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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to
Commission file number: 0-30318
VENTIV HEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-2181734
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1114 Avenue of the Americas
New York, New York 10036
(212) 768-8000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(g) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock, par value $0.001 per share.......... Nasdaq National Market System
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K . [_]
The aggregate market value of the voting stock of the registrant held by
non-affiliates as of March 16, 2001 was approximately $288,015,695.
As of March 16, 2001, there were 22,818,452 outstanding shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement to be filed
with the Commission for use in connection with the 2000 annual meeting of
stockholders are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
Item Description Page
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PART I
1 Business............................................................................... 1
2 Properties............................................................................. 10
3 Legal Proceedings...................................................................... 10
4 Submission of Matters to a Vote of Securities Holders.................................. 10
PART II
5 Market for the Registrant's Common Stock and Related Stockholder Matters............... 11
6 Selected Financial Data................................................................ 12
7 Management's Discussion and Analysis of Financial Condition and Results of Operations.. 13
7A Quantitative and Qualitative Disclosures About Market Risk............................. 23
8 Financial Statements and Supplementary Data............................................ 24
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure... 48
PART III
10 Directors and Executive Officers of the Registrant..................................... 49
11 Executive Compensation................................................................. 49
12 Security Ownership of Certain Beneficial Owners and Management......................... 49
13 Certain Relationships and Related Transactions......................................... 49
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................... 49
Signatures
PART I
Item 1. Business.
Overview
Ventiv Health, Inc. ("Ventiv" or the "Company") provides global marketing
and sales services for the pharmaceutical and life sciences industries. Our
clients include leading pharmaceutical, life sciences, biotechnology, medical
device and diagnostics companies. We offer a broad range of integrated
services, including consulting and analytics, market research and intelligence,
strategic and tactical planning, educational and communications programs
targeted to physicians and consumers, internet communications, sales execution
and product management.
The business currently conducted by Ventiv was established in 1997 by Snyder
Communications, Inc. ("SNC") in a merger transaction with a U.S. provider of
pharmaceutical sales and marketing services. After forming its pharmaceutical
sales and marketing services business segment in 1997, SNC completed a series
of acquisitions that expanded both the scope of services and geographic
presence of the business managed by Ventiv today. On September 27, 1999, SNC
completed the distribution of Ventiv's common stock to the shareholders of
Snyder (the "Distribution"). Since September 27, 1999, Ventiv has operated as
an independent, publicly traded company.
Our organization and service offerings reflect the changing needs of our
clients as their new products move through the development and regulatory
approval process. As a potential drug or device advances in the clinical trial
process towards commercialization, our clients must first educate medical
decision makers through a variety of informational media. These pharmaceutical
and life sciences companies subsequently need to design a focused launch
campaign to maximize product profitability upon regulatory approval of their
product. Prescription products are typically sold through product detailing,
which involves one-on-one meetings between a sales representative and a
targeted prescriber. Pharmaceutical manufacturers, in particular, rely on this
sales process as the most effective means of influencing prescription-writing
patterns, although these companies are now increasingly supplementing their
marketing programs with direct-to-consumer advertising. In the past, product
detailing was handled by the pharmaceutical manufacturers themselves. However,
the recent focus among our clients on flexibility in cost management and effect
utilization of internal sales and marketing resources has led to an increased
frequency of this work being outsourced to contract providers.
Our service offerings are designed to facilitate the development and
execution of marketing strategies as new products advance from clinical trials
to product launch and throughout their useful life. We believe that we are not
only one of the leading providers of healthcare marketing services, but that we
are also particularly well positioned to provide global integrated services
that address the full spectrum of client demands. To date, our clients are
comprised primarily of pharmaceutical companies, which are estimated to have
outsourced a minority of the amount they spend worldwide on such services.
We serve our clients primarily through three business units: Health Products
Research ("HPR"), Ventiv Health Communications ("VHC") and Ventiv Health Sales
("VHS"). These units reflect the primary aspects of the marketing process for
pharmaceutical and other life sciences products. First, a product's targeted
marketing and sales effort must be carefully designed to maximize the
manufacturer's return on investment (HPR); second, product awareness and demand
within the medical community must be created and maintained throughout the pre-
and post-launch marketing effort (VHC); third, the product must be sold by a
team of highly trained sales representatives (VHS); and, finally, sales results
must be constantly monitored and sales strategies must be adjusted to respond
to a dynamic marketplace (HPR). Each unit is integrated as part of the overall
program but performs very specific functions. Our clients may choose either to
work with us across our full spectrum of services or narrowly focus their
service needs within one of these units. There is significant overlap among
product lines and extensive opportunities for cross-selling. Most of our
largest clients utilize the services of more than one unit.
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Our business units possess significant combined experience, as each has
developed and conducted successful marketing and sales programs for hundreds
of individual pharmaceutical and life science products. Our expertise spans
most therapeutic categories, including the significant markets of cardiology,
anti-infectives, oncology and neurology. Our core competencies and track
record of proven success enable us to establish strong relationships with our
clients' senior marketing and sales personnel, leading to a high rate of
repeat business.
Our strategic goal is to provide the pharmaceutical and life sciences
industries with value-added marketing and sales services that will enable our
clients to achieve superior product sales through higher market penetration.
Ventiv's Business Units
We offer a full spectrum of marketing and sales services through our three
business units: HPR, VHC, and VHS. During 2000, we have also established two
additional complementary divisions, e-Ventiv and Ventiv Integrated Solutions
("VIS").
HPR
HPR is responsible for the design of a product launch program and
monitoring that program's development to maximize the potential for a
product's success. This is achieved by using proprietary software to analyze
data compiled from internal sources (such as the contract pharmaceutical sales
force) and third parties (such as IMS Health Inc., a provider of market
research data for the healthcare industry) to determine specifically how a
targeted strategy can maximize asset utilization and return on investment for
our clients.
HPR offers the following core services which it customizes for particular
clients:
. Market Segmentation Analyses: HPR conducts segmentation analyses of the
physician universe using pharmacy-level data in combination with
numerous variables such as product potential, market share, the medical
professionals' specialties and reputations as innovators, and many other
individually weighted qualitative and quantitative data points.
Segmenting this physician-level data supports analyses and modeling that
are designed to address issues such as promotion response, targeting,
message development and forecasting. HPR also links segment data to
primary market research to identify differences in attitudes and
estimate future prescribing patterns.
. Promotion Planning and Evaluation (PROMSM): HPR's proprietary Promotion
Response Optimization Model (PROMSM) measures historical promotion
response by physicians from various personal and non-personal
promotional events (including market trials). This provides a
comprehensive understanding of the sales responsiveness to an individual
product or marketing effort. PROMSM is unique in that it can measure a
separate response for individual physicians by promotional channel.
PROMSM is also designed to quantify the interactive effect of
promotional media. This data is used to determine the optimal
promotional mix. Ultimately, PROMSM is used to provide market
intelligence to enhance market share, identify optimal sampling levels,
evaluate the cost of a detail over time, understand the impact of
marketing programs and measure field force effectiveness.
. Resource Allocation (Single and Multi-Product): Utilizing segmentation
and promotional response data, HPR's resource allocation models
determine the resource needs for single-product or multiple brand
promotions.
The UniBrandSM model uses the output of a PROMSM analysis and market
research as inputs into a causal forecasting model that develops, by
brand, future promotion response curves and optimal, unconstrained
details by physician segment while considering future market events and
the knowledge of product management. Based on the response by promotion
type and an understanding
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of the interaction among promotion types, a promotion mix analysis can
determine the optimal promotion by brand. The UniBrandSM approach
focuses on increasing return on investment through the evaluation of
content and capital employed for each promotion type. Additionally, it
also identifies how one type of promotion can substitute for and/or
enhance other promotion types.
Once the future response curves have been calibrated by UniBrandSM, this
leading-edge technology can be incorporated in a multi-product resource
allocation model, or RAMSM. RAMSM is designed to maximize sales and
profits by determining optimal salesforce size and structure, as well as
constrained details across brands. The RAMSM approach also can be used
to examine "what if" scenarios for different strategic and tactical
alternatives.
. Call Planning System (CAPSSM): Through its proprietary technologies,
HPR's CAPSSM provides an easily implemented targeting plan for the sales
representative while ensuring the optimum allocation of field force
effort across brands and physicians. The CAPSSM system determines the
best call frequency and brand detailing priorities for each physician.
CAPSSM also supports changes in the portfolio focus on short notice,
thereby enabling organizations to respond quickly to internal and
external developments.
. Sales Force Deployment and Analysis Group: HPR provides strategic sales
force alignment and deployment strategies for home office and field
teams. Alignment services are conducted by analysts with technical
expertise as well as healthcare industry experience who are committed to
the design and realignment of salesforces.
. Data Services: HPR provides healthcare-specific data management services
by integrating data from multiple sources, including internal legacy
systems and purchased third-party data, to identify opportunities that
drive business performance. Data service consultants design customized
data collection and manipulation software programs which analyze data,
maintain report generation functions and manage operational activities
such as production control, data clean-up, matching and ad hoc projects.
. Market Research: HPR conducts primary and secondary research, syndicated
studies, market tracking and custom research audits. It has developed
expertise in developing proprietary customized market research projects
that measure attitudes and behaviors of diverse audiences including both
physicians and consumers. During 2000, HPR introduced its pioneering
Metropolitan-Area Promotional Audit (MPA), a syndicated service that
studies thousands of physicians and tracks pharmaceutical promotional
activity city by city, intelligence that was previously available only
on a national basis.
. Strategic Consulting: HPR's consultants in the strategic consulting
group work with clients, designing solutions for issues such as resource
allocation, forecasting, pricing, and compensation. Their focus on
incorporating best practices within the culture of organizations yields
pragmatic and easily implemented business solutions that can be
integrated throughout the organization.
HPR's distinctive process for developing strategic and tactical resource
allocation is predicated upon the linking of services and data through
solutions based on doctor-level intelligence.
The direct link that exists between the strategy and the data ensures
pragmatic and effective solutions and yields tangible results for our
clients.
VHC
VHC provides education and communications to physicians and other decision
makers in the medical community and helps clients manage their relationships
with these professionals. Through sophisticated physician profiling and
influence mapping, VHC targets appropriate decision makers for maximum impact.
It
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then provides education and communications involving the profile of a product
or disease state, in order to generate interest and stimulate demand both prior
to and after a product launch. Therefore, the educational process begins in
early-stage clinical trials and is accomplished through a variety of media
customized to a client's needs.
VHC maintains accreditation status with both the Accreditation Counsel for
Continuing Medical Education ("ACCME") and American Council on Pharmaceutical
Education ("ACPE"). This distinction provides our programs essential
credibility in the medical community and mitigates the skepticism of many
physicians regarding information provided directly by life sciences companies.
In fact, our ACCME and ACPE accreditations have resulted in significant
attendance at VHC events because physicians are required to earn a minimum
number of Certified Medical Education ("CME") credits in order to maintain
their licenses.
The following describes several of our more frequently used product formats
for the delivery of information:
Meetings. VHC products and services include the development and management
of meetings, including speaker bureaus and "peer-to-peer" dinner meetings.
These meetings typically involve physicians hearing presentations regarding a
drug or treatment protocol presented by experts in the field.
Symposia & Congresses. VHC also develops and organizes large symposia and
congresses that are sponsored by various pharmaceutical, biotech and life
sciences companies and related organizations. These meetings typically involve
presentations regarding drugs, conditions and/or treatment protocols by a
faculty of experts. Many attendees and faculty from remote locations are able
to participate via an interactive satellite transmission organized by VHC.
Telemarketing. By providing a complete staff of trained telemarketers, our
telemarketing services significantly enhance a life sciences company's ability
to communicate effectively with physicians. These services give us the ability
to conduct physician awareness programs, focus group recruitment, physician
profiling, physician detailing, sampling follow-ups, qualification of sales
lead, phone surveys, consumer surveys, customer service, compliance building
and patient care management.
Interactive. Pharmaceutical companies have been allocating more promotional
spending into "alternative media," and VHC is well positioned to serve their
needs with its successful track record of developing CD-ROM, Internet-related
media and other interactive products. These interactive programs can be
designed as a training tool for a pharmaceutical company's own salesforce, a
board review study guide for physicians, or a self-paced instructional package
on a wide variety of topics for doctors, nurses, patients and other target
groups.
Audio Cassettes. Audio cassettes typically deliver topical information to
doctors such as lectures by leading physicians, roundtable discussions,
summaries of conferences, interviews with prominent specialists, and similar
information. Generally 30 to 60 minutes in length, they can be accredited or
non-accredited, but are always educational in nature or content.
Direct Mail & Sample Fulfillment. Registered with the FDA as a secondary
repackager, VHC offers a full complement of warehousing, assembly and
packaging, and mailing and distribution services. This allows VHC to provide
quick and efficient assembly of promotional programs with samples, under
controlled conditions, and ship these promotional materials to potential
prescribers from its warehouse. The effective warehousing and distribution
system allows for precise tracking of inventory levels for all products. The
group's combination of pharmaceutical warehousing and direct mail capabilities
allow it to coordinate sample delivery with sales calls on physicians as well
as administer drug recalls and rebate programs, all part of a scamless
automated product offering for the client.
Other Products. In addition, VHC offers a number of auxiliary products and
services and maintains an ability to deliver content in substantially all forms
of media that life sciences companies use to communicate promotional and
educational messages. Other media can involve drug utilization reviews, color
atlases, posters,
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videotapes, convention kiosks and screen savers. VHC also assists its clients
through higher value-added services such as product marketing strategy
consulting, database management focused towards sales targeting, and field
support services.
VHC's ability to deliver its marketing and educational messages through a
wide range of media has enhanced our reputation as a "one-stop shop" offering
an integrated range of services to life sciences companies. However, each
marketing solution is customized to deliver a specific message to a highly
targeted audience. VHC also searches constantly for ways to expand its products
to meet the needs of our clients and combine its services with those of our
other operating groups. For example, offering avenues of support through the
direct mail and sample fulfillment programs enables VHS' and other sales forces
to operate more efficiently and effectively by automating a significant portion
of the post-physician consultation follow-up work (such as literature and
sample mailings).
VHS
VHS is responsible for the implementation and execution of outsourced sales
programs for prescription pharmaceutical and other life sciences products. This
service is otherwise known as "product detailing." VHS maintains and operates
the requisite systems, facilities, and support services to recruit, train and
deploy a customized, full-service and highly targeted sales force within 8-12
weeks. Currently, VHS operates one of the largest sales organizations in the
United States (larger, in fact, than many pharmaceutical companies), with
approximately 3,000 sales representatives in the U.S. and approximately 4,500
worldwide as of December 31, 2000. It also has significant global coverage
through its operations in the United Kingdom, France, Germany, and Hungary.
Life sciences companies, particularly pharmaceutical manufacturers, have
traditionally relied upon product detailing as the primary means of influencing
prescription writing patterns and promoting their products. Product detailing
consists of a one-on-one meeting in a physician's office where a sales
representative reviews the medical profile of a product's FDA-approved
indications. Information provided by the sales representative includes the
product's role in treatment, efficacy, potential side-effects, dosage, danger
of contra-indications with other drugs, cost and any other appropriate
information. The dialogue is two-way with the salesperson collecting the views
of each individual physician. Discussions will often include topics such as the
type of patient most likely to benefit from a particular therapy as well as the
relative benefits of alternative products. This requires the salesperson to be
well-educated and highly trained, both of which are core competencies of VHS.
In addition to engaging in an educational dialogue with the medical
professional, the sales representative will provide free product samples as a
supplement to the sales effort. This affords the prescription writer and his or
her patients first-hand exposure to the medical product and creates a sense of
familiarity and comfort with the product.
Providing clients with the highest quality sales people requires effective
recruiting and training. To accomplish a coordinated recruiting effort, we
maintain a national recruitment office that locates and hires potential sales
representatives. Our in-house human resources team adheres to selective hiring
criteria and conducts detailed evaluations to ensure the highest-quality of
representation for our clients. VHS's recruiters maintain a fully automated
database of qualified candidates for immediate hiring opportunities, and our
website home page offers an online application for employment. VHS hires a mix
of full-time and flex-time representatives in order to accommodate the
detailing level required by clients and maximize cost efficiency.
We also emphasize the training of our personnel, and believe we are the only
contract sales organization with a fully dedicated stand-alone training
department. VHS's Professional Development Group has the largest dedicated
training facility of its type in the United States. Our goal is to ensure that
sales representatives are knowledgeable and operate professionally,
effectively, and efficiently. Topics such as sample accountability, negotiation
tactics, personal writing skills, integrity selling, time and territory
management, team productivity, and pharma-manager leadership are covered
extensively in order to prepare the representatives for their contact with
medical professionals. VHS's trainers are top professionals in their field and
rely upon proprietary
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information regarding physician prescribing behavior and industry best
practices. As the students are from both VHS's sales force and our clients'
sales forces, the training and development services are essential to
maintaining and building our relationships with the pharmaceutical companies.
These strengths are widely recognized as differentiating factors which
distinguish VHS from its competitors and benefit the overall contract sales
effort.
Once recruited and trained, VHS operates two types of sales forces:
dedicated and syndicated. A dedicated sales force is responsible for the sales
of only one product or of multiple products of a single manufacturer. Dedicated
sales forces facilitate focus and one-on-one conversations with prescribing
physicians. A syndicated sales force represents products of multiple
manufacturers, and, as such, the client purchases a share of the time the sales
person spends with the physician, thereby decreasing overall cost for the
service. The applicability of each sales force depends on the specific
circumstance and the client's portfolio of products. Syndicated sales forces
are seldom used in the U.S., but have been more common in the U.K., France and
other parts of continental Europe.
We are committed to providing our clients with customized cost-effective
sales support. This is reflected in the variety of options clients have to
choose from, including the type of sales force (dedicated vs. syndicated), the
specialties of the sales force (oncology, cardiology, etc.), the methodology
employed to target decision makers in the medical community and the type of
analysis to be conducted based on the information the sales force collects. We
work closely with our clients in all aspects of our service offering to ensure
maximum impact of the product's promotional effort.
We believe that VHS leads the industry in the collection and analysis of
data necessary to make marketing resource allocation decisions. Sales
representatives are equipped with palm-top computers in order to collect sales
call and physician profiling information, which is uploaded into a central data
storage server after each day of sales calls. Our state-of-the-art information
processing system allows sales management teams to analyze real-time data
constantly, compare the results with targeted initiatives and historical data,
and make necessary adjustments to the sales strategy.
Our ability to increase the incremental sales of older life sciences
products and enhance the sale of newer products is critical to the financial
success of our clients. Our integrated approach to contract sales, an
experienced management team, recruiting, professional training and development,
and use of technology provide the Company with a competitive advantage in
marketing products for our clients. With the ability to leverage off of the
capabilities of HPR and VHC, VHS is well-positioned to provide value-added
services across an array of product types in the life sciences industry.
e-Ventiv
During 2000, Ventiv established its e-Ventiv division to provide internet
solutions that complement and integrate with Ventiv's existing sales,
communications, strategic consulting and analytical capabilities. We formed a
strategic alliance with RxCentric, Inc., a leading provider of comprehensive
drug information to the medical community, including product information,
online detailing support, samples and web-enabled CME. In addition, we formed a
strategic alliance with HeliosHealth.com, a unique direct-to-consumer Internet
platform that provides health education to patients via interactive kiosks in
physicians' waiting rooms and via a website. These offerings are designed to
further enhance the value of our integrated offering and to deliver more
powerful, coordinated marketing solutions to our clients.
VIS
During 2000, Ventiv established VIS, a separate business unit that focuses
on developing fully-integrated revenue-share partnerships with new and existing
clients. VIS unites Ventiv's market-leading businesses and offers a new
solution for product portfolio management by taking on broad responsibility for
analytics, sales, marketing and product management, while allowing partners to
retain control of their assets. Potential VIS
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clients include large pharmaceutical companies, which need to drive growth by
focusing on their key power brands and yet face a tradeoff vis-a-vis mid-sized
brands that are still promotionally-responsive and profitable. In addition,
many biotech firms are seeking comprehensive commercialization partners to help
build sales and marketing infrastructure and drive product success.
Competitive Advantages
Leading Global Healthcare Marketing and Sales Services Company. We are one
of the largest competitors in the global market for outsourced pharmaceutical
marketing solutions, with significant operations throughout Europe (the United
Kingdom, Germany, France and Hungary) and the United States. We are a large-
scale provider of contract sales with a salesforce ranked in the top three,
based on size, among outside providers in the United States, Germany, France
and the United Kingdom, constituting four of the top six worldwide
pharmaceutical markets. We are also a significant provider of medical
communications and strategic sales and marketing planning. We service a large
number of physicians, nurses, pharmacists and formularies. These people are
regularly contacted by our representatives--over 4 million calls on physicians
in 2000 alone--enabling the collection of valuable profiling data. Our large-
scale presence in each key market provides significant advantages in terms of
experience, speed, capabilities, and technology.
A Broad and Integrated Service Offering. We offer a broad and integrated
range of services, from the education of physicians on a drug's development,
through the strategic analysis and design of a targeted product launch, to the
availability of approximately 4,500 sales representatives to implement a
targeted sales plan. The comprehensive education programs include conventions,
symposia and CME credit classes necessary for physicians to retain their
licenses. When a drug is ready to be launched, HPR utilizes proprietary call
planning, territory alignment and workload analysis to ascertain the ideal
staff levels and coverage required to reach forecasts, subsequently monitoring
progress on a real-time basis to maximize return on investment for
pharmaceutical clients. The deployment of our highly trained salesforce is
managed by a national recruitment team that ensures that calls begin on a
coordinated basis within 8-12 weeks.
Proprietary Technologies and Data. We maintain and operate a number of
proprietary software programs and systems for marketing development and data
gathering. VHC has developed a product called Lighthouse(TM), which is a
proprietary knowledge management system that enables us to manage promotional
and educational programs, track their progress and results down to the
physician level, and report on them to our clients. Lighthouse also supports
our efforts in the Professional Relationship Management arena, combining
physician profiles with outreach response, targeting, influence mapping and
results-oriented data to help clients manage their relationships with
physicians and develop the appropriate communications programs to increase
market share. Pharmaceutical companies are allocating more marketing dollars to
market insight and proprietary data, and our established expertise positions us
to serve this segment. To conduct strategic studies, HPR employs a series of
programs which were designed in-house and utilize data which is gathered and
processed by VHS and by HPR's proprietary market research. Simultaneous access
to the aforementioned resources enables HPR to produce unique and intricate
value-added studies for the benefit of our clients. These value-added offerings
are a significant advantage for us because they directly translate into an
increase in our clients' return on investment through better sales force sizing
and targeting and higher sales force productivity. Moreover, we have made a
considerable investment in technology and are focused on using cutting-edge
sales force automation tools to increase our efficiency. Approximately 75% of
our sales force in the U.S. is currently equipped with palm-top computers, and
our deployment of this technology will increase throughout 2001. Such real-time
data is important for pharmaceutical clients during the launch of a drug,
allowing rapid profiling of the impact on targeted physicians and facilitating
the refinement of calling frequency and marketing tactics.
Existing Broad "Blue Chip" Client Base. In addition to serving many of the
largest pharmaceutical companies, we also serve a large number of mid-size and
smaller biotech and life sciences companies. As each of these companies uses
our services, our relationship is expanded and the opportunity to cross-sell
products increases. Due to the nature of the business, contracts tend to be
longer in duration and seldom are terminated prior to their expiration.
Relative to our peers, our business is not overly concentrated on a small
number of
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clients. As a result, the existing client base, while not captive, is likely to
become more intertwined with us as the relationships grow in tandem with the
clients' needs for additional services.
Experienced and Visionary Management Team. Our management team includes
executives with substantial expertise managing pharmaceutical sales forces and
establishing sales and marketing strategies. We believe our mix of senior
management with pharmaceutical sales force management, entrepreneurial talent
and strategic perspective is unique in the industry.
Our basic strategy is to broaden our service offering, enhance our
capabilities, deepen our client penetration and offer fully-integrated
solutions. Because of our high level of quality service, our pharmaceutical
clients have rewarded us with contract extensions and high rates of repeat
business. Physicians routinely give us the highest marks in surveys of medical
education programs. Our CME program was recently awarded a four-year
accreditation period by ACCME. We are one of only a few ACCME-accredited
commercial enterprises. Additionally, we provide highly advanced strategic
analysis through Health Products Research.
Clients
We provide our services to leading pharmaceutical, biotechnology, medical
device and diagnostics companies on a global basis. During 2000, approximately
71.6% of our revenues were derived from our ten largest clients which, listed
alphabetically, are Bristol-Myers Squibb, Inc. (BMS), Eli Lilly & Company, Endo
Pharmaceuticals, GlaxoSmithKline, Johnson & Johnson, Merck, Novartis, Novo
Nordisk, Wyeth (American Home Products) and an emerging pharmaceutical company.
One client, BMS, accounted for approximately 26.5% of our total revenue for the
year ended December 31, 2000. No other single client accounted for more than
approximately 10% or more of our revenues during 2000.
We provide services to many of our most significant clients under contracts
that our clients may cancel, typically on 60 to 120 days notice. As a result,
we cannot assure you that our most significant clients will continue to do
business with us over the long term. If any of our significant clients elect
not to renew their contracts, it could have a material adverse effect on our
results of operations.
We consider our close relationships with leading pharmaceutical
manufacturers to be an important competitive advantage, providing us with a
source for recurring revenues as well as sales growth opportunities as our
clients launch new products and as we develop new offerings. Our services are
sold to the same target groups for each client, namely their marketing and
sales departments. This provides the basis for continuous interaction and
feedback, allowing us to continuously improve our services and identify new
business opportunities, a process augmented by the long-term nature of our
contracts. We have developed sustained relationships with blue chip clients
that provide us with recurring revenue streams and service cross-selling
opportunities. Our ability to add value at every part of the product life cycle
enhances our ability to develop new business opportunities and form long-
lasting relationships with clients.
Our relationships with a client's marketing and sales organizations also
benefit from high switching costs, as retaining another sales force and
redesigning a market program would create substantial additional expense and
cause losses in time and productivity for our clients. In addition, successful
marketing and sales outsourcers have established their reputations due to
sophisticated performance evaluation capabilities, and clients are unlikely to
use vendors without widely recognized expertise.
Competition
We believe that no other organization offers the same scope of integrated
healthcare marketing and sales services as we offer our clients. Our
competitors include contract sales organizations as well as contract research
organizations that offer healthcare marketing services. Additionally, drug
distribution companies have indicated a desire to enter this lucrative market
by leveraging their knowledge base and effecting strategic acquisitions. Each
of our operating groups faces distinct competitors in the individual markets in
which the
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group operates. However, none of our competitors provides the full scope of
services we currently offer through our multiple operating groups.
Contract Sales. A small number of providers comprise the market for contract
sales, which we believe represents approximately 12% of total dollars spent on
detailing in the United States. We believe that Ventiv, Innovex (Quintiles) and
Professional Detailing, Inc. combined account for most of the United States
contract sales market share, with Ventiv and Innovex being the only
participants to have an international presence. These organizations
historically have not been significant competitors with regard to healthcare
marketing services other than contract sales. However, because the rest of the
industry is fragmented, with a large number of small providers attempting to
develop niche services, one or more of our large competitors in the contract
sales market could become significant competitors with regard to the other
services we offer by either developing additional capabilities or acquiring
smaller companies.
Contract Marketing Services. The contract marketing services sector contains
many more competitors and is highly fragmented. This is due in part to the wide
variety of marketing activities required by medical product companies,
including promotional meetings, symposia, video satellite conferencing, peer-
to-peer meetings, medical educational material and conferences, teleservices,
field force logistics and product management. As a result, accurate relative
market share is more difficult to define as we encounter different competitors
for each of these services. The only competitors of significant scale in the
broad marketing sector are narrowly focused: Boron LePore & Associates, which
provides peer-to-peer physician education meetings, and privately owned ZS
Associates, which provides strategic assessments similar to the services of
HPR. Neither company is a significant competitor with us in the contract sales
market.
Seasonality
Various aspects of Ventiv's business are subject to seasonal variation, most
notably our European contract sales organization where activity decreases
during the third quarter of the year due to the traditional European summer
holiday season. In addition, VHS is subject to seasonal variations in product
usage, to the extent applicable, with respect to products promoted under
revenue sharing arrangements.
Employees
At December 31, 2000, we employed approximately 5,000 people worldwide. We
believe that our relations with our employees are satisfactory.
Many aspects of our business are very labor intensive and the turnover rate
of employees in our industry generally is high, particularly in VHS. Our part-
time sales force employees account for approximately 26.4% of our total field
workforce. We believe our turnover rate is comparable to that of other contract
service organizations in our industry. An increase in the turnover rate among
our employees would increase our recruiting and training costs and decrease our
operating efficiencies and productivity. Our operations typically require
specially trained persons, such as those employees in the pharmaceutical
detailing business. Growth in our business will require us to recruit and train
qualified personnel at an accelerated rate from time to time. The labor markets
for quality personnel are competitive, and we cannot assure you that we will be
able to continue to hire, train and retain a sufficient labor force of
qualified persons.
Government Regulation
Several of the industries in which our clients operate are subject to
varying degrees of governmental regulation, particularly the pharmaceutical and
healthcare industries. Generally, compliance with these regulations is the
responsibility of our clients. However, we could be subject to a variety of
enforcement or private actions for our failure or the failure of our clients to
comply with such regulations.
In connection with the handling and distribution of pharmaceutical products
samples, we are subject to regulation by the Prescription Drug Marketing Act of
1987 and other applicable federal, state and local laws
9
and regulations in the United States, and certain regulations of the United
Kingdom, France, Hungary, Germany, Austria and the European Union. These laws
regulate the distribution of drug samples by mandating storage, handling and
record-keeping requirements for drug samples and by banning the purchase or
sale of drug samples. In certain jurisdictions, including the United Kingdom,
France and Germany, pharmaceutical sales representatives are subject to
examination and licensing requirements under local law and industry guidelines.
Ventiv believes it is in compliance in all material respects with these
regulations.
Our physician education services are also subject to a variety of federal
and state regulations relating to both the education of medical professionals
and the marketing and sale of pharmaceuticals. In addition, certain ethical
guidelines promulgated by the American Medical Association ("AMA") govern the
receipt by physicians of gifts in connection with the marketing of healthcare
products. These guidelines govern the honoraria and other items of value which
AMA physicians may receive, directly or indirectly, from pharmaceutical
companies. Ventiv follows similar guidelines in effect in other countries where
it provides services. Any changes in such regulations or their application
could have a material adverse effect on Ventiv. Failure to comply with these
requirements could result in the imposition of fines, loss of licenses and
other penalties and could have a material adverse effect on Ventiv.
From time to time, state and federal legislation is proposed with regard to
the use of proprietary databases of consumer and health groups. The uncertainty
of the regulatory environment is increased by the fact that we generate and
receive data from many sources. As a result, there are many ways both domestic
and foreign governments might attempt to regulate our use of its data. Any such
restriction could have a material adverse effect on Ventiv.
Item 2. Properties.
Our principal executive offices are located in New York, New York at a site
we lease. Ventiv and its operating subsidiaries own facilities in Boulder,
Colorado and Lenggries, Germany. We lease a total of 15 facilities in the U.S.,
the U.K., France, Germany, and Hungary. We believe that our properties are well
maintained and are in good operating condition.
Item 3. Legal Proceedings.
From time to time we are involved in litigation incidental to our business.
In our opinion, no pending or threatened litigation of which we are aware has
had or is expected to have a material adverse effect on our results of
operations, financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of security holders during the quarter
ended December 31, 2000.
10
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters
The following table contains the high and low sales prices of our existing
common stock traded on the Nasdaq National Market during the periods indicated:
High Low
---- ---
Year ended December 31, 2000
First Quarter................................................. 10 3/4 7
Second Quarter................................................ 11 3/8 8 5/8
Third Quarter................................................. 15 11 3/16
Fourth Quarter................................................ 13 1/16 8 7/8
High Low
---- ---
Year ended December 31, 1999
First Quarter................................................. n/a n/a
Second Quarter................................................ n/a n/a
Third Quarter(1).............................................. 10 7 3/4
Fourth Quarter................................................ 10 7/8 5 1/4
- --------
(1) Information regarding Ventiv's common stock is only available beginning on
September 23, 1999 when Ventiv's common stock began trading on a "when
issued" basis on the Nasdaq National Market. Ventiv's common stock began
its first day of "regular way" trading on September 28, 1999
On March 16, 2001, the closing price for Ventiv's common stock was $15.75
per share, and there were approximately 7,635 beneficial owners of Ventiv's
common stock as of that date.
To date, Ventiv has not declared cash dividends on its common stock. Ventiv
intends to retain future earnings to finance its growth and development and
therefore does not anticipate paying any cash dividends in the foreseeable
future. Payment of any future dividends will depend upon the future earnings
and capital requirements of Ventiv and other factors which our Board of
Directors will consider as appropriate.
The transfer agent for Ventiv's common stock is American Stock Transfer and
Trust Company, 59 Maiden Lane, New York, New York, 10038.
11
Item 6. Selected Financial Data.
SELECTED FINANCIAL DATA
The following table summarizes certain historical financial data with
respect to Ventiv and is qualified in its entirety by reference to, and should
be read in conjunction with, the Company's historical consolidated financial
statements and related notes included elsewhere in this Form 10-K. The
historical financial data for all years presented, except the year ended
December 31, 1996, have been derived from audited financial statements of
Ventiv. Historical financial information may not be indicative of Ventiv's
future performance. Prior to their respective acquisitions, certain U.S.-based
acquirees were not subject to federal or state income taxes. Pro forma net
earnings (losses) represents net earnings (losses) adjusted to reflect a
provision for income taxes as if these entities had been taxed similarly to
U.S. C corporations for all periods presented. See also "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations".
For the Years Ended December 31,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- -----------
(unaudited)
(in thousands, except per share data)
Statement of operations data:
Revenues..................... $416,660 $344,655 $321,500 $208,967 $144,704
======== ======== ======== ======== ========
Net earnings (losses)........ $ 16,814 $ (6,793) $ 1,446 $ (8,718) $ 83
======== ======== ======== ======== ========
Basic net earnings (losses)
per share(1)................ $ 0.74 $ (0.28) $ 0.06 $ (0.37) $ --
======== ======== ======== ======== ========
Diluted net earnings (losses)
per share(1)................ $ 0.72 $ (0.28) $ 0.06 $ (0.37) $ --
======== ======== ======== ======== ========
Pro forma data (unaudited):
Pro forma net earnings
(losses).................... n/a n/a n/a $(10,700) $ (2,729)
======== ======== ======== ======== ========
Pro forma basic net earnings
(losses) per share(1)....... n/a n/a n/a $ (0.45) $ (0.12)
======== ======== ======== ======== ========
Pro forma diluted net
earnings (losses) per
share....................... n/a n/a n/a $ (0.45) $ (0.12)
======== ======== ======== ======== ========
Shares used in computing pro
forma basic net earnings
(losses) per share(1)....... 22,628 23,907 23,715 23,715 23,715
======== ======== ======== ======== ========
Shares used in computing pro
forma diluted net earnings
(losses) per share.......... 23,406 23,907 23,715 23,715 23,715
======== ======== ======== ======== ========
Balance sheet data:
Total assets................. $251,214 $233,264 $193,644 $100,947 $ 51,180
======== ======== ======== ======== ========
Long-term debt(2)............ $ 32,333 $ 1,155 $ 1,473 $ 4,154 $ 2,634
======== ======== ======== ======== ========
Total investments and
advances from SNC(3)........ n/a n/a $119,727 $ 10,371 $ 4,697
======== ======== ======== ======== ========
Total equity................. $149,126 $145,753
======== ========
- --------
(1) For all dates prior to the Distribution, the number of shares used to
calculate net earnings (losses) per share is equal to the shares of Ventiv
common stock that were issued upon the Distribution, which was based on
the number of outstanding shares of SNC common stock on September 27,
1999. From the date of the Distribution through December 31, 2000, the
number of shares used to calculate net earnings (losses) per share were
the actual number of shares of Ventiv common stock outstanding.
(2) Long-term debt includes the non-current portion of the capital lease
obligations but excludes the current portion of the line of credit and
capital lease obligations.
(3) Investments and advances from SNC represents the net cash transferred to
Ventiv from SNC and the net assets and liabilities of businesses acquired
by SNC and contributed to Ventiv in connection with the Distribution.
12
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Ventiv Health, Inc. ("Ventiv" or the "Company") is a unique sales and
marketing partner providing innovative strategic and tactical solutions
globally for the pharmaceutical and life sciences industry. The Company offers
a broad range of integrated sales and marketing services including: specially
designed strategic marketing plans, educational programs targeted to
physicians, sales execution, and consulting and analytics. The Company's
clients include many of the leading pharmaceutical and life sciences companies.
Ventiv's business units operate from the United States, France, Germany, United
Kingdom and Hungary.
The business currently conducted by Ventiv was initially established in 1997
by Snyder Communications, Inc. ("SNC"), beginning with a merger transaction
between SNC and a U.S. provider of pharmaceutical sales and marketing services.
After forming its pharmaceutical sales and marketing services business segment
in 1997, SNC completed a series of acquisitions that expanded both the scope of
services and geographic presence of the business operated by Ventiv today. On
June 22, 1999, the Board of Directors of SNC approved a plan to effect a
distribution (the "Distribution") of SNC's healthcare marketing services
business segment to existing stockholders. SNC contributed the net assets and
liabilities related to its healthcare marketing services business segment in
the third quarter of 1999 to a newly formed subsidiary (Ventiv Health, Inc.)
and subsequently consummated the Distribution on September 27, 1999 through a
special dividend of one share of Ventiv common stock for every three shares of
SNC common stock. As a result of the Distribution, Ventiv became an
independent, publicly traded corporation.
This Management's Discussion and Analysis of Financial Condition and Results
of Operations covers periods prior to the Distribution, during which the
operations of Ventiv were part of SNC. The following information should be read
in conjunction with the consolidated financial statements, accompanying notes
and other financial information included in this Annual Report on Form 10-K for
the years ended December 31, 2000, 1999 and 1998.
Private Securities Litigation Reform Act of 1995--A Caution Concerning Forward-
Looking Statements
Statements included in this discussion in this Annual Report on Form 10-K
relating, but not limited, to future revenues, operating expenses, capital
requirements, growth rates, cash flows, operational performance, sources and
uses of funds and acquisitions are forward-looking statements that involve
certain known and unknown risks and uncertainties. Factors that may cause
results, performance, achievements or investments expressed or implied by such
forward-looking statements to differ from actual results include, among other
things, the availability of financing, technological, regulatory or other
developments in Ventiv's business, changes in the pharmaceutical industry,
uncertainty related to the continued growth of pharmaceutical outsourcing,
changes in the competitive climate in which Ventiv operates, our ability to
maintain large client contracts or enter into new contracts, uncertainties
related to future incentive payments and earnings generated through revenue
sharing arrangements and the emergence of future opportunities and other
factors more fully described under the caption "Business Considerations" in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and under the captions "Employees" and "Government Regulation" in
the Business section of this Annual Report on Form 10-K (see Part I--Item 1.--
Business), which sections are incorporated herein by reference.
Overview
Ventiv is a unique sales and marketing partner providing innovative
strategic and tactical solutions globally for the pharmaceutical and life
sciences industry. The Company offers a broad range of integrated sales and
marketing services including: specially designed strategic marketing plans,
educational programs targeted to physicians, sales execution, and consulting
and analytics. Clients include many of the leading pharmaceutical and life
sciences companies, including: Aventis, Bausch & Lomb, Baxter, Bayer, Bristol-
Myers Squibb, Eli Lilly, Endo Pharmaceuticals, GlaxoSmithKline, Johnson &
Johnson, Merck, Novartis, Pfizer and Pharmacia. Ventiv conducts business in the
United States, France, Germany, United Kingdom, Austria and Hungary.
13
Ventiv's services are designed to develop, execute and monitor strategic
marketing and sales plans for pharmaceutical and other life sciences products
and to conduct educational research and communication services for the medical
community.
We believe that the complementary services which Ventiv is able to offer to
its customers will increase our opportunities and strengthen our client
relationships. We strive to integrate our service capabilities to provide a
coordinated spectrum of healthcare marketing and sales services. Ventiv's
Health Products Research unit designs and monitors product launches and ongoing
marketing and sales strategies with its proprietary programs to maximize
resource utilization and return on investment for pharmaceutical and other life
sciences companies. Ventiv Health Communications provides educational and
promotional programs to physicians and other healthcare professionals. Ventiv
Health Sales designs and executes outsourced sales programs for pharmaceutical
and other life sciences products. Most of Ventiv's largest clients utilize the
services of more than one of our operating groups. We plan to focus on internal
growth for the foreseeable future as our primary means of expansion, although
we will consider attractive acquisition and investment opportunities as they
arise.
Strategic Business Alliances and Related Transactions
On March 10, 2000, Ventiv entered into a strategic alliance with RxCentric,
Inc., a privately-held New York-based company which provides physicians with
rapid access to comprehensive drug and pharmaceutical-related information via
the Internet. Pursuant to a multi-year agreement, the companies will share in
revenues generated from this alliance, subject to significant revenue and
physician recruitment milestones. In connection with this strategic alliance,
Ventiv has invested $2.0 million in RxCentric in exchange for a minority equity
position in the firm.
Following this transaction, the Company announced the formation of a new
operating unit, e-Ventiv, which will focus on the development of Internet-based
solutions that complement Ventiv's existing sales, communications and strategic
consulting businesses, enhancing the Company's ability to provide superior
outsourced marketing and sales solutions. Specifically, e-Ventiv focuses on the
design and development of solutions oriented toward physician interaction (a
primary objective of our alliance with RxCentric), patient interaction (a
primary objective of our alliance with HeliosHealth.com--which is discussed
below) and value-added information for pharmaceutical clients.
On October 12, 2000, Ventiv entered into a strategic alliance with
HeliosHealth.com, a unique direct-to-consumer ("DTC") Internet platform that is
the leading provider of interactive kiosks--or "e.stations"--in physician
waiting rooms. Helios has installed over 1,000 e.stations, which generate more
than 100,000 unique visits per month. In addition, the website generates an
additional 100,000 unique visits per month. Helios has sold over 15
sponsorships to major pharma companies including GlaxoSmithKline, Johnson &
Johnson, Pfizer and Pharmacia. The companies will jointly market targeted
advertising and content to clients and will share revenue generated pursuant to
a multi-year agreement. In addition, Ventiv's Health Products Research business
will continue to integrate DTC into its traditional consulting services and
market research efforts. In connection with this agreement, Ventiv has also
made a minority equity investment in Helios of $0.5 million.
The business activities relating to the alliances with RxCentric and Helios
did not materially affect results of operations for the year ending December
31, 2000.
Business Considerations
Dependence on Expenditures by Companies in the Life Sciences Industries
Our revenues are highly dependent on promotional, marketing and sales
expenditures by companies in the life sciences industries, including the
pharmaceutical, medical device, diagnostics and biotechnology industries.
Promotional, marketing and sales expenditures by pharmaceutical manufacturers
have in the past been, and could in the future be, negatively impacted by,
among other things, governmental reform or private market initiatives intended
to reduce the cost of pharmaceutical products or by governmental, medical
association or
14
pharmaceutical industry initiatives designed to regulate the manner in which
pharmaceutical manufacturers promote their products. Furthermore, the trend in
the life sciences industries toward consolidation, by merger or otherwise, may
result in a reduction in the use of contract sales providers.
Dependence on Trend Toward Outsourcing in the Life Sciences Industries
Our business and growth depend in large part on the progression of the trend
in the pharmaceutical and life sciences industries toward the outsourcing of
marketing and sales services. We can give no assurance that this trend in
outsourcing will continue, as companies may elect to perform such services
internally. A significant change in the direction of this trend generally, or a
trend in the pharmaceutical or life sciences industries, not to use, or to
reduce the use of, outsourced marketing and sales services such as those that
we provide, would have a material adverse effect on our business.
Risk-based Contracts
Particularly in the U.S., Ventiv has seen an increase in demand from clients
for incentive-based and revenue sharing arrangements. Under incentive-based
arrangements, Ventiv is typically paid a fixed fee and, in addition, has an
opportunity to increase its earnings based on the market performance of the
products being detailed in relation to targeted sales volumes, salesforce
performance metrics or a combination thereof. Under revenue sharing
arrangements, the Ventiv's compensation is based on the market performance of
the products being detailed, usually expressed as a percentage of product
sales. Ventiv expects this trend to continue and, as a result, revenues derived
from these arrangements are expected to increase in the near term in both
absolute and relative terms. These types of arrangements inherently transfer
some market risk from clients to the Company. In addition, these arrangements
can result in variability in revenue and earnings due to seasonality of product
usage, changes in market share, new product introductions, overall promotional
efforts and other market related factors.
Risk Associated with Our International Operations and Expansion in the United
Kingdom and Continental Europe
Ventiv has a number of operations in the United Kingdom and continental
Europe. The following are the material risks inherent in conducting our
international operations:
. difficulties in complying with a variety of foreign laws,
. effects of governmental regulation on the demand for pharmaceutical products,
particularly new products,
. unexpected changes in regulatory requirements,
. difficulties in staffing and managing foreign operations,
. potentially adverse tax consequences,
. foreign currency risk, and
. the risk of economic downturn in non-U.S. locations where Ventiv does
business.
We cannot assure you that one or more of these factors will not have a
material adverse effect on our international operations and consequently on our
business, financial condition and results of operations. Approximately 22.2% of
our worldwide revenues in 2000 were generated from operations outside of the
United States, 28.0% of which were denominated in British Pounds, 29.8% in
German Marks and 42.2% in French Francs. The U.S. dollar value of our foreign-
generated revenues varies with currency exchange rate fluctuations. Significant
increases in the value of the U.S. dollar relative to the British Pound, French
Franc, or German Mark, could have a material adverse effect on our results of
operations. We continually evaluate our exposure to exchange rate risk but do
not currently hedge this risk. See Item 7A--Quantitative and Qualitative
Disclosures About Market Risk.
Management of Our Growth
Ventiv has grown rapidly over the past several years. Our continued growth
depends to a significant degree on our ability to successfully leverage our
existing infrastructure to perform services for new clients, as well as on our
ability to develop and successfully implement new marketing methods or channels
for new services. Our continued
15
growth will also depend on a number of other factors, including our ability to
maintain the high quality of the services we provide to our customers and to
increase our penetration with existing customers; to recruit, motivate and
retain qualified personnel; and to economically train existing sales
representatives and recruit new sales representatives. Our continued growth
will also require us to implement enhanced operational and financial systems
and additional management resources. We cannot assure you that we will be able
to manage our expanding operations effectively or that we will be able to
maintain our growth. If we are unable to manage growth effectively, this could
materially adversely affect our business, financial condition and results of
operations.
Reliance on Technology; Risk of Business Interruption
We have invested significantly in sophisticated and specialized computer
technology and have focused on the application of this technology to provide
customized solutions to meet many of our clients' needs. We have also invested
significantly in sophisticated end-user databases and software that enable us
to market our clients' products to targeted markets. We anticipate that it will
be necessary to continue to select, invest in and develop new and enhanced
technology and end-user databases on a timely basis in the future in order to
maintain our competitiveness. In addition, our business is dependent on our
computer equipment and software systems, and the temporary or permanent loss of
these equipment or systems, through casualty or operating malfunction, could
have a material adverse effect on our business. Our property and business
interruption insurance may not adequately compensate us for all losses that we
may incur in any such event.
Government Regulation of Handling and Distribution of Pharmaceutical Samples
In connection with the handling and distribution of samples of
pharmaceutical products, we are subject to regulation by the Prescription Drug
Marketing Act of 1987 and other applicable federal, state and local laws and
regulations in the United States and certain regulations in the United Kingdom,
France, Germany and the European Union. These laws regulate the distribution of
drug samples by mandating storage, handling and record-keeping requirements for
drug samples and by banning the purchase or sale of drug samples. In certain
jurisdictions, including the United Kingdom and France, pharmaceutical sales
representatives are subject to examination and licensing requirements under
local law and industry guidelines. Our physician education services are subject
to a variety of foreign, federal and state regulations relating to both the
education of medical professionals and the marketing and sales of
pharmaceuticals. In addition, certain ethical guidelines promulgated by the
American Medical Association govern the receipt by physicians of gifts in
connection with the marketing of healthcare products. These guidelines govern
the honoraria and other items of value which AMA physicians may receive,
directly or indirectly, from pharmaceutical companies. Ventiv follows similar
guidelines in effect in other countries where it provides services. Any changes
in these regulations and guidelines or their application could have a material
adverse effect on our business. Failure to comply with these requirements could
result in the imposition of fines, loss of licenses and other penalties and
could have a material adverse effect on Ventiv.
Government Regulation of Pharmaceutical and Life Sciences Industries
Pharmaceutical manufacturers and the healthcare industry, in general, are
subject to significant U.S. federal and state, U.K., French, Hungarian,
Austrian, German and European Union regulation. In particular, regulations
affecting the pricing or marketing of pharmaceuticals could make it
uneconomical or infeasible for pharmaceutical companies to market their
products through medical marketing detailers. Other changes in the domestic and
international regulation of the pharmaceutical industry could also have a
material adverse effect on Ventiv.
Results of Operations
Revenues and associated costs under pharmaceutical detailing contracts are
generally based on the number of physician calls made or the number of sales
representatives utilized. For consulting and educational services, Ventiv's
revenues are generally based on a fixed project amount.
16
Costs of services consist of all costs specifically associated with client
programs such as salary, commissions and benefits paid to personnel, including
senior management associated with specific service offerings, payments to
third-party vendors and systems and other support facilities specifically
associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with administrative functions such as finance, accounting, human
resources and information technology, as well as personnel costs of senior
management not specifically associated with delivery of client services. In
addition, costs related to business development and new product development are
classified as selling, general and administrative expenses.
Restructuring and other charges include compensation to stockholders,
recapitalization costs and acquisition and related costs. Restructuring charges
include costs to rationalize management and employee positions, penalties for
early termination of leases for office space and abandonment of related
improvements to that space, as well as anticipated losses on the disposition of
assets not related to Ventiv's core business. In 1999, recapitalization costs
consisted of restricted stock granted to certain key employees of the Company,
which vested immediately following the Distribution. Acquisition and related
costs consist primarily of investment banking fees, other professional service
fees, certain tax payments and other contractual payments resulting from the
consummation of the pooling of interests transactions, as well as the costs of
consolidating certain of our acquired operations.
The following sets forth, for the periods indicated, certain components of
Ventiv's statement of operations, including such data stated as a percentage of
revenues.
For the years ending December 31,
----------------------------------------------------
2000 1999 1998
--------------- --------------- ----------------
(in thousands)
Revenues................ $416,660 100.0 % $344,655 100.0 % $321,500 100.0 %
Costs of services....... 334,132 80.2 % 295,296 85.7 % 236,047 73.4 %
Selling, general &
administrative
expenses............... 47,117 11.3 % 47,426 13.8 % 43,029 13.4 %
Recapitalization costs.. -- -- % 2,100 0.6 % -- -- %
Acquisition and related
costs.................. -- -- % 5,741 1.7 % 16,164 5.0 %
Restructuring charges... 5,447 1.3 % 2,213 0.6 % 11,500 3.6 %
-------- ----- -------- ----- -------- ------
Earnings (losses) from
operations............. 29,964 7.2 % (8,121) (2.4)% 14,760 4.6 %
Interest expense........ (3,181) (0.8)% (405) (0.1)% (2,315) (0.7)%
Investment income....... 1,239 0.3 % 1,080 0.3 % 1,850 0.5 %
-------- ----- -------- ----- -------- ------
Earnings (losses) before
income taxes........... 28,022 6.7 % (7,446) (2.2)% 14,295 4.4 %
Income tax provision
(benefit).............. 11,208 (2.7)% (653) (0.2)% 12,849 4.0 %
-------- ----- -------- ----- -------- ------
Net earnings (losses)... $ 16,814 4.0 % $ (6,793) (2.0)% $ 1,446 0.4 %
======== ===== ======== ===== ======== ======
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues: Revenues increased by approximately $72.0 million, or 20.9%, to
$416.7 million in 2000, from $344.7 million in 1999.
Revenues in our U.S. Sales business were $242.7 million, an increase of
74.0%, or $103.2 million, over 1999, and accounted for 58.0% of total Ventiv
revenues in 2000. This growth primarily resulted from new contracts and
expansions of existing business relationships with Bristol-Myers Squibb, Inc.
(BMS), Forest Labs, Johnson & Johnson and Novartis. U.S. Sales' revenues and
operating income for the year ended December 31, 2000 included approximately
$13.2 million of incentive fees; incentive fees recognized in the comparable
prior year period were negligible.
17
In August 1999, the U.S. Sales business entered into a significant multi-
year contract with BMS. The current relationship with BMS is scheduled to
transition from a fixed plus incentive fee arrangement to a revenue sharing
arrangement beginning in January 2001, where the payments made to Ventiv will
be entirely determined as a percentage of the revenue stream from the products
supported. Ventiv has reached an agreement in principle with BMS, which revises
the basis for total compensation to be paid to Ventiv for the promotion of BMS
products. The revised arrangement with BMS also shifts the physician focus and
reduces the size of the overall sales force. This new arrangement with BMS will
reduce revenue levels earned under this contract in 2001.
Ventiv's European Sales business generated revenues of $92.4 million in
2000, a decrease of 29.1% from 1999. Revenues generated by the European
businesses represented 22.2% of total revenues for the year ended December 31,
2000. The decline in revenue was a result of a combination of factors including
client losses following the integration of certain acquired Ventiv businesses,
the closure of syndicated sales forces (primarily in the U.K.) and, to a lesser
extent, the impact of foreign exchange rates.
Ventiv Health Communications' revenue represented 13.8% of the Company's
total revenues. Revenues from this business were approximately $57.7 million
for the year ended December 31, 2000 which represents an increase of $3.7
million or 6.9% from the $54.0 million of revenue recorded in 1999. This
increase was attributable to the shift of business focus away from print media
toward live events, beginning in the third quarter of 1999. Live events
(meetings; teleconferences; symposia, etc.) are typically large-scale
engagements with higher contract values. In addition, margins on such
engagements are typically lower than those earned on print media business,
which require a higher degree of specialized effort.
Health Products Research generated 5.7% of total revenues in 2000. Revenues
increased $2.9 million or 13.9%, to $23.8 million from $20.9 million for the
year ended December 31, 2000 and 1999, respectively. The increase in revenues
was primarily a result of an expansion of the group's client base, partially
offset by the effects of consolidation in the pharmaceutical industry. Such
consolidation created additional demand for certain services in fiscal 1999
which did not recur in 2000.
Costs of Services: Costs of services increased by approximately $38.8
million, or 13.1%, to $334.1 million for the year ended December 31, 2000 from
$295.3 million in the year ended December 31, 1999. Costs of services increased
by approximately 7.8% less than the growth in revenues for 2000. Costs of
services decreased as a percentage of revenue to approximately 80.2% in 2000
from 85.7% in 1999. The costs of services were lower as a percentage of revenue
in 2000 compared to 1999 primarily as a result of incentive fee revenue earned
by the U.S. Sales business. These incentive fees increase revenue without a
corresponding increase in the cost of services. The benefit of these incentive
fees was partially offset as the costs of services for the year ended December
31, 2000 were adversely impacted by approximately $2.0 million of one-time
charges, which were recorded as part of ongoing operations. These charges
related primarily to a reduction in syndicated salesforce capacity in the U.K.-
based contract sales business and to efforts to reduce headcount and other
fixed costs in Ventiv Health Communications. The effect of these charges was
partially offset by higher margins from the U.S. Sales business, which included
the effect of incentive fees from several clients. The costs of services for
1999 were affected in the third quarter by the one-time costs incurred with
respect to the start-up of the BMS contract. We believe that the actions taken
this year and late in 1999, including the reduction of syndicated sales force
capacity in the U.K. and other cost reduction initiatives, will continue to
benefit future periods.
Selling, General and Administrative Expenses: Selling, general and
administrative expenses decreased by approximately $0.3 million, or 0.1%, to
$47.1 million from $47.4 million in the years ended December 31, 2000 and 1999,
respectively. Selling, general, and administrative expenses as a percentage of
revenues decreased to 11.3% from 13.8%. The decrease in selling, general and
administrative costs was primarily a result of savings generated by the
integration actions taken during 1999 and management restructuring efforts in
2000 (see Restructuring Charges below). The savings generated by the above
actions were partially offset by additional ongoing overhead expenses,
beginning in the third quarter of 1999, related to the formation of Ventiv's
independent management and administrative infrastructure following the
distribution of the Company's
18
common stock. Decreases were offset in part in 2000 by the Company's
investments related to e-Ventiv, Ventiv Integrated Solutions and other new
business development initiatives.
Recapitalization Costs: During 1999, Ventiv recorded $2.1 million of
recapitalization costs in connection with the spin-off from SNC. This cost
consisted of non-cash charges related to restricted stock, issued to certain
key employees of Ventiv, which partially vested immediately following the
distribution of Ventiv's common stock. There was no similar charge in 2000.
Acquisition and Related Costs: During 1999, the Company recorded $5.7
million in non-recurring acquisition and related costs with regard to a payment
made by Ventiv, in the form of 695,304 shares of Ventiv common stock, to the
prior owners of PromoTech Research Associates, Inc. ("PromoTech"), in exchange
for the release of any and all claims against SNC and Ventiv related to the
purchase of PromoTech. PromoTech was acquired in March 1999. The additional
payment was not provided for in the purchase agreement and could not be
considered a part of the purchase price for accounting purposes. There were no
similar costs in 2000.
Restructuring Charges: During 2000, management completed an evaluation of
staffing levels and infrastructure of its European operations. Following this
evaluation, management adopted a restructuring plan which provided for: i)
rationalization of senior and mid-level management in France, the United
Kingdom and Austria (total of 10 employees; ii) early termination of leases in
France and Austria to reduce overall facilities costs and consolidate certain
sales operation, respectively, and; iii) the disposition of assets not
associated with Ventiv's core businesses. In addition, Ventiv U.K. incurred
charges related to the closure of a sales team with a specific client. Ventiv
U.K. does not intend to create sales teams of a similar nature in the
forseeable future. The closure of this team resulted in the termination of 6
employees. The total charge related to the European operations was
approximately $2.9 million.
The Company also completed an evaluation of the operations at Ventiv Health
Communications. As a result of this evaluation, a plan was implemented to
restructure this business unit's operations. The Company recorded a
restructuring charge of approximately $2.6 million, which provided for: i)
rationalization of management and staff positions (total 24 of employees); ii)
early termination of leases to reduce overall facilities costs and; iii) the
disposition of assets related to the early termination of leases.
During 2000, the Company accrued and expensed approximately $2.4 million
related to employee termination benefits. The Company had paid approximately
$1.5 million of this amount by December 31, 2000.
Charges recorded in 1999 included $3.1 million of costs related to the
consolidation and integration of certain of Ventiv's acquired operations in the
U.S., U.K. and France under the Company's plan initiated in 1998. The charge
consisted of $1.8 million in severance and related payments associated with the
termination of 23 employees, and $1.3 million in consulting services and other
costs related to these integration activities. The total costs of $3.1 million
were partially offset by a reduction of $0.8 million for previously recorded
charges due to changes in estimates.
Interest Expense: Ventiv recorded $3.2 million of interest expense in the
year ended December 31, 2000, a notable increase over the $0.4 million recorded
in 1999. Interest expense increased as a direct result of net borrowings drawn
against the Company's revolving line of credit, in support of operations,
investing activities and in connection with the Company's share repurchase
program. See "Liquidity and Capital Resources". Interest expense was also
higher due to the leasing of an auto fleet at the U.S. Sales business. These
leases are capital in nature.
Investment Income: Ventiv recorded approximately $1.2 million and $1.1
million of investment income in the years ended December 31, 2000 and 1999,
respectively. The increase in interest income reflected the benefits from
management's efforts to centralize treasury functions for its U.S. operations,
allowing for more timely and effective concentration and investment of cash
balances. Variations in future investment income will
19
result from differences in average amounts of cash and cash equivalents
available for investment and the prevailing short-term interest rates during
these periods.
Income Tax Provision (Benefit): Ventiv recorded provisions for income taxes
at an effective tax rate of 40% for the year ended December 31, 2000. Ventiv's
effective tax rate reflected the full impact of non-deductible goodwill
amortization associated with prior acquisitions, net of benefit derived from
the use of certain tax loss carryforwards from prior years. For the year ended
December 31, 1999, the Company recorded a tax benefit at an average effective
rate of 8.7% on a net book loss, due primarily to non-deductible goodwill
amortization and other non-recurring acquisition and related costs.
Net Earnings and Earnings Per Share ("EPS"): Ventiv's net earnings increased
by $23.6 million to $16.8 million for the year ending December 31, 2000, from a
loss of $6.8 million for the year ended December 31, 1999, as more fully
described above.
Shares used in computing basic and diluted EPS decreased by approximately
1.1 million and 0.3 million shares, respectively, due to the impact of the
Company's share repurchase program. The impact of share repurchases on shares
used in computing diluted EPS was offset in part by the inclusion of common
stock equivalents relating to employee stock options and restricted stock
awards. These items were not included in pro forma diluted EPS for the year
ended December 31, 1999, as they were anti-dilutive to the net loss per share
and were not issued until the date of the Distribution (see Part II.--Item 8.--
Notes to Consolidated Financial Statements--Note 2 "Significant Accounting
Policies" and Note 11 "Common Stock and Stock Incentive Plans").
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased $23.2 million, or 7.2%, to $344.7 million in
1999 from $321.5 million in 1998. Revenues increased $36.1 million, or 34.8%,
within our U.S. Sales business primarily as a result of new contracts which
were secured in 1999 and the purchase of Healthcare Promotions, LLC in 1998,
which was integrated into our U.S. Sales business. Revenues increased $5.2
million, or 33.2%, within our Health Products Research unit, reflecting new
business contracts secured in 1999. The increases in revenues were offset by a
$7.0 million, or 11.4%, decrease in revenues from our Health Communications
business and $11.1 million, or 7.9%, decrease in revenue from our European
Sales business attributed to the business challenges associated with the
integration of acquired businesses during 1999, market and competitive
conditions in Europe, and a change in the business mix toward live events in
our Health Communications business.
Costs of services. Costs of services increased $59.3 million, or 25.1%, to
$295.3 million in 1999 from $236.0 million in 1998. The year-over-year
increases in cost of sales of $46.5 million and $3.8 million at U.S. Sales and
Health Products Research, respectively, is driven by the increases in revenue
within those groups. In addition, recruiting and other start-up related costs
for several new contract sales forces in the U.S., including a 725 person sales
force to provide services in connection with our relationship with BMS, were
incurred during 1999 with no offsetting revenue, increasing 1999 expenses
approximately $14 million over 1998 levels. Costs of services were favorably
impacted in 1999 by a one-time $2.0 million reduction in the estimated amount
of employee-related social costs to be paid as a result of the integration of
our French contract sales businesses. In Ventiv Health Communications, a shift
in the mix of business toward live events such as teleconferences, symposia,
and speaker bureau meetings, lowered gross margins. The closure of a syndicated
sales team in the U.K. resulted in one-time expenditures of approximately
$0.2 million. Revenue reductions in Ventiv Health Communications and European
Sales yielded only marginal cost reduction opportunities, primarily because the
predominant component of costs of services is personnel driven. As a result of
the above factors, costs of services as a percentage of revenues increased to
85.7% in 1999 from 73.4% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million, or 10.2%, to $47.4 million in
1999 from $43.0 million in 1998. Selling, general, and administrative expenses
as a percentage of revenues increased to 13.8% in 1999 from 13.4% in 1998, due
in part to additional ongoing overhead costs incurred during the second half of
1999 which were related to changes in Ventiv's management and administrative
infrastructure necessary to become an independent, publicly traded company.
20
Recapitalization Costs. During 1999, Ventiv recorded $2.1 million of
recapitalization costs in connection with the spin-off from SNC. This cost
consisted of non-cash charges related to restricted stock, issued to certain
key employees of Ventiv, which partially vested immediately following the
Distribution. There was no similar charge in 1998.
Acquisition and Related Costs. During 1999, the Company recorded $5.7
million in non-recurring acquisition and related costs with regard to payment
made by Ventiv in the form of 695,304 shares of Ventiv common stock to the
prior owners of PromoTech, in exchange for the release of any and all claims
against SNC or Ventiv, related to the purchase of Promotech. The payment was
not provided for in the purchase agreement and is not a part of the purchase
price for accounting purposes.
In 1998, the Company incurred approximately $16.2 million of acquisition and
related costs. These costs consisted of investment banking fees, expenses
associated with accelerated vesting of options for certain employees at
acquirees and other professional service fees related to the consummation of
pooling of interests transactions. Ventiv completed four pooling of interests
transactions valued at approximately $258 million in 1998.
Restructuring Charges. In 1999 the Company recorded a $3.1 million charge
related to the consolidation and integration of certain of Ventiv's acquired
operations in the U.S., UK. and France under the Company's plan initiated in
1998. The charge consisted of $1.8 million of severance and related payments
associated with the termination of 23 employees, and $1.3 million in consulting
services and other costs related to these integration activities. The total
cost of $3.1 million was partially offset by a reduction of $0.8 million for
previously recorded costs due to changes in estimates.
During 1998, the Company incurred approximately $11.5 million of non-
recurring costs to consolidate and integrate certain acquired operations. The
Company integrated operations within the same geographic area and combined nine
locations into four. These costs included costs to terminate lease obligations,
severance and related costs to terminate 142 employees and consulting and other
costs related to business integration activities.
Interest expense. Ventiv recorded $0.4 million of interest expense during
1999 compared with $2.3 million of interest expense during 1998. Ventiv did not
have any significant debt obligations outstanding during 1999. The interest
expense recorded during 1998 consisted primarily of interest on debt at
acquired companies prior to their acquisition by Ventiv. Ventiv repaid
substantially all of the debt of its acquired companies.
Investment Income. Ventiv recorded $1.1 million of investment income during
1999 and $1.9 million of investment income during 1998. Variations in
investment income resulted from differences in average amounts of cash and
equivalents available for investment and the prevailing short-term interest
rates during these periods.
Income Tax Provision (Benefit). Ventiv recorded a tax benefit of $0.7
million in 1999, a net effective rate of 8.7%. Ventiv's effective tax rate on
its recurring operations was approximately 85.9% for 1999. The actual tax
provision recorded differed from the average statutory tax rate primarily due
to the non-deductibility of goodwill and certain of the non-recurring costs
recorded during the period.
Net Earnings (Losses). Ventiv's net loss was $6.8 million in 1999 compared
to net income of $1.4 million in 1998, due primarily to the increases in
operating costs which exceeded increases in revenue, offset by the decrease in
non-recurring costs, as more fully described above.
Liquidity and Capital Resources
At December 31, 2000, Ventiv had $28.9 million of cash and cash equivalents,
a decrease of $8.8 million from December 31, 1999. For the year ending December
31, 2000 compared to December 31, 1999, cash used in operations increased by
$15.7 million and cash used in investing activities decreased by $3.5 million.
In addition, cash provided by financing activities decreased by $11.7 million.
Cash provided by financing activities
21
in the year ended December 31, 1999 included approximately $18.2 million of
funds provided by SNC prior to the Distribution date. These decreases noted
above were partially offset by favorable effects of changes in foreign exchange
rates.
Cash used in operations was $2.3 million in 2000 compared to $13.4 million
provided by operations in 1999. This increase in cash used in operations was
primarily due to decreased amounts of unearned revenue, resulting from the
delivery of services on longer term contracts (primarily BMS), combined with
increased accounts receivable, resulting from the growth of business, the
effects of which were partially offset by the increase in net earnings and
depreciation expense. During 2000, the U.S. Sales group entered into a master
lease agreement for a fleet of automobiles valued at $22.8 million. This
resulted in an increase of approximately $4.0 million in depreciation expense
in 2000.
Cash used in investing activities was $8.4 million and $11.9 million in 2000
and 1999, respectively. Cash expenditures in 2000 related primarily to capital
expenditures and investments made in RxCentric and Helios. In 1999, investing
activities included $2.9 million of cash acquired through the purchase of a
subsidiary.
Cash used in financing activities was $0.2 million in 2000 versus $11.5
million provided by such activities in 1999. During 2000, the Company made net
borrowings under the line of credit of $18.1 million (of which $17.0 million
has been classified as non-current) and repaid $1.2 million against a
previously outstanding foreign line of credit. During 2000, the Company made
payments on capital lease obligations totalling approximately $2.1 million (see
above). In addition, in 2000, the Company acquired and retired approximately
1.7 million shares of common stock for approximately $17.6 million (including
applicable fees and brokers commissions) under its stock repurchase plan.
During 1999, the Company received investments and advances from Snyder of
approximately $18.2 million related to the forgiveness of the amounts owed to
Snyder as part of the Distribution transaction which occurred on September 27,
1999.
On December 1, 1999, we entered into a $50 million unsecured revolving
credit facility, which expires on December 1, 2003. At December 31, 2000, the
Company had $19.0 million outstanding under this line of credit with a weighted
average interest rate of 7.92%. Borrowings under this credit facility may be
used for general corporate purposes, acquisitions and the repurchase of up to
$37.5 million of the Company's common stock. Interest on amounts borrowed under
the credit facility is based on the London Interbank Offered Rate ("LIBOR") or
the lending bank's base rate of interest. Availability under this credit
facility is subject to our compliance with various financial ratios, operating
covenants and other customary conditions. At December 31, 2000, the Company was
in compliance with these financial covenants.
We believe our cash and equivalents, as well as cash provided by operations
and our available credit under our existing credit facility, will be sufficient
to fund our current operations and planned capital expenditures over the next
12 months and for the foreseeable future. We plan to focus on internal growth
in the near term as the primary means of our expansion, although we will
consider attractive acquisition and investment opportunities as they arise.
Cash provided from operations may not be sufficient to fund internal growth
initiatives which we may pursue. If we pursue significant internal growth
initiatives or if we acquire additional businesses in transactions that include
any cash payment as part of the purchase price, both in the short-term and the
long-term, we will first use excess cash available from operations and then
pursue additional debt or equity financing as sources of cash necessary to
complete any acquisitions. In addition to borrowing under our line of credit,
we could pursue additional debt or equity transactions to finance acquisitions
or other business initiatives, depending on market conditions. We cannot assure
you that we will be successful in raising the cash required to complete all
acquisition, investment or business opportunities which we may wish to pursue
in the future.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British pound, German mark and French franc. To date,
changes in the exchange rates of the British pound, German mark and French
franc have not had a material adverse impact on our liquidity or results of
operations. We continually evaluate our exposure to exchange rate risk but do
not currently hedge such risk. The introduction of the Euro has not had a
material impact on our operations or cash flows. We will continue to evaluate
the impact of the introduction of the Euro as we continue to expand our
services in Europe.
22
Effect of Inflation
Because of the relatively low level of inflation experienced in the United
States and Europe, inflation did not have a material impact on our consolidated
results of operations for 2000, 1999 or 1998.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133"). This statement was
originally effective for all fiscal quarters of fiscal years beginning after
June 15, 1999; however, during the second quarter of 1999, the FASB deferred
the effective date to June 15, 2000. In June of 2000, the FASB issued SFAS No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities," an amendment to SFAS No. 133, which required that all companies be
in compliance with SFAS No. 133 as of January 1, 2001. SFAS No. 133 does not
require restatement of financial statements from prior periods. SFAS No. 133
requires an entity to recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those instruments at fair
value. The adoption of SFAS No. 133 and its related amendments has not had a
significant impact on the Company's consolidated financial position, results of
operations or cash flows as it currently does not maintain any derivative
instruments.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in market interest rates and
foreign currency exchange rates. We are subject to interest rate risk on our
debt for changes in the LIBOR and base lending rates, and we are subject to
foreign currency exchange rate risk related to our international operations. We
do not currently engage in hedging or other market risk management strategies.
Long-Term Debt Exposure
At December 31, 2000 the Company had $19.0 million outstanding under its
line of credit, with a weighted average interest rate of 7.92%. The risk to the
Company if LIBOR and/or the base lending rate were to increase is that the
Company would incur additional interest expenses if these outstanding loans are
renewed at maturity. Based on current borrowing levels, if LIBOR and/or the
base lending rate were to increase by 1%, the Company would incur an additional
$0.2 million of interest expense on an annual basis. The Company does not
believe a material risk exists if the LIBOR and/or the base lending rate were
to decrease, as all of the Company's loans under the line of credit have
maturities of 180 days or less.
Foreign Currency Exchange Rate Exposure
On January 1, 1999, eleven member countries of the European Union
established fixed conversion rates between their existing currencies and one
common currency, the Euro. Uncertainties exist as to the effects the Euro may
have on our European clients, as well as the impact of the Euro conversion on
the economies of the participating countries. Any negative economic
developments which occur in the combined EU economy and the possible
devaluation of the Euro could have a material negative impact on our business.
Fluctuations in foreign currency exchange rates affect the reported amounts of
our assets, liabilities and operations. For purposes of quantifying the risk
associated with fluctuations in the foreign exchange rate, we used a
sensitivity analysis model. We assumed a hypothetical detrimental change of 10%
in the exchange rates on our assets, liabilities and revenues denominated in a
foreign currency. A 10% fluctuation was assumed for all exchange rates at
December 31, 2000. Our material exposures to foreign exchange rate fluctuations
on continuing operations are the French franc, British pound and German mark.
Approximately 42%, 28% and 30% of our 2000 international operations were
conducted in France, the United Kingdom and Germany, respectively. The amounts
below represent the impact of all exchange rates on our total assets,
liabilities and revenues.
10% Decrease in
Balance at value of Local
December 31, Currencies to
2000 U.S. Dollar
------------ ---------------
Assets............................................. $251,214 $245,042
Liabilities........................................ $102,088 $ 94,502
Revenue............................................ $416,660 $407,422
23
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants.................................. 25
Consolidated Balance Sheets as of December 31, 2000 and 1999.............. 26
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998...................................................... 27
Consolidated Statements of Stockholders' Equity for the year ended
December 31, 2000 and for the period from September 27, 1999 to December
31, 1999................................................................. 28
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998...................................................... 29
Notes to Consolidated Financial Statements................................ 30
24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Ventiv Health, Inc.:
We have audited the accompanying consolidated balance sheets of Ventiv
Health, Inc. (the "Company") and subsidiaries, as defined in Note 1 to the
consolidated financial statements, as of December 31, 2000 and 1999, the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 2000, and the related
consolidated statements of stockholders' equity for the year ended December 31,
2000 and the period from September 27, 1999 to December 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits 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 consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ventiv
Health, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results
of its operations and its cash flows for each of the years in the three year
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 19, 2001
25
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
------------------
2000 1999
-------- --------
ASSETS
Current assets:
Cash and equivalents (Note 2)........................... $ 28,865 $ 37,627
Marketable securities (Note 4).......................... -- 1,898
Accounts receivable, net of allowances for doubtful
accounts of $2,116 and $2,517 at December 31, 2000 and
1999, respectively..................................... 59,106 51,158
Unbilled services....................................... 17,490 13,430
Other current assets.................................... 9,385 7,568
-------- --------
Total current assets.................................. 114,846 111,681
-------- --------
Property and equipment, net (Note 5)...................... 34,743 14,742
Goodwill and other intangible assets, net (Note 6)........ 90,294 95,816
Deferred tax asset (Note 16).............................. 7,836 9,732
Deposits and other assets................................. 3,495 1,293
-------- --------
Total assets.......................................... $251,214 $233,264
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 7)........... $ 2,020 $ 91
Accrued payroll, accounts payable and accrued expenses
(Note 8)............................................... 48,815 53,854
Current deferred tax liability (Note 16)................ 1,382 --
Client advances and unearned revenue.................... 17,538 32,406
-------- --------
Total current liabilities............................. 69,755 86,351
-------- --------
Long-term debt (Note 7)................................... 17,336 1,155
Capital lease obligations and other noncurrent liabilities
(Note 9)................................................. 14,997 5
Commitments and contingencies (Note 10)
Stockholders' Equity (Note 11):
Preferred stock, $.001 par value, 10,000,000 shares
authorized, none issued and outstanding at December 31,
2000 and 1999, respectively.............................. -- --
Common stock, $.001 par value, 50,000,000 shares
authorized; 22,769,593 and 25,231,215 shares issued and
outstanding at December 31, 2000 and 1999, respectively.. 23 25
Additional paid-in-capital................................ 156,410 176,495
Deferred compensation..................................... (2,739) (4,219)
Treasury stock, at cost, 494,000 shares at December 31,
1999..................................................... -- (4,307)
Accumulated other comprehensive losses.................... (1,542) (2,401)
Accumulated deficit....................................... (3,026) (19,840)
-------- --------
Total stockholders' equity............................ 149,126 145,753
-------- --------
Total liabilities and stockholders' equity............ $251,214 $233,264
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
26
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Years Ended
December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Revenues (Note 3)................................. $416,660 $344,655 $321,500
Operating expenses:
Costs of services............................... 334,132 295,296 236,047
Selling, general and administrative expenses.... 47,117 47,426 43,029
Recapitalization costs (Note 13)................ -- 2,100 --
Acquisition and related costs (Note 14)......... -- 5,741 16,164
Restructuring charges (Note 15)................. 5,447 2,213 11,500
-------- -------- --------
Earnings (losses) from operations................. 29,964 (8,121) 14,760
Interest expense.................................. (3,181) (405) (2,315)
Investment income................................. 1,239 1,080 1,850
-------- -------- --------
Earnings (losses) before income taxes............. 28,022 (7,446) 14,295
Income tax provision (benefit) (Note 16).......... 11,208 (653) 12,849
-------- -------- --------
Net earnings (losses)............................. $ 16,814 $ (6,793) $ 1,446
======== ======== ========
Net earnings (losses) per share (Note 2):
Basic net earnings (losses) per share........... $ 0.74 $ (0.28) $ 0.06
======== ======== ========
Diluted net earnings (losses) per share......... $ 0.72 $ (0.28) $ 0.06
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
27
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Accumulated
Additional Other
Number of Common Paid-In Treasury Accumulated Deferred Comprehensive
Shares Stock Capital Stock Deficit Compensation Losses Total
--------- ------ ---------- -------- ----------- ------------ ------------- --------
Balance at September 27,
1999 -- $-- $ -- $ -- $ -- $ -- $ -- $ --
Capital contribution.... 23,704 24 164,660 -- (11,289) -- (1,269) 152,126
Net losses.............. -- -- -- -- (8,551) -- -- (8,551)
Unrealized loss on
marketable securities.. -- -- -- -- -- -- (112) (112)
Foreign currency
translation
adjustments............ -- -- -- -- -- -- (1,020) (1,020)
Restricted stock--
deferred compensation.. 832 1 6,599 -- -- (4,219) -- 2,381
Issuance of shares to
former owners of
PromoTech.............. 695 -- 5,736 -- -- -- -- 5,736
Loan to officer for
purchase of stock...... -- -- (500) -- -- -- -- (500)
Purchase of treasury
shares................. -- -- -- (4,307) -- -- -- (4,307)
------ ---- -------- ------- -------- ------- ------- --------
Balance December 31,
1999................... 25,231 25 176,495 (4,307) (19,840) (4,219) (2,401) 145,753
Capital contribution.... -- -- 256 -- -- -- -- 256
Net earnings............ -- -- -- -- 16,814 -- -- 16,814
Effect of tax rate
changes on certain
deferred tax assets.... -- -- 342 -- -- -- -- 342
Foreign currency
translation
adjustments............ -- -- -- -- -- -- 859 859
Issuance of restricted
shares................. 6 -- 500 -- -- (500) -- --
Cancellation of
restricted shares...... (104) -- (1,025) -- -- 1,025 -- --
Vesting of restricted
shares................. -- -- -- -- -- 955 -- 955
Exercise of stock
options................ 166 -- 1,316 -- -- -- -- 1,316
Tax benefit from
exercises of employee
stock options and
restricted stock....... -- -- 380 -- -- -- -- 380
Purchase of outstanding
common shares.......... -- -- -- (17,549) -- -- -- (17,549)
Retirement of treasury
shares................. (2,226) (2) (21,854) 21,856 -- -- -- --
Retirement of shares
related to
acquisitions........... (303) -- -- -- -- -- -- --
------ ---- -------- ------- -------- ------- ------- --------
Balance at December 31,
2000................... 22,770 $ 23 $156,410 $ -- $ (3,026) $(2,739) $(1,542) $149,126
====== ==== ======== ======= ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
28
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
----------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Net earnings (losses).............................. $ 16,814 $ (6,793) $ 1,446
Adjustments to reconcile net earnings
(losses) to net cash (used in) provided by
operating activities:
Depreciation..................................... 8,613 3,600 2,150
Amortization..................................... 4,882 4,570 3,209
Non-cash expense for stock issuances............. -- 5,736 --
Non-cash expense for restricted stock and option
vesting......................................... 954 2,381 2,173
Deferred taxes................................... 1,896 (5,635) 1,324
Loss on disposal of capital assets............... 2,027 1,023 151
Other............................................ -- -- 126
Changes in assets and liabilities:
Accounts receivable, net......................... (8,051) (6,360) (1,040)
Unbilled services................................ (3,636) 1,948 (8,443)
Deposits and other assets........................ 779 2,733 (3,533)
Accrued payroll, accounts payable and accrued
expenses........................................ (13,099) (12,837) 8,599
Client advances and unearned revenue............. (15,190) 19,986 (6,570)
Other............................................ 1,708 3,059 (813)
-------- -------- --------
Net cash (used in) provided by operating
activities.................................... (2,303) 13,411 (1,221)
-------- -------- --------
Cash flows from investing activities:
Cash on hand at acquired businesses................ -- 2,916 6,083
Purchases of subsidiaries.......................... -- (1,134) (10,386)
Purchases of property and equipment................ (7,893) (8,654) (4,916)
Proceeds from sales of equipment................... 94 -- 780
Net proceeds from sales (purchases) of marketable
securities........................................ 1,903 (2,010) 1,262
Investments in equity of non-affiliates............ (2,500) -- --
Purchase of license agreements..................... -- (3,012) (13)
-------- -------- --------
Net cash used in investing activities.......... (8,396) (11,894) (7,190)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayment) of long-term debt....... 18,110 (1,859) (26,917)
Loan to officer for purchase of stock.............. -- (500) --
Repurchases of issued and outstanding common
stock............................................. (17,585) (4,307) --
Repayments of capital lease obligations............ (2,052) -- --
Proceeds from exercises of stock options........... 1,357 -- --
Investments and advances from SNC.................. -- 18,211 42,753
-------- -------- --------
Net cash (used in) provided by financing
activities.................................... (170) 11,545 15,836
-------- -------- --------
Effect of exchange rate changes...................... 2,107 (1,099) 199
Net (decrease) increase in cash and equivalents...... (8,762) 11,963 7,624
Cash and equivalents, beginning of period............ 37,627 25,664 18,040
-------- -------- --------
Cash and equivalents, end of period.................. $ 28,865 $ 37,627 $ 25,664
======== ======== ========
Disclosure of supplemental cash flow information:
Cash paid for interest............................. $ 2,872 $ 384 $ 1,526
Cash paid for income taxes......................... $ 12,152 $ 7,256 $ 2,542
Disclosure of noncash activities:
Businesses acquired with SNC stock................. $ -- $ 16,336 $ 64,546
Vehicles acquired through capital lease
arrangements...................................... $ 22,850 $ -- $ --
The accompanying notes are an integral part of these consolidated financial
statements.
29
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Business:
Organization
Ventiv Health, Inc. ("Ventiv" or the "Company") is a unique sales and
marketing partner providing innovative strategic and tactical solutions
globally for the pharmaceutical and life sciences industry. The Company offers
a broad range of integrated sales and marketing services including: specially
designed strategic marketing plans, educational programs targeted to
physicians, sales execution, and consulting and analytics. The Company's
clients include many of the leading pharmaceutical and life sciences companies.
Ventiv's business units operate from the United States, France, Germany, United
Kingdom and Hungary.
The business currently conducted by Ventiv was established in 1997 by Snyder
Communications, Inc. ("SNC"), in a merger transaction with a U.S. provider of
pharmaceutical sales and marketing services. After forming its pharmaceutical
sales and marketing services business segment in 1997, SNC completed a series
of acquisitions that expanded both the scope of services and geographic
presence of the business managed by Ventiv today. On June 22, 1999, the Board
of Directors of SNC approved a plan to effect the distribution (the
"Distribution") of SNC's healthcare marketing services business segment to
existing stockholders. SNC contributed the net assets and liabilities related
to its healthcare marketing services business segment in the third quarter of
1999 to a newly formed subsidiary (Ventiv Health, Inc.) and subsequently
consummated the Distribution on September 27, 1999 through a special dividend
of one share of Ventiv common stock for every three shares of SNC common stock.
As a result of the Distribution, Ventiv became an independent, publicly traded
corporation.
Basis of Presentation
The consolidated financial statements present the financial position,
results of operations and cash flows of Ventiv as if it were formed and existed
as a separate entity for all periods presented. In accounting for the
Distribution, SNC's historical basis in the net assets and liabilities
transferred was carried over to the consolidated financial statements of
Ventiv. All expenses reflected in the consolidated financial statements are
costs specifically identified to the Company and its operations. It was not
practicable to estimate costs that would have been incurred by the Company if
it had been operated on a stand-alone basis for all periods presented.
Throughout 1998, certain acquisitions were completed by Ventiv that were
accounted for as poolings of interests for financial reporting purposes. During
1999 and 1998, several additional acquisitions were made that were accounted
for as purchase business combinations. The companies with which Ventiv has
entered into mergers accounted for as poolings of interests for financial
reporting purposes are collectively referred to herein as the "Pooled
Entities." All mergers and acquisitions completed by the Company will be
collectively referred to herein as the "Acquisitions." The accompanying
consolidated financial statements have been retroactively restated to reflect
the consolidated financial position and consolidated results of operations and
cash flows of the Company and the Pooled Entities, after elimination of all
significant intercompany transactions, for all periods presented, giving effect
to the poolings of interests as if they had occurred at the beginning of the
earliest period presented.
Changes in the investments and advances from SNC represent the net earnings
(losses) of the Company, the comprehensive earnings (losses) of the Company,
the net change in cash and other consideration exchanged between the Company
and SNC (or previous owners with respect to the Pooled Entities prior to their
merger with SNC) and the effect of businesses acquired by SNC in purchase
transactions, all of which were contributed to Ventiv in the Distribution.
30
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
An analysis of the investments and advances from SNC for the year ended
December 31, 1998, and the period from January 1, 1999, to September 27, 1999
is as follows (in thousands):
Balance, December 31, 1997...................................... $ 10,371
Net earnings.................................................. 1,446
Comprehensive earnings........................................ 611
Noncash transfers from SNC.................................... 64,546
Cash transfers from SNC, net.................................. 42,753
---------
Balance, December 31, 1998...................................... 119,727
=========
Net losses, excluding $2.1 million recapitalization costs..... 1,758
Comprehensive losses.......................................... (2,232)
Noncash transfers from SNC.................................... 16,336
Cash transfers from SNC, net.................................. 16,537
Contribution of healthcare marketing services business segment
by SNC to Ventiv............................................. (152,126)
---------
Balance, September 27, 1999..................................... $ --
=========
Subsequent to the Distribution, amounts owed to SNC by Ventiv are recorded
as due to SNC. As of December 31, 1999, $662,000 was due to SNC and is included
in accrued expenses on the accompanying consolidated balance sheet.
Business
The Company provides integrated marketing services for its clients,
primarily pharmaceutical and life sciences companies. The Company conducts its
business throughout the United States ("U.S."), the United Kingdom ("U.K."),
France, Germany, Hungary and Austria.
The Company's services are designed to establish and monitor strategic
marketing plans, to provide face-to-face interaction with physicians and to
conduct educational and communication services. The Contract Sales business was
established through a combination of transactions bringing separate companies
together. During 1998, through a pooling of interests transaction, the Company
merged with another leading company in the field of contract sales and
marketing. Also through pooling of interests transactions consummated in 1998,
the Company expanded its offerings by merging in companies that became our
Health Communications business and also acquired Health Products Research.
During the first quarter of 1998 the Contract Sales business was augmented
through the acquisition of Healthcare Promotions, LLC and CLI Pharma S.A.
During the first quarter of 1999, the Company acquired Promotech Research
Associates, Inc. These transactions allowed Ventiv to expand in size and
geographic presence as well as increased the scope of services offered.
Health Products Research designs and monitors product launches and sales
strategies with our proprietary programs to maximize asset utilization and
return on investment for pharmaceutical and other life sciences companies. The
Health Communications business provides educational programs to physicians and
other healthcare professionals. The Contract Sales business implements and
executes outsourced sales programs for pharmaceutical and other life sciences
products. Most of the Company's largest clients utilize the services of more
than one of our operating groups.
31
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following details revenues and net earnings (losses) for the year ended
December 31, 1998 of the Company and the Pooled Entities through the dates of
their respective Acquisitions:
For the Year
Ended December
31,
--------------
1998
--------------
(in thousands)
Revenues:
The Company.................................................... $270,323
Pooled Entities................................................ 51,177
--------
$321,500
========
Net earnings (losses):
The Company.................................................... $ 5,933
Pooled Entities................................................ (4,487)
--------
$ 1,446
========
On March 25, 1999, the Company completed the acquisition of PromoTech
Research Associates, Inc. ("PromoTech"). The total consideration paid was $16.3
million. This purchase business combination has resulted in additional goodwill
of $17.5 million. On March 25, 1998 and February 13, 1998, the Company
completed purchase business combinations, including CLI Pharma S.A. ("CLI
Pharma") and Healthcare Promotions, LLC ("HCP"), respectively, for total
consideration of approximately $64.0 million. Based upon an allocation of
purchase consideration, these purchase business combinations have resulted in
additional goodwill of approximately $55.7 million. The following table
presents pro forma financial information as if the 1999 purchase of PromoTech
and the 1998 purchases of HCP and CLI Pharma had been consummated at the
beginning of each of the periods presented and all of the Company's operations
had been taxed as a C corporation.
For the Years
Ended December
31,
------------------
1999 1998
-------- --------
(unaudited)
(in thousands,
except per share
data)
Pro forma revenues.......................................... $346,582 $335,628
Pro forma net earnings (losses)............................. (6,499) 2,113
Pro forma basic net earnings (losses) per share............. (0.27) 0.09
Pro forma diluted net earnings (losses) per share........... (0.27) 0.09
Certain amounts have been reclassified, where appropriate, to conform to the
current financial statement presentation.
2. Summary of Significant Accounting Policies:
Cash and Equivalents
Cash and equivalents are comprised principally of amounts in operating
accounts, money market investments and other short-term instruments. These
accounts are stated at cost, which approximates market value, and have
maturities of three months or less. Included in the cash balance were $1.7
million and $1.2 million at December 31, 2000 and 1999, respectively, which
were held in escrow on the behalf of clients.
32
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Marketable Securities
All of the Company's marketable securities are classified as "available-for-
sale" and reported at market value. Unrealized gains and losses from these
securities are reported as a component of comprehensive earnings (losses).
Revenue Recognition
The Company enters into contracts to perform a variety of services ranging
from product detailing to strategic consulting services to educational programs
and live events. Revenue is recognized on product detailing contracts as
services are performed and associated costs are incurred. Many of the product
detailing contracts allow for additional incentive fees to be earned by the
Company once agreed upon performance benchmarks are attained. The Company
recognizes these additional incentive fees as revenue once it is reasonably
assured that the benchmarks have been attained. Revenue and costs related to
strategic consulting contracts are recognized as services are performed.
Educational and live events contracts typically involve the completion of
several individual events within the scope of one contract. The Company
recognizes revenue and associated costs as individual events are completed.
Property and Equipment
Property and equipment is stated at cost. The Company depreciates furniture,
fixtures and office equipment on a straight-line basis over three to ten years;
computer equipment over two to four years and buildings over forty years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or the estimated useful lives of the improvements. The
Company amortizes the cost of automobiles under capital lease on a straight
line basis over the term of the lease.
When assets are retired or sold, the cost and related accumulated
depreciation and amortization are removed from the accounts, and any gain or
loss is reflected in income.
Goodwill and Other Intangible Assets
Goodwill equal to the fair value of consideration paid in excess of the fair
value of net assets acquired has been recorded in connection with several of
the Company's purchase business combinations and is being amortized on a
straight-line basis over periods of fifteen to thirty years.
The costs of licenses to market pharmaceutical products and contractual
covenants are amortized on a straight-line basis over the term of the related
agreements, all of which are ten to fifteen years.
When conditions or events occur that management believes might indicate that
the goodwill or any other intangible asset is impaired, an analysis of
estimated future undiscounted cash flows is undertaken to determine if any
write down in the carrying value of the asset is required. The preparation of
projections of future undiscounted cash flows involves the use of a combination
of available facts, data, assumptions and judgement. It is, therefore, possible
that actual results may differ significantly from the projections used to
conclude that no impairment of goodwill or other intangible assets existed at
December 31, 2000. If actual results are significantly worse than the
projections developed, it is possible that the Company would conclude in the
future that goodwill or other intangible assets have or had been impaired.
Net Earnings (Losses) Per Share
The Company has applied Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" ("SFAS No. 128") to all periods presented in
these financial statements. SFAS No. 128 requires
33
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
disclosure of basic and diluted earnings per share ("EPS"). Basic EPS is
computed by dividing reported earnings available to common stockholders by the
weighted average number of shares outstanding without consideration of common
stock equivalents or other potentially dilutive securities. Diluted EPS gives
effect to common stock equivalents and other potentially dilutive securities
outstanding during the period. For periods prior to the Distribution, the
number of shares used to calculate net earnings (losses) per share is equal to
the number of shares of Ventiv common stock that were issued upon the
Distribution. From the date of the Distribution through December 31, 1999, the
number of shares used to calculate net earnings (losses) per share is based on
the actual number of shares of Ventiv common stock outstanding. Basic and
diluted EPS are the same from the date of the earliest period presented through
the date of the Distribution as there were no Ventiv options granted until the
date of the Distribution.
The following table represents a reconciliation of the basic and diluted EPS
for each of the years ending December 31, 2000, 1999 and 1998 (pro forma-see
Note 1):
Year Ended December 31,
------------------------
2000 1999 1998
------- ------- -------
(amounts in thousands
except per share data)
Basic EPS Computation
Net earnings (losses)............................ $16,814 $(6,793) $ 1,446
Weighted average common shares outstanding....... 22,628 23,907 23,715
------- ------- -------
Basic EPS........................................ $ 0.74 $ (0.28) $ 0.06
======= ======= =======
Diluted EPS Computation
Net earnings (losses)............................ $16,814 $(6,793) $ 1,446
Adjustments to net earnings (losses)............. -- -- --
------- ------- -------
Adjusted net earnings (losses)................... 16,814 (6,793) 1,446
Weighted average common shares outstanding....... 22,628 23,907 23,715
Employee stock options........................... 524 -- --
Restricted stock awards.......................... 254 -- --
------- ------- -------
Total diluted common shares outstanding.......... 23,406 23,907 23,715
------- ------- -------
Diluted EPS...................................... $ 0.72 $ (0.28) $ 0.06
======= ======= =======
For the year ended December 31, 1999, there is no adjustment for the effect
of stock options or restricted shares as they would have had an anti-dilutive
effect. The number of potentially dilutive common stock equivalents at December
31, 1999 was 23,347. At December 31, 1998 there were no outstanding restricted
shares or stock options (pro forma-see Note 1).
Income Taxes
Income taxes are provided for based on the asset and liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income Taxes". Under SFAS
109, deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled. Under SFAS 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in net
earnings in the period that includes the enactment date.
34
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The accompanying financial statements do not include a provision for U.S.
income taxes on international subsidiaries' unremitted earnings, which are
expected to be reinvested overseas (see Note 16).
Prior to their merger with Ventiv, certain of the U.S.-based Pooled Entities
were treated as S corporations or limited liability companies for income tax
purposes. Accordingly, no provision for federal or state income taxes, except
in certain states that do not recognize S corporations or limited liability
companies, has been made for these entities through the date of their mergers
with the Company in the accompanying consolidated financial statements.
The Company's subsidiaries with operations in the U.K., France and Germany
pay taxes in their respective countries, on a corporate level similar to a C
corporation in the U.S.
Foreign Currency Translations
Assets and liabilities of the Company's international operations are
translated using the final spot exchange rate as of the balance sheet date.
Revenue and expense accounts for these subsidiaries are translated using the
average spot exchange rate for each period presented. Foreign currency
translation adjustments are reported as a component of comprehensive earnings
(losses).
Estimates and Assumptions
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. For
purposes of this disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Cash and equivalents, marketable securities, accounts
receivable, unbilled services and accounts payable approximate fair value
because of the relatively short maturity of these instruments. Long-term debt
approximates fair value as the majority of this debt has a variable interest
rate and is comprised of notes with short term maturities, which are typically
renewed at maturity (see Note 7).
Concentration of Credit Risk
Concentration of credit risk is limited to cash and equivalents, marketable
securities, accounts receivable and unbilled services. The Company places its
investments in highly rated financial institutions, U.S. Treasury bills, money
market accounts, investment grade short-term debt instruments and state and
local municipalities, while limiting the amount of credit exposure to any one
entity. The Company's receivables are concentrated with its major
pharmaceutical clients. The Company does not require collateral or other
security to support clients' receivables.
Accounting for Stock Options
The Company accounts for transactions under its stock-based compensation
plan using the intrinsic value based method in accordance with the provisions
of APB Opinion No. 25, "Accounting for Stock Issued to
35
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employees." Pro forma disclosure of net earnings and earnings per share,
calculated as if the Company accounted for its stock-based compensation plan
using the fair value based method in accordance with the provisions of SFAS No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") appears in Note
11.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS
No. 133"). This statement was originally effective for all fiscal quarters of
fiscal years beginning after June 15, 1999; however, during the second quarter
of 1999, the FASB deferred the effective date to June 15, 2000. In June of
2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities," an amendment to SFAS No. 133,
which required that all companies be in compliance with SFAS No. 133 as of
January 1, 2001. SFAS No. 133 does not require restatement of financial
statements from prior periods. SFAS No. 133 requires an entity to recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. The adoption of SFAS No.
133 and its related amendments has not had and is not expected to have a
significant impact on the Company's consolidated financial position, results of
operations or cash flows, as it currently does not maintain any derivative
instruments.
3. Significant Clients:
During 2000, the Company had one client which represented 26.5% of total
revenue for the year. The Company had two clients that represented 8.2% and
14.2%, respectively, of total revenue for the year ended December 31, 1999 and
13.9% and 10.4%, respectively, of total revenue for the year ended December 31,
1998.
4. Marketable Securities:
At December 31, 1999, the Company held an investment in mortgage backed
securities that was considered marketable and available-for-sale. The market
value of these securities was approximately $1.9 million at December 31, 1999,
net of an unrealized loss of $112,000. The Company did not hold any marketable
securities at December 31, 2000.
5. Property and Equipment:
Property and equipment consist of the following:
As of December
31,
-----------------
2000 1999
-------- -------
(in thousands)
Land...................................................... $ 490 $ 482
Buildings and leasehold improvements...................... 7,184 8,715
Computer equipment and software........................... 12,356 8,030
Vehicles.................................................. 23,293 817
Furniture and fixtures.................................... 4,509 3,502
-------- -------
47,832 21,546
Accumulated depreciation.................................. (13,089) (6,804)
-------- -------
$ 34,743 $14,742
======== =======
36
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The vehicles have been recorded under the provisions of a capital lease. The
Company's U.S. and U.K. contract sales businesses have entered into lease
agreements to provide fleets of automobiles for sales representatives for
certain client engagements (see Note 9 for further information regarding the
U.S. fleet lease).
Depreciation expense totaled $8.6 million, $3.6 million, and $2.2 million in
2000, 1999, and 1998, respectively. In 2000, the Company has recorded $4.0
million of depreciation on vehicles under capital lease.
6. Goodwill and Other Intangible Assets:
Goodwill and other intangible assets consist of the following:
As of December
31,
------------------
2000 1999
-------- --------
(in thousands)
Goodwill................................................. $ 97,305 $ 98,198
License agreements....................................... 6,890 7,708
Contractual covenant and marketing rights................ 1,157 1,101
-------- --------
105,352 107,007
Accumulated amortization................................. (15,058) (11,191)
-------- --------
$ 90,294 $ 95,816
======== ========
Amortization expense related to goodwill and other intangible assets totaled
$4.9 million, $4.6 million, and $3.2 million in 2000, 1999, and 1998,
respectively.
7. Debt:
Long-term borrowings consist of the following:
As of December
31,
---------------
2000 1999
------- ------
(in thousands)
U.S. revolving line of credit 7.92% weighted average
interest rate............................................. $19,000 $ --
German bank debt, 6.0% weighted average interest rate, due
April 2025, partially secured by a building in Germany.... 356 1,170
French bank debt, 10.85% weighted average rate, due August
2002...................................................... -- 40
------- ------
19,356 1,210
Current maturities of long-term borrowings................. (2,020) (55)
------- ------
$17,336 $1,155
======= ======
On December 1, 1999, the Company obtained a revolving line of credit from a
syndicated group of U.S. banks. The facility provides funds for general
corporate purposes, acquisitions and for the repurchase of the Company's common
stock (to a maximum of $37.5 million). Through December 31, 2000 the Company
had used approximately $17 million of the total amount borrowed to purchase the
Company's common stock. This amount has been classified as non-current in the
accompanying consolidated balance sheet. Under the U.S. revolving credit
agreement, the Company can borrow amounts for periods up to six months. The
Company has the ability under this agreement to renew or repay these borrowings
at any time. The Company intends to continue renewing loans where the proceeds
were used to purchase the Company's common stock under this
37
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
facility through the duration of the agreement. The facility matures on
December 1, 2003 and has a $50 million maximum borrowing limit. Interest is
payable at the Company's option of a base rate (defined as the higher of the
federal funds rate plus 0.5% or the prime lending rate) plus a margin of up to
0.25% or LIBOR plus a margin ranging from 1.25% to 2%. There were no borrowings
outstanding under this line of credit at December 31, 1999.
The Company maintains various unsecured lines of credit with banking and
financial institutions, requiring the consolidated group to meet restrictive
covenants concerning net worth and debt service coverage. In aggregate, the
Company had lines of credit available for approximately $54 million with
interest rates ranging from 7.68% to 8.02% at December 31, 2000. Under the U.S.
line of credit facility, the Company pays a fee for the availability of the
unused portion of the facility. The fee is a percentage of the unused balance
ranging from 0.375% to 0.75%. During 2000, the Company incurred costs of
approximately $0.2 million related to the unused amounts of the credit
facility. This amount has been included in interest expense in the accompanying
consolidated statements of operations.
In Germany, the Company refinanced its mortgage which is secured by a
building owned by the Company. In France, the Company repaid amounts
outstanding at December 31, 1999, and closed the credit facility with the bank.
As of December 31, 2000, the Company is in compliance with all covenants
related to our indebtedness.
Future minimum payments as of December 31, 2000, on long-term borrowings,
are as follows (in thousands):
2001.............................................................. $ 2,020
2002.............................................................. 18
2003.............................................................. 17,017
2004.............................................................. 16
2005.............................................................. 16
Thereafter........................................................ 269
-------
Total......................................................... $19,356
=======
8. Accrued Payroll, Accounts Payable and Accrued Expenses
Accrued payroll, accounts payable and accrued expenses consist of the
following:
December 31,
---------------
2000 1999
------- -------
(in thousands)
Accrued payroll and related employee benefits............ $18,966 $18,082
Accounts payable......................................... 4,101 8,801
Current portion of capital lease obligations (Note 9).... 5,824 --
Accrued expenses and other general liabilities........... 19,924 26,971
------- -------
$48,815 $53,854
======= =======
38
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Leases:
The Company leases certain facilities, office equipment and other assets.
The following is a schedule of future minimum lease payments for these
operating leases at December 31, 2000 (in thousands):
Years Ending December 31,
2001................................................................... $ 5,067
2002................................................................... 3,991
2003................................................................... 3,307
2004................................................................... 2,731
2005................................................................... 2,763
Thereafter............................................................. 6,971
-------
Total minimum lease payments........................................... $24,830
=======
Rental expense for all operating leases was approximately $6.0 million, $9.3
million and $8.2 million for the years ended December 31, 2000, 1999 and 1998,
respectively.
The Company also has commitments under capital leases. The largest of these
commitments is at the U.S. Sales group, where a significant number of vehicles
were leased under a master fleet leasing agreement (see Note 9). The following
is a schedule of future minimum lease payments for these capital leases at
December 31, 2000 (in thousands):
Years Ending December 31,
2001................................................................... $ 7,515
2002................................................................... 7,527
2003................................................................... 7,485
2004................................................................... 4,249
2005................................................................... 64
-------
Total minimum lease payments........................................... 26,840
Amount representing interest........................................... (6,095)
-------
20,745
Current portion........................................................ 5,824
-------
Non-current lease obligations.......................................... $14,921
=======
10. Commitments and Contingencies:
The Company has entered into employment agreements with certain key
executives and consulting agreements with certain former executives that
prescribe amounts to be paid as salary or consulting fees, for varying terms.
The Company is subject to lawsuits, investigations and claims arising out of
the conduct of its business, including those related to commercial
transactions, contracts, government regulation and employment matters. Certain
claims, suits and complaints have been filed or are pending against the
Company. In the opinion of management and based on the advice of legal counsel,
all matters are without merit or are of such kind, or involve such amounts, as
would not have a material effect on the financial position or results of
operations of the Company if disposed of unfavorably.
11. Common Stock and Stock Incentive Plans:
During 1999, the Company's Board of Directors authorized the repurchase of
$25 million of the Company's common stock. On March 15, 2000 the Board of
Directors authorized the repurchase of an additional $12.5 million of the
Company's common stock, bringing the total authorized to $37.5 million.
39
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 2000, the Company repurchased 1.7 million shares of the Company's common
stock for a total cost of $17.6 million, including broker fees and commissions.
All of these shares have been retired. At December 31, 1999, the Company had
repurchased 494,000 shares of the Company's common stock at a total cost of
$4.3 million, including broker fees and commissions. The shares repurchased in
1999 were retired during 2000.
In September 1999, concurrent with the Distribution, Ventiv Health, Inc.'s
1999 Stock Incentive Plan ("Stock Plan") became effective. This Stock Plan
authorizes the Company to grant incentive stock options, nonqualified stock
options, restricted stock awards and stock appreciation rights ("SARs"). Ventiv
granted options under its Stock Plan to Ventiv employees whose existing SNC
stock options were terminated as a consequence of the Distribution. The Ventiv
options granted on the Distribution date had exercise prices equal to the
closing price of Ventiv common stock on that date. The aggregate number of
shares of Ventiv common stock that may be issued under the Stock Plan upon
exercise of options, SARs or in the form of restricted stock is 4.8 million,
increased by 17.5% of the number of shares of Ventiv common stock authorized
for issuance by Ventiv's Board of Directors following the Distribution.
The exercise price of Ventiv options granted under the Stock Plan may not be
less than 100% of the fair market value per share of Ventiv common stock on the
date of the option grant. The vesting and other provisions of the options are
determined by the Compensation Committee of Ventiv Health, Inc.'s Board of
Directors.
A summary of the option activity within the Stock Plan, is as follows:
Weighted
Average
Number Price
of shares Per Share
-------------- ---------
(in thousands)
Outstanding under option at January 1, 1999........ -- $ --
Granted.......................................... 3,495 7.95
Exercised........................................ -- --
Forfeited or expired............................. (55) 7.94
----- ------
Outstanding under option at December 31, 1999...... 3,440 7.95
Granted.......................................... 605 10.03
Exercised........................................ (171) 7.94
Forfeited or expired............................. (564) 8.00
----- ------
Outstanding under option at December 31, 2000...... 3,310 $ 8.33
===== ======
Exercisable at:
December 31, 1999................................ 396 $ 7.94
===== ======
December 31, 2000................................ 943 $ 7.95
===== ======
The Ventiv options outstanding have exercise prices ranging from $5.38 to
$14.88 and $5.38 to $8.06 at December 31, 2000 and 1999, respectively. The
weighted average remaining contractual life on the options outstanding at
December 31, 2000 and 1999 is 8.51 and 9.32 years, respectively.
The fair value of each option grant is estimated on the date of grant using
a Black-Scholes option pricing model with the following weighted average
assumptions.
2000 1999
----- -----
Expected life of option........................................... 4yrs 4yrs
Risk-free interest rate........................................... 5.17% 6.36%
Expected volatility............................................... 61.95% 50.00%
Expected dividend yield........................................... 0.00% 0.00%
40
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The weighted average option fair value on the grant date was $5.23 for
options issued in 2000 and $3.68 for options issued from the date of the
Distribution through December 31, 1999.
If Ventiv had recorded compensation expense from the date of the
Distribution through December 31, 2000, using the fair value based method
prescribed by SFAS No. 123, Ventiv's 2000 and 1999 pro forma net earnings
(losses), which reflect pro forma adjustments for income taxes, would have been
reduced to the following adjusted amounts:
As of December 31,
-------------------------
2000 1999
------------ ------------
(in thousands except per
share data, unaudited)
Pro forma net earnings (losses):
As reported..................................... $16,814 $(6,793)
As adjusted..................................... $14,866 $(7,308)
Pro forma basic net earnings (losses) per share:
As reported..................................... $ 0.74 $ (0.28)
As adjusted..................................... $ 0.66 $ (0.31)
Pro forma diluted net earnings (losses) per share:
As reported..................................... $ 0.72 $ (0.28)
As adjusted..................................... $ 0.64 $ (0.31)
During 2000, the Company issued 5,926 shares of restricted stock which vest,
on a pro rata basis, over a period of four years. The Company also cancelled
103,937 shares of restricted shares held by employees whose employment was
terminated during the year. The Company recognized $1.0 million of expense
related to restricted shares. On September 27, 2000, 121,576 shares of the
restricted shares issued in 1999 vested.
During 1999, the Company granted 831,502 restricted shares of Ventiv common
stock at a purchase price of $0.001, to certain employees. Following the
Distribution 269,608 of the shares vested immediately with the remaining
restricted shares vesting ratably over the four years following the grant date.
During 1999, the Company recognized $2.4 million in expense related to these
restricted shares, $2.1 million of which is due to the vesting of restricted
shares which occurred immediately following the Distribution.
At December 31, 2000, Ventiv had reserved 4.8 million common shares for
issuance under the Stock Plan of which, approximately 1.3 million remain
available for grant.
12. Pension and Profit-Sharing Plans:
Ventiv and certain of its subsidiaries maintain defined contribution benefit
plans. Pension and profit sharing costs incurred by the Company related to
these plans amounted to approximately $0.8 million, $1.0 million, and $0.8
million for 2000, 1999 and 1998, respectively.
13. Recapitalization Costs
During 1999, the Company recorded a charge of $2.1 million related to the
issuance of restricted stock that was granted to certain key employees of
Ventiv. The $2.1 million related to the portion of the restricted stock awards
which vested immediately upon completion of the Distribution. There was no
similar charge in 2000.
14. Acquisition and Related Costs
During 1999, the Company incurred a charge of approximately $5.7 million
related to a payment made to the former owner of PromoTech in the form of
695,304 shares of Ventiv common stock in exchange for the release of any and
all claims against SNC of Ventiv relating to the merger transaction. This
additional
41
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration was not provided for in the purchase agreement and therefore
could not be considered part of the purchase price for accounting purposes.
In 1998, the Company incurred a charge of $16.2 million related to the
consummation of acquisitions accounted for as poolings of interests. These
costs included investment banking fees, expenses associated with the
accelerated vesting of options held by employees of certain of the Company's
acquirees, other professional service fees, transfer taxes and other
contractual payments.
The Company did not incur any charges of this nature in 2000.
15. Restructuring and Other Charges:
During 2000, management completed an evaluation of staffing levels and
infrastructure of its European operations. Following their evaluation,
management adopted a restructuring plan which provided for: i) rationalization
of senior and mid-level management in France, the United Kingdom and Austria
(total of 10 employees; ii) early termination of leases in France and Austria
to reduce overall facilities costs and consolidate certain sales operations,
respectively, and; iii) the disposition of assets not associated with Ventiv's
core businesses. In addition, Ventiv U.K. incurred charges related to the
closure of a syndicated sales team. The closure of this team resulted in the
termination of 6 employees. The total charge incurred related to the European
operations was approximately $2.9 million.
The Company also completed its evaluation of the operations at Ventiv Health
Communications. As a result of this evaluation, a plan was implemented to
restructure this operation. The Company incurred a restructuring charge of
approximately $2.6 million, which provided for: i) rationalization of
management and staff positions (total of 24 employees); ii) early termination
of leases to reduce overall facilities costs and; iii) the disposition of
assets related to the early termination of leases.
During 2000, the Company accrued for and expensed approximately $2.4 million
related to employee termination benefits, of which the Company has paid out
approximately $1.5 million by December 31, 2000.
The Company recorded $2.2 million of non-recurring costs during 1999. These
costs included: (a) a $3.1 million charge for costs necessary to consolidate
and integrate certain of Ventiv's acquired operations (under the plan initiated
during 1998 as discussed below); and (b) a reduction of $0.8 million in
previously recorded acquisition and related costs due to a revision of
estimates.
The Company recorded $10.7 million in 1998 for costs necessary to
consolidate and integrate certain of the Company's acquired operations in the
U.S., the U.K. and France. The Company integrated acquired subsidiaries that
provide similar services within the same geographic regions. Approximately nine
locations have been combined into four, and the efforts did not have a
significant impact on the Company's workforce. The $10.7 million charge
consisted of approximately $4.1 million to consolidate and terminate lease
obligations, $5.3 million of severance and other costs associated with the
termination of 142 employees, and $1.3 million of fees incurred for consulting
services and other costs related to these integration activities. The employees
who were terminated were assigned to redundant operations or administrative
functions. In addition, one underutilized syndicated sales team in the United
Kingdom was also eliminated. A $3.1 million charge recorded in 1999 consisted
of $1.8 million in severance and related costs associated with the termination
of 23 employees and $1.3 million in consulting services and other costs related
to these integration activities. 1998 non-recurring costs also included
compensation to stockholders of $0.8 million. Prior to their merger with the
Company, certain stockholders of the acquired companies received annual
compensation in their roles as managers in excess of amounts that they will
receive pursuant to employment agreements they have entered into with Ventiv.
The excess amount is recorded as non-recurring costs in the periods prior to
the acquisitions and the Company has recorded no such compensation following
these acquisitions.
42
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The charges for integration activities and restructuring initiatives
recorded in 2000, 1999 and 1998 were recorded in accordance with Emerging
Issues Task Force 94-3, "Liability Recognition for Costs to Exit an Activity
(including certain costs incurred in a restructuring)" ("EITF 94-3").
Additional expenses for the Company's integration activities recorded in 1999
represent additional costs incurred that did not qualify for accrual at
December 31, 1998 in accordance with EITF 94-3.
The following table summarizes the activity in the integration activities
liability account (in thousands):
Beginning Deductions for Changes in Balance at End
Balance Additions Amounts Paid Foreign Currency of Period
--------- --------- -------------- ---------------- --------------
Year Ended December 31,
2000................... $ 999 $ 5,447 $ 3,474 $(16) $2,956
Year Ended December 31,
1999(1)................ $7,971 $ 3,064 $10,036 $ -- $ 999
Year Ended December 31,
1998(1)................ $ -- $10,654 $ 2,683 $ -- $7,971
- --------
(1) Amounts accrued and expensed in 1999 and 1998 included amounts related to
recapitalization costs and acquisition and related costs (see Notes 13 and
14, respectively). At December 31, 2000 there were no amounts related to
these items remaining in the accrual.
The Company expects that these remaining amounts will be paid out by the end
of 2001.
16. Income Taxes:
The Company's net earnings (losses) before income taxes consisted of:
Year Ending December
31,
-------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Domestic.......................................... $34,811 $(5,318) $17,254
Foreign........................................... (6,789) (2,128) (2,959)
------- ------- -------
Total........................................... $28,022 $(7,446) $14,295
======= ======= =======
The Company's income tax provision (benefit) included the following
components:
For the Years Ended
December 31,
-------------------------
2000 1999 1998
------- ------- -------
(in thousands)
Current:
U.S.--Federal................................... $ 6,865 $(1,779) $ 5,826
U.S.--State and local........................... 1,477 (498) 1,672
Foreign......................................... 616 504 4,622
------- ------- -------
$ 8,958 $(1,773) $12,120
======= ======= =======
Deferred:
U.S.--Federal................................... $ 3,342 $ 578 $ 807
U.S.--State and local........................... 232 161 260
Foreign......................................... (1,324) 381 (338)
------- ------- -------
2,250 1,120 729
------- ------- -------
Income tax provision (benefit).................. $11,208 $ (653) $12,849
======= ======= =======
43
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provision for taxes on net earnings (losses) differs from the amount
computed by applying the U.S. federal income tax rate as a result of the
following:
For the Years
Ended December
31,
-----------------
2000 1999 1998
---- ----- ----
Taxes at statutory U.S. federal income tax rate......... 35.0% 35.0% 35.0%
State and local income taxes, net of federal tax
benefit................................................ 6.1 5.3 9.4
Utilization of net operating losses..................... (7.8) -- --
Foreign tax rate differential........................... 1.1 4.1 2.1
Goodwill amortization................................... 3.7 (14.6) 3.7
Non-recurring charges and other permanent differences... 1.9 (21.1) 39.7
---- ----- ----
Effective tax rate...................................... 40.0% 8.7% 89.9%
==== ===== ====
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December 31,
2000 and 1999, temporary differences that gave rise to the deferred tax assets
and liabilities consisted of the following (in thousands):
As of December
31,
------------------
2000 1999
-------- --------
Allowances for doubtful accounts............................ $ -- $ 163
Accrued expenses............................................ 2,048 3,685
Deferred compensation....................................... 238 135
Intangible assets........................................... 17,583 22,063
Tax losses of subsidiaries.................................. 6,856 8,070
Other....................................................... 766 905
-------- --------
Gross deferred tax assets................................... 27,491 35,021
-------- --------
Property and equipment...................................... (167) (274)
Deferred revenues........................................... (1,958) (2,023)
Other....................................................... (2,141) (2,274)
-------- --------
Gross deferred tax liabilities.............................. (4,266) (4,571)
-------- --------
Valuation allowance......................................... (16,771) (20,785)
-------- --------
Net deferred tax asset.................................. $ 6,454 $ 9,665
======== ========
Several of the Company's subsidiaries have operating loss carryforwards that
can be realized only if these subsidiaries generate taxable operating income in
future periods. The amounts and respective expiration dates of operating loss
tax carryforwards are as follows: net operating losses generated between 1998
and 2000 of approximately $13.8 million, of which approximately $1.2 million
expires in 2004, approximately $1.0 million expires in 2005, $6.4 million
expires in 2019 and approximately $5.2 million which is not subject to
expiration. Management continually assesses whether the Company's deferred tax
asset associated with these operating tax loss carryforwards is realizable and
believes that the deferred tax asset is realizable at December 31, 2000.
One of the Company's foreign subsidiaries has certain intangibles and other
assets which are depreciable and amortizable for tax purposes and can be
realized only if that subsidiary generates sufficient taxable income. At
December 31, 2000 and 1999, management determined that a valuation allowance
against the deferred tax asset associated with these intangibles and other
assets was required. Management continually assesses whether the related
deferred tax asset is realizable and believes that the deferred tax asset, net
of the valuation allowance, is realizable at December 31, 2000.
44
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 2000, cumulative undistributed earnings of the Company's
foreign subsidiaries was approximately $2.1 million. No provision for U.S.
income taxes or foreign withholding taxes has been made since the Company
considers the undistributed earnings to be permanently invested in the foreign
countries. Determination of the amount of unrecognized deferred tax liability,
if any, for the cumulative undistributed earnings of the foreign subsidiaries
is not practicable since it would depend upon a number of factors which cannot
be known until such time as a decision to repatriate the earnings is made.
17. Related Parties:
In 1999 and 2000, the Company received certain administrative services,
under an interim service agreement with SNC. Included in the results of
operations for the Company are charges of approximately $1.0 million and $0.6
million at December 31, 2000 and 1999, respectively. At December 31, 1999, the
Company owed SNC $0.6 million, which was included in accrued expenses. No
interest was paid on outstanding amounts.
18. Segment Information:
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company's management considers
its business to be a single reportable segment--the provision of integrated
marketing and sales services to pharmaceutical and life science companies. The
Company's operations are primarily in the United States and Western Europe.
Below is a geographic separation of the revenue sources:
Year Ending December 31,
--------------------------
2000 1999 1998
-------- -------- --------
Revenue:
United States................................... $324,281 $214,395 $175,840
Europe.......................................... 92,379 130,260 145,660
-------- -------- --------
Total......................................... $416,660 $344,655 $321,500
======== ======== ========
19. Comprehensive Earnings (Losses):
SFAS No. 130, "Reporting Comprehensive Income," was adopted during 1998.
This statement established standards for reporting comprehensive income in the
financial statements. Comprehensive income reports the effects on net earnings
(losses) of transactions that are related to the equity of the Company, but
that have not been transacted directly with the Company's shareholders. This
statement only modifies disclosures, including financial statement disclosures,
and does not result in changes to the results or financial position of the
Company.
For the period from
For the year ended September 27, to
December 31, 2000 December 31, 1999
------------------ -------------------
Net earnings (losses)............... $16,814 $(6,451)
Other comprehensive
earnings/(losses), net of tax:
Earnings contributed by Snyder.... -- 1,758
Compensation on shares issued..... -- (2,100)
Unrealized loss on marketable
securities....................... -- (112)
Foreign currency translation
adjustment....................... 859 (1,020)
------- -------
Comprehensive earnings (losses)..... $17,674 $(7,925)
======= =======
45
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. Selected Quarterly Financial Data (unaudited, in thousands):
The following table summarizes financial data by quarter for the Company for
2000 and 1999.
2000 Quarter Ended
--------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- --------
Revenues................ $98,917 $98,984 $103,355 $115,404 $416,660
Gross profit............ 17,678 18,848 18,641 27,361 82,528
Net earnings............ 2,786 4,092 2,959 6,977 16,814
Net earnings per share
(diluted).............. 0.12 0.18 0.13 0.30 0.72(A)
1999 Quarter Ended
--------------------------------------------------
March 31 June 30 September 30 December 31 Total
-------- ------- ------------ ----------- --------
Revenues.................. $86,939 $94,320 $72,900 $90,496 $344,655
Gross profit.............. 19,659 23,456 1,005 5,239 49,359
Net earnings (losses)..... 5,090 7,549 (12,981) (6,451) (6,793)
Net earnings (losses) per
share (diluted).......... 0.21 0.32 (0.55) (0.26) (0.28)
- --------
(A) The sum of the net earnings per share do not add up to the full year amount
due to rounding and that the quarterly calculations are based on varying
numbers of shares outstanding.
46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Ventiv Health, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States the consolidated financial statements of Ventiv Health, Inc.
(the "Company"), as defined in Note 1 to the consolidated financial statements,
included in this Form 10-K and have issued our report thereon dated February
19, 2001. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. Schedule II Valuation
and Qualifying Accounts included in the Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 19, 2001
47
VENTIV HEALTH, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
(in thousands)
Deductions from
Additions Reserve for
Balance at Charged to Purpose for
Beginning Cost and Which Reserve Translation Balance at End
of Year Expense was Created Adjustment of Year
---------- ---------- --------------- ----------- --------------
Allowances for Doubtful
Accounts:
Year ended December 31,
2000................... $2,517 $ 535 $ 883 $(53) $2,116
Year ended December 31,
1999................... 2,971 1,198 1,554 (98) 2,517
Year ended December 31,
1998................... 3,924 1,162 2,118 3 2,971
Deductions from
Additions Reserve for
Balance at Charged to Purpose for
Beginning Cost and Which Reserve Translation Balance at End
of Year Expense was Created Adjustment of Year
---------- ---------- --------------- ----------- --------------
Accrual for
Restructuring Charges:
Year ended December 31,
2000................... $ 999 $ 5,447 $3,474 $16 $2,956
Year ended December 31,
1999................... 7,971 3,064 10,036 -- 999
Year ended December 31,
1998................... -- 10,654 2,683 -- 7,971
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
48
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information contained in Ventiv's definitive proxy statement to be
filed with the Commission for use in connection with the 2001 Annual General
Meeting of Shareholders ("Ventiv's Proxy Statement") under the sections
entitled "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference in response to this
item.
Item 11. Executive Compensation.
The information contained in Ventiv's Proxy Statement under the section
entitled "Executive Compensation" is incorporated herein by reference in
response to this item, except that the information contained in the Proxy
Statement under the sub-headings of "Report of the Board of Directors of
Ventiv Health, Inc. on Executive Compensation" and "Stockholder Return
Performance Graph" is not incorporated herein by reference and is not deemed
"filed" as part of this filing.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information contained in Ventiv's Proxy Statement under the section
entitled "Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners" is incorporated herein by reference in response to this
item.
Item 13. Certain Relationships and Related Transactions.
The information contained in Ventiv's Proxy Statement under the section
entitled "Compensation Committee Interlocks and Insider Participation" is
incorporated herein by reference in response to this item.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. The following Consolidated Financial Statements of Ventiv Health,
Inc. are filed under "Item 8. Financial Statements and Supplementary Data."
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended December 31,
2000, 1999 and 1998.
Consolidated Statements of Stockholders' Equity for the year ended December
31, 2000 and for the period from September 27, 1999 to December 31, 1999.
Consolidated Statements of Cash Flows for the years ended December 31,
2000, 1999 and 1998.
Notes to Consolidated Financial Statements
2. The following financial statement schedule is filed under "Item 8.
Financial Statements and Supplementary Data."
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or are not
required under Regulation S-X.
3. The following exhibits are filed herewith or are incorporated herein by
reference, as indicated.
49
Exhibit Description Page
------- ----------- ----
3.1 Amended and Restated Certificate of Incorporation of Ventiv
Health, Inc. (filed as Exhibit 3.1 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
3.2 By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
4.1 Specimen form of certificate representing Ventiv Health, Inc.
common stock (filed as Exhibit 4.1 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
10.1 Form of Distribution Agreement between Snyder Communications,
Inc. and Ventiv Health, Inc. (filed as Exhibit 10.1 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
10.2 Form of Tax Sharing Agreement between Snyder Communications,
Inc. and Ventiv Health, Inc. (filed as Exhibit 10.2 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
10.3 Form of Interim Services Agreement between Snyder
Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit
10.3 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.4 Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Exhibit
10.4 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.5 Employment Agreement, dated June 14, 1999 by and between Eran
Broshy and Snyder Communications, Inc. (filed as Exhibit 10.5
to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
10.6 Employment Agreement, dated February 13, 1999 by and between
Dr. Robert Brown and Health Products Research, Inc. (filed as
Exhibit 10.6 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.7 Employment Agreement, dated February 13, 1998 by and between
William Pollock and Healthcare Promotions, LLC (filed as
Exhibit 10.9 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.8 Employment Agreement, dated August 18, 1999 by and between
Gregory S. Patrick and Ventiv Health, Inc. (filed as Exhibit
10.10 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.9 Credit Agreement, dated December 1, 1999, among Ventiv Health,
certain subsidiaries of Ventiv Health, Inc., the lenders named
therein and Bank of America, N.A. (filed as Exhibit 10.9 to
Registrants Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
21.1 Subsidiaries of Ventiv Health, Inc.
23 Consent of Arthur Andersen LLP.
- --------
* Incorporated by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three-month period ended
December 31, 2000.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Ventiv Health, Inc.
/s/ Joseph S. Durko
By: _________________________________
Joseph S. Durko
Vice President, Controller and
Secretary
Date: March 30, 2000
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Eran Broshy Chief Executive Officer March 30, 2001
______________________________________ and Director (Principal
Eran Broshy Executive Officer)
/s/ Joseph S. Durko Vice President, Controller March 30, 2001
______________________________________ and Secretary (Principal
Joseph S. Durko Financial and Accounting
Officer)
/s/ Daniel M. Snyder Co-Chairperson of the March 30, 2001
______________________________________ Board
Daniel M. Snyder
/s/ Michele D. Snyder Co-Chairperson of the March 30, 2001
______________________________________ Board
Michele D. Snyder
/s/ Donald Conklin Director March 30, 2001
______________________________________
Donald Conklin
/s/ Fred Drasner Director March 30, 2001
______________________________________
Fred Drasner
/s/ John R. Harris Director March 30, 2001
______________________________________
John R. Harris
/s/ A. Clayton Perfall Director March 30, 2001
______________________________________
A. Clayton Perfall
/s/ Mortimer B. Zuckerman Director March 30, 2001
______________________________________
Mortimer B. Zuckerman
51
Exhibit Description Page
------- ----------- ----
3.1 Amended and Restated Certificate of Incorporation of Ventiv
Health, Inc. (filed as Exhibit 3.1 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
3.2 By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
4.1 Specimen form of certificate representing Ventiv Health, Inc.
common stock (filed as Exhibit 4.1 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
10.1 Form of Distribution Agreement between Snyder Communications,
Inc. and Ventiv Health, Inc. (filed as Exhibit 10.1 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
10.2 Form of Tax Sharing Agreement between Snyder Communications,
Inc. and Ventiv Health, Inc. (filed as Exhibit 10.2 to the
Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
10.3 Form of Interim Services Agreement between Snyder
Communications, Inc. and Ventiv Health, Inc. (filed as Exhibit
10.3 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.4 Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Exhibit
10.4 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.5 Employment Agreement, dated June 14, 1999 by and between Eran
Broshy and Snyder Communications, Inc. (filed as Exhibit 10.5
to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act
1934, as amended).*
10.6 Employment Agreement, dated February 13, 1999 by and between
Dr. Robert Brown and Health Products Research, Inc. (filed as
Exhibit 10.6 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.7 Employment Agreement, dated February 13, 1998 by and between
William Pollock and Healthcare Promotions, LLC (filed as
Exhibit 10.9 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.8 Employment Agreement, dated August 18, 1999 by and between
Gregory S. Patrick and Ventiv Health, Inc. (filed as Exhibit
10.10 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the
Securities Act 1934, as amended).*
10.9 Credit Agreement, dated December 1, 1999, among Ventiv Health,
certain subsidiaries of Ventiv Health, Inc., the lenders named
therein and Bank of America, N.A. (filed as Exhibit 10.9 to
Registrants Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of
1934, as amended).*
21.1 Subsidiaries of Ventiv Health, Inc.
23 Consent of Arthur Andersen, LLP.
- --------
* Incorporated by reference.