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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
Commission File Number: 0-30822
SYNAVANT INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 22-2940965
----------------------------------- -----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
3445 PEACHTREE ROAD NE, SUITE 1400
ATLANTA, GA 30326
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 841-4000
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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 X No
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 November 1, 2000
Common Stock, -------------------
par value $.01 per share 14,832,297 Shares
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SYNAVANT INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2000
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
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ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Financial Position 2
September 30, 2000 and December 31, 1999
Condensed Consolidated Statements of Operations 3
Three Months and Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Comprehensive Income 4
Three Months and Nine Months Ended September 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows 5
Nine Months Ended September 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 13
CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 32
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS 32
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 32
ITEM 5. OTHER INFORMATION 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 32
SIGNATURES 33
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PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
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SYNAVANT INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SEPTEMBER 30, DECEMBER 31,
2000 1999
(UNAUDITED) (AUDITED)
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ASSETS:
CURRENT ASSETS:
Cash and cash equivalents $ 17,385 $ 3,464
Accounts receivable-net 44,419 46,124
Other receivables 4,308 467
Other current assets 5,610 3,664
------------------------------------------------------------------------------- ------------------ --------------------
Total Current Assets 71,722 53,719
------------------------------------------------------------------------------- ------------------ --------------------
Property, plant and equipment-net 13,616 15,633
Computer software - net 15,934 30,429
Goodwill - net 55,948 167,363
Long term notes receivable 2,500 --
Other assets 1,720 1,155
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Total Long Term Assets 89,718 214,580
------------------------------------------------------------------------------- ------------------ --------------------
TOTAL ASSETS $161,440 $268,299
=============================================================================== ================== ====================
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable $10,736 $8,596
Accrued and other current liabilities 15,497 18,913
Accrued income taxes 2,716 4,158
Deferred revenue 9,539 6,202
------------------------------------------------------------------------------- ------------------ --------------------
Total Current Liabilities 38,488 37,869
------------------------------------------------------------------------------- ------------------ --------------------
Deferred taxes 2,208 7,986
Accrued liability due to former parent 9,000 --
Other liabilities 166 910
------------------------------------------------------------------------------- ------------------ --------------------
TOTAL LIABILITIES $49,862 $46,765
=======================================================================================================================
Commitments and contingencies (see note 4)
Minority interests 611 690
SHAREHOLDERS' EQUITY:
Common Stock, par value $.01, authorized 41,000,000 shares;
14,832,297 shares outstanding at September 30, 2000 148 --
Other Shareholders' Equity 110,819 220,154
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TOTAL SHAREHOLDERS' EQUITY $111,578 $220,844
------------------------------------------------------------------------------- ------------------ --------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $161,440 $268,229
=============================================================================== ================== ====================
</TABLE>
See accompanying Notes to the Condensed
Consolidated Financial Statements (unaudited).
2
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<TABLE>
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SYNAVANT INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ----------------- --------------- ----------------
2000 1999 2000 1999
---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Software fees $ 688 $ 1,126 $ 4,971 $ 7,440
Software services 21,460 19,418 64,856 64,014
Interactive marketing 20,549 23,983 66,078 68,536
---------------------------------------------------------- ---------------------------------- --------------------------------
TOTAL REVENUES 42,697 44,527 135,905 139,990
---------------------------------------------------------- ---------------------------------- --------------------------------
Operating Costs:
Software fees 6,117 1,122 7,258 1,639
Software services 15,595 11,970 43,483 32,644
Interactive marketing 17,383 20,147 56,808 57,871
---------------------------------------------------------- ---------------------------------- --------------------------------
TOTAL OPERATING COSTS 39,095 33,239 107,549 92,154
---------------------------------------------------------- ---------------------------------- --------------------------------
Research and development 3,015 3,293 9,814 9,165
Selling and administrative expenses 7,583 3,492 23,523 20,664
Depreciation and amortization 115,860 6,319 128,417 18,264
Year 2000 costs -- 924 -- 2,100
Spin-Off related costs 1,103 -- 1,103 --
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
OPERATING LOSS (123,959) (2,740) (134,501) (2,357)
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
Other Expense--Net (513) 4 (409) 19
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
LOSS BEFORE PROVISION FOR INCOME TAXES (124,472) (2,736) (134,910) (2,338)
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
Benefit for Income Taxes 5,638 5,487 5,557 4,703
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
NET INCOME (LOSS) (118,834) 2,751 (129,353) 2,365
========================================================== ================ ================= =============== ================
Net Income (Loss) per share of common stock: basic and ($8.02) $0.18 ($8.69) $0.15
diluted
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
Weighted average shares outstanding used in calculation 14,814 15,558 14,890 15,722
---------------------------------------------------------- ---------------- ----------------- --------------- ----------------
See accompanying Notes to the Condensed
Consolidated Financial Statements (unaudited).
</TABLE>
3
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<TABLE>
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SYNAVANT INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- ----------------- ------------------ ----------------
2000 1999 2000 1999
----------------- ----------------- ------------------ ----------------
<S> <C> <C> <C> <C>
Net Income (Loss) ($118,834) $2,751 ($129,353) $2,365
Other Comprehensive Income, Net of Taxes:
Unrealized loss on securities available for sale (202) -- (202) --
Effect of Foreign Currency Translation 13 91 (823) 365
------------------------------------------------------------ ----------------- ----------------- ------------------ ----------------
------------------------------------------------------------ ----------------- ----------------- ------------------ ----------------
Comprehensive Income (Loss) ($119,023) $2,842 ($130,378) $2,730
============================================================ ================= ================= ================== ================
</TABLE>
See accompanying Notes to the Condensed
Consolidated Financial Statements (unaudited).
4
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SYNAVANT INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
NINE MONTHS
ENDED SEPTEMBER 30,
-------------------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income/(Loss) ($129,353) $2,365
ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation and amortization 128,417 18,268
Amortization of capitalized computer software 6,961 1,742
Deferred income taxes (2,514) (1,949)
Changes in operating assets and liabilities:
Accounts receivable (158) 9,641
Accounts payable 2,715 38
Accrued and other liabilities (2,610) (11,269)
Accrued income taxes (957) (5,733)
Deferred revenue 3,566 (7,916)
Other (1,798) (627)
-------------------------------------------------------------------------------- ---------------------- --------------------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES 4,269 4,560
-------------------------------------------------------------------------------- ---------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,195) (2,980)
Additions to computer software (3,914) (4,416)
Other (28) 775
-------------------------------------------------------------------------------- ---------------------- --------------------
NET CASH USED IN INVESTING ACTIVITIES (9,137) (6,621)
-------------------------------------------------------------------------------- ---------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments under leasing obligations (385) (572)
Net transfers from IMS HEALTH 18,984 3,933
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NET CASH PROVIDED BY FINANCING ACTIVITIES 18,599 3,361
-------------------------------------------------------------------------------- ---------------------- --------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents 190 (44)
-------------------------------------------------------------------------------- ---------------------- --------------------
Increase in Cash and Cash Equivalents 13,921 1,256
Cash and Cash Equivalents, Beginning of Period 3,464 2,406
-------------------------------------------------------------------------------- ---------------------- --------------------
Cash and Cash Equivalents, End of Period $ 17,385 $3,662
-------------------------------------------------------------------------------- ---------------------- --------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
</TABLE>
Excluded from the Statement of Cash Flows are certain non-cash asset and
liability transfers in accordance with the distribution agreement totaling
approximately $16,841 which are recorded as a credit to additional paid in
capital (See Note 3).
See accompanying Notes to the Condensed
Consolidated Financial Statements (unaudited)
5
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Note 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles for interim financial information and with the
rules and regulations of the Securities and Exchange Commission (the "SEC").
The condensed 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") in the Information
Statement on Form 10 relating to the SYNAVANT Common Stock payable to IMS
HEALTH Incorporated ("IMS HEALTH") shareholders of record on July 28, 2000.
These condensed 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.
ORGANIZATION. On August 31, 2000, IMS HEALTH completed the spin off of
SYNAVANT Inc. to its shareholders (the "Distribution" or "Spin"). SYNAVANT
serves the pharmaceutical industry by developing and selling pharmaceutical
relationship management solutions that support sales and marketing decision
making. The SYNAVANT business is composed of the pharmaceutical industry
automated sales and marketing support business of IMS HEALTH Strategic
Technologies, Inc., certain other foreign subsidiaries of IMS HEALTH;
substantially all of IMS HEALTH's interactive and direct marketing
businesses, including the business of Clark-O'Neill, Inc. ("Clark O'Neill");
and Permail Pty., Ltd. ("Permail"), in which SYNAVANT owns 51%. These
businesses prior to the spin were managed by IMS HEALTH and reported within
IMS HEALTH's consolidated financial statements. In connection with the Spin,
the Company and IMS HEALTH entered into a Distribution Agreement dated August
31, 2000 which described certain matters related to the transaction (See Note
3).
The condensed consolidated financial statements include allocations of certain
IMS HEALTH corporate and other expenses (including cash management, legal,
accounting, tax, employee benefits, insurance services, data services and other
corporate overhead) relating to the Company's business for the eight months
ended August 31, 2000 (the period prior to Spin) and the nine months ended
September 30, 1999 (the "Respective Periods"). Management believes the methods
used to allocate these costs are reasonable. The condensed consolidated
financial statements exclude allocations of revenues and costs for related party
transactions with IMS HEALTH as it relates to the licensing of data, except for
the periods post Spin which include costs consistent with the executed
agreements dated August 31, 2000. The financial information included herein may
not necessarily reflect the consolidated financial position, results of
operations, and cash flows of the Company in the future or what they would have
been if the Company had been a separate entity during the periods presented
prior to the Spin. Further, the Company will incur additional costs to operate
as a separate stand-alone public company. These incremental costs are expected
to be significant to the results of operations and are not yet fully reflected
in the Company's results as the transition is not complete.
6
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INCOME TAXES. The results of the Company have been included in the consolidated
federal and certain state and non-U.S. income tax returns of IMS HEALTH for the
twelve months ended December 31, 1999 and the eight months ended August 31,
2000. The provision for income taxes in the Company's condensed consolidated
financial statements has been determined as if SYNAVANT was a separate company
during these respective periods.
REVENUE RECOGNITION. In connection with the Company's interactive marketing
services, the Company recognizes postage, handling and other direct third party
costs separately charged to its customers as revenue with the related expenses
included in operating costs and in the accompanying interim financial
statements. Interactive marketing revenues and operating costs include revenue
and costs totalling $5,682 and $19,410 for the three and nine months ended
September 30, 2000 and $8,198 and $20,679 for the three and nine months ended
September 30, 1999, respectively.
BASIC AND DILUTED INCOME/(LOSS) PER SHARE. Basic and diluted income per share
("EPS") are calculated in accordance with Statement of Financial Standards No.
128. For the Company, 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
both the three and nine month periods ended September 30, 2000 and 1999 as the
loss from operations would otherwise cause the inclusion of common stock options
to be anti-dilutive.
The Distribution resulted in a tax-free dividend to shareholders of IMS HEALTH
who received one share of SYNAVANT Common Stock for every 20 shares of IMS
HEALTH common stock held as of July 28, 2000. Basic and diluted income per
share and the average number of shares outstanding for the three and nine months
ended September 30, 2000 and 1999 were adjusted to reflect the twenty-for-one
reverse stock split. In 2000, the EPS computation includes the weighted average
number of common shares of IMS HEALTH common shares outstanding for the two and
eight months ended August 31, 2000 and the weighted average number of common
shares of SYNAVANT for the one month ended September 30, 2000. The EPS
computation for the three and nine months ended September 30, 1999 includes the
weighted average number of IMS HEALTH common shares outstanding for the
respective periods.
RECLASSIFICATIONS. Certain prior period amounts have been reclassified to
conform to current period presentation.
7
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NOTE 2. SIEBEL ALLIANCE AND ASSET IMPAIRMENT
On July 19, 2000 the Company announced a five-year strategic alliance with
Siebel Systems, Inc. ("Siebel"), a leading provider of eBusiness application
software, to develop, market, and sell an integrated eBusiness software and
service solution featuring Siebel ePharma, a pharmaceutical version of Siebel
eBusiness Applications, and the Company's global implementation and support
capabilities. Through the alliance, the Company will deliver eBusiness
solutions to customers worldwide in the pharmaceutical, biotechnology and
healthcare industries.
As part of the strategic 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 this arrangement, SYNAVANT has the right
to distribute and sublicense Siebel software products to companies in the life
sciences industry worldwide in conjunction with SYNAVANT's own proprietary
software and services. As part of the arrangement, Siebel and SYNAVANT share in
the sublicensing and maintenance fees generated from the licensing of the Siebel
software.
Additionally, the Reseller Agreement limits the extent to which SYNAVANT may
independently develop, integrate, market, license or distribute products that
are directly competitive with those packaged and promoted by Siebel. SYNAVANT
may, however, continue to license and support its existing Cornerstone and
Premiere customers. The Company believes that the Alliance with Siebel
significantly alters the Company's product offerings and product development
opportunities in the future. In addition, the Company has reduced its remaining
period of amortization of goodwill to 5 years to reflect the term of the
agreement with Siebel. The agreement between the Company and Siebel may be
terminated unilaterally by either party at the end of the 5-year term.
Under the terms of the alliance, SYNAVANT is contractually obligated to
discontinue the future enhancement and development of the Cornerstone and
Premiere products, but will continue to support users of these products under
current and future contracts. Management anticipates that these products will
eventually be phased out and replaced by a new generation of joint solution
offerings incorporating Siebel technology. The Siebel alliance is expected to
negatively impact profitability and cash flow in 2000 as a result of sharing of
license and maintenance fees, increased expenditures for training and product
development and other related cash expenditures as well as non-cash charges. In
addition, 2000 operating results may also be adversely affected as new clients
may defer installation of SYNAVANT software until the SYNAVANT and Siebel joint
solution offering has been evaluated by customers.
As a result of this transaction and the Distribution, the Company believes that
a significant portion of its computer software (including acquired technology)
and enterprise-wide goodwill is not recoverable. The Company has completed its
assessments of the financial impact of the Siebel alliance and the
Distribution with respect to determining the amount of the accelerated
amortization of capitalized software and the impairment of enterprise-wide
goodwill. The Company performed a net realizable value analysis to determine
the recoverability of its capitalized software assets (including acquired
technology). Based on the result of this analysis, the Company recorded
$14,553 of accelerated amortization, in the period ended September 30,
8
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2000, related to costs determined to be unrecoverable. The analysis took into
consideration the impact of the Siebel alliance and the Distribution on the
in-process technology and core technology resulting from the Walsh
acquisition in 1998. As a result of the Alliance, the remaining In-Process
Research and Development project has been discontinued and the core
technology has been incorporated into the net realizable value analysis. This
non-cash charge of $14,553 is included in the Condensed Consolidated
Statements of Operations within the Software Fee Operating Costs ($5,385) and
Depreciation and Amortization ($9,168) for the three and nine months ended
September 30, 2000. The Company will continue to amortize the remaining costs
over the period of expected benefit and will continue to assess the
recoverability of its capitalized software in accordance with its accounting
policies. Under its accounting policy for goodwill impairment, the Company
completed a discounted cash flow analysis on an enterprise-wide basis,
resulting in an impairment charge of $100,900 of goodwill in the period ended
September 30, 2000. The Company will continue to assess the recoverability of
its goodwill balance in accordance with its accounting policies.
NOTE 3. DISTRIBUTION AGREEMENT
In accordance with the Distribution Agreement, as of the spin date, IMS
HEALTH conveyed title to certain assets and transferred certain liabilities.
The net assets recorded by SYNAVANT on the spin date to reflect this capital
contribution totaled approximately $16,841. The net assets received included
$10,707 of cash which may be subject to adjustment in accordance with the
Distribution Agreement. The amount of the adjustment is expected to be
completed in the company's fourth quarter and could result in a payable to
IMS HEALTH of as much as $1,500. The Company also assumed a liability of up
to $9,000 in connection with the agreement whereby SYNAVANT will bear 50% of
IMS HEALTH's share of certain of the liabilities as discussed in Note 4.
In addition, pursuant to the Distribution Agreement, the Company is
contractually obligated to receive shares of Gartner Group common stock with
a fair value of $4,000 as of the close of business on the spin date and a
note receivable from a third party with a carrying value of $2,500. The
Gartner Group shares are subject to certain contractual restriction on
transfer and voting that were agreed to as part of the Gartner Group
distribution. Title to these assets has not been conveyed to the Company as
of September 30, 2000. The Company has classified these amounts on the
balance sheet as Distribution Receivables (in current assets) and is
accounting for them in accordance with the underlying assets to be received.
In addition, the value of Gartner Shares declined by $1.75 per share or 13%
during the month ended September 30, 2000. This decline in value has been
recorded as an other comprehensive loss for the period. To facilitate the
Distribution, IMS HEALTH has committed to certain credit support arrangements
with SYNAVANT. The IMS HEALTH credit support letter will, if necessary,
provide certain credit support sufficient to meet the working capital needs
of SYNAVANT up to the one year anniversary of the distribution date.
9
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NOTE 4. 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, 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. The Company has explained these liabilities in further detail in the
SYNAVANT Inc. Registration Statement on Form 10 which became effective August
25, 2000. Under the Distribution Agreement, IMS HEALTH and SYNAVANT agreed
that SYNAVANT would have a maximum liability of $9,000 for these liabilities.
Management believes it is probable that either or both of these matters will
have an unfavorable outcome and as a result the Company has recorded a
$9,000 liability associated with these matters as part of the Distribution.
If an unfavorable outcome occurs, the $9,000 amount is due and payable in
2003.
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 the operations of the United Kingdom, which is the largest
country 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.
<TABLE>
ASIA
AMERICAS EUROPE PACIFIC TOTAL
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NINE MONTHS ENDED SEPTEMBER 30, 2000
Operating Revenues $ 80,102 $ 42,319 $ 13,484 $ 135,905
Segment Operating Income (Loss) (137,158) 1,934 723 (134,501)
Non-Operating Income (Loss) (409)
Loss before Income Taxes (134,910)
Income Taxes 5,557
Net Income (Loss) (129,353)
Segment Depreciation and Amortization of Capitalized
Software 133,565 1,258 555 135,378
Segment Capital Expenditures 4,118 816 261 5,195
Identifiable assets at September 30, 2000 121,184 34,162 6,094 161,440
========= ========= ========= =========
</TABLE>
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<TABLE>
<S> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Operating Revenues $ 78,134 $ 45,461 $ 16,395 $ 139,990
Segment Operating Income (Loss) (12,211) 9,141 713 (2,357)
Non-Operating Income 19
Loss before Income Taxes (2,338)
Income Taxes 4,703
Net Income 2,365
Segment Depreciation and Amortization of Capitalized
Software 19,237 931 620 20,788
Segment Capital Expenditures 1,075 1,617 288 2,980
Identifiable assets at September 30, 1999 229,534 29,671 8,708 267,913
========= ========= ========= =========
</TABLE>
Information about the Company's operations and long-lived assets by geography
is as follows:
<TABLE>
Rest of
U.S. UK Australia World (2) Total
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<S> <C> <C> <C> <C> <C>
Nine Months Ended September 30, 2000
Operating Revenue $ 75,309 $ 18,955 $ 13,034 $ 28,607 $135,905
Long Lived Assets (1) 73,606 9,072 1,025 2,321 86,024
Nine Months Ended September 30, 1999
Operating Revenue $ 72,528 $ 19,151 $ 15,537 $ 32,774 $139,990
Long Lived Assets (1) 204,111 10,149 1,504 2,626 218,390
</TABLE>
(1) Comprised predominantly of goodwill associated with the acquisition of Walsh
International Inc. in June 1998. This goodwill and related amortization,
although predominately related to Walsh's foreign operations, was allocated to
the parent company in the U.S. and has not been allocated on a country by
country basis.
(2) Rest of World is primarily comprised of operations in Europe.
11
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Note 6. Earnings Per Share (EPS)
The Company's earnings per share information is presented for the periods prior
to the Distribution with adjustments for the impact of IMS HEALTH stock options
that were held by SYNAVANT employees and for the 20:1 reverse split that
occurred at the time of Distribution. For the one month period after the
Distribution the Company presents it's equity structure resulting from the
Distribution and adjusts for the impact of SYNAVANT stock options. The
weighted-average shares used in the EPS calculation are as follows:
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 14,814 15,558 14,890 15,722
Diluted 14,828 15,599 14,913 15,780
</TABLE>
NOTE 7. SUBSEQUENT EVENT
During the fourth quarter SYNAVANT received approval from it's Board of
Directors to divest certain assets related to a part of its Interactive
Marketing business that provides managed care consulting services. This
business had revenues of $5,204 and an operating loss of $353 in 1999. On
October 27, 2000, the Company sold these assets for a nominal amount.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS)
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 operating
on a global basis; 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; regulatory, legislative
and enforcement initiatives; the ability to obtain future financing on
satisfactory terms; and consolidation in the pharmaceutical industry. 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.
OVERVIEW
On August 31, 2000, SYNAVANT was spun off from IMS HEALTH
Incorporated, a provider of information solutions to the pharmaceutical and
healthcare industries. The Company serves the pharmaceutical industry by
developing and selling pharmaceutical relationship management solutions that
support sales and marketing decision making. Simultaneous with the spin-off,
Clark-O'Neill, Inc. ("Clark-O'Neill"), another wholly-owned subsidiary of IMS
Health, merged into SYNAVANT in order to change its state of incorporation
from New Jersey to Delaware.
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 (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. Historically, these
businesses and products were managed as part of the core IMS segment of IMS
HEALTH.
This discussion and analysis should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes.
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SIEBEL ALLIANCE
On July 19, 2000 the Company announced a five-year strategic alliance
with Siebel Systems, Inc. ("Siebel"), a leading provider of eBusiness
application software, to develop, market, and sell an integrated eBusiness
software and service solution featuring Siebel ePharma, a pharmaceutical version
of Siebel eBusiness Applications, and the Company's global implementation and
support capabilities. Through the alliance, the Company will deliver eBusiness
solutions to customers worldwide in the pharmaceutical, biotechnology and
healthcare industries.
The Company expects the alliance to generate incremental revenue from
new products and services and expanded market opportunities. As part of the
alliance, the Company has agreed with Siebel to a revenue-sharing agreement for
certain new client contracts that incorporate a joint solution offering as well
as for certain new client contracts based on the Company's existing Cornerstone
and Premiere software product offerings.
Under the terms of the alliance, the Company is contractually obligated
to discontinue the future enhancement and development of its Cornerstone and
Premiere products, but will continue to support users of these products under
current and future contracts. The Company anticipates that it will eventually
phase out these products and replace them with a new generation of joint
solution offerings incorporating Siebel technology.
The Company expects the alliance will have a negative impact on
profitability and cash flow in 2000 as a result of sharing of license and
maintenance fees, increased expenditures for training and product development
and other related cash expenditures, as well as non-cash charges. In addition,
2000 operating results may also be adversely affected as new clients may defer
installation of our software until customers have evaluated our joint solution
offering.
Please see Note 2 to the condensed consolidated financial statements
for a further description of the alliance.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1999.
REVENUE
Revenue consists of software license fees ("Software Fees"),
software services such as implementation, maintenance, help desk, and
hardware services ("Software Services"), and interactive marketing services
including direct mail and direct-to-physician marketing programs
("Interactive Marketing"). Total revenue decreased by 4.1% to $42,697 for the
quarter ended September 30, 2000 from $44,527 for the quarter ended September
30, 1999. This decrease was due principally to lower volumes in interactive
marketing in the U.S. and Australia,
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lower software fees in Europe and the impact of a stronger U.S. Dollar.
Excluding the impact of a stronger U.S. Dollar, revenues were essentially
unchanged.
SOFTWARE FEES. Software Fees decreased to $688 for the quarter ended
September 30, 2000 from $1,126 for the quarter ended September 30, 1999, a
decrease of $438 and 38.9%. This decrease in revenue from software fees is
primarily due to lower license fees in Europe due to the absence of 1999
Precise to Premiere upgrades (Precise is a legacy software product) partially
offset by higher license fees in the U.S. resulting from a sales force
expansion at one of the Company's major customers. In general, the Company
has been experiencing a delay in the overall sales cycle for software
products since it announced its alliance with Siebel in July 2000. The
Company believes that the announcement has caused a major change in the
market that requires most potential customers to re-evaluate decisions that
are in the current sales pipeline. The Company expects the impact of the
Siebel announcement on the selling cycle to slowly subside over the next
three to six months. Excluding the impact of a stronger U.S. Dollar, Software
Fees declined 36.6%.
SOFTWARE SERVICES. Software Services revenue increased to $21,460 for
the quarter ended September 30, 2000 from $19,418 for the quarter ended
September 30, 1999, an increase of $2,042 and 10.5%. The increase in revenue
from services is principally due to a higher installed base of Cornerstone users
in the U.S., reflecting the new users added since third quarter of 1999,
partially offset by lower implementation service volumes in Europe and Asia and
the impact of a stronger U.S. Dollar. Excluding the impact of a stronger U.S.
Dollar, Software Service revenues increased 16.0%.
INTERACTIVE MARKETING. Interactive marketing revenues decreased to
$20,549 for the quarter ended September 30, 2000 from $23,983 for the quarter
ended September 30, 1999, a decrease of $3,434 and 14.3%. The decrease in
interactive marketing revenues is primarily due to lower volumes in the U.S.
due, in part, to the completion of certain sampling programs for two major
customers, a general slow down of promotional spending by our customers and to
a slow down in promotional activity in Australia during the 2000 Olympics.
Excluding the impact of a stronger U.S. Dollar, Interactive Marketing revenues
declined 11.1%.
OPERATING COSTS
COST OF SOFTWARE FEES. Cost of Software Fees consists of amortization
of development costs and third party software royalties. Cost of software fees
increased to $6,117 for the quarter ended September 30, 2000, from $1,122 for
the quarter ended September 30, 1999. Of this increase, $5,385 relates to the
accelerated amortization of impaired software (see discussion of Siebel in
"Overview" and Note 2). Excluding the accelerated amortization, the decrease in
cost of software fees is principally due to lower software fee revenues.
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COST OF SOFTWARE SERVICES. Cost of software services revenue consists
primarily of direct production, service, and technical support costs. Cost of
software services revenue increased to $15,595 for the quarter ended September
30, 2000, up 30.3% from $11,970 for the quarter ended September 30, 1999. The
increase in cost of software services is primarily due to higher costs
associated with growing revenues, infrastructure improvements designed to
increase the quality of customer support services, and higher technical support
costs. Due to a growing installed user base, the Company increased spending
levels for customer support to improve quality and capacity. Higher technical
support costs were driven by the diversion of highly skilled technical staff to
customer support and technical training activities during the transition
required by the Siebel alliance.
COST OF INTERACTIVE MARKETING. Cost of interactive marketing revenue
decreased to $17,383 for the quarter ended September 30, 2000, down 13.7% from
$20,147 for the quarter ended September 30, 1999. The decrease in the cost of
interactive marketing is principally due to lower interactive marketing revenue
which also declined by a comparable amount.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses principally
consist of software development costs associated with new versions of software
or new products. Research and development expenses decreased by 8.4% to $3,015
for the quarter ended September 30, 2000, from $3,293 for the quarter ended
September 30, 1999. The decrease in research and development costs is
principally attributable to the diversion of technical staff to customer support
and technical training activities associated with the Siebel alliance.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses include
sales and marketing expenses (including commissions), general management and
corporate support activities. Selling and administrative expenses increased to
$7,583 for the quarter ended September 30, 2000 from $3,492 for the quarter
ended September 30, 1999. The increase in selling and administrative expenses is
principally due to higher administrative costs associated with geographic
expansion and additional costs to operate as a separate stand-alone public
company. In addition, selling and administrative expense in 1999 were lower due
to the timing of certain expenses. Selling and administrative expenses for the
quarter ended September 30, 2000 are comparable to expense levels in the
previous two quarters.
DEPRECIATION AND AMORTIZATION. The increase in depreciation and
amortization of $109,541 to $115,860 for the quarter ended September 30, 2000 as
compared to September 30, 1999 primarily resulted from the impact of the
goodwill impairment charge (see discussion of Siebel in "Overview" and Note 2).
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OPERATING LOSS
OPERATING LOSS. Operating loss excluding Spin related costs and
impairment charges increased $4,663 to $7,403 for the quarter ended September
30, 2000 compared to a loss of $2,740 for the quarter ended September 30, 1999.
The larger loss is primarily due to lower interactive marketing, software
license and implementation revenues, higher operating costs in software services
relating to customer support, and lower software capitalization.
TAXES
The consolidated tax provision, calculated on a separate-company basis,
was a benefit of $5,638 for the quarter ended September 30, 2000, compared with
a benefit of $5,487 for the quarter ended September 30, 1999. The Company's
effective tax rate is different than the U.S. federal statutory tax rate,
principally due to the goodwill amortization resulting from the acquisition of
Walsh and certain foreign losses, which are not deductible for tax purposes.
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1999
REVENUE
Total revenues for the nine months ended September 30, 2000 decreased
by 2.9% to $135,905 from $139,990 for the nine months ended September 30, 1999.
This decrease was due principally to lower software fees, lower interactive
marketing revenue and the impact of a stronger the U.S. dollar, partially offset
by higher service revenues. Excluding the impact of a stronger U.S. Dollar,
revenues increased 1.0%.
SOFTWARE FEES. Software Fees decreased to $4,971 for the nine months
ended September 30, 2000 from $7,440 for the nine months ended September 30,
1999, a decrease of $2,469 and 33.2%. The decrease in software fees is
primarily due to a slow down in customer purchases of software solutions in
the first half of the year and the impact of the Siebel Alliance during the
third quarter. Excluding the impact of a stronger U.S. Dollar, Software Fees
revenue decreased 29.9%.
SOFTWARE SERVICES. Services revenue increased to $64,856 for the nine
months ended September 30, 2000 from $64,014 for the nine months ended September
30, 1999, an increase of $842 and 1.3%. The increase in revenue from services is
principally due to higher maintenance and support services associated with a
significant number of new Cornerstone users added at the end of 1999, offset by
lower implementation fees and the impact of a stronger U.S. Dollar. Excluding
the impact of a stronger U.S. Dollar, Software Services revenue increased 6.1%.
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INTERACTIVE MARKETING. Interactive marketing revenue decreased to
$66,078 for the nine months ended September 30, 2000 from $68,536 for the nine
months ended September 30, 1999, a decrease of $2,458 and 3.6%. The decrease in
revenue from interactive marketing is primarily due to a general slowdown in
promotional spending by our pharmaceutical clients. Excluding the impact of a
stronger U.S. Dollar, Interactive Marketing revenue remained unchanged.
OPERATING COSTS
COST OF SOFTWARE FEES. Cost of software fees increased to $7,258 for
the nine months ended September 30, 2000, from $1,639 for the nine months ended
September 30, 1999, an increase of $5,619. Of this increase $5,385 relates to
the accelerated amortization of impaired software (see discussion of Siebel in
"Overview" and Note 2). Excluding the accelerated amortization, the increase in
cost of software fees is principally due to higher amortization costs associated
with new releases of software that became generally available at the beginning
of the year.
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COST OF SOFTWARE SERVICES. Cost of services increased to $43,483 for
the nine months ended September 30, 2000, from $32,644 for the nine months ended
September 30, 1999, an increase of 33.2%. The increase in cost of services is
primarily due to revenue growth, infrastructure improvements to improve customer
support and increase capacity and higher technical support costs.
COST OF INTERACTIVE MARKETING. Cost of interactive marketing revenue
decreased 1.8% to $56,808 for the nine months ended September 30, 2000, from
$57,871 for the nine months ended September 30, 1999. The decrease in the cost
of interactive marketing is primarily driven by the decline in interactive
marketing revenue which declined by 3.6%.
OPERATING EXPENSES
RESEARCH AND DEVELOPMENT. Research and development expenses increased
by 7.1% to $9,814 for the nine months ended September 30, 2000 from $9,165 for
the nine months ended September 30, 1999. The increase in research and
development costs is principally attributable to higher expenditures in the
first half of the year for the development of next generation software products,
which have now been discontinued as a result of the Siebel alliance. Development
resource levels have been reduced and priorities have been realigned since the
Company entered into the Siebel alliance in July 2000.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses
increased by 13.8% to $23,523 for the nine months ended September 30, 2000 from
$20,664 for the nine months ended September 30, 1999. The increase in selling
and administrative expenses is principally due to higher administrative costs
associated with geographical expansion and additional costs to operate as a
separate stand-alone public company. In addition, selling and administrative
expense in 1999 were lower due to the timing of certain expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the
nine months ended September 30, 2000 was $128,417. The amount attributable to
the impairment charge was $110,068 (see discussion of Siebel in "Overview" and
Note 2). Excluding this charge, depreciation and amortization remained
essentially unchanged compared to the nine months ended September 30, 1999.
OPERATING LOSS
OPERATING LOSS. Operating loss excluding Spin related costs and
impairment charges increased $15,588 to a loss of $17,945 for the nine months
ended September 30, 2000 from an operating loss of $2,357 for the nine months
ended September 30, 1999. The larger loss is primarily due to lower interactive
marketing, software license and implementation revenues, higher operating costs
in software services relating to customer support, and lower software
capitalization.
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TAXES
The Company's consolidated tax provision, calculated on a
separate-company basis, was a benefit of $5,557 for the nine months ended
September 30, 2000, compared with a benefit of $4,703 for the nine months ended
September 30, 1999. The Company's effective tax rate is different than the U.S.
federal statutory tax rate, principally due to the goodwill amortization
resulting from the acquisition of Walsh and certain foreign losses, which are
not deductible for tax purposes.
RESULTS BY SEGMENT:
THE AMERICAS. Revenue for the nine months ended September 30, 2000 was
$80,102 compared with $78,134 for the nine months ended September 30, 1999. The
increase was largely due to higher software services and software fees. The
operating loss for the nine months ended September 30, 2000 excluding Spin
related costs and impairment charges was ($21,758) compared to a loss of
($12,211) for the nine months ended September 1999 due primarily to higher cost
of Software Services and higher selling and administrative expenses.
EUROPE. Revenue for the nine months ended September 30, 2000 was
$42,319 compared with $45,461 for the nine months ended September 30, 1999. The
decrease was largely driven by the absence of Precise to Premiere upgrade sales
in 1999 and the impact of a stronger U.S. Dollar. Operating income for the nine
months ended September 30, 2000 decreased to $1,934 from $9,141 in the nine
months ended September 30, 1999 due to lower revenues and higher operating and
selling and administrative expenses incurred due to increased competition and
market pressures.
ASIA PACIFIC. Revenue for the nine months ended September 30, 2000,
decreased to $13,484 compared to $16,395 for the nine months ended September 30,
1999. The operating income increased slightly to $723 from $713 in the quarter
period ended September 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company operated as an entity wholly-owned by IMS HEALTH prior to
the distribution date and, as such, was dependent on IMS HEALTH for cash
management, credit and financial resources on an as needed basis to fund
operations and to fund seasonal cash needs.
On September 13, 2000, the Company entered into a revolving credit
facility (the "Facility") with SunTrust Bank that is guaranteed by IMS HEALTH.
The amount borrowed under the Facility can not exceed $20,000,000 at any one
time and the Facility terminates on December 13, 2000. As of November 10, 2000,
the Company has not required the use of the credit facility.
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We currently estimate that our cash and financing needs for the next
twelve months can be met by cash on hand, amounts available under our credit
facility, the IMS HEALTH credit support letter, additional capital financing
arrangements and cash flow from operations. If our credit facility is
unavailable or if our expectations change regarding our capital needs due to
market conditions, strategic opportunities or otherwise, then our capital
requirements may vary materially from those currently anticipated. The
Company is currently in discussions with various financial institutions to
obtain a long-term credit facility.
SIEBEL ALLIANCE
The Company expects the alliance will have a negative impact on
profitability and cash flow in 2000 as a result of increased expenditures for
training and product development and other related cash expenditures, as well as
non-cash charges. In addition to the impact of revenue sharing, 2000 operating
results may also be adversely affected as new clients may defer installation of
our software solution until customers have evaluated the joint solution
offering.
CASH FLOWS
Net cash provided by operating activities totaled $4,269 for the
nine months ended September 30, 2000 compared with net cash provided by
operating activities of $4,560 for the nine months ended September 30, 1999.
The decrease of $291 primarily reflects lower software fee and interactive
marketing revenue as well as higher customer support costs in the U.S.
Net cash used in investing activities totaled $9,137 for the nine
months ended September 30, 2000 compared with $6,621 for the nine months ended
September 30, 1999. The increase in cash usage of $2,516 was primarily due to
higher capital expenditures associated with the Siebel Alliance.
Net cash provided by financing activities totaled $18,599 for the
nine months ended September 30, 2000 compared with net cash provided of
$3,361 for the nine months ended September 30, 1999. The increase was
primarily due to the cash contribution received through the Distribution
Agreement.
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CHANGES IN FINANCIAL POSITION AT SEPTEMBER 30, 2000 (UNAUDITED) COMPARED TO
DECEMBER 31, 1999
Cash and cash equivalents were $17,385 as of September 30, 2000
compared with $3,464 as of December 31, 1999. The increase in cash and cash
equivalents of $13,921 was primarily due to the contribution of cash from IMS
HEALTH of $10,707 and the delay of certain payments until early October.
ACCOUNTS RECEIVABLES--NET. Decreased to $44,419 at September 30, 2000
from $46,124 at December 31, 1999 due to declines in revenues and focused
efforts on collections.
OTHER RECEIVABLES. Increased $3,841 to $4,308 primarily due to a
distribution receivable recorded to reflect amounts owed by IMS HEALTH where
the underlying assets have not yet been transferred (See Note 3).
COMPUTER SOFTWARE-NET. Decreased $14,495 to $15,934 due to the
impairment charge (see discussion of Siebel in "Overview" and Note 2) and the
curtailment of development.
GOODWILL-NET. Decreased to $55,948 at September 30, 2000 from $167,363
at December 31, 1999. The reduction was due to the impairment charge (see
discussion of Siebel in "Overview" and Note 2).
TOTAL EQUITY. Decreased to $111,578 at September 30, 2000 from
$220,844 at December 31, 1999. The reduction was primarily due to the
impairment charges recorded during the third quarter, operating losses,
partially offset by contributions from IMS HEATLH.
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FACTORS THAT MAY AFFECT FUTURE PERFORMANCE
In addition to the information contained elsewhere in this document,
you should carefully read the following risk factors related to the Company and
its business.
FORECASTING FUTURE RESULTS MAY BE DIFFICULT SINCE WE HAVE ONLY RECENTLY BEGUN
OPERATIONS AS AN INDEPENDENT COMPANY.
We do not have an operating history as an independent public company
and have relied on IMS HEALTH for various financial and administrative
advice and services in conducting our operations. We now perform our own
investor relations functions, and negotiate all contracts, including those with
IMS HEALTH, at arm's length. As an independent company, we may not continue to
generate cash flow at the same level as we did as a wholly-owned subsidiary of
IMS HEALTH. Additionally, the Company may not be able establish the financial
and administrative structure necessary to operate successfully as an independent
public company. Finally, the development of such structure may require a
significant amount of management's time and other resources.
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:
o 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;
o reclassification of formerly prescription-only drugs to permit
over-the-counter sales;
o competitive pressures on our pharmaceutical customers
resulting from the continuing shift to delivery of healthcare
through managed care organizations; and
o 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.
IF OUR ALLIANCE WITH SIEBEL IS UNSUCCESSFUL, OUR BUSINESS MAY SUFFER MATERIALLY.
You should note the following risk factors relating to our alliance
with Siebel:
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o We have no prior history of selling the Siebel products within
the markets we currently serve;
o We may not be able to implement successfully the changes to
our business model necessitated by the Siebel alliance;
o Under the terms of the alliance, we are contractually
obligated to discontinue the future enhancement and
development of our Cornerstone and Premiere products, but we
will continue to support users of these products under current
and future contracts. Management anticipates that we will
eventually phase out these products and replace them with a
new generation of joint solution offerings incorporating
Siebel technology. We will continue to develop add-on
applications that will be functional for Siebel, Cornerstone
and Premiere products. We have agreed to a revenue-sharing
agreement with Siebel for certain new client contracts based
on our existing Cornerstone and Premiere offerings. Existing
and prospective customers may delay purchases of our
Cornerstone and Premiere products based on the newly formed
alliance. Quarterly revenues may decline below expected levels
and could adversely affect our annual results of operations
due to delayed purchase decisions;
o We may not successfully develop and differentiate our value
added services and products that represent the joint offering
together with Siebel software products.
o Other Siebel partners and/or resellers of Siebel software may
effectively compete to sell portions of the total solution
offering such as integration services, help desk support or
data services to potential customers of SYNAVANT.
o While we will collaborate with Siebel on future enhancements
of Siebel software applications tailored for the
pharmaceutical industry, we may not develop or introduce such
enhancements in a timely manner and such enhancements may not
be successful in the market; and
o 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 compatible with Siebel until
software problems have been corrected. We could lose revenues
as a result of software errors or defects. 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, or increased service
and warranty costs, any of which could have a material adverse
effect on our business, operating results or financial
condition.
COMPETITION FROM OTHER PROVIDERS OF PHARMACEUTICAL RELATIONSHIP MANAGEMENT
SOLUTIONS MAY REDUCE DEMAND FOR OUR PRODUCTS AND SERVICES OR CAUSE US TO REDUCE
THE PRICE OF OUR PRODUCTS AND SERVICES.
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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 sales force automation solutions in consumer packaged goods. 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.
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.
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 are likely
to fluctuate significantly in the future, and our results of operations may 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 sales force software product often entails an
extended decision-making process because of the strategic implications and
substantial costs associated with a customer's license of the software. 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:
o changes in the demand for our products;
o the timing, composition and size of orders from our customers;
o customer spending patterns and budgetary resources;
o our success in generating new customers;
o the timing of introductions of or enhancements to our
products;
o changes in our pricing policies or those of our competitors;
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o our ability to anticipate and adapt effectively to developing
markets and rapidly changing technologies;
o our ability to attract, retain and motivate qualified
personnel, particularly within our sales and marketing and
research and development organizations;
o the publication of opinions or reports about us, our products,
our competitors or their products;
o changes in general economic conditions;
o actions taken by our competitors, including new product
introductions and enhancements;
o 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 it currently anticipates. Because
only a small portion of expenses varies directly with actual revenues, operating
results and profitability are likely to be adversely and disproportionately
affected if revenues fall below expectations.
OUR FAILURE TO INTRODUCE NEW OR ENHANCED PRODUCTS IN A TIMELY MANNER COULD
RENDER OUR PRODUCTS OBSOLETE AND UNMARKETABLE.
We compete in businesses that develop 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
develop and market new or enhanced products and services in the future on
schedule and on a cost-effective basis. Our failure to develop 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:
o continue to provide best-in-class enterprise solutions;
o enter new markets; and
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o 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.
We are devoting significant resources to the enhancement of our solutions
offerings.
AS WE EXPAND OUR INTERNATIONAL SALES AND MARKETING ACTIVITIES, OUR BUSINESS WILL
BE MORE SUSCEPTIBLE TO NUMEROUS RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
We operate globally, deriving 48% of our revenues in 1999 from foreign
operations. As a result, fluctuations in the value of foreign currencies
relative to the U.S. dollar may increase the volatility of our operating
results. To be successful, we believe we must expand our operations in emerging
markets such as eastern Europe, Mexico, South America and Asia and hire
additional international personnel. As a result, we expect to commit significant
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:
o currency exchange rate fluctuations;
o seasonal fluctuations in purchasing patterns;
o unexpected changes in regulatory requirements;
o tariffs, export controls and other trade barriers;
o longer accounts receivable payment cycles and difficulties in
collecting accounts receivable;
o difficulties in managing and staffing international
operations;
o potentially adverse tax consequences, including restrictions
on the repatriation of earnings;
o the burdens of complying with a wide variety of foreign laws;
and
o political instability.
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. We will need to make
significant capital expenditures over the next several years, particularly in
light of the rapid technological changes affecting our business. In addition,
the strategic alliance with Siebel requires us to make significant investments
during
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2000 and 2001 to launch our joint offering. We have relied previously on IMS
HEALTH for various financial and administrative services. We are now an
independent entity responsible for financing our own operations, except that, if
necessary, IMS HEALTH will provide certain credit support to us for up to one
year from the Distribution Date. 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.
EXPOSURE TO CERTAIN CONTINGENT LIABILITIES MAY MATERIALLY AND ADVERSELY AFFECT
US.
We are subject to certain material contingent liabilities. 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 us for any
liability we incur in connection with such contingent liabilities in excess of
$9 million. 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.
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 very 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.
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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 the intellectual property
rights of others 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 against us could cause product release delays, require us to
redesign 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:
o pay licensing fees or royalties to continue selling the
product;
o 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
o stop selling the product.
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.
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
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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 that we intend to redistribute. 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.
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. In particular, there is a shortage of, and
significant competition for, research and development and sales 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 CERTIFICATE OF INCORPORATION, OUR BYLAWS AND OUR AGREEMENT WITH IMS HEALTH
CONTAIN PROVISIONS THAT MAY DISCOURAGE A TAKEOVER OF US.
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 us 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 us, although such
proposals, if made, 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:
o the availability of capital stock for issuance from time to
time at the discretion of our Board of Directors;
o prohibitions against stockholders calling a special meeting of
stockholders or acting by written consent in lieu of a
meeting;
o requirements for advance notice for raising business or making
nominations at stockholders' meetings;
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o the ability of our Board of Directors to increase the size of
the board and to appoint directors to newly created
directorships;
o a classified Board of Directors; and
o 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 us 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 us.
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 us 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 us. Such restrictions may have the effect of discouraging third
parties from making proposals involving an acquisition or change of control of
us. We are also subject to the provisions of Delaware corporate law, which may
restrict certain business combination transactions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information in response to this Item is set forth in the 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 set forth in "Note 4.
Contingencies" of the Notes to Condensed 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
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Revolving Credit Facility
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
On September 8, 2000, the Company filed a Form 8-K under Item 5
announcing the conversion of equity awards.
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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.
Date: November 14, 2000 By: /s/ WAYNE P. YETTER
-- ----------------------
Wayne P. Yetter
Chairman and Chief Executive Officer
Date: November 14, 2000 By: /s/ CRAIG S. KUSSMAN
-- -----------------------
Craig S. Kussman
Executive Vice President and
Chief Financial Officer
Date: November 14, 2000 By: /s/ CLIFFORD A. FARREN, JR.
-- ---------------------------
Clifford A. Farren, Jr.
Vice President, Finance and Controller
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EXHIBIT INDEX
EXHIBIT NUMBER TITLE
-------------- ------
10.1 Revolving Credit Facility
27.1 Financial Data Schedule
34
