<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 01-9723
PHARMACEUTICAL MARKETING SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0335521
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Suite 912, 45 Rockefeller Plaza, NY10111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 841 0610
2394 East Camelback Road, Phoenix, AZ85016
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
--- ---
As of October 31, 1996, there were outstanding 13,186,675 shares of Common Stock
of Pharmaceutical Marketing Services Inc.
<PAGE> 2
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Operations
(unaudited) for the Three Months
Ended September 30, 1996 and 1995............................................................. 2
Consolidated Balance Sheets as of
September 30, 1996 (unaudited) and
June 30, 1996................................................................................. 3
Consolidated Statements of Cash Flows
(unaudited) for the Three Months Ended
September 30, 1996 and 1995................................................................... 4
Notes to Consolidated Financial Statements.................................................... 5
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition........................................................................... 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders............................................................................... 9
Item 6. Exhibits and Reports on Form 8-K............................................................... 9
Signatures.................................................................................... 10
Index to Exhibits............................................................................. 11
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
-------- --------
<S> <C> <C>
Revenue $ 21,922 $ 20,709
Production costs (12,688) (11,756)
Selling, general and administrative
expenses (8,306) (8,829)
Amortization of intangible assets (454) (511)
-------- --------
Operating income (loss) 474 (387)
Interest expense (740) (762)
Interest and other income 672 734
-------- --------
Income (loss) from continuing operations
before income taxes and minority interest 406 (415)
Income tax (provision) benefit (158) 522
Minority interest (21) 11
-------- --------
Income from continuing operations 227 118
Loss from discontinued operations, net -- (673)
-------- --------
Net income (loss) 227 (555)
======== ========
Income (loss) per share:
Continuing operations $ 0.02 $ 0.01
Discontinued operations, net 0.00 (0.05)
-------- --------
Net income (loss) per share $ 0.02 $ (0.04)
======== ========
Common stock and common stock
equivalents 13,208 13,269
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE> 4
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 JUNE 30, 1996
------------------ -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 23,009 $ 12,669
Marketable securities 22,194 16,174
Accounts receivable, principally trade
(less allowance for doubtful accounts of
$489 and $400, respectively) 21,732 29,283
Work in process 2,821 2,986
Prepaid expenses and other current assets 8,737 7,398
Net current assets of discontinued operations 8,368 9,276
--------- ---------
Total current assets 86,861 77,786
Marketable securities 7,332 18,515
Property and equipment, net 9,892 9,004
Goodwill, net 25,517 25,895
Other assets, net 8,698 8,613
Net assets of discontinued operations 33,225 33,595
--------- ---------
Total assets $ 171,525 $ 173,408
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 176 $ 219
Accounts payable 3,854 4,411
Accrued liabilities 10,586 11,489
Unearned income 13,181 14,040
--------- ---------
Total current liabilities 27,797 30,159
Long-term debt 69,092 69,131
Other liabilities 448 454
Minority interest 618 710
--------- ---------
Total liabilities 97,955 100,454
--------- ---------
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized and 13,186,275 and 13,169,275 shares
issued and outstanding, respectively 132 132
Paid-in capital 87,066 86,923
Accumulated deficit (14,549) (14,776)
Cumulative translation adjustment 595 722
Unrealized income (loss) on investments, net of
income tax (provision) benefit of $(217) and $32 respectively 326 (47)
--------- ---------
Total stockholders' equity 73,570 72,954
--------- ---------
Total liabilities and stockholders' equity $ 171,525 $ 173,408
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 5
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPTEMBER 30,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 3,831 $ (2,425)
-------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (1,169) (657)
Proceeds from sale of assets of discontinued operations 424 --
Sale of marketable securities 5,753 7,582
Acquisitions payments, net of cash acquired -- (592)
-------- --------
Net cash provided by investing activities 5,008 6,333
-------- --------
Cash flows provided by (used in) financing activities:
Net proceeds from options exercised 143 --
Repayments of long-term debt and capital lease obligations (82) (107)
-------- --------
Net cash provided by (used in) financing activities 61 (107)
-------- --------
Effect of discontinued operations 1,399 (563)
Effect of exchange rate movements 41 (1,017)
-------- --------
Net increase in cash and cash equivalents 10,340 2,221
Cash and cash equivalents at beginning of period 12,669 27,828
-------- --------
Cash and cash equivalents at end of period $ 23,009 $ 30,049
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 6
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the three months
ended September 30, 1996 and 1995, the statements of cash flows for the
three months ended September 30, 1996 and 1995, the balance sheet as of
September 30, 1996 and the related information of Pharmaceutical
Marketing Services Inc. (the "Company" or "PMSI") included in these
notes to the financial statements are unaudited. These financial
statements, where applicable, have been restated for discontinued
operations. In the opinion of management, the interim financial
information reflects all adjustments (consisting only of items of a
normal recurring nature, except for discontinued operations) necessary
for the fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results of
continuing operations for the three months ended September 30, 1996 are
not necessarily indicative of the results to be expected for the entire
year.
The June 30, 1996 balance sheet was derived from the Company's
June 30, 1996 audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting
principles.
These interim financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report for the
year ended June 30, 1996.
At September 30, 1996, Source Informatics Inc. ("Source")
owned 9.1% of the Company's common stock.
2. INCOME (LOSS) PER SHARE
Earnings per share for the three months ended September 30,
1996 and 1995 is computed based upon the weighted average number of
shares outstanding and common stock equivalents (stock options) using
the treasury stock method.
5
<PAGE> 7
3. INCOME TAXES
The effective continuing operations income tax rate for the
quarter ended September 30, 1996 was 39% compared with a benefit of
(126%) for the quarter ended September 30, 1995. The 1997 fiscal year
effective income tax rate is based on the Company's projected mix of
country profits.
4. DISCONTINUED OPERATIONS
In the third quarter of fiscal 1996, the Company made the
determination that substantially all of its non-database marketing and
communications businesses would be sold and, therefore, has
subsequently accounted for these as discontinued operations. During the
quarter, the Company completed the sale of two of its communications
businesses in Europe. Proceeds were consistent with management's
expectations. The divestment of the remaining businesses is expected to
be completed by March 31, 1997. Net assets of $41.6 million related to
the discontinued operations have been segregated in the September 30,
1996 balance sheet.
The loss from discontinued operations for the three months
ended September 30, 1996 was $0.6 million net of income taxes, which is
consistent with the result estimated in the third quarter of fiscal
1996.
5. GOODWILL
The Company assesses the recovery of its goodwill on a
subsidiary-by-subsidiary basis by determining whether amortization of
goodwill can be recovered through expected net future cash flows
(undiscounted and without interest charges). Impairment is measured
based on the present value of estimated expected future net cash flows
using a discount rate reflecting the Company's cost of funds.
6
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
The operating results for the first quarter of fiscal 1997 reflect the
Company's decision to focus on being an information provider to the
pharmaceutical and healthcare industries. The Company is divesting its
non-database business segment consisting of its European communication and
marketing services group. The Company will also sell its international
publishing business which is included in continuing operations.
REVENUE
Revenue from continuing operations for the Company's first quarter of
fiscal 1997 increased to $21.9 million from $20.7 million for the corresponding
quarter of 1996, representing an increase of 6%. The increase in revenue relates
primarily to increased business generated by the Source joint venture in the US
and market research services from the Company's businesses in the US and UK.
Currency exchange rate movements, principally in Japan, negatively impacted
fiscal 1997 revenues by $0.8 million or 4%.
PRODUCTION COSTS
Production costs from continuing operations increased to $12.7 million
(58% of revenue) from $11.8 million (57% of revenue) in the comparable quarter
of fiscal 1996. The 8% increase in costs was attributable to production costs
associated with the revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs from continuing operations
decreased to $8.3 million (38% of revenue) from $8.8 million (43% of revenue) in
the comparable quarter of fiscal 1996. The 6% decrease is the result of
restructuring in the US and international publishing operations completed during
fiscal 1996 and the closure of unprofitable product lines to which high selling,
general and administrative costs were attributable.
7
<PAGE> 9
NET INTEREST EXPENSE
Net interest expense from continuing operations for the quarter ended
September 30, 1996 was $0.1 million, the same as for the equivalent quarter in
fiscal 1996, with the effects of the reduced level of cash invested being
mitigated by an improved rate of return.
INCOME TAXES
The Company incurred an income tax expense of $0.2 million for the
three months ended September 30, 1996 on pre-tax profit of $0.4 million, an
effective rate of 39%. The 1996 effective tax rate was (126%) on pre-tax
operating loss of $0.4 million.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company's cash, cash equivalents and
short-term marketable securities in continuing operations totalled $52.5
million, an increase of $5.1 million from the $47.4 million balance at June 30,
1996. The increase is primarily due to movements in working capital. The current
ratio from continuing operations at September 30, 1996 increased to 3.1 from 2.6
at June 30, 1996.
The Company anticipates, in fiscal year 1997 and in subsequent years,
its capital expenditures and working capital requirements will be funded from
existing cash, cash equivalents and marketable securities, internally generated
funds, and funds from the divestiture of its non-database business segment and
its International publishing unit. The timing and magnitude of future
acquisitions will continue to be the single most important factor in determining
the Company's long-term capital needs.
8
<PAGE> 10
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Computation of Earnings per Share.
(b) Reports on Form 8-K
None.
9
<PAGE> 11
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.
Date: November 12, 1996 Pharmaceutical Marketing Services Inc.
By /s/ Dennis M J Turner
--------------------------------
Dennis M J Turner
Chief Executive Officer
On behalf of the registrant
and as principal financial
officer.
10
<PAGE> 12
INDEX TO EXHIBITS
Exhibit Description Page Number
11 Computation of Earnings (Loss) per Share 12
11
<PAGE> 1
EXHIBIT 11
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995
---------- ------------
<S> <C> <C>
PRIMARY INCOME PER SHARE
Common shares outstanding 13,186,275 13,085,275
Assumed exercise of certain stock options 21,947 184,460
---------- ------------
13,208,222 13,269,735
========== ============
Income from continuing operations (in thousands) $ 227 $ 118
Loss from discontinued operations, net (in thousands) -- (673)
---------- ------------
Net income (loss) (in thousands) $ 227 $ (555)
========== ============
Primary income per share continuing $ 0.02 $ 0.01
Primary income (loss) per share discontinued 0.00 (0.05)
---------- ------------
Net income (loss) per share $ 0.02 $ (0.04)
========== ============
FULLY DILUTED INCOME PER SHARE
Common shares outstanding 13,186,275 13,085,275
Assumed exercise of certain stock options 21,947 184,460
Assumed conversion of convertible debentures -- --
---------- ------------
13,208,222 13,269,735
========== ============
Income from continuing operations (in thousands) $ 227 $ 118
Loss from discontinued operations, net (in thousands) -- (673)
---------- ------------
Net income (loss) (in thousands) $ 227 $ (555)
========== ============
Fully diluted income per share continuing $ 0.02(1) $ 0.01(1)
Fully diluted income (loss) per share discontinued 0.00 $ (0.05)
---------- ------------
Fully diluted income (loss) per share $ 0.02 $ (0.04)
========== ============
</TABLE>
1 Convertible debentures have not been assumed converted for the fully
diluted earnings per share as the effect would be anti-dilutive. Had the
convertible debentures been included, the number of shares would have been
increased by 3,450,000 to 16,658,222 and 16,719,735 for the three months
ended September 30, 1996 and 1995, respectively.
As a result of reduced interest expense following conversion, the increase
to net income (or decrease to net loss) would have been $657,700 for the
three months ended September 30, 1996 and 1995, respectively. These
adjustments would have resulted in fully diluted earnings per share of
$0.05 and $0.01 for the three months ended September 30, 1996 and 1995
respectively.
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 23,009
<SECURITIES> 29,526
<RECEIVABLES> 22,221
<ALLOWANCES> 489
<INVENTORY> 2,821
<CURRENT-ASSETS> 86,861
<PP&E> 12,824
<DEPRECIATION> 2,932
<TOTAL-ASSETS> 171,525
<CURRENT-LIABILITIES> 27,797
<BONDS> 69,000
0
0
<COMMON> 132
<OTHER-SE> 73,438
<TOTAL-LIABILITY-AND-EQUITY> 171,525
<SALES> 0
<TOTAL-REVENUES> 21,922
<CGS> 0
<TOTAL-COSTS> 12,688
<OTHER-EXPENSES> 8,670
<LOSS-PROVISION> 89
<INTEREST-EXPENSE> 740
<INCOME-PRETAX> 406
<INCOME-TAX> 158
<INCOME-CONTINUING> 227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
