UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 11-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from ________ to ________
Commission File Number 1-11373
-------
Syncor International Corporation Employees' Savings and Stock Ownership Plan
--------------------------------------------------------------------------------
(Full Title of the Plan)
Cardinal Health, Inc.
7000 Cardinal Place
Dublin, Ohio 43017
(Name of Issuer of the Securities Held Pursuant to the Plan and
Address of its Principal Executive Office)
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Financial Statements and Supplemental Schedule
Years ended December 31, 2002 and 2001
CONTENTS
Report of Ernst & Young, LLP, Independent Auditors........................... 3
Report of KPMG LLP, Independent Auditors..................................... 4
Financial Statements:
Statements of Assets Available for Benefits.................................. 5
Statements of Changes in Net Assets Available for Benefits................... 6
Notes to Financial Statements................................................ 7
Supplemental Schedule:
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)............... 15
Signature.................................................................... 16
Exhibits:
Exhibit 23.01 - Consent of Ernst & Young, LLP
Exhibit 23.02 - Consent of KPMG LLP
Exhibit 99.01 - Certification of a Plan Committee Member and the Plan Committee
Chairperson, pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
2
Report of Independent Auditors
The Board of Directors and Stockholders
Cardinal Health, Inc.
We have audited the accompanying statement of assets available for benefits of
the Syncor International Corporation Employees' Savings and Stock Ownership Plan
as of December 31, 2002, and the related statement of changes in net assets
available for benefits for the year ended December 31, 2002. These financial
statements and schedule referred to below are the responsibility of the Plan's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets available for benefits of the Plan at December
31, 2002, and the changes in its net assets available for benefits for the year
then ended, in conformity with accounting principles generally accepted in the
United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental schedule of assets (held at end of
year) is presented for purpose of additional analysis and is not a required part
of the financial statements but is supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedule
has been subjected to the auditing procedures applied in our audit of the
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the financial statements taken as a whole.
June 25, 2003 /s/ Ernst & Young LLP
3
INDEPENDENT AUDITORS' REPORT
The Plan Committee
Syncor International Corporation:
We have audited the accompanying statements of net assets available for benefits
of the Syncor International Corporation Employees' Savings and Stock Ownership
Plan (the Plan) as of December 31, 2001, and the related statements of changes
in net assets available for benefits for the year then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2001, and the changes in net assets available for benefits for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ KPMG LLP
Los Angeles, California
July 11, 2002
4
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Statements of Assets Available for Benefits
December 31
2002 2001
-------------------------------
Assets
Investments, at fair value:
Interest-bearing cash $ 5 $ 8
Mutual funds 37,801,197 33,824,849
Cardinal Health Inc. common stock 80,584,348 --
Syncor International Corporation
common stock -- 86,912,019
Participant loans 2,167,768 2,051,997
-------------------------------
Total investments 120,553,318 122,788,873
Employer contributions receivable 662,076 --
-------------------------------
Total assets available for benefits $121,215,394 $122,788,873
===============================
See accompanying notes.
5
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Statements of Changes in Net Assets Available for Benefits
Years ended December 31, 2002 and 2001
2002 2001
Allocated Unallocated Total Allocated Unallocated Total
------------------------------------------------------------------------------------------
Additions to net assets
attributed to:
Investment income (loss):
Net depreciation in fair
value of investments $ (8,509,098) $ -- $ (8,509,098) $ (18,670,449) $ (6,984,818) $ (25,655,267)
Dividend income 810,616 -- 810,616 945,052 -- 945,052
Interest income 188,558 -- 188,558 192,370 -- 192,370
------------------------------------------------------------------------------------------
Total investment loss (7,509,924) -- (7,509,924) (17,533,027) (6,984,818) (24,517,845)
Contributions:
Employer 4,263,621 -- 4,263,621 -- 2,716,713 2,716,713
Participants 7,036,028 -- 7,036,028 4,018,818 -- 4,018,818
------------------------------------------------------------------------------------------
Total contributions 11,299,649 -- 11,299,649 4,018,818 2,716,713 6,735,531
Assets transferred from
other qualified plan 3,256,974 -- 3,256,974 -- -- --
Allocation of 447,119 shares
of Syncor common stock upon
repayment of ESSOP loan, at
market, in 2001 -- -- -- 14,030,891 -- 14,030,891
------------------------------------------------------------------------------------------
Total additions 7,046,699 -- 7,046,699 516,682 (4,268,105) (3,751,423)
Deductions from net assets
attributable to:
Benefits paid to participants 8,620,178 -- 8,620,178 6,023,663 -- 6,023,663
Interest expense -- -- -- -- 62,779 62,779
Allocation of 447,119 shares
of Syncor common stock upon
repayment of ESSOP loan,
at market, in 2001 -- -- -- -- 14,030,891 14,030,891
------------------------------------------------------------------------------------------
Total deductions 8,620,178 -- 8,620,178 6,023,663 14,093,670 20,117,333
------------------------------------------------------------------------------------------
Decrease in net assets available
for benefits (1,573,479) (1,573,479) (5,506,981) (18,361,775) (23,868,756)
Net assets available for benefits:
Beginning of year 122,788,873 -- 122,788,873 128,295,854 18,361,775 146,657,629
------------------------------------------------------------------------------------------
End of year $ 121,215,394 $ -- $ 121,215,394 $ 122,788,873 $ -- $ 122,788,873
==========================================================================================
See accompanying notes
6
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements
December 31, 2002
1. PLAN DESCRIPTION
The following description of the Syncor International Corporation Employees'
Savings and Stock Ownership Plan (the Plan) provides only general information.
Participants should refer to the Plan agreement for a more complete description
of the Plan's provisions.
GENERAL
The Plan is an Employees' Savings and Stock Ownership Plan (ESSOP) and is
subject to the provisions of the Employee Retirement Income Security Act of 1974
(ERISA). The ESSOP has acquired 1,750,000 shares of Syncor International
Corporation (the Company and Sponsor) common stock with funds borrowed from or
guaranteed by the Company. The Plan covers all employees provided that they are
not employed in a bargaining unit. Effective August 1, 2001, an employee who has
attained age 18 and has completed three months of employment is eligible for
participation in the Plan. Prior to August 1, 2001, an employee who completed
one year of service, and was at least 21 years of age was eligible for
participation in the Plan.
With the acquisition of the Company by Cardinal Health, Inc. (Cardinal) as of
January 1, 2003 (Effective Date), the 2,895,292.487 common shares of Syncor
International Corporation in the Stock Fund with a total fair value of
$80,584,348 on the Effective Date was exchanged for 1,361,452.073 shares of
Cardinal common stock of equal fair value. The share exchange was effected as of
December 31, 2002. There are no other changes to the provisions of the Plan. All
participants and assets in the Plan will be merged with and transferred to a
Cardinal sponsored plan effective July 1, 2003.
CONTRIBUTIONS
Participants in the Plan may contribute from 1% to 14% of their compensation, as
defined by the Plan document, on a tax-deferred basis in the Funds Deferrals
Account. These contributions are allocated among the available investment funds
at the participants' direction. Participants may change their deferral
percentage each January 1, April 1, July 1 or October 1. Participants may direct
an additional 1% or 2% tax-deferred contribution to be invested in the Stock
Investment Participant Account (Stock Deferrals Account), which invests in the
Company's common stock via trustee purchases on the open market or directly from
the Company. Participant contributions directed to the Fund Deferrals Account
and the Stock Deferrals Account are always 100% vested.
7
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
1. PLAN DESCRIPTION (CONTINUED)
CONTRIBUTIONS (CONTINUED)
All employer contributions are made in the form of Company stock. Each year, the
Company contributes to the Plan an amount sufficient to pay the principal and
interest on loans incurred to buy Company common stock. As each quarterly loan
payment is paid, Company stock is released for allocation to the participants in
the form of employer contributions. Additionally, the employer matches an
additional 50% of the participant's contributions in the Funds Deferrals Account
with Company common stock, up to the first 4% of the participant's compensation.
For those employees who became participants on or after August 1, 2001, the
Company will not match the participant's pretax contributions until he or she
has been a participant for 9 calendar months. The employer also contributes one
share of Company common stock to match each whole share of common stock
purchased with participants' tax-deferred compensation. All employer
contributions are held in the participants' Stock Investment Company Accounts.
The Plan was administered by a committee (the "Plan Committee"). The Plan
Committee may also approve a special allocation of Company stock to certain
participants' accounts to allow the Plan to pass applicable Internal Revenue
Service (Service) nondiscrimination tests. To the extent that any released
shares of Company stock remain unallocated, the remaining shares are allocated
to participants' accounts based on each participant's compensation as a
percentage of total compensation, as defined. Total annual additions to a
participant's account may not exceed the lesser of $40,000 or 100% of the
participant's compensation.
Since the Effective Date of the acquisition of the Company by Cardinal, the Plan
Committee members were appointed by the Human Resources and Compensation
Committee of the Board of Directors of Cardinal.
The Company periodically borrows funds from outside institutions in order to
repurchase Company stock and sell these shares to the Plan.
The Plan also provides for a Syncor Cash Bonus Account, specially designed for
foreign employees, to hold Syncor Cash Bonus Contributions.
8
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
1. PLAN DESCRIPTION (CONTINUED)
INVESTMENT OPTIONS AND DIVERSIFICATION
The Plan offers 24 investment options. Participants can direct their
contributions, in 1% increments, in any of the investment options offered at the
time.
Prior to January 1, 2002, a participant who had attained the age of 55 and had
been a participant at least 10 years could diversify a portion of his/her Stock
Investment Company Account. Such participant could diversify during the next
five years 25% of the total number of shares of Company Stock allocated to the
account and in the sixth year could diversify 50% of the total number of shares.
There was no provision for diversification of the Stock Investment Participant
Account.
INVESTMENT OPTIONS AND DIVERSIFICATION (CONTINUED)
Subsequent to January 1, 2002, a participant under the age of 55 who has been a
participant at least 10 years may diversify a portion of his/her Stock
Investment Company Account and Stock Investment Participant Account. Such
participant may diversify 10% of the number of shares of Company stock allocated
to the Stock Investment Company Account and Stock Investment Participant
Account.
A participant 55 or older, who has been a participant at least 10 years, may
diversify 25%, and in the fifth plan year after attaining age 55 may diversify
50% of the number of shares of Company stock allocated to the Stock Investment
Company Account and Stock Investment Participant Account.
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $500 up to a
maximum equal to the lesser of $50,000 less the highest outstanding balance
during the prior 12 months or 50% of their vested account balance. Loans to
participants are recorded in the Loan Fund. Loan terms may not exceed five years
or up to 15 years for the purchase of a primary residence. The loans are secured
by the balance in the participant's account and bear interest at a rate
commensurate with local prevailing rates as determined periodically by the plan
administrator.
9
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
1. PLAN DESCRIPTION (CONTINUED)
VESTING
Participants are 100% vested in their tax-deferred contributions. Vesting of
employer contributions is based on years of credited service. There is a graded
vesting schedule whereby a participant is 100% vested after five years of
credited service. Participants are automatically 100% vested if the age of 65 is
reached or in the case of total impairment, disability, and/or death.
PARTICIPANT ACCOUNT BALANCES
Individual accounts are maintained for each participant's tax-deferred
contribution and employer contribution balances. On a quarterly basis, earnings
of the various funds are allocated to the participant account balances according
to the ratio that a participant's account balance in a given fund bears to the
total of all participant account balances in the fund.
BENEFIT PAYMENTS
Upon termination, disability, retirement, death or certain hardship cases,
participants or their beneficiaries are entitled to receive their vested
balances in the form of a single lump-sum distribution of cash and Company
stock. The Company allows participants to make withdrawals for certain
"hardship" cases, which are not loans but permanent fund withdrawals not to
exceed the participants' vested account balance. Such withdrawals are reviewed
and approved by the Plan Committee for compliance with documented restrictions.
ADMINISTRATIVE EXPENSES
The Company pays for all administrative expenses. Loan administrative expenses
are paid by individual loan applicants through their accounts.
ADMINISTRATION
As record keeper and asset custodian of the plan, T. Rowe Price Retirement Plan
Services, Inc. (T. Rowe) maintains certain accounting and other records of the
Plan transactions and assets. Therefore, the Plan and the Plan Committee rely on
T. Rowe to provide the appropriate information for purposes of preparation of
the financial statements for the Plan. Although certain procedures are designed
to obtain reasonable assurance about whether the information provided by T. Rowe
is complete and free of material misstatement, the Plan and Plan Committee's
ability to verify the information is somewhat limited. For purposes of
disclosures made in these financial statements and related certifications, the
Plan and Plan Committee have no reason to believe that the information provided
by T. Rowe does not fairly present, in all material respects, the financial
condition and results of operations of the Plan.
10
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
1. PLAN DESCRIPTION (CONTINUED)
ASSET TRANSFER
Effective December 31, 2001, the Lafayette Pharmaceuticals Incorporated 401(k)
Profit Sharing Plan (the Lafayette Plan) merged into the Plan. The participant
accounts and the assets of the Lafayette Plan were transferred into the Plan as
of February 2002 in the amount of $3,256,974. Participants of the Lafayette Plan
became participants in the Plan effective January 1, 2002.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements of the Plan have been prepared on the
accrual basis of accounting in conformity with accounting principles generally
accepted in the United States.
INVESTMENTS
The Plan's mutual fund investments are stated at fair value based on the fair
market value of the underlying fund investments as reported by the individual
fund. The fair value of common stock is stated at the quoted market price.
Participant loans are valued at cost which approximates fair value. Securities
transactions are recorded on the trade-date basis. Dividends are required on the
ex-dividend date.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the plan administrator to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities and changes therein, and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual results could differ
from those estimates.
11
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FORFEITURES
Forfeitures are reallocated each year to the participants' accounts based on the
percentage of each participant's compensation to total compensation, as defined.
Total forfeitures in 2002 and 2001 were $1,031,085 and $181,945, respectively.
Amounts reallocated from the forfeiture accounts during the Plan year ended on
December 31, 2002 and 2001 were $9,812,150 and $1,023, respectively. The
remaining forfeiture balances at December 31, 2002 and 2001 were $997,842 and
$595,410, respectively.
3. TAX STATUS
On March 14, 2003, the Internal Revenue Service issued a determination letter
stating that the Plan was qualified under Section 401(a) of the Internal Revenue
Code (Code) and that the Trust was exempt from income taxes under Section 501(a)
of the Code. There have not been any amendments to the Plan subsequent to the
date of the determination letter. The Plan administrator believes that the Plan
is designed and is currently being operated in compliance with the applicable
requirements of the Code.
4. SYNCOR STOCK FUND
NOTE PAYABLE AND ALLOCATION OF STOCK TO PARTICIPANTS
The note payable for the purchase of Company common stock by the ESSOP was paid
off as of December 31, 2001. It was collateralized by Syncor common stock held
by the Plan and was payable in quarterly principal and interest payments through
December 31, 2001. The note bore interest at the lower of the prime rate or
LIBOR plus 0.75%.
Upon principal payments, shares of the common stock were released for allocation
to the accounts of individual Plan participants in an amount proportionate to
the loan principal repaid. As the loan was paid off as of December 31, 2001, all
shares have been allocated.
12
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
5. INVESTMENTS
The following presents the fair value of investments that represent 5% or more
of the Plan's net assets:
December 31
2002 2001
-----------------------------
Cardinal Health Inc. Stock Fund $ 80,584,348* $ --
Growth Stock Fund ** 7,238,865
Syncor Stock Fund -- 86,912,019*
Short-term Bond Fund 7,340,459 6,883,028
*Participant and nonparticipant-directed
**Investment balance is less than 5% of the Plan's net assets
During 2002 and 2001, the Plan's investments (including gains and losses on
investments bought and sold, as well as held during the year) depreciated in
value as follows:
Years ended December 31
2002 2001
-----------------------------
Mutual funds $ (6,138,543) $ (1,850,278)
Syncor Stock Fund and Cardinal
Health, Inc. Stock Fund (2,370,555) (23,804,989)
-----------------------------
$ (8,509,098) $(25,655,267)
=============================
13
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Notes to Financial Statements (Continued)
6. NONPARTICIPANT-DIRECTED INVESTMENTS
Information about the net assets and the significant components of the changes
in net assets relating to the Syncor Stock Fund and the Cardinal Health Inc.
Stock Fund (which included both participant and nonparticipant-directed
investments) was as follows.
Net assets at December 31:
December 31
2002 2001
------------------------------
Cardinal Health Inc. Stock Fund $ 80,584,348 $ --
Syncor Stock Fund -- 86,912,019
------------------------------
80,584,348 86,912,019
Contributions receivable 662,076 --
------------------------------
$ 81,246,424 $ 86,912,019
==============================
The changes in net assets for the years ended December 31 were as follows:
2002 2001
------------------------------
Contributions $ 2,723,434 $ 1,275,313
Net depreciation in fair value (2,370,555) (23,804,989)
Benefits paid to participants (6,018,474) (4,405,742)
------------------------------
$ (5,665,595) $(26,935,418)
==============================
14
Syncor International Corporation
Employees' Savings and Stock Ownership Plan
Schedule H, Line 4i - Schedule of Assets (Held at End of Year)
December 31, 2002
Identity of Issuer,
Borrower, Lessor, Current
or Similar Party Description of Investment Cost Value
---------------------------------------------------------------------------------------------------------------
Mutual funds:
T. Rowe Price* Ginnie Mae Fund (118,280.326 shares) $ ** $ 1,169,792
T. Rowe Price* High Yield Fund (43,830.291 shares) ** 274,816
T. Rowe Price* International Bond Fund (43,115.381 shares) ** 400,542
T. Rowe Price* Short-Term Bond Fund (1,529,262.365 shares) ** 7,340,460
T. Rowe Price* Emerging Markets Stock Fund (26,899.231 shares) ** 274,910
T. Rowe Price* Equity Income Fund (153,105.587 shares) ** 3,029,960
T. Rowe Price* Equity Index 500 Fund (234,439.737 shares) ** 5,549,189
T. Rowe Price* Financial Services Fund (31,594.546 shares) ** 529,209
T. Rowe Price* Growth Stock Fund (321,195.022 shares) ** 5,967,804
T. Rowe Price* International Stock Fund (93,064.045 shares) ** 826,409
T. Rowe Price* Mid Cap Growth Fund (65,081.963 shares) ** 2,020,144
T. Rowe Price* New Horizons Fund (29,698.136 shares) ** 493,286
T. Rowe Price* Prime Reserve Fund (1,701,512.510 shares) ** 1,701,513
T. Rowe Price* Science & Technology Fund (60,786.826 shares) ** 755,580
T. Rowe Price* Small-Cap Value Fund (53,240.448 shares) ** 1,168,096
T. Rowe Price* Value Fund (32,957.420 shares) ** 512,818
Liberty Funds Liberty Acorn Fund (53,003.197 shares) ** 821,550
UBS UBS U.S. Bond Class Y (126,355.177 shares) ** 1,369,690
Invesco Invesco U.S. Govt Securities (42,474.799 shares) ** 322,809
Warburg Pincus Fixed Income (125,785.397 shares) ** 1,236,963
Janus Growth and Income Fund (59,901.025 shares) ** 1,398,090
Janus Janus Overseas (36,585.288 shares) ** 559,389
Morgan Stanley MAS Equity Institutional (10,180.019 shares) ** 78,183
Common stock:
Cardinal Health Inc.* Cardinal Health Inc. Stock (1,361,452.073 shares)
$59.19 per share*** 80,584,348 80,584,348
Participant loans:
Participant loans* Various maturities; balance collateralized by
participant account, interest rates range from
6.0% to 11.5% ** 2,167,768
------------
$120,553,318
============
*Party-in-interest.
**This is a participant-directed investment. Cost information is not required.
***This fund is participant directed and nonparticipant directed.
15
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the members
of the Plan Committee have duly caused this annual report to be signed on
its behalf by the undersigned thereunto duly authorized.
SYNCOR INTERNATIONAL
CORPORATION EMPLOYEES' SAVINGS
AND STOCK OWNERSHIP PLAN
Date: June 30, 2003 /s/ Richard J. Miller
----------------------------------------
Richard J. Miller, Plan Committee Member
16