<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
Commission file number 01-9723
--------
PHARMACEUTICAL MARKETING SERVICES INC.
--------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0335521
-------- ----------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Suite 912, 45 Rockefeller Plaza, NY10111
----------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 841 0610
--------------
---------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
--- ---
As of January 31, 1997, there were outstanding 13,196,975 shares of Common Stock
of Pharmaceutical Marketing Services Inc.
1
<PAGE> 2
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
(unaudited) for the Three and Six Months
Ended December 31, 1996 and 1995............................. 3
Consolidated Balance Sheets as of
December 31, 1996 (unaudited) and
June 30, 1996................................................ 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months Ended
December 31, 1996 and 1995................................... 5
Notes to Consolidated Financial Statements................... 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition.......................................... 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders............................................. 10
Item 6. Exhibits and Reports on Form 8-K............................. 10
Signatures................................................... 11
Index to Exhibits............................................ 12
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
DECEMBER 31, DECEMBER 31,
------------ ------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue $ 26,552 $ 24,290 $ 48,474 $ 44,999
Production costs (14,109) (12,598) (26,796) (24,354)
Selling, general and administrative
expenses (9,709) (8,301) (18,017) (17,130)
Amortization of intangible assets (397) (523) (851) (1,034)
-------- -------- -------- --------
Operating income 2,337 2,868 2,810 2,481
Interest expense (797) (675) (1,537) (1,437)
Interest and other income 740 690 1,412 1,424
-------- -------- -------- --------
Income from continuing operations before
income taxes and minority interest 2,280 2,883 2,685 2,468
Income tax (provision) benefit (798) (521) (956) 1
Minority interest (25) 18 (46) 29
-------- -------- -------- --------
Income from continuing operations 1,457 2,380 1,683 2,498
-------- -------- -------- --------
Loss from discontinued operations, net (9,914) (1,081) (9,914) (1,754)
-------- -------- -------- --------
Net income (loss) $ (8,457) $ 1,299 $ (8,231) $ 744
======== ======== ======== ========
Income (loss) per share:
Continuing operations $ 0.11 $ 0.18 $ 0.13 $ 0.19
Discontinued operations, net (0.74) (0.08) (0.74) (0.13)
-------- -------- -------- --------
Net income (loss) per share $ (0.63) $ 0.10 $ (0.61) $ 0.06
======== ======== ======== ========
Common stock and common stock
equivalents 13,328 13,404 13,248 13,337
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE> 4
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1996 JUNE 30, 1996
----------------- -------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 21,201 $ 12,669
Marketable securities 32,493 16,174
Accounts receivable, principally trade
(less allowance for doubtful accounts of
$625 and $400, respectively) 29,040 29,283
Work in process 3,368 2,986
Prepaid expenses and other current assets 8,732 7,398
Net current assets of discontinued operations 3,207 9,276
--------- ---------
Total current assets 98,041 77,786
Marketable securities 2,041 18,515
Property and equipment, net 11,118 9,004
Goodwill, net 25,566 25,895
Other assets, net 8,925 8,613
Net assets of discontinued operations 24,221 33,595
--------- ---------
Total assets $ 169,912 $ 173,408
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 166 $ 219
Accounts payable 4,456 4,411
Accrued liabilities 13,787 11,489
Unearned income 17,450 14,040
--------- ---------
Total current liabilities 35,859 30,159
Long-term debt 69,061 69,131
Other liabilities 383 454
Minority interest 110 710
--------- ---------
Total liabilities 105,413 100,454
--------- ---------
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized and 13,190,475 and 13,169,275 shares
issued and outstanding, respectively 132 132
Paid-in capital 87,104 86,923
Accumulated deficit (23,007) (14,776)
Cumulative translation adjustment 278 722
Unrealized loss on investments, net of
income tax benefit of $5 and $32 respectively (8) (47)
--------- ---------
Total stockholders' equity 64,499 72,954
--------- ---------
Total liabilities and stockholders' equity $ 169,912 $ 173,408
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE> 5
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
DECEMBER 31,
------------
1996 1995
-------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities $ 6,001 $ (7,970)
-------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (2,896) (1,024)
Proceeds from sale of assets relating to discontinued operations 2,807 0
Sale of marketable securities 188 4,035
Acquisitions payments, net of cash acquired 0 (592)
-------- --------
Net cash provided by investing activities 99 2,419
-------- --------
Cash flows provided by (used in) financing activities:
Net proceeds from options exercised 181 355
Repayments of long-term debt and capital lease obligations (126) (173)
-------- --------
Net cash provided by financing activities 55 182
Effect of discontinued operations 2,194 (459)
Effect of exchange rate movements 183 2,304
-------- --------
Net increase (decrease) in cash and cash equivalents 8,532 (3,524)
Cash and cash equivalents at beginning of period 12,669 27,828
-------- --------
Cash and cash equivalents at end of period $ 21,201 $ 24,304
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE> 6
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the three and
six months ended December 31, 1996 and 1995, the statements of cash
flows for the six months ended December 31, 1996 and 1995, the balance
sheet as of December 31, 1996 and the related information of
Pharmaceutical Marketing Services Inc. (the "Company" or "PMSI")
included in these notes to the financial statements are unaudited.
These financial statements, where applicable, have been restated for
discontinued operations. In the opinion of management, the interim
financial information reflects all adjustments (consisting only of
items of a normal recurring nature, except for discontinued operations)
necessary for the fair presentation of the financial position, results
of operations and cash flows for the periods presented. Results of
continuing operations for the three and six months ended December 31,
1996 are not necessarily indicative of the results to be expected for
the entire fiscal year.
The June 30, 1996 balance sheet was derived from the Company's
June 30, 1996 audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting
principles.
These interim financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report for the
year ended June 30, 1996.
At December 31, 1996, Source Informatics Inc. ("Source") owned
7.6% of the Company's common stock.
2. INCOME (LOSS) PER SHARE
Earnings per share for the three and six months ended December
31, 1996 and 1995 were computed based upon the weighted average number
of shares outstanding and common stock equivalents (stock options)
using the treasury stock method.
6
<PAGE> 7
3. INCOME TAXES
The effective continuing operations income tax rates for the
quarters ended December 31, 1996 and 1995 were 35% and 18%,
respectively. For the six months ended December 31, 1996 and 1995 the
effective income tax rates were 36% and 0%, respectively. The 1997
fiscal year effective income tax rate is based on the Company's
projected mix of country profits which includes actual results for the
six months ended December 31, 1996.
4. GOODWILL
The Company assesses the recovery of its goodwill on a
subsidiary-by-subsidiary basis by determining whether amortization of
goodwill can be recovered through expected net future cash flows
(undiscounted and without interest charges). Impairment is measured
based on the present value of estimated expected future net cash flows
using a discount rate reflecting the Company's cost of funds.
5. DISCONTINUED OPERATIONS
In the third quarter of fiscal 1996, the Company made the
determination that substantially all of its non-database marketing and
communication businesses would be sold and, therefore, accounted for
those businesses as Discontinued Operations.
Upon adoption of the plan, the Company recorded a charge of
$5.7 million in Discontinued Operations which included an estimate of
operating income, net of tax, of $2.0 million during the phase out
period. Based on its quarterly review of the assumptions used in
determining the estimated loss relating to the Discontinued Operations,
the Company recorded an additional net charge for loss on the disposal
of the Discontinued Operations of $9.9 million during the quarter
ending December 31, 1996. This charge was principally a result of the
changes in the estimated proceeds from the remaining businesses to be
sold. The charge also includes a reduction of $1.8 million, net of an
income tax benefit of $1.0 million, to the original estimate of the
income to be generated in the phase out period.
During the quarter, the Company completed the sale of two
communications businesses in Europe. Proceeds from the sale of these
businesses were within the Company's original expectations. A firm
commitment is expected to be entered in to with regard to the
divestment of each of the three remaining businesses by March 31, 1997.
Net assets of $27.4 million related to the discontinued operations have
been segregated in the December 31, 1996 balance sheet.
The loss from the Discontinued Operations for the three and
six months ended December 31, 1996 were $0.3 million and $0.8 million
net of income taxes, respectively.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
The operating results for the three and six months ended December 31,
1996 reflect the Company's decision to focus on being an information provider to
the pharmaceutical and healthcare industries. The Company is divesting its
non-database business segment consisting of its European communication and
marketing services group. The Company also plans to sell its international
publishing business which is included in continuing operations.
THREE MONTHS ENDED DECEMBER 31, 1996 AND 1995
REVENUE
Revenue from continuing operations for the Company's second quarter of
fiscal 1997 increased to $26.6 million from $24.3 million for the corresponding
quarter of 1996, representing an increase of 9%. The increase in revenue relates
primarily to targeting and market research services from the Company's
businesses in the US and its convention business in Japan. Currency exchange
rate movements, principally in Japan and the Netherlands, negatively impacted
the quarter's revenues by $1.1 million, or 4%.
PRODUCTION COSTS
Production costs from continuing operations increased to $14.1 million
(53% of revenue) from $12.6 million (52% of revenue) in the comparable quarter
of fiscal 1996. The 12% increase in costs was attributable to additional costs
associated with the revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs from continuing operations
increased to $9.7 million (36% of revenue) from $8.3 million (34% of revenue) in
the comparable quarter of fiscal 1996. The 17% increase was principally due to
increases in selling costs associated with improved revenue, timing differences
in corporate expenditure and the reversal during quarter 2 of fiscal 1996 of
accruals no longer deemed necessary within the Company's businesses in the US,
resulting in a non-recurring reduction in selling, general and administrative
costs.
8
<PAGE> 9
NET INTEREST EXPENSE
Net interest expense from continuing operations for the quarter ended
December 31, 1996 was at $0.1 million, which was comparable with the equivalent
quarter in fiscal 1996. The effects of the reduced level of cash invested were
mitigated by an improved rate of return.
INCOME TAXES
The Company incurred an income tax charge of $0.8 million for the three
months ended December 31, 1996 on pre-tax profit of $2.3 million, an effective
rate of 35%. The fiscal 1996 effective tax rate was 18% on pre-tax operating
profit of $2.9 million.
The rate differential reflects changes in the anticipated mix of
country profits for the year ending June 30, 1997 and lower utilization of net
operating loss carry forwards in fiscal 1997.
DISCONTINUED OPERATIONS
Based upon its quarterly review of the assumptions used in determining
the estimated loss relating to the Discontinued Operations, discussions with its
advisers and prospective purchasers of the discontinued businesses and the
timescale associated with the completion of the remaining disposals, the Company
recorded a net charge for the loss on disposal of the Discontinued Operations of
$9.9 million during the quarter ended December 31, 1996. This was principally
the result of changes to the original estimates of net proceeds and income
generated during the phase out period from the remaining businesses to be sold.
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
REVENUE
Revenue for the six months ended December 31, 1996 increased to $48.5
million from $45.0 million for the corresponding period in 1995. The 8% increase
is due to growth in all businesses, but in particular, the Company's targeting
and market research businesses in the US. Currency exchange rate movements,
mainly in Japan and the Netherlands, negatively impacted the half year by $1.9
million, or 4%.
PRODUCTION COSTS
Production costs increased to $26.8 million (55% of revenue) from $24.4
million (54% of revenue) in the comparable period of fiscal 1996. The 10%
increase in costs was mainly attributable to revenue growth.
9
<PAGE> 10
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs increased to $18.0 million
(37% of revenue) from $17.1 million (35% of revenue) in the comparable period of
fiscal 1996. The 5% increase was attributable to the effects of non-recurring
items during the quarter ended December 31, 1996 that resulted in a
non-recurring reduction in selling, general and administrative costs for that
period.
NET INTEREST EXPENSE
Net interest expense for the six months ended December 31, 1996 was
$0.1 million. There was no net interest charge or income for the comparable
period of fiscal 1996. The net expense is due to the lower level of cash
available for investment.
INCOME TAXES
The Company recorded a tax expense of $1.0 million for the six months
ended December 31, 1996 on a pre-tax profit of $2.7 million, an effective rate
of 36%. The fiscal 1996 effective rate for the comparable period was 0% on a
pre-tax operating profit of $2.5 million.
The rate differential reflects a $0.5 million tax credit recorded in
the first quarter of fiscal 1996 and changes in the anticipated mix of profits
plus lower utilization of net operating loss carry forwards for the year ended
June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's cash, cash equivalents and
marketable securities in continuing operations totalled $55.7 million, an
increase of $8.3 million from the $47.4 million balance at June 30, 1996. The
increase is primarily due to movements in working capital and proceeds from the
sale of assets relating to discontinued operations. The current ratio from
continuing operations at December 31, 1996 increased to 2.7 from 2.6 at June 30,
1996.
The Company anticipates, in fiscal year 1997 and in subsequent years,
its capital expenditures and working capital requirements will be funded from
existing cash, cash equivalents and marketable securities, internally generated
funds, and funds from the divestiture of its non-database business segment and
its international publishing unit. The timing and magnitude of future
acquisitions will continue to be the single most important factor in determining
the Company's long-term capital needs.
10
<PAGE> 11
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Computation of Earnings per Share.
Reports on Form 8-K
None.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: February 13, 1997 Pharmaceutical Marketing Services Inc.
--------------------------------------
By /s/ Norman Lindsay
------------------------------------
Norman Lindsay
Chief Financial Officer
On behalf of the registrant and
as principal financial officer.
12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description Page Number
- ------- ----------- -----------
<S> <C> <C>
11 Computation of Earnings (Loss) per Share 12
</TABLE>
13
<PAGE> 1
EXHIBIT 11
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY INCOME PER SHARE
Common shares outstanding 13,183,840 13,098,040 13,176,535 13,091,623
Assumed exercise of certain stock options 144,501 306,438 71,649 245,496
------------ ------------ ------------ --------------
13,328,341 13,404,478 13,248,184 13,337,119
============ ============ ============ ==============
Income from continuing operations (in thousands) $ 1,457 $ 2,380 $ 1,683 $ 2,498
Loss from discontinued operations, net (in
thousands) (9,914) (1,081) (9,914) (1,754)
------------ ------------ ------------ --------------
Net income (loss) (in thousands) $ (8,457) $ 1,299 $ (8,231) $ 744
============ ============ ============ ==============
Primary income per share continuing 0.11 0.18 0.13 0.19
Primary loss per share discontinued (0.74) (0.08) (0.74) (0.13)
------------ ------------ ------------ --------------
Net income (loss) per share $ (0.63) $ 0.10 $ (0.61) $ 0.06
============ ============ ============ ==============
FULLY DILUTED INCOME PER SHARE
Common shares outstanding 13,183,840 13,098,040 13,176,535 13,091,623
Assumed exercise of certain stock options 181,329 424,073 129,727 424,073
------------ ------------ ------------ --------------
13,365,169 13,522,113 13,306,262 13,515,696
============ ============ ============ ==============
Net income from continuing operations (in
thousands) $ 1,457 $ 2,380 $ 1,683 $ 2,498
Net loss from discontinued operations, net (in
thousands) (9,914) (1,081) (9,914) (1,754)
------------ ------------ ------------ --------------
Net income (loss) (in thousands) $ (8,457) $ 1,299 $ (8,231) $ 744
============ ============ ============ ==============
Fully diluted income per share continuing 0.11 0.18 0.13 0.19
Fully diluted income (loss) per share
discontinued (0.74) (0.08) (0.74) (0.13)
------------ ------------ ------------ --------------
Fully diluted income (loss) per share $ (0.63) $ 0.10 $ (0.61) $ 0.06
============ ============ ============ ==============
</TABLE>
1 Convertible debentures have not been assumed converted for the fully
diluted earnings per share as the effect would be anti-dilutive. Had the
convertible debentures been included, the number of shares would have been
increased by 3,450,000 to 16,815,169 and 16,972,113 for the three months
ended December 31, 1996 and 1995, respectively, and by 3,450,000 to
16,756,262 and 16,965,696 for the six months ended December 31, 1996 and
1995 respectively.
As a result of reduced interest expense following conversion, the increase
to net income (or decrease to net loss) would have been $647,000 for the
three months ended December 31, 1996 and 1995, respectively. These
adjustments would have resulted in fully diluted earnings/(loss) per share
of $(0.46) and $0.11 for the three months ended December 31, 1996 and 1995
respectively and $(0.41) and $0.12 for the six months ended December 31,
1996 and 1995 respectively.
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 21,201
<SECURITIES> 34,534
<RECEIVABLES> 33,118
<ALLOWANCES> 625
<INVENTORY> 3,368
<CURRENT-ASSETS> 98,041
<PP&E> 14,400
<DEPRECIATION> 3,281
<TOTAL-ASSETS> 169,912
<CURRENT-LIABILITIES> 35,859
<BONDS> 0
0
0
<COMMON> 132
<OTHER-SE> 64,367
<TOTAL-LIABILITY-AND-EQUITY> 169,912
<SALES> 48,474
<TOTAL-REVENUES> 48,474
<CGS> 26,796
<TOTAL-COSTS> 45,664
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,537
<INCOME-PRETAX> 2,685
<INCOME-TAX> 956
<INCOME-CONTINUING> 1,683
<DISCONTINUED> (9,914)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,231)
<EPS-PRIMARY> (0.61)
<EPS-DILUTED> (0.61)
</TABLE>
