Back to GetFilings.com
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
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, 2001
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.)
200 Cottontail Lane
Vantage Court North
Somerset, New Jersey 08873
(800) 416-0555
(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
------------------- -----------------------------
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 18, 2002 was approximately $33,524,315.
As of March 18, 2002, there were 22,992,397 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 2001 annual meeting of
stockholders are incorporated by reference into Part III of this Form 10-K.
================================================================================
TABLE OF CONTENTS
Item Description Page
- ---- ----------- ----
PART I
1 Business............................................................................. 1
2 Properties........................................................................... 8
3 Legal Proceedings.................................................................... 8
4 Submission of Matters to a Vote of Securities Holders................................ 8
PART II
5 Market for the Registrant's Common Stock and Related Stockholder Matters............. 9
6 Selected Financial Data.............................................................. 10
7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11
7A Quantitative and Qualitative Disclosures About Market Risk........................... 24
8 Financial Statements and Supplementary Data.......................................... 25
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. 52
PART III
10 Directors and Executive Officers of the Registrant................................... 53
11 Executive Compensation............................................................... 53
12 Security Ownership of Certain Beneficial Owners and Management....................... 53
13 Certain Relationships and Related Transactions....................................... 53
PART IV
14 Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................... 53
Signatures
i
PART I
Item 1. Business.
Overview
Ventiv Health, Inc. ("Ventiv" or "the Company") is a leading global provider
of a wide range of outsourced marketing and sales solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range
of integrated services, in a context of consultative partnership that
identifies strategic goals and applies targeted, tailored solutions. The
portfolio of offerings includes: consulting, analytics and forecasting; market
research and intelligence; strategic and tactical planning; congresses and
symposia targeted to physicians; telemarketing and other marketing support;
product/brand management; recruitment and training services; and sales
execution. Over almost three decades, Ventiv's businesses have provided a broad
range of innovative strategic and tactical solutions to clients across the
United States ("U.S.") and Europe, including many of the world's leading
pharmaceutical and life sciences companies.
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
independently managed, publicly traded corporation.
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
effective 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 relatively low percentage of the amount they spend worldwide on
sales and marketing activities.
Ventiv's Business Units
We serve our clients primarily through five business units: Planning and
Analytics (as provided by the Company's Health Products Research ("HPR")
subsidiary), Ventiv Health Communications ("VHC"), Ventiv Health U.S. and
European Contract Sales (together "Ventiv Health Sales" or "VHS") and Ventiv
Integrated Solutions ("VIS"). These units address various aspects of the
marketing process for pharmaceutical and other life sciences products. A
product's targeted marketing and sales effort must be carefully designed to
maximize the manufacturer's return on investment and sales results must be
constantly monitored and sales strategies must be adjusted to respond to a
dynamic marketplace. HPR has recognized expertise and full capability to assist
clients in these areas. Pharmaceutical products must be sold by a team of
highly trained sales representatives. VHS has market-leading capability in
recruiting, training, deploying and managing small to large scale product sales
forces. VHS is capable of functioning independently or in tandem with a
client's existing, internal sales force. VHC, through independently developed,
industry sponsored congresses and symposia, as well as through telemarketing and
1
other marketing support services, creates product awareness and demand within
the medical community throughout a product's life cycle. VIS focuses on
providing comprehensive commercialization services with new and existing
clients. VIS integrates the services of Ventiv's and other market-leading
businesses offering alternative solutions 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.
With the exception of VIS, each business unit performs very specific
functions as part of the overall sales and marketing plan. 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. Given the nature of the
services provided by each business unit in relation to marketing needs
throughout a product's life cycle, ample opportunities exist for cross-selling
to current clients. Many of our larger clients utilize the services of more
than one unit.
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.
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, which greatly contributes to client
retention.
The following is a detailed description of our individual business units:
HPR
HPR is capable of designing product launch programs and monitoring each
program's progress 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's
distinctive processes for developing strategic and tactical resource allocation
are predicated upon the linking of services and data through solutions based on
physician-level intelligence. The direct links that are created between
strategy, tactics and data ensures pragmatic and effective solutions and yields
tangible results 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: HPR's proprietary Promotion Response
Optimization Model (PROM/SM) 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 UniBrand/SM 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 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. /
2
Once the future response curves have been calibrated by UniBrand/SM, 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 sales force 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: Through its proprietary technologies and its Call
Planning System ("CAPS/SM") HPR 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 sales forces.
. 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.
During 2001, HPR invested significantly in the development of desktop tools
that incorporate several of HPR's proprietary analytical models. The Company
believes that these products will enhance future revenues by creating new
revenue streams and demand for additional analytical consulting services.
VHC
VHC provides a variety of important marketing support services including:
. Symposia & Congresses: VHC independently develops and organizes large
symposia and congresses that are then 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. VHC
can organize interactive satellite transmissions of these events,
allowing attendees and faculty from remote locations to participate.
. 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.
. Direct Mail & Sample Fulfillment: Registered with the Food and Drug
Administration ("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, which
can be part of a seamless service offering for the client. For example,
offering avenues of support through the direct mail and sample
fulfillment programs could enable 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).
3
VHS
VHS is organized to implement and execute outsourced product detailing
programs for prescription pharmaceutical and other life sciences products. 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 6-12 weeks. Currently, VHS operates one of the largest
contract sales organizations in the U.S. (larger, in fact, than some
pharmaceutical companies), with approximately 2,600 sales representatives in
the U.S. and approximately 4,000 worldwide as of December 31, 2001. It also has
significant global coverage through its operations in the United Kingdom
("U.K."), 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 sideeffects, 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. Recruiting qualified personnel and providing
client and product specific training are both 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 have made
more significant investments in this area than our competitors. 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 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. Due to our expertise
in this area clients have asked us, from time to time, to provide recruiting
and training services on a stand-alone basis. We have provided these services,
in the past, on a limited basis, although we prefer to provide this service as
part of a more comprehensive sales force engagement. We will continue to accept
recruiting and training engagements on a select basis, as opportunities arise.
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.
4
Consistent with standard practices in the pharmaceutical industry VHS
collects and analyzes sales force level data necessary to make marketing
resource allocation decisions. Sales representatives are equipped with palm-top
computers and other similar devices in order to collect sales call and
physician profiling information, which is compiled regularly in a central data
storage server. Our information processing system allows sales management teams
to analyze data regularly, 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.
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 integrates the services of Ventiv's and other market-leading
businesses offering alternative solutions 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 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 U.K.,
Germany, France and Hungary) and the U.S. We are a large-scale provider of
contract sales with a sales force ranked in the top three, in each market based
on size, among outside providers in the U.S., Germany, France and the U.K.,
constituting four of the top six worldwide pharmaceutical markets. We are also
a significant provider of 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 2001 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.
Comprehensive Service Offering. We offer a broad range of services, from
the strategic analysis and design of a targeted product launch, to the
recruiting, training, deployment and management of sales forces to implement
targeted sales plans. The Company also offers educational programs including
conventions and symposia, designed to increase awareness of disease states and
treatments. Through our VIS unit, we are capable of providing a full product
portfolio management services. We believe that Ventiv is the only company in
this market that is able to offer this breadth of services to the
pharmaceutical and life sciences industries.
Proprietary Technologies and Data. We maintain and operate a number of
proprietary software programs and systems for marketing development and data
gathering. To conduct strategic studies, HPR employs a series of programs which
were designed in-house and utilize data which is gathered and processed by
HPR's clients and, on certain engagements, VHS to conduct proprietary market
research. Also, we have made a considerable investment in technology and are
focused on using cutting-edge sales force automation tools to increase our
efficiency. Such data collection is important for the management of a sales and
marketing campaign, for pharmaceutical products throughout their life cycle,
especially during the product launch phase.
Diversified 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. Relative to our peers, our business is not overly
concentrated on a small number of clients, however, we continue to seek new
opportunities to further diversify our client base.
Experienced 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.
5
Our basic strategy is to enhance our capabilities, deepen our client
penetration and offer more fully-integrated solutions. Because of our high
level of quality service, many of our pharmaceutical clients have rewarded us
with contract extensions and additional new business. Physicians routinely give
us the highest marks in surveys of medical education programs. Additionally, we
provide highly advanced and well regarded, strategic analysis through HPR.
Clients
We provide our services to leading pharmaceutical, biotechnology, medical
device and diagnostics companies on a global basis. During 2001, approximately
70.7% of our revenues were derived from our ten largest clients. Our ten
largest clients during 2001, listed alphabetically, were as follows: Bayer
Corporation ("Bayer"), Boehringer Ingleheim, Inc., Bristol-Myers Squibb, Inc.
("BMS"), Endo Pharmaceuticals, Forest Laboratories, Inc., GlaxoSmithKline,
Merck, Novartis and Novo Nordisk, Reliant Pharmaceucticals, Inc. ("Reliant").
One client, Reliant, accounted for approximately 20.4% of our total revenue for
the year ended December 31, 2001. BMS and Bayer each accounted for 12.5% and
10.6%, respectively, of our revenues during 2001. No other clients accounted
for more than 10.0% of revenue in 2001.
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 longevity of many of our
client relationships. We have developed sustained relationships with large,
mid-tier and emerging pharmaceutical clients that provide us with recurring
revenue streams and service cross-selling opportunities. Our ability to perform
services and 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.
We provide services to many of our most significant clients under contracts
that our clients may cancel, typically on 60 to 120 days notice. In addition,
many of these contracts provide our clients with the opportunity to internalize
the sales forces ("sales force conversion") under contract, with sufficient
notice. Also, although the Company has been successful in negotiating
longer-term commitments, the Company cannot be assured that clients will renew
relationships beyond the expiration date of existing contracts.
Competition
We believe that no other organization offers the same scope of comprehensive
healthcare marketing and sales services as we offer our clients. Our
competitors include contract sales organizations as well as contract research
organizations that also 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 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. We believe that Ventiv, Innovex (Quintiles) and Professional
Detailing, Inc. combined account for most of the U.S. 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
6
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, 2001, we employed approximately 4,500 people worldwide,
including approximately 4,000 sales representatives. Our part-time sales force
employees account for approximately 6.9% of our total field workforce. 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, and in corresponding segments of the
pharmaceutical industry, is generally is high, particularly with respect to
sales force employees We believe our turnover rate is comparable to that of
other contract service organizations and internal pharmaceutical sales and
marketing departments. 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 and regulations in the
U.S., and certain regulations of the U.K., 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 U.K., 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.
Some of our physician education services are 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.
7
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 10 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.
In June 2001 Christian Levistre commenced an arbitration proceeding against
the Company before the International Chamber of Commerce arising from the
acquisition by the Company's predecessor of two healthcare marketing
businesses, one of which was wholly owned and one of which was partially owned
by Mr. Levistre. Mr. Levistre has asserted claims in the arbitration for (i)
payment of the remaining 10% of the sales price for the businesses, which
amount (originally consisting of shares of Snyder Communications, Inc. common
stock) was retained in escrow under the terms of the acquisition, as
subsequently amended by a settlement agreement between the parties, (ii)
amounts arising from the termination of his employment with Ventiv Health
France under the terms of the settlement agreement, (iii) payment of a price
adjustment to the sale price of the escrowed shares, (iv) financial prejudice
arising from the decline in value of the escrowed portion of the purchase price
for the acquired businesses and (v) improper resistance. The Company has
asserted that Mr. Levistre violated his contractual obligations under the
relevant agreements and has requested the retention of the escrowed securities
and the stay of the arbitration proceedings pending resolution of separate
claims made by one of the Company's French subsidiaries relating to unfair
competition and related claims in the French courts. The Company intends to
defend the arbitration claims vigorously and believes it has meritorious
defenses.
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, 2001.
8
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, 2001
First Quarter........... $17.2500 $11.8125
Second Quarter.......... 20.6400 13.0500
Third Quarter........... 19.9400 4.0000
Fourth Quarter.......... 4.7000 2.4400
High Low
-------- --------
Year ended December 31, 2000
First Quarter........... $10.7500 $ 7.0000
Second Quarter.......... 11.3750 8.6250
Third Quarter........... 15.0000 11.1875
Fourth Quarter.......... 13.0625 8.8750
On March 18, 2002, the closing price for Ventiv's common stock was $2.30 per
share, and there were approximately 201 record holders and approximately 5,474
beneficial owners of Ventiv's common stock as of that date.
To date, Ventiv has not declared cash dividends on its common stock and is
currently restricted from doing so under our new credit agreement (See Part
II--Item 8--Notes to Consolidated Financial Statements (Note 7)). 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, 6201 Fifteenth Avenue, Brooklyn, New York, 11219.
9
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, have been derived from
audited financial statements of Ventiv. These financial statements have been
restated as a result of the Company's decision to discontinue the operations of
its medical education and communications business in Stamford, Connecticut.
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,
------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(in thousands, except per share data)
Revenues........................................................... $398,553 $374,980 $306,944 $268,546 $174,694
======== ======== ======== ======== ========
Net earnings (losses) from continuing operations................... $(51,872) $ 18,807 $ (788) $ 3,897 $ 5,192
======== ======== ======== ======== ========
Net earnings (losses) from discontinued operations................. $ (6,630) $ (1,993) $ (6,004) $ (2,451) $(13,910)
======== ======== ======== ======== ========
Net earnings (losses).............................................. $(58,502) $ 16,814 $ (6,792) $ 1,446 $ (8,718)
======== ======== ======== ======== ========
Basic net earnings (losses) per share(1)
Continuing operations............................................ $ (2.29) $ 0.83 $ (0.03) $ 0.16 $ 0.22
======== ======== ======== ======== ========
Discontinued operations.......................................... $ (0.29) $ (0.09) $ (0.25) $ (0.10) $ (0.59)
======== ======== ======== ======== ========
Net earnings (losses)............................................ $ (2.58) $ 0.74 $ (0.28) $ 0.06 $ (0.37)
======== ======== ======== ======== ========
Diluted net earnings (losses) per share(1)
Continuing operations............................................ $ (2.29) $ 0.80 $ (0.03) $ 0.16 $ 0.22
======== ======== ======== ======== ========
Discontinued operations.......................................... $ (0.29) $ (0.09) $ (0.25) $ (0.10) $ (0.59)
======== ======== ======== ======== ========
Net earnings (losses)............................................ $ (2.58) $ 0.72 $ (0.28) $ 0.06 $ (0.37)
======== ======== ======== ======== ========
Proforma data (unaudited)
Proforma net earnings (losses)..................................... n/a n/a n/a n/a $ 3,210
======== ======== ======== ======== ========
Proforma net earnings (losses) from continuing operations.......... n/a n/a n/a n/a $(13,910)
======== ======== ======== ======== ========
Proforma net earnings (losses)..................................... n/a n/a n/a n/a $(10,700)
======== ======== ======== ======== ========
Proforma basic net earnings (losses) per share(1)
Continuing operations............................................ n/a n/a n/a n/a $ 0.14
======== ======== ======== ======== ========
Discontinued operations.......................................... n/a n/a n/a n/a $ (0.59)
======== ======== ======== ======== ========
Net earnings (losses)............................................ n/a n/a n/a n/a $ (0.45)
======== ======== ======== ======== ========
Proforma diluted net earnings (losses) per share(1)
Continuing operations............................................ n/a n/a n/a n/a $ 0.14
======== ======== ======== ======== ========
Discontinued operations.......................................... n/a n/a n/a n/a $ (0.59)
======== ======== ======== ======== ========
Net earnings (losses)............................................ n/a n/a n/a n/a $ (0.45)
======== ======== ======== ======== ========
Shares used in computing basic net earnings (losses) per share(1).. 22,648 22,628 23,907 23,715 23,715
======== ======== ======== ======== ========
Shares used in computing diluted net earnings (losses) per share(1) 22,648 23,406 23,907 23,715 23,715
======== ======== ======== ======== ========
Balance sheet data:
Total assets....................................................... $234,068 $251,214 $233,264 $193,644 $100,947
======== ======== ======== ======== ========
Long-term debt(2).................................................. $ 16,974 $ 32,213 $ 1,155 $ 1,473 $ 4,154
======== ======== ======== ======== ========
Total investments and advances from SNC(3)......................... n/a n/a n/a $119,727 $ 10,371
======== ======== ======== ======== ========
Total equity....................................................... $ 91,021 $149,126 $145,753 n/a n/a
======== ======== ======== ======== ========
10
- --------
(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, 2001, the number of
shares used to calculate net earnings (losses) per share was 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. At December 31, 2001, the Company had $35.0
million drawn on the unsecured line of credit. This entire amount was
classified as current, as the Company was in default of certain covenants
within the unsecured debt facility agreement.
(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.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Ventiv Health, Inc. ("Ventiv" or "the Company") is a leading global provider
of a wide range of outsourced marketing and sales solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range
of integrated services, in a context of consultative partnership that
identifies strategic goals and applies targeted, tailored solutions. The
portfolio of offerings includes: consulting, analytics and forecasting; market
research and intelligence; strategic and tactical planning; congresses and
symposia targeted to physicians; telemarketing and other marketing support;
product/brand management; recruitment and training services; and sales
execution. Over almost three decades, Ventiv's businesses have provided a broad
range of innovative strategic and tactical solutions to clients across the
United States and Europe, including many of the world's leading pharmaceutical
and life sciences companies.
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, 2001, 2000 and 1999.
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
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 is organized into operating
segments based on products and services. Ventiv's services are designed to
develop, execute and monitor strategic marketing plans for pharmaceutical and
other life sciences
11
products and to conduct medical education and communications programs,
consisting primarily of sponsored events and clinical symposia for the benefit
of the medical community, as well as other marketing support services.
The U.S. Contract Sales segment is responsible for the implementation and
execution of outsourced sales programs for prescription pharmaceutical and
other life sciences products in the United States. This service is otherwise
known as "product detailing". The U.S. Contract Sales segment maintains and
operates the requisite systems, facilities and support services to recruit,
train, deploy and manage a customized, full-service and highly targeted sales
force.
The European Contract Sales segment, similar to the U.S. Contract Sales
segment is responsible for the implementation and execution of outsourced sales
programs for prescription pharmaceutical and other life sciences products in
Europe. The European Contract Sales segment maintains and operates the
requisite systems, facilities and support services to recruit, train, deploy
and manage syndicated and dedicated sales forces, as well as other specialized
marketing teams, in each of its geographic markets.
The Planning and Analytics segment, comprised of the Company's Health
Products Research ("HPR") subsidiary, is capable of designing product launch
programs and monitoring each program's progress to maximize the potential for a
product's success. This is achieved by using proprietary software to analyze
data compiled from internal sources and third parties to determine specifically
how a targeted strategy can maximize asset utilization and return on investment
for our clients. 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. HPR also conducts
primary and secondary research, syndicated studies, market tracking and custom
research audits, with proven expertise in developing proprietary, customized
market research projects that measure attitudes and behaviors of diverse
audiences including both physicians and consumers.
The Communications segment independently develops and organizes large
symposia and congresses that are then 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. With its staff of trained telemarketers, our
Communications business has 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 on
behalf of its clients. In addition Communications is registered with the Food
and Drug Administration ("FDA") as a secondary repackager, and offers a full
complement of warehousing, assembly and packaging, and mailing and distribution
services.
During 2000, Ventiv established Ventiv Integrated Solutions ("VIS"), a
separate business unit that focuses on developing comprehensive
commercialization services with new and existing clients. VIS integrates the
services of Ventiv's and other market-leading businesses offering alternative
solutions 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.
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 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 overall sales and marketing
expenditures and, potentially, the use of contract sales and marketing services
providers.
Dependence on Demand for Outsourced Services in the Life Sciences Industries
Our business and growth depend in large part on the demand from the
pharmaceutical and life sciences industries for the outsourced marketing and
sales services. Companies may elect to perform such services internally based
on industry and company specific factors such as the rate of new product
development and FDA approval of those products, number of sales representatives
employed internally in relation to demand for or the need to promote new and
existing products, and competition from other suppliers. The decision by the
pharmaceutical or life sciences companies not to use, or to reduce the
12
use of, outsourced marketing and sales services such as those that we provide
would have a material adverse effect on our business.
Risks Associated with Our Contract Structures
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, sales force
performance metrics or a combination thereof. Under revenue sharing
arrangements, Ventiv's compensation is based on the market performance of the
products being detailed, usually expressed as a percentage of product sales.
These types of arrangements 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.
We provide services to many of our most significant clients under contracts
that our clients may cancel, typically on 60 to 120 days notice. In addition,
many of these contracts provide our clients with the opportunity to internalize
the sales forces ("sales force conversion") under contract, with sufficient
notice. Also, although the Company has been successful in negotiating
longer-term commitments, the Company cannot be assured that clients will renew
relationships beyond the expiration date of existing contracts. 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 to
cancel, convert or not renew their contracts, it could have a material adverse
effect on our results of operations.
Risk Associated with Our International Operations
Ventiv has a number of operations in the U.K. 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 24% of
our worldwide revenues in 2001 were generated from operations outside of the
United States, 28% of which were denominated in British Pounds, 38% in German
Marks and 34% 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, and effective
January 1, 2002, the Euro (in lieu of the French Franc and 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 Business Infrastructure and Resources
Our ability to grow depends to a significant degree on our ability to
successfully leverage our existing infrastructure to perform services for our
clients, as well as on our ability to develop and successfully implement new
marketing methods or channels for new services. Our 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. We will also be required to implement operational and
financial systems and additional management resources to operate efficiently
and effectively regardless of market conditions. We cannot assure you that we
will be able to manage or expand our operations effectively to address current
demand and market conditions. If we are unable to manage our infrastructure and
resources effectively, this could materially adversely affect our business,
financial condition and results of operations.
13
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 U.K., 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 U.K. 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 ("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 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.
Recent Business Developments
On August 10, 2001, VIS announced a six-year agreement with Cellegy
Pharmaceuticals, Inc. (Cellegy) to commercialize Cellegy's lead product,
Cellegesic(R) (nitroglycerin ointment), in the United States. Under the terms
of the agreement, VIS will deliver integrated marketing and sales solutions,
including marketing strategy development and product management support,
pre-launch medical education, analytical support, and non-personal promotion.
In addition, VIS will recruit and train, and the companies will jointly manage,
a dedicated sales force of approximately 75 sales representatives to launch and
support Cellegesic(R). Initial targeted physician specialists will include
colorectal and general surgeons, gastroenterologists,
obstetricians/gynecologists and selected other specialists. VIS will provide
Cellegy with up to $10 million for the commercialization of Cellegesic(R) under
a funding arrangement covering the initial commercialization phase of the
project. VIS will receive fees equal to costs of services provided during the
funding stage, contractually defined shares of product revenues during the
post-funding stages of the services agreement, and a multi-year royalty stream
after the promotion period. This agreement did not have a material impact on
financial position or results of operations during the year ended December 31,
2001.
In September 2001, the Company's Board of Directors approved a plan to
divest certain net assets of its Stamford, Connecticut-based medical education
and communications unit. As a result of this decision, the results of
operations of this operating unit are being accounted for as a discontinued
operation. The Company has entered into a non-binding term sheet with a
prospective purchaser, and expects to complete this transaction early in the
second quarter of fiscal 2002.
In February 2002, Ventiv was notified by Reliant Pharmaceuticals, LLC
("Reliant") of their intent to convert the field sales force working under the
Ventiv-Reliant contract from full-time Ventiv employment to full-time Reliant
employment
14
effective April 1, 2002. The Ventiv-Reliant contract, which commenced on August
1, 2000, provided Reliant with the option to convert all or a portion of the
field sales force to Reliant employment at any time. Revenues from this client
relationship represented 20.4% of the Company's total revenues for the year
ended December 31, 2001.
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. With respect to risk-based contracts, all or a
portion of revenues earned are based on contractually defined percentages of
either product revenues or the market value of prescriptions written and filled
in a given period. For consulting and communications services, Ventiv's
revenues are generally based on a fixed project amount or a fee-for-service
basis.
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 and functions
specifically associated with client service delivery.
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 charges include costs to rationalize management and employee
positions, all costs associated with the 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,
---------------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
(in thousands)
Revenues......................................... $398,553 100.0 % $374,980 100.0 % $306,944 100.0 %
Costs of services................................ 349,438 87.7 % 293,268 78.2 % 256,297 83.5 %
Selling, general & administrative expenses....... 45,510 11.4 % 41,808 11.1 % 40,451 13.2 %
Impairment of intangible assets.................. 51,702 13.0 % -- 0.0 % -- 0.0 %
Recapitalization costs........................... -- 0.0 % -- 0.0 % 1,900 0.6 %
Acquisition and related costs.................... -- 0.0 % -- 0.0 % 5,741 1.9 %
Restructuring charges............................ 2,025 0.5 % 2,847 0.8 % 343 0.1 %
-------- ----- -------- ----- -------- -----
Operating earnings (losses)...................... (50,122) (12.6)% 37,057 9.9 % 2,212 0.7 %
Interest expense................................. (4,537) (1.1)% (3,180) (0.8)% (360) (0.1)%
Investment income................................ 659 0.2 % 1,221 0.3 % 1,009 0.3 %
Losses on investments in equity of non-affiliates (2,600) (0.7)% -- 0.0 % -- 0.0 %
Gain on disposition of product marketing rights.. 350 0.1 % -- 0.0 % -- 0.0 %
-------- ----- -------- ----- -------- -----
Earnings (losses) from continuing operations
before income taxes............................. (56,250) (14.1)% 35,098 9.4 % 2,861 0.9 %
Provision for (benefit from) income taxes........ (4,378) (1.1)% 16,291 4.3 % 3,649 1.2 %
-------- ----- -------- ----- -------- -----
Net earnings (losses) from continuing operations. (51,872) (13.0)% 18,807 5.0 % (788) (0.3)%
-------- ----- -------- ----- -------- -----
Losses from discontinued operations
Results of operations............................ (4,676) (1.2)% (1,993) (0.5)% (6,004) (2.0)%
Estimated loss on disposal of discontinued
operations...................................... (1,954) (0.5)% -- 0.0 % -- 0.0 %
-------- ----- -------- ----- -------- -----
Net losses from discontinued operations.......... (6,630) (1.7)% (1,993) (0.5)% (6,004) (2.0)%
-------- ----- -------- ----- -------- -----
Net earnings (losses)............................ $(58,502) (14.7)% $ 16,814 4.5 % $ (6,792) (2.2)%
======== ===== ======== ===== ======== =====
15
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues: Revenues increased by approximately $23.6 million, or 6.3%, to
$398.6 million in 2001, from $375.0 million in 2000.
Revenues in our U.S. Contract Sales business ("U.S. Sales") were $264.0
million, an increase of 8.8%, or $21.3 million, over 2000, and accounted for
66.2% of total Ventiv revenues in 2001. The increase in revenue in 2001 was
attributable to new and expanded contracts with Bayer Corporation ("Bayer") and
Reliant, among others. Revenue was adversely impacted by the conclusion of a
contract with Eli Lilly at the end of 2000, for which there was no comparable
revenue in 2001, and the planned conversion of the Novo Nordisk sales force
during the second quarter of 2001. U.S. Sales' revenues and operating income
included incentive fees of approximately $2.1 million and $13.2 million for the
years ended December 31, 2001 and 2000, respectively.
Revenue was also adversely impacted by the effect of the resizing of the
Bristol-Myers Squibb, Inc. ("BMS") sales force and lower than expected revenues
from the current revenue sharing arrangement. During the first quarter of 2001,
BMS reduced the size of the sales force from 725 sales representatives to 450,
and retargeted the detailing efforts to primary care physicians. In addition,
U.S. Sales ceased detailing BuSpar(R) at the end of the first quarter of 2001,
following a court decision affecting BMS's patent for this product. In late
June 2001, BMS notified U.S. Sales of its intent to cease sales force promotion
services under this contract effective December 31, 2001.
Our European Contract Sales business generated revenues of $94.9 million in
2001, an increase of 2.7% from 2000. Revenues generated by the European
businesses represented 23.8% of total revenues for the year ended December 31,
2001. Revenue in Europe increased as a result of better utilization of the
syndicates sales force capacity in the U.K. that was not sold in 2000 and the
positive effect of new client engagements, in Germany, particularly with Bayer
and Aventis. These increases were partly offset by the loss of a dedicated
sales force engagement with American Home Products and the settlement of a
customer pricing dispute in France and, to a lesser extent, the overall effect
of foreign exchange fluctuations.
Communications' revenues represented 3.6% the Company's total revenues.
Revenues from this business were approximately $14.5 million for the year ended
December 31, 2001, a decrease of $1.5 million or 9.4% from the $16.0 million of
revenue recorded in 2000. The primary reason for the decrease was primarily the
result of declining demand for telemarketing and other direct marketing
services. These decreases were partially offset by an increase in the revenues
from client-sponsored conferences and symposia, particularly in the second
quarter of 2001.
Our Planning and Analytics business, HPR, generated 6.3% of total revenues
in 2001. Revenues increased $1.4 million or 15.9%, to $25.2 million from $23.8
million for the year ended December 31, 2001 and 2000, respectively. The
increase in revenues was a result of business from several new and expanded
client relationships including Bayer and Ortho-McNeil.
Costs of Services: Costs of services increased by approximately $56.1
million, or 19.2%, to $349.4 million for the year ended December 31, 2001 from
$293.3 million in the year ended December 31, 2000.
Costs of services at the U.S. Sales business increased by $52.8 million or
28.1% to $240.9 million for the year-ended December 31, 2001 from $188.1
million in 2000. Costs of services in 2001 were 91.3% of revenue compared to
77.5% of revenue in 2000. The increase in costs of services as a percent of
revenues was primarily due to a decrease in incentive fees, for which there are
no corresponding costs of services, and the completion or wind-down of certain
profitable contracts in the U.S. Sales business. The BMS contract yielded lower
overall margins than were realized in 2000 as a result of lower than expected
revenue share results in 2001 and the effect of the incremental revenue and
operating income recognized in 2000 related to contract start-up activities and
related costs on this engagement incurred in the third and fourth quarters of
1999. The Bayer contract that commenced in May 2001 produced minimal gross
profit on a substantial revenue base to date. The Bayer agreement is a
risk-based contract under which the Company receives certain base fees that
cover a substantial portion, but not all of the Company's expected costs of
services under this engagement. The Company is also eligible to receive
variable fees that are tied to the performance of the products being promoted.
The variable fees are intended to provide the Company with the opportunity to
recover the remaining costs and earn sufficient margins on this engagement.
During 2001, the Company earned $5.5 million of these variable fees. Based on
the Company's current assessment of future product performance in relation to
the current contract criteria, and its estimates of future costs of services
under the agreement, the Company accrued a pre-tax charge of approximately $6.1
million for estimated future losses under this contract. The Company is
currently engaged in discussions with Bayer management, which may result in
revisions to certain terms of the existing agreement, including the fee
structure.
16
Costs of services for Ventiv's European Sales business increased to $82.1
million or 2.1% from $80.4 million in 2000. The costs of services increased as
a result of the increased revenue levels. The costs of services held constant
as a percent of revenue at approximately 87%. The effect of increased margins
in the U.K. from the improved utilization of its current syndicated sales
capacity and cost reductions from the elimination of excess syndicated sales
force capacity in 2000 was largely offset by the settlement of a price dispute
in France.
Communications' costs of services were $11.7 million in 2001 compared to
$12.7 million in 2000. The decrease in the cost of services in 2001 versus 2000
was directly related to the decrease in revenue.
HPR incurred costs of services of $14.5 million in 2001, representing an
increase or $2.3 million or 18.9% from $12.2 million in 2000. Costs of services
were 57.5% of revenue in 2001 compared to 51.2% in 2000. The increase in costs
of services as a percent of revenue was primarily due to the completion of
certain profitable client engagements in 2000 and a shift in the business mix
to lower margin projects in 2001.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses increased by approximately $3.7 million, or
8.9%, to $45.5 million from $41.8 million in the years ended December 31, 2001
and 2000, respectively.
The SG&A expenses at the U.S. Sales business decreased by approximately $0.1
million in 2001 compared to 2000. SG&A expenses represented 4.8% of revenue in
2001 compared to 5.2% in 2000. The decrease as a percentage of revenue is a
result of a minimal increase in overall infrastructure costs compared to the
increase in the revenues, as infrastructure enhancements effected in prior
periods were sufficient to support current business levels.
In Ventiv's European Sales business, SG&A expenses decreased by
approximately $2.3 million to $11.9 million in 2001 from $14.3 million in 2000.
As a percent of revenue SG&A expenses were 12.6% of revenue in 2001 compared to
15.4% of revenue in 2000. The decrease in the SG&A expenses was primarily due
to the effect of the restructuring actions taken in 2000 partially offset by
some growth in infrastructure, particularly in Germany, to support a higher
revenue base.
The SG&A expenses for the Communications business was approximately $3.1
million in 2001 compared to $2.5 million in 2000. This increase was primarily
due to one-time severance related costs related to changes in senior management.
HPR had SG&A expenses of $6.6 million in 2001 compared to $4.1 million in
2000. This increase of $2.5 million was associated with investments in new
product development and depreciation related to improvements in the information
technology infrastructure of the business. In addition, there was an increase
in staffing levels to support the growth of revenues at HPR and other
divisions, primarily VIS.
SG&A expenses at the corporate level increased to $11.2 million in 2001 from
$8.2 million in 2000. The increase in costs related to legal, professional and
other costs associated with new business development and other business
initiatives in 2001, including approximately $1.3 million related to VIS. It is
expected that as VIS grows and becomes a more significant part of Ventiv's
business, it will be treated as a separate reportable segment.
Impairment of Intangible Assets: During the third quarter of 2001, the
Company completed an evaluation of the goodwill and other intangible assets of
several of its operating units. In accordance with the Company's stated
accounting policy, undiscounted cash flow projections were prepared and
analyzed for these operating units in order to determine whether such
undiscounted cash flows were sufficient to support current intangible asset
carrying values relating directly to these operations. Based on recent changes
in market conditions, competitive factors and the discontinuation of one of the
Company's operating units, projected undiscounted cash flows for three of the
Company's subsidiaries (PromoTech Research Associates, Inc. ("PromoTech"), part
of the Communications business; and Ventiv Health U.K. and Ventiv Health
France, part of Ventiv's European Contract Sales business) were insufficient to
support the carrying amounts of related goodwill and certain intangible assets.
The Company obtained estimates of the current fair values of these operations
through independent third party appraisals. Based on these appraisals in
relation to current net book values of these operations, the Company recorded
goodwill and other intangible asset impairment charges totaling $51.7 million.
Restructuring Charges: During the year-ended December 31, 2001 the Company
completed an evaluation of the operations of certain U.S.-based business units.
As a result of this evaluation, the Company adopted a plan of restructuring and
recorded a charge of approximately $2.0 million, which included provisions of
$1.3 million for severance costs (total of 23 people) and costs to reduce the
size of the Somerset, NJ and New York, NY administrative offices. The Company
had paid approximately $1.0 million of this amount by December 31, 2001.
17
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 U.K. 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 Health U.K. incurred charges related to the
closure of a sales team. Ventiv Health U.K. does not intend to create sales
teams of a similar nature in the foreseeable future. The closure of this team
resulted in the termination of 6 employees. The total charge related to the
European operations was approximately $2.8 million.
Interest Expense: Ventiv recorded $4.5 million of interest expense in the
year ended December 31, 2001, an increase of $1.4 million from the year-ended
December 31, 2000. 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. Interest expense was also higher due to the increased
number of vehicles leased by the U.S. Sales business under its master fleet
agreement. These leases are capital in nature.
Investment Income: Ventiv recorded approximately $0.7 million and $1.2
million of investment income in the years ended December 31, 2001 and 2000,
respectively. The decrease in the investment income is a direct result of the
cash balances on-hand throughout the year and the prevailing interest rates
applied to the concentrated cash balances.
Losses on investments in equity of non-affiliates: During the first
quarter of 2001, one of our e-Health partners, HeliosHealth, Inc. ("Helios"),
advised us of its intent to effect a significant restructuring of their
business. On May 8, 2001, Helios filed for protection under Chapter 7 of the
U.S. Bankruptcy Code. Accordingly, the Company wrote off its entire $0.5
million investment in Helios.
In the fourth quarter of 2001, the Company provided a full valuation
allowance against its $2.1 million investment in RxCentric, Inc. ("RxCentric").
The Company made its initial investment in March 2000 in connection with the
formation of a strategic alliance between the companies. Ventiv's principal
involvement with RxCentric was through Ventiv's Connecticut-based
communications business, which is being divested. In conjunction with this
divestiture, Ventiv will no longer be pursuing related opportunities with
RxCentric.
Gain on sale of product marketing rights: In May 2001, Ventiv Health U.K.
completed a sale of certain product marketing rights. The Company recognized a
net gain of approximately $0.4 million from this transaction. Earnings
generated from the use of these rights in prior periods were not material to
the Company's consolidated results of operations, and this sale is not expected
to materially effect future operating results.
Income Tax Provision (Benefit): The Company recorded a net tax benefit of
$4.4 million for the year ended December 31, 2001 on a pretax loss of $56.3
million from continuing operations. The Company recorded a tax benefit $5.2
million related to the portion of the goodwill charge associated with the
Promotech business. Goodwill amortization, and the impairment charges totaling
$37.4 million, relating to the French and U.K. operations were non-deductible
for local tax purposes. In addition, the Company has not recognized a tax
benefit associated with the devaluation of its investment in RxCentric. The
benefit and provision recorded in the years ended December 31, 2001 and 2000,
respectively, also reflect the net effect of allocating tax benefits previously
recorded in respect of the discontinued operation.
Discontinued operations: In September 2001, the Company's Board of
Directors approved a plan to divest certain net assets of the Company's
operations in Stamford, Connecticut. The Company has entered into a non-binding
term sheet with a prospective purchaser, and expects to complete this
transaction in the second quarter of 2002. Net losses from discontinued
operations of $6.6 million include the results of operations of $4.7 million,
net of tax, and an estimated loss on disposal of the related net assets of
these operations of $1.9 million, net of tax. Results of operations include a
pre-tax charge of approximately $1.1 million for the impairment of the value of
goodwill related to this operation, and $0.6 million pre-tax charge for
estimated costs to be incurred in connection with the subletting of a portion
of its existing leased office space. In the fourth quarter of 2000, the Company
recorded a restructuring charge related to these operations of approximately
$2.6 million, the majority of which related to the anticipated costs of
subletting this office space. As a result of conditions in the Stamford real
estate market, it has taken the Company significantly longer than anticipated
to enter into a sublease agreement.
Net Earnings (Losses) and Earnings (Losses) Per Share ("EPS"): Ventiv's
net earnings decreased by approximately $75.3 million to net losses of $58.5
million, from net earnings of $16.8 million, for the years ended December 31,
2001 and 2000, respectively. Lower average operating margins, additional
restructurings charges, impairment of intangible assets and
18
certain charges relating to discontinued operations, as more fully explained
above, accounted for the overall decline in net earnings.
Shares used in computing basic and diluted EPS increased by less than 0.1
million shares in 2001 from 2000. The increase was the result of the exercise
of employee stock options, net of the cancellation of certain restricted stock
awards during the year. During 2001, common stock equivalents relating to
employee stock options and restricted stock awards were not included in the
calculation of diluted EPS as they were anti-dilutive to the net loss per
share. The number of potentially dilutive common stock equivalents at December
31, 2001 was 0.6 million shares.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Revenues: Revenues increased by approximately $68.1 million, or 22.2%, to
$375.0 million in 2000, from $306.9 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 64.7% of total Ventiv
revenues in 2000. This growth primarily resulted from new contracts and
expansions of existing business relationships with Novo Nordisk, Reliant,
Novartis and, most significantly, BMS. The positive impact from these
relationships was offset, in part, by the effect of the conclusion of
engagements with Abbott Laboratories and Searle. U.S. Sales' revenues and
operating income for the year ended December 31, 2000 included approximately
$13.2 million of incentives and additional fixed fee payments; incentive fees
recognized in the comparable prior year period were negligible. In addition,
the increase in revenues reflects the effect of the incremental revenue and
operating income recognized in 2000 related to BMS contract start-up activities
and related costs incurred in the third and fourth quarters of 1999.
Ventiv's European Contract Sales business generated revenues of $92.4
million in 2000, a decrease of 29.1% from 1999. Revenues generated by the
European businesses represented 24.6% 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
businesses in France and the U.K., the closure of syndicated sales forces
(primarily in the U.K.) and, to a lesser extent, the impact of foreign exchange
rates. These decreases were offset in part by the effect of year-to-year growth
in revenues generated by this group's operating unit in Germany.
Communications' revenues represented 4.3% the Company's total revenues.
Revenues from this business were approximately $16.0 million for the year ended
December 31, 2000, a decrease of $0.3 million or 1.8% from the $16.3 million of
revenue recorded in 1999. The decrease was partially attributable to the
elimination of certain less profitable sponsored events in 2000.
HPR generated 6.4% 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. This industry
consolidation created additional demand for certain services in fiscal 1999
that did not recur in 2000.
Costs of Services: Costs of services increased by approximately $37.0
million, or 14.4%, to $293.3 million for the year ended December 31, 2000 from
$256.3 million in the year ended December 31, 1999. Cost of services decreased
as a percentage of revenue to 78.2% in 2000 from 83.5% in 1999.
Cost of services at the U.S. Sales business increased by approximately $62.9
million in 2000 compared to 1999. As a percent of revenues, costs of services
decreased to 77.5% of revenue in 2000 from 89.7% in 1999. The cost of services
decreased as a percent of revenue due to the increased amount of incentive fees
received in 2000, for which there is no corresponding cost of services. The
costs as a percent of revenue were further reduced by the inclusion of revenue
under the BMS contract relating to costs incurred in 1999 for start-up
activities. Adjusting for each of these factors, the overall increase in costs
of services was consistent with the increase in revenues for the period.
Costs of services at Ventiv's European Sales businesses were $80.4 million
in 2000 compared to $107.3 million in 1999, a decrease of $26.9 million or
25.1%. This decrease was due primarily to the decrease in revenue in the U.K.
and France, partially offset by a one-time charge to operations for the
elimination of a syndicated team in the U.K. during the first quarter of 2000.
In addition, costs of services increased slightly in Germany, consistent with
the revenue growth for that operating unit.
19
Costs of services of the Communications business decreased by $0.5 million
or 3.7% to $12.7 million in 2000 from $13.1 million in 1999. Costs of services
as a percent of revenue were 79.0% in 2000 and 80.5% in 1999. The decrease in
the overall costs of services was consistent with the overall decrease in
revenue in the year and reflects improved margins resulting from the
elimination of certain less profitable sponsored events in 2000.
HPR's costs of services were $12.2 million in 2000 compared to $10.7 million
in 1999 representing an increase of $1.5 million or 14.0%. This increase is
directly related to the increase in revenues, as costs of services were 51.1%
of revenue in both periods.
Selling, General and Administrative Expenses: SG&A expenses increased by
approximately $1.3 million, or 3.2%, to $41.8 million from $40.5 million in the
years ended December 31, 2000 and 1999, respectively. Selling, general, and
administrative expenses as a percentage of revenues decreased to 11.1% from
13.2%.
The U.S. Sales business had an increase in their SG&A expenses of
approximately $1.8 million to $12.7 million in 2000. This increase was
primarily due to increased infrastructure to support the higher revenue base.
Despite the increase in spending, selling, general and administrative expenses
decreased to 5.2% of revenue in 2000 from 7.8% in 1999, reflecting an
improvement in overall operating leverage during the period. The higher rate in
1999 in relation to revenues for that year reflects an increase in spending in
the second half of 1999, in preparation for supporting the BMS contract and
other anticipated new business.
Selling, general and administrative costs at Ventiv's European Sales
business decreased by approximately $3.2 million or 18.3% to $14.3 million in
2000 from $17.5 million in 1999. The decrease in these costs was primarily a
result of savings generated by restructuring and integration actions taken
during 1999 to reduce the overall levels of infrastructure used to support the
businesses in the U.K. and France.
Communications' selling, general and administrative expenses increased
slightly to $2.5 million in 2000 from $2.4 million in 1999.
Selling, general and administrative expenses at HPR decreased by
approximately $0.5 million or 11.4% in 2000 compared to 1999. The selling,
general and administrative expenses decreased as a percent of revenue to 17.2%
in 2000 from 22.2% in 1999. The decrease was primarily due to lower overall
incentive-based compensation expenses in 2000.
Subsequent to the Distribution of the Company's common stock in the third
quarter of 1999, selling, general and administrative expenses increased
primarily due to increased overhead costs, related to the formation of Ventiv's
independent corporate management and administrative infrastructure. In
addition, the Company made investments related to VIS and other new business
initiatives.
Recapitalization Costs: During 1999, Ventiv recorded $1.9 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, 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 U.K. 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 Health U.K. incurred charges
related to the closure of a sales team, resulting in the termination of 6
employees. Ventiv Health U.K. does not intend to create sales teams of a
similar nature in the foreseeable future. The total charge related to the
European operations was approximately $2.8 million.
20
Charges recorded in 1999 included $1.1 million of costs related to the
consolidation and integration of certain of Ventiv's acquired operations in the
U.S., the U.K. and France under the Company's plan initiated in 1998. The
charge consisted of $0.8 million in severance and related payments associated
with the termination of 23 employees, and $0.3 million in consulting services
and other costs related to these integration activities. The total costs of
$1.1 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. Interest expense was also higher due to the inception of the U.S.
Sales master fleet agreement. This lease arrangement is capital in nature.
Investment Income: Ventiv recorded approximately $1.2 million and $1.0
million of investment income in the years ended December 31, 2000 and 1999,
respectively. The increase in investment 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 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): During 2000, the Company recorded a net tax
provision of $16.3 million on pre-tax income of $35.1 million, compared to a
tax provision of $3.6 million on pre-tax income of $2.9 million in 1999.
Goodwill amortization of $2.8 million and $2.5 million for the years ending
December 31, 2000 and 1999, respectively, relating to operations in France, the
U.K. and the Netherlands was not deductible for local tax purposes. In
addition, in 1999, the Company incurred recapitalization charges of $2.1
million that were not deductible for tax purposes. The net tax provisions in
both 2000 and 1999 also reflect the net effect of allocating tax benefits
previously recorded with respect to the discontinued communications business in
Connecticut.
Discontinued operations: Net losses from discontinued operations of $2.0
million from the results of operations, net of tax, in 2000 compared to $6.0
million, net of tax in 1999. Results of operations in 2000 include a pre-tax
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 1999, the Company
recorded a restructuring charge of approximately $1.9 million relating to the
rationalization of management and staff positions (total of 24 employees) and
the early termination of leases to reduce overall facilities costs.
Net Earnings and Earnings Per Share ("EPS"): Ventiv's net earnings
increased by $23.6 million to $16.8 million for the year ended 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").
21
Liquidity and Capital Resources
At December 31, 2001, Ventiv had approximately $45.1 million of cash and
cash equivalents, an increase of $16.7 million from December 31, 2000. For the
year ended December 31, 2001 compared to December 31, 2000, cash provided by
operations increased by $1.3 million and cash used in investing activities
decreased by $1.9 million. In addition, cash provided by financing activities
increased by $11.9 million.
Cash provided by operations was $7.5 million in 2001 compared to $6.2
million in 2000. After consideration of non-cash charges to earnings in 2001,
including the intangible asset impairment charge and the losses from equity
investments in non-affiliates, operations generated positive cash flow for the
twelve-month period ended December 31, 2001. Client advances and unearned
revenue increased by $8.7 million, primarily due to the timing of certain
payments to U.S. Sales under the Bayer arrangement. Accrued payroll, accounts
payable and accrued expenses increased by $4.8 million, relating to the
increase in the number of sales representatives deployed over the course of the
year. Unbilled services increased by $28.6 million during the period, due to
the timing of certain billings and payments for services rendered under the
Bayer and BMS contracts. The Company collected all unbilled amounts recognized
as of December 31, 2001 from these clients in the first quarter of 2002. In the
fiscal year ended December 31, 2000, cash flow from operations was positive
despite a $14.9 million decrease in client advances and unearned revenue from
the liquidation of the remaining balance of a $30.0 million advance fixed fee
payment received from BMS in 1999, and an increase in accounts receivable and
unbilled services of approximately $12.1 million, as a result of business
growth, particularly in the U.S. Contract Sales business.
Cash used in investing activities was $3.7 million in 2001 compared to $5.6
million in 2000. During 2000, the Company invested $2.5 million in the equity
of non-affiliate companies and spent approximately $0.9 million more on capital
expenditures than in 2001. In addition, in 2000, the Company disposed of
marketable securities, generating proceeds of approximately $1.9 million. The
Company received manufacturers rebates of $1.7 million and $1.3 million in 2001
and 2000, respectively, in connection with acquisitions of vehicles under the
U.S. Sales master fleet agreement.
Cash provided by financing activities was $10.4 million in 2001 versus $1.5
million used in such activities in 2000. The primary reason for the increase in
cash from financing activities is the proceeds from borrowings under the
Company's credit facility (see below) which was partially offset by higher
repayments of the Company's lease obligations related to the auto fleet of the
U.S. Sales group. In addition, during 2000, the Company repurchased
approximately $17.6 million or 1.7 million shares of the Company's common
stock. The Company did not repurchase any of its common stock in 2001.
On December 1, 1999, Ventiv entered into a $50 million unsecured revolving
credit facility, expiring on December 1, 2003. At December 31, 2001, the
Company had $35.0 million outstanding under this line of credit with a weighted
average interest rate of 4.39%. Based on the Company's financial results for
the twelve-month period ending September 30, 2001, Ventiv was not in compliance
with certain covenants under this facility. Accordingly, all amounts due under
this facility were classified as current as of December 31, 2001. In the first
quarter of 2002, the Company repaid all amounts outstanding under this
facility. On March 29, 2002, the Company entered into a new asset-based lending
agreement. This new revolving credit facility provides for a maximum borrowing
amount of $50 million, subject to a borrowing base calculation, revolving basis
and is secured by substantially all of the Company's assets. Interest on the
new facility is payable at the Company's option of a base rate (defined as the
lending institution's prime rate) plus a margin of up to 0.75% or LIBOR plus a
margin ranging from 2.25% to 2.75%, subject to a minimum borrowing rate of
4.75%. Under the facility, the Company pays an unused commitment fee of 0.375%.
The Company is also subject to certain financial and other restrictive
covenants, including, under certain circumstances, maintenance minimum levels
of Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
and U.S. Earnings before Interest and Taxes ("EBIT").
After consideration of certain significant customer payments received in the
first quarter of 2002, net of the repayment of obligations due under the
original credit facility, we currently have adequate cash and equivalents
available. Accordingly, we believe that our cash and equivalents, cash to be
provided by operations and available credit under our new credit facility will
be sufficient to fund our current operating requirements, including projected
funding obligations under the Cellegy agreement (see "Recent Business
Developments"), 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 may consider acquisition and investment
opportunities as they arise, to the extent permissible. Cash provided by
operations may not be sufficient to fund all internal growth initiatives that
we may wish to pursue. If we pursue significant internal growth initiatives
22
or if we wish to acquire additional businesses in transactions that include
cash payments as part of the purchase price, we may pursue additional debt or
equity sources to finance such transactions and activities, depending on market
conditions. In addition, the Company may consider divesting certain business
units in order to generate cash to support future growth initiatives. 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, and, subsequent to January 1, 2002, the
Euro (in lieu of the French Franc and the German Mark). 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.
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 2001, 2000 or 1999.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
(SFAS 141) and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" (SFAS 142). SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles
will be evaluated against this new criteria and may result in certain
intangibles being subsumed into goodwill, or alternatively, amounts initially
recorded as goodwill may be separately identified and recognized apart from
goodwill.
SFAS 142 requires the use of the non-amortization approach to account for
purchased goodwill and certain related intangibles. Under the non-amortization
approach, goodwill and certain related intangibles will not be amortized into
results of operations, but instead would be reviewed for impairment and written
down and charged to results of operations only in the periods in which the
recorded value of goodwill and certain related intangibles exceeds its fair
value.
The provisions of each statement, which apply to goodwill and related
intangible assets acquired prior to June 30, 2001, will be adopted by the
Company on January 1, 2002. We expect the adoption of these accounting
standards to result in a reduction of amortization of goodwill and related
intangibles commencing January 1, 2002; however, impairment reviews may result
in future periodic write-downs.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144), which addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121) and modifies the accounting and reporting
provisions of Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions". SFAS 144 retains the requirements of SFAS 121 for evaluation and
recognition of impairment losses on long-lived assets to be held and used, but
eliminates the requirement to allocate goodwill to the assets being tested for
impairment. In addition, SFAS 144 provides additional guidance for implementing
these impairment tests, including discussion on the use of probability-weighted
cash flow estimation methods when alternative recovery methods may exist, and
the establishment of a "primary asset" approach to determine the estimation
period for groups of assets. In order to create a single accounting model, SFAS
144 also provides specific guidance on accounting for disposals of long-lived
assets. Long-lived assets to be disposed of other than by sale (e.g. through
abandonment, exchange for similar productive asset, or in a distribution to
owners in a spin-off) are to be considered held and used until disposed of,
with impairment losses recognized at the disposal date. For long-lived assets
to be disposed of by sale, SFAS 144 continues to require that assets classified
as held for sale be reported at the lower of carrying amount or fair value,
less costs to sell, with no further depreciation and amortization recorded
subsequent to the decision to dispose of those assets.
SFAS 144 also provides for the presentation of discontinued operations when
net assets held for sale relate to a component of an entity, for which results
of operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity. A component of
an entity held for sale or to be disposed of is
23
presented as a discontinued operation if its operations and cash flows will or
have been eliminated from the ongoing operations of the entity and the entity
will not have any significant continuing involvement in the operations of the
component. Discontinued operations are no longer measured on a net realizable
basis, and estimated future operating losses are no longer recognized before
they occur.
The Company has adopted the provisions of SFAS 144 immediately and has
applied such provisions, effective January 1, 2001, for the current fiscal year.
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, 2001 the Company had $35.0 million outstanding under its
line of credit, with a weighted average interest rate of 4.39%. The risk to the
Company if LIBOR and/or the base lending rate were to increase is that the
Company would incur additional interest expense 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
$0.4 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 European Union 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, 2001. Our material exposures to foreign exchange rate fluctuations
on continuing operations are the French Franc, British Pound and German Mark.
Approximately 34%, 28% and 38% of our 2001 international operations were
conducted in France, the U.K. and Germany, respectively. The amounts below
represent the impact of all exchange rates on our total assets, liabilities and
revenues.
10% Decrease in
value of Local
Balance at Currencies to
December 31, 2001 U.S. Dollar
----------------- ---------------
Assets..... $234,068 $230,409
Liabilities 143,047 141,002
Revenue.... 398,553 389,066
24
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants...................................................................... 26
Consolidated Balance Sheets as of December 31, 2001 and 2000.................................................. 27
Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999.................... 28
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2001, 2000 and for the period
from September 27, 1999 to December 31, 1999................................................................. 29
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999.................... 30
Notes to Consolidated Financial Statements.................................................................... 31
25
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, 2001 and 2000, the
related consolidated statements of operations and cash flows for each of the
years in the three year period ended December 31, 2001, and the related
consolidated statements of stockholders' equity for the two year period ended
December 31, 2001 and for 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, 2001 and 2000, and the results
of their operations and their cash flows for each of the years in the three
year period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
March 29, 2002
26
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
------------------
2001 2000
-------- --------
ASSETS
Current assets:
Cash and equivalents (Note 2)............................................................. $ 45,082 $ 28,395
Accounts receivable, net of allowances for doubtful accounts of $1,743 and $1,682 at......
December 31, 2001 and 2000, respectively.................................................. 51,228 50,631
Unbilled services......................................................................... 43,803 15,234
Current deferred tax asset................................................................ 956 --
Assets held for sale...................................................................... 8,101 17,551
Other current assets...................................................................... 6,529 8,286
-------- --------
Total current assets................................................................... 155,699 120,097
-------- --------
Property and equipment, net (Note 4).......................................................... 34,708 31,989
Goodwill and other intangible assets, net (Note 5)............................................ 32,837 89,102
Deferred tax asset (Note 16).................................................................. 10,208 6,559
Deposits and other assets (Note 6)............................................................ 616 3,467
-------- --------
Total assets........................................................................... $234,068 $251,214
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt (Note 7)............................................. $ 35,000 $ 2,020
Current portion of capital lease obligations (Note 9)..................................... 8,538 5,824
Liabilities held for sale................................................................. 7,534 8,843
Accrued payroll, accounts payable and accrued expenses (Note 8)........................... 52,903 38,390
Current deferred tax liability (Note 16).................................................. -- 1,382
Client advances and unearned revenue...................................................... 21,964 13,296
-------- --------
Total current liabilities................................................................ 125,939 69,755
-------- --------
Long-term debt (Note 7)....................................................................... -- 17,336
Capital lease obligations (Note 9)............................................................ 16,974 14,877
Other non-current liabilities................................................................. 134 120
-------- --------
Total liabilities............................................................................. 143,047 102,088
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, 20001 and 2000, respectively.................................................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized; 22,992,397 and 22,769,593 shares
issued at December 31, 2001 and 2000, respectively........................................... 23 23
Additional paid-in-capital.................................................................... 157,864 156,410
Deferred compensation......................................................................... (1,275) (2,739)
Accumulated other comprehensive losses........................................................ (4,063) (1,542)
Accumulated deficit........................................................................... (61,528) (3,026)
-------- --------
Total stockholders' equity............................................................. 91,021 149,126
-------- --------
Total liabilities and stockholders' equity............................................. $234,068 $251,214
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
27
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Years Ended December 31,
-------------------------------
2001 2000 1999
-------- -------- --------
Revenues (Note 3)......................................................... $398,553 $374,980 $306,944
Operating expenses:
Costs of services..................................................... 349,438 293,268 256,297
Selling, general and administrative expenses.......................... 45,510 41,808 40,451
Impairment of intangible assets....................................... 51,702 -- --
Recapitalization costs (Note 13)...................................... -- -- 1,900
Acquisition and related costs (Note 14)............................... -- -- 5,741
Restructuring charges (Note 15)....................................... 2,025 2,847 343
-------- -------- --------
Operating earnings (losses)............................................... (50,122) 37,057 2,212
Interest expense...................................................... (4,537) (3,180) (360)
Investment income..................................................... 659 1,221 1,009
Losses on investments in equity of non-affiliates..................... (2,600) -- --
Gain on sale of product marketing rights.............................. 350 -- --
-------- -------- --------
Earnings (losses) from continuing operations before income taxes.......... (56,250) 35,098 2,861
Income tax provision (benefit) (Note 16).............................. (4,378) 16,291 3,649
-------- -------- --------
Net earnings (losses) from continuing operations.......................... (51,872) 18,807 (788)
-------- -------- --------
Losses from discontinued operations:
Results of operations, net of taxes................................... (4,676) (1,993) (6,004)
Estimated loss on disposal of discontinued operations, net of taxes... (1,954) -- --
-------- -------- --------
Net losses from discontinued operations................................... (6,630) (1,993) (6,004)
-------- -------- --------
Net earnings (losses)..................................................... $(58,502) $ 16,814 $ (6,792)
======== ======== ========
Earnings (losses) per share:
Continuing operations:
Basic................................................................. $ (2.29) $ 0.83 $ (0.03)
Diluted............................................................... $ (2.29) $ 0.80 $ (0.03)
Discontinued operations:
Basic................................................................. $ (0.29) $ (0.09) $ (0.25)
Diluted............................................................... $ (0.29) $ (0.09) $ (0.25)
Net earnings (losses):
Basic................................................................. $ (2.58) $ 0.74 $ (0.28)
Diluted............................................................... $ (2.58) $ 0.72 $ (0.28)
The accompanying notes are an integral part of these consolidated financial
statements.
28
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Accumulated
Number Additional Other
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)
Foreign currency translation
adjustments................... -- -- -- -- -- -- (1,020) (1,020)
Unrealized loss on marketable
securities.................... -- -- -- -- -- -- (112) (112)
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
Foreign currency translation
adjustments................... -- -- -- -- -- -- 859 859
Effect of tax rate changes on
certain deferred tax assets... -- -- 342 -- -- -- -- 342
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
Net losses..................... -- -- -- -- (58,502) -- -- (58,502)
Foreign currency translation
adjustment.................... -- -- -- -- -- -- (2,521) (2,521)
Issuance of restricted shares.. 29 -- -- -- -- -- -- --
Cancellation of restricted
shares........................ (103) -- (739) -- -- 739 -- --
Vesting of restricted shares... -- -- -- -- -- 725 -- 725
Exercise of stock options...... 296 -- 2,351 -- -- -- -- 2,351
Tax benefit from exercise of
employee stock options and
restricted stock.............. -- -- 458 -- -- -- -- 458
Adjustments to certain
deferred tax assets........... -- -- (616) -- -- -- -- (616)
------ --- -------- -------- -------- ------- ------- --------
Balance at December 31, 2001... 22,992 $23 $157,864 $ -- $(61,528) $(1,275) $(4,063) $ 91,021
====== === ======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of these consolidated financial
statements.
29
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
----------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net earnings (losses).............................................................. $(58,502) $ 16,814 $ (6,792)
Adjustments to reconcile net earnings (losses) to net cash provided by operating
activities:
Net loss from discontinued operations........................................... 4,676 1,993 6,004
Estimated loss on disposal of business.......................................... 1,954 -- --
Depreciation.................................................................... 12,942 7,982 3,075
Amortization.................................................................... 3,602 4,729 4,361
Impairment of intangible assets................................................. 51,702 -- --
Non-cash expense for stock issuances............................................ -- -- 5,736
Non-cash expense for restricted stock and option vesting........................ 725 954 2,181
Non-cash accrual for estimated future losses on contracts....................... 6,100 -- --
Deferred taxes.................................................................. (4,710) 1,896 (5,635)
Loss on disposal of capital assets.............................................. 256 946 888
Gain on disposition of license.................................................. (356) -- --
Non-cash expense for losses on investments in equity of non-affiliates.......... 2,600 -- --
Changes in assets and liabilities:
Accounts receivable, net........................................................ (596) (8,992) (2,586)
Unbilled services............................................................... (28,570) (3,067) 1,798
Deposits and other assets....................................................... 1,755 292 187
Accrued payroll, accounts payable and accrued expenses.......................... 4,794 (4,180) (12,466)
Client advances and unearned revenue............................................ 8,668 (14,925) 18,205
Other........................................................................... 415 1,762 2,870
-------- -------- --------
Net cash provided by operating activities.................................... 7,455 6,204 17,826
-------- -------- --------
Cash flows from investing activities:
Cash on hand at acquired businesses................................................ -- -- 2,916
Purchases of subsidiaries.......................................................... -- -- (1,134)
Purchases of property and equipment................................................ (5,650) (6,457) (6,683)
Proceeds from sales of equipment................................................... 37 94 --
Proceeds from disposal of licenses................................................. 397 -- --
Proceeds from manufacturers rebates on leased vehicles............................. 1,730 1,342 --
Net sales (purchases) of marketable securities..................................... -- 1,903 (2,010)
Investments in equity of non-affiliates............................................ (100) (2,500) --
Purchases of license agreements.................................................... (160) -- (3,012)
-------- -------- --------
Net cash used in investing activities........................................ (3,746) (5,618) (9,923)
-------- -------- --------
Cash flows from financing activities:
Net borrowings (repayment) of credit facility...................................... 16,000 19,000 (162)
Repayment of mortgage obligations and other long-term debt......................... (356) (890) (1,697)
Loan to officer for purchase of stock.............................................. -- -- (500)
Repurchases of issued and outstanding common stock................................. -- (17,585) (4,307)
Repayments of capital lease obligations............................................ (7,427) (3,394) --
Proceeds from exercises of stock options........................................... 2,193 1,357 --
Investments and advances from SNC.................................................. -- -- 14,847
-------- -------- --------
Net cash provided by (used in) financing activities.......................... 10,410 (1,512) 8,181
-------- -------- --------
Net cash provided by (used in) discontinued operations................................. 3,854 (9,111) (4,182)
Effect of exchange rate changes........................................................ (1,286) 2,024 (1,023)
-------- -------- --------
Net increase (decrease) in cash and equivalents........................................ 16,687 (8,013) 10,879
Cash and equivalents, beginning of period.............................................. 28,395 36,408 25,529
-------- -------- --------
Cash and equivalents, end of period.................................................... $ 45,082 $ 28,395 $ 36,408
======== ======== ========
Disclosure of supplemental cash flow information:
Cash paid for interest............................................................. $ 2,927 $ 2,872 $ 384
Cash paid for income taxes......................................................... $ 918 $ 12,152 $ 7,256
Disclosure of non-cash activities:
Businesses acquired with SNC stock................................................. -- $ -- $ 16,336
Vehicles acquired through capital lease arrangements............................... $ 17,129 $ 24,192 $ --
The accompanying notes are an integral part of these consolidated financial
statements.
30
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 leading global provider
of comprehensive outsourced marketing and sales solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range
of integrated services, in a context of consultative partnership that
identifies strategic goals and applies targeted, tailored solutions. The
portfolio of offerings includes: consulting, analytics and forecasting; market
research and intelligence; strategic and tactical planning; conventions and
symposia targeted to physicians; telemarketing and other marketing support
services; product/brand management; recruitment and training services; and
sales execution. Over almost three decades, Ventiv has provided a broad range
of innovative strategic and tactical solutions to clients across the United
States and Europe, including the majority of the world's leading pharmaceutical
and life sciences companies.
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.
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 and the effect of businesses acquired by SNC in purchase transactions,
all of which were contributed to Ventiv in the Distribution.
An analysis of the investments and advances from SNC for the period from
January 1, 1999, to September 27, 1999 is as follows (in thousands):
Balance, December 31, 1998............................................................ $ 119,727
Net losses, excluding $2.1 million recapitalization costs......................... 1,758
Comprehensive losses.............................................................. (2,232)
Non-cash 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........................................................... $ --
=========
31
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In September 2001, the Company's Board of Directors approved a plan to
divest certain net assets of its Stamford, Connecticut-based medical education
and communications operating unit (see Note 17). As a result of this decision,
the results of operations of this business unit are being accounted for as a
discontinued operation. Historical financial statements have been restated to
give effect to this treatment.
Certain amounts in prior periods have been reclassified, where appropriate,
to conform to the current financial statement presentation.
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 Company is organized into operating segments based on products
and services offered: U.S. Contract Sales; European Contract Sales; Research
and Analytics; Communications; and Other--see Note 19 for a description of
these operating segments.
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 resulted in additional goodwill of
$17.5 million. The following table presents pro forma financial information as
if the 1999 purchase of PromoTech had been consummated at the beginning of the
period presented and all of the Company's operations had been taxed as a C
corporation.
For the Year Ended
December 31, 1999
---------------------
(unaudited)
(in thousands, except
per share data)
Pro forma revenues............................................... $332,026
Pro forma net losses from continuing operations.................. (8,733)
Pro forma basic net losses per share from continuing operations.. (0.37)
Pro forma diluted net losses per share from continuing operations (0.37)
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 $1.0
million and $1.2 million at December 31, 2001 and 2000, respectively, which
were held in escrow on the behalf of clients.
Revenue Recognition
The Company enters into contracts to perform a variety of services ranging
from product detailing to strategic consulting services to sponsored
educational 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. Certain of the Company's detailing contracts are
revenue-sharing based arrangements: that is, the Company recognizes revenue
based on a determined percentage of the revenue stream of the products being
supported. The Company continually analyzes the markets for the products being
detailed to determine the likelihood and amount of any potential loss on a
contract resulting from lower than anticipated product performance. In the
event that current information illustrates a loss is likely to be incurred in a
future period, the Company accrues that loss at the time it becomes probable
and measurable.
32
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Revenue and costs related to strategic consulting contracts and other
short-term projects are recognized as services are performed. The Company
recognizes revenue and costs associated with educational programs and other
sponsored events as these events are completed.
Receivables
Receivables consist of amounts billed and currently due from customers and
unbilled amounts which have been earned but not yet billed. With the exception
of amounts relating to certain contracts with pre-determined billing intervals,
all amounts that are unbilled at the end of each monthly period are billed
during the immediately succeeding monthly period.
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 five years and buildings over periods consistent
with local income tax requirements for periods ranging from thirty-one to
thirty-four 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 twenty-five 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 judgment. 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. During 2001, the Company concluded that intangible
assets related to certain business units had been impaired (see Note 5).
Net Earnings (Losses) Per Share
The Company has applied Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share" ("SFAS 128"), to all periods presented in these
financial statements. SFAS 128 requires 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
33
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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, 2001, 2000 and 1999:
Year Ended December 31,
-------------------------
2001 2000 1999
-------- ------- -------
(in thousands, except
per share data)
Basic EPS Computation
Net earnings (losses)........................ $(58,502) $16,814 $(6,792)
Weighted average common shares outstanding... 22,648 22,628 23,907
-------- ------- -------
Basic EPS.................................... $ (2.58) $ 0.74 $ (0.28)
======== ======= =======
Diluted EPS Computation
Net earnings (losses)........................ $(58,502) $16,814 $(6,792)
Adjustments to net earnings (losses)......... -- -- --
-------- ------- -------
Adjusted net earnings (losses)............... (58,502) 16,814 (6,792)
Weighted average common shares outstanding... 22,648 22,628 23,907
Employee stock options....................... n/a 524 n/a
Restricted stock awards...................... n/a 254 n/a
-------- ------- -------
Total diluted common shares outstanding...... 22,648 23,406 23,907
-------- ------- -------
Diluted EPS.................................. $ (2.58) $ 0.72 $ (0.28)
======== ======= =======
For the years ended December 31, 2001 and 1999, there was 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, 2001 and 1999 was 591,164 and 23,347 respectively.
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" ("SFAS
109"). 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.
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).
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).
34
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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).
From time to time, in connection with certain business relationships, the
Company makes equity investments in non-affiliate companies. The Company
periodically evaluates the realizability of these investments based on expected
future cash flows from these investments and the underlying business
relationships. If the Company determines that such future cash flows are
insufficient to recover the value of an investment, in whole or in part, an
impairment charge is recorded.
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 Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to 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 123") appears
in Note 11.
New Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS 141") and Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("SFAS 142"). SFAS 141 requires business
combinations initiated after June 30, 2001 to be accounted for using the
purchase method of accounting, and broadens the criteria for recording
intangible assets separate from goodwill. Recorded goodwill and intangibles
will be evaluated against these new criteria and may result in certain
intangibles being subsumed into goodwill, or alternatively, amounts initially
recorded as goodwill may be separately identified and recognized apart from
goodwill.
SFAS 142 requires the use of the non-amortization approach to account for
purchased goodwill and certain related intangibles. Under the non-amortization
approach, goodwill and certain related intangibles will not be amortized into
results of operations, but instead would be reviewed for impairment and written
down and charged to results of operations only in the periods in which the
recorded value of goodwill and certain related intangibles exceeds its fair
value.
35
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The provisions of each statement, which apply to goodwill and related
intangible assets acquired prior to June 30, 2001, will be adopted by the
Company on January 1, 2002. We expect the adoption of these accounting
standards to result reducing amortization of goodwill and related intangibles
commencing January 1, 2002; however, impairment reviews may result in future
periodic write-downs.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses the
financial accounting and reporting for the impairment or disposal of long-lived
assets. SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121") and
modifies the accounting and reporting provisions of APB Opinion No. 30,
"Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions" (APB 30). SFAS 144 retains the requirements of SFAS
121 for evaluation and recognition of impairment losses on long-lived assets to
be held and used, but eliminates the requirement to allocate goodwill to the
assets being tested for impairment. In addition, SFAS 144 provides additional
guidance for implementing these impairment tests, including discussion on the
use of probability-weighted cash flow estimation methods when alternative
recovery methods may exist, and the establishment of a "primary asset" approach
to determine the estimation period for groups of assets. In order to create a
single accounting model, SFAS 144 also provides specific guidance on accounting
for disposals of long-lived assets. Long-lived assets to be disposed of other
than by sale (e.g. through abandonment, exchange for similar productive asset,
or in a distribution to owners in a spin-off) are to be considered held and
used until disposed of, with impairment losses recognized at the disposal date.
For long-lived assets to be disposed of by sale, SFAS 144 continues to require
that assets classified as held for sale be reported at the lower of carrying
amount or fair value, less costs to sell, with no further depreciation and
amortization recorded subsequent to the decision to dispose of those assets.
SFAS 144 also provides for the presentation of discontinued operations when
net assets held for sale relate to a component of an entity, for which results
of operations and cash flows can be clearly distinguished, operationally and
for financial reporting purposes, from the rest of the entity. A component of
an entity held for sale or to be disposed of is presented as a discontinued
operation if its operations and cash flows will or have been eliminated from
the ongoing operations of the entity and the entity will not have any
significant continuing involvement in the operations of the component.
Discontinued operations are no longer measured on a net realizable basis, and
estimated future operating losses are no longer recognized before they occur.
The Company has adopted the provisions of SFAS 144 immediately and has
applied such provisions, effective January 1, 2001, for the current fiscal year.
3. Significant Clients:
During 2001, the Company had one client--Reliant Pharmaceuticals, Inc.
("Reliant")--which represented 20.4% of total revenue for the year and two
other clients representing 12.5% (Bristol-Myers Squibb, Inc. ("BMS")) and 10.6%
(Bayer Corporation ("Bayer")), respectively. The Company had one client, BMS,
which represented 27.8% and 13.9% of total revenue for each of the years ending
December 31, 2000 and 1999, respectively.
At December 31, 2001 and 2000, the Company had one client, Reliant that
accounted for approximately 29% and 17%, respectively, of the billed accounts
receivable. At December 31, 2001 the Company had three clients that comprised
more than 10% of the unbilled receivable balance: Bayer (49%); BMS (24%); and
Reliant (12%). Unbilled amounts at December 31, 2001 under the Bayer
arrangement arose as a result of a predetermined billing schedule, as outlined
in the contract. Subsequent to December 31, 2001, these amounts were billed and
fully collected.
At December 31, 2000, the Company had two clients which comprised more than
10% of the unbilled receivables balance: Reliant (33%); and Novo Nordisk (16%).
In late June 2001, BMS notified U.S. Sales of its intent to cease sales
force promotion services under this contract effective December 31, 2001.
In addition, in February 2002, Ventiv was notified by Reliant of their
intent to convert the field sales force working under the Ventiv-Reliant
contract from full-time Ventiv employment to full-time Reliant employment
effective April 1, 2002. The
36
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Ventiv-Reliant contract, which commenced on August 1, 2000, provided Reliant
with the option to convert all or a portion of the field sales force to Reliant
employment at any time. Revenues from this client relationship represented
20.4% of the Company's total revenues for the year-ended December 31, 2001.
4. Property and Equipment:
Property and equipment consist of the following:
As of December 31,
------------------
2001 2000
-------- --------
(in thousands)
Land................................ $ 283 $ 490
Buildings and leasehold improvements 6,284 6,132
Computer equipment and software..... 12,942 10,397
Vehicles............................ 32,892 23,293
Furniture and fixtures.............. 4,903 4,214
-------- --------
57,304 44,526
Accumulated depreciation............ (22,596) (12,537)
-------- --------
$ 34,708 $ 31,989
======== ========
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 $12.9 million, $8.0 million, and $3.1 million
in 2001, 2000 and 1999, respectively. In 2001 and 2000, the Company recorded
$7.3 million and $4.0 million of depreciation, respectively, on vehicles under
capital lease. There were no vehicles under capital lease in 1999.
5. Goodwill and Other Intangible Assets:
Goodwill and other intangible assets consist of the following:
As of December 31,
------------------
2001 2000
-------- --------
(in thousands)
Goodwill................................. $ 44,850 $ 95,208
Accumulated amortization................. (14,246) (11,336)
-------- --------
30,604 83,872
-------- --------
License agreements....................... 4,263 6,319
Contractual covenant and marketing rights 562 1,157
-------- --------
4,825 7,476
Accumulated amortization................. (2,592) (2,246)
-------- --------
2,233 5,230
-------- --------
Net intangible assets.................... $ 32,837 $ 89,102
======== ========
Amortization expense related to goodwill and other intangible assets totaled
$3.6 million, $4.7 million, and $4.4 million in 2001, 2000 and 1999,
respectively.
During 2001, the Company completed an evaluation of the goodwill and other
intangible assets of several of its operating units. In accordance with the
Company's stated accounting policy, undiscounted cash flow projections were
prepared and analyzed for these operating units in order to determine whether
such undiscounted cash flows were sufficient to support current intangible
asset carrying values relating directly to these operations. Based on recent
changes in market conditions,
37
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
competitive factors and the discontinuation of one of the Company's operating
units, projected undiscounted cash flows for three of the Company's operating
units were insufficient to support the carrying amounts of related goodwill and
certain intangible assets: PromoTech, part of the Ventiv's Communications
business; and Ventiv Health U.K. and Ventiv Health France, part of Ventiv's
European Contract Sales business. The Company has obtained estimates of the
current fair values of these operations through independent third party
appraisals. Based on these appraisals in relation to current net book values of
these operations, the Company recorded goodwill and other intangible asset
impairment charges totaling $51.7 million, of which $1.8 million related to
non-goodwill intangible assets.
The preparation of projections of future undiscounted cash flows involves
the use of a combination of available facts, data, assumptions and judgment. It
is, therefore, possible that actual results may differ significantly from the
projections used and that additional impairment charges may be required in the
future.
6. Deposits and Other Assets:
From time to time, in connection with certain business relationships, the
Company makes equity investments in non-affiliate companies. The Company
periodically evaluates the realizability of these investments based on expected
future cash flows from these investments and the underlying business
relationships. If the Company determines that such future cash flows are
insufficient to recover the value of an investment, in whole or in part, an
impairment charge is recorded.
In the fourth quarter of 2001, the Company provided a full valuation
allowance against its $2.1 million investment in RxCentric, Inc. ("RxCentric").
The Company made its initial investment in March 2000 in connection with the
formation of a strategic alliance between the companies. Ventiv's principal
involvement with RxCentric was through Ventiv's Connecticut-based
communications business, which is being divested. In conjunction with this
divestiture, Ventiv will no longer be pursuing related opportunities with
RxCentric.
During the first quarter of 2001, one of the Company's e-Health partners,
HeliosHealth, Inc. ("Helios"), advised the Company of its intent to effect a
significant restructuring of their business. On May 8, 2001, Helios filed for
protection under Chapter 7 of the U.S. Bankruptcy Code. Accordingly, the
Company wrote off its entire $0.5 million investment in Helios.
7. Debt:
Long-term borrowings consist of the following:
As of December 31,
-----------------
2001 2000
-------- -------
(in thousands)
U.S. revolving line of credit................................................................. $ 35,000 $19,000
German bank debt, 6.0% weighted average interest rate, due April 2025, partially secured by a
building in Germany.......................................................................... -- 356
-------- -------
35,000 19,356
Current maturities of long-term borrowings.................................................... (35,000) (2,020)
-------- -------
$ -- $17,336
======== =======
On December 1, 1999, the Company obtained an unsecured, revolving line of
credit from a syndicated group of U.S. banks. The unsecured credit facility was
to mature on December 1, 2003 and had a $50 million maximum borrowing limit.
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, 2001 the Company had used approximately $17
million of the total amount borrowed to purchase the Company's common stock.
Interest was payable on borrowings under the unsecured facility, at the
Company's option at 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%. The weighted average interest rate for
the year ended December 31, 2001 was 4.39%. Under this facility, the Company
paid a fee for the availability of the unused portion of the facility, based on
a percentage of the unused balance ranging from 0.375% to 0.75%. During 2001
and 2000, the Company incurred costs of approximately $0.2 million related to
the unused amounts of the unsecured credit facility. This amount has been
included in interest expense in the accompanying consolidated statements of
operations.
38
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Based on the Company's financial results for the twelve months ending
September 30, 2001, Ventiv was not in compliance with certain covenants under
the unsecured facility. Pending completion of the Company's agreement for its
new, secured credit facility, which was executed subsequent to the date of the
accompanying balance sheet, the Company's current lenders reserved all rights
and remedies, including the right to declare all amounts outstanding under the
current facility immediately payable. Accordingly, all amounts outstanding
under this unsecured facility have been classified as current in the
accompanying balance sheet.
Subsequent to the balance sheet date, the Company repaid all amounts
outstanding under this unsecured credit facility and entered into a new line of
credit with a new group of lenders. The new facility provides for a maximum
borrowing amount of $50 million, subject to limitations based on a borrowing
base calculation, based on the receivables attributable to the Company's U.S.
Contract Sales segment (see Note 19) and other criteria on a revolving basis
that is secured by substantially all of the Company's assets. Interest on this
secured credit facility is payable, at the Company's option, at a base rate
(defined as the lending institution's prime rate) plus a margin of up to 0.75%
or LIBOR plus a margin ranging from 2.25% to 2.75% subject to a minimum
borrowing rate of 4.75%. Under the secured credit facility, the Company pays an
unused commitment fee of 0.375%. The Company is also subject to certain
financial and other restrictive covenants, including the requirement that the
Company maintain minimum levels of Earnings before Interest, Taxes,
Depreciation and Amortization ("EBITDA") and U.S. Earnings before Interest and
Taxes ("EBIT").
8. Accrued Payroll, Accounts Payable and Accrued Expenses
Accrued payroll, accounts payable and accrued expenses consist of the
following:
December 31,
---------------
2001 2000
------- -------
(in thousands)
Accrued payroll and related employee benefits...... $20,466 $18,727
Accounts payable................................... 3,512 3,521
Income and other taxes payable..................... 6,625 --
Accrual for estimated losses on long-term contracts 6,100 --
Accrued expenses and other general liabilities..... 16,200 16,142
------- -------
$52,903 $38,390
======= =======
During the three-month period ended December 31, 2001, the Company recorded
a $6.1 million charge for estimated future losses on the Bayer contract. This
accrual was based on current estimates of the future performance of the
promoted products and the related effect on expected future revenues under the
contract in relation to total estimated future costs.
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, 2001 (in thousands):
Years Ending December 31,
2002........................ $ 3,859
2003........................ 2,893
2004........................ 2,111
2005........................ 1,771
2006........................ 1,745
Thereafter.................. 3,430
-------
Total minimum lease payments $15,809
=======
39
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rental expense for all operating leases was approximately $4.8 million, $
4.5 million and $ 7.9 million for the years ended December 31, 2001, 2000 and
1999, respectively.
The Company also has commitments under capital leases. The largest of these
commitments is at the U.S. Contract Sales group, where a significant number of
vehicles were leased under a master fleet leasing agreement. The following is a
schedule of future minimum lease payments for these capital leases at December
31, 2001 (in thousands):
U.S. Other
Fleet Capital
Leases Leases
------- -------
Years Ending December 31,
2002......................... $ 9,648 $ 27
2003......................... 9,153 17
2004......................... 6,600 7
2005......................... 2,529 7
2006......................... 4 3
Thereafter................... -- --
------- ----
Total minimum lease payments. 27,934 61
Amount representing interest. (2,471) (12)
------- ----
25,463 49
Current portion.............. (8,516) (22)
------- ----
Non-current lease obligations $16,947 $ 27
======= ====
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. In June 2001 Christian
Levistre commenced an arbitration proceeding against the Company before the
International Chamber of Commerce arising from the acquisition by the Company's
predecessor of two healthcare marketing businesses, one of which was wholly
owned and one of which was partially owned by Mr. Levistre. Mr. Levistre has
asserted claims in the arbitration for (i) payment of the remaining 10% of the
sales price for the businesses, which amount (originally consisting of shares
of Snyder Communications, Inc. common stock) was retained in escrow under the
terms of the acquisition, as subsequently amended by a settlement agreement
between the parties, (ii) amounts arising from the termination of his
employment with Ventiv Health France under the terms of the settlement
agreement, (iii) payment of a price adjustment to the sale price of the
escrowed shares, (iv) financial prejudice arising from the decline in value of
the escrowed portion of the purchase price for the acquired businesses and (v)
improper resistance. The Company has asserted that Mr. Levistre violated his
contractual obligations under the relevant agreements and has requested the
retention of the escrowed securities and the stay of the arbitration
proceedings pending resolution of separate claims made by one of the Company's
French subsidiaries relating to unfair competition and related claims in the
French courts. The Company intends to defend the arbitration claims vigorously
and believes it has meritorious defenses.
On August 10, 2001, Ventiv Integrated Solutions ("VIS"), a division of the
Company, announced a six-year agreement with Cellegy Pharmaceuticals, Inc.
("Cellegy") to commercialize Cellegy's lead product, Cellegesic(R)
(nitroglycerin ointment), in the United States. Under the terms of this
agreement, VIS will deliver integrated marketing and sales services,
40
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
including marketing strategy development and product management support,
pre-launch medical education, analytical support, and non-personal promotion.
In addition, VIS will recruit and train, and the companies will jointly manage,
a dedicated sales force of approximately 75 sales representatives to launch and
support Cellegesic(R). Initial targeted physician specialists will include
colorectal and general surgeons, gastroenterologists,
obstetricians/gynecologists and selected other specialists. VIS will receive
fees equal to costs of services provided during the funding stage,
contractually defined shares of product revenues during the post-funding stages
of the services agreement (see below), and a multi-year royalty stream after
the promotion period.
In connection with this agreement, the Company has committed to provide
Cellegy with up to $10 million for the commercialization of Cellegesic(R) under
a funding arrangement covering the initial phases (pre and post launch) of the
commercialization effort. Funding provided under this arrangement will be used
to cover all major commercialization expenses, including services provided
under the services agreement, other third party expenses incurred in connection
with the commercialization effort and other certain direct expenses of Cellegy.
Funding shall be provided on a net basis during the pre-launch and initial
launch phases of the commercialization effort, to the extent that product
revenues are insufficient to cover product related expenses. Net funding shall
continue until such time as product revenues are sufficient to have recovered
all cumulative product manufacturing and marketing expenses. In no event shall
the Company be obligated to provide more than $10 million in net advances. Once
all amounts (including accrued interest) due under the funding arrangement have
been recovered, the Company shall derive revenues for the remainder of the
promotion period based on a revenue sharing formula. Funding has commenced in
the first quarter of fiscal 2002, in preparation for the anticipated product
launch later this year.
The Company shall record and separately disclose net amounts advanced under
this agreement as a note receivable from Cellegy. Under certain circumstances
or as a result of certain adverse events, Cellegy may be released from its
obligations to repay amounts due under this note receivable, in whole or in
part. Should such events or circumstances arise, the Company would consider the
note receivable to be impaired to the extent that such amounts outstanding may
be unrecoverable, and would record an appropriate impairment charge. At the end
of each reporting period, the note receivable shall be recorded at the lower of
net amounts advanced or net realizable value.
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. 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. The Company did not repurchase any shares during
2001. Under the terms of the new credit agreement, the Company is restricted
from further repurchases of its outstanding stock.
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's Board of Directors.
41
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A summary of the option activity within the Stock Plan, is as follows:
Weighted
Average
Number of Price Per
shares 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
Granted.................................. 1,137 7.39
Exercised................................ (296) 7.94
Forfeited or expired..................... (835) 8.81
----- ------
Outstanding under option at December 31, 2001 3,316 $ 7.92
===== ======
Exercisable at:
December 31, 1999........................ 396 $ 7.94
===== ======
December 31, 2000........................ 943 $ 7.95
===== ======
December 31, 2001........................ 1,260 $ 8.18
===== ======
The Ventiv options outstanding have exercise price ranges and weighted
average remaining contractual lives of:
Weighted
Exercise Average
Price Remaining
------------ Contractual
High Low Life
------ ----- -----------
As of December 31, 2001 $19.35 $2.62 8.23 yrs
As of December 31, 2000 14.88 5.38 8.51 yrs
As of December 31, 1999 8.06 5.38 9.32 yrs
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.
2001 2000 1999
------ ------ ------
Expected life of option............................ 4 yrs 4 yrs 4 yrs
Risk-free interest rate............................ 4.39% 5.17% 6.36%
Expected volatility................................ 82.78% 61.95% 50.00%
Expected dividend yield............................ 0.00% 0.00% 0.00%
Weighted average option fair value at date of grant $ 4.64 $ 5.23 $ 3.68
42
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
If Ventiv had recorded compensation expense from the date of the
Distribution through December 31, 2001, using the fair value based method
prescribed by SFAS No. 123, Ventiv's 2001, 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,
------------------------------
2001 2000 1999
-------- ------- -------
(in thousands, except per shar
data, unaudited)
Pro forma net earnings (losses):
As reported....................... $(58,502) $16,814 $(6,792)
As adjusted....................... $(58,519) $14,867 $(7,308)
Earnings (losses) per share (diluted):
As reported....................... $ (2.58) $ 0.74 $ (0.28)
As adjusted....................... $ (2.60) $ 0.64 $ (0.31)
During 2001, the Company issued 29,498 shares of restricted stock which
vest, on a pro rata basis, over a period of four years. The Company also
cancelled 102,518 shares of restricted stock held by employees whose employment
was terminated during the year. The Company recognized $0.7 million of expense
related to restricted shares. On September 27, 2001, 90,867 shares of the
restricted shares issued in 1999 vested.
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 $2.2 million in expense related to these
restricted shares, $1.9 million of which is due to the vesting of restricted
shares, which occurred immediately following the Distribution.
At December 31, 2001, Ventiv had reserved 4.3 million common shares for
issuance under the Stock Plan of which, approximately 1.0 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 $1.2 million, $0.8 million, and $0.9
million for 2001, 2000 and 1999, 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, including $0.2 million charged to discontinued operations. The $1.9
million related to the portion of the restricted stock awards that vested
immediately upon completion of the Distribution. There were no similar charges
in either 2001 or 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 consideration was not provided for in the purchase agreement and
therefore could not be considered part of the purchase price for accounting
purposes. The Company did not incur any charges of this nature in either 2001
or 2000.
43
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
15. Restructuring and Other Charges:
During 2001, the Company completed an evaluation of the operations of
certain U.S.-based operations. As a result of this evaluation, the Company
adopted a plan of restructuring and recorded a charge of approximately $2.0
million, which included provisions for the severance of 23 people and costs to
reduce the size of the Somerset, NJ and New York, NY administrative offices.
During 2000, the Company recorded a restructuring charge related to the
operations of Ventiv Health Communications in Stamford, Connecticut. During
2001, the Company increased the amount reserved by approximately $0.6 million.
This additional charge was recorded as it has taken the Company longer than
expected to sublet the excess office space as a result of the real estate
market conditions in Stamford. The additional pre-tax charge was included in
the results from discontinued operations, as a result of the Company's decision
to dispose of the net assets of these operations (see Note 17). The Company
does not expect to transfer its liability related to the facility leases as
part of the sale of these operations. Therefore, the remaining liability of
approximately $1.1 million is included in Accrued payroll, accounts payable and
accrued expenses in the accompanying consolidated balance sheet.
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 Health 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 $2.8 million.
During 2000, the Company 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) the
rationalization of management and staff (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. This charge
has been included in the results of discontinued operations as a result of the
Company's decision to dispose of this business.
During 2000, the Company accrued for and expensed approximately $2.2 million
related to employee termination benefits, all of which was paid out at December
31, 2001.
The Company recorded $0.3 million of non-recurring costs during 1999. These
costs included: (a) a $1.1 million charge for costs necessary to consolidate
and integrate certain of Ventiv's acquired operations (under the plan initiated
during 1998) and (b) a reduction of $0.8 million in previously recorded
acquisition and related costs due to a revision of estimates.
The charges for integration activities and restructuring initiatives
recorded in 2001, 2000 and 1999 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 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, 2001... $2,956 $2,627 $ 2,845 $ 26 $2,764
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
- --------
(1) Amounts accrued and expensed in 1999 included amounts related to
recapitalization costs and acquisition and related costs (see Notes 13 and
14, respectively). At December 31, 2001 and 2000 there were no amounts
related to these items remaining in the accrual.
44
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company expects that these remaining amounts will be paid out by the end
of 2003.
16. Income Taxes:
The Company's net earnings (losses) before income taxes consisted of:
2001 2000 1999
-------- ------- -------
(in thousands)
Domestic.... $(19,031) $41,887 $ 4,989
Foreign..... (37,219) (6,789) (2,128)
-------- ------- -------
Total... $(56,250) $35,098 $ 2,861
======== ======= =======
The Company's income tax provision (benefit) included the following
components:
For the Years Ended
December 31,
------------------------
2001 2000 1999
------- ------- ------
(in thousands)
Current:
U.S.--Federal.................... $ 2,165 $14,251 $ (205)
U.S.--State and local............ 472 1,477 (278)
Foreign.......................... 752 616 504
------- ------- ------
$ 3,389 $16,344 $ 21
------- ------- ------
Deferred:
U.S.--Federal.................... $(7,767) $ 789 $2,920
U.S.--State and local............ (70) 482 327
Foreign.......................... 70 (1,324) 381
------- ------- ------
(7,767) (53) 3,628
------- ------- ------
Income tax provision (benefit)... $(4,378) $16,291 $3,649
======= ======= ======
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,
------------------
2001 2000 1999
----- ---- -----
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 (0.7) 5.5 1.7
Foreign tax rate differential........................... (0.1) 0.9 (10.6)
Goodwill amortization................................... (1.2) 2.8 35.5
Goodwill impairment..................................... (23.2) -- --
Non-recurring charges and other permanent differences... (2.0) 1.7 65.2
----- ---- -----
Effective tax rate...................................... 7.8% 45.9% 126.8%
===== ==== =====
45
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December 31,
2001 and 2000, temporary differences that gave rise to the deferred tax assets
and liabilities consisted of the following (in thousands):
As of December 31,
------------------
2001 2000
-------- --------
(in thousands)
Accrued expenses................... $ 1,324 $ 2,048
Deferred compensation.............. 104 238
Intangible assets.................. 20,393 17,583
Tax losses of subsidiaries......... 2,502 5,579
Property and equipment............. 2,559 --
Other.............................. 3,559 766
-------- --------
Gross deferred tax assets.......... 30,441 26,214
-------- --------
Property and equipment............. -- (167)
Deferred revenues.................. -- (1,958)
Other.............................. (3,015) (2,141)
-------- --------
Gross deferred tax liabilities..... (3,015) (4,266)
-------- --------
Valuation allowance................ (16,262) (16,771)
-------- --------
Net deferred tax asset...... $ 11,164 $ 5,177
======== ========
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 2001 of approximately $7.2 million, of which approximately $1.2 million
expires in 2004, approximately $1.0 million expires in 2005, $0.2 million in
2006, and approximately $4.8 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, 2001.
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, 2001 and 2000, management determined that a valuation allowance
against the deferred tax asset associated with these intangibles and other
assets was required.
At December 31, 2001, cumulative undistributed earnings of the Company's
foreign subsidiaries was approximately $4.9 million, attributable to its German
operating unit. 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. Discontinued Operations:
Based on historical performance, in September 2001, the Company's Board of
Directors approved a plan to divest certain net assets of the Company's
operations in Stamford, Connecticut. The Company has begun to actively market
the net assets of this business unit. Subsequent to December 31, 2001, the
Company entered into a non-binding letter of intent for the sale of this
business unit and expects to consummate this transaction during the second
quarter of 2002.
46
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Below is a summary of the results of this operation:
Year Ended December 31,
--------------------------
2001 2000 1999
------- ------- --------
(in thousands)
Revenue.................................. $17,543 $41,680 $ 37,711
Losses before income taxes............... (4,553) (7,076) (10,308)
Benefit from (provision for) income taxes (123) 5,083 4,304
------- ------- --------
Net losses from discontinued operations.. $(4,676) $(1,993) $ (6,004)
======= ======= ========
Net losses from discontinued operations in 2001 include a pre-tax charge of
approximately $1.1 million for the impairment of goodwill related to this
operation. In addition, this operation recorded a pre-tax charge of
approximately $0.6 million for costs estimated to be incurred with the
subletting of a portion of its existing leased office space. During the fourth
quarter of 2000 the Company recorded a pre-tax, restructuring charge of $2.6
million, the majority of which related to the anticipated costs of subletting
this office space. As a result of conditions in the Stamford real estate
market, it has taken the Company significantly longer than anticipated to enter
into a sublease agreement.
During 2000, the Company recorded a pre-tax restructuring charge of
approximately $2.6 million which provided for:
i) the 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.
In 2001, the Company recorded an estimated loss on the disposition of this
business of approximately $2.0 million, net
of tax.
All assets and liabilities specifically related to this business unit have
been classified as "held for sale" in the accompanying balance sheets of
December 31, 2001 and 2000. The fixed and intangible assets have been recorded
at their estimated fair market value as of December 31, 2001. The effect of
such adjustments has been reflected in the net loss from discontinued
operations.
18. 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. There
was no amount outstanding at December 31, 2000. No interest was paid on
outstanding amounts. There were no similar charges incurred during 2001.
19. Segment Information:
During 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." During the fourth quarter of 2001,
the Company re-evaluated its internal reporting practices and has identified
reportable segments based on its current management structure. The Company now
segregates reporting segments by products and services offered. Management
measures operating performance of the business segments based on operating
income before restructuring and other non-recurring charges.
The Company's reportable segments are:
U.S. Contract Sales
The U.S. Contract Sales segment is responsible for the implementation and
execution of outsourced sales programs for prescription pharmaceutical and
other life sciences products in the United States. This service is otherwise
known as "product detailing". The U.S. Contract Sales segment maintains and
operates the requisite systems, facilities and support services to recruit,
train and deploy a customized, full-service and highly targeted sales force.
47
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
European Contract Sales
The European Contract Sales segment, similar to the U.S. Contract Sales
segment is responsible for the implementation and execution of outsourced sales
programs for prescription pharmaceutical and other life sciences products in
Europe. The European Contract Sales segment maintains and operates the
requisite systems, facilities and support services to recruit, train and deploy
a customized, full-service and highly targeted sales force.
Planning and Analytics
Through the wholly-owned subsidiary, Health Products Research ("HPR"), the
planning and analytics segment 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 and third parties to
determine specifically how a targeted strategy can maximize asset utilization
and return on investment for our clients. 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. HPR also conducts primary and secondary research, syndicated
studies, market tracking and custom research audits, with proven expertise in
developing proprietary, customized market research projects that measure
attitudes and behaviors of diverse audiences including both physicians and
consumers.
Communications
Communications independently develops and organizes large symposia and
congresses that are then 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. With its staff of trained telemarketers, our Communications
business has 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 on behalf of its clients. In
addition Communications is registered with the Food and Drug Administration as
a secondary repackager, and offers a full complement of warehousing, assembly
and packaging, and mailing and distribution services.
Other
The Other segment encompasses the activities of the corporate management
group and other products and services that are currently under development and
may represent individually reportable segments in the future. VIS is currently
included in this segment as it is not yet individually material. VIS is a
separate business unit that focuses on providing comprehensive
commercialization services with new and existing clients. VIS integrates the
services of Ventiv's and other market-leading businesses offering alternative
solutions 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.
The accounting policies of the segments are the same as those described in
Note 2, "Summary of Significant Accounting Policies". Ventiv evaluates the
performance of its segments and allocates resources to them based on operating
income before restructuring and other non-recurring charges. Each segment's
revenue and operating income have been reported net of any inter-segment
revenue. The following presents information about the reported segments:
For the Years Ending December 31,
---------------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Revenue:
U.S. Contract Sales....... $263,983 $242,746 $139,525
European Contract Sales... 94,869 92,379 130,254
Research and Analytics.... 25,237 23,847 20,851
Communications............ 14,464 16,008 16,314
Other..................... -- -- --
-------- -------- --------
Total revenue...... $398,553 $374,980 $306,944
======== ======== ========
48
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Years Ending December 31,
---------------------------------
2001 2000 1999
Operating earnings (losses): -------- ------- -------
(in thousands)
U.S. Contract Sales..................... $ 10,440 $42,000 $ 3,423
European Contract Sales................. 784 (2,240) 5,430
Research and Analytics.................. 4,081 7,529 5,551
Communications.......................... (363) 823 773
Other................................... (11,337) (8,209) (4,981)
-------- ------- -------
Total operating earnings (losses)... $ 3,605 $39,904 $10,196
======== ======= =======
For the Years Ending December 31,
---------------------------------
2001 2000
Total Assets: -------- --------
(in thousands)
U.S. Contract Sales.... $121,552 $ 86,448
European Contract Sales 36,587 79,797
Research and Analytics. 10,804 12,280
Communications......... 14,350 33,486
Other.................. 42,674 21,652
-------- --------
225,967 233,663
Assets held for sale... 8,101 17,551
-------- --------
Total assets....... $234,068 $251,214
======== ========
Below is a reconciliation of total segment operating earnings (losses)
before restructuring and other non-recurring charges to earnings (losses) from
continuing operations before income taxes:
For the Years Ending December 31,
--------------------------------
2001 2000 1999
-------- ------- -------
(in thousands)
Operating income from segments......................................... $ 3,605 $39,904 $10,196
Impairment of intangible assets........................................ (51,702) -- --
Recapitalization costs................................................. -- -- (1,900)
Acquisition and related costs.......................................... -- -- (5,741)
Restructuring charges.................................................. (2,025) (2,847) (343)
Interest expense....................................................... (4,537) (3,180) (360)
Investment income...................................................... 659 1,221 1,009
Loss on investment in equity of non-affiliates......................... (2,600) -- --
Gain on sale of product marketing rights............................... 350 -- --
-------- ------- -------
Earnings (losses) from continuing operations before income taxes... $(56,250) $35,098 $ 2,861
======== ======= =======
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,
--------------------------
2001 2000 1999
-------- -------- --------
(in thousands)
Revenue:
United States $303,198 $282,601 $176,689
Europe....... 95,355 92,379 130,255
-------- -------- --------
Total........ $398,553 $374,980 $306,944
======== ======== ========
49
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
20. 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 year ended
December 31, For the period from
------------------ September 27, to
2001 2000 December 31, 1999
-------- ------- -------------------
(in thousands)
Net earnings (losses)............................. $(58,502) $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....... (2,521) 859 (1,020)
-------- ------- -------
Comprehensive earnings (losses)................... $(61,023) $17,673 $(7,925)
======== ======= =======
21. Selected Quarterly Financial Data (unaudited, in thousands):
The following table summarizes financial data by quarter for the Company for
2001 and 2000.
2001 Quarter Ended
----------------------------------------------------
March 31 June 30 September 30 December 31 Total(a)
-------- ------- ------------ ----------- --------
Revenues.......................................... $102,131 $99,173 $ 91,457 $105,792 $398,553
Gross profit...................................... 16,526 16,452 5,850 10,287 49,115
Net earnings (losses) from continuing operations.. 2,345 2,614 (53,426) (3,405) (51,872)
Net earnings (losses) from discontinued operations (975) (429) (6,602) 1,376 (6,630)
Net earnings...................................... 1,370 2,185 (60,028) (2,029) (58,502)
Net earnings per share (Diluted)
Continued..................................... $ 0.10 $ 0.11 $ (2.35) $ (0.15) $ (2.29)
Discontinued.................................. $ (0.04) $ (0.02) $ (0.29) $ 0.06 $ (0.29)
2000 Quarter Ended
---------------------------------------------------
March 31 June 30 September 30 December 31 Total(a)
-------- ------- ------------ ----------- --------
Revenues....................................... $87,846 $88,929 $91,011 $107,194 $374,980
Gross profit................................... 17,863 18,329 17,744 27,776 81,712
Net earnings (loss) from continuing operations. 3,873 4,668 3,135 7,131 18,807
Net earnings (loss) from discontinued operation (1,087) (576) (176) (154) (1,993)
Net earnings................................... 2,786 4,092 2,959 6,977 16,814
Net earnings per share (Diluted)...............
Continued.................................. 0.17 0.20 0.13 0.31 0.80
Discontinued............................... (0.05) (0.02) -- (0.01) (0.09)
- --------
(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.
50
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 March 29,
2002. 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
March 29, 2002
51
VENTIV HEALTH, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2001, 2000 and 1999
(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, 2001..... $1,682 $ 397 $ 311 $(25) $1,743
Year ended December 31, 2000..... 1,986 535 786 (53) 1,682
Year ended December 31, 1999..... 2,381 1,198 1,495 (98) 1,986
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, 2001...... $2,956 $2,627 $ 2,845 $ 26 $2,764
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
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
52
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, 2001 and 2000.
Consolidated Statements of Operations for the years ended December 31, 2001,
2000 and 1999.
Consolidated Statements of Stockholders' Equity for the years ended December
31, 2001 and 2000 and the period from September 27, 1999 to December 31, 1999.
Consolidated Statements of Cash Flows for the years ended December 31, 2001,
2000 and 1999.
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.
53
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 January 1, 2001 by and between Leonard J. Vicciardo and Ventiv Health,
Inc.
10.7 Employment Agreement, dated January 24, 2000 by and between Patrick Fourteau and Ventiv Health, Inc.
as amended.
10.8 Employment Agreement, dated August 23, 2000 by and between Douglas E. Langeland and Ventiv
Health, Inc. as amended.
10.9 Employment Agreement, dated August 13, 2001 by and between John R. Emery and Ventiv Health, Inc.
10.10 Credit Agreement, dated March 29, 2002, among Ventiv Health, certain subsidiaries of Ventiv Health,
Inc., and Foothill Capital Corporation.
21.1 Subsidiaries of Ventiv Health, Inc.
23 Consent of Arthur Andersen LLP.
99 Letter to the Commission regarding Arthur Andersen LLP representations to the Company.
- --------
* Incorporated by reference.
(b) Reports on Form 8-K
Current Report on Form 8-K, (Item 5--Other Events) dated as of December 3,
2001. The Company disclosed that the Company and its lenders intend to amend
the Company's $50 million unsecured revolving credit facility on or prior to
December 31, 2001. The Company had previously disclosed in its Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 2001, as filed with
the Securities and Exchange Commission on November 14, 2001, that it had
executed a term sheet with its lenders on November 14, 2001 to enter into an
amended credit facility on or before December 3, 2001. The amended credit
facility would be secured by Ventiv's assets and would include a waiver of
non-compliance through December 21, 2001 for the Company's non-compliance with
certain existing financial covenants. It was anticipated that subsequent to
December 3, 2001 the parties would agree on modified financial and restrictive
covenants and other terms, which would be incorporated into the amended credit
facility on or before the December 21, 2001 expiration date of the waiver of
non-compliance.
54
The parties have now agreed to defer amending the credit facility in any
form until final agreement is reached on modifications to financial and
restrictive covenants and other terms. In the interim, the Company's lenders
have reserved all rights and remedies, including the right to declare all
amounts outstanding under the current facility immediately payable. Ventiv
classified all amounts outstanding under the credit facility as current at
September 30, 2001.
Current Report on Form 8-K, (Item 5--Other Events) dated as of December 28,
2001. The Company disclosed that it has signed a non-binding letter of intent
with a subsidiary of a major financial institution for a new credit facility of
up to $50 million, which would be used to refinance the Company's existing
credit facility and meet the Company's ongoing working capital needs. It is
expected that a credit facility provided by this lender would be secured by the
Company's assets, and that borrowing availability under the facility will be
based on the level of the Company's U.S.-based accounts receivable. Closing of
this new credit facility is subject to a due diligence and documentation
process, which is currently in process.
55
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.
By: /S/ JOHN R. EMERY
-----------------------------
John R. Emery Chief Financial
Officer
Date: March 29, 2002
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 and March 29, 2002
- ----------------------------- Director (Principal
Eran Broshy Executive Officer)
/s/ JOHN R. EMERY Chief Financial Officer March 29, 2002
- ----------------------------- (Principal Financial and
John R. Emery Accounting Officer)
/s/ DANIEL M. SNYDER Chairman of the Board March 29, 2002
- -----------------------------
Daniel M. Snyder
/s/ DONALD CONKLIN Director March 29, 2002
- -----------------------------
Donald Conklin
/s/ FRED DRASNER Director March 29, 2002
- -----------------------------
Fred Drasner
/s/ JOHN R. HARRIS Director March 29, 2002
- -----------------------------
John R. Harris
/s/ A. CLAYTON PERFALL Director March 29, 2002
- -----------------------------
A. Clayon Perfall
/S/ MORTIMER B. ZUCKERMAN Director March 29, 2002
- -----------------------------
Mortimer B. Zuckerman
56
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 January 1, 2001 by and between Leonard J. Vicciardo and Ventiv Health,
Inc.
10.7 Employment Agreement, dated January 24, 2000 by and between Patrick Fourteau and Ventiv Health, Inc.
as amended.
10.8 Employment Agreement, dated August 23, 2000 by and between Douglas E. Langeland and Ventiv
Health, Inc. as amended.
10.9 Employment Agreement, dated August 13, 2001 by and between John R. Emery and Ventiv Health, Inc.
10.10 Credit Agreement, dated March 29, 2002, among Ventiv Health, certain subsidiaries of Ventiv Health,
Inc., and Foothill Capital Corporation.
21.1 Subsidiaries of Ventiv Health, Inc.
23 Consent of Arthur Andersen LLP.
99 Letter to the Commission regarding Arthur Andersen LLP representations to the Company.
- --------
* Incorporated by reference.
57