SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

 

FORM 10-Q

 

 

For the quarterly period ended June 30, 2002

 

OR

 

 

For the transition period from          to          

 

Commission File Number: 0-30822

 

 

SYNAVANT Inc.

(Exact name of registrant as specified in its charter)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 ý No o

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

 

Title of Class		Shares Outstanding at July 31, 2002
Common Stock, par value $.01 per share		15,160,567 Shares

 

 

SYNAVANT Inc.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2002

 

 

INDEX

 

PART I.	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Condensed Consolidated Balance Sheets as of June 30, 2002 and December 31, 2001
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2002 and 2001
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2002 and 2001
	Notes to Consolidated Financial Statements
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
PART II.	OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS
ITEM 2.	CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5.	OTHER INFORMATION
ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES

 

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PART I. FINANCIAL INFORMATION

 

ITEM I. FINANCIAL STATEMENTS

 

SYNAVANT Inc.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollar amounts in thousands, except per share data)

 

		June 30, 2002			December 31, 2001
		(Unaudited)			(Audited)
ASSETS:
CURRENT ASSETS:
Cash and cash equivalents		$	11,782		$	9,578
Accounts receivable—net		39,581			39,574
Other receivables		223			209
Other current assets		5,804			6,113
TOTAL CURRENT ASSETS		57,390			55,474
Property, plant and equipment—net		12,138			11,210
Computer software—net		4,911			7,410
Goodwill—net		41,156			41,156
Long term notes receivable		1,000			1,000
Other assets		2,207			2,008
TOTAL LONG TERM ASSETS		61,412			62,784
TOTAL ASSETS		$	118,802		$	118,258
LIABILITIES AND STOCKHOLDERS’ EQUITY:
CURRENT LIABILITIES:
Accounts payable		$	9,229		$	9,516
Accrued restructuring		3,285			4,816
Accrued and other current liabilities		15,738			13,289
Accrued income taxes		3,231			1,885
Deferred revenues		9,249			8,388
TOTAL CURRENT LIABILITIES		40,732			37,894
Deferred taxes		430			421
Accrued liability due to former parent		9,000			9,000
Other liabilities		1,413			793
TOTAL LIABILITIES		$	51,575		$	48,108
Commitments and contingencies (see note 2)
STOCKHOLDERS’ EQUITY:
Common stock, par value $.01, authorized 41,000,000 shares; 15,153,065 shares outstanding at June 30, 2002		152			150
Other stockholders’ equity		67,075			70,000
TOTAL STOCKHOLDERS’ EQUITY		67,227			70,150
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	118,802		$	118,258

 

See accompanying Notes to the Consolidated Financial Statements (unaudited).

 

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SYNAVANT Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Dollar amounts in thousands, except per share data)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2002			2001			2002			2001
REVENUES:
Software fees		$	1,086		$	4,019		$	2,526		$	7,172
Software services		22,107			22,296			42,956			43,750
Interactive marketing		20,396			20,358			43,068			39,829
TOTAL REVENUES		43,589			46,673			88,550			90,751
OPERATING COSTS:
Software fees		807			2,321			1,534			4,573
Software services		15,319			17,580			30,428			33,590
Interactive marketing		16,865			16,897			36,124			32,828
TOTAL OPERATING COSTS		32,991			36,798			68,086			70,991
Research & development		1,593			2,089			3,532			4,454
Selling and administrative expenses		8,315			8,824			15,911			18,177
Depreciation and amortization		1,868			5,338			3,705			10,699
Spin related costs		—			350			—			560
OPERATING LOSS		(1,178		)	(6,726		)	(2,684		)	(14,130		)
Other income-net		131			299			34			221
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES		(1,047		)	(6,427		)	(2,650		)	(13,909		)
Income tax (Provision) Benefit		(681		)	213			(1,022		)	(1,952		)
NET LOSS		$	(1,728	)	$	(6,214	)	$	(3,672	)	$	(15,861	)
Net loss per share of common stock:  basic and diluted		$	(0.11	)	$	(0.42	)	$	(0.24	)	$	(1.07	)
Weighted average shares outstanding:  basic and diluted		15,103			14,909			15,085			14,891

 

See accompanying Notes to the Consolidated Financial Statements (unaudited).

 

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SYNAVANT Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollar amounts in thousands)

 

		Six Months Ended June 30,
		2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(3,672	)	$	(15,861	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities:
Depreciation and amortization		3,705			10,699
Amortization of capitalized computer software		1,190			1,034
Restructuring payments		(1,531		)	—
Deferred income taxes		—			(11		)
Changes in operating assets and liabilities:
Accounts and other receivable		1,397			140
Accounts payable		(699		)	(1,014		)
Accrued liabilities and other current liabilities		2,176			111
Accrued income taxes		1,209			356
Deferred revenues		630			(1,127		)
Other		130			(3,008		)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES		4,535			(8,681		)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(2,602		)	(1,338		)
Additions to computer software		(323		)	(19		)
Other		—			(307		)
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES		(2,925		)	(1,664		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for capital leases		(185		)	—
Payments for deferred loan fees		—			(195		)
NET CASH PROVIDED (USED) IN FINANCING ACTIVITIES		(185		)	(195		)
Effect of exchange rate changes on cash and cash equivalents		779			(97		)
Increase (decrease) in cash and cash equivalents		2,204			(10,637		)
Cash and cash equivalents, beginning of period		9,578			19,768
Cash and cash equivalents, end of period		$	11,782		$	9,131

 

Supplemental Disclosure of Cash Flow Information:

Cash payments for foreign, state and local income taxes were $177 and $1,784 for the six months ended June 30, 2002 and 2001, respectively.

 

See accompanying Notes to the Consolidated Financial Statements (unaudited).

 

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SYNAVANT Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation.  The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (the “SEC”).  The consolidated financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes of SYNAVANT Inc. (the “Company” or “SYNAVANT”) on Form 10-K.  These consolidated financial statements include estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets, and amounts of revenues and expenses.  Actual results may differ from those estimated.  In the opinion of management, all adjustments of a normal recurring nature considered necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented have been included.  Certain information and footnote disclosures have been condensed or omitted pursuant to SEC rules and regulations.  However, management believes that the disclosures made are adequate for a fair presentation of the results of all interim periods reported herein.

 

Organization.  SYNAVANT serves the biopharmaceutical and healthcare industries through its three core business categories:  implementing and supporting pharmaceutical-specific customer relationship management (“CRM”) solutions, developing interactive marketing programs and medical professional databases, and offering strategic consulting services that support clinical research, sales and marketing decision-making and program implementation.  SYNAVANT is composed of the automated sales and marketing support businesses which were formerly part of IMS HEALTH INCORPORATED (“IMS HEALTH”) which operated under the name IMS HEALTH Strategic Technologies, Inc. (“ST”); certain other former foreign subsidiaries of IMS HEALTH; substantially all of IMS HEALTH’s former interactive and direct marketing businesses, including the business of Clark-O’Neill, Inc. (“Clark O’Neill”), formerly a wholly owned subsidiary of IMS HEALTH; and a 51% interest in Permail Pty., Ltd. (“Permail”).  On August 31, 2000, shares of SYNAVANT were distributed to shareholders of IMS HEALTH following the conveyance of assets and stock of entities comprising the SYNAVANT business into SYNAVANT Inc., a Delaware corporation.

 

Reclassifications.  Certain prior period amounts have been reclassified to conform with current period presentation.

 

Earnings Per Share.  Basic and diluted earnings per share (“EPS”) are calculated in accordance with Statement of Financial Standards No. 128. For the Company’s calculation, the numerator is the same for the calculation of both basic and diluted EPS. The denominator for basic and diluted EPS is the same for the three and six month periods ended June 30, 2002 and 2001 as the loss from operations would otherwise cause the inclusion of common stock options to be anti-dilutive. Options to purchase 7,608,717 shares of common stock at a weighted average price of $9.17 were outstanding but not included in the computation of diluted EPS for the three or six months ended June 30, 2002.

 

Recently Issued Accounting Standards.  In July 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142 “Goodwill and other Intangibles”. Under these new standards the FASB eliminated accounting for certain mergers and acquisitions as poolings of interests, eliminated amortization of goodwill and indefinite life intangible assets, and established new impairment measurement procedures for goodwill. For the Company, the standards become effective for all acquisitions completed on or after June 30, 2001. Changes in financial statement treatment for goodwill and intangible assets arising from mergers and acquisitions completed prior to June 30, 2001 became effective January 1, 2002, and has been adopted by the Company as of the effective date.

 

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In October of 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, which is effective for fiscal years beginning after December 15, 2001. This statement supercedes FASB Statement No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.” However, it retains the fundamental provisions of SFAS No. 121 for the recognition and measurement of the impairment of long-lived assets to be held and used and the measurement of long-lived assets to be disposed of by sale. Impairment on Goodwill is not included in the scope of SFAS No. 144 and will be treated in accordance with the accounting standards established in SFAS No. 142, “Goodwill and Other Intangible Assets.” According to SFAS No. 144, long-lived assets are measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing or discontinued operations. The statement applies to all long-lived assets, including discontinued operations, and replaces the provisions of APB Opinion No. 30, “Reporting the Results of Unusual and Infrequently Occurring Events and Transactions”, for the disposal of segments of a business. The Company has adopted this statement effective January 1, 2002.

 

There has been no material impact related to the implementation of these recently issued statements on its results of operations, financial position and cash flows.

 

In June of 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  FAS 146 requires that a liability for a cost that is associated with an exit or disposal activity be recognized when the liability is incurred.  It nullifies the guidance of the Emerging Issues Task Force (EITF) in EITF 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).  Under EITF Issue No. 94-3, an entity recognized a liability for an exit cost on the date that the entity committed itself to an exit plan.  In FAS 146, the Board acknowledges that an entity’s commitment to a plan does not, by itself, create a present obligation to other parties that meets the definition of a liability.  FAS 146 also establishes that fair value is the objective for the initial measurement of the liability.  FAS 146 will be effective for exit or disposal activities that are initiated after December 31, 2002.

 

NOTE 2. CONTINGENCIES

 

SYNAVANT has from time to time been involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of all current proceedings, claims and litigation will not materially affect SYNAVANT’s consolidated financial position. In addition to these immaterial items, the Company is subject to certain other contingencies discussed below.

 

In connection with the Distribution, SYNAVANT is jointly and severally liable to other parties in connection with prior IMS HEALTH Distribution Agreements for the liabilities relating to certain tax matters as well as a legal matter (“Distribution Liabilities”). Under the Distribution Agreement, IMS HEALTH and SYNAVANT agreed that SYNAVANT would have a maximum liability of $9.0 million for the Distribution Liabilities. Management believes it is probable that at least one of these matters will have an unfavorable outcome and as a result the Company recorded a $9.0 million liability associated with these matters as part of the Distribution in 2000. The Distribution Agreement required that if an unfavorable outcome occurred, the amount due up to $9.0 million is due and payable in January 2003. In concurrence with the Foothill Facility obtained by the Company (See “Management’s Discussion and Analysis—Liquidity and Capital Resources”), IMS HEALTH has agreed to defer any payments associated with the Distribution Liabilities until January 2005. Under the Distribution Agreement, SYNAVANT would be liable for amounts in excess of $9.0 million, related to the Distribution Liabilities, only to the extent that all of the parties involved do not have sufficient combined assets to settle such contingencies.

 

NOTE 3. RESTRUCTURING CHARGE

 

On August 16, 2001, the Company announced that, in an attempt to optimize customer responsiveness and

 

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organizational effectiveness, it would simplify its senior leadership structure as well as eliminate certain other positions in its international and domestic operations. The Company completed the first two steps in the restructuring process during 2001, resulting in the elimination of approximately 100 positions reflected in the charge totaling $7.5 million recorded in 2001.  These reductions included six senior management positions with the remainder being operating, technical and administrative staff.  The restructuring charge is composed entirely of employee severance and separation related costs, such as extended benefits and outplacement fees.  There has been no additional restructuring charge taken in 2002.  Of the $7.5 million charge, $4.2 million has been paid to date, with the remainder expected to be paid within the next twelve to eighteen months.

 

NOTE 4. INCOME TAX

 

The Company’s consolidated tax provision was $0.7 million and $1.0 million for the three and six months ended June 30, 2002, respectively.   For the same periods in the prior year, the Company maintained a benefit of $0.2 million for the three months and a provision of $2.0 million for the six months ended June 30, 2001.  The improvement in the tax provision is due to worldwide tax planning by the Company.  The Company’s effective tax rate is different than the U.S. federal statutory tax rate due to taxable income in certain foreign jurisdictions and losses for which a full valuation has been provided.

 

NOTE 5. OPERATIONS BY SEGMENT

 

The Company delivers pharmaceutical relationship management solutions globally in approximately 30 countries. The Company’s chief operating decision-makers evaluate the business on a global basis with consideration of resource allocation on a geographic basis. The Americas Segment principally consists of operations for the United States, the Company’s country of domicile. The Europe Segment includes, but is not limited to, the operations of the United Kingdom, which is the largest region in this segment. The Asia Pacific Segment consists principally of the operations of Australia. For further information on material individual countries see the additional disclosure in the second table of this note.

 

		Americas		Europe		Asia Pacific		Total
		(Dollar amounts in thousands)
Six Months Ended June 30, 2002
Operating revenues		54,912		26,722		6,916		88,550
Segment operating income (loss)		(2,986	)	616		(314	)	(2,684	)
Non-operating income (loss)		(314	)	214		134		34
Income / (loss) before income taxes		(3,300	)	830		(180	)	(2,650	)
Provision for income taxes								(1,022	)
Net loss								(3,672	)
Segment total depreciation and amortization		3,997		662		236		4,895
Segment capital expenditures		2,387		536		160		3,083
Identifiable assets at June 30, 2002		83,031		29,878		5,893		118,802

 

		Americas		Europe		Asia Pacific		Total
Six Months Ended June 30, 2001
Operating revenues		54,866		28,458		7,427		90,751
Segment operating income (loss)		(15,728	)	1,769		(171	)	(14,130	)
Non-operating income (loss)		328		(130	)	23		221
Income / (loss) before income taxes		(15,400	)	1,639		(148	)	(13,909	)
Provision for income taxes								(1,952	)
Net loss								(15,861	)
Segment total depreciation and amortization		10,995		416		322		11,733
Segment capital expenditures		385		655		298		1,338
Identifiable assets at June 30, 2001		100,251		27,785		6,701		134,737

 

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Information about the Company’s operations and long-lived assets by geography is as follows:

 

		US		UK		Australia		Rest of World(2)		Total
Six Months Ended June 30, 2002
Operating revenues		51,761		9,309		6,351		21,129		88,550
Long-lived assets(1)		52,613		3,350		711		2,530		59,204
Six Months Ended June 30, 2001
Operating revenues		51,809		10,893		6,851		21,198		90,751
Long-lived assets(1)		62,276		3,601		818		2,180		68,875

 

(1)                                  Long-lived assets in the U.S. and the U.K. are comprised predominantly of goodwill associated with the acquisition of Walsh International Inc. in June 1998.

 

(2)                                  Rest of World is primarily comprised of operations in Europe.

 

ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  All statements other than statements of historical fact made in this Quarterly Report on Form 10-Q are forward-looking, which can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. Such forward-looking statements are based on management’s current plans and expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to: risks associated with competition from other providers of customer relationship management solutions; customer decisions favoring competitor products, solutions and/or services; the ability to obtain additional financing on satisfactory terms to meet future capital requirements; loss of key personnel; failure to introduce new or enhanced products in a timely manner; defects in our products and delays related to market adoption of our software; consolidation of the pharmaceutical industry; fluctuations in quarterly and/or annual operating results that may adversely affect the market price of our common stock; operating on a global basis; the ability to protect our intellectual property; product infringement claims; the ability to identify, consummate and integrate acquisitions, alliances and ventures on satisfactory terms; the ability to develop new or advanced technologies, systems or products; the ability to successfully maintain historic effective tax rates; and regulatory, legislative and enforcement initiatives. These risks and uncertainties are not intended to be exhaustive and should be read in conjunction with other cautionary statements made herein including, but not limited to, the material set forth herein under the heading “Factors That May Affect Future Performance.” The Company assumes no obligation to update any such forward-looking statements.

 

This discussion and analysis should be read in conjunction with the consolidated financial statements and related notes contained in Item I of this report and with the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

 

OVERVIEW

 

On August 31, 2000, SYNAVANT was spun off from IMS HEALTH, a provider of information solutions to the biopharmaceutical and healthcare industries.  Pursuant to the spin-off, shares of SYNAVANT common stock were distributed to the shareholders of IMS HEALTH. This transaction was structured as a tax-free dividend to the stockholders of IMS HEALTH, who received one share of SYNAVANT common stock

 

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(together with the associated preferred share purchase right) for every 20 shares of IMS HEALTH common stock held as of the record date for the Distribution.

 

This discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and related notes.

 

SIEBEL ALLIANCE

 

On July 14, 2000, SYNAVANT entered into a strategic alliance (the “Alliance”) with Siebel Systems Inc. (“Siebel”), a leading provider of eBusiness application software. Through the Alliance, the companies intended to jointly develop, market and sell pharmaceutical and healthcare related versions of Siebel’s eBusiness software applications as part of a joint offering.

 

As part of the Alliance, SYNAVANT and Siebel entered into:  (1) a Value Added Industry Remarketer Agreement (the “Reseller Agreement”), (2) a Siebel Alliance Program Master Agreement (the “Alliance Agreement”), and (3) a license of certain Siebel software for SYNAVANT’s internal use.  Pursuant to the Reseller Agreement, Siebel appointed SYNAVANT as a non-exclusive distributor of certain Siebel licensed software. Under the Agreement, SYNAVANT had the right to distribute Siebel software products to companies in the life sciences industry (e.g., pharmaceutical, biotechnology and healthcare companies) worldwide in conjunction with SYNAVANT’s own proprietary software and services.  As part of the arrangement, Siebel and SYNAVANT shared in the fees generated from the licensing of the Siebel software when contracted by SYNAVANT as part of a joint offering.  The Alliance Agreement has been superceded by a new Siebel Alliance Program Master Agreement (“the Revised Alliance Agreement”) entered into by SYNAVANT and Siebel on December 31, 2001 (“Revised Alliance”).

 

Under the Revised Alliance, SYNAVANT and Siebel have agreed to terminate the Reseller Agreement, revise the Alliance Agreement and to continue the license of certain Siebel software for SYNAVANT’s internal use.  In addition to terminating the Reseller Agreement, the Revised Alliance also results in the following:

 

•                  SYNAVANT is designated as a “Strategic Consulting Partner”;

 

•                  Siebel no longer shares in revenue associated with the sale of SYNAVANT software licenses;

 

•                  SYNAVANT no longer has restrictions on its product development, including Cornerstone and Premiere;

 

•                  SYNAVANT is no longer required to exclusively support Siebel software; and

 

•                  SYNAVANT is able to support a broader product set including Siebel eMedical, eClinical as well as Employee Relationship Management (“ERM”).

 

A chief difference between this new partner status and the previous one is that SYNAVANT is no longer a Siebel Value Added Reseller (“VAR”) and therefore no longer sells Siebel licenses.  This eliminates channel conflict for license sales, allowing SYNAVANT to focus on delivering its core competencies of consulting, implementation and support services for Siebel technology in a manner that achieves high value.  Another important benefit of this new partner status is that SYNAVANT has additional rights to implement and support Siebel’s eMedical, eClinical and ERM applications, providing a broader revenue potential opportunity within the life sciences area.

 

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CRITICAL ACCOUNTING POLICIES

 

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” are based upon the Company’s consolidated financial statements and the notes thereto, which have been prepared in accordance with generally accepted accounting principles in the United States (“US GAAP”).  The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, allowance for uncollectible accounts, goodwill and other intangible assets, income taxes, restructuring costs, and litigation.

 

Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  There can be no assurance that actual results will not differ from those estimates.

 

The Company has identified the significant estimates and judgments below as critical to our business operations and the understanding of our results of operations.  For a detailed discussion on the application of these significant estimates and judgments and our accounting policies, also see Note 1 of the Consolidated Financial Statements.

 

Revenue recognition.  The Company recognizes revenues when persuasive evidence of an arrangement exists, services have been rendered, the price to the buyer is fixed or determinable, and collectibility is reasonably assured.  Revenues consist of software license fees, related maintenance and software service fees, database and information services, and interactive marketing programs.  Deferred revenue consists of maintenance billings due in advance of service periods, and other software and project billings for which services have not yet been completed.  The Company’s revenue recognition policies are consistent with the guidance in Staff Accounting Bulletin (“SAB”) No. 101, “Revenue Recognition in Financial Statements”, as amended by SAB No. 101A and 101B, and AICPA Statement of Position (“SOP”) No. 97-2 “Software Revenue Recognition”, as amended by SOP Nos. 98-4 and 98-9.

 

In cases where services to be provided are not essential to the functionality of the software, the Company has sufficient vendor specific objective evidence (“VSOE”) of fair value of the elements to recognize the revenue separately.  The Company has determined the VSOE of its software license fee based on the consistent per user license fee charged to its customers. The VSOE of the software service element is based on the price of the software services when sold separately. The Company accounts for the maintenance and support element separately using VSOE, which is determined based on the customer renewal fees for such services.

 

The Company’s software services derives a portion of its revenue from contracts recorded using the percentage of completion method of accounting based on labor input measures, which require the accurate estimation of the cost, scope and duration of each engagement.  If the Company does not accurately estimate the resources required or the scope of work to be performed, or does not manage its projects properly within the planned periods of time or satisfy its obligations under the contracts, then future software service margins may be significantly and negatively affected or losses on existing contracts may need to be recognized.  Any such resulting reductions in margins or contract losses could be material to the Company’s results of operations.   Should changes in conditions cause management to determine these criteria are not met for certain future transactions, revenue recognized for any reporting period could be adversely affected.

 

Allowance for uncollectible accounts.  Prior to the recognition of revenue, the Company makes a decision that collectibility is reasonably assured.  Over time, management analyzes accounts receivable

 

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balances, historical bad debts, customer concentrations, customer credit-worthiness, current economic trends, and changes in our customer payment terms and trends when evaluating the adequacy of the allowance for uncollectible accounts receivable.  Significant management judgment and estimates must be made and used in connection with establishing the allowance for uncollectible accounts receivable in any accounting period.  The Company provides specific amounts for known individual accounts which have deterioriated and general amounts for changes that are indicators of future deterioration.  If the financial condition of the Company’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

 

Goodwill and other intangible assets.  Purchase accounting requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair market value of the assets and liabilities purchased.  The Company evaluates acquired businesses for potential impairment indicators whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Factors that management consider important, which could trigger an impairment review include, but are not limited to, the following:

 

•                  Significant decrease in the market value of an asset;

 

•                  Significant changes in our use of the acquired assets or the strategy for our overall business;

 

•                  Significant adverse change in legal factors or negative industry or economic trends;

 

•                  Significant underperformance relative to current period and/or projected future operating profits or cash flows associated with an asset;

 

•                  Significant decline in the Company’s stock price for a sustained period; and

 

•                  Our market capitalization relative to net book value.

 

When the Company determines that the carrying value of long-lived assets, intangibles and related goodwill may not be recoverable based upon the existence of one or more of the indicators of impairment, the Company recognizes an impairment loss when the sum of undiscounted expected future cash flow is less than the carrying amount of such assets.  The impairment loss, if applicable, is then calculated based on the fair value or the sum of the discounted cash flows compared to the carrying value.  The discounted cash flow method would use a discount rate determined by management to be commensurate with the risk inherent in the current business model.

 

Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” became effective January 1, 2002, and as a result, we ceased amortization of the remaining $41.2 million of goodwill.  The Company recorded approximately $11.7 million of goodwill amortization during 2001.  In lieu of amortization, we are required to perform a periodic impairment review of the goodwill.  Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired.  Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.  Other intangible assets with finite lives that do not meet the criteria of SFAS No. 142 will continue to be amortized in accordance with the adoption of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  This amortization is based on the estimated useful lives of the underlying acquired business or underlying assets.  These pronouncements have not had a material impact on the Company’s results of operations, financial position and cash flows.

 

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The impact of SFAS No. 142 on previously reported results follows.

 

		Three months ended						Six months ended
		June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Reported net loss		$	(1,728	)	$	(6,214	)	$	(3,672	)	$	(15,861	)
Add back:  Goodwill amortization		—			2,933			—			5,867
Adjusted net loss		$	(1,728	)	$	(3,281	)	$	(3,672	)	$	(9,994	)
Loss per share – basic and diluted
Reported net loss		$	(0.11	)	$	(0.42	)	$	(0.24	)	$	(1.07	)
Goodwill amortization		—			0.20			—			0.39
Adjusted net loss		$	(0.11	)	$	(0.22	)	$	(0.24	)	$	(0.68	)

 

Income taxes.  As part of the process of preparing our consolidated financial statements we are required to estimate our taxes in each of the jurisdictions in which we operate.  This process involves management estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and US GAAP purposes.  These differences result in deferred tax assets and liabilities, which are included within our condensed consolidated balance sheet.  The Company must then assess the likelihood that deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance.  To the extent the Company establishes a valuation allowance or increases this allowance in a period, an expense is recorded within the tax provision in the consolidated statement of operations.

 

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.  The Company has recorded a valuation allowance due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire.  The valuation allowance is based on our estimates of taxable income by jurisdiction in which the Company operates and the period over which our deferred tax assets could be recoverable.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods we may need to establish an additional valuation allowance which could materially impact our financial condition and results of operations.

 

The Company also records a reserve for certain international, federal and state tax contingencies based on the likelihood of obligation, when needed.  In the normal course of business, the Company is subject to challenges from U.S. and non-U.S. tax authorities regarding the amount of taxes due. These challenges may result in adjustments of the timing or amount of taxable income or deductions or the allocation of income among tax jurisdictions.  Management believes SYNAVANT has appropriately accrued for tax exposures.  If the Company prevails in a matter for which an accrual has been established or is required to pay an amount exceeding its reserves, the financial impact will be reflected in the period in which the matter is resolved.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods we may need to establish an additional valuation allowance which could materially impact our financial condition and results of operations.

 

Restructuring costs.  The restructuring accruals are based on certain estimates and judgments related to contractual obligations and related costs.  Potential restructuring accruals related to contractual office lease obligations could be materially affected by factors such as our ability to secure subleases, the credit-worthiness of sub-lessees and our success at negotiating early termination agreements with lessors.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods we may need to establish an additional restructuring accrual or reverse accrual amounts accordingly.

 

13

 

Legal contingencies.  The Company is currently involved in certain legal proceedings as disclosed in Note 2.  The Company has accrued an estimate of the probable costs for the resolution of these claims.  This estimate has been developed in consultation with outside counsel handling our defense in these matters and is based upon an analysis of potential results, assuming a combination of litigation and settlement strategies.  The Company does not believe these proceedings will materially affect SYNAVANT’s financial position, although no assurance can be given as to the ultimate outcome of any such proceedings.

 

Fair Value of Stock Options.  SFAS No. 123, “Accounting for Stock–Based Compensation”, requires that companies with tock–based compensation plans either recognize compensation expense based on the fair value of options granted or continue to apply the existing accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. The Company has chosen to continue applying Accounting Principles Board Opinion No. 25 (“APB No. 25”) and related interpretations in accounting for its stock incentive plans.  Accordingly, no compensation expense related to the issuance of stock options has been recognized for the three and six months ended June 30, 2002 and 2001.  The compensation cost for the SYNAVANT stock incentive plans based on the fair value at the grant dates for awards under those plans, consistent with the method of SFAS No. 123, are disclosed on an annual basis in the Company’s Annual Report on Form 10-K.

 

However, the Company recognizes that as a result of recent events in the business and financial community, the accounting profession has been reevaluating practices concerning employee compensation and its accounting.  Therefore the Company will be evaluating the appropriateness of the practice of recording compensation expense as a result of the issuance of stock options, as it relates to the Company’s particular situation and set of circumstances.

 

The above listing is not intended to be a comprehensive list of all of our estimates and judgments or accounting policies.  In many cases, the accounting treatment of a particular transaction is specifically dictated by US GAAP, with no need for management’s judgment in their application.  There are also areas in which management’s judgment in selecting any available alternative would not produce a materially different result.  See our audited consolidated financial statements and notes thereto which contain accounting policies and other disclosures required by US GAAP.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001.

 

REVENUE

 

Total revenues for the three months ended June 30, 2002 decreased by $3.1 million and 6.6% to $43.6 million from $46.7 million for the three months ended June 30, 2001. The overall revenue decrease was primarily driven by a decrease in Software fees, partially offset by the impact of a weaker U.S. Dollar.  Excluding the impact of a weaker U.S. Dollar, revenues decreased by 8.6%.

 

SOFTWARE FEES.  Software fees decreased to $1.1 million for the three months ended June 30, 2002 from $4.0 million for the three months ended June 30, 2001, a decrease of $2.9 million and 72.5%.  The decrease in Software fees is primarily due to a significant decline in customer sales representative expansions in the U.S. compared to the prior year.  Software fees have declined, and are expected to continue to decline in future periods, as the Company is no longer a Siebel VAR (See Siebel Alliance) and due to the discontinuance of ongoing development of certain of the Company’s legacy software products.  Excluding the impact of a weaker U.S. Dollar, Software fees revenue decreased 73.7%.

 

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SOFTWARE SERVICES.  Software services revenue decreased to $22.1 million for the three months ended June 30, 2002 from $22.3 million for the three months ended June 30, 2001, a decrease of $0.2 million.  The decrease in revenue from Software services is principally due to a decrease of certain roll-out related revenues, such as hardware rebills, associated with customer sales representative expansions in the U.S.  Excluding the impact of a weaker U.S. dollar, Software services revenue decreased by 2.6%.

 

INTERACTIVE MARKETING.  Interactive marketing revenue remained essentially unchanged at $20.4 million for the three months ended June 30, 2002 compared with June 30, 2001.  Excluding the impact of a weaker U.S. Dollar, Interactive marketing revenue decreased by 2.3%.

 

OPERATING COSTS

 

COST OF SOFTWARE FEES.  Cost of Software fees decreased to $0.8 million for the three months ended June 30, 2002, from $2.3 million for the three months ended June 30, 2001, a decrease of $1.5 million and 65.2%.  The decrease relates to the decline in Software fees revenue, partially offset by an increase in amortization of capitalized software costs.

 

COST OF SOFTWARE SERVICES.  Cost of Software services decreased to $15.3 million for the three months ended June 30, 2002, from $17.6 million for the three months ended June 30, 2001, a decrease of $2.3 million and 13.1%. The decrease in Cost of Software services is primarily due to the change in product mix of services and cost containment actions.

 

COST OF INTERACTIVE MARKETING.  Cost of Interactive marketing revenue remained unchanged at $16.9 million for the three months ended June 30, 2002 from the same period in the prior year.  These costs remained consistent as a percentage of the Interactive marketing revenue for the three month period.

 

GROSS MARGIN

 

The Company calculates gross margin as revenue less operating costs as categorized in the Company’s consolidated financial statements.  The following table summarizes the Company’s gross margin information in dollars and as a percentage of the associated revenues for the three months ended June 30, 2002 and the comparable period for the prior year.

 

		6/30/02 Gross Margin					6/30/01 Gross Margin
		(in thousands)
Software fees		$	279		25.7	%	$	1,698		42.2	%
Software services		6,788			30.7	%	4,716			21.2	%
Interactive marketing		3,531			17.3	%	3,461			17.0	%
Total		$	10,598		24.3	%	$	9,875		21.2	%

 

Total gross margin for the three months ended June 30, 2002 increased by $0.7 million and improved as a percentage of revenue by 3.1% to 24.3%.  The Company experienced improved software services margins due to changes in product mix, reflecting a higher level of recurring service revenue and a lower level of one-time project related revenues and cost containment actions taken in the second half of 2001.  These improved software services margins were partially offset by a decline in software fee margins caused by a significant decline in customer sales representative expansions in the U.S. compared to the prior year.  Due to the ongoing transition to a software services model from a proprietary software business, the Company expects software fees to continue to decline as the Company is no longer a Siebel VAR and due to the discontinuance of ongoing development of certain of the Company’s legacy software products.  Interactive marketing gross margins remained essentially unchanged as compared to the same period in the prior year.

 

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OPERATING EXPENSES

 

RESEARCH AND DEVELOPMENT.  Research and development expenses declined by 23.8% to $1.6 million for the three months ended June 30, 2002 from $2.1 million for the three months ended June 30, 2001.  The decline in research and development costs is principally attributable to a de-emphasis on proprietary software development.

 

SELLING AND ADMINISTRATIVE.  Selling and administrative expenses decreased to $8.3 million for the three months ended June 30, 2002 from $8.8 million for the three months ended June 30, 2001, a decrease of $0.5 million or 5.7%.  The decrease in Selling and administrative expenses is principally due to cost containment actions taken during the second half of 2001.

 

DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the three months ended June 30, 2002 declined to $1.9 million from $5.3 million for the same period in the prior year.  The decline is due to the absence of Goodwill amortization during 2002 in accordance with new accounting standards that eliminated the amortization of goodwill (See Note 1 Recently Issued Accounting Standards).

 

OPERATING LOSS

 

Operating loss decreased to $1.2 million for the three months ended June 30, 2002 compared with an operating loss of $6.7 million for the three months ended June 30, 2001.  The loss narrowed by $5.5 million primarily due to the absence of goodwill amortization, cost containment actions taken during the second half of 2001 and improved gross margins due to changes in the product mix.

 

RESTRUCTURING

 

On August 16, 2001, the Company announced that, in an attempt to optimize customer responsiveness and organizational effectiveness, it would simplify its senior leadership structure as well as eliminate certain other positions in its international and domestic operations.  The Company completed a large portion of the restructuring during 2001, resulting in the elimination of approximately 100 positions reflected in the charge of $7.5 million for 2001.  These reductions included six senior management positions with the remainder being operating, technical and administrative staff.  The restructuring charge is composed entirely of employee severance and separation related costs, such as extended benefits and outplacement fees.  There has been no additional restructuring charge taken in 2002.  Of the $7.5 million charge recorded in 2001, $4.2 million has been paid through June 30, 2002.  The remainder is expected to be paid within the next twelve to eighteen months.

 

TAXES

 

The Company had a consolidated tax provision of $0.7 million for the three months ended June 30, 2002, compared with a tax benefit of $0.2 million for the three months ended June 30, 2001.  The change reflects the impact of global tax planning initiatives. The Company’s effective tax rate is different than the U.S. federal statutory tax rate due to taxable income in certain foreign jurisdictions and losses for which a full valuation has been provided.

 

SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001.

 

REVENUE

 

Total revenues for the six months ended June 30, 2002 decreased by $2.2 million and 2.4% to $88.6 million from $90.8 million for the six months ended June 30, 2001. The overall revenue decrease was driven by a decrease in license fees, partially offset by increased interactive marketing services and the impact of a

 

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weaker U.S. Dollar.  Excluding the impact of a weaker U.S. Dollar, revenues decreased by 2.7%.

 

SOFTWARE FEES.  Software fees decreased to $2.5 million for the six months ended June 30, 2002 from $7.2 million for the six months ended June 30, 2001, a decrease of $4.7 million and 65.3%.  The decrease in Software fees is primarily due to a significant decline in customer sales representative expansions in the U.S. compared to the prior year.  Software fees have declined, and are expected to continue to decline in future periods, as the Company is no longer a Siebel VAR (See Siebel Alliance) and due to the discontinuance of ongoing development of certain of the Company’s legacy software products.

 

SOFTWARE SERVICES.  Software services revenue decreased to $43.0 million for the six months ended June 30, 2002 from $43.8 million for the six months ended June 30, 2001, a decrease of $0.8 million and 1.8%. The decrease in revenue from Software services is principally due to a decrease of certain hardware rebills associated with customer sales representative expansions in the U.S.

 

INTERACTIVE MARKETING.  Interactive marketing revenue increased to $43.1 million for the six months ended June 30, 2002 from $39.8 million for the six months ended June 30, 2001, an increase of $3.3 million and 8.3%. The increase in revenue from Interactive marketing is primarily due to a large product communications program implemented for a customer in the U.S.

 

OPERATING COSTS

 

COST OF SOFTWARE FEES.  Cost of Software fees decreased to $1.5 million for the six months ended June 30, 2002, from $4.6 million for the six months ended June 30, 2001, a decrease of $3.1 million and 67.4%.  The decrease relates to lower Software fees revenue and a better product mix, partially offset by an increase in amortization of capitalized software costs.

 

COST OF SOFTWARE SERVICES.  Cost of Software services decreased to $30.4 million for the six months ended June 30, 2002, from $33.6 million for the six months ended June 30, 2001, a decrease of $3.2 million and 9.5%.  The decrease in Cost of Software services is primarily due to lower Software services revenues, the product mix of services and cost containment actions.

 

COST OF INTERACTIVE MARKETING.  Cost of Interactive marketing revenue increased to $36.1 million for the six months ended June 30, 2002, from $32.8 million for the six months ended June 30, 2001, an increase of $3.3 million or 10.1%.  The increase in the Cost of Interactive marketing is primarily driven by the revenue increase.  A large product communications program implemented for a customer in the U.S., included significant postage related fees, which are pass-through costs to the customer.  The cost of this program, including postage, was the primary driver of the increase in costs.

 

GROSS MARGIN

 

The Company calculates gross margin as revenue less operating costs as categorized in the Company’s consolidated financial statements.  The following table summarizes the Company’s gross margin information in dollars and as a percentage of the associated revenues for the six months ended June 30, 2002 and the comparable period for the prior year.

 

		6/30/02 Gross Margin					6/30/01 Gross Margin
Software fees		$	992		39.3	%	$	2,599		36.2	%
Software services		12,528			29.2	%	10,160			23.2	%
Interactive marketing		6,944			16.1	%	7,001			17.6	%
Total		$	20,464		23.1	%	$	19,760		21.8	%

 

17

 

Total gross margin for the six months ended June 30, 2002 increased by $0.7 million and increased by 1.3% as a percentage of revenue to 23.1%.  The Company experienced improved software services margins and software fee margins as a percentage of revenue.  Based on the transition to a software services model from a proprietary software business, the Company expects software fee gross margin to decline in future periods compared to prior years.  The increase in software services gross margins were also partially offset by lower interactive marketing margins as a percentage of revenue due to postage costs associated with the large product communications program discussed above.

 

 OPERATING EXPENSES

 

RESEARCH AND DEVELOPMENT.  Research and development expenses declined by 22.2% to $3.5 million for the six months ended June 30, 2002 from $4.5 million for the six months ended June 30, 2001.  The decline in research and development costs is principally attributable to a de-emphasis on proprietary software development.

 

SELLING AND ADMINISTRATIVE.  Selling and administrative expenses decreased to $15.9 million for the six months ended June 30, 2002 from $18.2 million for the six months ended June 30, 2001, a decrease of $2.3 million or 12.6%.  The decrease in Selling and administrative expenses is principally due to cost containment actions taken during the second half of 2001.

 

DEPRECIATION AND AMORTIZATION.  Depreciation and amortization for the six months ended June 30, 2002 declined to $3.7 million from $10.7 million for the same period in the prior year.  The decline is due to the absence of Goodwill amortization during 2002 in accordance with new accounting standards that eliminated the amortization of goodwill (See Note 1. Recently Issued Accounting Standards).

 

OPERATING LOSS

 

Operating loss improved to $2.7 million for the six months ended June 30, 2002 compared with an operating loss of $14.1 million for the six months ended June 30, 2001.  The loss narrowed by $11.4 million primarily due to the absence of goodwill amortization and cost containment actions taken during the second half of 2001.

 

RESTRUCTURING

 

On August 16, 2001, the Company announced that, in an attempt to optimize customer responsiveness and organizational effectiveness, it would simplify its senior leadership structure as well as eliminate certain other positions in its international and domestic operations.  The Company completed a large portion of the restructuring process during 2001, resulting in the elimination of approximately 100 positions reflected in the charge of $7.5 million for 2001.  These reductions included six senior management positions with the remainder being operating, technical and administrative staff.  The restructuring charge is composed entirely of employee severance and separation related costs, such as extended benefits and outplacement fees.  There has been no additional restructuring charge taken in 2002.  Of the $7.5 million charge, $4.2 million has been paid through June 30, 2002 and the remainder expected to be paid within the next twelve to eighteen months.

 

TAXES

 

The Company had a consolidated tax provision of $1.0 million for the six months ended June 30, 2002, compared with a provision of $2.0 million for the six months ended June 30, 2001.  The change reflects the impact of global tax planning initiatives. The Company’s effective tax rate is different than the U.S. federal statutory tax rate due to taxable income in certain foreign jurisdictions and losses for which a full valuation has been provided.

 

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RESULTS BY SEGMENT

 

THE AMERICAS.  Revenue for the six months ended June 30, 2002 remained constant at $54.9 million as compared to the same period in the prior year.  The operating loss for the six months ended June 30, 2002 was $3.0 million compared to a loss of $15.7 million for the six months ended June 30, 2001 primarily due to the absence of goodwill amortization and cost containment actions taken during the second half of 2001.

 

EUROPE.  Revenue for the six months ended June 30, 2002 was $26.7 million compared with $28.5 million for the six months ended June 30, 2001.  Lower Software fees and Interactive marketing volumes were the primary factors for revenue decreasing by $1.8 million.  Operating income for the six months ended June 30, 2002 decreased to $0.6 million from $1.8 million in the six months ended June 30, 2001 due to lower revenues.

 

ASIA PACIFIC.  Revenue for the six months ended June 30, 2002, decreased to $6.9 million compared to $7.4 million for the six months ended June 30, 2001. The decrease in revenue was primarily the result of lower interactive marketing revenues in Australia.  The increased operating loss for the six months ended June 30, 2002 was $0.3 million compared to an operating loss of $0.2 million for the six months ended June 30, 2001.  The increased operating loss is due to the decrease in revenue.

 

NON-U.S. OPERATING AND MONETARY ASSETS

 

SYNAVANT operates globally, deriving 41.5% of its revenues in the first six months of 2002 from non-U.S. operations.  As a result, fluctuations in the value of foreign currencies relative to the U.S. Dollar may increase the volatility of reported U.S. Dollar operating results.

 

Non-U.S. monetary assets are maintained in currencies other than the U.S. Dollar, principally those of the Euro, the Pound Sterling and the Australian Dollar.  Changes in the value of these currencies relative to the U.S. Dollar are charged or credited to stockholders’ equity.  The effect of exchange rate changes during the six months ended June 30, 2002 increased the U.S. Dollar amount of cash and cash equivalents by $0.8 million.

 

LIQUIDITY AND CAPITAL RESOURCES

 

On April 27, 2001, SYNAVANT Inc. entered into a revolving credit facility with Foothill Capital Corporation (the “Foothill Facility”), a wholly-owned subsidiary of Wells Fargo & Company.  The Foothill Facility has a term of five years with a maximum credit line of $20 million. The available line is determined based on a percentage of the eligible accounts receivable in the U.S. Any borrowing against the line will be at a rate of Prime plus 100 basis points. The Company is required to maintain certain financial covenants relating to earnings, net worth and capital expenditures.  The Company has met these covenants for the first half of 2002.  As of June 30, 2002, the Company had no outstanding balance in relation to the Foothill Facility.  Concurrent with the Foothill Facility, IMS HEALTH has agreed to defer any payments associated with the Distribution Liabilities (See Note 2) until January 1, 2005.  The Company filed an 8-K on May 8, 2001 related to the closing of the Foothill Facility.

 

We currently estimate that our cash and working capital needs for the next twelve months can be met by cash on hand, amounts available under our credit facility, and cash flow from operations. However, certain U.S. based customers have notified the Company that they have selected alternative suppliers for their software services and, as a result, do not intend to renew existing contracts. The timing of these transitions is, in some cases, not certain. As a result, the financial impact of these transitions will vary throughout the remainder of 2002 and 2003. The Company estimates that in the U.S. approximately $25 million to $30 million of 2002 software services revenue associated with these customers will not recur in 2003. Accordingly, the Company expects to require additional financing by the end of 2003 to adequately fund its working capital requirements. If our expectations change due to market conditions, strategic opportunities or otherwise, then our capital requirements may vary materially from those currently anticipated.

 

CASH FLOWS

 

Net cash provided by operating activities totaled $4.5 million for the six months ended June 30, 2002 compared with net cash used in operating activities of $8.7 million for the six months ended June 30, 2001. The

 

19

 

increase of $13.2 million primarily reflects a smaller Net Loss and timing in working capital, partially offset by payments related to restructuring (See Note 3).

 

Net cash used in investing activities totaled $2.9 million for the six months ended June 30, 2002 compared with cash used in investing activities of $1.7 million for the six months ended June 30, 2001. The increase in the cash outflow of $1.2 million was primarily due to higher capital expenditures associated with facilities moves in the U.S. interactive marketing business and our operations in the UK.

 

Net cash used in financing activities totaled $0.2 million for the six months ended June 30, 2002 unchanged from the same period in the prior year. The cash outflow in 2002 was attributable to payments on capital leases.  The payment of deferred loan fees associated with the Foothill Facility was the primary outflow for the first half of 2001.

 

CHANGES IN FINANCIAL POSITION AT JUNE 30, 2002 COMPARED WITH DECEMBER 31, 2001

 

Cash and cash equivalents were $11.8 million as of June 30, 2002 compared with $9.6 million as of December 31, 2001. The increase in cash and cash equivalents of $2.2 million was primarily due to a lower net loss for the period as well as the timing in working capital requirements.

 

Accounts and Other Receivables—Net.  Remained unchanged at $39.8 million at June 30, 2002 from December 31, 2001.

 

Other Current Assets.  Decreased $0.3 million to $5.8 million primarily due to a decrease in prepaid expenses associated with advances on certain subcontracted projects in our U.S. interactive marketing business.

 

Computer Software.  Decreased $2.5 million to $4.9 million due to amortization of the remaining book value based on the greater of straight line or revenue based amortization.

 

Goodwill—Net.  Remained unchanged as this balance is no longer amortized in accordance with new accounting guidelines (See Note 1. Recently Issued Accounting Standards).

 

Accounts Payable.  Decreased by $0.3 million due to the timing of certain year-end related payments.

 

Accrued Restructuring.   Decreased by $1.5 million due to severance payments made during 2002.

 

Accrued and Other Current Liabilities.  Increased to $15.7 million at June 30, 2002 from $13.3 million at December 31, 2001. The increase reflected the accrual of the current portion of capital lease commitments, employee bonuses and professional fees.

 

Accrued Income Taxes.  Increased to $3.2 million at June 30, 2002 from $1.9 million at December 31, 2001.  The increase is related to the quarterly accrual of income taxes, partially offset by cash payments for taxes related to prior periods.

 

Deferred Revenue.  Increased to $9.2 million at June 30, 2002 from $8.4 million at December 31, 2001. The increase relates to the billing of annual software maintenance contracts at the beginning of 2002, with revenue being recognized ratably throughout the year.

 

Total Equity.  Decreased to $67.2 million at June 30, 2002 from $70.2 million at December 31, 2001. The reduction was primarily due to the Net Loss during the period, partially offset by the impact of foreign currency changes.

 

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FACTORS THAT MAY AFFECT FUTURE PERFORMANCE

 

In addition to other information in this quarterly report on Form 10-Q, the following risk factors should be carefully considered in evaluating our Company and our business because such factors currently may have a significant impact on our business, operating results and financial condition. As a result of the risk factors set forth below, actual results could differ materially from those projected in any forward–looking statements.

 

COMPETITION FROM OTHER PROVIDERS OF CUSTOMER RELATIONSHIP MANAGEMENT SOLUTIONS MAY REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES OR CAUSE US TO REDUCE THE PRICE OF OUR PRODUCTS AND SERVICES.

 

We compete with other companies that sell sales force software products and services and interactive marketing services that specifically target the pharmaceutical industry. We also face competition from many vendors that market and sell CRM solutions in the consumer packaged goods industry. In addition, we compete with various companies that provide support services and interactive marketing services similar to our services.

 

We may not compete effectively in our markets. Competitive pressure may result in our reducing the price of our products and services, which would negatively affect our revenues and operating margins. If we are unable to compete effectively in our markets, our business, results of operations and financial condition would be materially and adversely affected.

 

Increased competition is anticipated based on the growing strategic focus on Customer Relationship Management (“CRM”) and the success of Siebel’s E-Business solutions.  Large established companies, such as Oracle, SAP and Microsoft, that are well established providers of ERP software solutions are expected to offer new CRM solutions that may compete with SYNAVANT solutions based on Siebel technology.

 

The Company typically contracts with customers for a three year license and support agreement for software products.  At the end of the contract the customer may renew their agreement, normally for a one to two year period.  Past experience has indicated that the Company’s customers typically reassess these contracts every three to five years.  As customers reassess their requirements, the Company may not be able to renew the agreements, and may not be selected to provide implementation and/or support services even if a Siebel solution is selected by the customer.  Certain U.S. based customers have notified the Company that they have selected alternative suppliers for their software services and, as a result, do not intend to renew existing contracts.  The timing of these transitions is, in some cases, not certain.  As a result, the financial impact of these transitions will vary throughout the remainder of 2002 and 2003.  The Company estimates that in the U.S. approximately $25 million to $30 million of 2002 software services revenue associated with these customers will not recur in 2003.

 

Some of our competitors and potential competitors are part of large corporate groups and have longer operating histories and significantly greater financial, sales and marketing, technology and other resources than we have.  In the event that we are unable to compete successfully with these companies, it could have a material adverse effect on our business, operating results or financial condition.

 

IF OUR REVISED ALLIANCE WITH SIEBEL IS UNSUCCESSFUL, OUR BUSINESS MAY SUFFER MATERIALLY.

 

You should note the following risk factors relating to our alliance with Siebel:

 

•                  Customers may choose to purchase software services directly from Siebel or another provider and not as part of an integrated solutions offering from SYNAVANT;

 

•                  We may not be able to implement successfully the changes to our business model necessitated by the Siebel alliance;

 

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•                  We may not successfully develop and differentiate our value added services and products together with Siebel software products; and

 

•                  Other Siebel partners and/or providers of CRM services may effectively compete to sell portions of a total solution offering such as integration services, help desk support or data services to potential customers of SYNAVANT.

 

WE MAY NEED ADDITIONAL FINANCING TO MEET OUR FUTURE CAPITAL REQUIREMENTS.

 

We invest in research and development as well as in capital projects to enhance existing products and services and develop new products and services in response to technological and marketplace changes.  As of June 30, 2002, the Company had cash and cash equivalents of $11.8 million and availability under the revolving credit facility with Foothill Capital Corporation (See Liquidity and Capital Resources).  To the extent that we need additional funding in the future to finance our operations and capital expenditures, we may not be able to access the capital markets or otherwise obtain necessary financing, or to obtain such financing in a timely manner or on commercially favorable terms. In the event that we satisfy our financing needs through the issuance of additional equity securities, such issuance would be dilutive to existing stockholders.  The Company expects to require additional financing to meet anticipated working capital needs by the end of 2003.

 

THE LOSS OF OUR KEY PERSONNEL COULD NEGATIVELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.

 

Our success depends on our continuing ability to attract, hire, train and retain a substantial number of highly skilled managerial, technical, sales, marketing and customer support personnel.  In particular, our Chairman and Chief Executive Officer, Wayne P. Yetter, is integral to our future success and is not currently bound by an employment agreement. Competition for qualified personnel is intense, and we may fail to retain our key employees or to attract or retain other highly qualified personnel.  Even if we are able to attract qualified personnel, new hires frequently require extensive training before they achieve desired levels of productivity.  If we are unable to hire or fail to retain competent personnel, our business, results of operations and financial condition could be materially and adversely affected.  None of our key employees is bound by an employment agreement.

 

OUR FAILURE TO INTRODUCE NEW OR ENHANCED PRODUCTS IN A TIMELY MANNER COULD RENDER OUR PRODUCTS OBSOLETE AND UNMARKETABLE.

 

We compete in businesses that provide and market sophisticated information systems, software and other technology. We expect that these systems, software and other technology will be subject to refinements as such systems and underlying technologies are upgraded and advanced. As various systems and technologies become outdated, we may not be able to enhance or replace them, to enhance or replace them as quickly as our competition, or to introduce and market new or enhanced products and services in the future on schedule and on a cost-effective basis.  Our failure to provide and market new or enhanced products that compete with other available products could materially and adversely affect our business, results of operations and financial condition.

 

Our success will depend, in part, upon our ability to:

 

•                  continue to provide best-in-class enterprise solutions;

 

•                  continue to develop best-in-class CRM solutions;

 

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•                  continue to develop best-in-class Interactive marketing solutions

 

•                  enter new markets; and

 

•                  develop and/or provide new solutions that satisfy increasingly sophisticated customer requirements, that keep pace with technological developments (including, in particular, developments related to the Internet) and that are accepted in the market.

 

DEFECTS IN OUR PRODUCTS COULD DELAY MARKET ADOPTION OF OUR SOFTWARE OR CAUSE US TO COMMIT SIGNIFICANT RESOURCES TO REMEDIAL EFFORTS.

 

Software products frequently contain errors or failures, especially when first introduced or when new versions or enhancements are released. We could be forced to delay the commercial release of products until software problems have been corrected. We could lose revenues as a result of software errors or defects. Our products are intended for use in sales and marketing applications that may be critical to a customer’s business. As a result, we expect that customers and potential customers will have a greater sensitivity to product defects than the market for software products generally. Testing errors may also be found in new products, enhancements or releases after commencement of commercial shipments, resulting in loss of revenue or delay in market acceptance, damage to our reputation, or increased service and warranty costs, any of which could have a material adverse effect on our business, operating results or financial condition.  The foregoing would also be applicable to Siebel products around which future services would be based.  With respect to such products, we would also depend on Siebel for the correction of errors and the delivery of any required modifications relating to such products.

 

OUR SUCCESS DEPENDS ON THE STRENGTH OF THE PHARMACEUTICAL INDUSTRY.

 

Our products and services are primarily used in connection with the marketing and sale of prescription-only drugs. The market for prescription-only drugs is undergoing a number of significant changes, including:

 

•                  consolidations and mergers, which may reduce the number of existing customers and the size of their combined sales forces, and could also alter implementation and purchase cycles;

 

•                  reclassification of formerly prescription-only drugs to permit over-the-counter sales;

 

•                  competitive pressures on our pharmaceutical customers resulting from the continuing shift to delivery of healthcare through managed care organizations; and

 

•                  changes in law, such as government-mandated price reductions for prescription-only drugs, that affect the healthcare systems in the countries where our customers and potential customers are located.

 

Our failure to respond effectively to any or all of these and other changes in the marketplace for prescription-only drugs could have a material and adverse effect on our business, operating results and financial condition.

 

SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY AND ANNUAL OPERATING RESULTS MAY ADVERSELY AFFECT THE MARKET PRICE OF OUR COMMON STOCK.

 

We believe that our quarterly and annual operating results could fluctuate significantly in the future, and our results of operations could fall below the expectations of securities analysts and investors.  If this occurs or if market analysts perceive that it will occur, our market value could decrease substantially.  The selection of a CRM software product and service partners often entails an extended decision-making process because of the strategic implications and substantial costs associated with a customer’s license of the software

 

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and project implementation.  As a result, the decision-making process typically takes nine to eighteen months, although in some cases it may take even longer.  Accordingly, we cannot control or predict the timing of our execution of contracts with customers. In addition, an implementation process of three to nine months is customary before the software is rolled out to a customer’s sales force. Other factors may cause significant fluctuations in our quarterly and annual operating results, including:

 

•                  changes in the demand for our products;

 

•                  the timing, composition and size of orders from our customers;

 

•                  customer spending patterns and budgetary resources;

 

•                  lower contribution margin associated with an expected decline in license fee revenue;

 

•                  our success in obtaining new customers;

 

•                  the timing of introductions of or enhancements to our products;

 

•                  changes in our pricing policies or those of our competitors;

 

•                  our ability to anticipate and adapt effectively to developing markets and rapidly changing technologies;

 

•                  our ability to attract, retain and motivate qualified personnel, particularly within our sales and marketing and research and development organizations;

 

•                  the publication of opinions or reports about us, our products, our competitors or their products;

 

•                  changes in general economic conditions;

 

•                  actions taken by our competitors, including new product introductions and enhancements; and

 

•                  our ability to control costs.

 

We establish expenditure levels for product development, sales and marketing and other operating expenses based in large part on expected future revenues and anticipated competitive conditions.  In particular, we frequently add staff in advance of new business to permit adequate time for training.  If the new business is delayed or cancelled, we will incur expenses without the associated revenues.  In addition, we may increase sales and marketing expenses if competitive pressures become greater than we currently anticipate.  Because only a small portion of expenses varies directly with actual revenues in the near term, operating results and profitability are likely to be adversely and disproportionately affected if revenues fall below expectations.

 

AS WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS WILL BE MORE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.

 

Fluctuations in the value of foreign currencies relative to the U.S. dollar may increase the volatility of our operating results.  We expect to commit resources to expand our international sales and marketing activities. If successful, we will be subject to a number of risks associated with international business activities. These risks generally include:

 

•                  currency exchange rate fluctuations;

 

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•                  seasonal fluctuations in purchasing patterns;

 

•                  unexpected changes in regulatory requirements;

 

•                  tariffs, export controls and other trade barriers;

 

•                  longer accounts receivable payment cycles and difficulties in collecting accounts receivable;

 

•                  difficulties in managing and staffing international operations;

 

•                  potentially adverse tax consequences, including restrictions on the repatriation of earnings;

 

•                  the burdens of complying with a wide variety of foreign laws, including data privacy laws; and

 

•                  political instability.

 

EXPOSURE TO CERTAIN DISTRIBUTION LIABILITIES MAY MATERIALLY AND ADVERSELY AFFECT THE COMPANY.

 

We are subject to certain material liabilities associated with certain matters relating to activities prior to the Distribution.  As a condition to our spin-off from IMS HEALTH, we are required to undertake to be jointly and severally liable to certain corporate predecessors of IMS HEALTH for IMS HEALTH’s obligations under certain agreements with such entities, including potential liability relating to a complaint filed against such entities alleging violations of federal antitrust laws and seeking $350 million in damages.  Pursuant to our agreement with IMS HEALTH, IMS HEALTH will indemnify the Company for any liability we incur in connection with such Distribution liabilities in excess of $9.0 million, which has been recorded in the consolidated financial statements.  Any failure of IMS HEALTH to fulfill its indemnification obligations that resulted in our obligation to fund a substantial portion of such excess liabilities could have a material adverse effect on our business, operating results and financial condition.

 

WE MAY BE UNABLE TO GENERATE SUFFICIENT CASH FLOWS TO ADEQUATELY FUND CERTAIN DISTRIBUTION LIABILITIES.

 

If we incur the Distribution liability of up to $9.0 million, pursuant to our agreement with IMS HEALTH, in connection with the alleged violations of federal antitrust laws by our corporate predecessors, our cash flows may need to be over and above our projected income in order to meet our financial obligations.  There is no assurance that we will have a sufficient amount of pre-tax income to meet our financial obligations in respect to such Distribution liabilities, which could have a material and adverse effect on our business, operating results and financial condition.

 

WE MAY BE SUBJECT TO TAXATION IF THE SPIN-OFF DOES NOT QUALIFY AS A TAX FREE TRANSACTION.

 

If the distribution of SYNAVANT shares of common stock to IMS HEALTH shareholders, pursuant to the spin-off, were not to qualify under Section 355 of the Internal Revenue Code, the aggregate corporate tax liability could be approximately $100 million and SYNAVANT could be severally liable for such tax.  In the event that SYNAVANT were obligated to fund a substantial portion of such liability, it would have a material adverse effect on SYNAVANT’S financial condition.  Moreover, each IMS HEALTH stockholder that received shares of SYNAVANT common stock in the spin-off would be treated as if such stockholder had received a taxable distribution in an amount equal to the fair market value of the SYNAVANT common stock received.

 

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GOVERNMENTAL REGULATION MAY MATERIALLY AND ADVERSELY AFFECT OUR ABILITY TO DISTRIBUTE CONTROLLED SUBSTANCES THROUGH THE MAIL.

 

We currently distribute controlled substances to doctors’ offices through the mail as part of certain interactive marketing programs we provide on behalf of pharmaceutical manufacturers. It is important to our business that this practice of distributing prescription-only drugs continues. Future legislation may restrict our ability to provide these types of services. If any such legislation is enacted, it could have a material and adverse effect on our business, operating results and financial condition.

 

WE RELY ON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY.

 

We rely on a combination of trade secret, copyright and trademark laws, non-disclosure and other contractual agreements, and technical measures to protect our proprietary technology. The steps we have taken or will take in the future may not prevent misappropriation of our technology. Further, protective actions we have taken or will take in the future may not prevent competitors from developing products with features similar to our products. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Despite our efforts to protect our products’ proprietary rights, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary.  Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could harm our business, operating results and financial condition.

 

CLAIMS AGAINST US REGARDING OUR PROPRIETARY TECHNOLOGY COULD REQUIRE US TO PAY LICENSING OR ROYALTY FEES OR TO MODIFY OR DISCONTINUE OUR PRODUCTS.

 

Any claim that our products infringe on intellectual property rights could materially and adversely affect our business, results of operations and financial condition. Because knowledge of a third party’s patent rights is not required for a determination of patent infringement and because the United States Patent and Trademark Office is issuing new patents on an ongoing basis, infringement claims against us are a continuing risk.

 

Infringement claims could cause product release delays, require the redesign of our products or require us to enter into royalty or license agreements. These agreements may be unavailable on acceptable terms. Litigation, regardless of the outcome, could result in substantial cost, divert management attention and delay or reduce customer purchases. Claims of infringement are becoming increasingly common as the software industry matures and as courts apply expanded legal protections to software products. Third parties may assert infringement claims against us regarding our proprietary technology and intellectual property licensed from others. Generally, third-party software licensors indemnify us from claims of infringement. However, licensors may be unable to indemnify us fully for such claims, if at all.

 

If a court determines that one of our products violates a third party’s patent or other intellectual property rights, there is a material risk that the revenue from the sale of the infringing product will be significantly reduced or eliminated, as we may have to:

 

•                  pay licensing fees or royalties to continue selling the product;

 

•                  incur substantial expense to modify the product so that the third party’s patent or other intellectual property rights no longer apply to the product; or

 

•                  stop selling the product.

 

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In addition, if a court finds that one of our products infringes a third party’s patent or other intellectual property rights, then we may be liable to that third party for actual damages and attorneys’ fees. If a court finds that we willfully infringed on a third party’s patent, the third party may be able to recover treble damages, plus attorneys’ fees and costs.

 

OUR CERTIFICATE OF INCORPORATION, OUR BYLAWS AND OUR AGREEMENT WITH IMS HEALTH CONTAIN PROVISIONS THAT MAY DISCOURAGE A TAKEOVER.

 

Our Amended and Restated Certificate of Incorporation and Amended and Restated By-Laws contain provisions that may have the effect of discouraging an acquisition of control of the Company not approved by our Board of Directors.  Such provisions may also have the effect of discouraging third parties from making proposals involving an acquisition or change of control of the Company, although such proposals, might be considered desirable by a majority of our stockholders.  Such provisions could further have the effect of making it more difficult for third parties to cause the replacement of our Board of Directors. These provisions include:

 

•                  the availability of capital stock for issuance from time to time at the discretion of our Board of Directors;

 

•                  prohibitions against stockholders calling a special meeting of stockholders or acting by written consent in lieu of a meeting;

 

•                  requirements for advance notice for raising business or making nominations at stockholders’ meetings;

 

•                  the ability of our Board of Directors to increase the board and appoint directors to newly created directorships;

 

•                  a classified Board of Directors; and

 

•                  higher than majority requirements to make certain amendments to our By-Laws and Certificate of Incorporation.

 

These provisions have been designed to enable us to develop our businesses and foster our long-term growth without disruptions caused by the threat of a takeover not deemed by our Board of Directors to be in the best interests of the Company and our stockholders.  In addition, under the Distribution Agreement we entered into with IMS HEALTH, we agree that until August 31, 2002 we will not, among other things, merge or consolidate with another corporation, sell or transfer all or substantially all of our assets, or take any other action which would result in one or more persons acquiring a 50 percent or greater interest in us, unless, before taking such action, we obtain a written opinion of a law firm or a ruling from the Internal Revenue Service that such action will not affect the tax-free treatment of the distribution.  Such provisions may have the effect of discouraging third parties from making proposals involving an acquisition or change of control of the Company.

 

We have a stockholder rights plan that is designed to protect our stockholders in the event of an unsolicited offer and other takeover tactics that, in the opinion of our Board of Directors, could impair the Board’s ability to represent stockholder interests. The provisions of our stockholder rights plan may render an unsolicited takeover of the Company more difficult or less likely to occur or might prevent such a takeover.

 

Pursuant to the Distribution Agreement with IMS HEALTH, we are each subject to certain non-competition arrangements that restrict our respective business activities for a specified period after the distribution. Pursuant to the terms of the Distribution Agreement, the restrictions would generally be binding on an entity that acquires us or is the survivor in a business combination with the Company.  Such restrictions may have the effect of discouraging third parties from making proposals involving an acquisition or change in control of the Company.  We are also subject to the provisions of Delaware corporate law, which may restrict

 

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certain business combination transactions.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Information in response to this Item is set forth in “Non-U.S. Operating and Monetary Assets” under Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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PART II. OTHER INFORMATION

 

Item 1.    Legal Proceedings

 

Information in response to this Item is also set forth in “Note 2 Contingencies” of the Notes to Consolidated Financial Statements.

 

Item 2.    Changes In Securities

 

None.

 

Item 3.    Default Upon Senior Securities

 

None.

 

Item 4.    Submission of Matters to a Vote of Security Holders

 

(a)  The Annual Meeting of Shareholders (the “Annual Meeting”) of the Company was held on April 30, 2002.  There were present at the Annual Meeting, in person or by proxy, holders of 12,982,660 shares or 86.18% of the common stock entitled to vote.

 

(b)  The following directors were elected to hold office for a term as designated below or until their successors are elected and qualified, with the vote for each director being reflected below:

 

Name		Votes For		Votes Withheld
Elected to hold office until the 2005 Annual Meeting:
Peter H. Fuchs		12,899,304		84,582
Barry L. Williams		12,899,304		84,582

 

The affirmative vote of the holders of a plurality of the outstanding shares of common stock represented at the Annual Meeting was required to elect each director.

 

(c)  The proposal to approve the 2000 Stock Incentive Plan was approved with 7,783,010 affirmative votes cast, 5,182,343 negative votes and 18,541 abstentions.  The affirmative vote of the holders of a majority of the outstanding shares of common stock represented at the Annual Meeting was required to approve the 2000 Stock Incentive Plan.

 

(d)  The proposal to approve the Annual Incentive Plan was approved with 10,471,935 affirmative votes cast, 2,494,383 negative votes cast and 17,576 abstentions.  The affirmative vote of the holders of a majority of the outstanding shares of common stock represented at the Annual Meeting was required to approve the Annual Incentive Plan.

 

(e)  The appointment of PricewaterhouseCoopers LLP as independent public accountants to audit the accounts of the Company and its subsidiaries for the year ending December 31, 2002, was ratified with 12,907,161 affirmative votes cast, 69,442 negative votes cast and 7,291 abstentions.  The affirmative vote of the holders of a majority of the outstanding shares of common stock represented at the Annual Meeting was required to ratify the appointment of PricewaterhouseCoopers LLP.

 

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Item 5.    Other Information

 

None.

 

Item 6.    Exhibits and Reports on Form 8-K

 

(a) Exhibits

 

Exhibit Number		Exhibit
99.1		Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2		Certification pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(b) Reports on Form 8-K

 

None.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Synavant Inc.

 

Signature			Title		Date
By:	/s/ Wayne P. Yetter		Chairman and Chief Executive Officer		August 13, 2002
	Wayne P. Yetter		(Principal Executive Officer)
By:	/s/ Clifford A. Farren, Jr.		Senior Vice President and Chief Financial Officer		August 13, 2002
	Clifford A. Farren, Jr.		(Principal Financial and Accounting Officer)

 

 

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