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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
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 No. of (I.R.S. Employer Identification No.)
Incorporation or Organization)
200 Cottontail Lane Vantage Court North Somerset, New Jersey 08873
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (800) 416-0555
Securities registered pursuant to Section 12(g) of the Act:
Securities registered pursuant to Section 12(g) of the Act: Common Stock
(Title of Class)
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. [_] Indicate by check mark whether the registrant is an accelerated
filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X]
Based on the closing sale price on the Nasdaq National Market as of the last
business day of the registrant's most recently completed second fiscal quarter,
the aggregate market value of the voting stock held by nonaffiliates of the
registrant was approximately $31,639,055. For the purposes of this calculation,
shares owned by officers, directors and 10% shareholders known to the registrant
have been deemed to be owned by affiliates. This determination of affiliate
status is not a determination for other purposes.
As of March 21, 2003, there were 22,958,776 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 2002 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 ................................................................................... 6
3 Legal Proceedings ............................................................................ 7
4 Submission of Matters to a Vote of Securities Holders ........................................ 7
PART II
5 Market for the Registrant's Common Stock and Related Stockholder Matters ..................... 8
6 Selected Financial Data ...................................................................... 9
7 Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 10
7A Quantitative and Qualitative Disclosures About Market Risk ................................... 23
8 Financial Statements and Supplementary Data .................................................. 24
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ........ 46
PART III
10 Directors and Executive Officers of the Registrant ........................................... 47
11 Executive Compensation ....................................................................... 47
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 47
13 Certain Relationships and Related Transactions ............................................... 47
PART IV
14 Controls and Procedures ...................................................................... 48
15 Exhibits, Financial Statement Schedules, and Reports on Form 8-K ............................. 48
CAUTIONARY STATEMENT
All statements included or incorporated by reference in this Annual Report on
Form 10-K, other than statements or characterizations of historical fact, are
forward-looking statements. Examples of forward-looking statements include, but
are not limited to, statements concerning future revenues, operating expenses,
capital requirements, growth rates, cash flows, operational performance, sources
and uses of funds and acquisitions, our accounting estimates, assumptions and
judgments, the competitive nature of and anticipated growth in our markets, the
need for additional capital, changes in the pharmaceutical industry, uncertainty
related to the continued growth of pharmaceutical outsourcing, changes in the
competitive climate in which we operate, 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. These forward-looking
statements are based on our current expectations, estimates and projections
about our industry, management's beliefs, and certain assumptions made by us.
Forward-looking statements can often be identified by words such as
"anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks,"
"estimates," "may," "will," "should," "would," "potential," "continue," similar
expressions and variations or negatives of these words. In addition, any
statements that refer to expectations, projections or other characterizations of
future events or circumstances, including any underlying assumptions, are
forward-looking statements. These forward-looking statements speak only as of
the date of this Report and are based upon the information available to us at
this time. Such information is subject to change, and we will not necessarily
inform you of such changes. These statements are not guarantees of future
performance and are subject to risks, uncertainties and assumptions that are
difficult to predict. Therefore, our actual results could differ materially and
adversely from those expressed in any forward-looking statements as a result of
various factors, some of which are listed under the section "Risks Related to
Our Business" in Item 7 of this Report. We undertake no obligation to revise or
update publicly any forward-looking statements for any reason.
PART I
Item 1. Business.
Overview
Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is
a leading provider of outsourced sales and marketing solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range of
integrated and standalone services, in a context of consultative partnership
that identifies strategic goals and applies targeted, tailored solutions. The
portfolio of offerings includes: integrated sales force recruitment, training
and management; standalone sales force recruitment, training, systems automation
and regulatory compliance services; product, sample and literature fulfillment;
telemarketing and other marketing support; product/brand management;
brand/portfolio analytics and forecasting; market research and intelligence; and
strategic and tactical planning. Over almost three decades, Ventiv's businesses
have provided a broad range of innovative strategic and tactical solutions to
many of the world's leading pharmaceutical and life sciences companies.
The aggregation of the businesses currently conducted by Ventiv began with a
merger transaction between Snyder Communications, Inc. ("SNC") and a U.S.
provider of pharmaceutical sales and marketing services in 1997. After forming
its pharmaceutical sales and marketing services business segment in that year,
SNC completed a series of follow-on acquisitions in the healthcare marketing
services areas. 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 Ventiv, which was then a newly formed
subsidiary of SNC, 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 and into commercialization. As a potential drug or device advances in
the clinical trial process towards commercialization, our clients must 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.
We are in the process of making available our annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 free of charge on our corporate website located
at www.ventiv.com. These reports will be available as soon as reasonably
practicable after the filing of those reports with the Securities and Exchange
Commission. Information found on our website should not be considered part of
this annual report on Form 10-K.
Restatement of Results
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended December 31, 2001, the Company determined that certain
balances relating to its now held for sale French operations contained errors
resulting from consolidating entries prior to 2000 that had not been properly
reconciled to the subsidiary. As a result, the Company's stockholders' equity
and accumulated deficit as of December 31, 1999 have been restated from the
amounts previously reported to reflect an adjustment that decreased
stockholders' equity and increased accumulated deficit by $3.8 million to
properly reconcile certain balances. The accompanying consolidated balance sheet
as of December 31, 2001 has also been restated from the amounts previously
reported to reflect the adjustment to stockholders' equity and accumulated
deficit and the related adjustments to decrease assets by $1.7 million and
increase liabilities by $2.1 million; these adjustments are included in balances
associated with assets and liabilities held for sale.
1
Ventiv's Business Units
We serve our clients primarily through two business units: Planning and
Analytics (as provided by the Company's Health Products Research ("HPR")
subsidiary) and Ventiv Health Sales and Marketing ("VHSM"). 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. Sales
results must be constantly monitored and sales strategies must be adjusted to
respond to a dynamic marketplace. HPR has recognized expertise in assisting
clients in these areas. Pharmaceutical products must be sold by a team of highly
trained sales representatives. VHSM has market-leading capability in recruiting,
training, deploying and managing small to large scale product sales forces. VHSM
is capable of functioning independently or in tandem with a client's existing,
internal sales force.
Each business unit performs 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 both units.
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 (see
Part II - Item 8 - Notes to Consolidated Financial Statements - Segment
Information for a further description):
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:
o 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.
o 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.
PROM/SM/ is unique in that it can measure a separate response for
individual physicians by promotional channel. PROM/SM/ is also designed to
quantify the interactive effect of promotional media. This data is used to
determine the optimal promotional mix. Ultimately, PROM/SM/ 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.
o 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 PROM/SM/ 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 UniBrand/SM/
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 RAM/SM/. RAM/SM/ is designed to maximize sales and
profits by determining optimal sales force size and structure, as well as
constrained details across brands. The RAM/SM/ approach also can be used to
examine "what if" scenarios for different strategic and tactical
alternatives.
o 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.
o 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.
o 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.
o Market Research: HPR conducts primary and secondary research, syndicated
studies, market tracking and custom research audits. It has established
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.
o Strategic Consulting: HPR's consultants in the strategic consulting group
work with clients, designing solutions for issues such as resource
allocation, forecasting, pricing, and compensation. Their focus on
incorporating best practices within the culture of organizations yields
pragmatic and easily implemented business solutions that can be integrated
throughout the organization.
HPR has 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.
VHSM
VHSM is organized to plan, implement and execute outsourced product
commercialization programs for prescription pharmaceutical and other life
sciences products. VHSM maintains and operates the requisite systems,
facilities, and support services to rapidly recruit, train and deploy a
customized, full-service and highly targeted sales force. Currently, VHSM
operates one of the largest contract sales organizations in the U.S. (larger, in
fact, than some pharmaceutical companies), with approximately 1,500 sales
representatives as of December 31, 2002.
Life sciences companies, particularly pharmaceutical manufacturers, have
traditionally relied upon product detailing as the primary means of influencing
prescription writing patterns and promoting their products. Product detailing
consists of a one-on-one meeting in a physician's office where a sales
representative reviews the medical profile of a product's FDA-approved
indications. Information provided by the sales representative includes the
product's role in treatment, efficacy, potential side-effects, dosage, danger of
contra-indications with other drugs, cost and any other appropriate information.
The dialogue is two-way with the salesperson collecting the views of each
individual physician. Discussions will often include topics such as the type of
patient most likely to benefit from a particular therapy as well as the relative
benefits of alternative products. This requires the salesperson to be well
educated and highly trained. Recruiting qualified personnel and providing client
and product specific training are both core competencies of VHSM. 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. VHSM'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. We offer these
recruitment services to clients as part of an integrated sales force
recruitment, training and management program, or on a standalone basis. VHSM
hires a mix of full-time and flex-time representatives in order to accommodate
the detailing level required by clients and maximize cost efficiency.
3
We also emphasize the training of our personnel, and believe we have made
more significant investments in this area than our competitors. VHSM'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. VHSM's trainers
are top professionals in their field and rely upon proprietary information
regarding physician prescribing behavior and industry best practices. As the
trainees are from both VHSM'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 VHSM from its
competitors and benefit the overall contract sales effort. VHSM also offers
these training services to clients as part of an integrated package or on a
standalone basis.
In addition to its dedicated sales forces, VHSM has also built and deployed
several standing specialty sales teams that each promotes multiple complementary
products from different manufacturers. These relationship sales teams ("RSOs")
are dedicated to developing and extending long-term relationships with their
target physician specialists, which increases the value of these teams to our
clients over time. Each RSO team promotes multiple products that are mutually
complementary to the physician, allowing us to build a total therapeutic call
providing depth to our physician interactions. VHSM is also intimately involved
in the marketing of several of these products.
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, 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.
Consistent with standard practices in the pharmaceutical industry, VHSM collects
and analyzes sales force level data necessary to make marketing resource
allocation decisions. Sales representatives are equipped with an
industry-leading palm-top and laptop sales force automation system developed
exclusively for VHSM. This system enables our sales representatives to rapidly
collect sales call and physician profiling information while in the field, which
is compiled daily 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. VHSM also offers this sales force automation
system on a standalone basis to clients.
VHSM provides telemarketing services, which 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 leads, phone surveys, consumer surveys,
customer service, compliance building and patient care management.
Registered with the Food and Drug Administration ("FDA") as a secondary
repackager, VHSM offers a full complement of warehousing, assembly and
packaging, and mailing and distribution services. This allows VHSM 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 promotional materials. The group's
combination of pharmaceutical warehousing and direct mail capabilities
allow it to offer coordinated sample delivery and sales calls to physicians as
well as administer drug recalls and rebate programs, all of which have the
potential to 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 VHSM 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).
Competitive Advantages
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, recruiting, professional
training and development, our experienced management team, and our use of
technology provide VHSM with a competitive advantage in marketing products for
our clients. With the ability to leverage the capabilities of HPR, VHSM is well
positioned to provide value-added services across an array of product types in
the life sciences industry.
Leading Healthcare Marketing and Sales Services Company: We are one of the
largest providers of pharmaceutical contract sales services in the U.S. and we
are also a significant provider of strategic and tactical sales and marketing
planning in the U.S. We detail to a large number of physicians, nurses,
pharmacists and formularies--approximately three million calls were made on
physicians in 2002 alone. These targets are regularly contacted by our
representatives, enabling the collection of valuable profiling data. Our
large-scale presence in our markets provides significant advantages in terms of
experience, speed, capabilities, and technology.
4
Comprehensive Service Offering: We offer a broad range of services, from
strategic and tactical planning and analytics to the recruiting, training,
deployment and management of sales forces and development of sales and marketing
strategies. We believe that Ventiv's combination of planning and analytics
capabilities and sales and marketing experience effectively differentiates
Ventiv in its marketplaces.
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 and we continue to seek new
opportunities to further diversify our client base.
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, VHSM to conduct proprietary market
research. Also, we have made a considerable investment in technology and have
developed and deployed 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.
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.
Our basic strategy is to offer the best combination of high-quality, flexible
and cost-effective services to our clients. We continue to enhance our
capabilities, deepen our client relationships and offer more fully-integrated
solutions.
Clients
We provide our services to leading pharmaceutical, biotechnology, medical
device and diagnostics companies. During 2002, approximately 75.9% of our
revenues were derived from our ten largest clients. Our ten largest clients
during 2002, listed alphabetically, were as follows: Allergan, Inc., Altana
Pharma, Amgen, Inc., Bayer Corporation ("Bayer"), Boehringer Ingleheim
Pharmaceuticals, Inc., Bristol-Myers Squibb, Inc. ("BMS"), Endo Pharmaceuticals,
Inc. ("Endo"), Novartis Consumer Health, Inc., Vivelle Ventures, LLC, and
Reliant Pharmaceucticals, Inc. ("Reliant"). Three clients, Bayer, Endo, and
Reliant accounted for approximately 25.3%, 11.8% and 10.6% respectively, of our
total revenue for the year ended December 31, 2002. Reliant, BMS and Bayer each
accounted for 27.6%, 16.6% and 13.2%, respectively, of our revenues during 2001.
No other clients accounted for more than 10.0% of revenue in 2002 or 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, typically 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
marketing program creates substantial additional expense and causes 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 a number of cases in
negotiating longer-term commitments and an initial non-cancelable contract
period, 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 depth of expertise in
healthcare planning and analytics and sales and marketing services as we offer
our clients. Our healthcare planning and analytics services are premium priced
based on proprietary software and analytical methods developed by HPR. Our
sales and marketing services are priced to offer an economical and flexible
alternative to pharmaceutical companies which need to expand sales force
capacity. 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
5
competitors in the individual markets in which the group operates.
Sales & Marketing: A small number of providers comprise the market for contract
sales. We believe that Ventiv, Innovex (Quintiles) and Professional Detailing,
Inc. combined account for the majority of the U.S. contract sales market share.
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.
Planning and Analytics: HPR's largest competitor in the strategic and tactical
planning marketplace is ZS Associates, which provides market segmentation,
promotion planning and resource allocation services similar to HPR's. In the
market research marketplace, HPR competes against a variety of large and small
companies, which provide primary and secondary market research on a contract
basis.
Seasonality
Although Ventiv's business is subject to variability as a result of the ongoing
startup and completion of contracts, periodic receipt of incentive fees and the
ramp up of product revenues in certain contracts, Ventiv's business is not
generally subject to seasonal variation.
Employees
At December 31, 2002, we employed approximately 1,800 people in continuing
operations, including approximately 1,500 sales representatives. Our part-time
sales force employees account for approximately nine percent 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 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 the Prescription Drug Marketing Act of 1987 and other
applicable federal, state and local laws and regulations. These laws and
regulations regulate the distribution of drug samples by mandating storage,
handling, solicitation and record-keeping requirements for drug samples and by
banning the purchase or sale of drug samples.
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 that
AMA physicians may receive, directly or indirectly, from pharmaceutical
companies. 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 government might
attempt to regulate our use of this data. Any such restriction could have a
material adverse effect on Ventiv.
Item 2. Properties.
Our principal executive offices are located in Somerset, New Jersey at a site
which is leased by the Company. Ventiv and its operating subsidiaries also own a
facility in Louisville, Colorado. We lease a total of four facilities in the
U.S. The operating leases on these facilities exist through fiscal year 2008.
6
Item 3. Legal Proceedings.
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.
Item 4. Submission of Matters to a Vote of Securities Holders.
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 2002.
7
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, 2002
First Quarter $4.00 $1.15
Second Quarter 2.98 1.55
Third Quarter 2.70 1.02
Fourth Quarter 2.18 1.00
High Low
Year ended December 31, 2001
First Quarter $17.25 $11.81
Second Quarter 20.64 13.05
Third Quarter 19.94 4.00
Fourth Quarter 4.70 2.44
On March 21, 2003, the closing price for Ventiv's common stock was $2.74 per
share, and there were approximately 200 record holders and approximately 4,663
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 its credit agreement (See Part II--Item
8--Notes to Consolidated Financial Statements (Note 7)). Ventiv does not
anticipate paying any cash dividends in the foreseeable future. Payment of any
future dividends will depend upon the future earnings, capital requirements and
strategic plans of Ventiv and other factors, as determined by our Board of
Directors.
The following table summarizes our current equity compensation plans:
Number of
securities to be
issued upon
exercise of
outstanding Weighted-average
options, exercise price of Number of securities remaining
warrants and outstanding options, available for future issuance
rights warrants and rights under equity compensation plans
------------------ ---------------------- --------------------------------
Equity compensation plans approved by security
holders
1999 Stock Incentive Plan - option program 3,891,358 $3.43 441,837
------------------ --------------------------------
Equity compensation plans not approved by
security holders -0- $0.00 -0-
------------------ --------------------------------
Total 3,891,358 441,837
========= =======
The transfer agent for Ventiv's common stock is American Stock Transfer and
Trust Company, 6201 Fifteenth Avenue, Brooklyn, New York, 11219.
8
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. These financial statements
have been restated as a result of the Company's decision to discontinue the
operations of its medical education and communications businesses in Stamford,
Connecticut and Alpharetta, Georgia, as well as its European contract sales
organizations operating in the U.K., France, Germany and Hungary. 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. See also "Item 7--Management's
Discussion and Analysis of Financial Condition and Results of Operations".
For the Years Ended December 31,
----------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
(in thousands, except per share data)
Revenues ......................................................... $215,387 $294,763 $274,686 $166,949 $119,128
========= =========== ============ ============= ===========
Earnings (losses) from continuing operations ..................... $4,941 $(16,060) $24,715 $3,817 $4,674
========= =========== ============ ============= ===========
Earnings (losses) from discontinued operations (a) ............... $2,951 $(42,442) $(7,901) $(14,424) $(3,228)
========= =========== ============ ============= ===========
Net earnings (losses) ............................................ $7,892 $(58,502) $16,814 $(10,607) $1,446
========= =========== ============ ============= ===========
Basic earnings (losses) per share (b)
Continuing operations .......................................... $0.22 $(0.71) $1.09 $ 0.16 $0.20
========= =========== ============ ============= ===========
Discontinued operations (a)..................................... $0.13 $(1.87) $(0.35) $(0.60) $(0.14)
========= =========== ============ ============= ===========
Net earnings (losses) .......................................... $0.35 $(2.58) $0.74 $(0.44) $0.06
========= =========== ============ ============= ===========
Diluted earnings (losses) per share (b)
Continuing operations .......................................... $0.22 $(0.71) $1.06 $ 0.16 $0.20
========= =========== ============ ============= ===========
Discontinued operations (a)..................................... $0.13 $(1.87) $(0.34) $(0.60) $(0.14)
========= =========== ============ ============= ===========
Net earnings (losses) .......................................... $0.35 $(2.58) $0.72 $(0.44) $0.06
========= =========== ============ ============= ===========
Shares used in computing basic earnings (losses) per share (b) ... 22,842 22,648 22,628 23,907 23,715
========= =========== ============ ============= ===========
Shares used in computing diluted earnings (losses) per share (b) . 22,857 22,648 23,406 23,907 23,715
========= =========== ============ ============= ===========
Balance sheet data:
Total assets (a).................................................. $153,418 $232,343 $249,491 $230,754 193,644
========= =========== ============ ============= ===========
Long-term debt (c) ............................................... $8,904 $16,947 $31,857 $ -- $ --
========= =========== ============ ============= ===========
Total investments and advances from SNC (d) ...................... n/a n/a n/a n/a $119,727
========= =========== ============ ============= ===========
Total equity (a).................................................. $96,446 $87,206 $145,311 $141,938 n/a
========= =========== ============ ============= ===========
(a) As restated. See Part II - Item 8, Note 3 to the consolidated financial
statements included elsewhere herein. Also, see prior comments on restatement on
page 2.
(b) For all dates prior to the Distribution, the number of shares used to
calculate 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, 2002, the number of shares used to
calculate earnings (losses) per share was the actual number of shares of Ventiv
common stock outstanding.
(c) 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.
(d) 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.
9
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Ventiv Health, Inc. and subsidiaries (collectively "Ventiv" or "the Company") is
a leading provider of outsourced sales and marketing solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range of
integrated and standalone services, in a context of consultative partnership
that identifies strategic goals and applies targeted, tailored solutions. The
portfolio of offerings includes: integrated sales force recruitment, training
and management; standalone sales force recruitment, training, systems automation
and regulatory compliance services; product, sample and literature fulfillment;
telemarketing and other marketing support; product/brand management;
brand/portfolio analytics and forecasting; market research and intelligence; and
strategic and tactical planning. Over almost three decades, Ventiv's businesses
have provided a broad range of innovative strategic and tactical solutions to
many of the world's leading pharmaceutical and life sciences companies.
The aggregation of the businesses currently conducted by Ventiv began with a
merger transaction between Snyder Communications, Inc. ("SNC") and a U.S.
provider of pharmaceutical sales and marketing services in 1997. After forming
its pharmaceutical sales and marketing services business segment in that year,
SNC completed a series of follow-on acquisitions in the healthcare marketing
services areas. 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 Ventiv, which was then a newly formed
subsidiary of SNC, 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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations 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, 2002, 2001 and 2000.
Overview
The Company provides integrated sales and marketing services for its clients,
primarily pharmaceutical, biotechnology and life sciences companies. Ventiv's
services are designed to develop, execute and monitor strategic and tactical
sales and marketing plans and programs for the promotion of pharmaceutical,
biotechnology and other life sciences products. The Company currently conducts
its continuing operations in the United States, serving U.S. companies and
domestic affiliates of foreign corporations. The Company is organized into two
operating segments based on products and services offered: Planning and
Analytics (as provided by the Company's Health Products Research ("HPR")
subsidiary) and Ventiv Health Sales and Marketing ("VHSM").
The VHSM segment is focused on planning, implementing and executing outsourced
product commercialization programs for prescription pharmaceutical and other
life sciences products in the United States. This segment maintains and operates
the requisite systems, facilities, and support services to rapidly recruit,
train and deploy a customized, full-service and highly targeted sales force. In
addition, VHSM offers telemarketing services, which significantly enhance a life
sciences company's ability to communicate effectively with physicians in a cost
efficient manner.
The Planning and Analytics segment 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 physician-level intelligence. HPR also conducts primary and
secondary research, syndicated studies and 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.
Recent Business Developments
In February 2002, the Company was notified by Reliant Pharmaceuticals,
Inc. ("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 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 10.6% and 27.6% of the Company's
revenues for the years ended December 31, 2002 and 2001, respectively. As a
consequence of the conversion, Ventiv ceased providing contract sales services
to Reliant as of March 31, 2002.
On April 26, 2002, the Company was notified by Cellegy Pharmaceuticals,
Inc. ("Cellegy") of its withdrawal of the New Drug Application for Cellegesic(R)
with the U.S. Food & Drug Administration ("FDA"). Cellegy decided to withdraw
the application after meetings with the FDA indicated that additional
information would be required before the FDA would grant marketing clearance of
Cellegesic(R) in the United States. The Company, through Ventiv Integrated
Solutions ("VIS") and another wholly-owned subsidiary, had entered into a
contract with Cellegy to provide cash and services in support of the
commercialization of the Cellegesic(R) product. On September 30, 2002, the
10
Company notified Cellegy of its intent to exercise its rights to terminate this
agreement, effective immediately. Both Cellegy and the Company agreed to such
termination. As a result of this termination and pursuant to this agreement,
Cellegy and Ventiv agreed to share equally (50% each) the $1.5 million of
marketing expenses incurred during the project. As a result, in 2002 the Company
recognized approximately $0.8 million of expense for its proportionate share of
the expenses on the project.
Effective May 15, 2002, the Company's contract sales agreement with Bayer
was amended and restated to provide for (i) a new fixed fee structure for
services rendered from May 15, 2002 through December 31, 2003, and (ii) an
extension of the option for Bayer to reduce the size of the Company's sales
force from May 15, 2002 to May 15, 2003. Under the original terms of the Bayer
agreement and through May 14, 2002, the Company received certain fees that
covered a substantial portion, but not all of the Company's costs of services
relating to this engagement. Additionally, effective January 1, 2003, the
contract sales agreement has been further amended to (i) reduce the size of the
sales force from 500 to 350 full-time sales representatives through May 31,
2003, (ii) provide Bayer with the option to reduce the sales force to no less
than 250 sales representatives from May 31, 2003 through October 31, 2003 and to
less than 250 sales representatives thereafter, (iii) provide for certain
penalties for permanent reduction of the sales force below 350 sales
representatives, and (iv) provide for advance payments totaling $10.6 million
comprised of a non-refundable $1.6 million Redeployment Milestone Payment and a
$9.0 million Up-Front Payment to be earned equally, on a monthly basis, from
January 1, 2003 through October 31, 2003. Any unearned monies related to the
Up-Front Payment are to be refunded to Bayer in the event of termination prior
to October 31, 2003.
Effective September 12, 2002, the Company entered into a multi-year fee
for service agreement to provide Altana Pharma ("Altana"), the U.S. operations
of German-based Altana Pharma AG, with a nationwide sales force, including
recruitment, training and operational support. Under the terms of the agreement,
in a first phase, Ventiv provides 220 full-time sales representatives and 10
Regional Training and Administrative Managers. The Altana sales force has been
co-promoting Detrol(R) together with Pharmacia since October 2002. Revenues
associated with the initial recruiting and training of this sales force were
recognized in the third quarter of 2002, while the revenue related to the
promotion activities for this engagement commenced in the fourth quarter of
2002.
Based on historical performance and as outcomes of strategic initiatives
implemented by Company management to better focus the Company on its core
businesses and operating segments, in September 2001 and April 2002,
respectively, the Company's Board of Directors approved plans to divest the net
assets of its Stamford, Connecticut and Alpharetta, Georgia-based business
units. In June 2002, based on management's ongoing strategic assessment of the
business, the Company's Board of Directors authorized management to dispose of
the business units comprising its European contract sales organizations
operating in U.K., France, Germany and Hungary.
The Company completed the sale of its Stamford, Connecticut-based business
unit on May 7, 2002 and the Alpharetta, Georgia-based business unit on June 3,
2002. In addition, the Company completed the sale of its Germany-based contract
sales business unit on September 26, 2002. On October 16, 2002, the Company
completed the sale of its United Kingdom-based contract sales business unit.
Finally, the Company completed the sale of its Hungary-based contract sales
business (a wholly-owned subsidiary of its U.K.-based operations) on January 23,
2003. The Company is holding for sale its remaining European Contract Sales
business operating in France pursuant to a plan of divestiture adopted by
Ventiv. Any potential transaction would be subject to negotiation of terms and
conditions, legal and financial due diligence, regulatory review and approval
(if necessary).
The Company's Colorado-based marketing support services business unit,
Promotech Research Associates, Inc. ("Promotech"), previously considered and
classified as part of the Communications operating segment, has been
operationally merged with VHSM.
On March 18, 2003, the Company entered into a multi-year fee-for-service
agreement with Watson Pharmaceuticals, Inc. ("Watson") to provide a national
sales force including recruiting, training and operational support. Under the
terms of the agreement, Ventiv will provide 385 full-time sales representatives
and 37 district managers in the promotion of Oxytrol. The promotion effort is
scheduled to commence in the third quarter of 2003.
The Company has recently built and deployed three standing specialty sales
teams that each promotes multiple complementary products from different
manufacturers. In October 2002 the Company deployed a team of 25 sales
representatives promoting products to physicians in the women's health
marketplace. The Company deployed a team of 40 sales representatives promoting
products to the dental marketplace in November 2002. In January 2003 Ventiv
deployed a team of 40 sales representatives promoting products to the
dermatology marketplace.
11
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 planning and analytics 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.
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 Ended December 31,
2002 2001 2000
------------------------ ----------------------- ----------------------
(in thousands, except for per share data)
-----------------------------------------------------------------------
Revenues ................................................. $215,387 100.0% $294,763 100.0% $274,686 100.0%
Operating expenses:
Cost of services ...................................... $178,901 83.1% 260,171 88.3% 206,920 75.3%
Selling, general and administrative expenses .......... 27,397 12.7% 32,181 10.9% 26,330 9.6%
Impairment of goodwill ................................ -- 0.0% 14,811 5.0% -- 0.0%
Restructuring charges ................................. -- 0.0% 2,025 0.7% -- 0.0%
Realized losses on investments......................... -- 0.0% 2,600 0.9% -- 0.0%
------------- ---------- ------------ ---------- ----------- ----------
Operating earnings (losses) .............................. 9,089 4.2% (17,025) (5.8)% 41,436 15.1%
Interest expense ........................................ (1,576) (0.7)% (4,494) (1.5)% (3,024) (1.1)%
Investment income ....................................... 456 0.2% 427 0.1% 826 0.3%
------------- ---------- ------------ ---------- ----------- ----------
Earnings (losses) from continuing operations before
income taxes ............................................. 7,969 3.7% (21,092) (7.2)% 39,238 14.3%
Income tax provision (benefit) ........................ 3,028 1.4% (5,032) (1.7)% 14,523 5.3%
------------- ---------- ------------ ---------- ----------- ----------
Earnings (losses) from continuing operations ............. 4,941 2.3% (16,060) (5.4)% 24,715 9.0%
Earnings (losses) from discontinued operations:
Losses from discontinued operations, net of taxes ..... (4,772) (2.2)% (40,488) (13.7)% (7,901) (2.9)%
Gains (losses) on disposals of discontinued
operations, net of taxes ............................. 2,323 1.1% (1,954) (0.7)% -- 0.0%
Tax benefit arising from the disposal of a
discontinued operation ................................ 5,400 2.5% -- 0.0% -- 0.0%
------------- ---------- ------------ ---------- ----------- ----------
Earnings (losses) from discontinued operations ........... 2,951 1.4% (42,442) (14.4)% (7,901) (2.9)%
------------- ---------- ------------ ---------- ----------- ----------
Net earnings (losses) .................................... $7,892 3.7% $(58,502) (19.8)% $16,814 6.1%
============= ========== ============ ========== =========== ==========
Earnings (losses) per share:
Continuing operations:
Basic ................................................. $0.22 $(0.71) $1.09
Diluted ............................................... $0.22 $(0.71) $1.06
Discontinued operations:
Basic ................................................. $0.13 $(1.87) $(0.35)
Diluted ............................................... $0.13 $(1.87) $(0.34)
Net earnings (losses):
Basic ................................................. $0.35 $(2.58) $0.74
Diluted ............................................... $0.35 $(2.58) $0.72
12
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Revenues: Revenues decreased by approximately $79.4 million, or 26.9%, to
$215.4 million in 2002, from $294.8 million in 2001.
Revenues in our Ventiv Health Sales and Marketing ("VHSM") business were
$189.0 million, a decrease of 29.9%, or $80.5 million, over 2001, and accounted
for 87.7% of total Ventiv revenues in 2002. This decrease resulted primarily
from the conversion of the Reliant field force from full-time Ventiv employment
to full-time Reliant employment and the completion of Ventiv's contract with
Bristol-Myers Squibb ("BMS"), both effective as of March 31, 2002. These
reductions in revenues were partially offset by increased revenues generated
through continuing business with Bayer (which commenced in May 2001), the launch
of the Altana project in September 2002, and several other new and expanded
contracts. Revenues from the VHSM business include incentive fees of $2.5
million and $2.1 million for the years ended December 31, 2002 and 2001,
respectively.
Our Planning and Analytics business, HPR, generated 11.9% of total
revenues in 2002. Revenues increased $0.4 million or 1.7%, to $25.7 million from
$25.2 million for the years ended December 31, 2002 and 2001, respectively.
Increased business with Abbott Laboratories and Bayer was offset in part by
reduced business volume with BMS, Ortho McNeil and other smaller clients.
Costs of Services: Costs of services decreased by approximately $81.3
million, or 31.2%, to $178.9 million for the year ended December 31, 2002 from
$260.2 million for the year ended December 31, 2001.
Costs of services at the VHSM business decreased by $83.8 million or 34.1%
to $161.7 million for the year ended December 31, 2002 from $245.5 million in
2001. Costs of services in 2002 were 85.6% of revenue compared to 91.1% of
revenue in 2001. The decrease in costs of services as a percentage of revenue in
2002 was principally due to the effect of a more profitable mix of primarily
fixed-fee contracts and the effect of the renegotiated Bayer agreement. In the
fourth quarter of 2001, the Company recorded a reserve of approximately $6.1
million for estimated cumulative losses on the original Bayer agreement through
May 14, 2002, under the assumption that Ventiv would elect to discontinue
promotion services under the original contract on a loss basis beyond May 14,
2002 (the first date that Ventiv could exercise its right to terminate the
contract). As a result of the amendment and restatement of the agreement,
effective May 15, 2002, the Company reduced its cumulative loss estimate by $2.4
million, which positively impacted the Company's profit margins in the second
quarter of 2002. The Bayer engagement has operated at a profit subsequent to the
effective date of the amended and restated agreement. Additionally, effective
March 31, 2002, Reliant opted to internalize the entire Ventiv field force. In
the third quarter of 2002, the Company and Reliant commenced negotiations
regarding final amounts due and owing under the Reliant agreement. On October 9,
2002, the Company reached a final agreement with Reliant and received payment
for all amounts due and owing, as mutually agreed on that date. During 2001, the
Company had deferred recognition of approximately $1.8 million of revenue to
provide for certain contingencies under the original Reliant agreement. In the
course of final negotiations, the Company agreed to assume the cost of
approximately $0.7 million of deductions relating to such contingencies.
Accordingly, revenue and operating income for the year ended December 31, 2002
reflect the recognition of $1.1 million of revenue and operating profit in the
third quarter of that year which was previously deferred. Finally, the decrease
of costs of services as a percentage of revenue in 2002 as compared to 2001 was
attributable, in part, to the VHSM group's ongoing initiatives to increase
operating efficiencies and minimize internal operating costs and expenses.
HPR incurred costs of services of $16.5 million in 2002, representing an
increase of $2.0 million or 13.6% from $14.5 million in 2001. Costs of services
were 64.2% of revenues in 2002 compared to 57.5% in 2001. The increase in costs
of services as a percent of revenues was primarily due to the completion of
certain profitable client engagements in 2001 and a shift in the business mix to
lower margin projects in 2002.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses decreased by approximately $4.8 million, or
14.9%, to $27.4 million from $32.2 million in the years ended December 31, 2002
and 2001, respectively.
SG&A expenses in the VHSM business decreased by approximately $2.1
million to $12.2 million in 2002 compared to $14.4 million in 2001. This
decrease is primarily due to restructuring actions taken during the third
quarter of 2001 and other ongoing cost savings measures implemented by
management to align the support and infrastructure of the Company with the
current level of operations. In addition, the Company experienced SG&A savings
due to the discontinuance of amortization of goodwill pursuant to SFAS No. 142,
recognizing approximately $1.6 million in goodwill amortization expenses in
2001, with no such charges in 2002.
HPR had SG&A expenses of $5.3 million in 2002 compared to $6.6 million in
2001. The decrease of $1.4 million is due to a reduction of compensation and
benefits costs to employees, resulting from turnover involving some higher-level
management positions, as well as a reduction in incentive compensation paid in
2002. Furthermore, this reduction was due to the cost savings
13
recognized as HPR closed a foreign office in the third quarter of 2002.
Other SG&A expenses decreased to $9.9 million in 2002 from $11.2 million
in 2001. Savings derived from restructuring efforts initiated in 2001 were
offset in part by severance fees and non-recurring prior year re-audit fees
recorded in the fourth quarter of 2002.
Impairment of Goodwill: The Company completed an evaluation of the goodwill
and other intangible assets of several of its operating units during the year
ended December 31, 2001. In accordance with the Company's accounting policy in
effect at that time, 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 changes in
market conditions and competitive factors, projected undiscounted cash flows for
our Promotech business (now a part of the VHSM operating segment) were
insufficient to support the carrying amounts of related goodwill. The Company
obtained estimates of the current fair values of this operation through an
independent third party appraisal. Based on the appraised value in relation to
the net book values of this operation at that time, the Company recorded a
goodwill impairment charge of approximately $14.8 million.
The Company completed a similar evaluation of the goodwill and other
intangible assets of its sales and marketing business during the year ended
December 31, 2002. Based on this evaluation, the Company concluded that the fair
value of the business was sufficient to support the carrying amounts of related
goodwill. Additionally, the Company obtained estimates of the current fair value
of this operation through an independent third party appraisal to further
support their conclusions.
Restructuring Charges: In the third quarter of 2001, the Company completed
an evaluation of the operations of certain business units. As a result of this
evaluation, the Company adopted a plan of restructuring and recorded a charge of
approximately $2.0 million. Included in this charge were provisions for the
severance of 23 employees, as well as for costs and expenses associated with the
elimination of the New York office and the reduction of the size of the
Somerset, NJ administrative office. Ventiv did not record any restructuring
charges related to continuing operations during the year ended December 31,
2002.
Interest Expense: Ventiv recorded $1.6 million of interest expense in the
year ended December 31, 2002, a decrease of $2.9 million from the year ended
December 31, 2001. Interest expense decreased in 2002 as a result of the
Company's repayment of the $35.0 million outstanding under its prior line of
credit and reflects the effect of lower overall interest rates in 2002. During
the second quarter of 2002, the Company received a $15.0 million short-term
advance pursuant to its credit agreement with Foothill Capital Corporation
("Foothill Capital" or "Foothill"), which was treated as restricted cash. Per
the terms of the credit agreement, the related borrowing was not considered a
draw against the Company's borrowing availability under the line of credit and
was to be repaid ninety days after the initial advance. This initial advance was
repaid, together with accrued interest and fees of approximately $0.4 million,
on September 4, 2002. The Company also incurred $0.4 million of interest expense
related to obligations under its capital lease arrangement for the VHSM
automobile fleet in the year ended December 31, 2002 and $1.2 million for the
corresponding period in 2001. The decrease in auto fleet interest relates
primarily to a decrease in contracts that provided leased autos as well as lower
prevailing interest rates in 2002.
Interest Income: Ventiv recorded approximately $0.5 million and $0.4
million of investment income in the years ended December 31, 2002 and 2001,
respectively. The slight increase in the investment income is a direct result of
the cash balances on-hand throughout the year.
Realized Losses on Investments: During the second quarter of 2001, one of
our e-Health partners, HeliosHealth, Inc. ("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 wrote off its $2.1 million
investment in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's
ability to continue as a going concern.
Income Tax Provision (Benefit): Ventiv recorded a provision for income
taxes on continuing operations using an effective tax rate of 38.0% for the year
ended December 31, 2002. The effective rate for the year was based on reported
earnings in each tax jurisdiction in which the Company's continuing operations
conduct business and are subject to taxation. The Company reported a net benefit
from income taxes in the year ended December 31, 2001 of approximately $5.0
million, primarily attributable to the impairment charge taken against goodwill
related to the Promotech operating unit.
Discontinued Operations: Ventiv's discontinued operations include the
following business units: our European Contract sales organizations, operating
in the U.K., France, Germany and Hungary; our Alpharetta, Georgia-based
communications business unit; and our Stamford, Connecticut-based communications
business unit. Net earnings (losses) from discontinued operations were earnings
of $3.0 million and a loss of $42.4 million, net of tax, for the years ended
December 31, 2002 and 2001, respectively. These earnings (losses) comprised the
collective operating results of the Company's discontinued operations, which
generated losses of $4.8 million and $40.5 million, net of tax, for the years
ended December 31, 2002 and 2001,
14
respectively. These earnings (losses) also included actual or estimated gains
and losses on the divestiture of these businesses, which totaled a gain of $2.3
million in 2002 and a loss of $2.0 million in 2001, both net of taxes. The 2002
gains on divestitures of these businesses are inclusive of approximately $4.9
million of net gains for the removal of foreign currency translation accounts
previously accumulated by the Company's discontinued operating units. In
addition, these earnings (losses) included an estimated $5.4 million tax benefit
in 2002 for carry-back deductions relating to the disposal of the Stamford,
Connecticut-based business unit. Operating results for the year ended December
31, 2001 are inclusive of charges recorded for the impairment of intangible
assets in certain business units treated as discontinued operations. As
previously stated in the "Impairment of Intangible Assets" section above, the
Company completed an evaluation of the goodwill and other intangible assets of
several of its operating units in September 2001. In addition to the impairment
charges taken on business units in continuing operations, the Company also
recorded goodwill and other intangible asset impairment charges in 2001 of
approximately $13.7 million related to the U.K.-based contract sales business,
$23.2 million related to the France-based contract sales business and $1.1
million related to the Stamford, Connecticut-based communications business unit.
Goodwill associated with the U.K. and France-based contract sales businesses was
not deductible for tax purposes; therefore, there were no current or future
benefits attributable to the goodwill impairment charges taken in the third
quarter of 2001 related to these operations.
Effective May 7, 2002, the Company entered into a definitive purchase and
sale agreement, completing the sale of substantially all of the net assets of
its Stamford, Connecticut-based business unit to Discovery East, LLC, a
majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit, a
leading provider of medical education and communications services. In
consideration for the sale, the Company received approximately $3.4 million in
cash together with a note receivable in the amount of $0.6 million, due and
subsequently collected in February 2003. In connection with the completion of
this divestiture, the Company recorded an estimated $5.4 million tax benefit for
carry-back deductions relating to the disposal of this business unit. In
addition, the Company completed the sale of substantially all of the net assets
of its Alpharetta, Georgia-based business unit to a management group of that
business unit on June 3, 2002. The Company received $0.9 million of cash at
closing for the sale of this business unit and may be entitled to contingent
payments based on a percentage of earnings before interest, taxes, depreciation
and amortization as defined in the agreement for the business unit, up to a
total aggregate amount of $0.5 million. Total losses on the disposal of the
Stamford, Connecticut-based business of $2.0 million, net of tax, were estimated
in the third quarter of 2001 and adjusted to reflect final transaction terms in
the second quarter of 2002. Total losses on the disposal of the Alpharetta,
Georgia-based business unit of $6.6 million, net of tax, were recorded in the
second quarter of 2002, which included a charge of $7.5 million for the
write-down of goodwill related to that business unit.
On September 26, 2002 and effective September 30, 2002, the Company
completed the sale of 100% of the shares of Ventiv Health Germany GmbH (the
holding company for the subsidiaries comprising the Ventiv Health Germany
operating unit) to a group of management purchasers, led by the managing
director of that business. In consideration for the sale, the Company received
EUR 6.2 million ($6.1 million) at closing, and may receive additional
consideration of up to EUR 5.0 million payable from future earnings of the
business. The Company recognized a gain of approximately $5.5 million on the
sale of this business unit inclusive of the aforementioned net gains from the
removal of the accumulated foreign currency translation accounts. The Company
anticipates that this transaction will result in a loss for tax purposes. Given
that the Company may be limited in its ability to utilize such losses in the
foreseeable future, a tax benefit for such loss has not been recorded.
On October 16, 2002, the Company completed the sale of the assets and
business of its U.K.-based contract sales operating unit to Ireland-based United
Drug plc. Total consideration of $7.5 million was satisfied in cash and received
in full on the completion of the transaction. The Company recorded a gain of
$2.5 million, net of taxes, related to this transaction in the fourth quarter of
2002.
Net Earnings (Losses) and Earnings (Losses) Per Share ("EPS"): Ventiv's
net earnings increased by approximately $66.4 million to earnings of $7.9
million, from net losses of $58.5 million, for the years ended December 31, 2002
and 2001, respectively. In 2002 diluted earnings per share increased to $0.35
for the year, up from a loss of $2.58 per share in 2001. Impairment charges for
intangible assets and restructuring expenses recorded during 2001, as well as
new business and savings initiatives coupled with earnings from the sale of
discontinued operations during 2002 contributed to the increase in earnings as
more fully explained above.
Shares used in computing diluted EPS increased by approximately 0.2
million shares in 2002 from 2001. The increase was the result of the exercise of
employee stock options, net of the cancellation of certain restricted stock
awards and outstanding options during the year. During 2001, potentially
dilutive common shares 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. There were 0.6 million potentially
dilutive shares at December 31, 2001.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues: Revenues increased by approximately $20.1 million, or 7.3%, to
$294.8 million in 2001, from $274.7 million in 2000.
Revenues in our Ventiv Health Sales and Marketing business were $269.5
million, an increase of 7.4%, or $18.7 million,
15
over 2000, and accounted for 91.4% of total Ventiv revenues in 2001. The
increase in revenue in 2001 was attributable to new and expanded contracts with
Bayer and Reliant Pharmaceuticals, 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. VHSM's 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 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,
VHSM ceased detailing BuSpar(R) at the end of the first quarter of 2001,
following a court decision affecting BMS's patent for this product. BMS ceased
sales force promotion services under this contract during the first quarter of
2002.
Our Planning and Analytics business, HPR, generated 8.6% of total
revenues in 2001. Revenues increased $1.4 million or 5.8%, 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 $53.3
million, or 25.7%, to $260.2 million for the year ended December 31, 2001 from
$206.9 million in the year ended December 31, 2000.
Costs of services in the VHSM business increased by $50.8 million or
26.1% to $245.5 million for the year ended December 31, 2001 from $194.7 million
in 2000. Costs of services in 2001 were 91.1% of revenue compared to 77.6% 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. 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 through the end of 2001. The Bayer agreement was a risk-based
contract for the duration of 2001 under which the Company received certain base
fees that covered a substantial portion, but not all of the Company's costs of
services under this engagement. Under the arrangement, the Company was also
eligible to receive variable fees tied to the performance of the products being
promoted. The variable fees were 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 assessment of future product performance in relation to
the contract criteria in place at the time, and its estimates of future costs of
services under the agreement, the Company accrued a pre-tax charge of
approximately $6.1 million at the end of 2001 for estimated future losses under
this contract. The Company later renegotiated the fee structure of the contract,
effective May 15, 2002 as discussed in the "Recent Business Developments"
section.
HPR incurred costs of services of $14.5 million in 2001, representing
an increase of $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 $5.9 million, or
22.2%, to $32.2 million from $26.3 million in the years ended December 31, 2001
and 2000, respectively.
SG&A expenses in the VHSM business increased by approximately $0.3
million in 2001 compared to 2000. SG&A expenses represented 5.3% of revenue in
2001 compared to 5.6% in 2000. The decrease as a percentage of revenue is a
result of minimal incremental expenditures in overall infrastructure compared to
the increase in the revenues, as infrastructure enhancements effected in prior
periods were sufficient to support current business levels.
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.
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 Ventiv
Integrated Solutions.
Impairment of Goodwill: 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 changes in market
16
conditions, competitive factors and the discontinuation of several of the
Company's operating units, projected undiscounted cash flows for one of the
Company's subsidiaries (Promotech) were insufficient to support the carrying
amounts of related goodwill and certain intangible assets. The Company obtained
estimates of the current fair value of this operation through independent third
party appraisals. Based on this appraisal in relation to current net book values
of this operations, the Company recorded goodwill and other intangible asset
impairment charges totaling $14.8 million in the third quarter of 2001.
Restructuring Charges: During the year ended December 31, 2001, the
Company completed an evaluation of the operations of certain 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 (a total of 23 employees) and costs to reduce
the size of the Somerset, NJ office and eliminate the New York, NY
administrative office.
Interest Expense: Ventiv recorded $4.5 million of interest expense in
the year ended December 31, 2001, an increase of $1.5 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 VHSM business under its master fleet agreement. These
leases are capital in nature.
Interest Income: Ventiv recorded approximately $0.4 million and $0.8
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
lower cash balances on-hand throughout the year and the lower prevailing
interest rates applied to the concentrated cash balances.
Realized Losses on Investments: During the second quarter of 2001, one
of our e-Health partners, HeliosHealth, Inc. ("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 wrote off its $2.1 million
investment in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's
ability to continue as a going concern.
Income Tax Provision (Benefit): The Company recorded a net tax benefit
of $5.0 million for the year ended December 31, 2001 on a pretax loss of $21.1
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. However, the Company did not recognize a tax benefit
associated with the devaluation of its investment in RxCentric.
Discontinued Operations: Net losses from discontinued operations were $40.5
million and $7.9 million, net of tax, for the years ended December 31, 2001 and
2000, respectively. These losses comprised the collective operating results of
the following business units: our U.K.-based contract sales business, our
France-based contract sales business, our Germany-based contract sales business,
our Hungary-based contract sales business, our Alpharetta, Georgia-based
communications business unit and our Stamford, Connecticut-based communications
business unit. Additionally, such losses for the year ended December 31, 2001
are inclusive of charges recorded for the impairment of intangible assets in
certain business units treated as discontinued operations. As previously stated
in the "Impairment of Intangible Assets" section above, the Company completed an
evaluation of the goodwill and other intangible assets of several of its
operating units in September 2001. In addition to the impairment charges taken
on business units in continuing operations, the Company also recorded goodwill
and other intangible asset impairment charges of approximately $13.7 million
related to the U.K.-based contract sales business, $23.2 million related to the
France-based contract sales business, and $1.1 million related to the Stamford,
Connecticut-based Communications business unit. Goodwill associated with the
U.K. and France-based contract sales businesses was not deductible for tax
purposes; therefore, there were no current or future benefits attributable to
the goodwill impairment charges taken in the third quarter of 2001 related to
these operations.
Losses on disposals of discontinued operations were $2.0 million, net of
tax, for the year ended December 31, 2001 with no comparable charge in 2000. 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 and the
Company recorded an estimated loss on disposal of these net assets at that time.
Effective May 7, 2002, the Company completed the sale of substantially all of
the net assets of its Stamford, Connecticut-based business unit to Discovery
East, LLC, a majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business
unit, a leading provider of medical education and communications services.
Net Earnings (Losses) and Earnings (Losses) Per Share ("EPS"): Ventiv's
net earnings decreased by approximately $75.3 million to net losses of
17
$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 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, potentially dilutive common shares 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 shares at December 31, 2001 was 0.6
million shares.
Liquidity and Capital Resources
At December 31, 2002, Ventiv had $46.1 million of unrestricted cash and
equivalents, an increase of $10.6 million from December 31, 2001. For the
year ended December 31, 2002 compared to December 31, 2001, cash provided by
operations increased by $23.0 million from $11.2 million to $34.2 million. Cash
provided by investing activities increased by $16.1 million from a use of $2.9
million to a source of $13.2 million. Cash used in financing activities
increased by $53.3 million from a source of $10.4 million in 2001 to a use of
$42.9 million over the same comparative periods.
Cash provided by operations were $34.2 million and $11.2 million in the
years ended December 31, 2002 and 2001, respectively. This increase was, in
large part, due to the billing and collection of certain payments due under the
Bayer, BMS and Reliant agreements. Bayer paid the Company $35.8 million in
February 2002. In 2002, the Company collected payments due from Reliant and BMS
subsequent to the conversion of the Reliant field force from full-time Ventiv
employment to full-time Reliant employment and the completion of the Company's
contract with BMS, as mentioned in the "Results of Operations" section.
Similarly, accrued payroll, accounts payable and accrued expenses have increased
by $4.6 million in 2001 and decreased by $4.3 million in 2002, relating to the
increase in sales representatives in 2001 and a decrease in sales
representatives as a result of these contracts in 2002. The trend continues in
client advances and unearned revenue, where there is a $10.4 million increase in
2001 versus a $12.7 million decrease in 2002.
Cash provided by investing activities was $13.2 million in 2002 compared
to cash used of $2.9 million in 2001. The Company received total proceeds of
approximately $17.9 million from divestitures completed in 2002. Investing
activities included capital expenditures of approximately $4.0 million and $4.5
million for 2002 and 2001, respectively.
Cash used in financing activities was $42.9 million, as compared to cash
provided by financing activities of $10.4 million for 2002 and 2001,
respectively. In February 2002, the Company repaid the $35.0 million that was
outstanding under its previous credit facility (see below). During the same
period last year, the Company made net borrowings of $16.0 million under this
credit facility, primarily to support operations. Subsequent to the signing and
pursuant to the terms of its new credit agreement with Foothill Capital
Corporation (described below), the Company drew a $15.0 million short-term
advance on May 24, 2002. This advance was restricted from use for any purpose
and accordingly was classified as restricted for the entire term of the advance,
and was repaid on September 4, 2002, together with accrued interest and fees of
approximately $0.4 million. In addition, the Company paid fees and related
expenses of approximately $0.6 million in connection with this new credit
facility, which became effective as of March 29, 2002. These fees have been
capitalized and are being amortized over the three-year term of the agreement.
The Company also made capital lease payments of $7.3 million and $7.8 million in
2002 and 2001, respectively, under the fleet lease agreement in its VHSM
business unit.
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 ended 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. On February 13,
2002, the Company repaid all amounts outstanding under this facility. On March
29, 2002, the Company entered into an asset-based lending agreement with
Foothill, expiring on March 31, 2005, a wholly owned subsidiary of Wells Fargo
and Company. This revolving credit facility provides for a maximum borrowing
amount of $50 million, subject to a borrowing base calculation, on a 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, during any period in which any amounts are outstanding
under the credit agreement, a requirement to maintain minimum levels of Earnings
before Interest, Taxes, Depreciation and Amortization ("EBITDA") and U.S.
Earnings before Interest and Taxes ("EBIT"). Additionally, the facility contains
material adverse change clauses with regard to the financial condition of the
assets, liabilities and operations of the Company. The Company does not have any
amounts outstanding under the credit facility at December 31, 2002.
A summary of our contractual obligations and commercial commitments as of
December 31, 2002 are as follows:
18
(Amounts in thousands) Amounts Due In
Obligation Total Obligation 2003 2004 2005 and thereafter
Capital lease obligations 13,052 4,148 4,111 4,793
Operating leases 20,708 3,668 3,872 13,168
-------------------- ---------------- ------------------ --------------------
Total obligations $33,760 $7,816 $7,983 $17,961
======= ====== ====== =======
We believe that our cash and equivalents, cash to be provided by
operations and available credit under our credit facility will be sufficient to
fund our current operating requirements 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 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. 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.
Risks Related to Our Business
Before deciding to invest in our Company or to maintain or increase your
investment, you should carefully consider the risk described below, in addition
to the other information contained in this Report and in our other filings with
the SEC, including our subsequent reports on Forms 10-Q and 8-K. The risks and
uncertainties described below are not the only ones facing our Company.
Additional risks and uncertainties not presently known to us or that we
currently deem immaterial may also affect our business. If any of these known or
unknown risks or uncertainties actually occurs with material adverse effects on
Ventiv, our business, financial condition and results of operations could be
seriously harmed. In that event, the market price for our common stock could
decline and you may lose all or part of your investment.
Our revenues are dependent on expenditures by companies in the life sciences
industries, and a variety of factors could cause the overall levels of those
expenditures to decline.
Our revenues are highly dependent on promotional, marketing and sales
expenditures by companies in the life sciences industries, particularly the
pharmaceutical industry. 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.
If the demand for outsourced marketing and sales services in the life sciences
industries declines our business would be harmed.
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 use of,
outsourced marketing and sales services such as those that we provide would have
a material adverse effect on our business.
Many of the contracts under which we provide marketing and sales services are
subject to termination on short notice, which may make our revenues less
predictable.
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.
19
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 a number of cases in
negotiating longer-term commitments and a non-cancelable initial period, 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.
We may not be successful in managing our infrastructure and resources to support
continued growth.
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.
We employ computer technology to deliver our services, and any failure of or
damage to this technology could impair our ability to conduct our business.
We have invested significantly in 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 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 this 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.
We are subject to a high degree of government regulation. Significant changes in
these regulations, or our failure to comply with them, could impose additional
costs on us or otherwise negatively affect our operations.
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. 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 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. 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.
Pharmaceutical manufacturers and the healthcare industry, in general, are
subject to significant U.S. federal and state 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.
Our services are subject to evolving industry standards and rapid technological
changes.
The markets for our services are characterized by rapidly changing technology,
evolving industry standards and frequent introduction of new and enhanced
services. To succeed, we must continue to enhance our existing services;
introduce new services on a timely and cost-effective basis to meet evolving
customer requirements; integrate new services with existing services; achieve
market acceptance for new services; and respond to emerging industry standards
and other technological changes.
We may be adversely affected by customer concentration.
20
We have three customers that each accounted for more than of 10% of our net
revenues for the year ended December 31, 2002, and our largest customer during
such year accounted for 25.3% of net revenues. If any large customer decreases
or terminates its relationship with us, our business, results of operations or
financial condition could be materially adversely affected.
Critical Accounting Policies
Revenue Recognition
Revenues are recognized on product detailing contracts as services are
performed. Most of the Company's contracts involve two phases, a "Deployment
phase", typically three months, in which the Company performs initial
recruiting, training and preparation for deployment of the field force at the
start of a new contract, and the "Promotion phase" in which the Company's
deployed field force actively promotes specified products for clients
("Detailing"). The Company recognizes revenue during the "Promotion phase" of
its contracts on a straight-line basis based on the size of the deployed field
force. The Promotion phase continues for the remaining life of the contract.
Many of the product Detailing contracts allow for additional periodic incentive
fees to be earned by the Company once agreed upon performance benchmarks have
been attained. Revenue earned from incentive fees is recognized when the Company
is reasonably assured that payment will be made, and is typically based upon
verification through calculation of achievement, third party data or client
verification. Many contracts also stipulate penalties if agreed upon performance
benchmarks have not been met. These penalties are recognized upon verification
of performance shortfalls.
A number of the Company's smaller Detailing contracts for products promoted by
the Company's standing specialty sales teams are revenue-sharing based
arrangements whereby the Company receives a portion of the revenue from products
it promotes. Revenue from these contracts is recognized when agreed upon
performance benchmarks have been attained and payment is reasonably assured.
The Company periodically analyzes its detailing contracts to determine the
likelihood and amount of any potential loss on a contract resulting from lower
than anticipated product or field force performance. In the event that current
information illustrates a loss is likely to be incurred over the remaining life
of the contract, the Company accrues that loss at the time it becomes probable.
Most of the Company's contracts specify a separate fee for the initial
"Deployment phase" of a project. The Company considers the Deployment phase to
be a separate and distinct earnings process and recognizes the related revenues
throughout the Deployment phase.
Non-refundable conversion fees are paid and recognized as revenue when one of
the Company's sales professionals accepts a firm offer of permanent employment
from a customer during the term of a contract.
Reimbursable costs including those relating to travel and out-of pocket
expenses, sales force bonuses tied to product revenues, and other similar costs,
are included in revenues, and an equivalent amount of reimbursable expenses is
included in costs of services.
Revenues for the Company's HPR planning and analytics business generally include
fixed fees, which are recognized when monthly services are performed on a
straight-line basis and payment is reasonably assured. HPR's initial contracts
typically range from one month to one year. Revenues for additional services are
recognized when the services are provided and payment is reasonably assured.
Customers are invoiced according to agreed upon billing terms. Contracts that
are invoiced prior to performance of related services are recorded as deferred
revenue and are not recognized as revenues until earned, in accordance with the
Company's revenue recognition policies. Amounts earned for revenues recognized
before the agreed upon billing terms have been met are recorded as revenue and
included in unbilled accounts receivable on the accompanying consolidated
balance sheets. Upon billing, these amounts are transferred to billed accounts
receivable.
Contracts are typically either terminable upon 60-120 days written notice by
client, or non-cancelable for a one year term. Most contracts are immediately
terminable by the client for default by the Company. Normally, if a client
terminates a project, the client remains obligated to pay for services performed
and reimbursable expenses incurred through the date of termination.
Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets" ("SFAS No. 142"). This statement requires that goodwill and
intangible assets with an
21
indefinite life not be amortized but instead be tested for impairment to be
performed annually, or immediately if conditions indicate that an impairment
might exist. The Company adopted SFAS No. 142 effective January 1, 2002, and, as
a result, the Company no longer amortizes its goodwill. Prior to fiscal 2002,
the Company amortized goodwill over periods of twenty-five to thirty years.
Goodwill related to those businesses now comprising the Company's continuing
operations was reflected in the Company's consolidated balance sheets as of
December 31, 2002 and 2001 at a carrying amount of approximately $20.6 million
for both years. The remaining unamortized goodwill balance relates solely to the
businesses currently comprising the Company's Sales and Marketing operating
segment.
Effect of Inflation
Because of the relatively low level of inflation experienced in the United
States, inflation did not have a material impact on our consolidated results of
operations for 2002, 2001, and 2000.
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which is effective in 2003. It requires the recording
of an asset and a liability equal to the present value of the estimated costs
associated with the retirement of long-lived assets where a legal or contractual
obligation exists. The asset is required to be depreciated over the life of the
related equipment or facility, and the liability accreted each year based on a
present value interest rate. This standard, which the Company will adopt in
2003, will not have a material effect on the company's consolidated financial
position or results of operations.
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." The Company is
evaluating the impact of the adoption of SFAS No. 146, which is effective for
the Company as of January 1, 2003, but does not believe it will have a material
impact on the Company's financial position or results of operations.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an Amendment of FASB
Statement No. 123," to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this Statement amends the disclosure requirements of
SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. We have
adopted the disclosure requirements of SFAS No. 148 as of December 31, 2002. We
account for stock-based employee compensation arrangements in accordance with
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and comply with the disclosure provisions of
SFAS No. 123, as amended. Under APB Opinion No. 25, compensation expense is
based on the difference, if any, on the date of grant, between the quoted market
price of our stock and the exercise price.
In November 2002, the FASB issued Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the
disclosures to be made by a guarantor about its obligations under certain
guarantees issued. It also clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. The initial recognition and
measurement provisions of this Interpretation apply to guarantees issued or
modified after December 31, 2002. The Company has evaulated the impact of the
adoption of FIN 45, and does not believe it will have a material impact on the
Company's consolidated financial position or results of operations.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of
Variable Interest Entities." FIN No. 46 addresses consolidation of entities that
are not controllable through voting interests or in which the equity investors
do not bear the residual economic risks and rewards. These entities have been
commonly referred to as special purpose entities. The Interpretation provides
guidance related to identifying variable interest entities and determining
whether such entities should be consolidated. It also provides guidance related
to the initial and subsequent measurement of assets, liabilities and
noncontrolling interests in newly consolidated variable interest entities and
requires disclosures for both the primary beneficiary of a variable interest
entity and other beneficiaries of the entity. The Company will adopt the
provision of FIN No. 46 effective January 1, 2003 but does not believe it will
have a material impact on the Company's financial position or results of
operations as the Company does not have any involvement with variable interest
entities.
22
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. We do not currently engage in
hedging or other market risk management strategies.
Long-Term Debt Exposure
At December 31, 2002 the Company had no debt outstanding under its line of
credit. See Liquidity and Capital Resources section for further detail on the
Company's available line of credit. If the Company draws on its line of credit
in the future, it may incur additional interest expense based on LIBOR and/or
the base-lending rate of any future outstanding loans.
Foreign Currency Exchange Rate Exposure
The Company is not currently affected by foreign currency exchange rate
exposure, except for any intercompany transactions between any of its US-based
operations and its French-based unit, which the Company currently classifies as
held for sale.
23
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ............................................................................. 25
Consolidated Balance Sheets as of December 31, 2002 and 2001 (restated) .................................. 26
Consolidated Statements of Operations for the years ended December 31, 2002, 2001 and 2000 ............... 27
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002, 2001 (restated),
and 2000 (restated) .................................................................................... 28
Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000 ............... 29
Notes to Consolidated Financial Statements ............................................................... 30
24
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ventiv Health, Inc.
Somerset, New Jersey
We have audited the accompanying consolidated balance sheets of Ventiv
Health, Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended December 31, 2002.
Our audits also included the financial statement schedules listed in the Index
at Item 15. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the financial statement schedules
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
2002 and 2001, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Notes 2 and 15 to the consolidated financial statements, in
2001 the Company changed its method of accounting for the impairment or disposal
of long-lived assets to conform to Statement of Financial Accounting Standards
No. 144 and, retroactively, restated the 2000 financial statements for the
change.
As discussed in Note 2 to the consolidated financial statements, in 2002
the Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142.
As discussed in Note 3 to the consolidated financial statements, the
accompanying consolidated balance sheet as of December 31, 2001 and the
consolidated statements of stockholders' equity for the years ended December 31,
2001 and 2000 have been restated.
Deloitte & Touche LLP
New York, New York
March 31, 2003
25
VENTIV HEALTH, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31,
----------------------
2002 2001
--------- ---------
ASSETS
Current assets:
Cash and equivalents ....................................................................... $ 46,059 $ 35,427
Restricted cash ............................................................................ 1,694 1,025
Accounts receivable, net of allowances for doubtful accounts of $1,178 and $979 at
December 31, 2002 and 2001, respectively ................................................ 28,696 38,481
Unbilled services .......................................................................... 14,547 42,480
Prepaid expenses and other current assets .................................................. 1,426 1,048
Current deferred tax assets ................................................................ 1,744 956
Assets held for sale ....................................................................... 10,511 50,925
--------- ---------
Total current assets ................................................................ 104,677 170,342
Property and equipment, net .................................................................. 19,675 30,542
Goodwill ..................................................................................... 20,638 20,638
Deferred tax assets .......................................................................... 7,670 10,208
Deposits and other assets .................................................................... 758 613
--------- ---------
Total assets ........................................................................ $ 153,418 $ 232,343
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit ........................................................... $ -- $ 35,000
Current portion of capital lease obligations ............................................... 4,148 8,516
Accrued payroll, accounts payable and accrued expenses ..................................... 28,179 34,922
Current income tax liabilities ............................................................. 3,279 5,532
Client advances and unearned revenue ....................................................... 3,725 16,429
Liabilities held for sale .................................................................. 8,537 27,654
--------- ---------
Total current liabilities ........................................................... 47,868 128,053
Capital lease obligations .................................................................... 8,904 16,947
Other non-current liabilities ................................................................ 200 137
--------- ---------
Total liabilities ................................................................... 56,972 145,137
--------- ---------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued and outstanding at
December 31, 2002 and 2001, respectively ................................................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized; 22,958,776 and 22,992,397
shares issued and outstanding at December 31, 2002 and 2001, respectively .................. 23 23
Additional paid-in-capital ................................................................... 158,619 157,864
Deferred compensation ........................................................................ (457) (1,275)
Accumulated other comprehensive losses ....................................................... (4,288) (4,063)
Accumulated deficit .......................................................................... (57,451) (65,343)
--------- ---------
Total stockholders' equity ................................................................... 96,446 87,206
--------- ---------
Total liabilities and stockholders' equity ................................................... $ 153,418 $ 232,343
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
26
VENTIV HEALTH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
For the Years Ended December 31,
-----------------------------------
2002 2001 2000
--------- --------- ---------
Revenues ............................................................... $ 215,387 $ 294,763 $ 274,686
Operating expenses:
Cost of services .................................................... 178,901 260,171 206,920
Selling, general and administrative expenses ........................ 27,397 32,181 26,330
Impairment of goodwill .............................................. -- 14,811 --
Restructuring charges ............................................... -- 2,025 --
Realized losses on investments ...................................... -- 2,600 --
--------- --------- ---------
Operating earnings (losses) ............................................ 9,089 (17,025) 41,436
Interest expense ....................................................... (1,576) (4,494) (3,024)
Interest income ........................................................ 456 427 826
--------- --------- ---------
Earnings (losses) from continuing operations before income taxes ....... 7,969 (21,092) 39,238
Income tax provision (benefit) ...................................... 3,028 (5,032) 14,523
--------- --------- ---------
Earnings (losses) from continuing operations ........................... 4,941 (16,060) 24,715
--------- --------- ---------
Earnings (losses) from discontinued operations:
Losses from discontinued operations, net of taxes ................... (4,772) (40,488) (7,901)
Gains (losses) on disposals of discontinued operations, net of taxes 2,323 (1,954) --
Tax benefit arising from the disposal of a discontinued operation ... 5,400 -- --
--------- --------- ---------
Earnings (losses) from discontinued operations.......................... 2,951 (42,442) (7,901)
--------- --------- ---------
Net earnings (losses) .................................................. $ 7,892 $ (58,502) $ 16,814
========= ========= =========
Earnings (losses) per share:
Continuing operations:
Basic ............................................................... $ 0.22 $ (0.71) $ 1.09
Diluted ............................................................. $ 0.22 $ (0.71) $ 1.06
Discontinued operations:
Basic ............................................................... $ 0.13 $ (1.87) $ (0.35)
Diluted ............................................................. $ 0.13 $ (1.87) $ (0.34)
Net earnings (losses):
Basic ............................................................... $ 0.35 $ (2.58) $ 0.74
Diluted ............................................................. $ 0.35 $ (2.58) $ 0.72
Weighted average common shares outstanding:
Basic ............................................................... 22,842 22,648 22,628
Diluted ............................................................. 22,857 22,648 23,406
The accompanying notes are an integral part of these consolidated financial
statements.
27
VENTIV HEALTH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the years ended December 31, 2000, 2001 and 2002
(in thousands)
Number Additional
of Common Paid-In Treasury Accumulated
Shares Stock Capital Stock Deficit
--------- ------- ----------- ---------- -------------
Balance at January 1, 2000, as previously reported 25,231 $25 $176,495 $(4,307) $(19,840)
Prior period adjustments (Note 3) -- -- -- -- (3,815)
--------- ------- ----------- ---------- -------------
Balance at January 1, 2000, as restated 25,231 25 176,495 (4,307) (23,655)
Capital contribution -- -- 256 -- --
Net earnings -- -- -- -- 16,814
Foreign currency translation adjustments -- -- -- -- --
Issuance of restricted shares 29 -- 500 -- --
Cancellation of restricted shares (127) -- (1,025) -- --
Vesting of restricted shares -- -- -- -- --
Exercise of stock options 166 -- 1,316 -- --
Tax benefit from exercises of employee
stock options and vesting of restricted stock -- -- 380 -- --
Purchase of outstanding common shares -- -- -- (17,549) --
Retirement of treasury shares (2,226) (2) (21,854) 21,856 --
Retirement of shares (303) -- -- -- --
Adjustments to foreign deferred tax assets -- -- 342 -- --
--------- ------- ----------- ---------- -------------
Balance at December 31, 2000 22,770 23 156,410 -- (6,841)
Net losses -- -- -- -- (58,502)
Foreign currency translation adjustments -- -- -- -- --
Issuance of previously granted restricted shares 29 -- -- -- --
Cancellation of restricted shares (103) -- (739) -- --
Vesting of restricted shares -- -- -- -- --
Exercise of stock options 296 -- 2,351 -- --
Tax benefit from exercise of employee stock options
and vesting of restricted stock -- -- 458 -- --
Other -- -- (616) -- --
--------- ------- ----------- ---------- -------------
Balance at December 31, 2001 22,992 23 157,864 -- (65,343)
Net earnings -- -- -- -- 7,892
Foreign currency translation adjustments -- -- -- -- --
Write-off of currency translation adjustments
from divestitures -- -- -- -- --
Taxes payable from vesting of restricted stock -- -- (166) -- --
Cancellation of restricted shares (33) -- (300) -- --
Vesting of restricted shares -- -- -- -- --
Issuance of stock options to employees -- -- 12 -- --
Write-off of officer loan to purchase common -- -- 500 -- --
stock
Other -- -- 709 -- --
========= ======= =========== ========== =============
Balance at December 31, 2002 22,959 $23 $158,619 $ -- $(57,451)
========= ======= =========== ========== =============
Accumulated
Deferred Compre- Other
Compen- hensiv Comprehensive
sation Income Losses Total
(Losses)
---------- ------------ ------------ -----------
Balance at January 1, 2000, as previously reported $(4,219) $(2,401) $145,753
Prior period adjustments (Note 3) -- -- (3,815)
---------- ------------ -----------
Balance at January 1, 2000 as restated (4,219) (2,401) 141,938
Capital Contribution -- -- 256
Net earnings -- 16,814 -- 16,814
Foreign currency translation adjustments -- 859 859 859
------------
17,673
============
Issuance of restricted shares (500) -- --
Cancellation of restricted shares 1,025 -- --
Vesting of restricted shares 955 -- 955
Exercise of stock options -- -- 1,316
Tax benefit from exercises of employee
stock options and vesting of restricted stock -- -- 380
Purchase of outstanding common shares -- -- (17,549)
Retirement of treasury shares -- -- --
Retirement of shares related to acquisitions -- -- --
Adjustments to foreign deferred tax assets -- -- 342
---------- ------------ -----------
Balance at December 31, 2000 (2,739) (1,542) 145,311
Net losses -- (58,502) -- (58,502)
Foreign currency translation adjustments -- (2,521) (2,521) (2,521)
------------
(61,023)
============
Issuance of previously granted restricted shares -- -- --
Cancellation of restricted shares 739 -- --
Vesting of restricted shares 725 -- 725
Exercise of stock options -- -- 2,351
Tax benefit from exercise of employee stock
options and vesting of restricted stock -- -- 458
Other -- -- (616)
---------- ------------ -----------
Balance at December 31, 2001 (1,275) (4,063) 87,206
Net earnings -- 7,892 -- 7,892
Foreign currency translation adjustment -- 4,712 4,712 4,712
Write-off of currency translation adjustments
from divestitures -- (4,937) (4,937) (4,937)
Taxes payable from vesting of restricted stock -- -- -- (166)
------------
7,667
============
Cancellation of restricted shares 300 -- --
Vesting of restricted shares 518 -- 518
Issuance of stock options to employees -- -- 12
Write-off of officer loan to purchase common -- -- 500
stock
Other -- -- 709
========== ============ ===========
Balance at December 31, 2002 $(457) $(4,288) $96,446
========== ============ ===========
The accompanying notes are an integral part of these consolidated financial
statements.
28
VENTIV HEALTH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
December 31,
--------------------------------
2002 2001 2000
-------- -------- --------
Cash flows from operating activities:
Net earnings (losses) ...................................................... $ 7,892 $(58,502) $ 16,814
Adjustments to reconcile net earnings (losses) to net cash provided by
operating activities:
Earnings (losses) from discontinued operations ........................... (2,951) 42,442 7,901
Depreciation ............................................................. 9,585 11,881 6,873
Amortization ............................................................. 47 1,644 2,011
Deferred taxes ........................................................... 1,750 (732) (767)
Loss on disposals of capital assets ...................................... -- 193 982
Write off of deferred financing costs .................................... 314 -- --
Impairment of goodwill ................................................... -- 14,811 --
Stock compensation expense ............................................... 518 725 954
Write-off of officer note receivable ..................................... 500 -- --
Estimated future losses on contracts ..................................... (2,400) 6,100 --
Realized losses on investments ........................................... -- 2,600 --
Changes in assets and liabilities, net of effects from discontinued
operations:
Restricted cash .......................................................... (669) 213 --
Accounts receivable, net ................................................. 9,785 (960) (13,227)
Unbilled services ........................................................ 27,933 (28,439) (3,556)
Prepaid expenses and other current assets ................................ 447 (332) 488
Accrued payroll, accounts payable and accrued expenses ................... (4,343) 4,647 (2,006)
Current income tax liabilities ........................................... (2,253) 4,150 1,013
Client advances and unearned revenue ..................................... (12,704) 10,375 (11,718)
Other .................................................................... 722 380 189
-------- -------- --------
Net cash provided by operating activities ............................ 34,173 11,196 5,951
-------- -------- --------
Cash flows from investing activities:
Proceeds from disposals of discontinued operations ......................... 17,870 -- --
Funding of product commercialization expenditures .......................... (825) -- --
Purchases of property and equipment ........................................ (3,966) (4,502) (4,993)
Proceeds from manufacturers rebates on leased vehicles ..................... 111 1,730 1,342
Investments in equity of non-affiliates .................................... -- (100) (2,500)
Purchases of license agreements ............................................ -- -- (347)
-------- -------- --------
Net cash provided by (used in) investing activities .................. 13,190 (2,872) (6,498)
-------- -------- --------
Cash flows from financing activities:
Net (repayments) borrowings on line of credit .............................. (35,000) 16,000 19,000
Repurchases of issued and outstanding common stock ......................... -- -- (17,585)
Repayments of capital lease obligations .................................... (7,274) (7,809) (3,509)
Fees to establish line of credit ........................................... (610) -- --
Proceeds from exercise of stock options .................................... -- 2,193 1,357
-------- -------- --------
Net cash provided by (used in) financing activities .................. (42,884) 10,384 (737)
-------- -------- --------
Net cash provided by (used in) discontinued operations......................... 6,378 2,853 (4,080)
Effect of exchange rate changes ............................................... (225) (2,521) 1,298
Net increase (decrease) in cash and equivalents ............................... 10,632 19,040 (4,066)
Cash and equivalents, beginning of period ..................................... 35,427 16,387 20,453
-------- -------- --------
Cash and equivalents, end of period ........................................... $ 46,059 $ 35,427 $ 16,387
======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest ................................................... $ 1,312 $ 2,883 $ 2,579
Cash paid for income taxes ............................................... $ 564 $ 808 $ 11,962
Supplemental disclosure of non-cash activities:
Vehicles acquired through capital lease agreements ....................... $ 7,099 $ 17,129 $ 24,192
The accompanying notes are an integral part of these consolidated financial
statements.
29
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Business and Basis of Presentation:
Business
Ventiv Health, Inc and subsidiaries (collectively "Ventiv" or "the Company")
provides integrated sales and marketing services for its clients, primarily
pharmaceutical, biotechnology and life sciences companies. Ventiv's services are
designed to develop, execute and monitor strategic and tactical sales and
marketing plans and programs for the promotion of pharmaceutical, biotechnology
and other life sciences products. The Company currently conducts its continuing
operations in the U.S. serving domestic corporations and domestic affiliates of
foreign corporations.
Basis of Presentation
The consolidated financial statements include the accounts of Ventiv and its
wholly owned subsidiaries. The Company's continuing operations consist primarily
of two business units: Planning and Analytics ("HPR") and Ventiv Health Sales
and Marketing ("VHSM"). These consolidated financial statements also include the
assets and liabilities and operating results of businesses that have been
discontinued or are held for sale, which amounts are separately classified.
Ventiv's discontinued operations and assets held for sale include the following
business units: European Contract sales organizations, operating in the U.K.,
France, Germany and Hungary; Alpharetta, Georgia-based communications business
unit; and Stamford, Connecticut-based communications business unit. All
significant intercompany transactions have been eliminated in consolidation.
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 approximate market value, and have original maturities of
three months or less. Approximately $1.7 million and $1.0 million at December
31, 2002 and 2001, respectively, were held in escrow on the behalf of clients
and included in restricted cash.
Revenue Recognition
Revenues are recognized on product detailing contracts as services are
performed. Most of the Company's contracts involve two phases, a "Deployment
phase" in which the Company performs initial recruiting, training and
preparation for deployment of the field force at the start of a new contract,
and a "Promotion phase" in which the Company's deployed field force actively
promotes specified products for clients ("Detailing").
The Company recognizes revenue during the "Promotion phase" of its contracts on
a straight-line basis based on the size of the deployed field force.
Many of the product Detailing contracts allow for additional periodic incentive
fees to be earned by the Company once agreed upon performance benchmarks have
been attained. Revenue earned from incentive fees is recognized when the Company
is reasonably assured that payment will be made, and is typically based upon
verification through calculation of achievement, third party data or client
verification. Many contracts also stipulate penalties if agreed upon performance
benchmarks have not been met. These penalties are recognized upon verification
of performance shortfalls.
A number of the Company's smaller Detailing contracts for products promoted by
the Company's standing specialty sales teams are revenue-sharing based
arrangements whereby the Company receives a portion of the revenue from products
it promotes. Revenue from these contracts is recognized when agreed upon
performance benchmarks have been attained and payment is reasonably assured.
30
Ventiv Health, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company periodically analyzes its detailing contracts to determine the
likelihood and amount of any potential loss on a contract resulting from lower
than anticipated product or field force performance. In the event that current
information indicates a loss is likely to be incurred over the remaining life of
the contract, the Company accrues that loss at the time it becomes probable.
Most of the Company's contracts specify a separate fee for the initial
"Deployment phase" of a project. The Company considers the Deployment phase to
be a separate and distinct earnings process and recognizes the related revenues
throughout the Deployment phase which typically spans a period of two to three
months at the beginning of the first year of a contract.
Non-refundable conversion fees are recognized as revenue when one of the
Company's sales professionals accepts a firm offer of permanent employment from
a customer during the term of a contract.
Reimbursable costs including those relating to travel and out-of pocket
expenses, sales force bonuses tied to product revenues, and other similar costs,
are included in revenues, and an equivalent amount of reimbursable expenses is
included in costs of services.
Revenues for the Company's HPR planning and analytics business generally include
fixed fees, which are recognized when monthly services are performed on a
straight-line basis and payment is reasonably assured. HPR's initial contracts
typically range from one month to one year. Revenues for additional services are
recognized when the services are provided and payment is reasonably assured.
Customers are invoiced according to agreed upon billing terms. Contracts that
are invoiced prior to performance of related services are recorded as deferred
revenue and are not recognized as revenues until earned, in accordance with the
Company's revenue recognition policies. Amounts earned for services provided
before the agreed upon billing terms have been met are recorded as revenue and
included in unbilled accounts receivable. Upon billing, these amounts are
transferred to billed accounts receivable.
Contracts are typically either terminable upon 60-120 days written notice by
client, or non-cancelable for a one year term. Most contracts are immediately
terminable by the client for default by the Company. Normally, if a client
terminates a project, the client remains obligated to pay for services performed
and reimbursable expenses incurred through the date of termination.
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 seven
years; computer equipment over three to five years and buildings up to thirty
nine 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 vehicles under capital leases on
a straight-line basis over the term of the lease.
Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets" ("SFAS No. 142"). This statement requires that goodwill and
intangible assets with an indefinite life not be amortized but instead be tested
for impairment annually, or immediately if conditions indicate that an
impairment might exist. The Company adopted SFAS No. 142 effective January 1,
2002, and, as a result, the Company no longer amortizes its goodwill. Prior to
fiscal 2002, the Company amortized goodwill over periods of twenty-five to
thirty years. Goodwill related to those businesses now comprising the Company's
continuing operations is reflected in the Company's consolidated balance sheets
as of December 31, 2002 and 2001 at a carrying amount of approximately $20.6
million for both years. The remaining unamortized goodwill balance relates
solely to the businesses currently comprising the Company's Sales and Marketing
operating segment. The following table adjusts net earnings (losses) to
calculate basic and diluted earnings per share "EPS" to eliminate historical
amortization of goodwill and related tax effects.
31
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Tax effect
For the Year Ended December 31,
------------------------------------------
2002 2001 2000
------------- -------------- -------------
Reported net earnings (losses) ........................ $7,892 $(58,502) $16,814
Add back: Goodwill amortization ...................... - 994 1,099
------------- -------------- -------------
Adjusted net earnings (losses) ........................ $7,892 $ (57,508) $17,913
============= ============== =============
Basic EPS:
Reported net earnings (losses)...................... $0.35 $(2.58) $0.74
Goodwill amortization .............................. - 0.04 0.05
------------- -------------- -------------
Adjusted net earnings (losses) per share............... $0.35 $(2.54) $0.79
============= ============== =============
Diluted EPS:
Reported net earnings (losses)...................... $0.35 $(2.58) $0.72
Goodwill amortization .............................. - 0.04 0.05
------------- -------------- -------------
Adjusted net earnings (losses) per share............... $0.35 $(2.54) $0.77
============= ============== =============
In the second quarter of 2002, management completed its initial impairment
analysis under SFAS No. 142 and concluded that no current goodwill impairment
charges were necessary. The initial test compared the fair value of each of the
Company's business reporting units having recorded goodwill balances with the
business unit's carrying amount. Fair value was determined using discounted
projected future operating cash flows for all business reporting units. Where
the carrying amount exceeded fair value, additional testing was performed for
possible goodwill impairment. The fair value for these business reporting units
was then allocated to individual assets and liabilities, using a depreciated
replacement cost approach for fixed assets, and outside appraised values for
intangible assets. Any excess of fair value over the allocated amounts was equal
to the implied fair value of goodwill. The implied goodwill value was compared
to the goodwill book value to determine any impairment loss. Based on this
evaluation, the Company concluded that the fair value of the business was
sufficient to support the carrying amounts of related goodwill. Additionally,
the Company obtained estimates of the current fair value of this operation
through an independent third party appraisal to further support their
conclusions.
Goodwill is recorded separately on the consolidated balance sheet, while
intangible assets, such as contractual covenant and marketing rights are
included in deposits and other assets. The goodwill balance at December 31, 2002
and 2001 was $20.6 million. Intangible assets, net were $0.1 million and $0.2
million at December 31, 2002 and 2001 respectively.
During 2001, the Company completed an evaluation of the goodwill and other
intangible assets of several of its operating units. In accordance with guidance
under Accounting Principles Board ("APB") Opinion No. 17 "Intangible Assets"
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 changes in market conditions and competitive
factors, projected undiscounted cash flows for Promotech Research Associates
("Promotech"), currently part of the Company's Sales and Marketing segment, were
insufficient to support the carrying amounts of related goodwill and certain
intangible assets. The Company obtained estimates of the then current fair
values of this operation through independent third party appraisals. Based on
these appraisals in relation to Promotech's current net book value, the Company
recorded goodwill impairment charges totaling $14.8 million.
Long-Lived Assets and Assets to be Held for Sale
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144") which addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121, 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". SFAS No. 144
retains the requirements of SFAS No. 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 No. 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 No.144
also provides specific guidance on accounting for disposals of long-lived
assets. Long-lived assets to
32
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 No.
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 No. 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 have been or will be 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 No. 144 effective January 1,
2001. The Company restated its financial statements for 2001 and 2000 to give
effect to the adoption of SFAS No. 144. See Note 15 for further details.
Earnings (Losses) Per Share
Basic net income or loss per share excludes dilution for potentially dilutive
securities and is computed by dividing net income or loss attributable to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted net income or loss per share reflects the potential dilution
that could occur if securities or other instruments to issue common stock were
exercised or converted into common stock. Potentially dilutive securities are
excluded from the computation of diluted net income or loss per share when their
inclusion would be antidilutive. A summary of the computation of basic and
diluted earnings (losses) per share is as follows:
Year Ended December 31,
-------------------------------------------------------
2002 2001 2000
-------------------------------------------------------
(in thousands, except per share data)
Basic EPS Computation
Net earnings (losses) .......................... $7,892 $(58,502) $16,814
Weighted average common shares outstanding ..... 22,842 22,648 22,628
------------------ ------------------ -----------------
Basic EPS ...................................... $0.35 $(2.58) $0.74
================== ================== =================
Diluted EPS Computation
Net earnings (losses) .......................... $7,892 $(58,502) $16,814
Adjustments to net earnings (losses) ........... -- -- --
------------------ ------------------ -----------------
Adjusted net earnings (losses) ................. $7,892 $(58,502) $16,814
------------------ ------------------ -----------------
Weighted average common shares outstanding ..... 22,842 22,648 22,628
Employee stock options ......................... 15 n/a 524
Restricted stock awards ........................ n/a n/a 254
------------------ ------------------ -----------------
Total diluted common shares outstanding ........ 22,857 22,648 23,406
------------------ ------------------ -----------------
Diluted EPS .................................... $0.35 $(2.58) $0.72
================== ================== =================
For the year ended December 31, 2001, there was no adjustment for the effect of
stock options or restricted shares, since the Company incurred net losses and
any adjustment would have had an anti-dilutive effect. The number of potentially
dilutive common shares that were excluded for the calculation of diluted EPS in
2001 was 591,164. For the year ended December 31, 2002, there was no adjustment
for the effect of restricted shares because the strike prices of all of the
shares did not exceed the market price at any time during the year. The weighted
average restricted shares outstanding for the year ended December 31, 2002 was
119,294.
Income Taxes
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 annually based on
enacted tax laws and rates for temporary differences between the financial
accounting and income tax bases of assets and liabilities. A valuation allowance
is established, when necessary, to reduce deferred income tax assets to the
amount that is more likely than not to be realized.
Foreign Currency Translations
The Company currently classifies its France-based operations as a discontinued
operation. Any transactions conducted between the Company's U.S.-based
33
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
operations and its French subsidiary may affect foreign currency translation.
Assets and liabilities of the Company's discontinued and held for sale
international operations are translated into US dollars 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 transaction gains or losses are included in
the results of operations. The Company's foreign currency translation
adjustments are reported as a component of comprehensive earnings (losses).
Use of Estimates
The consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America. The consolidated
financial statements include certain amounts that are based on management's best
estimates and judgments. Estimates are used in determining items such as
reserves for accounts receivable, certain assumptions related to goodwill and
intangible assets, deferred tax valuation, and amounts recorded for
contingencies and other reserves. Because of the uncertainty inherent in such
estimates, actual results may differ from these estimates. The Company is not
aware of reasonably likely events or circumstances that would result in
different amounts being reported that would have a material impact on results of
operations or financial condition.
Fair Value of Financial Instruments
The carrying amount of the Company's cash and equivalents, 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.
The fair value of capitalized lease obligations approximates carrying value
based on their effective interest rates compared to current market rates.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of
credit risk consist of 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 stock-based employee compensation arrangements in
accordance with the provisions of APB Opinion No. 25, "Accountings for Stock
Issued to Employees," and complies with the disclosure provisions of
SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB Opinion No.
25, compensation expense is based on the difference, if any, on the date of
grant, between the quoted market price of the Company's stock and the exercise
price.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement No.
123," to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement No. 123
to require prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation and the
effect of the method used on reported results.
The following table illustrates the effect on net earnings (losses) and earnings
(losses) per share if the Company had applied the fair value recognition
provisions of SFAS No. 123 to stock-based employee compensation:
Year Ended December 31,
----------------------------------------
2002 2001 2000
---------- ------------- ---------------
(in thousands, except per share data)
Net earnings (losses) attributable to common shareholders, as
reported ...................................................... $7,892 $(58,502) $16,814
Deduct: total stock-based employee compensation expense
determined under fair value based method for all awards, net
of related tax effects ........................................ (2,245) (2,151) (1,923)
---------- ------------- ---------------
Pro forma net earnings (losses) ........................... $5,647 $(60,653) $14,891
========== ============= ===============
Net earnings (losses) per share attributable to common
shareholders:
As reported: Basic .................................. $0.35 $(2.58) $0.74
As reported: Diluted ................................ $0.35 $(2.58) $0.72
Pro forma: Basic ..................................... $0.25 $(2.68) $0.66
Pro forma: Diluted .................................. $0.25 $(2.68) $0.64
34
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
New Accounting Pronouncements
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations," which is effective in 2003. It requires the recording of an asset
and a liability equal to the present value of the estimated costs associated
with the retirement of long-lived assets where a legal or contractual obligation
exists. The asset is required to be depreciated over the life of the related
equipment or facility, and the liability accreted each year based on a present
value interest rate. This Standard, which the Company will adopt in 2003, will
not have a material effect on the Company's consolidated financial position or
results of operations.
In September 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)." The
Company does not believe that the adoption of this standard which is effective
for the Company as of January 1, 2003, will have a material impact on the
Company's financial position or results of operations.
In November 2002, the FASB issued Interpretation No. ("FIN") 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 elaborates on the disclosures
to be made by a guarantor about its obligations under certain guarantees issued.
It also clarifies that a guarantor is required to recognize, at the inception of
a guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and measurement provisions of
this Interpretation apply to guarantees issued or modified after December 31,
2002. The Company has evaluated the impact of the adoption of FIN 45, and does
not believe it will have a material impact on the Company's consolidated
financial position or results of operations.
On January 17, 2003, the FASB issued FIN No. 46, "Consolidation of Variable
Interest Entities." FIN No. 46 addresses consolidation of entities that are not
controllable through voting interests or in which the equity investors do not
bear the residual economic risks and rewards. These entities have been commonly
referred to as special purpose entities. The Interpretation provides guidance
related to identifying variable interest entities and determining whether such
entities should be consolidated. It also provides guidance related to the
initial and subsequent measurement of assets, liabilities and noncontrolling
interests in newly consolidated variable interest entities and requires
disclosures for both the primary beneficiary of a variable interest entity and
other beneficiaries of the entity. The Company will adopt the provision of FIN
No. 46 effective January 1, 2003 but does not believe it will have a material
impact on the Company's financial position or results of operations as the
Company does not have any involvement with variable interest entities.
3. Restatement of Financial Statements
Subsequent to the issuance of the Company's consolidated financial statements
for the year ended December 31, 2001, the Company determined that certain
balances relating to its now held for sale French operations contained errors
resulting from consolidating entries prior to 2000 that had not been properly
reconciled to the subsidiary. As a result, the Company's stockholders' equity
and accumulated deficit as of December 31, 1999 have been restated from the
amounts previously reported to reflect an adjustment that decreased
stockholders' equity and increased accumulated deficit by $3.8 million to
properly reconcile certain balances. The accompanying consolidated balance sheet
as of December 31, 2001 has also been restated from the amounts previously
reported to reflect the adjustment to stockholders' equity and accumulated
deficit and the related adjustments to decrease assets by $1.7 million and
increase liabilities by $2.1 million; these adjustments are included in balances
associated with assets and liabilities held for sale.
A summary of the significant effects of the restatement is set forth below:
As of December 31,
--------------------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------------------
(in thousands)
As Previously Reported As Restated As Previously Reported As Restated
------------------------- ------------------- ------------------------- --------------------
Total Assets .................... $235,066(a) $232,343 $251,214 $249,491
Total Liabilities ............... $143,045(a) $145,137 $102,088 $104,180
Accumulated Deficit ............. $(61,528) $(65,343) $(3,026) $(6,841)
Stockholders' Equity ............ $91,021 $87,206 $149,126 $145,311
- ----------------
(a) Reflects certain tax reclassifications to conform to current
year's presentation.
4. Significant Clients:
During 2002, three clients, Bayer Corporation ("Bayer"), Endo Pharmaceuticals,
Inc. ("Endo"), and Reliant Pharmaceuticals, Inc. ("Reliant") accounted for
approximately 25%, 12% and 11% of our total revenue for the year ended December
31, 2002. During 2001, the Company had one client--Reliant, which represented
35
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
28% of total revenue for the year and two other clients representing 17%
(Bristol-Myers Squibb, Inc. ("BMS")) and 13% (Bayer). The Company had one
client, BMS, which represented 38% of total revenue for the year ended December
31, 2000.
At December 31, 2002, the Company had four clients that accounted for more than
10% of the accounts receivable: Bayer (19%), Abbott Laboratories (16%), Altana
Pharma ("Altana") (13%) and Endo (11%). At December 31, 2002 the Company had
three clients that comprised more than 10% of the unbilled receivable balance:
Bayer (36%); Endo (18%); and Altana (13%).
At December 31, 2001, the Company had one client, Reliant, that accounted for
37% of accounts receivable. At December 31, 2001 the Company had three clients
that comprised more than 10% of the unbilled receivable balance: Bayer (50%);
BMS (25%); and Reliant (13%).
In late June 2001, BMS notified the Company of its intent to cease; sales force
promotion services under this contract effective December 31, 2001; promotion
services were later extended through March 2002.
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 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 10.6% and 27.6% of the Company's total revenues for the years ended
December 31, 2002 and 2001, respectively.
5. Property and Equipment:
Property and equipment consist of the following:
As of December 31,
------------------------
2002 2001
------------------------
(in thousands)
Land .................................. $ 60 $ 60
Buildings and leasehold improvements .. 2,720 2,646
Computer equipment and software ....... 13,701 10,946
Vehicles .............................. 16,469 32,574
Furniture and fixtures ................ 4,203 3,964
-------- --------
$ 37,153 $ 50,190
Accumulated depreciation .............. (17,478) (19,648)
-------- --------
$ 19,675 $ 30,542
======== ========
The vehicles have been recorded under the provisions of a capital lease. The
Company's Sales and Marketing segment has entered into a lease agreement to
provide fleets of automobiles for sales representatives for certain client
engagements.
Depreciation expense totaled $9.6 million, $11.9 million, and $6.9 million in
2002, 2001 and 2000, respectively. In 2002, 2001, and 2000 the Company recorded
$5.9 million, $7.3 million and $4.0 million of depreciation, respectively, on
vehicles under capital lease.
6. Deposits and Other Assets:
From time to time, in connection with certain business relationships, the
Company has made investments in non-affiliate companies.
In the fourth quarter of 2001, the Company wrote off its $2.1 million investment
in RxCentric, Inc. ("RxCentric") due to doubt about RxCentric's ability to
continue as a going concern.
During the second quarter of 2001, one of the Company's e-Health partners,
HeliosHealth, Inc. ("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:
36
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 ended 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. On February 13,
2002, the Company repaid all amounts outstanding under this facility. On March
29, 2002, the Company entered into an asset-based lending agreement, expiring on
March 31, 2005 with Foothill Capital Corporation, a wholly owned subsidiary of
Wells Fargo and Company. This revolving credit facility provides for a maximum
borrowing amount of $50 million, subject to a borrowing base calculation, on a
revolving basis and is secured by substantially all of the Company's assets.
Interest on this 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, during any period in which any amounts
are outstanding under the credit agreement, a requirement to maintain minimum
levels of Earnings before Interest, Taxes, Depreciation and Amortization
("EBITDA") and U.S. Earnings before Interest and Taxes ("EBIT"). Additionally,
the facility contains material adverse change clauses with regard to the
financial condition of the assets, liabilities and operations of the Company.
During 2002 and 2001, the Company incurred costs of approximately $1.1 and $2.4
million related to these credit facilities. These amounts have been included in
interest expense in the accompanying consolidated statements of operations. The
Company does not have any amounts outstanding under the credit facility at
December 31, 2002.
8. Accrued Payroll, Accounts Payable and Accrued Expenses:
Accrued payroll, accounts payable and accrued expenses consist of the following:
December 31,
--------------------------------------
2002 2001
--------------------------------------
(in thousands)
Accrued payroll and related employee benefits $11,046 $14,652
Accounts payable 1,728 1,206
Accrual for estimated losses on long-term contracts -- 6,100
Accrued expenses and other general liabilities 15,405 12,964
------------------ -------------------
$28,179 $34,922
================== ===================
In the fourth quarter of 2001, the Company recorded a reserve of approximately
$6.1 million for estimated cumulative future losses on the original Bayer
agreement under the assumption that Ventiv would elect to discontinue promotion
services under the original contract on a loss basis beyond May 14, 2002 (the
first date that Ventiv could exercise its right to terminate the contract). As a
result of the amendment and restatement of the agreement, effective May 15,
2002, the Company reduced its cumulative loss estimate by $2.4 million, which
positively impacted the Company's profit margins in the second quarter of 2002.
9. Leases:
The Company leases certain facilities, office equipment and other assets under
non-cancelable operating leases. The following is a schedule of future minimum
lease payments for these operating leases at December 31, 2002 (in thousands):
Years Ending December 31,
2003 .................................. $3,668
2004 .................................. 3,872
2005 .................................. 3,831
2006 .................................. 3,805
2007 .................................. 3,836
Thereafter ............................ 1,696
---------------
Total minimum lease payments .......... $20,708
===============
Rental expense for all operating leases was approximately $2.3 million, $2.4
million, and $1.7 million for the years ended December 31, 2002, 2001 and 2000,
respectively.
The Company also has commitments under capital leases. The following is a
schedule of future minimum lease payments for these capital leases at December
31, 2002 (in thousands):
37
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ending December 31,
2003 .................................. $4,453
2004 .................................. 4,335
2005 .................................. 3,513
2006 .................................. 1,160
2007 .................................. 300
Thereafter ............................ --
-----------
Total minimum lease payments .......... $13,761
Amount representing interest and fees.. (709)
-----------
13,052
Current portion ....................... (4,148)
-----------
Non-current lease obligations ......... $8,904
===========
10. Commitments and Contingencies:
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
outstanding as of December 31, 2002 are without merit or are of such a nature,
or involve amounts that would not have a material effect on the financial
position or results of operations of the Company if disposed of unfavorably.
11. Common Stock and Stock Incentive Plans:
During 1999, the Company's Board of Directors authorized the repurchase of $25
million of the Company's common stock. 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. 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 were retired in 2000. The Company did not repurchase any shares
during 2001 or 2002. Under the terms of its current credit agreement, the
Company is restricted from further repurchases of its outstanding stock.
Ventiv's 1999 Stock Incentive Plan authorizes the Company to grant incentive
stock options, nonqualified stock options, restricted stock awards and stock
appreciation rights ("SARs"). 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 shares.
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.
A summary of the option activity within the Stock Plan, is as follows:
Weighted
Number of Average
Shares Exercise Price
-------------------------------
(in thousands)
Outstanding options at January 1, 2000 3,440 $7.95
Granted 605 10.03
Exercised (171) 7.94
Forfeited or expired (564) 8.00
------------- -----------------
Outstanding options at December 31, 2000 3,310 8.33
Granted 1,137 7.39
Exercised (296) 7.94
Forfeited or expired (835) 8.81
------------- -----------------
Outstanding options at December 31, 2001 3,316 $7.92
Granted 3,238 2.62
Exercised -- --
Forfeited or expired (2,662) 8.04
------------- -----------------
Outstanding options at December 31, 2002 3,892 $3.43
============= =================
Exercisable at:
December 31, 2000 943 $7.95
============= =================
December 31, 2001 1,260 $8.18
============= =================
December 31, 2002 1,277 $4.80
============= =================
38
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's options outstanding and exercisable have exercise price ranges and
weighted average remaining contractual lives of:
(numbers below are presented in thousands)
Outstanding Options Exercisable Options
------------------- Weighted Average -------------------
Exercise Numbers of Weighted Average Remaining Life Number Weighted Average
Price Range Options Exercise Price (years) of Options Exercise Price
- ------------ ---------- ---------------- ----------------- ---------- ----------------
$1.19 to $1.62 90 $1.51 9.69 0 $ -
$1.66 to $1.66 1,657 $1.66 9.95 325 $ 1.66
$1.68 to $2.62 400 $2.52 9.01 80 $ 2.62
$2.70 to $2.81 84 $2.77 9.15 0 $ -
$4.00 to $4.00 1,051 $4.00 9.89 414 $ 4.00
$4.37 to $8.06 528 $7.95 6.61 417 $ 7.93
$8.81 to $13.00 72 $9.54 7.49 36 $ 9.41
$14.38 to $18.45 10 $14.44 7.63 5 $ 15.26
----- -----
3,892 1,277
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.
2002 2001 2000
------------- -------------- --------------
Expected life of option .. 4 yrs 4 yrs 4 yrs
Risk-free interest rate .. 3.03% 4.39% 5.17%
Expected volatility ...... 100.00% 82.78% 61.95%
Expected dividend yield .. 0.00% 0.00% 0.00%
The weighted average option fair value at date of grant was $2.83, $4.12 and
$3.89 at December 31, 2002, 2001 and 2000, respectively.
During 1999, the Company granted 831,502 shares of restricted stock to certain
key employees, of which 269,608 of the shares vested upon grant with the
remaining shares of restricted stock vesting ratably over the four years
following the grant date.
A summary of the restricted stock activity within the Stock Plan is as follows.
Restricted Stock
Number of Shares
------------------
(in thousands)
January 1, 2000 831
Granted 29
Cancelled (127)
------------------
December 31, 2000 (370 shares vested) 733
Granted 29
Cancelled (103)
------------------
December 31, 2001 (492 shares vested) 659
Granted 0
Cancelled (33)
------------------
December 31, 2002 (559 shares vested) 626
==================
During 2002, 2001 and 2000, the Company recognized compensation expense related
to the vesting of restricted shares of $1.0 million, $0.7 million and $0.5
million, respectively.
At December 31, 2002, Ventiv had reserved 4.3 million common shares for issuance
under the Stock Plan of which, approximately 0.4 million remain available for
grant.
In May 2002 the Company initiated a tender offer which provided Ventiv employees
with the opportunity to tender their Ventiv employee stock options on May 2,
2002, on a grant by grant basis, for new Ventiv stock options with an exercise
price of $4.00 per share which would be issued on December 2, 2002. Those
employees who elected to tender their options suspended vesting on those options
from May 2, 2002 to December 2, 2002, and adjusted the balance of the vesting
schedule on those options to the greater of two years or the original vesting
schedule. 1,067,529 employee stock options were tendered pursuant to this tender
offer from a total of 2,189,647 outstanding employee stock options eligible to
be tendered.
39
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Pension and Profit-Sharing Plans:
Ventiv and certain of its subsidiaries maintain defined contribution benefit
plans. Pension and profit sharing costs incurred by the Company related to these
plans amounted to approximately $0.6 million, $0.8 million, and $0.4 million for
2002, 2001 and 2000, respectively.
13. Restructuring 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. The Company expects
that the remaining amounts will be paid during 2003.
The following table summarizes the activity in the restructuring liability
account (in thousands):
Beginning Deductions for Balance at End
Balance Additions Amounts Paid of Period
------------ ------------- ------------------- ------------------
Year Ended December 31, 2002 $1,064 $ - $530 $534
Year Ended December 31, 2001 $ - $2,025 $961 $1,064
14. Income Taxes:
The Company's net earnings (losses) from continuing operations before income
taxes consisted of:
2002 2001 2000
----------------------------------------
(in thousands)
Domestic .......... $7,969 $(21,092) $39,238
Foreign ........... -- -- --
---------- -------------- --------------
Total ........ $7,969 $(21,092) $39,238
========== ============== ==============
The Company's income tax provision (benefit) from continuing operations included
the following components:
For the Years Ended
December 31,
----------------------------------------------
2002 2001 2000
----------------------------------------------
(in thousands)
Current:
U.S.--Federal ............................ $349 $2,337 $11,800
U.S.--State and local .................... 189 462 1,457
Foreign .................................. -- -- --
--------------- ---------------- -------------
$538 $2,799 $13,257
--------------- ---------------- -------------
Deferred:
U.S.--Federal ............................ $2,229 $(7,762) $807
U.S.--State and local .................... 261 (69) 459
Foreign .................................. -- -- --
--------------- ---------------- -------------
$2,490 $(7,831) $1,266
--------------- ---------------- -------------
Income tax provision (benefit) ........... $3,028 $(5,032) $14,523
=============== ================ =============
40
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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,
-------------------------------------
2002 2001 2000
----------- ----------- -------------
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 .. 5.6 (1.9) 5.2
Utilization of NOL / Other Tax Benefits ................... (4.7) -- (5.5)
Other permanent differences ............................... 2.1 (9.3) 2.3
----------- ----------- -------------
Effective tax rate ........................................ 38.0% 23.8% 37.0%
=========== =========== =============
Deferred income taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities. As of December 31, 2002 and
2001, the deferred tax assets and liabilities consisted of the following:
As of December 31,
-----------------------------
2002 2001
-----------------------------
Current Deferred Assets: (in thousands)
Accrued expenses ................ $4,282 $5,543
Other ........................... 1,350 32
-------------- --------------
Subtotal $5,632 $5,575
Non-Current Deferred Assets:
Deferred Compensation ........... $ 360 $ 104
Intangible Assets ............... 4,328 4,341
Tax Losses of Subsidiaries ...... 30 2,502
Fixed Assets .................... 8,452 5,600
Other ........................... 1,431 857
-------------- --------------
Subtotal $14,601 $13,404
Gross Deferred Assets ........... $20,233 $18,979
Current Deferred Liabilities:
Accrued Expenses ................ (2,899) (1,660)
Other ........................... (989) (2,959)
-------------- --------------
Subtotal $(3,888) $(4,619)
Non-Current Deferred Liabilities:
Property and Equipment .......... $(6,444) $(3,182)
Other............................ (487) (14)
-------------- --------------
Subtotal $(6,931) $(3,196)
Gross Deferred Liabilities ..... $ (10,819) $ (7,815)
-------------- --------------
Net deferred tax assets .... $9,414 $11,164
============== ==============
Several of the Company's subsidiaries had operating loss carry forwards at
December 31, 2001, that could be realized only if these subsidiaries generated
taxable operating income in future periods. As a result of the divestitures
previously discussed, any operating loss carry forwards and related deferred tax
assets that management determined would not be utilized in future tax periods,
were written off as of December 31, 2002. Management continually assesses
whether the Company's deferred tax asset associated with operating tax loss
carry forwards is realizable and believes that the remaining deferred tax asset
is realizable at December 31, 2002.
15. Discontinued Operations:
Ventiv's discontinued operations include the following business units: its
European Contract sales organizations, operating in the U.K., France, Germany
and Hungary; its Alpharetta, Georgia-based communications business unit; and its
Stamford, Connecticut-based communications business unit. Net earnings (losses)
from discontinued operations were earnings of $3.0 million and losses of $42.4
million and $7.9 million, net of taxes, for the years ended December 31, 2002,
2001 and 2000 respectively. These earnings (losses) comprised the collective
operating results of the Company's discontinued operations, which generated
losses of $4.8 million, $40.5 million and $7.9 million for the years ended
December 31, 2002, 2001 and 2001 respectively. These earnings (losses) also
included actual or estimated gains and losses on the divestiture of these
businesses, which totaled a gain of $2.3 million in 2002 and a loss of $2.0
million in 2001, both net of taxes. The 2002 gains on divestitures of these
businesses are inclusive of approximately $4.9 million net gains for the removal
of currency translation accounts previously accumulated by the Company's
discontinued operating units. In addition, these earnings (losses) included an
estimated $5.4 million tax benefit in 2002 for carry-back deductions relating to
the disposal of the Stamford, Connecticut-based business unit. Operating results
for the year ended December 31, 2001 are inclusive of charges recorded for the
impairment of intangible assets in certain business units treated as
discontinued operations. As a result of an evaluation of the goodwill and other
intangible assets of several of its operating units in September 2001 the
Company recorded goodwill and other intangible asset impairment charges of
approximately $13.7 million related to the U.K.-based contract sales
41
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
business, $23.2 million related to the France-based contract sales business and
$1.1 million related to the Stamford, Connecticut-based communications business
unit. Results of discontinued operations have been shown net of tax, the effects
of which were minimal in both periods given the net losses attributable to the
operations. Accordingly, the Company has not recognized tax benefits for losses
attributable to these business units. Goodwill associated with the U.K. and
France-based contract sales businesses was not deductible for tax purposes;
therefore, there were no current or future benefits attributable to the goodwill
impairment charges taken in the third quarter of 2001 related to these
operations.
Effective May 7, 2002, the Company entered into a definitive purchase and
sale agreement, completing the sale of substantially all of the net assets of
its Stamford, Connecticut-based business unit to Discovery East, LLC, a
majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit. In
consideration for the sale, the Company received approximately $3.4 million in
cash together with a note receivable in the amount of $0.6 million, due and
subsequently collected in February 2003 and guaranteed by Bcom3 Group, Inc. In
connection with the completion of this divestiture, the Company recorded an
estimated $5.4 million tax benefit for carry-back deductions relating to the
disposal of this business unit. Total losses on the disposal of the Stamford,
Connecticut-based business of $2.0 million, net of tax, were estimated in the
third quarter of 2001 and adjusted to reflect final transaction terms in the
second quarter of 2002.
In addition, the Company completed the sale of substantially all of the net
assets of its Alpharetta, Georgia-based business unit to a management group of
that business unit on June 3, 2002. The Company received $0.9 million of cash at
closing for the sale of this business unit and will be entitled to contingent
payments based on a percentage of earnings before interest, taxes, depreciation
and amortization as defined in the agreement for the business unit, up to a
total maximum amount of $0.5 million. Total losses on the disposal of the
Alpharetta, Georgia-based business unit of $6.6 million, net of tax, were
recorded in the second quarter of 2002, which included a charge of $7.5 million
for the write-down of goodwill related to that business unit.
On September 26, 2002 and effective September 30, 2002, the Company
completed the sale of 100% of the shares of Ventiv Health Germany GmbH
("Germany")(the holding company for the subsidiaries comprising the Ventiv
Health Germany operating unit) to a group of management purchasers, led by the
managing director of that business. In consideration for the sale, the Company
received EUR 6.2 million ($6.1 million) at closing, and may receive additional
consideration of up to EUR 5.0 million payable from potential future earnings of
the business. According to the sale agreement, although the Company has no
ongoing interest, Germany will continue to operate under the name "Ventiv Health
Germany" for a period of up to three (3) years. The Company recognized a gain of
approximately $5.5 million on the sale of this business unit, inclusive of the
aforementioned net gains from the removal of the accumulated currency
translation accounts. This transaction will result in a loss for tax purposes.
Given that the Company may be limited in its ability to utilize such losses in
the foreseeable future, a tax benefit for such loss has not been recorded.
On October 16, 2002, the Company completed the sale of the assets and
business of its U.K.-based contract sales operating unit to Ireland-based United
Drug plc. Total consideration of $7.5 million was satisfied in cash and received
in full on the completion of the transaction. The Company recorded a gain of
$2.5 million, net of taxes, related to this transaction in the fourth quarter of
2002.
Below is a summary of the results of our European Contract Sales discontinued
operations, which consist of our U.K. and Germany based divested units and our
France and Hungary-based operations that are classified as held for sale:
Year Ended December 31,
----------------------------------
2002 2001 2000
----------------------------------
(in thousands)
Revenue .............................................. $80,772 $94,868 $92,379
Losses before income taxes ........................... (1,011) (35,619) (4,973)
Benefit from (provision for) income taxes ............ (1,153) (562) 708
---------- ------------ ----------
Net earnings (losses) from discontinued operations.... $2,164 $(36,181) $(4,265)
========== ============ ==========
Below is a summary of the results of our Communications operations, which
consist of our Stamford, Connecticut and Alpharetta, Georgia - based divested
units:
Year Ended December 31,
----------------------------------
2002 2001 2000
----------------------------------
(in thousands)
Revenue ............................................. $8,735 $26,465 $49,595
Losses before income taxes .......................... (3,918) (4,090) (6,243)
Benefit from (provision for) income taxes ........... 6,712 (217) 2,607
---------- ------------ ----------
Net Earnings (losses) from discontinued operations... $2,794 $(4,307) $(3,636)
========== ============ ==========
42
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All assets and liabilities specifically related to the business units based in
France and Hungary have been classified as "held for sale" in the accompanying
balance sheets as of December 31, 2002 and 2001.
16. Related Parties:
Included in the results of operations for 2000 are charges of approximately $1.0
million related to certain administrative services performed by related parties.
There were no similar charges incurred during 2001 or 2002.
In September 1999 the Company's Chief Executive Officer borrowed $0.5 million on
a non-recourse basis from the Company exclusively for the purchase of 45,000
shares of the Company's common stock, subject to the terms of a promissory note
dated September 30, 1999 and payable on September 30, 2003, as agreed to under
terms under the executive's employment agreement with the Company. In December
2002 the Company forgave the loan, and the executive agreed to return the shares
to the Company. The Company charged $0.5 million to compensation expense in
conjunction with the forgiveness of this loan.
17. Segment Information:
During the fourth quarter of 2001, the Company structured its internal reporting
practices and identified reportable segments based on its then current
management structure. The Company now segregates reporting segments by products
and services offered. In 2001, the Company operated under five segments: U.S.
Contract Sales, European Contract Sales, Planning and Analytics, Communications,
and Other. The Company currently operates under three segments: Ventiv Health
Sales and Marketing, Planning and Analytics and Other. As discussed previously,
in 2002, the Company divested two of its three subsidiaries in its European
Contract Sales segment, while classifying its remaining France and Hungary-based
units as held for sale. In addition, all of the Company's units in its
Communications segment were divested in 2002 except for the Colorado-based
Promotech business, which was reclassified as part of U.S. Contract Sales (now
renamed Ventiv Health Sales & Marketing), leaving just three segments.
The Company's reportable segments are:
Sales and Marketing (VHSM)
The Sales and Marketing segment is focused on planning, implementing and
executing outsourced product commercialization programs for prescription
pharmaceutical and other life sciences products in the United States. This
segment maintains and operates the requisite systems, facilities, and support
services to rapidly recruit, train and deploy a customized, full-service and
highly targeted sales force. The Sales and Marketing segment offers each of the
aforementioned services on a standalone basis as well. In addition, Sales and
Marketing offers telemarketing services, which significantly enhance a life
sciences company's ability to communicate effectively with physicians in a cost
efficient manner.
Planning and Analytics (HPR)
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.
Other
The Other segment encompasses the activities of the corporate management group
as well as the operations of our Ventiv Integrated Solutions unit.
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 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:
43
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the year ended December 31, 2002 (in thousands)
Sales & Planning &
Marketing Analytics Other Total
------------------ ----------------- ----------------- -----------------
Revenues ................................. $188,978 $ 25,677 $ 732 $215,387
Depreciation and amortization ............ 8,643 785 204 9,632
Interest expense ......................... 377 - 1,199 1,576
Interest income .......................... - - 456 456
Segment income (loss) .................... $ 14,693 $ 3,906 $(10,630) $ 7,969
For the year ended December 31, 2001 (in thousands)
Sales & Planning &
Marketing Analytics Other Total
------------------ ----------------- ----------------- -----------------
Revenues ................................. $269,526 $ 25,237 $ - $294,763
Depreciation and amortization ............ 12,418 908 199 13,525
Impairment of goodwill ................... - 14,811 - 14,811
Restructuring charges .................... 1,459 - 566 2,025
Realized losses on investments ........... - - 2,600 2,600
Interest expense ......................... 1,162 - 3,332 4,494
Interest income .......................... - - 427 427
Segment income (loss) .................... $ 7,044 $(10,730) $(17,406) $(21,092)
For the year ended December 31, 2000 (in thousands)
Sales & Planning &
Marketing Analytics Other Total
------------------ ----------------- ----------------- -----------------
Revenues ................................. $250,840 $ 23,846 $ - $274,686
Depreciation and amortization ............ 7,886 879 119 8,884
Interest expense ......................... 1,047 - 1,977 3,024
Interest income .......................... - - 826 826
Segment income (loss) .................... $ 41,072 $ 7,529 $ (9,363) $ 39,238
December 31,
--------------------------------------
2002 2001
---- ----
(in thousands)
--------------------------------------
Total Assets:
Sales & Marketing .................. $76,343 $125,040
Planning & Analytics ............... 13,796 10,804
Other .............................. 52,768 45,574
Assets held for sale ............... 10,511 50,925
------------------- ------------------
Total assets ......................... $153,418 $232,343
=================== ==================
The Company's continuing operations are exclusively in the United States.
44
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Selected Quarterly Financial Data (unaudited):
The following table summarizes financial data by quarter for the Company for
2002 and 2001.
2002 Quarter Ended (b)
------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Total
------------ ------------- ------------ ------------ -------------
(in thousands, except per share amounts)
Revenues ............................................. $69,868 $48,769 $46,888 $49,862 $215,387
Gross profit ......................................... 8,851 8,944 8,246 10,445 36,486
Earnings from continuing operations .................. 1,131 1,259 1,016 1,535 4,941
Earnings (losses) from discontinued operations ....... (726) (1,368) 3,283 1,762 2,951
Earnings (losses) .................................... 405 (109) 4,299 3,297 7,892
Earnings (losses) per share (a)
Continuing operations ........................... $0.05 $0.06 $0.04 $0.07 $0.22
Discontinued operations ......................... $(0.03) $(0.06) $0.15 $0.08 $0.13
2001 Quarter Ended (b)
------------------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31 Total
------------------------------------------------------------------
(in thousands, except per share amounts)
Revenues ............................................. $74,598 $72,254 $68,885 $79,026 $294,763
Gross profit ......................................... 12,247 12,400 3,672 6,272 34,591
Earnings (losses) from continuing operations ......... 1,596 1,664 (15,529) (3,791) (16,060)
Earnings (losses) from discontinued operations ....... (226) 521 (44,499) 1,762 (42,442)
Earnings (losses) .................................... 1,370 2,185 (60,028) (2,029) (58,502)
Earnings (losses) per share (a)
Continued ....................................... $0.07 $0.07 $(0.68) $(0.17) $(0.71)
Discontinued operation .......................... $(0.01) $0.02 $(1.96) $0.08 $(1.87)
(a) The sum of the net earnings per share do not add up to the full year amount
due to rounding and because the quarterly calculations are based on varying
numbers of shares outstanding.
(b) The above tables have been reclassified as per SFAS No. 144 for the effects
of discontinued operations. See Note 15 for a further description.
45
VENTIV HEALTH, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
(in thousands)
Deductions from
Balance at Reserve for Purpose
Beginning Additions Charged to for Which Reserve Balance at End
Of Year Cost and Expense was Created Of Year
-------------- ---------------------- --------------------- -----------------
Allowances for Doubtful Accounts:
Year ended December 31, 2002 .......... $979 $236 $37 $1,178
Year ended December 31, 2001 .......... 867 183 71 979
Year ended December 31, 2000 .......... 823 377 333 867
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable
46
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 2002 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.
47
PART IV
Item 14. Controls and Procedures.
Within the 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 promulgated under the
Securities Exchange Act of 1934, as amended. Based upon that evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective in alerting them on a timely
basis to material information relating to the Company (including its
consolidated subsidiaries) required to be included in the Company's periodic
filings with the Securities and Exchange Commission. There were no significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of such evaluation.
Item 15. 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, 2002 and 2001
Consolidated Statements of Operations for the years ended December 31, 2002,
2001 and 2000.
Consolidated Statements of Stockholders' Equity for the years ended December 31,
2002, 2001 and 2000.
Consolidated Statements of Cash Flows for the years ended December 31, 2002,
2001 and 2000.
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.
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.
- --------- ---------------------------------------------------------------------------------------------------------------- -------
10.9 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.
- --------- ---------------------------------------------------------------------------------------------------------------- -------
10.11 Employment Agreement, dated April 8, 2002 by and between Terrell Herring and Ventiv Health, Inc.
- --------- ---------------------------------------------------------------------------------------------------------------- -------
21.1 Subsidiaries of Ventiv Health, Inc.
- --------- ---------------------------------------------------------------------------------------------------------------- -------
23 Consent of Deloitte & Touche LLP.
- --------- ---------------------------------------------------------------------------------------------------------------- -------
99.1 Chief Executive Officer's Certification of Financial Statements pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- --------- ---------------------------------------------------------------------------------------------------------------- -------
99.2 Chief Financial Officer's Certification of Financial Statements Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
- --------- ---------------------------------------------------------------------------------------------------------------- -------
* Incorporated by reference.
48
(b) Reports on Form 8-K
Current Report on Form 8-K, (Item 5--Other Material Events) filed as of October
21, 2002, regarding the divestitures of the Company's Germany and United
Kingdom-based contract sales business units.
49
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 31, 2003
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 Director March 31, 2003
-------------------------------- (Principal Executive Officer)
Eran Broshy
/s/ JOHN R. EMERY Chief Financial Officer March 31, 2003
-------------------------------- (Principal Financial Office and Accounting Officer)
John R. Emery
/s/ DANIEL M SNYDER Chairman of the Board March 31, 2003
--------------------------------
Daniel M. Snyder
/s/ DONALD CONKLIN Director March 31, 2003
--------------------------------
Donald Conklin
/s/ FRED DRASNER Director March 31, 2003
--------------------------------
Fred Drasner
/s/ JOHN R. HARRIS Director March 31, 2003
--------------------------------
John R. Harris
/s/ A. CLAYTON PERFALL Director March 31, 2003
--------------------------------
A. Clayton Perfall
50
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Eran Broshy, Chief Executive Officer of Ventiv Health, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.:
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ Eran Broshy
- -----------------------
Chief Executive Officer
51
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, John R. Emery, Chief Financial Officer of Ventiv Health, Inc., certify that:
1. I have reviewed this annual report on Form 10-K of Ventiv Health, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 31, 2003
/s/ John R. Emery
- -----------------------------
Chief Financial Officer
52