance, both on the part of Syncor and that of suppliers, vendors, payers, and customers. Potential Risks; Costs ______________________ The costs of the Company's Year 2000 readiness and the dates on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer codes, unforeseen circumstances causing the Company to allocate its resources elsewhere, and similar uncertainties. Additionally, as testing of Year 2000 functionality of the Company's systems must occur in a simulated environment, the Company will not be able to test full system Year 2000 interfaces and capabilities prior to Year 2000. The Company believes that the cost of its Year 2000 compliance projects over the next two years will not have a material effect on the Company's financial position or overall trends in results of operations. SAFE HARBOR STATEMENT Statements which are not historical facts, including statements about our confidence, strategies and expectations, opportunities, industry and market growth, demand and acceptance of new and existing products and return on investments are forward looking statements that involve risks and uncertainties, including without limitation, the effect of general economic and market conditions, supply and demand for the Company's products, competitor pricing, maintenance of the Company's current market position and other factors. Given these uncertainties, undue reliance should not be placed on such forward looking statements. SYNCOR INTERNATIONAL CORPORATION AND SUBSIDIARIES Part II. OTHER INFORMATION Item 4. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10. Material Contracts 10.1 New Employee Stock Option Plan dated as of June 1, 1998. 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. 27. Financial Data Schedule (filed electronically) 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 10, 1998 /s/ Michael E. Mikity _______________________ Michael E. Mikity Senior Vice President and Chief Financial Officer (Principal Financial / Accounting Officer) EXHIBIT 10.1 SYNCOR INTERNATIONAL CORPORATION NEW EMPLOYEE STOCK OPTION PLAN I. THE PLAN. 1.1 Purpose. The purpose of this Plan is to promote the success of the Company by providing an additional means to attract new officers or key employees through the grant of Options and other Awards that provide added long term incentives for high levels of performance and for significant efforts to improve the financial performance of the Company. This Plan is available only to persons not previously employed by the Company, as an inducement to the person's employment with the Company. 1.2 Administration. (a) This Plan shall be administered by the Administrator. The Administrator may delegate ministerial, nondiscretionary functions to individuals who are officers or employees of the Company. (b) Subject to the express provisions of this Plan, the Administrator shall have the authority to construe and interpret this Plan and any agreements defining the rights and obligations of the Company and Participants under this Plan; to identify among Eligible Employees those to whom Awards will be granted and (consistent with express limits of this Plan) the terms of such Awards; to further define the terms used in this Plan and prescribe, amend and rescind rules and regulations relating to the administration of this Plan; either generally or on a case by case basis to establish terms and conditions pertaining to termination of employment, modify or amend any outstanding Award or waive any condition or restriction of an Award, or extend the term or post-termination exercise period of any outstanding Award, or reduce (subject to Sections 2.4, 3.2(d) and 6.5) the minimum vesting period after initial grant to a Participant; to determine the duration and purposes of leaves of absence which may be granted to Participants without constituting a termination of their employment for purposes of this Plan; and to make all other determinations necessary or advisable for the administration of this Plan. The determinations of the Administrator on the foregoing matters shall be conclusive. (c) Any action taken by, or inaction of, the Corporation, any Subsidiary, the Board or the Administrator relating to this Plan shall be within the absolute discretion of that entity or body. No member of the Administrator, or officer of the Corporation or any Subsidiary, shall be liable for any such action or inaction. 1.3 Participation. Awards may be granted only to Eligible Employees. An Eligible Employee who has been granted an Award may, if otherwise eligible, be granted additional Awards if the Administrator shall so determine. 1.4 Stock Subject to the Plan. The maximum aggregated number of shares of Common Stock that may be issued after June 1, 1998 pursuant to Awards granted under this Plan shall not exceed the sum of (i) 450,000 shares, plus (ii) 50,000 shares underlying the option granted to Brad Nutter on July 7, 1997 as an inducement to his employment with the Company. 1.5 Grant of Awards. Subject to the express provisions of the Plan, the Administrator shall determine from the class of Eligible Employees those individuals to whom Awards under the Plan shall be granted, the terms of Awards (which need not be identical) and the number of shares of Common Stock subject to each Award. Each Award shall be subject to the terms and conditions set forth in the Plan and such other terms and conditions established by the Administrator as are not inconsistent with the purpose and provisions of the Plan. 1.6 Exercise of Awards. Notwithstanding any other provision of this Plan, the Administrator may impose, by rule and in Award Agreements, such conditions upon the exercise of Awards (including, without limitation, conditions limiting the time of exercise to specified periods) as may be required to satisfy applicable regulatory requirements, including without limitation Rule l6b-3. 1.7 Share Reservation. No Award may be granted under this Plan unless, on the date of grant, the sum of (i) the maximum number of shares issuable at any time pursuant to such Award, plus (ii) the number of shares that previously have been issued pursuant to Awards granted under this Plan, other than reacquired shares available for reissue consistent with any applicable limitations under Rule 16b-3, plus (iii) the maximum number of shares that may be issued after such date of grant pursuant to Awards granted under this Plan that remain outstanding on such date, does not exceed the share limit in Section 1.4. 1.8 Provisions for Certain Cash Awards. The number of Awards under this Plan that are payable solely in cash that would constitute derivative securities but for the exclusion in Rule l6a-l(c)(3)(i) under the Exchange Act ("Cash Only Awards") shall be determined by reference to the number of shares referenced for purpose of determining the value or price of the Cash Only Award (the "Underlying shares"). The maximum number of Cash Only Awards under this Plan shall not, together with the number of shares previously issued and subject to then outstanding Awards payable (or deemed payable) in shares under this Plan, exceed the share limit in Section 1.4. To the extent that any Cash Only Awards expire or are terminated without the cash payment being made, the underlying shares shall again be available under this Plan. Except as limited by Rule l6b-3, if an Award is or may be settled only in cash and satisfies the requirements for exclusion from the definition of derivative securities under Rule 16a- 1(c)(3)(ii), such Award need not be counted against any of the limits under Section 1.4 or 1.7 or this Section 1.8. 1.9 Reissue of Awards and Shares.Other Awards payable in cash or payable in cash or shares that are forfeited or for any reason are not so paid under this Plan, as well as shares subject to Awards that expire or for any reason are terminated and are not issued, shall again, to the extent permitted under Rule l6b-3, be available for subsequent Awards under the Plan. 1.10 Plan Not Exclusive. Nothing in this Plan shall limit or be deemed to limit the authority of the Board or the Administrator to grant awards or authorize any other compensation, with or without reference to the Common Stock, under any other plan or authority. II. OPTIONS. 2.1 Grants. One or more Options may be granted to any Eligible Employee. Each Option so granted shall be designated by the Administrator as either a Nonqualified Stock Option or a Performance Stock Option. The maximum number of shares underlying Options that may be granted to any one Eligible Employee during any given fiscal year of the Corporation shall be 200,000 shares. 2.2 Option Price. (a) Subject to applicable law, the purchase price per share of the Common Stock covered by each Option shall be determined by the Administrator. The purchase price of any shares purchased on exercise of any Option shall be paid in full at the time of each purchase in one or a combination of the following methods: (i) in cash, or by check payable to the order of the Corporation, (ii) if authorized by the Administrator or specified in the Option being exercised, by a promissory note made by the Participant in favor of the Corporation, upon the terms and conditions determined by the Administrator, bearing interest at a rate sufficient to avoid imputed interest under the Code, and secured by the Common Stock issuable upon exercise in compliance with applicable law (including, without limitation, state corporate law and federal margin requirements), or (iii) by shares of Common Stock of the Corporation already owned by the Participant; provided, however, the Administrator may in its absolute discretion limit the Participant's ability to exercise an Option by delivering shares, and any shares delivered which were initially acquired upon exercise of a stock option must have been owned by the Participant at least six months as of the date of delivery. Shares of Common Stock used to satisfy the exercise price of an Option shall be valued at their Fair Market Value on the date of exercise. (b) In addition to the payment methods described in subsection (a), the Option may provide that the Option can be exercised and payment made by delivering a properly executed exercise notice together with irrevocable instructions to a bank or broker to promptly deliver to the Corporation the amount of sale or loan proceeds necessary to pay the exercise price and, unless otherwise allowed by the Administrator, any applicable tax withholding under Section 6.6. The Corporation shall not be obligated to deliver certificates for the shares unless and until it receives full payment of the exercise price therefor. (c) An Option shall be deemed to be exercised when the Secretary of the Corporation receives written notice of such exercise from the Participant, together with payment of the purchase price made in accordance with Section 2.2(a) and satisfaction of any applicable tax withholding under Section 6.6, except to the extent payment may be permitted to be made following delivery of written notice of exercise in accordance with Section 2.2(b). 2.3 Option Period. Each Option and all rights or obligations thereunder shall expire on such date as shall be determined by the Administrator, and shall be subject to earlier termination as hereinafter provided. 2.4 Exercise of Options. Except as otherwise provided in Section 6.4 or in the case of death or Total Disability, no Option shall be exercisable for at least six months after the Award Date. The Administrator may, at any time after grant of the Option and from time to time, increase the number of shares purchasable on or after any particular date so long as the total number of shares then subject to the Option is not increased. No Option shall be exercisable except in respect of whole shares, and fractional share interests shall be disregarded. Not less than 10 shares of Common Stock may be purchased at one time unless the number purchased is the total number at the time available for purchase under the terms of the Option. 2.5 Performance Stock Options. The Administrator may grant Performance Stock Options to Eligible Employees who are deemed by the Administrator to be members of senior management whose performance has a direct relationship to improvement of the earnings of the Company. Vesting of such Options shall be contingent upon attainment of performance objectives measured by compounded earnings growth and such other criteria as may be established by the Administrator. 2.6 Stock Depreciation Rights; Tax Offset Bonuses. (a) The Administrator may grant Stock Depreciation Rights to a Participant who is subject to Section 16(b) of the Exchange Act. Such Stock Depreciation Rights shall be evidenced in the Award Agreement or by means of an amendment to the Award Agreement in the event an employee becomes subject to Section 16(b) of the Exchange Act subsequent to the date of grant of the Option. A Stock Depreciation Right shall entitle such officer or employee to a payment by the Company in the event that the Fair Market Value of shares of Common Stock issued pursuant to the exercise of an Option declines during the six month period after exercise while such Common Stock is still held by a Participant to the extent that such shares if sold would be subject to matching liability under Section 16 by virtue of a prior purchase. Payment may be made in cash in an amount per covered share equal to the lesser of (i) the difference between the Fair Market Value of a share of Common Stock on the date of expiration of such six month period and the Fair Market Value of a share of Common Stock on the date of exercise, (ii) the difference between the Fair Market Value of a share of Common Stock on the date of disposition of the covered share and the Fair Market Value of a share of Common Stock on the date of exercise and (iii) the difference between the Fair Market Value of a share of Common Stock on the date of exercise and the exercise price. This amount per share shall become payable subsequent to the disposition of the covered shares on or after the expiration of the six month period subject to such conditions, limits and rules as the Administrator may impose, including, without limitation, conditions required to satisfy the applicable regulatory requirements under Rule l6b-3. (b) In its discretion the Administrator may, in the Award Agreement, provide for a Tax-Offset Bonus to Participants upon exercise of Nonqualified or Performance Stock Options. The Tax-Offset Bonus shall be in the form of a cash payment equal to a percentage of the difference between the exercise price and the Fair Market Value on the date of exercise of the Common Stock with respect to which the Tax-Offset Bonus is payable. Such percentage shall be designed to offset the impact of additional taxes which result from the exercise of the Option. III. STOCK APPRECIATION RIGHTS. 3.1 Grants. In its discretion, the Administrator may grant Stock Appreciation Rights concurrently with the grant of Options. A Stock Appreciation Right shall extend to all or a portion of the shares covered by the related Option. A Stock Appreciation Right shall entitle the Participant who holds the related Option, upon exercise of the Stock Appreciation Right and surrender of the related Option, or portion thereof, to the extent the Stock Appreciation Right and related Option each were previously unexercised, to receive payment of an amount determined pursuant to Section 3.3. In its discretion, the Administrator may also grant Stock Appreciation Rights independently of any Option subject to such conditions as the Administrator may in its absolute discretion provide. 3.2 Exercise of Stock Appreciation Rights. (a) A Stock Appreciation Right granted concurrently with an option shall be exercisable only at such time or times, and to the extent, that the related Option shall be exercisable and only when the Fair Market Value of the stock subject to the related Option exceeds the exercise price of the related Option. (b) In the event that a Stock Appreciation Right granted concurrently with an Option is exercised, the number of shares of Common Stock subject to the related Option shall be charged against the maximum amount of Common Stock that may be issued or transferred pursuant to Awards under this Plan. The number of shares subject to the Stock Appreciation Right and the related Option of the Participant shall also be reduced by such number of shares. (c) If a Stock Appreciation Right granted concurrently with an Option extends to less than all the shares covered by the related Option and if a portion of the related Option is thereafter exercised, the number of shares subject to the unexercised Stock Appreciation Right shall be reduced only if and to the extent that the remaining number of shares covered by such related Option is less than the remaining number of shares subject to such Stock Appreciation Right. (d) A Stock Appreciation Right granted independently of any Option shall be exercisable pursuant to the terms of the Award Agreement but in no event earlier than six months after the Award Date, except in the case of death or Total Disability. 3.3 Payment. (a) Upon exercise of a Stock Appreciation Right and surrender of an exercisable portion of the related Option, the Participant shall be entitled to receive payment of an amount determined by multiplying (l) the difference obtained by subtracting the exercise price per share of Common Stock under the related Option from the Fair Market Value of a share of Common Stock on the date of exercise of the Stock Appreciation Right, by (2) the number of shares with respect to which the Stock Appreciation Right shall have been exercised. (b) The Administrator, in its sole discretion, may settle the amount determined under paragraph (a) above solely in cash, solely in shares of Common Stock (valued at Fair Market Value on the date of exercise of the Stock Appreciation Right), or partly in such shares and partly in cash, provided that the Administrator shall have determined that such exercise and payment are consistent with applicable law. In any event, cash shall be paid in lieu of fractional shares. Absent a determination to the contrary, all Stock Appreciation Rights shall be settled in cash as soon as practicable after exercise. The exercise price for the Stock Appreciation Right shall be the exercise price of the related Option. Notwithstanding the foregoing, the Administrator may, in the Award Agreement, determine the maximum amount of cash or stock or a combination thereof which may be delivered upon exercise of a Stock Appreciation Right. (c) Upon exercise of a Stock Appreciation Right granted independently of any Option, the Participant shall be entitled to receive payment of an amount based on a percentage, specified in the Award Agreement, of the difference obtained by subtracting the Fair Market Value per share of Common Stock on the Award Date from the Fair Market Value per share of Common Stock on the date of exercise of the Stock Appreciation Right. Such amount shall be paid as described in paragraph (b) above. IV. RESTRICTED STOCK AWARDS. 4.1 Grants. Subject to Section 1.4, the Administrator may, in its discretion, grant one or more Restricted Stock Awards to any Eligible Employee. Each Restricted Stock Award Agreement shall specify the number of shares of Common Stock to be issued to the Participant, the date of such issuance, the consideration to be paid for such shares by the Participant and the restrictions imposed on such shares, which restrictions shall not terminate earlier than six (6) months nor later than ten (10) years after the Award Date. 4.2 Restrictions. (a) Except as provided in or pursuant to Section 6.12, shares of Common Stock comprising Restricted Stock Awards may not be sold, assigned, transferred, pledged or otherwise disposed of or encumbered, either voluntarily or involuntarily, until such shares have vested. (b) Unless the Administrator otherwise provides, Participants receiving Restricted Stock shall be entitled to dividend and voting rights for the shares issued even though they are not vested, provided that such rights shall terminate immediately as to any forfeited Restricted Stock. (c) In the event that the Participant shall have paid cash in connection with the Restricted Stock Award, the Award Agreement shall specify whether and to what extent such cash shall be returned upon a forfeiture (with or without an earnings factor). (d) Restricted Stock Awards may include performance or other conditions to vesting as the Administrator deems appropriate. V. PERFORMANCE SHARE AWARDS. 5.1 Grants. The Administrator may, in its discretion, grant other types of performance-based Awards related to equity of the Company or any part thereof ("Performance Share Awards") to Eligible Employees based upon such factors as the Administrator shall determine. A Performance Share Award Agreement shall specify the number of shares of Common Stock subject to the Performance Share Award, the price, if any, to be paid for such shares by the Participant and the conditions upon which issuance to the Participant shall be based, which issuance shall not be earlier than six (6) months nor later than ten (10) years after the Award Date. VI. OTHER PROVISIONS. 6.1 Rights of Eligible Employees, Participants and Beneficiaries. (a) Adoption of this Plan shall not be construed as a commitment that any Award will be made under this Plan to an Eligible Employee or to Eligible Employees generally. (b) Nothing contained in this Plan (or in Award Agreements or in any other documents related to this Plan or to Awards) shall confer upon any Eligible Employee or Participant any right to continue in the employ of the Company or constitute any contract or agreement of employment, or interfere in any way with the right of the Company to reduce such person's compensation or other benefits or to terminate the employment of such Eligible Employee or Participant, with or without cause. Nothing contained in this Plan or any document related thereto shall affect any other contractual right of any Eligible Employee or Participant. 6.2 Adjustments Upon Changes in Capitalization. (a) If the outstanding shares of Common Stock are changed into or exchanged for cash or a different number or kind of shares or securities of the Corporation or of another issuer, or if additional shares or new or different securities are distributed with respect to the outstanding shares of the Common Stock, through a reorganization or merger to which the Corporation is a party, or through a combination, consolidation, recapitalization, reclassification, stock split, stock dividend, reverse stock split, stock consolidation or other capital change or adjustment, an appropriate proportionate, equitable adjustment shall be made in the number and kind of shares or other consideration that is subject to or may be delivered under this Plan and pursuant to outstanding Awards. Corresponding adjustments to the consideration payable with respect to Awards granted prior to any such change and to the price, if any, paid in connection with or the criteria applicable to Restricted Stock Awards or Performance Share Awards shall also be made. Any such adjustments, however, shall be made without change in the total payment, if any, applicable to the portion of the Award not exercised but with a corresponding adjustment in the price for each share. Corresponding adjustments shall be made with respect to Stock Appreciation Rights based upon the adjustments made to the Options to which they are related or, in the case of Stock Appreciation Rights granted independently of any Option, based upon the adjustments made to Common Stock. (b) Upon the dissolution or liquidation of the Corporation, or upon a reorganization, merger or consolidation of the Corporation with one or more corporations as a result of which the Corporation is not the surviving corporation, the Plan shall terminate. The Administrator may provide in writing in connection with, or in contemplation of, any such transaction for any or all of the following alternatives (separately or in combination): (i) for the assumption by the successor corporation (if any) of the Awards theretofore granted or the substitution by such corporation for such Awards of awards covering the stock of the successor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of securities and/or other property and prices; (ii) for the continuance of the Plan by such successor corporation in which event the Plan and the Awards shall continue in the manner and under the terms so provided; or (iii) for the payment in cash, securities and/or other property in lieu of and in complete satisfaction of such Awards. (c) In adjusting Awards to reflect the changes described in this Section 6.2, or in determining that no such adjustment is necessary, the Administrator may rely upon the advice of independent counsel and accountants of the Corporation, and the determination of the Administrator shall be conclusive. No fractional shares of stock shall be issued under this Plan on account of any such adjustment. 6.3 Termination of Employment. Unless the Administrator otherwise expressly provides, either in the applicable Award Agreement or by subsequent modification thereof: (a) If the Participant's employment by the Company terminates for any reason other than Retirement, death or Total Disability, the Participant shall have, subject to earlier termination pursuant to or as contemplated by Section 2.3, three (3) months from the date of termination of employment to exercise any Option to the extent it shall have become exercisable on the date of termination of employment, and any Option not exercisable on that date shall terminate. Notwithstanding the preceding sentence, in the event the Participant is discharged for cause as determined by the Administrator in its sole discretion, all Options shall terminate immediately upon such termination of employment. (b) If the Participant's employment by the Company terminates as a result of Retirement or Total Disability, the Participant or Participant's Personal Representative, as the case may be, shall have, subject to earlier termination pursuant to or as contemplated by Section 2.3, twelve (12) months from the date of termination of employment to exercise any Option to the extent it shall have become exercisable by the date of termination of employment, and any Option not exercisable on that date shall terminate. (c) If the Participant's employment by the Company terminates as a result of death while the Participant is employed by the Company or during the twelve (12) month period referred to in subsection (b) above, the Participant's Option shall be exercisable by the Participant's Beneficiary, subject to earlier termination pursuant to or as contemplated by Section 2.3, during the twelve (12) month period following the Participant's death, as to all or any part of the shares of Common Stock covered thereby to the extent exercisable on the date of death (or earlier termination). (d) Each Stock Appreciation Right granted concurrently with an Option shall have the same termination provisions and exercisability periods as the Option to which it relates. The termination provisions and exercisability periods of any Stock Appreciation Right granted independently of an Option shall be established in accordance with Section 3.2(d). The exercisability period of a Stock Appreciation Right shall not exceed that provided in Section 2.3 or in the related Award Agreement and the Stock Appreciation Right shall expire at the end of such exercisability period. (e) In the event of termination of employment with the Company for any reason, (i) shares of Common Stock subject to a Participant's Restricted Stock Award shall be forfeited in accordance with the provisions of the related Award Agreement to the extent such shares have not become vested on that date; and (ii) shares of Common Stock subject to the Participant's Performance Share Award shall be forfeited in accordance with the provisions of the related Award Agreement to the extent such shares have not been issued or become issuable on that date. (f) In the event of (or in anticipation of) a Participant's termination of employment with the Company for any reason, other than discharge for cause, the Administrator may, in its discretion, accelerate the exercisability of or increase the portion of the Participant's Award available to the Participant, or Participant's Beneficiary or Personal Representative, as the case may be, or (subject to the ten (10)-year limit) extend the period after termination during which the Award may continue to vest and/or be exercisable upon such terms and subject to such conditions as the Administrator shall determine. (g) If an entity ceases to be a Subsidiary, such action shall be deemed for purposes of this Section 6.3 to be a termination of employment of each employee of that entity who does not continue as an employee of another entity within the Company. 6.4 Acceleration of Awards. Except to the extent that prior to an Event the Administrator determines that, upon its occurrence, there shall be no acceleration of Awards held by Participants or determines those Awards held by Participants that will be accelerated and the extent to which they will be accelerated, upon the occurrence of an Event (i) each Option and each related Stock Appreciation Right shall become immediately exercisable to the full extent theretofore not exercisable, (ii) Restricted Stock shall immediately vest free of restrictions and (iii) the number of shares covered by each Performance Share Award shall be issued to the Participant; subject, however, to compliance with applicable regulatory requirements, including without limitation Rule l6b-3 promulgated by the Commission pursuant to the Exchange Act and Section 422 of the Code. 6.5 Government Regulations. This Plan, the granting of Awards under this Plan and the issuance or transfer of shares of Common Stock (and/or the payment of money) pursuant thereto are subject to all applicable federal and state laws, rules and regulations and to such approvals by any regulatory or governmental agency (including without limitation "no action" positions of the Commission) which may, in the opinion of counsel for the Corporation, be necessary or advisable in connection therewith. Without limiting the generality of the foregoing, no Awards may be granted under this Plan, and no shares shall be issued by the Corporation, nor cash payments made by the Corporation, pursuant to or in connection with any such Award, unless and until, in each such case, all legal requirements applicable to the issuance or payment have, in the opinion of counsel to the Corporation, been complied with. In connection with any stock issuance or transfer, the person acquiring the shares shall, if requested by the Corporation, give assurances satisfactory to counsel to the Corporation in respect of such matters as the Corporation may deem desirable to assure compliance with all applicable legal requirements. 6.6 Tax Withholding. (a) Upon the exercise of a Nonqualified Stock Option or a Performance Stock Option, the exercise of a Stock Appreciation Right, the vesting of a Restricted Stock Award, the payment of a Performance Share Award, payment pursuant to a Stock Depreciation Right or payment of a Tax- Offset Bonus, the Company shall have the right to require such Participant or such other person to pay by cash, or certified or cashier's check payable to the Company, the amount of any taxes which the Company may be required to withhold with respect to such transactions. The above notwithstanding, in any case where a tax is required to be withheld in connection with the issuance or transfer of shares of Common Stock under this Plan, the Participant may elect, pursuant to such rules as the Administrator may establish, to have the Company reduce the number of such shares issued or transferred by the appropriate number of shares to accomplish such withholding; provided, the Administrator may impose such conditions on the payment of any withholding obligation as may be required to satisfy applicable regulatory requirements, including, without limitation, Rule 16b-3 promulgated by the Commission pursuant to the Exchange Act. (b) The Administrator may, in its discretion, permit a loan from the Company to a Participant in the amount of any taxes which the Company may be required to withhold with respect to shares of Common Stock received pursuant to a transaction described in subsection (a) above. Such a loan will be for a term, at a rate of interest and pursuant to such other terms and rules as the Administrator may establish. 6.7 Amendment, Termination and Suspension. (a) The Board may, at any time, terminate or, from time to time, amend, modify or suspend this Plan. (b) In the case of Awards issued before the effective date of any amendment, suspension or termination of this Plan, such amendment, suspension or termination of this Plan shall not, without specific action of the Administrator and the consent of the Participant, in any manner materially adverse to the Participant, modify, amend, alter or impair any rights or obligations under any Award previously granted under this Plan. (c) No Awards may be granted during any suspension of this Plan or after its termination, but Awards theretofore granted may be amended to the same extent as if this Plan had not been terminated or suspended, provided no additional shares become the subject of the Award by reasons of the amendment. (d) The Administrator may, subject to the consent of the Participant in the case of an amendment that might have a material adverse effect on the Participant, make such modifications of the terms and conditions of such Participant's Award as it shall deem advisable, including an amendment to the terms of any Option to provide that the Option price of the shares remaining subject to the original Award shall be established at a price not less than 100% of the Fair Market Value of the Common Stock on the effective date of the amendment. No modification of any other term or provision of any Option which is amended in accordance with the foregoing shall be required, although the Administrator may, in its discretion, make such other modifications of any such Option as are not inconsistent with or prohibited by this Plan. (e) Adjustments pursuant to Section 6.2 shall not be deemed amendments requiring the consent of the Participant. 6.8 Privileges of Stock Ownership; Nondistributive Intent. A Participant shall not be entitled to the privilege of stock ownership as to any shares of Common Stock not actually issued to him or her. Upon the issuance and transfer of shares to the Participant, unless a registration statement is in effect under the Securities Act, relating to such issued and transferred Common Stock and there is available for delivery a prospectus meeting the requirements of Section 10 of the Securities Act, the Common Stock may be issued and transferred to the Participant only if he or she represents and warrants in writing to the Corporation that the shares are being acquired for investment and not with a view to the resale or distribution thereof. No shares shall be issued and transferred unless and until there shall have been full compliance with any then applicable regulatory requirements (including those of exchanges upon which any Common Stock of the Corporation may be listed). 6.9 Effective Date of the Plan. This Plan shall be effective as of June 1, 1998. 6.10 Term of the Plan. Unless previously terminated by the Board, this Plan shall terminate at the close of business on May 31, 2008, and no Awards shall be granted under it thereafter, but such termination shall not affect any Award theretofore granted or the authority of the Administrator with respect to then outstanding Awards. 6.11 Governing Law. This Plan and the documents evidencing Awards and all other related documents shall be governed by, and construed in accordance with, the laws of the State of Delaware. If any provision shall be held by a court of competent jurisdiction to be invalid and unenforceable, the remaining provisions of this Plan shall continue to be fully effective. 6.12 Transfer Restrictions. (a) Awards constituting derivative securities shall be exercisable only by, and shares, cash or other property payable pursuant to such Awards shall be paid only to, the Participant (or, in the event of the Participant's death, to the Participant's Beneficiary or, in the event of the Participant's Total Disability, to the Participant's Personal Representative or, if there is none, to the Participant). Other than by will or the laws of descent and distribution, no such Awards, or interest in or under any such Award or this Plan, shall be transferable or subject in any manner to encumbrance or other charge and any such attempted transfer or charge shall be void. (b) The restrictions on exercise, transfer and payment in Section 6.12 (a) shall not be deemed to prohibit (l) "cashless exercise" procedures through unaffiliated third parties which provide financing for the purpose of exercising an Award consistent with applicable legal restrictions and Rule 16b-3, nor (2) to the extent permitted by the Administrator and expressly set forth in the Award Agreement or an amendment thereto, transfers without consideration for estate or financial planning purposes, notwithstanding that the inclusion of such features may render the particular Awards ineligible for the benefits of Rule l6b-3, nor (3) in the case of Participants who are not Section 16 Persons, transfers in such other circumstances as the Administrator may (to the extent consistent with Rule 16b-3, applicable provisions of the Code and applicable securities or other laws) in the applicable Award Agreement or other writing expressly provide, nor (4) the subsequent transfer of shares issued on exercise of a derivative security or the vesting of a Restricted Stock or Performance Share Award (except to the extent that the Award, this Plan or the Administrator otherwise expressly provides). (c) No Participant, Beneficiary or other person shall have any right, title or interest in any fund or in any specific asset (including shares of Common Stock) of the Company by reason of any Award granted hereunder. Neither the provisions of this Plan (or of any documents related hereto), nor the creation or adoption of this Plan, nor any action taken pursuant to the provisions of this Plan shall create, or be construed to create, a trust of any kind or a fiduciary relationship between the Company and any Participant, Beneficiary or other person. To the extent that a Participant, Beneficiary or other person acquires a right to receive an Award hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company. 6.13 Plan Construction. It is the intent of the Corporation that this Plan and Awards hereunder satisfy and be interpreted in a manner that in the case of persons who are or may be subject to Section 16 of the Exchange Act satisfies the applicable plan requirements of Rule l6b-3, so that such persons will be entitled (unless otherwise expressly acknowledged in writing) to the benefits of the Rule 16b-3 or other exemptive rules under Section 16 of the Exchange Act and will not be subjected to avoidable liability thereunder. In furtherance of such intent, any provision of this Plan or of any Award would otherwise frustrate or otherwise conflict with the intent expressed above, that provision to the extent possible shall be interpreted and deemed amended so as to avoid conflict, but to the extent of any remaining irreconcilable conflict with such intent as to such persons in the circumstances, such provision may be deemed void. VII. DEFINITIONS. 7.1 Definitions. (a) "Administrator" shall mean the Board, and, to the extent theretofore delegated authority hereunder, the Compensation Committee of the Board or any other Committee of directors appointed by the Board for purposes of serving as the Committee under this Plan. (b) "Award" shall mean a Nonqualified Stock Option, a Performance Stock Option, a Stock Appreciation Right, a Restricted Stock Award, or a Performance Share Award granted under this Plan. (c) "Award Agreement" shall mean a written agreement setting forth the terms of an Award. (d) "Award Date" shall mean the date upon which the Administrator took the action granting an Award or such later date as is prescribed by the Administrator. (e) "Award Period" shall mean the period beginning on an Award Date and ending on the expiration date of such Award. (f) "Beneficiary" shall mean the person, persons, trust or trusts entitled by will or the laws of descent and distribution to receive the benefits specified under this Plan in the event of a Participant's death, and shall mean the Award holder's executor or administrator in such circumstances if no other Beneficiary is identified and able to act. (g) "Board" shall mean the Board of Directors of the Corporation. (h) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (i) "Commission" shall mean the Securities and Exchange Commission. (j) "Committee" shall mean a committee of directors satisfying the requirements for disinterested administration under Rule l6b-3. (k) "Common Stock" shall mean the Common Stock of the Corporation. (l) "Company" shall mean, collectively, Syncor International Corporation and its Subsidiaries. (m) "Corporation" shall mean Syncor International Corporation and its successors. (n) "Disinterested" shall mean disinterested within the meaning of any applicable regulatory requirements, including those set forth in Rule 16b-3 or otherwise promulgated under Section 16 of the Exchange Act. (o) "Eligible Employee" shall mean a new officer or key employee of the Company who was not previously employed by the Company. (p) "Event" shall mean any of the following: (1) Approval by the shareholders of the Corporation of the dissolution or liquidation of the Corporation; (2) Approval by the shareholders of the Corporation of an agreement to merge or consolidate, or otherwise reorganize, with or into one or more entities which are not Subsidiaries, as a result of which less than 50% of the outstanding voting securities of the surviving or resulting entity are, or are to be, owned by former shareholders of the Corporation; (3) Approval by the shareholders of the Corporation of the sale of substantially all of the Corporation's business and/or assets to a person or entity which is not a Subsidiary; or (4) A Change in Control. A "Change in Control" shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Corporation representing 20% or more of the combined voting power of the Corporation's then outstanding securities; or (B) during any period of two consecutive years, individuals who at the beginning of such period constitute the Administrator cease for any reason to constitute at least a majority thereof, unless the election, or the nomination for election by the Corporation's shareholders, of each new Administrator member was approved by a vote of at least three-fourths of the Administrator members then still in office who were Administrator members at the beginning of such period. (q) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (r) "Fair Market Value" shall mean (i) if the stock is listed or admitted to trade on a national securities exchange, the closing price of the stock on the Composite Tape, as published in the Western Edition of The Wall Street Journal, of the principal national securities exchange on which the stock is so listed or admitted to trade, on such date, or, if there is no trading of the stock on such date, then the closing price of the stock as quoted on such Composite Tape on the next preceding date on which there was trading in such shares; (ii) if the stock is not listed or admitted to trade on a national securities exchange, the last price for the stock on such date, as furnished by the National Association of Securities Dealers, Inc. ("NASD") through the NASDAQ National Market Reporting System or a similar organization if the NASD is no longer reporting such information; (iii) if the stock is not listed or admitted to trade on a national securities exchange and is not reported on the National Market Reporting System, the mean between the bid and asked price for the stock on such date, as furnished by the NASD; or (iv) if the stock is not listed or admitted to trade on a national securities exchange, is not reported on the National Market Reporting System and if bid and asked prices for the stock are not furnished by the NASD or a similar organization, the values established by the Administrator for purposes of the Plan. (s) "Non-Employee Director" shall mean a director of the Corporation who is not an officer or key employee of the Company. (t) "Nonqualified Stock Option" shall mean an option which is designated as a Nonqualified Stock Option. (u) "Option" shall mean an option to purchase Common Stock under this Plan. An Option shall be designated by the Administrator as a Nonqualified Stock Option or a Performance Stock Option. (v) "Optionee" shall mean the person to whom an Option is granted. (w) "Participant" shall mean an Eligible Employee who has been awarded an Award. (x) "Performance Share Award" shall mean an award of shares of Common Stock, issuance of which is contingent upon attainment of performance objectives specified by the Administrator. (y) "Performance Stock Option" shall mean an option granted under Section 2.6 of this Plan, the exercise of which is contingent upon the attainment of specified performance objectives. (z) "Personal Representative" shall mean the legal representative or representatives who, upon the disability or incompetence of a Participant, shall have acquired on behalf of the Participant by legal proceeding or otherwise the power to exercise the rights and receive the benefits specified in this Plan. (aa) "Plan" shall mean this New Employee Stock Option Plan, as amended from time to time. (bb) "Restricted Stock" shall mean those shares of Common Stock issued pursuant to a Restricted Stock Award which are subject to the restrictions set forth in the related Award Agreement. (cc) "Restricted Stock Award" shall mean an award of a fixed number of shares of Common Stock to the Participant subject, however, to payment of such consideration, if any, and such forfeiture provisions, as are set forth in the Award Agreement. (dd) "Retirement" shall mean retirement at normal retirement date with the consent of the Company. (ee) "Rule l6b-3" means Rule l6b-3 under Section 16 of the Exchange Act, as applicable to this Plan (taking into consideration relevant transition period provisions) and as the same may be amended from time to time. (ff) "Section l6 Person" means a person subject to the reporting requirements of Section 16(a) of the Exchange Act. (gg) "Securities Act" shall mean the Securities Act of 1933. (hh) "Stock Appreciation Right" shall mean a right to receive a number of shares of Common Stock or an amount of cash, or a combination of shares and cash, determined as provided in the applicable Section of this Plan or in the Award Agreement with respect thereto. (ii) "Stock Depreciation Right" shall mean a right to receive a number of shares of Common Stock or an amount of cash, or a combination of shares and cash, determined as provided in the applicable Section of this Plan or in an Award Agreement providing for such right. (jj) "Subsidiary" shall mean any corporation or other entity a majority or more of whose outstanding voting stock or voting power is beneficially owned directly or indirectly by the Corporation. (kk) "Tax-Offset Bonus" shall mean a bonus payable upon exercise of a nonstatutory Option, determined as provided in the applicable Section of this Plan or in an Award Agreement providing for such Bonus. (ll) "Total Disability" shall mean a "permanent and total disability" within the meaning of Section 22(e)(3) of the Code. EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 1,000 Period type 9 mos Fiscal year end 12/31/98 Period start 1/1/98 Period end 09/30/98 Cash 23,195 Securities 693 Receivables 80,464 Allowances (4,585) Inventory 7,475 Current assets 121,986 PP&E 93,758 Depreciation (47,627) Total assets 251,166 Current liabilities 74,615 Bonds 0 Preferred mandatory 0 Preferred 0 Common 618 Other SE 104,425 Total Liability and Equity 251,166 Sales 330,071 Total Revenue 330,071 CGS 233,458 Total costs 233,458 Other expenses 77,357 Loss provision 0 Interest expense (2,134) Income pre tax 18,267 Income tax 7,788 Income continuing 10,479 Discontinued 0 Extraordinary 0 Changes 0 Net income 10,479 EPS basic .99 EPS diluted .94
-----END PRIVACY-ENHANCED MESSAGE-----