<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE PERIOD FROM JULY 1, 1996 TO JUNE 30, 1997
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 of (I.R.S. employer
incorporation or organization) identification no.)
SUITE 912, 45 ROCKEFELLER PLAZA, NEW YORK 10111
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 841 0610
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- -------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X. No .
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
The aggregate market value of the Common Stock of the
registrant held by non-affiliates as of September 12, 1997 was approximately
$139,369,340 million.
As of September 12, 1997 there were outstanding 13,245,675
shares of Common Stock of Pharmaceutical Marketing Services Inc.
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its meeting of
stockholders in connection with its fiscal year ended June 30, 1997, which is to
be filed pursuant to Regulation 14A not later than October 30, 1997 is
incorporated by reference into Part III of this Form 10-K.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Pharmaceutical Marketing Services Inc., a Delaware corporation
(the "Company" or "PMSI"), provides a range of information services to
pharmaceutical and healthcare companies in the United States, Europe and Japan
to enable them to optimize their financial performance in a value driven
environment. Most of the Company's information services are generated from its
own proprietary databases containing unique prescription, managed care,
healthcare market and medical prescriber data.
In May 1996, the Company announced that, following the conclusion
of a strategic assessment, it would develop its business as a focused
information services provider to the pharmaceutical and healthcare industries,
and that its communication businesses ("non-database segment") would be
divested. The divestment of this segment was completed during fiscal 1997, with
the exception of the company's point of sale marketing business in France, which
is shown in this annual report and the Company's financial statements as "assets
held for sale". PMSI also disposed of two database businesses that did not meet
performance expectations during fiscal 1997 and completed the sale of its
international medical publishing business in the Netherlands in July 1997.
PMSI's principal executive offices are located at Suite 912, 45
Rockefeller Plaza, New York, and its telephone number is (212) 841-0610.
DATABASES AND SERVICES
PMSI provides a range of services that are either database
services or enhanced by the Company's proprietary databases. The services are
comprised of targeting information services, prescription database services with
Source Informatics Inc. ("Source"), and added value services, including
marketing research and consulting services, software and direct marketing
services.
Proprietary Databases
A variety of proprietary databases provide the foundation of most
of PMSI's business. The Company's prescriber profile databases (the "Prescriber
Profile Databases") contain extensive information on individual prescribers,
including attitudes and prescribing behavior, collected from physicians through
self-administered surveys in seven countries. In addition, the Company jointly
exploits, through a long-term agreement, a database of prescription data (the
"Source Database") created and maintained by Source. This database contained
information relating to over 3 billion prescriptions dispensed by retail and
mail order pharmacies in the United States over the 24-month period ended June
30, 1997. Over 90% of the prescriptions in the Source Database are matched to
about 1.1 million physicians and other prescribers writing them. Data for the
Source Database is collected from retail and mail order pharmacies in the United
States. PMSI has signed definitive
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agreements with Source and National Data Corporation ("NDC"), subject to PMSI
stockholder approval, to sell its interest in the Source Database business in
the United States to NDC and to acquire the Source Europe business, which is
developing similar databases in a number of European countries. The Company also
maintains various other comprehensive databases including: healthcare
legislation and key influencers in the United States and the United Kingdom; a
managed care database, which details cost containment measures imposed by United
States managed care organizations ("MCOs") that influence or restrict
physicians' prescribing activities, and which also covers formularies,
administrators and the physicians affiliated with the MCOs; and databases of
pharmaceutical product prices and reimbursement in the United Kingdom.
The Company does not hold any identifiable individual patient
data, except with the patients' prior permission for follow-up research or
disease management purposes.
Targeting Information Services
Through the use of PMSI's targeting information services, a
pharmaceutical company is able to target its promotional programs to the optimal
audience of prescribers and other healthcare professionals who influence or, in
some cases, control prescribing decisions. The Company's targeting services
include the SCRIPTRAC service, which is generated from the Prescriber Profile
Databases and delivered in a PC-software package. It enables pharmaceutical
companies in seven countries to identify prescribers who, because of therapeutic
specialty, practice demographics, or other factors, are the most likely to
prescribe a pharmaceutical company's product. The Company also licenses
SCRIPTRAC to third parties in countries where it does not intend to establish
operations.
PMSI provides a range of services derived from its managed care
database including the INTEGRATED MANAGED CARE PROFILES service, which enables
pharmaceutical companies to identify, target and prioritize those MCOs that are
most relevant to their own specific pharmaceutical products. Additionally, the
Company has developed information services that identify the influences of
federal and state governments and national healthcare systems. Examples of these
services include STATELINE, a PC-based database product which provides
pharmaceutical companies with detailed information on the health policies of
each of the 50 states and the District of Columbia and on the government
officials involved in shaping those policies; and HIS, also a PC-based database
product which identifies the influencers, buyers, decision makers and
administrators in the United Kingdom's National Health Service.
The Company also provides a targeting information service to
over-the-counter ("OTC") pharmaceutical companies, the OTC PHYSICIAN DATABASE
SERVICE, which provides managers of OTC products with the ability to target
medical practitioners with a high potential for OTC sales through product
recommendation to patients. The Company has signed a definitive agreement with
NDC, subject to PMSI stockholder approval, to sell the OTC Physician Database
service to NDC.
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Prescription Database Services with Source
In the United States, PMSI, through an operating venture with
Source, offers a range of services generated from the Source Database, including
the SOURCE PRESCRIPTION DATABASE SERVICE, a comprehensive data service providing
the client with access to the database itself; SOURCE PRESCRIBER, which is an
enhanced targeting service providing physician specific prescribing information;
SOURCE PAYER PRESCRIBER, which provides in-depth information on the links
between physicians and their MCO affiliations; and SOURCE LAUNCHTRAC, which is
used by a pharmaceutical company during and after a new product launch to
identify those physicians who have prescribed the product.
Added Value Services
The Company provides pharmaceutical companies in the United
States, and internationally in the United Kingdom, Belgium and the Netherlands
with a range of added value and research services that are used (i) to study
specific issues and trends in the marketplace and the broader health care
industry, (ii) to evaluate the effectiveness of marketing programs and (iii) to
analyze in depth particular components of a product marketing program at any
stage of its implementation, and (iv) for consultancy on optimizing company
strategy, marketing programs and product commercialization through its
established support teams in the United States and Europe.
PMSI's marketing research audits are generated from databases
containing information collected by questionnaire, diary or personal interview,
dispensed prescriptions and secondary research. The results of the audits are
delivered in hard copy or through PC-based data delivery systems. Examples of
the audits are the SOURCE PRESCRIPTION AUDIT, which analyzes pharmaceutical
product consumption; PHYSICIAN DRUG AND DIAGNOSIS AUDIT, which analyzes the
pharmaceuticals prescribed by physicians relative to the associated diagnosis;
the PERSONAL SELLING AUDIT ("PSA"), which analyzes the effectiveness of the
client company's sales activities compared with those of its competitors; and
the HOSPITAL PERSONAL SELLING AUDIT, which complements the PSA by monitoring and
analyzing sales activity in the hospital environment.
The Company's research services include the MEDICAL ADVERTISING
RECALL SERVICE, which assesses the effectiveness of advertisements in conveying
a specific marketing message; STRATEGIC STUDIES, which report on key
pharmaceutical industry topics, such as pharmaceutical company image and sales
force structure and strategies; and MEDICAL RESEARCH OMNIBUS, which is a monthly
omnibus survey of physicians based on personal interviews. In addition, PMSI has
a CONSUMER RESEARCH capability to respond to the growing importance of consumer
choice in the healthcare process to assist pharmaceutical companies in
determining appropriate marketing strategies.
PMSI also develops and supplies other innovative services to
healthcare suppliers and providers, including the MEDIPHASE pharmacy dispensary
management software and drug reimbursement database service. In addition, PMSI
provides HEALTHCARE DIRECTORIES of key administrators and managers within the
U.K. healthcare environment; forecasting and resource allocation software
systems designed to help client companies in efficient commercialization of
their products; and DIRECT MARKETING in the United States, where the Company
holds one of the eleven franchises currently in effect with the American Medical
Association (the "AMA") permitting PMSI access to the AMA's physician list.
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MARKETING AND SALES
PMSI employs marketing, sales and client service professionals in
each country in which it operates. Many members of the Company's sales and
marketing staff have substantial pharmaceutical industry experience.
Sales to the healthcare industry accounted for substantially all
of the Company's revenue in fiscal 1997. Virtually every major pharmaceutical
company is a customer of the Company. For the year ended June 30, 1997, PMSI's
ten largest customers were responsible for 33% of its revenue, with no one
customer accounting for more than 10%. Although the Company's business is
dependent upon its relationships within the healthcare and pharmaceutical
industries and the prospects of those industries, the Company's business would
not be materially adversely affected by the loss of any single customer.
ACQUISITION AND DIVESTMENT STRATEGY
PMSI has been built through a series of strategic acquisitions
that have positioned the Company to provide comprehensive information services
to the pharmaceutical and healthcare industries in major world markets. The
Company intends to use its existing resources, together with the proceeds from
its divestment program, to continue to acquire or enter into joint ventures with
businesses that complement the range of services the Company offers in each of
its markets. Possible candidates include marketing research companies, companies
with pharmaceutical, medical, outcomes or healthcare economic databases,
businesses with demonstrated ability to develop PC-based software that will add
value to PMSI data and other associated companies that would benefit from the
Company's capability in key world markets.
The Company, from time to time, evaluates possible acquisitions
and frequently has discussions with acquisition prospects. Subsequent to June
30, 1997, the Company announced that it had signed definitive agreements to
acquire the Source Europe business from Source Informatics Inc. (Source), and to
divest its minority interest in the Source Informatics venture in the United
States together with its OTC Physician Survey business. The Company will file a
proxy statement with the SEC, prior to calling a special meeting of PMSI's
common stockholders. Subject to receiving the approval of PMSI common
stockholders, the Company expects the transactions to close before the end of
calendar year 1997.
On July 30, 1997 the Company announced that it had finalized the
sale of its Dutch and US-based international publishing and communications
operations to Excerpta Medica, the medical communications division of Elsevier
Science for $9 million, resulting in a net gain on sale of approximately $3
million. The sale of these businesses formed part of the program of divestitures
of non-core businesses announced by the Company in May 1996.
Commitments from Acquisitions Prior to Fiscal 1997
Effective July 1, 1994, the Company acquired 80% of the common
stock of Mediphase Limited ("Mediphase"), a specialist software and information
company in the United Kingdom that has developed and markets retail pharmacy
dispensary management software. As a condition of purchase, the Company obtained
the right to acquire the remaining 20% of the common stock between July 1997 and
July 1999, based upon the number of Mediphase systems installed at certain
dates. In accordance with this, the
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minority interest in Mediphase Limited was acquired during July 1997 for $1.7
million. The Company also has commitments to contingent payments for CMA Medical
Data Limited based on operating profit generated in the current fiscal year.
On April 28, 1993, the Company purchased an 80% holding in IMR
Finance, a French Corporation. During the period October 1, 1996 to December 31,
2002 the Company had the option to acquire the remaining 20% of the outstanding
capital stock of IMR Finance. For the same period, the owners of the minority
interest had the option to require the Company to purchase their holding based
on a multiple of projected pre-tax earnings. During May 1997, the minority
shareholders exercised their option and the Company purchased the remaining 20%
of the outstanding share capital of IMR Finance for $2.6 million.
LONG-TERM AGREEMENTS
In 1991, PMSI entered into two long-term licensing agreements
with Walsh International Inc. ("Walsh"), one of which was assigned in 1996 to
Source Informatics Inc. ("Source"), the prescription database business which was
spun-off from Walsh in April 1996.
ALPHA DATABASE LICENSE. Source Informatics America Ltd., a subsidiary of Source,
has granted the Company an exclusive license in the United States to use the
Alpha (Source) Database to provide targeting information with respect to the
prescribing behavior of individual prescribers. Due to the movement by clients
towards comprehensive database contracts in the United States, both parties
agreed, as of July 1994, to accelerate the transition, as provided for in the
license agreement, to allocate payments based on the Alpha Database costs for
data updating and maintenance according to the relative historical revenues
generated by Source and PMSI in using the database. Revenues from the
comprehensive database contracts are also allocated to both parties based
principally upon historical percentages of revenue derived from the Alpha
Database. License renewal terms provide the Company with the exclusive option to
maintain the license through 2011. Thereafter, the agreement will be renewed for
successive five-year terms unless terminated by either party. Source has agreed
that, for so long as the Alpha Database license agreement is in effect, it will
not engage in the business of providing physician targeting services.
Currently, the Company's ability to produce its SOURCE product
line in the United States is dependent upon its partner, Source. Source was
formed in April 1996 through a spin-off of Walsh's prescription database
business, immediately prior to the initial public offering of Walsh. Source
remains a privately held company with limited resources and, due to its
investment in database development in Europe, currently is not profitable. If
Source were not able to fund its part of the operating venture in the United
States, PMSI has the right to an escrowed copy of the Alpha Database and
Source's extrapolation methodology. The economic feasibility of the Company
maintaining the Alpha Database on its own would be dependent upon its ability to
maintain the operating venture's current revenue or generate substantial
additional revenue from services derived from the Alpha Database. PMSI has
signed a definitive agreement with Source, subject to PMSI stockholder approval,
to acquire the Source Europe business and divest its interest in the joint
operating venture with Source in the US. If approved by PMSI common
stockholders, there will be no further dependency upon Source with regard to the
Company's US business.
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PHYSICIAN DATABASE LICENSE. In the United Kingdom, France, Germany, Spain, the
Netherlands and Belgium, Walsh has licensed to PMSI its Physician Database. The
Company may use such lists only for internal purposes and in connection with the
development and delivery of its SCRIPTRAC database. The initial term of the
license runs through 2001, and the license is renewable for two further
five-year periods, if not terminated by the Company six months prior to the
renewal date. Thereafter, the agreement is renewable for five-year terms unless
terminated by either party. The Company pays Walsh an annual royalty fee for
each physician supplied in the database.
ANNUAL AGREEMENTS
The Company has entered into the following agreements with Walsh,
or since April 1996, Source, pursuant to which Source or Walsh provides certain
management, marketing and sales, personnel benefits and data processing
services, and subleases facilities, to the Company.
MANAGEMENT AND EXECUTIVE SERVICES AGREEMENT. Source provides certain management
services covering executive management, accounting, legal and other services for
and on behalf of the Company, principally in the United States, where
comprehensive database contracts have been negotiated, and in the United
Kingdom. In Germany and the Netherlands, PMSI provides specific management
services to Walsh. Under the agreement, the services will be provided for
various periods ranging to the end of calendar 1997 and are renewable
automatically for one-year periods in the absence of notice of termination by
any party. Certain management functions in the Company are performed by members
of the management of Source, who also devote significant time to the affairs of
Source. If the services of any such executives were to be unavailable to PMSI
for any reason, it is likely that the cost to the Company of recruiting
full-time management to replace such Source executives would exceed the
management costs to be borne by PMSI under the management services agreement.
DATA PROCESSING AGREEMENT. The Company has contracted for Walsh or Source to
provide specific data processing and software support services to PMSI and its
customers in the United States and certain European countries. The agreement is
automatically renewed on an annual basis if not terminated by either party. The
fees payable by PMSI to Walsh or Source for such services are based either on
allocated costs or on competitive rates for comparable services from alternative
suppliers.
FACILITIES AGREEMENT. PMSI sublets from Source fully furnished office space in
the United States and Walsh sublets similar facilities from the Company in the
United States, the Netherlands and Germany. The initial terms of the subleases
each run through calendar 1997, unless an earlier expiration date is provided in
the relevant lease, and will be renewed automatically in the absence of
termination by either party. Each company pays its pro rata share of the
respective rental charges, based on space occupied.
HEALTH AND BENEFITS AGREEMENT. For certain operations in the United States,
Belgium and the United Kingdom, Walsh or Source provides the employees of the
Company with health insurance and other benefits comparable with those it offers
to its own employees. PMSI reimburses Walsh or Source for its share of the
actual costs of such benefits.
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BACKLOG
As of June 30, 1997, the Company had contracts running through
2001 of $103 million of which $45 million are for contracts to be completed by
June 30, 1998.
COMPETITION
The Company's targeting information services in the United States, Japan, and
most European countries are well established, although their market position may
be affected in the future by competitors' efforts to create or acquire enhanced
databases or to develop and market new products. The Company has competitors in
physician targeting in virtually all markets, primarily from IMS, a division of
the Cognizant Corporation, which competes in service and price. Some of the
Company's competitors are divisions of larger companies with significantly more
resources than the Company.
INDUSTRY REGULATION
The pharmaceutical industry is subject to extensive regulations
in the countries in which the Company operates. A number of governments have
enacted regulations limiting the prices pharmaceutical companies may charge for
drugs. While the Company believes that cost containment measures that may be
adopted by government agencies will cause pharmaceutical companies to seek more
effective means of marketing their products (which will benefit the Company in
the medium and long term), such governmental regulation has caused
pharmaceutical companies to revise or reduce their marketing programs. These
cost containment measures, together with pharmaceutical companies' desire to
increase market share or improve their research pipelines, have caused both
vertical and horizontal integration and several significant mergers.
In addition to pharmaceutical industry regulation, the Company is
directly subject to certain restrictions on the collection and use of data.
There has been legislation enacted in many countries to regulate the collection,
use and dissemination of certain information that may be deemed to be personal.
All countries of the European Union are required to have data privacy
legislation in effect no later than 1998. In the United States, certain states
have enacted legislation prohibiting the use of personally identifiable
prescription drug information without consent. Because the Company does not
generally receive information regarding the identity of patients, the Company
believes that such state legislation will have no material adverse effect on its
business. There can be no assurance that future legislation or regulations will
not directly or indirectly restrict the dissemination of information regarding
physicians or prescriptions. Such legislation, if enacted, could have a material
adverse effect on the operations of the Company.
The Market Research Code of Conduct, a pharmaceutical
industry-promulgated code of conduct to which the Company adheres, provides that
the identity of the individual researched may never be disclosed to the company
sponsoring such research without such individual's consent. PMSI supplies only
aggregated statistics to the sponsoring company when information is generated
from market research databases. As recommended by the board of directors of the
Pharmaceutical Manufacturer's Association, the PMSI databases do not contain
patient names, thus preserving confidentiality. Data provided at the physician
level is obtained from prescribing activity by product or therapy class over a
given period. Pharmaceutical companies receive information as to the projected
prescribing levels of particular physicians. The Company does not hold any
identifiable individual patient data,
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except on a temporary basis with the patients' prior permission for follow-up
research and disease management purposes.
EMPLOYEES
As of June 30, 1997, the Company's operations had approximately
595 full-time employees. Of these employees, 287 are located in the United
States, with the remainder located in Europe and Japan. In the Netherlands and
France, PMSI has Workers Committees, a legal requirement in those countries.
There are no collective bargaining agreements in effect with employees of the
Company. The Company considers its relationships with its employees to be good.
ITEM 2. PROPERTIES
PMSI leases or subleases space in various locations in the United
States, Europe and Japan. In those instances in which the Company is a
sublessee, Walsh or Source is the sublessor, and the subleases have terms
extending through calendar 1997, prior to renewal options. The Company's
principal office facilities in the United States are located in Phoenix, Arizona
and Newtown, Pennsylvania. The Company's usage of such facilities aggregates
approximately 18,400 square feet for which the aggregate sublease rentals were
$300,000 in 1997. In addition, the Company rents approximately 28,000 square
feet of office facilities in Newtown, Pennsylvania, for $448,000 per annum under
a lease expiring in 2000. The Company owns approximately 30,000 square feet of
office and warehouse facilities in the Netherlands with a recorded cost of
approximately $5.3 million.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any outstanding material legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the NASDAQ National
Market System under the symbol PMRX.
The reported high and low closing sales prices for the Company's
Common Stock as reported by NASDAQ for each full quarterly period within the two
most recent fiscal years were:
<TABLE>
<CAPTION>
Calendar Year Period High Low
-------------------- ---- ---
<S> <C> <C>
1995
Third Quarter 12 3/4 9
Fourth Quarter 16 1/4 10
1996
First Quarter 16 1/4 12
Second Quarter 13 1/2 9 3/8
Third Quarter 10 1/8 6 1/8
Fourth Quarter 11 1/2 8 5/8
1997
First Quarter 10 3/4 8 3/4
Second Quarter 11 5/8 8 3/4
</TABLE>
As of September 12, 1997, there were approximately 1,132 holders
of record of the Company's Common Stock.
The Company has never paid dividends to holders of its Common
Stock. The Company intends to retain all earnings to finance the operation and
growth of its business and does not anticipate paying cash dividends in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below have been derived from the
audited consolidated financial statements of PMSI for the year ended December
31, 1992, the six month transition period ended June 30, 1993 and the years
ended June 30, 1994, 1995, 1996 and 1997, and should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition and the historical consolidated financial statements, including the
notes thereto, included elsewhere in this Report.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, June 30, Year Ended June 30,
------------ ---------- -----------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996 1997
- ----------------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 73,007 $ 34,654 $ 76,876 $ 89,893 $ 93,027 $ 98,485
Production costs (40,074) (19,674) (43,168) (49,991) (51,605) (54,457)
Selling, general and administrative (21,186) (10,790) (25,791) (29,773) (34,208) (34,847)
Amortization of intangible assets (2,430) (811) (1,541) (1,889) (2,012) (1,733)
Income from assets held for sale -- -- -- -- -- 76
Impairment of long-lived assets -- -- -- -- (2,368) --
Restructuring costs -- -- (1,820) -- (2,314) --
--------- -------- -------- -------- -------- --------
Operating income 9,317 3,379 4,556 8,240 520 7,524
Interest and other income 910 1,683 2,805 2,940 2,503 3,299
Interest expense (70) (1,818) (3,032) (2,915) (2,633) (3,490)
--------- -------- -------- -------- -------- --------
Income from continuing operations
before income taxes 10,157 3,244 4,329 8,265 390 7,333
Income tax provision (3,859) (1,167) (1,662) (2,950) (1,156) (2,655)
Minority interest -- -- -- (3) 57 (17)
--------- -------- -------- -------- -------- --------
Income (loss) from continuing operations 6,298 2,077 2,667 5,312 (709) 4,661
Income (loss) from discontinued
operations, net (170) 65 2,057 (131) (8,915) (9,914)
--------- -------- -------- -------- -------- --------
Net income (loss) $ 6,128 $ 2,142 $ 4,724 $ 5,181 $ (9,624) $ (5,253)
========= ======== ======== ======== ======== ========
Net income (loss) per share:
Continuing operations 0.49 0.16 0.21 0.41 (0.05) 0.35
Discontinued operations, net (0.01) -- 0.15 (0.01) (0.68) (0.75)
--------- -------- -------- -------- -------- --------
Net income (loss) per share $ 0.48 $ 0.16 $ 0.36 $ 0.40 $ (0.73) $ (0.40)
========= ======== ======== ======== ======== ========
Common stock and in 1992, 1993, 1994
1995 and 1997 common stock equivalents 12,876 13,157 13,297 13,053 13,124 13,297
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
------------ ---------------------------------------------------------------------
Balance Sheet Data: 1992 1993 1994 1995 1996 1997
- ------------------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Working capital (1) $ 36,972 $ 74,428 $ 74,553 $ 72,901 $ 47,627 $ 64,210
Total assets (2) 91,427 189,028 189,229 187,681 173,408 167,202
Long-term debt, excluding current portion -- 69,423 69,248 69,295 69,131 69,552
Stockholders' equity 62,277 64,398 73,525 86,697 72,954 63,744
</TABLE>
(1) As of June 30, 1995 and 1996, includes net current assets of discontinued
operations of $15,032 and $9,276, respectively. As of June 30, 1997 includes
net current assets held for sale of $4,236.
(2) As of June 30, 1995 and 1996, includes total assets of discontinued
operations of $50,032 and $42,871, respectively. As of June 30, 1997
includes net assets held for sale of $23,033.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
The following discussion and analysis contains "forward looking"
statements, within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the "forward looking" statements.
Much of PMSI's business is based upon proprietary databases,
computer technology and product know-how, and assets that are generally
difficult, time-consuming or costly for third parties to duplicate. The
Company's strategy is to take advantage of its operating leverage and grow the
business by increasing the market penetration of existing products and services,
by developing products and services for different national markets, and by
creating new information services from data in the PMSI databases or from
linking such data with data from third parties to meet the evolving information
needs of the pharmaceutical and healthcare industry.
The Company's future results will be dependent in part upon
management's ability to take advantage of the operating leverage in the PMSI
business by increasing revenues from both existing and new services.
Revenue
Revenue for the year ended June 30, 1997 was $98.5 million, an
increase of $5.5 million (6%) over revenue for the year ended June 30, 1996.
Revenues grew significantly in the United States market research and database
businesses, Japanese information services and UK market research division. This
growth was partially offset by the revenue reduction of $1.0 million, due to the
divestment of poorly performing database businesses at the end of fiscal 1996
and during this year. Currency exchange rate movements when compared to 1996
rates, principally in Japan and the Netherlands, negatively impacted the year's
revenue by $3.5 million, or 4%.
Revenue for the year ended June 30, 1996 was $93.0 million, an
increase of $3.1 million (4%) over revenue for the year ended June 30, 1995.
Revenues demonstrated growth in the United States market research and database
businesses, Japan, our European Scriptrac businesses and from acquisitions
completed in fiscal 1995. This was offset by a continued decrease in revenue in
the United States direct marketing business due to the phasing out of low margin
programs and the restructuring of the United Kingdom market research businesses.
13
<PAGE> 14
Production Costs
PMSI's production costs include the costs of data collection, outside
supplies and services, internal computer costs and the costs attributable to
personnel involved in the production of the Company's products and services.
Production costs for the year ended June 30, 1997 were $54.5 million
(55% of revenue), compared to $51.6 million (55% of revenue) for the year ended
June 30, 1996. The 6% increase in costs was primarily attributable to revenue
growth and new product development in Japan and Europe.
Production costs for the year ended June 30, 1996 were $51.6 million
(55% of revenue), compared to $50.0 million (56% of revenue) for the year ended
June 30, 1995. The increase was primarily attributable to revenue growth,
including from acquisitions completed in late fiscal 1995, and the launch of
Scriptrac in Spain.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $34.8 million (35% of
revenues) for the year ended June 30, 1997 as compared to $34.2 million (37% of
revenues) for the same period in 1996. This was due to a reduction in general
and administrative expenses arising from improved cost control in the US and
following the divestment of poorly performing database businesses with
disproportionately high general and administrative expenses.
Selling, general and administrative expenses increased by $4.4 million
to $34.2 million (37% of revenues) for the year ended June 30, 1996 as compared
to $29.8 million (33% of revenues) for the same period in 1995. The increase was
attributable to acquisitions completed in late fiscal 1995, new product
development for which no revenue was generated and increases in staff to support
additional clients for existing services.
Amortization of Intangible Assets
Acquired databases, software and other purchased intangibles are valued
at their fair value at the date of acquisition and are amortized over periods of
up to five years. Goodwill is amortized over periods between 5 and 40 years. The
cost of updating and maintaining databases is expensed as incurred, as is the
cost of developing software for internal use.
In the Company's consolidated financial statements, amortization
has been recorded as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Databases $ 46 $ 126 $ 6
Software 248 247 205
Goodwill 1,595 1,639 1,522
------ ------ ------
Total $1,889 $2,012 $1,733
====== ====== ======
</TABLE>
14
<PAGE> 15
For the year ended June 30, 1997 compared to the same period in 1996,
database, software and goodwill amortization decreased due to the effects of the
charge for the impairment of long lived assets recorded during fiscal 1996.
For the year ended June 30, 1996 compared to the same period in 1995,
database, software and goodwill amortization increased due to the inclusion for
the full year of acquisitions completed in 1995.
Impairment of Long Lived Assets and Restructuring Costs
In the third quarter of fiscal 1996, the Company recorded $2.4 million
write-down in the value of long lived assets, primarily goodwill and databases
pursuant to the adoption of FAS 121, "Accounting for the Impairment of Long
Lived Assets and Long Lived Assets to be Disposed of". In addition, the Company
recorded $2.3 million of restructuring costs. These charges to earnings, $0.24
per share after tax effect, were primarily related to the disposal of two
database businesses that did not meet performance expectations. At June 30,
1996, accrued liabilities and accounts payable included $0.9 million for
restructuring liabilities. All such liabilities were paid during fiscal 1997.
Interest and Other Income/Interest Expense
PMSI invests its excess cash with major banks, and cash equivalents and
marketable securities in a professionally managed fund.
For the year ended June 30, 1997, the Company's net interest expense
was $0.2 million as compared to $0.1 million for the same period in 1996. An
increased return on the Company's investments was offset by an increase in the
interest expense, due to the allocation of enterprise interest to discontinued
operations for a full year in 1996, but only for part of fiscal 1997.
For the year ended June 30, 1996, the Company's net interest expense
was $0.1 million as compared to interest income just under $0.1 million for the
same period in the preceding year. The increased cost was primarily attributable
to a decrease in funds invested.
Income Tax Provision
The tax provisions of $3.0 million, $1.2 million and $2.7 million for
the years ended June 30, 1995, 1996 and 1997, respectively, reflect taxes
payable in respect of profitable foreign and domestic operations. At June 30,
1997, there were foreign net operating loss carryforwards of approximately $10.0
million available to reduce future foreign income taxes payable.
Deferred tax assets recognized by the Company result from the
anticipated carryback of future tax deductions to offset income taxes previously
provided and the utilization of future tax deductions to reduce taxes payable on
future taxable income. The reduction in the deferred tax asset recognized in the
balance sheet at June 30, 1997 is due to the utilization of net operating losses
in Japan and the UK. A valuation allowance has been made against a significant
part of the net operating losses established in the current year, due to the
expectation of further statutory tax losses in certain foreign jurisdictions.
15
<PAGE> 16
Discontinued Operations
Following the decision to divest the Company's non-database segment, a
$5.7 million loss on disposal was recorded during fiscal 1996. This, together
with the net loss for the period through March 31, 1996 of $3.2 million were
classified as the "loss from discontinued operations, net" in the 1996 statement
of operations.
During fiscal 1997, the Company recorded a further net charge for the
loss on disposal of discontinued operations of $9.9 million. This arose from
changes to the original estimates of net proceeds and income expected to be
generated during the disposal period.
At the end of the measurement period, one business from the
discontinued non-database segment still remained to be sold and the results of
this business subsequent to the measurement period have been included within
operating income from continuing operations as "income from assets held for
sale". Its net assets, together with the remaining accrual for the loss expected
to be generated on disposition, are recorded in the balance sheet as "net
current assets held for sale" and "net assets held for sale". It remains
management's intention to sell the Company's French point of sale business.
Currency Fluctuations
As an international company, PMSI is affected by fluctuations in
foreign currency exchange rates. Although most of the Company's services are
priced in the local currency of the business unit providing the service, the
effects of foreign currency fluctuations are mitigated by the fact that expenses
of foreign subsidiaries are incurred in the same currency as sales. The reported
net income of foreign subsidiaries will be affected by changes in the exchange
rates of foreign currencies against the United States dollar. The magnitude of
the effects on the Company of future exchange rate changes will be dependent
upon the relative contributions to the Company's results of its United States
and non-United States operations. The foreign currency risk applicable to the
Company's operations has not been hedged.
Quarterly Results
The production costs of the Company's pharmaceutical information
services (which are expensed as incurred) have a relatively high fixed direct
cost component because of the relatively constant cost of maintaining the
databases from which the services are derived. Once these fixed costs are
covered, a higher gross margin is achieved on incremental revenues. The
Company's overall gross profit margin in any quarter and any improvement in such
margin over time will therefore be highly dependent on the relative gross profit
margins of the Company's various products and services that contribute to
revenue in such quarter and the relative revenue growth rates for such products
and services.
Historically, quarter to quarter comparisons of the Company's results
of operations have not necessarily been indicative of these trends, principally
as a result of: (i) timing of acquisitions and divestments to create the PMSI
business; (ii) revenue reductions resulting from product changes or
discontinuations in the post-acquisition period; (iii) cost of investing in the
turnaround or profit improvement of certain acquired businesses; (iv) write
downs of asset values and (v) the investment in new products and services.
16
<PAGE> 17
Liquidity and Capital Resources
At June 30, 1997, the Company's cash and cash equivalents and
marketable securities totaled $64.5 million and its current ratio was 2.9:1. The
current ratio at June 30, 1996 was 2.6:1.
During the year ended June 30, 1997, cash and cash equivalents and
short-term marketable securities increased due to the switch from long-term to
short-term marketable securities and proceeds from the sale of assets relating
to the discontinued operations. The Company anticipates that capital
expenditures in fiscal 1998 will be less than $3.0 million and will be funded
from internally generated funds.
The Company anticipates that existing cash, together with internally
generated funds, will provide the Company with the resources that are needed to
satisfy the Company's working capital requirements in fiscal 1998 and subsequent
years.
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. The Company signed definitive agreements, subsequent to the year-end, to
acquire the Source Europe business from Source Informatics Inc. (Source), and to
divest its minority interest in the Source Informatics venture in the United
States together with its OTC Physician Survey business. The working capital
injection necessary to fund the Source Europe business during fiscal 1998 and
subsequently, will be provided from the proceeds of the sale of the joint
operating venture and OTC businesses in the US as well as the Company's own
internally generated funds.
SUBSEQUENT EVENTS
On August 20, 1997 the Company announced that it had signed definitive
agreements to acquire the Source Europe business and to divest its minority
interest in the Source Informatics venture in the United States together with
its OTC Physician Survey business in a three way transaction with National Data
Corporation (NDC) and Source Informatics Inc. (Source). Under these agreements,
PMSI will receive (i) the Source Europe business, (ii) 918,254 PMSI common
shares held by Source, (iii) $15.5 million in cash, and (iv) 1,059,829
registered shares in NDC.
The Company will file a proxy statement with the SEC, prior to calling
a special meeting of PMSI's common stockholders. Subject to receiving the
approval of PMSI common stockholders, the Company expects the transactions to
close before the end of calendar year 1997.
On July 30, 1997 the Company announced that it had finalized the sale
of its Dutch and US-based international publishing and communications operations
to Excerpta Medica, the medical communications division of Elsevier Science for
$9 million, resulting in a net gain on sale of approximately $3 million. The
sale of these businesses formed part of the program of divestitures of non-core
businesses announced by the Company in May 1996.
17
<PAGE> 18
Year 2000
Scriptrac for Windows client software used for delivering Scriptrac has
been developed to ensure compliance with the Year 2000. The US joint operating
venture has successfully tested its software to ensure Year 2000 compliance.
The internal systems within the PMSI local operations are to be
reviewed for the impact of the year 2000. No significant impact on the Company's
financials is expected.
Recently Issued Accounting Standards
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which is effective for financial statements issued for periods ending after
December 15, 1997. The new standard requires changes to computation,
presentation and disclosure requirements of primary and fully diluted earnings
per share. The Company has reviewed the impact of the new standard on the
financial statements and related disclosures and determined that the calculated
earnings per share will not be significantly affected.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in the Index
to Consolidated Financial Statements and Financial Statement Schedules that
appear elsewhere in this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
18
<PAGE> 19
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.............................................................................. F-1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1997............................................... F-2
Consolidated Statements of Operations for the Years Ended
June 30, 1995, 1996 and 1997........................................................................... F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1995, 1996 and 1997....................................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1995, 1996 and 1997........................................................................... F-5
Notes to Consolidated Financial Statements............................................................. F-7
Report of Independent Accountants on Financial
Statement Schedule............................................................................................. S-1
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts for the Years
Ended June 30, 1995, 1996 and 1997............................................................................. S-2
</TABLE>
All financial statement schedules not mentioned above are omitted for the reason
that they are not required or are not applicable, or the information is included
in the Consolidated Financial Statements or the Notes thereto.
19
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Pharmaceutical Marketing Services Inc.
We have audited the accompanying consolidated balance sheets of
Pharmaceutical Marketing Services Inc. and Subsidiaries as of June 30, 1996 and
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the years ended June 30, 1995, 1996 and 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Pharmaceutical Marketing Services Inc. and Subsidiaries as of June 30, 1996 and
1997 and the consolidated results of their operations and their cash flows for
the years ended June 30, 1995, 1996 and 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 9, 1997
F-1
<PAGE> 21
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share numbers)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 12,669 $ 32,414
Marketable securities 16,174 24,738
Accounts receivable, principally trade
(less allowance for doubtful accounts
of $400 and $388, respectively) 29,283 27,442
Work in process 2,986 3,798
Prepaid expenses and other current assets 7,398 4,905
Net current assets held for sale -- 4,236
Net current assets of discontinued operations 9,276 --
-------- --------
Total current assets 77,786 97,533
Marketable securities 18,515 7,384
Property and equipment, net 9,004 11,761
Goodwill, net 25,895 25,303
Other assets, net 8,613 6,424
Net assets held for sale -- 18,797
Net assets of discontinued operations 33,595 --
-------- --------
Total assets $173,408 $167,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 219 $ 407
Accounts payable 4,411 5,036
Accrued liabilities
(including employee compensation and
benefits of $2,347 and $3,234, respectively) 11,489 10,507
Unearned income 14,040 17,373
-------- --------
Total current liabilities 30,159 33,323
Long-term debt 69,131 69,552
Other liabilities 1,164 583
-------- --------
Total liabilities 100,454 103,458
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized and 13,169,275 and 13,199,475
shares, issued and outstanding, respectively 132 132
Paid-in capital 86,923 87,179
Accumulated deficit (14,776) (20,029)
Cumulative translation adjustment 722 (3,534)
Unrealized loss on investments, net of
income tax benefits of $32 and $3, respectively (47) (4)
-------- --------
Total stockholders' equity 72,954 63,744
-------- --------
Total liabilities and stockholders' equity $173,408 $167,202
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE> 22
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,except for per share data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Revenue $ 89,893 $ 93,027 $ 98,485
Production costs (49,991) (51,605) (54,457)
Selling, general and administrative expenses (29,773) (34,208) (34,847)
Amortization of intangible assets (1,889) (2,012) (1,733)
Income from assets held for sale -- -- 76
Impairment of long lived assets -- (2,368) --
Restructuring costs -- (2,314) --
-------- -------- --------
Operating income 8,240 520 7,524
Interest and other income 2,940 2,503 3,299
Interest expense (2,915) (2,633) (3,490)
-------- -------- --------
Income from continuing operations
before income taxes 8,265 390 7,333
Income tax provision (2,950) (1,156) (2,655)
Minority interest (3) 57 (17)
-------- -------- --------
Income (loss) from continuing operations 5,312 (709) 4,661
Discontinued operations:
Loss from discontinued operations, net (131) (8,915) (9,914)
-------- -------- --------
Net income (loss) $ 5,181 $ (9,624) $ (5,253)
======== ======== ========
Income (loss) per share:
Continuing operations $ 0.41 $ (0.05) $ 0.35
Discontinued operations, net (0.01) (0.68) (0.75)
-------- -------- --------
Net income (loss) per share $ 0.40 $ (0.73) $ (0.40)
======== ======== ========
Common stock and, in 1995 and 1997,
common stock equivalents 13,053 13,124 13,297
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE> 23
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Unrealized
------------------- Cumulative Loss on Total
No. of Paid-in Accumulated Translation Marketable Stockholders'
Shares Amount Capital Deficit Adjustment Securities Equity
------ ------ ------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1994.... 12,810 $ 128 $83,048 $(10,333) $ 682 $ 73,525
Net income............... -- -- -- 5,181 -- 5,181
Stock options exercised.. 17 -- 340 -- -- 340
Shares issued for IMR
acquisition............ 258 3 2,788 -- -- 2,791
Adjustment to beginning
balance for change in
accounting principle,
net of income tax
benefit of $31......... -- -- -- -- -- $ (48) (48)
Change in unrealized loss,
net of income tax
provision of $29....... -- -- -- -- -- 46 46
Foreign currency
translation............. -- -- -- -- 4,862 -- 4,862
------- ----- -------- --------- --------- ------- -------
Balance June 30, 1995.... 13,085 131 86,176 (5,152) 5,544 (2) 86,697
Net loss................. -- -- -- (9,624) -- -- (9,624)
Stock options exercised.. 84 1 747 -- -- -- 748
Change in unrealized loss
on marketable
securities, net of
income tax benefit
of $30................. -- -- -- -- -- (45) (45)
Foreign currency
translation............ -- -- -- -- (4,822) -- (4,822)
------- ----- -------- --------- --------- ------- -------
Balance June 30, 1996.... 13,169 132 86,923 (14,776) 722 (47) 72,954
Net loss................. -- -- -- (5,253) -- -- (5,253)
Stock options exercised.. 30 -- 256 -- -- -- 256
Change in unrealized loss
on marketable
securities, net of
income tax provision
of $29................. -- -- -- -- -- 43 43
Foreign currency
translation............ -- -- -- -- (4,256) -- (4,256)
------- ----- -------- --------- --------- ------- -------
Balance June 30, 1997.... 13,199 $132 $87,179 $(20,029) $ (3,534) $ (4) $63,744
------- ----- -------- --------- --------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE> 24
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------
1995 1996 1997
------ ------ --------
<S> <C> <C> <C>
Cash flows provided by
(used in) operating activities:
Net income (loss)............... $5,181 $(9,624) $ (5,253)
Loss from discontinued
operations..................... 131 8,915 9,914
Adjustments to reconcile net
income (loss) to net cash
provided by (used in) operating
activities:
Depreciation and amortization... 2,989 3,354 3,715
Loss on disposal of fixed
assets......................... 6 18 --
Loss on disposal of database
businesses, net................ -- -- 773
Deferred taxes.................. (719) (789) 953
Minority interest share of net
income (loss).................. 3 (57) 17
Restructuring costs............. -- 2,314 --
Impairment of long lived
assets......................... -- 2,368 --
Change in operating assets and
liabilities, net of effect of
acquisitions:
Accounts receivable............. (1,352) (5,716) 881
Work-in-process................. 554 (781) (986)
Prepaid expenses and other
assets......................... (262) (822) 3,471
Accounts payable and accrued
liabilities.................... 4,540 (6,221) (561)
Unearned income................. (127) 5,156 3,199
Other liabilities............... 933 200 5
------- ------- -------
Total adjustments............... 6,565 (976) 11,467
------- ------- -------
Net cash provided by (used in)
operating activities............. 11,877 (1,685) 16,128
------- ------- -------
Cash flows provided by (used in)
investing activities:
Capital expenditures............ (5,279) (2,166) (4,592)
Proceeds from disposal of fixed
assets......................... 503 115 66
Proceeds from business
disposed....................... -- -- 4,285
Sale (purchase) of marketable
securities, net................ (11,854) (5,743) 2,610
Acquisition and contingent
payments....................... (11,270) (624) (2,799)
------- ------- -------
Net cash used in investing
activities....................... (27,900) (8,418) (430)
------- ------- -------
Cash flows provided by (used in)
financing activities:
Net proceeds from options
exercised...................... 148 748 256
Repayments of long-term debt
and capital lease obligations.. (22) (245) (195)
------- ------- -------
Net cash provided by financing
activities....................... 126 503 61
------- ------- -------
Effect of discontinued
operations....................... (10,510) (2,038) 5,838
Effect of exchange rate
movements........................ 1,984 (3,521) (1,852)
------- ------- -------
Net (decrease) increase in cash
and cash equivalents............. (24,423) (15,159) 19,745
Cash and cash equivalents at
beginning of period.............. 52,251 27,828 12,669
------- ------- -------
Cash and cash equivalents at end
of period........................ $27,828 $12,669 $32,414
------- ------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE> 25
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(in thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Supplemental information:
Cash paid during the period for:
Interest $ 4,724 $ 4,474 $ 4,521
Income taxes $ 1,875 $ 1,381 $ 1,694
Supplemental disclosure of non-cash
investing and financing activities:
Capital leases $ 481 $ 40 $ 802
Fair value of assets acquired $ 12,903
Cash consideration paid $(11,270)
Cash and stock consideration to
be paid (480)
--------
Liabilities assumed $ 1,153
========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE> 26
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY. Pharmaceutical Marketing Services Inc. ("PMSI" or the
"Company"), provides a range of information services to
pharmaceutical and healthcare companies in the United States, Europe
and Japan to enable them to optimize their sales and marketing
performance in a value driven environment. The services are comprised
of targeting information services, prescription database services
with Source and added value services. Most of the Company's
information services are generated from its own proprietary databases
containing unique prescription, managed care, healthcare market and
medical prescriber data.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The
consolidated financial statements comprise the accounts of
Pharmaceutical Marketing Services Inc. and its subsidiaries. The
consolidated financial statements have been restated where applicable
for discontinued operations (Note 18). The accompanying notes present
amounts related to continuing operations only. All intercompany
balances and transactions have been eliminated.
CASH EQUIVALENTS. Cash equivalents consist primarily of highly liquid
investments with maturities of three months or less at the date of
acquisition.
MARKETABLE SECURITIES. The Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (FAS 115), in fiscal 1995. In accordance
with FAS 115, prior years' financial statements have not been
restated to reflect the change in accounting method. Upon adoption of
FAS 115, the June 30, 1995 opening balance of stockholders' equity
decreased by $48,000, net of an income tax benefit of $31,000, to
reflect the unrealized loss on investments available-for-sale that
were previously carried at amortized cost.
Management determines the appropriate classification of its
investments in debt and equity securities at the time of purchase and
re-evaluates such determination at each balance sheet date. Debt
securities for which the Company does not have the intent or ability
to hold to maturity are classified as available for sale, along with
any investment in equity securities. Securities available for sale
are carried at fair value, as determined by the quoted market value
at the balance sheet date, with the unrealized gains and losses, net
of tax, reported in a separate component of stockholders' equity. At
June 30, 1997, the Company had no investments that qualified as
trading or held to maturity.
WORK IN PROCESS. Work in process consists of unbilled costs incurred
on behalf of clients, principally outside vendor costs attributable
to the Company's products and services.
F-7
<PAGE> 27
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT. Property and equipment are recorded at cost.
All maintenance and repairs are expensed as incurred.
Depreciation is provided using the straight line method. Furniture,
office equipment and computer equipment are depreciated over five
years and automobiles over four years. Leasehold improvements are
amortized over the shorter of their useful lives or the terms of the
respective leases. Buildings are depreciated over their estimated
useful lives ranging from twenty to thirty years.
On disposal, costs and accumulated depreciation are removed from the
accounts and gains (losses) are recognized in the statement of
operations.
GOODWILL. Under the purchase method of accounting, the excess of the
purchase price of businesses acquired over the fair value of tangible
and intangible assets at the dates of acquisition has been assigned
to goodwill. The net assets and results of operations of the
acquisitions have been included in the consolidated financial
statements of PMSI from their respective dates of purchase. Goodwill
is amortized on a straight-line basis over periods between five and
forty years.
The Company assesses the recovery of its goodwill, on a subsidiary by
subsidiary basis, by determining whether amortization of goodwill can
be recovered through undiscounted future cash flows based on
projected net income, excluding goodwill amortization, of the
respective subsidiary. Impairment is measured by discounted future
cash flows based on projected net income, excluding goodwill
amortization, using a discount rate reflecting the Company's cost of
funds.
DATABASES. Acquired databases have been valued at their estimated
fair values at the dates of acquisition. Databases are amortized
using straight-line and accelerated methods over periods of up to
five years. Costs associated with maintenance and updating of
databases are expensed as incurred.
SOFTWARE ACQUIRED. Computer software of businesses acquired is
recorded at its fair value at the date of acquisition. This software
is amortized on a straight-line basis over its useful life, which is
estimated to be two to five years.
FOREIGN CURRENCY. The balance sheet and results of operations of
PMSI's subsidiaries that operate outside the United States are
measured using local currency as the functional currency.
Assets and liabilities have been translated into United States
dollars at the rates of exchange at the balance sheet date.
Translation gains and losses arising from the use of differing
exchange rates from year to year are included in the cumulative
translation
F-8
<PAGE> 28
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
adjustment on the balance sheet. Revenues and costs are translated
into United States dollars at the average rate during the period.
Transaction gains and losses are recognized in the statement of
operations as incurred. For the periods presented these amounts were
not material.
REVENUE RECOGNITION. Revenue is recognized on delivery of a product
or as the service is rendered. Subscription-type revenue is
recognized over the life of the subscription. Prebillings for
products that have not been delivered or for services not yet
rendered are classified as unearned income until the earnings process
is complete.
CONCENTRATION OF CREDIT RISK. Financial instruments that potentially
subject PMSI to concentrations of credit risk consist principally of
cash and cash equivalents, marketable securities and trade
receivables. PMSI invests its excess cash with major banks and cash
equivalents and marketable securities in a professionally managed
fund. PMSI's customer base principally comprises companies within the
pharmaceutical industry. Although the Company's receivables are
concentrated in the pharmaceutical industry, the concentration of
credit risk is limited due to the credit worthiness of the customers.
PMSI does not require collateral from its customers.
INCOME TAXES. Federal, foreign and state income taxes in the
consolidated financial statements have been computed on a stand-alone
return basis according to the fiscal and legal structure under which
the various tax paying entities operate. Deferred income taxes are
recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and
financial reporting amounts at each year end.
EARNINGS/LOSS PER SHARE. Earnings/loss per share for the years ended
June 30, 1995 and 1997 is computed based upon the weighted average
number of shares outstanding and common stock equivalents (stock
options) using the treasury stock method. For 1996 common stock
equivalents have not been included as they are anti-dilutive.
ALLOCATION OF INTEREST TO DISCONTINUED OPERATIONS. Enterprise
interest is allocated to discontinued operations in proportion to net
assets.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
F-9
<PAGE> 29
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying value of certain of
the Company's financial instruments including cash and cash
equivalents, accounts payable and other accrued liabilities
approximates fair value due to their short maturities. The fair value
of the Company's debentures is based on quoted market prices.
2. TRANSACTIONS WITH SOURCE
Effective as of December 31, 1991, Walsh International
Inc. ("Walsh") transferred to PMSI all the assets and liabilities of
the PMSI business in exchange for shares of PMSI common stock. In
connection with the transfer, the Company and Walsh entered into two
long-term license agreements permitting the use by PMSI of certain
Walsh proprietary databases. In addition, PMSI and Walsh entered into
further agreements, covering data processing, administrative and
management services and subleasing of certain facilities for various
periods of time, all subject to renewal terms. During fiscal year
1996, Walsh separated into two independent companies; Walsh
International Inc. and Source Informatics Inc. ("Source") and the
agreements were assigned from Walsh to Source. The principal
agreements and terms are as follows:
ALPHA (PRESCRIPTION) DATABASE LICENSE AGREEMENT. Source has granted
the Company an exclusive license to use the databases for a period of
five years through December 2001, with an option to renew for two
additional 5-year periods. Thereafter, the agreement will be
automatically renewed for 5-year periods unless the Company or Source
terminates the agreement. The license fee amounts paid to Source in
the years ended June 30, 1995, 1996 and 1997 in respect of this
agreement were $2,663,000, $3,094,000 and $3,126,000, respectively.
Due to the movement of clients towards comprehensive
database contracts in the United States, both parties agreed during
fiscal 1995 to accelerate the transition, as provided for in the
license agreement, to allocate payments based on the Alpha Database
costs for data updating and maintenance according to the relative
historical revenues generated by Source and PMSI in using the
database. Revenues from the comprehensive database contracts are
also allocated to both parties based upon historical percentages of
revenue derived from the Alpha Database. These modifications did not
have a material financial impact on the results of operations of
PMSI during fiscal 1995. These amounts are included in production
costs.
DATA PROCESSING AGREEMENT. The Company has contracted for Source to
provide specific data processing services and in the years ended June
30, 1995, 1996 and 1997 costs totaling $1,883,000, $3,353,000 and
$5,395,000, respectively, were charged by Source. These amounts are
included in production costs.
F-10
<PAGE> 30
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FACILITIES AGREEMENT. PMSI sublets space from Source. The net cost to
the Company in the years ended June 30, 1995, 1996 and 1997
classified as selling, general and administrative expenses, was
$259,000, $545,000 and $29,000, respectively.
MANAGEMENT AND EXECUTIVE SERVICES AGREEMENT. Source provided
administrative, management and executive services to PMSI which
resulted in a net cost to the Company of $1,300,000, $2,319,000 and
$977,000 in the years ended June 30, 1995, 1996 and 1997,
respectively. These are included in selling, general and
administrative expenses.
At June 30, 1997, the Company had a net current
receivable from Source of $1,646,000, which is included in other
current assets. At June 30, 1996, the Company had a net current
receivable from Source of $1,790,000. Source held 831,144 shares or
6.3% of PMSI's Common Stock as of June 30, 1997. These represent the
remaining shares that were transferred to Source in the "spin-off" of
the Source businesses from Walsh.
3. ACQUISITIONS AND DIVESTITURES
ACQUISITIONS. The consolidated financial statements comprise various
business operations and entities that have been acquired by PMSI.
These acquisitions have been accounted for as purchases. Accordingly,
the acquired assets and assumed liabilities have been recorded at
their estimated fair value at the dates of acquisition. The results
of operations are included in the consolidated financial statements
from the respective dates of acquisition.
On July 1, 1994, PMSI acquired 80% of the common stock
of Mediphase Limited, a specialist software and information company
in the United Kingdom. Subsequent to June 30,1997, the Company
purchased the remaining 20% of the common stock of Mediphase Limited
for $1.7 million.
During fiscal 1995, PMSI acquired CMA Medical Data Ltd.
("CMA"), a U.K. health service database publisher. The consideration
paid for this business was approximately $205,000. At acquisition,
the excess of the purchase price over the fair value of the net
assets of CMA of approximately $488,000 was allocated to goodwill and
is being amortized over twenty years. This transaction has contingent
payments based on operating profit generated by the business in
future years, in relation to which $79,000 was paid during fiscal
1997.
F-11
<PAGE> 31
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Presented below are summarized unaudited pro forma
revenue, net income and net income per share as if CMA had been
combined with PMSI at the beginning of fiscal 1995, after giving
effect to certain pro forma adjustments, principally amortization of
intangible assets and other incremental expenses that would have been
incurred had the business been acquired at the beginning of fiscal
1995 (in thousands except per share data).
<TABLE>
<CAPTION>
Unaudited
Year Ended
June 30, 1995
-------------
<S> <C>
Revenue $89,991
Net income 5,307
Net income per share 0.41
</TABLE>
The pro forma data are not necessarily indicative of
results that would have occurred if the Company had acquired the
business at the beginning of fiscal 1995 or the future results of the
Company.
On April 28, 1993, the Company purchased an 80% holding
in IMR Finance, a French Corporation. During the period October 1,
1996 to December 31, 2002 the Company had the option to acquire the
remaining 20% of the outstanding capital stock of IMR Finance. For
the same period, the owners of the minority interest had the option
to require the Company to purchase their holding based on a multiple
of projected pre-tax earnings.
During May 1997, the minority shareholders exercised
their option, and the Company purchased the remaining 20% of the
outstanding share capital of IMR Finance. The purchase price of $2.6
million has been accounted for in net assets held for sale.
DIVESTITURES. During the third quarter of fiscal 1997, Marketing
Resources International Limited in the United Kingdom and Patient
Programs in the US were divested by the Company for $0.4 million.
The total revenue and operating loss from these businesses included
in the consolidated statement of operations for the year ended June
30, 1997 were $1.1 million and $1.0 million, respectively.
F-12
<PAGE> 32
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
4. MARKETABLE SECURITIES
Marketable securities consisted of the following as of
June 30, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair Value
Cost of at Balance Unrealized
Name of Issuer and Title of Each Issue Sheet Date Losses, net
Each Issue at June 30, at June 30, at June 30,
- --------------------------- --------------- --------------- ------------
1996 1997 1996 1997 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Corporate debt securities $19,387 $41,486 $19,375 $41,482 $(12) $(4)
Debt securities issued by the U.S.
Treasury and other U.S.
government corporations and
agencies. 9,738 4,121 9,737 4,121 (1) --
Debt securities issued by foreign
governments 7,807 4,228 7,741 4,226 (66) (2)
------- ------- ------- ------- ---- ---
$36,932 $49,835 $36,853 $49,829 $(79) $(6)
======= ======= ======= ======= ==== ===
Maturities
- ----------
Cash and cash equivalents(1) $ 2,165 $17,708 $ 2,164 $17,707 $ (1) $(1)
Short-term investments(2) 16,219 24,742 16,174 24,738 (45) (4)
Due after one year through three years 18,548 7,385 18,515 7,384 (33) (1)
------- ------- ------- ------- ---- ---
$36,932 $49,835 $36,853 $49,829 $(79) $(6)
======= ======= ======= ======= ==== ===
</TABLE>
(1) Maturities of three months or less at acquisition
(2) Due after three months
F-13
<PAGE> 33
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1996 and 1997
comprised the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Land and buildings including leasehold
improvements $ 5,917 $ 5,546
Furniture and office equipment 1,670 2,528
Computer equipment 3,967 7,756
Automobiles 103 321
------- -------
11,657 16,151
Less accumulated depreciation
and amortization (2,653) (4,390)
------- -------
$ 9,004 $11,761
======= =======
</TABLE>
Depreciation and amortization charged to operations for
the years ended June 30, 1995, 1996 and 1997 were $1,098,000,
$1,342,000 and $1,981,000, respectively.
6. GOODWILL
Goodwill at June 30, 1996 and 1997 comprised the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Goodwill on acquisition $33,822 $34,752
Accumulated amortization (7,927) (9,449)
------- -------
$25,895 $25,303
======= =======
</TABLE>
The increase in goodwill on acquisition includes contingent payments
and purchase accounting adjustments during the year relating to the UK
businesses.
Amortization charged to operations for the years ended June 30, 1995,
1996 and 1997 was $1,595,000, $1,639,000, and $1,522,000, respectively.
In the year ended June 30, 1996, pre-acquisition net operating losses
related to Scott-Levin and PMSI Belgium S.A. were utilized to reduce taxes
currently payable and decrease goodwill by $1,181,000.
F-14
<PAGE> 34
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
7. OTHER ASSETS
Other assets at June 30, 1996 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Software $ 4,831 $ 5,206
Acquired databases 21,539 21,539
------- -------
26,370 26,745
Less accumulated amortization (26,201) (26,324)
------- -------
169 421
Debenture financing costs 1,531(1) 1,302(1)
Deposits 1,115 766
Deferred taxes 2,555 723
Investments 1,736(2) 1,670(2)
Deferred charges 429 422
Note receivable from Walsh 1,078(3) 1,120(3)
------- -------
$ 8,613 $ 6,424
======= =======
</TABLE>
(1) Debenture financing costs are being amortized over the life of the
debentures.
(2) Investments include restricted stock in a joint venture partner,
carried at cost.
(3) Represents an interest free note receivable of $1,200,000 due from
Walsh in June 1999 relating to the Scriptrac acquisition. The note
receivable was recorded initially at its present value and as a result
of accretion, the balance at June 30, 1997 is $1,120,000.
Amortization of acquired databases and software charged to operations
for the years ended June 30, 1995, 1996 and 1997 was $294,000, $373,000, and
$211,000, respectively.
F-15
<PAGE> 35
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
8. LONG-TERM DEBT
Long-term debt at June 30, 1996 and 1997 consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Debentures(1) $69,000 $69,000
Other long-term debt(2) 350 959
------- -------
69,350 69,959
Less current portion (219) (407)
------- -------
$69,131 $69,552
======= =======
</TABLE>
(1) On February 3, 1993 the Company completed an offering of an aggregate
$69 million Convertible Subordinated Debentures due in 2003. The
debentures, issued at par, bear annual interest at 6-1/4% and are
convertible into Common Stock of the Company at a conversion price of
$20 per share, subject to adjustments in certain events. The current
value of the debentures at June 30, 1997, based on quoted market
prices, was $56,580,000.
(2) Capital lease obligations.
Annual maturities of long-term debt outstanding at June 30, 1997 are
(in thousands):
<TABLE>
<S> <C>
June 1998 $ 407
June 1999 289
June 2000 263
June 2001 --
After 2001 69,000
-------
$69,959
=======
</TABLE>
F-16
<PAGE> 36
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTIONS AND RESTRICTED STOCK PURCHASE PLAN
A Stock Option and Restricted Stock Purchase Plan (the
"Plan") was established on August 17, 1991 for employees, officers
and directors of the Company or any of its subsidiaries. The number
of stock options authorized by the Plan is 2,250,000. The Plan
provides for the granting of "non-qualified stock options" and
"incentive stock options" to acquire Common Stock of PMSI and/or the
granting of rights to purchase Common Stock. The terms and conditions
of individual option agreements may vary, subject to the following
guidelines: (i) the option price of incentive stock options may not
be less than market value on the date of grant; the option price of
non-qualified options may be less than market value on the date of
grant, (ii) the term of all incentive stock options may not exceed
ten years from the date of grant; the term of non-qualified stock
options may exceed ten years, (iii) no options may be granted after
August 17, 2001 and (iv) in general, options vest evenly over a
period of five years from the date of issue.
A Non-Employee Directors' Stock Option Plan (the
"Directors Plan") was adopted on May 27, 1993. The Directors' Plan
provides for the granting of non-qualified stock options to purchase
shares of the Company's Common Stock. The terms and conditions of
individual option agreements may vary, subject to the following
guidelines: (i) the option exercise price will be equal to 100% of
the fair market value of the Common Stock on the date of grant, (ii)
the term of the stock options may not exceed ten years from the date
of grant, (iii) in general, options vest evenly over a period of
three years from the date of issue (iv) the total number of shares of
Common Stock that may be subject to options pursuant to the
Directors' Plan is 120,000, subject to automatic adjustments
following certain events, and (v) no options may be granted after May
27, 2003.
Additional information relating to the plan is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Options outstanding at July 1, 1995,
1996 and 1997 1,564,100 1,786,400 1,848,200
Options granted 372,750 234,250 392,200
Options exercised (17,600) (84,050) (30,200)
Options lapsed (132,850) (88,400) (306,450)
---------- ---------- ----------
Options outstanding at June 30 1,786,400 1,848,200 1,903,750
Options exercisable at June 30 769,225 980,700 1,150,610
---------- ---------- ----------
Options prices per share:
Granted $9-$10 $8-$14 $9-$10
Exercised $8 $8-$10 $8-$9.50
Outstanding $8-$22 $8-$22 $8-$22
</TABLE>
F-17
<PAGE> 37
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to continue to use the intrinsic
value based method to account for all of its employee stock-based
compensation plans. Under APB Opinion No. 25, "Accounting for Stock
Issued to Employees", the Company has recorded no compensation costs
related to its stock option plans for the years ended June 30, 1995,
1996 and 1997.
Pursuant to SFAS 123, "Accounting for Stock-Based
Compensation", the Company is required to disclose the pro-forma
effects on net loss and net loss per share data as if the Company
had elected to use the fair value approach to account for all its
stock-based compensation plans. Had compensation cost for the
Company's plans been determined consistent with the fair value
approach enumerated in SFAS No.123 the Company's net loss and net
loss per share for the years ended June 30, 1996 and 1997 would have
changed as indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997
---- ----
<S> <C> <C>
Net loss:
As reported ($9,624) ($5,253)
Pro-forma ($9,726) ($5,556)
Net loss per share:
As reported ($0.73) ($0.40)
Pro-forma ($0.74) ($0.42)
</TABLE>
The fair value of options granted was estimated on the
date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in fiscal
years 1996 and 1997; risk-free interest rate of 6%; expected life of
6 years; 39% expected volatility and no dividends.
F-18
<PAGE> 38
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's fixed option plans as of
June 30, 1996 and 1997 and changes during the years ended on those dates is
as follows:
<TABLE>
<CAPTION>
June 30, 1996 June 30, 1997
------------------------- -------------------------
Number Weighted- Number Weighted-
of average of average
Fixed options shares exercise price snares exercise price
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,786,400 $11.62 1,848,200 $11.77
Granted 234,250 $13.34 392,200 $9.38
Exercised (84,050) $8.97 (30,200) $8.48
Cancelled (88,400) $14.59 (306,450) $13.43
--------- ---------
Outstanding at end of year 1,848,200 $11.77 1,903,750 $11.02
========= =========
Options exercisable at end of year 980,700 $11.99 1,150,610 $11.35
========= =========
Weighted-average fair value of options
granted during the period at exercise
price equal to market price at grant
date $13.34 $9.38
</TABLE>
A summary of information regarding the outstanding options and those
exercisable at June 30, 1997 is given in the following tables:
<TABLE>
<CAPTION>
Weighted Average
Number of remaining Number of
Exercise Price Options Contractual life of Options
($) Outstanding options outstanding Exercisable
(Yrs)
<S> <C> <C> <C>
8.13 2,500 7.92 1,000
8.40 586,350 4.17 586,350
8.75 124,000 7.67 86,080
9.00 90,000 9.25 0
9.50 481,100 8.64 82,080
13.50 331,800 7.91 130,500
14.00 36,000 4.58 36,000
15.00 15,000 4.92 15,000
15.25 102,000 5.29 81,600
15.75 15,000 5.95 12,000
18.50 12,000 5.33 12,000
22.00 108,000 4.58 108,000
--------- ---- ---------
1,903,750 6.54 1,150,610
========= ==== =========
</TABLE>
The weighted average exercise price of options outstanding at June 30,
1997 was $11.02. The weighted average exercise price of options exercisable at
June 30,1997 was $11.35.
F-19
<PAGE> 39
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. TAXES
The components of the income tax (provision) benefit for the years
ended June 30, 1995, 1996 and 1997 are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
U.S. taxes currently (payable) receivable $(2,701) $(1,666) $ 9
Foreign taxes currently payable (968) (279) (1,711)
Deferred income taxes 719 789 (953)
------- ------- -------
$(2,950) $(1,156) $(2,655)
======= ======= =======
</TABLE>
The domestic and foreign components of income before income taxes were
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
----------------------------------------
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Domestic $ 4,736 $ 1,153 $ 4,022
Foreign 3,529 (763) 3,311
------- ------- -------
$ 8,265 $ 390 $ 7,333
======= ======= =======
</TABLE>
F-20
<PAGE> 40
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The provision for income taxes differs from that computed using the 34%
statutory federal income tax rate as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Provision based on federal statutory rate $(2,810) $ (133) $(2,493)
Goodwill and other non-deductible
items (313) (304) (301)
Foreign earnings and dividends
taxed at different rates 1,270 (538) 1,124
Release of prior period tax reserves -- -- 833
State tax, net of federal benefit (253) (135) (149)
Purchase accounting adjustments (280) (1,182) --
Valuation of temporary differences 147 848 (2,386)
All other, net (711) 288 717
------- ------- -------
Consolidated effective tax rate $(2,950) $(1,156) $(2,655)
======= ======= =======
</TABLE>
The tax effect of significant temporary differences representing deferred
tax assets and liabilities at June 30, 1996 and 1997 were as follows (in
thousands):
<TABLE>
<CAPTION>
CURRENT ASSETS (LIABILITIES): 1996 1997
------- -------
<S> <C> <C>
Accrued liabilities $ 545 $ 1,655
Foreign tax credits 53 --
Net operating losses 62 --
Prepaid assets 14 212
Bad debts 39 130
------- -------
713 1,997
Valuation allowance -- (405)
------- -------
Net current assets 713 1,592
------- -------
NON-CURRENT ASSETS(LIABILITIES):
Fixed assets & intangibles (316) (200)
Net operating losses 3,983 4,113
Other liabilities 319 222
------- -------
3,986 4,135
Valuation allowance (1,431) (3,412)
------- -------
Net non-current assets 2,555 723
------- -------
Deferred taxes, net $3,268 $ 2,315
======= =======
</TABLE>
Deferred tax assets recognized by the Company result from the anticipated
carryback of future tax deductions to offset income taxes previously provided
and the utilization of future tax deductions to reduce taxes payable on future
taxable income.
F-21
<PAGE> 41
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of June 30, 1997, there is available for foreign income tax
purposes net operating loss carryforwards of approximately $9,596,000
which expire as follows: 1998: $0, 1999: $503,000, 2000: $0, 2001: $0
and thereafter: $9,093,000.
The undistributed earnings of foreign subsidiary
companies for which deferred U.S. income taxes have not been provided
at June 30, 1996 and June 30, 1997 because of permanent reinvestment
of earnings in the operations of those subsidiaries, amounted to
$15,117,000 and $15,272,000, respectively. It is not practicable to
estimate the amount of tax that might be payable on the eventual
remittance of such earnings. On remittance, certain foreign countries
impose withholding taxes. The amount of withholding taxes that would
be payable on remittance of the entire amount of such undistributed
earnings would approximate $3,813,000 and $3,727,000 at June 30, 1996
and June 30, 1997, respectively.
12. EMPLOYEE BENEFIT PLANS
Subsidiaries of PMSI in the United Kingdom, Holland,
Japan and the United States have defined contribution pension or
profit sharing plans covering substantially all their employees. The
total costs associated with these plans for the years ended June 30,
1995, 1996 and 1997 were $618,000, $729,000 and $1,245,000
respectively.
13. LEASE OBLIGATIONS
Various PMSI subsidiaries lease certain property and
equipment. Obligations under long-term non-cancellable lease
agreements expiring at various dates have the following aggregate
approximate annual minimum rentals (in thousands):
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1998 $ 449 $1,291
1999 312 1,057
2000 269 843
2001 -- 437
After 2001 -- 291
------ -------
1,030 $3,919
=======
Less amount representing interest (71)
------
Present value of minimum lease
payments 959
Less current portion (407)
------
$ 552
======
</TABLE>
Operating lease rental expense for the years ended June
30, 1995, 1996 and 1997 was $2,237,000, $1,471,000 and $1,559,000,
respectively. Included in furniture, fixtures and equipment are
assets subject to capitalized leases with an original cost of
$1,332,000 (1996: $924,000) and accumulated amortization of $351,000
(1996: $505,000).
F-22
<PAGE> 42
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. GEOGRAPHIC DATA
The following table presents certain financial
information by geographic area (in thousands):
<TABLE>
<CAPTION>
As of and For the Year Ended
June 30, 1997
--------------------------------------------------
Operating Identifiable
Revenues Income (Loss) Assets
-------- ------------- ------------
<S> <C> <C> <C>
United States $ 47,555 $ 9,552 $ 32,142
Europe and Pacific 50,930 2,887 74,694
General corporate - (4,915) 60,366
-------- -------- ---------
Total $ 98,485 $ 7,524 $ 167,202
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
As of and For the Year Ended
June 30, 1996
--------------------------------------------------
Operating Identifiable
Revenues Income (Loss) Assets
-------- ------------- ------------
<S> <C> <C> <C>
United States $ 41,421 $ 5,566 $ 28,023
Europe and Pacific 51,256 1,508 56,614
General corporate 350 (6,554) 45,900
-------- -------- ---------
Total $ 93,027 $ 520 $ 130,537
======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
As of and For the Year Ended
June 30, 1995
--------------------------------------------------
Operating Identifiable
Revenues Income (Loss) Assets
-------- ------------- ------------
<S> <C> <C> <C>
United States $ 42,308 $ 6,566 $ 28,463
Europe and Pacific 47,585 5,168 54,002
General corporate - (3,494) 55,184
-------- ------- ---------
Total $ 89,893 $ 8,240 $ 137,649
======== ======= =========
</TABLE>
F-23
<PAGE> 43
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SUPPLEMENTAL OPERATIONS STATEMENT DATA
Advertising costs are charged to costs and expensed as
incurred and for the years ended June 30, 1995, 1996 and 1997
amounted to $928,000, $1,308,000 and $1,391,000, respectively.
16. RESTRUCTURING COSTS
During the third quarter of fiscal 1996, the Company
recorded a $2.3 million ($1.3 million after tax) restructuring charge
for elimination of non-core product lines. These products were
unprofitable and there was no assurance of future profitability. The
charge related primarily to write-off of database costs and severance
payments. The $2.3 million charge included estimated cash payments of
$1.5 million and non-cash asset write-offs of $0.8 million. The
remaining balance of the restructuring liability as of June 30, 1996
was $0.9 million. This was fully utilized in fiscal year 1997.
17. IMPAIRMENT
During the third quarter of fiscal 1996, the Company adopted the
provisions of Statement of Financial Accounting Standard number 121
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of" ("FAS 121"). The initial
application of this statement resulted in a pre-tax charge of $2.4
million ($1.6 million after tax) related principally to the write-off
of goodwill and capitalized database costs for a database business
being exited.
F-24
<PAGE> 44
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables show the unaudited quarterly
financial information for the year ended June 30, 1997
(in thousands except for per share data):
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30
------------ ------------ -------- -------
YEAR ENDED JUNE 30, 1997
<S> <C> <C> <C> <C>
Total revenues $21,992 $26,552 $ 22,794 $27,217
Gross profit 9,234 12,444 10,341 12,009
Net income from continuing operations 227 1,456 1,046 1,932
Net loss from discontinued operations, net -- (9,914) -- --
------------ ------------ -------- -------
Net income (loss) $ 227 $(8,458) $ 1,046 $ 1,932
============ ============ ======== =======
Income per share from continuing operations $ 0.02 $ 0.11 $ 0.08 $ 0.14
Loss per share from discontinued operations -- (0.74) -- --
------------ ------------ --------- -------
Net income (loss) per share $ 0.02 $ (0.63) $ 0.08 $ 0.14
============ ============ ========= =======
YEAR ENDED JUNE 30, 1996
Total revenues $20,709 $24,290 $ 23,126 $24,902
Gross profit 8,953 11,692 9,475 11,302
Net (loss) income from continuing operations 118 2,379 (4,660) 1,454
Net loss from discontinued operations, net (673) (1,080) (7,162) --
------------ ------------ -------- -------
Net income (loss) $ (555) $ 1,299 $(11,822) $ 1,454
============ ============ ========= =======
Income (loss) per share from continuing operations $ 0.01 $ 0.18 $ (0.35) $ 0.11
Loss per share from discontinued operations (0.05) (0.08) (0.54) --
------------ ------------ --------- -------
Net income (loss) per share $ (0.04) $ 0.10 $ (0.89) $ 0.11
============ ============ ========= =======
</TABLE>
19. ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
During the third quarter of fiscal 1996, the Company
announced its decision to develop its business as a focused
information services provider to the pharmaceutical and
healthcare industries and that its European marketing and
communication businesses would be divested. These businesses,
comprising the non-database segment of PMSI's operations, were
accounted for as discontinued operations and, accordingly, their
operations have been segregated in the accompanying statements of
operations.
During the second quarter of fiscal 1997, the Company
recorded a further net charge for the loss on disposal of the
discontinued operations of $9.9 million. The charge was based
upon the Company's quarterly review of the assumptions used in
determining the estimated loss relating to the discontinued
operations. This further charge was principally the result of
revisions to the original estimates of expected net
F-25
<PAGE> 45
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
proceeds and income expected to be generated during the disposal
period from the remaining businesses to be sold.
Summary operating results of the discontinued operations
for the years ended June 30, 1995, 1996 and 1997 were as follows:
<TABLE>
<CAPTION> Year Ended
June 30,
------------------------------------
1995 1996 1997
------------------------------------
<S> <C> <C> <C>
Results of discontinued operations:
Revenue $39,865 $44,849 $ --
Income (loss) from operations:
Income (loss) before taxes 299 (2,288) --
Income tax provision (430) (917) --
------- ------- -------
Loss from discontinued operations (131) (3,205) --
Loss on disposal of discontinued operations, net -- (5,710) (9,914)
------- ------- -------
Loss from discontinued operations $ (131) $(8,915) $(9,914)
======= ======= =======
</TABLE>
The loss from discontinued operations for the nine months
to March 31, 1997, when the measurement period ended, was $1.3
million net of income taxes.
At the end of the measurement period, the French point of
sale marketing business was the only operation in the
discontinued segment that had not been sold. The business
remained unsold at June 30, 1997. In accordance with EITF 90-6,
the net assets of this remaining business, together with the
remaining accrual for the loss expected to be generated on
disposition, are now classified as net current assets held for
sale and net assets held for sale in the balance sheet at June
30, 1997 and its operating profit for the third and fourth
quarters is recorded in operating income as a separate item
"income from assets held for sale".
Although the Company's estimated net proceeds expected to
be generated from the disposal of assets held for sale are
supported by Management's calculations, as confirmed by an
outside valuation, it is reasonably possible the Company may have
to adjust the carrying value of the assets held for sale at the
time of disposition.
The revenue and operating income attributable to assets
held for sale in the fourth quarter of fiscal 1997 were $5.2
million and $0.4 million, respectively.
F-26
<PAGE> 46
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
20. SUBSEQUENT EVENTS
On July 30, 1997 the Company announced that it had
finalized the sale of its Dutch and US-based international
publishing and communications operations to Excerpta Medica, the
medical communications division of Elsevier Science for $9
million, resulting in a net gain on sale of approximately $3
million. The sale of these businesses formed part of the program
of divestitures of non-core businesses announced by the Company
in May 1996.
On August 20, 1997, the Company announced that it
had signed definitive agreements to acquire the Source Europe
business from Source Informatics Inc. (Source), and to divest its
minority interest in the Source Informatics venture in the United
States together with its OTC Physician Survey business. The
Company will file a proxy statement with the SEC, prior to
calling a special meeting of PMSI's common stockholders. Subject
to receiving the approval of PMSI common stockholders, the
Company expects the transactions to close before the end of
calendar year 1997.
F-27
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders of
Pharmaceutical Marketing Services Inc.
Our report on the consolidated financial statements of
Pharmaceutical Marketing Services Inc. is included on Page F-1 of this Form
10-K. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index on Page 19
of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 9, 1997
S-1
<PAGE> 48
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ----------------------- ------------ ---------- ---------- ----------
Additions
----------
Balance at Charged to Balance at
Beginning of Costs and End of
Descriptions Period Expenses Deductions Period
- ----------------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful
accounts
June 30, 1995 $ 685,000 19,000 (289,000) $ 415,000
June 30, 1996 $ 415,000 207,000 (222,000) $ 400,000
June 30, 1997 $ 400,000 246,000 (258,000) $ 388,000
Valuation allowance
for deferred tax assets
June 30, 1995 $1,978,000 598,000 -- $2,576,000
June 30, 1996 $2,576,000 -- (1,145,000) $1,431,000
June 30, 1997 $1,431,000 2,386,000 -- $3,817,000
</TABLE>
S-2
<PAGE> 49
PART III
The information required by Part III of Form 10-K is incorporated
by reference from the Registrant's definitive Proxy Statement for its meeting of
stockholders in connection with its transition period, which is to be filed
pursuant to Regulation 14A not later than October 30, 1997.
Pursuant to General Instruction G(3) to the Annual Report on Form
10-K, the information required by Part III of 10-K regarding executive officers
of the Company required by Item 401 of Regulation S-K is hereby incorporated by
reference from the Registrants' Definitive Proxy Statement for its annual
meeting of stockholders, which is to be filed pursuant to Registration 14A not
later than October 30, 1997.
PART IV
ITEM 10. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1-2) Financial Statements and Schedule
See Index to Financial Statements and Schedule on page 19 of this
Annual Report.
EXHIBITS
Exhibit Number
2.1 Transfer and Exchange Agreement, dated as of October 11,
1991, between Walsh International Inc. and Pharmaceutical
Marketing Services Inc. (incorporated by reference to
Exhibit 2.1 to the Registrant's Registration Statement
Number 33-43226)
2.2 Merger Agreement and Plan of Reorganization, dated
October 11, 1991, by and between Walsh International
Inc., Pharmaceutical Marketing Services Inc. and SLA
Acquisition Corp., on the one hand, and Scott-Levin
Associates, Inc., Joy Scott and Larry Levin, on the other
(incorporated by reference to Exhibit 2.2 to the
Registrant's Registration Statement Number 33-43226)
2.3 English translation of Agreement for the Sale and
Purchase of the Shares of IMR S.A. (translation for
information purposes only) (incorporated by reference to
Exhibit 2.1 to the Registrant's Current Report on Form
8-K filed May 13, 1993)
<PAGE> 50
2.4 Contrat pour l'Achat et la Vente des Actions de la
Societe IMR S.A. (incorporated by reference to Exhibit
2.2 to the Registrant's Current Report on Form 8-K filed
May 13, 1993)
2.5 Sale and Purchase Agreement dated July 30, 1997 by and
among Bugamor Databases BV, PMSI Nederland BV and PMSI
Bugamor Inc. (as sellers), and Excerpta Medica Medical
Communications BV and Elsevier Science Inc. (as
purchasers) (incorporated by reference to Exhibit 2.2 to
the Registrant's Current Report on Form 8-K filed August
19, 1997)
3.1 Certificate of Incorporation of Pharmaceutical Marketing
Services Inc. and Amendment thereto (incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement No. 33-43226)
3.2 By-laws of Pharmaceutical Marketing Services Inc.
(incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement No. 33-43226)
4.1 Indenture, dated as of February 1, 1993, between
Pharmaceutical Marketing Services Inc., and Harris Trust
Company of New York, Trustee (incorporated by reference
to Exhibit 4.1 to the Registrant's Annual Report on Form
10-K filed March 30, 1993)
10.1(a)(i) Purchase and Sale Agreement, dated as of April 1,
1994, by and between Walsh Belgium N.V. and PMSI Belgium,
S.A.
10.1(a)(ii) Purchase and Sale Agreement, dated as of April 1,
1994, by and among Walsh Nederland B.V., Walsh Medical
Data and Research B.V. and PMSI Bugamor B.V.
10.1(b) Amended and Restated Alpha Database License Agreement,
dated as of July 1, 1994 by and between Walsh America
Limited and Pharmaceutical Data Services, Inc., on the
one hand, and Pharmaceutical Marketing Services Inc., on
the other.
10.1(c) Physician Database License Agreement, dated as of
December 2, 1991, by and between Walsh International Inc.
and Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 10.1(c) to the Registrant's
Registration Statement No. 33-43226)
10.1(d) Management and Executive Services Agreement, dated as of
December 2, 1991, by and between Walsh International
Inc., Pharminfo Advisors Limited and Informed Management
Limited, on the one hand, and Pharmaceutical Marketing
Services Inc., on the other (incorporated by reference to
Exhibit 10.1(d) to the Registrant's Registration
Statement No. 33-43226)
10.1(e) Data Processing Agreement, dated as of December 2, 1991,
by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated by
reference to Exhibit 10.1(e) to the Registrant's
Registration Statement No. 33-43226)
<PAGE> 51
10.1(f) Facilities Agreement, dated as of December 2, 1991, by and
between Walsh International Inc. and Pharmaceutical
Marketing Services Inc. (incorporated by reference to
Exhibit 10.1(f) to the Registrant's Registration Statement
No. 33-43226)
10.1(g) Collaborative Marketing Agreement, dated as of December 2,
1991, by and between Walsh America Limited and
Pharmaceutical Data Services, Inc., on the one hand, and
Pharmaceutical Marketing Services Inc. and American
Medical Census Corp., on the other (incorporated by
reference to Exhibit 10.1(g) to the Registrant's
Registration Statement No. 33-43226)
10.1(h) Health and Benefits Agreement, dated as of December 2,
1991, by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated by
reference to Exhibit 10.1(h) to the Registrant's
Registration Statement No. 33-43226)
*10.1(i) Mailing Services Agreement, dated as of December 2, 1991,
by and between Walsh International Inc. and Pharmaceutical
Marketing Services Inc. (incorporated by reference to
Exhibit 10.1(i) to the Registrant's Registration Statement
No. 33-43226)
10.1(j) English translation of Warranty Agreement (translation for
information purposes only) (incorporated by reference to
Exhibit 3.1 to the Registrant's Current Report on Form 8-K
filed May 13, 1993)
10.1(k) Contrat de Garantie (incorporated by reference to Exhibit
3.2 to the Registrant's Current Report on Form 8-K filed
May 13, 1993)
10.1(l) English translation of Agreement for the Supply of
Services (translation for information purposes only)
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed May 13,
1993)
10.1(m) Contrat de Prestations de Services (incorporated by
reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K filed May 13, 1993)
10.1(n) English translation of Put Option (translation for
information purposes only) (incorporated by reference to
Exhibit 5.1 to the Registrant's Current Report on Form 8-K
filed May 13, 1993)
10.1(o) Promesse Unilaterale de Vente d'Actions (incorporated by
reference to Exhibit 5.2 to the Registrant's Current
Report on Form 8-K filed May 13, 1993)
10.1(p) English translation of Call Option (translation for
information purposes only) (incorporated by reference to
Exhibit 6.1 to the Registrant's Current Report on Form 8-K
filed May 13, 1993)
<PAGE> 52
10.2(a) Pharmaceutical Marketing Services Inc. and its
Subsidiaries Stock Option and Restricted Stock Purchase
Plan (incorporated by reference to Exhibit 10.2 to the
Registrant's Registration Statement No. 33-43226)
10.2(b) Pharmaceutical Marketing Services Inc. Non-Employee
Directors' Stock Option Plan (incorporated by reference to
Exhibit 4.3 to the Registrant's Registration Statement No.
33-66306)
11 Statement re Computation of Earnings (Loss) per Share
22.1 List of subsidiaries of Pharmaceutical Marketing Services
Inc. (incorporated by reference to Exhibit 22.1 to the
Registrant's Registration Statement No. 33-43226)
23 Consent of Coopers & Lybrand L.L.P.
* Certain portions of this Exhibit have been omitted pursuant to an
order of the Securities and Exchange Commission granting
confidential treatment.
(b) Reports on Form 8-K filed during the three months ended
June 30, 1997.
None.
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: September 15, 1997
PHARMACEUTICAL MARKETING SERVICES INC.
By/s/ Raymund M. Davies
------------------------------------------
Raymund M. Davies
Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby authorizes
Dennis M.J. Turner, Frederick W. Kyle and Raymond Davies, and each of them, with
full power of substitution and full power to act without the other, his true and
lawful attorney-in-fact and agent in his name, place and stead, to execute in
the name and on behalf of such person, individually and in each capacity stated
below, and to file any and all amendments to this report.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Handel E. Evans Director, Chairman of The Board September 15, 1997
- -----------------------------
Handel E. Evans
/s/ Dennis M.J. Turner Director, Chief Executive Officer September 15, 1997
- -----------------------------
Dennis M.J. Turner
/s/ Frederick W. Kyle Director, Chief Operating Officer September 15, 1997
- -----------------------------
Frederick W. Kyle
/s/ Robert J. Frattaroli Director, President September 15, 1997
- -----------------------------
Robert J. Frattaroli
/s/ Raymund M. Davies Vice President, Chief Financial September 15, 1997
- ----------------------------- Officer, and Treasurer
Raymund M. Davies
/s/ Patrick J. Welsh Director September 15, 1997
- -----------------------------
Patrick J. Welsh
</TABLE>
<PAGE> 54
<TABLE>
<S> <C> <C>
/s/ Stuart Gold Director September 15, 1997
- -----------------------------
Stuart Gold
/s/ Carolyne K. Davis Director September 15, 1997
- -----------------------------
Carolyne K. Davis
</TABLE>
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page Number
Number
<S> <C> <C>
2.1 Transfer and Exchange Agreement, dated as of October
11, 1991, between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 2.1 to the Registrant's
Registration Statement Number 33-43226)
2.2 Merger Agreement and Plan of Reorganization, dated
October 11, 1991, by and between Walsh International
Inc., Pharmaceutical Marketing Services Inc. and SLA
Acquisition Corp., on the one hand, and Scott-Levin
Associates, Inc., Joy Scott and Larry Levin, on the
other (incorporated by reference to Exhibit 2.2 to
the Registrant's Registration Statement Number
33-43226)
2.3 English translation of Agreement for the Sale and
Purchase of the Shares of IMR S.A. (translation for
information purposes only) (incorporated by reference
to Exhibit 2.1 to the Registrant's Current Report on
Form 8-K filed May 13, 1993)
2.4 Contrat pour l'Achat et la Vente des Actions de la
Societe IMR S.A. (incorporated by reference to
Exhibit 2.2 to the Registrant's Current Report on
Form 8-K filed May 13, 1993)
2.5 Sale and Purchase Agreement dated July 30, 1997 by
and among Bugamor Databases BV, PMSI Nederland BV and
PMSI Bugamor Inc. (as sellers), and Excerpta Medica
Medical Communications BV and Elsevier Science Inc.
(as purchasers) (incorporated by reference to Exhibit
2.2 to the Registrant's Current Report on Form 8-K
filed August 19, 1997)
3.1 Certificate of Incorporation of Pharmaceutical
Marketing Services Inc. and Amendment thereto
(incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement No. 33-43226)
3.2 By-laws of Pharmaceutical Marketing Services Inc.
(incorporated by reference to Exhibit 3.2 to the
Registrant's Registration Statement No. 33-43226)
</TABLE>
<PAGE> 56
4.1 Indenture, dated as of February 1, 1993, between
Pharmaceutical Marketing Services Inc., and Harris
Trust Company of New York, Trustee
10.1(a)(i) Purchase and Sale Agreement, dated as of April 1,
1994, by and between Walsh Belgium N.V. and PMSI
Belgium, S.A.
10.1(a)(ii) Purchase and Sale Agreement, dated as of April 1,
1994, by and among Walsh Nederland B.V., Walsh
Medical Data and Research B.V. and PMSI Bugamor B.V.
10.1(b) Amended and Restated Alpha Database License
Agreement, dated as of July 1, 1994 by and between
Walsh America Limited and Pharmaceutical Data
Services, Inc., on the one hand, and Pharmaceutical
Marketing Services Inc., on the other.
10.1(c) Physician Database License Agreement, dated as of
December 2, 1991, by and between Walsh International
Inc. and Pharmaceutical Marketing Services Inc.
(incorporated by reference to Exhibit 10.1(c) to the
Registrant's Registration Statement No. 33-43226)
10.1(d) Management and Executive Services Agreement, dated as
of December 2, 1991, by and between Walsh
International Inc., Pharminfo Advisors Limited and
Informed Management Limited, on the one hand, and
Pharmaceutical Marketing Services Inc., on the other
(incorporated by reference to Exhibit 10.1(d) to the
Registrant's Registration Statement No. 33-43226)
10.1(e) Data Processing Agreement, dated as of December 2,
1991, by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 10.1(e) to the Registrant's
Registration Statement No. 33-43226)
10.1(f) Facilities Agreement, dated as of December 2, 1991,
by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 10.1(f) to the Registrant's
Registration Statement No. 33-43226)
<PAGE> 57
10.1(g) Collaborative Marketing Agreement, dated as of
December 2, 1991, by and between Walsh America
Limited and Pharmaceutical Data Services, Inc., on
the one hand, and Pharmaceutical Marketing Services
Inc. and American Medical Census Corp., on the other
(incorporated by reference to Exhibit 10.1(g) to the
Registrant's Registration Statement No. 33-43226)
10.1(h) Health and Benefits Agreement, dated as of December
2, 1991, by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 10.1(h) to the Registrant's
Registration Statement No. 33-43226)
*10.1(i) Mailing Services Agreement, dated as of December 2,
1991, by and between Walsh International Inc. and
Pharmaceutical Marketing Services Inc. (incorporated
by reference to Exhibit 10.1(i) to the Registrant's
Registration Statement No. 33-43226)
10.1(j) English translation of Warranty Agreement
(translation for information purposes only)
(incorporated by reference to Exhibit 3.1 to the
Registrant's Current Report on Form 8-K filed May 13,
1993)
10.1(k) Contrat de Garantie (incorporated by reference to
Exhibit 3.2 to the Registrant's Current Report on
Form 8-K filed May 13, 1993)
10.1(l) English translation of Agreement for the Supply of
Services (translation for information purposes only)
(incorporated by reference to Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed May 13,
1993)
10.1(m) Contrat de Prestations de Services (incorporated by
reference to Exhibit 4.2 to the Registrant's Current
Report on Form 8-K filed May 13, 1993)
10.1(n) English translation of Put Option (translation for
information purposes only) (incorporated by reference
to Exhibit 5.1 to the Registrant's Current Report on
Form 8-K filed May 13, 1993)
10.1(o) Promesse Unilaterale de Vente d'Actions (incorporated
by reference to Exhibit 5.2 to the
<PAGE> 58
Registrant's Current Report on Form 8-K filed May 13,
1993)
10.1(p) English translation of Call Option (translation for
information purposes only) (incorporated by reference
to Exhibit 6.1 to the Registrant's Current Report on
Form 8-K filed May 13, 1993)
10.2(a) Pharmaceutical Marketing Services Inc. and its
Subsidiaries Stock Option and Restricted Stock
Purchase Plan (incorporated by reference to Exhibit
10.2 to the Registrant's Registration Statement No.
33-43226)
10.2(b) Pharmaceutical Marketing Services Inc. Non-Employee
Directors' Stock Option Plan (incorporated by
reference to Exhibit 4.3 to the Registrant's
Registration Statement No. 33-66306)
11 Statement re Computation of Earnings (Loss) per Share
22.1 List of subsidiaries of Pharmaceutical Marketing
Services Inc. (incorporated by reference to Exhibit
22.1 to the Registrant's Registration Statement No.
33-43226)
23 Consent of Coopers & Lybrand L.L.P.
* Certain portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
<PAGE> 1
EXHIBIT 11
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
PRIMARY EARNINGS PER SHARE
Common shares outstanding 12,970,571 13,123,998 13,186,564
Assumed exercise of certain stock options 82,821 -- 110,757
----------- ----------- -----------
13,053,392 13,123,998 13,297,321
=========== =========== ===========
Income (loss) from continuing operations (in thousands) $ 5,312 $ (709) $ 4,661
Loss from discontinued operations, net (in thousands) (131) (8,915) (9,914)
----------- ----------- -----------
Net income (loss) (in thousands) $ 5,181 $ (9,624) $ (5,253)
=========== =========== ===========
Primary income (loss) per share continuing $ 0.41 $ (0.05) $ 0.35
Primary loss per share discontinued (0.01) (0.68) (0.75)
----------- ----------- -----------
Net income (loss) per share $ 0.40 $ (0.73) $ (0.40)
=========== =========== ===========
FULLY DILUTED EARNINGS PER SHARE
Common shares outstanding 12,970,571 13,123,998 13,186,564
Assumed exercise of certain stock options 82,821 -- 110,757
Assumed conversion of convertible debentures -- -- --
----------- ----------- -----------
13,053,392 13,123,998 13,297,321
=========== =========== ===========
Income (loss) from continuing operations (in thousands) $ 5,312 $ (709) $ 4,661
Loss from discontinued operations, net (in thousands) (131) (8,915) (9,914)
----------- ----------- -----------
Net income (loss) (in thousands) 5,181 (9,624) (5,253)
Reduction in interest expense following conversion -- -- --
----------- ----------- -----------
Revised net income (loss) (in thousands) $ 5,181 $ (9,624) $ (5,253)
=========== =========== ===========
Fully diluted income (loss) per share continuing $ 0.41 $ (0.05) $ 0.35
Fully diluted loss per share discontinued (0.01) (0.68) (0.75)
----------- ----------- -----------
Fully diluted net income (loss) per share $ 0.40 $ (0.73) $ (0.40)(1)
=========== =========== ===========
</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 increased by
3,450,000 in 1995, 1996 and 1997.
As a result of reduced interest expense following conversion, the increase
to net income (or decrease to net loss) would have been $2,588,000 in 1995,
1996 and 1997. These adjustments would have resulted in a fully diluted
income (loss) per share of $0.47, $(0.46) and $(0.16) in 1995, 1996 and
1997, respectively.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (i) the
Registration Statement on Form S-8 (File No. 33-48364), (ii) the Registration
Statement on Form S-8 (File No. 33-66306) and (iii) the Registration Statement
on Form S-3 (File No. 33-59734) of our reports dated September 9, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of Pharmaceutical Marketing Services Inc. and Subsidiaries as of June 30, 1996
and 1997, and the years ended June 30, 1995, 1996 and 1997, which reports are
included in this Form 10-K.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 15, 1997
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 32,414
<SECURITIES> 24,738
<RECEIVABLES> 27,830
<ALLOWANCES> 388
<INVENTORY> 0
<CURRENT-ASSETS> 97,533
<PP&E> 16,151
<DEPRECIATION> (4,390)
<TOTAL-ASSETS> 167,202
<CURRENT-LIABILITIES> 33,323
<BONDS> 70,135
0
0
<COMMON> 132
<OTHER-SE> 63,612
<TOTAL-LIABILITY-AND-EQUITY> 167,202
<SALES> 98,485
<TOTAL-REVENUES> 98,485
<CGS> 54,457
<TOTAL-COSTS> 90,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (246)
<INTEREST-EXPENSE> (3,490)
<INCOME-PRETAX> 7,333
<INCOME-TAX> (2,655)
<INCOME-CONTINUING> 4,661
<DISCONTINUED> (9,914)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,253)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
