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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
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, 1997 TO JUNE 30, 1998
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 July 31, 1998 was approximately $116,597,031 million.
As of July 31, 1998 there were outstanding 13,325,375 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, 1998, which is to be filed
pursuant to Regulation 14A not later than October 28, 1998 is incorporated by
reference into Part III of this Form 10-K.
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PART 1
ITEM 1. BUSINESS
INTRODUCTION
Pharmaceutical Marketing Services Inc,. a Delaware corporation (the
"Company" or "PMSI"), provides a range of information and market research
services to pharmaceutical and healthcare companies in the United States to
enable them to optimize the performance of their sales and marketing activities.
Prior to August 5, 1998, it also provided information services for similar
purposes in Europe and Japan. Most of the Company's services are generated from
its own proprietary databases containing unique prescription, managed care,
healthcare market and medical prescriber data.
On August 5, 1998 the Company sold its non-US assets, with the exception of
its Source and PMSI targeting businesses in Belgium, to IMS Health Incorporated
("IMS Health") (NYSE:RX) for consideration of 1,197,963 shares of common stock
of IMS Health. IMS Health has an option to acquire either or both of the Belgian
businesses within a three-month period.
The transaction on August 5, 1998 superseded a merger agreement signed
with Cognizant Corporation on March 23, 1998, whereby IMS Health, the assignee
of Cognizant Corporation, would have acquired all of the issued and outstanding
shares of PMSI's common stock. The revision in the structure of the transaction
was necessitated by uncertainty regarding both the outcome and the timetable
for resolution of issues raised by regulatory authorities in the United States
and Europe. IMS Health was uniquely placed to be able to exploit the future
potential of PMSI's European and Japanese businesses it acquired through this
transaction. Consequently the Company was able to realize an attractive price
for the information businesses sold to IMS Health. The businesses sold include
Source Europe, which was acquired on December 15, 1997 and which is a
developing business that would have required further investment by PMSI through
1999.
PMSI remains a publicly traded corporation having retained its Scott-Levin
business, a leading provider of market research and managed care information
services principally to the pharmaceutical industry in the US. The Company will
continue to aggressively develop its successful Scott-Levin business, which
delivered operation profits of $6.6 million on revenues of $26 million in the
year ended June 30, 1998; a growth of 36% and 21%, respectively, compared with
fiscal 1997.
PMSI's principal executive offices are located at Suite 912, 45
Rockefeller Plaza, New York, New York and its telephone number is (212)
841-0610.
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SCOTT-LEVIN BUSINESS
Through its Scott-Levin subsidiary in the United States, PMSI provides a
range of pharmaceutical and healthcare information and market research services.
The services are comprised of proprietary database services, syndicated market
research audits, managed care and governmental information services and added
value services, including strategic studies and surveys, consulting service and
software solutions. Scott-Levin has designed state-of-the-art technology and
internet capabilities for virtually all services.
Proprietary Healthcare Databases
The foundation of Scott-Levin's business is a variety of proprietary
databases. Through self-administered surveys Scott-Levin maintains various
comprehensive databases that contain information collected from physicians on
their diagnoses, prescribing activities; the incidence of, and response to,
direct selling and other promotion activities; information regarding healthcare
legislation and key influencers in the United States; a managed care database,
detailing cost containment measures imposed by United States managed care
organizations ("MCOs") that influence or restrict physicians' prescribing
activities, which also covers formularies, administrators and the physicians
affiliated with the MCOs.
Pursuant to a contract with National Data Corporation ("NDC") (NYSE: NDC),
Scott-Levin obtains prescription information which NDC collects not less
frequently that monthly from approximately 35,000 pharmacies located across the
United States. Scott-Levin creates projected state and national data on product
level prescription movement from which, among other things, it generates the
Source Prescription Audit.
Scott-Levin does not hold any identifiable individual patient data, except
data collected directly from the patient, which is held with the patients'
permission.
Syndicated Market Research Audits
Scott-Levin'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. These audits
include 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; the
HOSPITAL PERSONAL SELLING AUDIT, which complements the PSA by monitoring and
analyzing sales activity in the hospital environment; the PHYSICIAN MEETING AND
EVENT AUDIT, which assesses the impact of this promotional activity on
subsequent attendee prescribing; the HIV THERAPY AUDIT, which provides a
projectable database tracking physicians who treat HIV, and HIV positive
patients; and the DIRECT-TO-CONSUMER ADVERTISING AUDIT, designed to evaluate and
measure the impact of direct-to-consumer advertising on physicians and
consumers.
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Managed Care Information and Governmental Information Services
Scott-Levin 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 on pharmaceutical prescribing and dispensing. An
example of these services is 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 these policies.
Added Value Services
Scott-Levin provides pharmaceutical companies in the United States 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, (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, sales
and marketing activities and product commercialization.
MARKETING AND SALES
PMSI employs marketing, sales and client service professionals in its
Scott-Levin subsidiary. Many members of the Company's sales and marketing staff
have substantial pharmaceutical and IT industry experience.
Sales to the pharmaceutical or information services industry accounted for
substantially all of the Company's revenue in fiscal 1998. Virtually every
major US pharmaceutical company is a customer of the Company. The Company also
provides certain information services to the financial services industry.
For the year ended June 30, 1998, PMSI's ten largest customers were responsible
for 38.7% of its revenue, with no one customer accounting for 10% or more.
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.
COMPETITION
The Company's information services in the United States have been
systematically established over sixteen years, however, their market position
may be affected in the future by competitors' efforts to create or acquire
enhanced databases or to develop and market new information products and
services. The Company has competitors that are significantly larger with
substantially greater resources than the Company, including, but not limited
to, IMS Health and NDC.
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NON-US BUSINESSES SOLD TO IMS HEALTH
PMSI provided a range of information services throughout Japan and Europe.
On August 5, 1998 PMSI sold these businesses to IMS Health. The services sold
comprised proprietary database services, targeting information services and
added value services, including marketing research, software and conference
management services.
ACQUISITION AND DIVESTMENT STRATEGY
PMSI was 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.
On August 5, 1998 the Company announced that it had completed the sale of
all of its non-US operating assets, with the exception of its Source and PMSI
targeting businesses in Belgium, to IMS Health for consideration of 1,197,963
shares of IMS Health common stock. IMS Health has an option to purchase either
or both of the Company's Belgian businesses within a three-month period. The
transaction is more fully described in the Company's Form 8K filed August 18,
1998.
The Company sold IMR, its French point of sale marketing business on March
31, 1998. This was the last remaining business to be sold as a result of the
Company's decision in May 1996 to discontinue its non-database segment. The
business was sold for consideration of approximately $3.2 million in cash. The
assets sold included cash and cash equivalents of $1.2 million. A net loss on
sale of this business of $16.9 million, after selling costs and before a tax
benefit of $8.8 million, has been reflected in the statement of operations for
the year ended June 30, 1998.
For the period through December 15, 1997, the Company jointly exploited,
through a long-term agreement, a database of prescription data (the "Source
Database") created and maintained by Source Informatics Inc. ("Source") in the
United States ("Source US"). On December 15, 1997, the Company completed
transactions with NDC and Source to sell its interest in Source US to NDC and
to acquire Source Informatics European Holdings L.L.C. and its subsidiaries
(collectively, "Source Europe") from Source.
The Company sold to NDC (i) its interest in Source US and (ii) its OTC
Physician Database business in the US. The Company received 1,084,950
registered shares of NDC Common Stock with a market value on December 15, 1997
of $35.3 million, plus $6.5 million in cash. This resulted in a pre-tax gain of
$33.6 million and net gain of $19.8 million, after deducting selling and other
transaction related expenses of $4.5 million and taxation of 41%.
The Company acquired Source Europe for consideration of $8.4 million in
the form of the cancellation of amounts advanced to Source under a line of
credit of $6.4 million and direct costs of $2.0 million. Source Europe is a
developing business involved in building databases of information from
prescriptions dispensed in the UK, Germany, France, Belgium and Italy and in
developing the software technology to support, access and generate information
from such databases. This information enables pharmaceutical companies to
measure and analyze product performance at a detailed geographical level,
namely small groups of physicians or at the individual physician level and
thereby to improve salesforce productivity. Source Europe was subsequently sold
to IMS Health in the transaction completed on August 5, 1998.
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On July 30, 1997 the Company sold 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.
The Company previously 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.
The minority interest in Mediphase was acquired during July 1997 for $1.7
million.
BACKLOG
As of June 30, 1998, the Company (including the business sold to IMS
Health) had contracts running through 2003 of $48.0 million of which $29.0
million are for contracts to be completed by June 30, 1999. Included in the
total backlog, is $24.2 million for contracts to be completed by Scott-Levin.
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
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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, except on a
temporary basis with the patients' prior permission for follow-up research and
disease management purposes.
EMPLOYEES
As of June 30, 1998, the Company's operations had approximately 489
full-time employees. Of these employees, 217 are located at Scott-Levin in the
United States, with the remainder located in Europe and Japan. In the
Netherlands and France, PMSI had 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
and, until August 5, 1998, in Europe and Japan. In those instances in which the
Company is a sublessee Source is the sublessor, and the subleases have terms
extending through calendar 1998, prior to renewal options. The Company's
principal office facilities in the United States are located in Newtown,
Pennsylvania. The Company's usage of such facilities aggregates approximately
35,100 square feet for which the aggregate lease rentals are $578,000 per annum
under a lease expiring in 2002. The Company owns approximately 30,000 square
feet of office and warehouse facilities in the Netherlands with a recorded cost
of approximately $4.5 million which has been leased to a third party following
the divestment of the Company's international publishing business.
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>
1996
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
Third Quarter 13 1/8 9 7/8
Fourth Quarter 11 1/2 8 3/4
1998
First Quarter 14 3/4 8 3/4
Second Quarter 14 5/8 12 1/8
</TABLE>
As of July 31, 1998, there were approximately 1,000 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 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 years ended June 30,
1994, 1995, 1996, 1997 and 1998, 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>
Year Ended June 30,
Statement of Operations Data: 1994 1995 1996 1997 1998
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 76,876 $ 89,893 $ 93,027 $ 98,485 $ 77,966
Production costs (43,168) (49,991) (51,605) (54,457) (43,663)
Selling, general and administrative (25,791) (29,773) (34,208) (34,847) (34,243)
In-process research and development write-off - - - - (12,046)
Amortization of intangible assets (1,541) (1,889) (2,012) (1,733) (1,596)
Income (loss) from assets held for sale - - - 76 (281)
Impairment of long-lived assets - - (2,368) - -
Impairment of assets held for sale - - - - (14,735)
Restructuring costs (1,820) - (2,314) - -
Transaction costs - - - - (1,151)
-------- -------- -------- -------- --------
Operating income (loss) 4,556 8,240 520 7,524 (29,749)
Gain on sale of operations, net of loss - - - - 34,106
Interest and other income 2,805 2,940 2,503 3,299 5,677
Interest expense (3,032) (2,915) (2,633) (3,490) (4,632)
-------- -------- -------- ------- --------
Income from continuing operations
before income taxes 4,329 8,265 390 7,333 5,402
Income tax provision (1,662) (2,950) (1,156) (2,655) (5,705)
Minority interest - (3) 57 (17) -
-------- -------- -------- ------- --------
Income (loss) from continuing operations 2,667 5,312 (709) 4,661 (303)
Income (loss) from discontinued
operations, net 2,057 (131) (8,915) (9,914) -
-------- -------- -------- ------- --------
Net income (loss) $ 4,724 $ 5,181 $ (9,624) $(5,253) $ (303)
======== ======== ======== ======== =========
Basic and diluted earnings (loss) per share: (1)
Continuing operations, basic $ 0.21 $ 0.41 $ (0.05) $ 0.35 $ (0.02)
Net income (loss) per share, basic $ 0.37 $ 0.40 $ (0.73) $ (0.40) $ (0.02)
======== ======= ======== ======== =========
Continuing operations, diluted $ 0.20 $ 0.41 $ (0.05) $ 0.35 $ (0.02)
Net income (loss) per share, diluted $ 0.36 $ 0.40 $ (0.73) $ (0.40) $ (0.02)
======== ======= ======== ======== =========
</TABLE>
<TABLE>
<CAPTION>
June 30,
Balance Sheet Data: 1994 1995 1996 1997 1998
- ---------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Working capital (2) $ 74,553 $ 72,901 $ 47,627 $ 64,210 $ 73,722
Total assets (3) 189,229 187,681 173,408 167,202 186,358
Long-term debt, excluding current portion 69,248 69,295 69,131 69,552 69,114
Stockholders' equity 73,525 86,697 72,954 63,744 58,106
</TABLE>
(1) The Company adopted the Statement of Financial Accounting
Standards No. 128 "Earnings per Share" and accordingly all
per share data has been restated to comply with the standard.
(2) 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.
(3) 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 current assets held for sale of $4,236.
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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.
On August 5, 1998 the Company sold its non-US operating assets, with the
exception of its Source and PMSI targeting businesses in Belgium, to IMS Health
for consideration of 1,197,963 shares of IMS Health common stock, IMS Health has
an option to acquire either or both of the Belgian businesses within a
three-month period.
Revenue
Revenue for the year ended June 30, 1998 was $78.0 million, a decrease of
$20.5 million (21%), compared with revenue for the year ended June 30, 1997. The
reduction in reported revenues resulted from the sale of the Company's
international publishing business in July 1997 and its interest in the Source US
joint venture and OTC businesses in the US in December 1997. In the year ended
June 30, 1997 revenues from the divested businesses totaled $37.3 million. These
divestments offset revenue growth in the Company's ongoing businesses, in
particular Scott-Levin in the US and the Company's targeting business in Japan,
both of which contributed revenue growth of more than 20% compared with the
prior year. Currency exchange rate movements negatively impacted the year's
revenue by $2.3 million, or 3%.
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
1997. 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%.
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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, 1998 were $43.7 million (56%
of revenue), compared to $54.5 million (55% of revenue) for the year ended June
30, 1997. The decrease in costs of $10.8 million is attributable to the sale of
the Company's international publishing business in July 1997 and its interest in
Source US joint venture and OTC businesses in the US in December 1997. In fiscal
1997, production costs of $23.1 million were attributable to these businesses.
As a percentage of revenue production costs have increased due to the
disproportionately high costs associated with the further development of the
Source Europe business.
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.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $34.2 million (44% of
revenues) for the year ended June 30, 1998 as compared to $34.8 million (35% of
revenues) for the year ended June 30, 1997. The reduction in selling, general
and administrative costs was due to the sale of the Company's international
publishing business and its interest in the Source US and OTC businesses in the
US, while the increase in expenses as a percentage of revenue is attributable to
the inclusion of the Source Europe business from December 15, 1997 for which a
high level of sales and marketing costs were required to develop the business.
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. The reduction in general and
administrative expenses as a percentage of sales is attributable to the
implementation of improved cost controls in the US and the divestment of poorly
performing database businesses with disproportionately high general and
administrative expenses.
In-process Research & Development Write-off
The acquisition of Source Europe during the quarter ended December 31, 1997
resulted in a one-time charge of $12.0 million for the write-off of in-process
research and development (IPR&D).
The acquired IPR&D relates to Source Europe's current development projects,
in five countries, to create complex software-based projection methodologies for
prescription data. Each projection methodology has been customized to adapt to
each country's unique characteristics regarding data collection, manipulation,
validation, zone definition, prescription mix, pharmacy volume weights, and
dynamic rounding. The five countries are Germany, United Kingdom, Italy, Belgium
and France.
The aggregate completion costs for these IPR&D programs are expected to be
approximately $3.7 million. The Company intends to further develop the IPR&D
projects and
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expects either successful completion of or abandonment of the projects within
6-18 months of the acquisition. The Company expects to address the remaining
technological issues with the IPR&D, however, the Company recognizes that the
development of the IPR&D involves certain risks such as failure of one or more
of the critical components to function according to specifications, which may
prevent these projects from reaching technological feasibility.
The Company expects the economic lives of the IPR&D projects to be
approximately six to eight years, if technological feasibility is reached.
Failure to successfully develop the IPR&D projects would negatively impact the
Company's future performance and its ability to compete in the pharmaceutical
and healthcare information markets in Europe.
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 on a straight-line basis 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,
which has not reached technological feasibility.
In the Company's consolidated financial statements, amortization has been
recorded as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ ------
<S> <C> <C> <C>
Databases $ 126 $ 6 $ --
Software 247 205 436
Goodwill 1,639 1,522 1,160
------ ------ ------
Total $2,012 $1,733 $1,596
====== ====== ======
</TABLE>
For the year ended June 30, 1998, compared to the same period in fiscal
1997, goodwill amortization decreased due to the sale of the Company's
international publishing business, while software amortization increased due to
the amortization of completed technology recognized on the acquisition of the
Source Europe business.
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.
Impairment of Assets Held for Sale
An impairment charge of $14.7 million was made in the second quarter of
fiscal 1998 in respect of IMR, the Company's French point of sale business.
During the third quarter of fiscal 1998 this business was divested.
Impairment of Long-Lived Assets and Restructuring Costs
In the third-quarter of fiscal 1996, the Company recorded a $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
13
<PAGE> 14
charges were primarily related to the disposal of two database businesses that
did not meet performance expectations.
Transaction costs
Transaction costs of $1.1 million, relating to the proposed sale of the
entire Company to Cognizant, were expensed during the third and fourth quarters
of the year ended June 30, 1998. These principally related to fees for the
Company's investment bankers. Transaction costs associated with the sale of the
non-US assets of the Company to IMS Health during the first quarter of fiscal
1999 will be included in the calculation of the gain on sale of those assets.
Gain of Sale of Operations, net of Loss
Sales of the US Source and OTC businesses, Bugamor and IMR were completed
during the year ended June 30, 1998, resulting in a net pre-tax gain of $34.1
million. The individual components of the pretax gain were as follows:
1. On July 1, 1997 the Company sold its Dutch and US-based international
publishing and communications operations to Excerpta Medica, the medical
communications division of Elsevier Science, for approximately $9 million in
cash, resulting in a pre-tax gain on sale of $2.6 million.
2. The sale of the Company's interest in Source US and the OTC businesses was
completed during the second quarter of fiscal 1998, the resulting in a pre-tax
gain of $33.6 million.
3. The sale of IMR, the Company's French point of sale marketing business,
was completed during the third quarter of fiscal 1998 and the Company incurred
a pre-tax loss on sale of $2.1 million in the year.
Interest and Other Income
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, 1998, the Company's interest and other income
was $5.7 million, compared with $3.3 million for the year ended June 30, 1997.
The increased interest income and other income was principally attributable to a
realized gain amounting to $1.7 million on the sale by the Company of NDC
shares during the third quarter of fiscal 1998 and, to a lesser extent,
increased returns on the higher balance available for investment following the
receipt of proceeds from businesses divested in the period.
For the year ended June 30, 1997, the Company's interest income was $3.3
million, compared to $2.5 million for the same period in 1996, mainly due to
an increased return on the Company's investments.
Interest Expense
For the year ended June 30, 1998, the Company's interest expense was $4.6
million, compared with $3.5 million for the year ended June 30, 1997. The
interest expense was lower in fiscal 1997 due to the allocation of enterprise
interest to discontinued operations for part of the year.
14
<PAGE> 15
For the year ended June 30, 1997, the Company's interest expense was $3.5
million, compared to $2.6 million for the same period in 1996 due to the
allocation of enterprise interest to discontinued operations for a full year in
1996 but only for part of fiscal 1997.
Income Tax Provision
The tax provisions of $1.2 million, $2.7 million and $5.7 million for the
years ended June 30, 1996, 1997 and 1998, respectively, reflect taxes payable in
respect of profitable foreign and domestic operations.
The effective income tax rate for the year ended June 30, 1998 was 106%.
This overall rate was due to the Company's inability to recognize deferred tax
assets in European jurisdictions where it made substantial losses while
incurring significant taxes on profits earned in the US and Japan,
non-deductable goodwill amortization and non-recurring items, including an
additional provision for taxes of $1.5 million for probable liabilities arising
from tax audits in progress. The full liability assessed by the tax authorities
as a result of the audits was approximately $3 million and, at the request of
the tax authorities, the Company paid approximately $3 million into an escrow
account pending the outcome of its appeal. The escrow amount was included in
other assets at June 30, 1998.
During fiscal 1998, The Company recognized a tax benefit of $8.8 million on
the sale of IMR, and provisions for tax on a $33.6 million gain on the sale of
the Source US joint venture and OTC business and a $1.7 million gain on the sale
of NDC shares.
The Company recognizes deferred tax assets in situations where it is more
likely than not that the Company will benefit in the future from temporary
differences between book and taxable income. 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.
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 were 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".
15
<PAGE> 16
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.
Liquidity and Capital Resources
At June 30, 1998, the Company's cash and cash equivalents and marketable
securities totaled $111.9 million and its current ratio was 2.5:1. The current
ratio at June 30, 1997 was 2.9:1.
During the year ended June 30, 1998, 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 businesses divested in
the period. The Company anticipates that capital expenditures in fiscal 1999
will be less than $1.0 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 1999 and subsequent
years.
Subsequent Events
On August 5, 1998 the Company announced that it had sold all of its non-US
operating assets, with the exception of its Source and PMSI targeting businesses
in Belgium, to IMS
16
<PAGE> 17
Health (NYSE:RX) for consideration of 1,197,963 shares of common stock of IMS
Health. IMS Health has an option to purchase either or both of the Belgian
businesses within a three-month period.
As of June 30, 1998, the total assets and total liabilities of the non-US
operations totaled $48.4 million and $33.8 million, respectively. Total revenues
for the year ended June 30, 1998 from the non-US operations totaled $40.9
million.
Between September 2, and September 15, 1998, the Company redeemed $17.7
million of its 6.25% Convertible Subordinated Debentures due in 2003. The
debentures were redeemed at 87% of the principal amount with accrued interest
through the date of redemption.
Year 2000
Scriptrac for Windows and Source Europe client software used for delivering
Scriptrac and Source database products, respectively, have been developed to
ensure compliance with the Year 2000.
The internal systems within all of PMSI's local operations are being
reviewed for the impact of the year 2000. No significant impact on the
Company's operating results, financial condition or liquidity is expected with
respect to Year 2000 compliance.
Recently Issued Accounting Standards
On June 15, 1998 the Financial Accounting Standards Board ("FASB") issued
FAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS
133). SFAS 133 establishes a new model for accounting for derivatives and
hedging activities and supersedes and amends a number of existing standards.
The Company will be required to adopt SFAS for the year ended June 30, 1999.
Currently the Company is evaluating this standard but does not expect it to
impact materially on the Company's consolidated financial statements
disclosures.
In February 1998, FASB issued FAS No. 132, Employer's Disclosures about
Pension and Other Postretirement Benefits ("SFAS 132"). SFAS 132 standardizes
the disclosure requirements for pensions and other postretirement benefits and
amends SFAS 87, "Employers' Accounting for Pensions", SFAS 88, "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and
for Termination Benefits", and SFAS 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions". The statement does not change the
existing measurement or recognition provisions of SFAS Nos. 87, 88 or 106, and
is effective for the fiscal years beginning after December 15, 1997. Therefore,
the Company will be required to adopt SFAS 132 for the year ended June 30, 1999.
The Company is in the process of evaluating the disclosure requirements under
this standard and does not believe it will have a significant impact.
In June 1997, FASB issued FAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which changes the way public companies
report information about segments. SFAS No. 131, which is based on the
management approach to segment reporting, includes requirements to report
selected segment information quarterly and entity-wide disclosures about
products and services, major customers and the material countries in which the
entity holds assets and reports revenues. This statement is effective for
financial statements for periods beginning after December 15, 1997. The Company
is currently evaluating the disclosure requirements under this standard and
does not believe it will have a significant impact.
17
<PAGE> 18
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for financial statements issued for fiscal years commencing
on or after December 15, 1997. Comprehensive income represents the change in
net assets of a company as a result of non-owner transactions. Had the Company
adopted SFAS 130 as of July 1, 1997, the comprehensive income reported would
have been approximately $4.0 million.
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 Accounts............................................. F-1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1997 and 1998.............. F-2
Consolidated Statements of Operations for the Years Ended
June 30, 1996, 1997 and 1998.......................................... F-3
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1996, 1997 and 1998...................... F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1996, 1997 and 1998.......................................... 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, 1996, 1997 and 1998......................................... 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
Stamford, Connecticut
August 14, 1998, except for Note
21, as to which the date is
September 2, 1998.
To the Board of Directors and Stockholders of
Pharmaceutical Marketing Services Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of
Pharmaceutical Marketing Services Inc. and Subsidiaries ("the Company") as of
June 30, 1997 and 1998 and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1998, in conformity
with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers L.L.P.
F-1
<PAGE> 21
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share numbers)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 32,414 $ 42,315
Marketable securities 24,738 50,097
Accounts receivable, principally trade (less
allowance for doubtful accounts of $388 and $538,
respectively) 27,442 21,332
Work in process 3,798 1,489
Prepaid expenses and other current assets 4,905 9,866
Net current assets held for sale 4,236 --
--------- ---------
Total current assets 97,533 125,099
Marketable securities 7,384 19,444
Property and equipment, net 11,761 9,548
Goodwill, net 25,303 22,063
Other assets, net 6,424 10,204
Net assets held for sale 18,797 --
--------- ---------
Total assets $ 167,202 $ 186,358
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 407 $ 61
Accounts payable 5,036 5,730
Accrued liabilities
(including employee compensation and
benefits of $3,234 and $5,429, respectively) 10,507 23,499
Unearned income 17,373 22,087
--------- ---------
Total current liabilities 33,323 51,377
Long-term debt 69,552 69,114
Other liabilities 583 7,761
--------- ---------
Total liabilities 103,458 128,252
Commitments and contingencies
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized and 13,199,475 and 13,314,975
shares issued, respectively 132 133
Paid-in capital 87,179 88,199
Treasury stock at cost, 0 and 918,254 shares, respectively -- (8,494)
Accumulated deficit (20,029) (20,332)
Cumulative translation adjustment (3,534) (7,170)
Unrealized gain (loss) on investments, net of income
tax (benefits) provisions of $(4) and $4,010, respectively (4) 5,770
--------- ---------
Total stockholders' equity 63,744 58,106
--------- ---------
Total liabilities and stockholders' equity $ 167,202 $ 186,358
========= =========
</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,
----------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Revenue $ 93,027 $ 98,485 $ 77,966
Production costs (51,605) (54,457) (43,663)
Selling, general and administrative expenses (34,208) (34,847) (34,243)
In-process research and development write-off -- -- (12,046)
Amortization of intangible assets (2,012) (1,733) (1,596)
Income from assets held for sale -- 76 (281)
Impairment of long-lived assets (2,368) -- --
Impairment of assets held for sale -- -- (14,735)
Restructuring costs (2,314) -- --
Transaction costs -- -- (1,151)
-------- -------- --------
Operating income (loss) 520 7,524 (29,749)
Gain on sale of operations, net of loss -- -- 34,106
Interest and other income 2,503 3,299 5,677
Interest expense (2,633) (3,490) (4,632)
-------- -------- --------
Income from continuing operations
before income taxes 390 7,333 5,402
Income tax provision (1,156) (2,655) (5,705)
Minority interest 57 (17) --
-------- -------- --------
Income (loss) from continuing operations (709) 4,661 (303)
Discontinued operations:
Loss from discontinued operations, net (8,915) (9,914) --
-------- -------- --------
Net loss $ (9,624) $ (5,253) $ (303)
======== ======== ========
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.05) $ 0.35 $ (0.02)
Discontinued operations, net (0.68) (0.75) --
-------- -------- --------
Net loss per share $ (0.73) $ (0.40) $ (0.02)
======== ======== ========
</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 Cumulative
No. of Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustment
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance June 30, 1995 13,085 $ 131 $ 86,176 $ (5,152) $ 5,544
Net loss -- -- -- (9,624) --
Stock options exercised 84 1 747 -- --
Change in unrealized loss on
marketable securities, net of
income tax benefit of $30 -- -- -- -- --
Foreign currency translation -- -- -- -- (4,822)
-------- -------- -------- -------- --------
Balance June 30, 1996 13,169 132 86,923 (14,776) 722
Net loss -- -- -- (5,253) --
Stock options exercised 30 -- 256 -- --
Change in unrealized loss on
marketable securities, net of
income tax provision of $29 -- -- -- -- --
Foreign currency translation -- -- -- -- (4,256)
-------- -------- -------- -------- --------
Balance June 30, 1997 13,199 132 87,179 (20,029) (3,534)
Net loss -- -- -- (303) --
Stock options exercised 116 1 1,020 -- --
Treasury stock -- -- -- -- --
Change in unrealized gain (loss) on
investments, net of income tax
provision of $4,014 -- -- -- -- --
Foreign currency translation -- -- -- -- (3,636)
-------- -------- -------- -------- --------
Balance June 30, 1998 13,315 $ 133 $ 88,199 $(20,332) $ (7,170)
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on Treasury Stock
Investments No. of Paid-in
net of tax Shares Capital
-------- -------- --------
<S> <C> <C> <C>
Balance June 30, 1995 $ (2) -- --
Net loss -- -- --
Stock options exercised -- -- --
Change in unrealized loss on
marketable securities, net of
income tax benefit of $30 (45) -- --
Foreign currency translation -- -- --
-------- -------- --------
Balance June 30, 1996 (47) -- --
Net loss -- -- --
Stock options exercised -- -- --
Change in unrealized loss on
marketable securities, net of
income tax provision of $29 43 -- --
Foreign currency translation -- -- --
-------- -------- --------
Balance June 30, 1997 (4) -- --
Net loss -- -- --
Stock options exercised -- -- --
Treasury stock -- (918) $ (8,494)
Change in unrealized gain (loss) on
investments, net of income tax
provision of $4,014 5,774 -- --
Foreign currency translation -- -- --
-------- -------- --------
Balance June 30, 1998 $ 5,770 (918) $ (8,494)
======== ======== ========
</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,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows provided by (used in) operating activities:
Net loss $ (9,624) $ (5,253) $ (303)
Loss from discontinued operations 8,915 9,914 --
Adjustments to reconcile net income (loss) to net cash (used in) provided by
operating activities:
Depreciation and amortization 3,372 3,715 3,289
Loss (gain) on disposal of businesses, net -- 773 (34,106)
Deferred taxes (789) 953 (6,560)
Minority interest share of net income (loss) (57) 17 --
Restructuring costs 2,314 -- --
Impairment of long lived assets 2,368 -- --
Impairment of assets held for sale -- -- 14,735
In process research and development write off -- -- 12,046
Change in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable (5,716) 881 999
Work-in-process (781) (986) 898
Prepaid expenses and other assets (822) 3,471 (934)
Accounts payable and accrued liabilities (6,221) (561) 161
Unearned income 5,156 3,199 (741)
Other liabilities 200 5 98
-------- -------- --------
Total adjustments (976) 11,467 (10,115)
-------- -------- --------
Net cash (used in) provided by operating activities (1,685) 16,128 (10,418)
-------- -------- --------
Cash flows provided by (used in) investing activities:
Capital expenditures (2,166) (4,592) (2,138)
Proceeds from disposal of fixed assets 115 66 5
Proceeds from businesses disposed, net of selling costs -- 4,285 15,793
Cash consideration advanced to Source Europe under a line of
credit -- -- (6,433)
Cash acquired in Source Europe -- -- 9,942
Sale (purchase) of marketable securities, net (5,743) 2,610 3,685
Acquisition and contingent purchase price payments (624) (2,799) (2,159)
-------- -------- --------
Net cash provided by (used in) investing activities (8,418) (430) 18,695
-------- -------- --------
Cash flows provided by (used in) financing activities:
Net proceeds from options exercised 748 256 1,021
Repayments of long-term debt and capital lease
obligations (245) (195) (262)
-------- -------- --------
Net cash provided by financing activities 503 61 759
-------- -------- --------
Effect of discontinued operations and assets held for sale (2,038) 5,838 2,160
Effect of exchange rate movements (3,521) (1,852) (1,295)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (15,159) 19,745 9,901
Cash and cash equivalents at beginning of period 27,828 12,669 32,414
-------- -------- --------
Cash and cash equivalents at end of period $ 12,669 $ 32,414 $ 42,315
======== ======== ========
</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,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Supplemental information:
Cash paid during the period for:
Interest $ 4,474 $ 4,521 $ 4,345
Income taxes $ 1,381 $ 1,694 $ 8,430
======== ======== ========
Supplemental disclosure of non-cash investing and financing activities:
Fair value of assets acquired $ 19,104
PMSI shares received 8,494
In-process research and development 12,046
Completed technology acquired 1,363
--------
Liabilities assumed $ 41,007
========
Cancellation of amounts due from Source Europe under a line of credit $ (6,433)
========
National Data Corporation shares received $ 35,328
========
Capital leases $ 40 $ 802 $ 262
======== ======== ========
</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 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. On August 5, 1998,
the Company entered into a transaction whereby it sold substantially
all of its non-US operations (see note 20).
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION. The consolidated
financial statements comprise the accounts of PMSI and its
subsidiaries. The consolidated financial statements have been restated
where applicable for discontinued operations (see Note 19). 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 a maturity of three months or less at the date of
acquisition.
MARKETABLE SECURITIES. The Company accounts for its marketable
securities in accordance with Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("FAS 115").
As required by FAS 115, 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.
Available-for-sale securities 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, 1998, 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.
PROPERTY AND EQUIPMENT. Property and equipment is 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
F-7
<PAGE> 27
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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
financial statements 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 net
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 recoverability of 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 sheets 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 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
F-8
<PAGE> 28
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. At June 30,
1998 marketable securities included 903,950 shares of common stock of
National Data Corporation ("NDC") with a fair value of $39,548,000.
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. In 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128"). Previously reported earnings per share amounts have been
restated to comply with FAS 128. Basic earnings (loss) per share
amounts are calculated by dividing income (loss) amounts by the
weighted average number of common shares outstanding. Diluted earnings
(loss) per share amounts are calculated by dividing income (loss)
amounts by the weighted average number of common shares outstanding
increased, if dilutive, by the effects of potentially dilutive common
shares which includes stock options and convertible debentures.
Dilutive potential common shares are calculated in accordance with the
treasury stock method.
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. The most significant estimates that affect the
financial statements are those related to goodwill and deferred tax
assets.
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.
F-9
<PAGE> 29
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
ALLOCATION OF INTEREST TO DISCONTINUED OPERATIONS. Enterprise interest
is allocated to discontinued operations in proportion to net assets.
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 ("the spin-off"); Walsh
International Inc. and Source Informatics Inc. ("Source") and the
agreements were assigned from Walsh to Source. All agreements were
terminated effective December 15, 1997 upon the sale of certain assets
to NDC. The principal agreements and terms were as follows:
ALPHA (PRESCRIPTION) DATABASE LICENSE AGREEMENT. Source had granted the
Company an exclusive license to use its US databases for a period of
five years through December 2001, with an option to renew for two
additional 5-year periods. The license fee amounts paid to Source in
the years ended June 30, 1996, 1997 and for the period ended December
15, 1997 in respect of this agreement were $3,094,000, $3,126,000 and
$1,728,000, respectively.
DATA PROCESSING AGREEMENT. The Company contracted for Source to provide
specific data processing services in the US. In the years ended June
30, 1996 and 1997 and for the period ended December 15, 1997 costs
incurred by the Company in connection with the data processing
agreement totaled $3,353,000, $5,395,000 and $3,041,000, respectively.
These costs are included in production costs.
FACILITIES AGREEMENT. PMSI sublet space from Source in the US. The net
cost to the Company in the years ended June 30, 1996 and 1997 and for
the period ended December 15, 1997 totaled $545,000, $29,000 and
$45,000, respectively. Such amounts have been included in selling,
general and administrative expenses,
MANAGEMENT AND EXECUTIVE SERVICES AGREEMENT. Source provided
administrative, management and executive services to PMSI in the US
which resulted in a net cost to the Company of $2,319,000, $977,000 and
$542,000 in the years ended June 30, 1996 and 1997 and for the period
ended December 15, 1997, respectively. These costs are included in
selling, general and administrative expenses.
F-10
<PAGE> 30
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At June 30, 1998 there were no amounts receivable or payable
from/to Source. At June 30, 1997, the Company had a net current
receivable from Source of $1,646,000, which was included in other
current assets. Source held 831,144 shares or 6.3% of PMSI's Common
Stock at June 30, 1997 which represented the remaining shares that were
transferred to Source in the "spin-off" of the Source businesses from
Walsh. These shares, together with a further 87,110 shares, were
transferred to the Company as part of the assets acquired on the
purchase of the Source Europe companies from Source on December 15,
1997 (see note 3).
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.
SOURCE INFORMATICS EUROPEAN HOLDINGS LLC
On December 15, 1997 the Company acquired Source Informatics
European Holdings L.L.C. and its subsidiaries ("Source Europe") from
Source for consideration of $8.4 million in the form of the
cancellation of amounts advanced to Source under a line of credit of
$6.4 million and direct costs of $2.0 million.
Source Europe is a developing business involved in building
databases of information from prescriptions dispensed in the UK,
Germany, France, Belgium and Italy and in developing the software
technology to support, access and generate information from such
databases. This information enables pharmaceutical companies to measure
and analyze product performance at a detailed geographical level,
namely small groups of physicians or at the individual physician level
and thereby improve salesforce productivity. Currently, the businesses
are at various stages of development, but revenues are being generated
at an increasing level as more products begin to be delivered to
clients throughout Europe.
The excess of the purchase price over the fair value of the
net assets acquired of $13.4 million was allocated to in-process
research and development and completed technology as follows:
<TABLE>
<S> <C>
In-Process Research & Development $12,046
Completed Technology $ 1,363
-------
$13,409
-------
</TABLE>
Included in the assets acquired in Source Europe were 918,254
shares of common stock of the Company with a fair value on December 15,
1997 of $8.5 million.
F-11
<PAGE> 31
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
These shares were placed in treasury upon acquisition during the second
quarter of fiscal 1998.
Presented below are summarized unaudited pro forma results as
if the acquisition of Source Europe had occurred on July 1, 1996 and
July 1, 1997. The pro forma results include pro forma adjustments
relate principally to the amortization of completed technology and the
elimination of inter-company transactions.
<TABLE>
<CAPTION>
Unaudited Unaudited
Year Ended Year Ended
June 30 ,1997 June 30, 1998
------------- -------------
<S> <C> <C>
Revenue $ 98,892 $ 79,502
Net loss $(26,198) $(14,152)
Net loss per share $ (1.97) $ (1.11)
</TABLE>
MEDIPHASE LIMITED
On July 1, 1994, PMSI acquired 80% of the common stock of
Mediphase Limited, a specialist software and information company in the
United Kingdom. During the year ended June 30, 1998, the Company
purchased the remaining 20% of the common stock of Mediphase Limited
for $1.7 million.
IMR FINANCE
During 1993, the Company purchased an 80% holding in IMR
Finance, a French corporation. 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.
On December 15, 1997, the Company sold to NDC (i) the
Company's interest in the US joint operating venture with Source
("Source US") and (ii) its OTC Physician Database business in the US.
The Company received 1,084,950 registered shares of common stock of
NDC, with a market value on December 15, 1997 of $35.3 million, plus
$6.5 million in cash. This resulted in a pre-tax gain of $33.6 million.
The Company sold IMR (see Note 18), its French point of sale
marketing business on March 31, 1998. This was the last remaining
business to be sold as a result of the Company's decision in the third
quarter of fiscal 1996 to discontinue its non-database segment. The
business was sold for consideration of approximately
F-12
<PAGE> 32
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$3.2 million in cash. The assets sold included cash and cash
equivalents of $1.2 million.
On July 1, 1997 the Company sold its Dutch and US-based
international publishing and communications operations to Excerpta
Medica, the medical communications division of Elsevier Science for
approximately $9 million, resulting in a net gain on sale of $2.6
million.
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, 1996 were $0.7
million and $1.0 million, respectively. The total revenue and operating
loss for the year ended June 30, 1997 were $1.1 million and $1.0
million, respectively.
F-13
<PAGE> 33
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. MARKETABLE SECURITIES
Marketable securities consisted of the following as of June
30, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair Value
Name of Issuer Cost of at Balance Unrealized Gains
and Title of Each Issue Sheet Date (Losses), net
Each Issue at June 30, at June 30, at June 30,
----------------------- ----------------------- ------------------------
1997 1998 1997 1998 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Equity Securities $ -- $ 30,319 $ -- $ 40,109 $- $ 9,790
Corporate debt securities 41,486 47,925 41,482 47,909 (4) (16)
Debt securities issued by the U.S.
Treasury and other U.S.
government corporations and
agencies 4,121 400 4,121 400 -- --
Debt securities issued by foreign
governments 4,228 2,059 4,226 2,060 (2) 1
-------- -------- -------- -------- -------- --------
$ 49,835 $ 80,703 $ 49,829 $ 90,478 $ (6) $ 9,775
======== ======== ======== ======== ======== ========
Maturities
Cash equivalents (1) $ 17,708 $ 20,942 $ 17,707 $ 20,937 $ (1) $ (5)
Short-term investments (2) 24,742 40,313 24,738 50,097 (4) 9,784
Due after one year through three years 7,385 19,448 7,384 19,444 (1) (4)
-------- -------- -------- -------- -------- --------
$ 49,835 $ 80,703 $ 49,829 $ 90,478 $ (6) $ 9,775
======== ======== ======== ======== ======== ========
</TABLE>
(1) Maturities of three months or less at acquisition
(2) Short term investments include debt securities with maturities greater than
3 months and equity securities.
For the years ended June 30, 1996 and 1997, gross realized gains
and losses were not significant. Gross realized gains for the year ended
June 30, 1998 were $1.7 million, and were included in interest and other
income within the consolidated statement of operations. In computing
realized gains and losses, the Company compares the cost of its
investments on a specific identification basis. Such cost includes the
direct cost to acquire the securities adjusted for the amortization of
any discount or premium.
F-14
<PAGE> 34
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1997 and 1998 comprised the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Land and buildings including leasehold
improvements $ 5,546 $ 6,187
Furniture and office equipment 2,528 3,077
Computer equipment 7,756 4,936
Automobiles 321 425
-------- --------
16,151 14,625
Less accumulated depreciation
and amortization (4,390) (5,077)
-------- --------
$ 11,761 $ 9,548
======== ========
</TABLE>
Depreciation and amortization charged to operations for the
years ended June 30, 1996, 1997 and 1998 were $1,342,000, $1,981,000
and $1,461,000, respectively.
6. GOODWILL
Goodwill at June 30, 1997 and 1998 comprised the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Goodwill on acquisition $ 34,752 $ 29,175
Accumulated amortization (9,449) (7,112)
-------- --------
$ 25,303 $ 22,063
======== ========
</TABLE>
The decrease in goodwill on acquisition is a result of the
sale of the Bugamor and Medialert businesses.
Amortization charged to operations for the years ended June
30, 1996, 1997 and 1998 was $1,639,000, $1,522,000 and $1,160,000,
respectively.
F-15
<PAGE> 35
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. OTHER ASSETS
Other assets at June 30, 1997 and 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Software $ 5,206 $ 6,381
Acquired databases 21,539 22,193
------------ -------------
26,745 28,574
Less accumulated amortization (26,324) (26,671)
------------ -------------
421 1,903
Debenture financing costs 1,302 (1) 1,070 (1)
Deposits 766 4,432
Deferred taxes 723 452
Investments 1,670 725
Deferred charges 422 455
Note receivable from Walsh 1,120 (2) 1,167 (2)
------------ -------------
$ 6,424 $ 10,204
============ =============
</TABLE>
(1) Debenture financing costs are being amortized over the life of
the debentures. The amortization charge for the years ended
June 30, 1996, 1997 and 1998 was $232,000
(2) 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,
1998 is $1,167,000
Amortization of acquired databases and software charged to operations
for the years ended June 30, 1996, 1997 and 1998 was $373,000, $211,000 and
$436,000, respectively.
F-16
<PAGE> 36
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. LONG-TERM DEBT
Long-term debt at June 30, 1997 and 1998 consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Debentures (1) $ 69,000 $ 69,000
Other long-term debt (2) 959 175
------------- -------------
69,959 69,175
Less current portion (407) (61)
------------- -------------
$ 69,552 $ 69,114
============= =============
</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 for certain events. The current
value of the debentures at June 30, 1998, based on quoted market
prices, was $66,240,000.
(2) Capital lease obligations (see Note 13).
F-17
<PAGE> 37
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 and the Directors
Plan is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Options outstanding at July 1, 1995,
1996 and 1997 1,786,400 1,848,200 1,903,750
Options granted 234,250 392,200 458,600
Options exercised (84,050) (30,200) (115,050)
Options lapsed (88,400) (306,450) (253,400)
----------- ----------- -----------
Options outstanding at June 30 1,848,200 1,903,750 1,993,900
=========== =========== ===========
Options exercisable at June 30 980,700 1,150,610 1,229,300
=========== =========== ===========
Option prices per share:
Granted $8-$14 $9-$10 $9
Exercised $8-$10 $8-$9.50 $8-$10.75
Outstanding $8-$22 $8-$22 $8-$22
</TABLE>
F-18
<PAGE> 38
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The exercise price of options granted during the years ended June 30,
1996, 1997 and 1998 equaled the market price of the Company's common
stock on the date of the grant. As of June 30, 1998 the Plan and the
Directors Plan had available 76,900 and 40,000 shares of common stock,
respectively, available for future grants.
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, 1996,
1997 and 1998.
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, 1997 and 1998 would have changed as
indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $ (9,624) $ (5,253) $ (303)
Pro-forma $ (9,726) $ (5,556) $ (747)
Net loss per share:
As reported $ (0.73) $ (0.40) $ (0.02)
Pro-forma $ (0.74) $ (0.42) $ (0.05)
</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, 1997
and 1998; risk-free interest rate of 6%; expected life of 6 years; 41%
expected volatility and no dividends. The weighted average fair value
of options granted during the years ended June 30, 1996, 1997 and 1998
were $13.34, $9.38 and $9.02.
Since option grants vest over several years and additional
grants are expected in the future, the pro forma results noted above
are not likely to be representative of the effects on future years of
the application of the fair value based method.
F-19
<PAGE> 39
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's Plan and the
Directors Plan as of June 30, 1997 and 1998 and changes during the
years ended on those dates is as follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1998
------------- -------------
Number Weighted- Number Weighted-
of average of average
Fixed options shares exercise price shares exercise price
------------- ------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,848,200 $ 11.77 1,903,750 $ 11.02
Granted 392,200 $ 9.38 458,600 $ 9.02
Exercised (30,200) $ 8.48 (115,050) $ 9.07
Cancelled (306,450) $ 13.43 (253,400) $ 12.32
--------- --------- --------- ---------
Outstanding at end of year 1,903,750 $ 11.02 1,993,900 $ 10.49
========= =========
Options exercisable at end of year 1,150,610 $ 11.35 1,229,300 $ 11.06
========= =========
</TABLE>
A summary of information regarding the outstanding options and
those exercisable at June 30, 1998 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>
8.40 533,900 3.17 533,900
8.75 112,000 6.67 92,000
9.00 525,500 9.35 138,000
9.38 24,000 9.50 0
9.50 348,200 7.90 96,900
13.50 202,800 6.65 121,000
14.00 36,000 3.58 36,000
15.00 15,000 3.92 15,000
15.25 67,500 4.29 67,500
15.75 15,000 4.95 15,000
18.50 12,000 4.33 12,000
22.00 102,000 3.58 102,000
--------- ---- ---------
1,993,900 6.34 1,229,300
========= ==== =========
</TABLE>
F-20
<PAGE> 40
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, 1996, 1997 and 1998 are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
---------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
U.S. income tax (provision) benefit $(1,666) $ 9 $(8,363)
Foreign tax provision (279) (1,711) (3,902)
Deferred income tax (provision) benefit 789 (953) 6,560
------- ------- -------
$(1,156) $(2,655) $(5,705)
======= ======= =======
</TABLE>
The domestic and foreign components of income before income
taxes were as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
-----------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Domestic $ 1,153 $ 4,022 $ 13,184
Foreign (763) 3,311 (7,782)
-------- -------- --------
$ 390 $ 7,333 $ 5,402
======== ======== ========
</TABLE>
The provision for income taxes differs from that computed
using the 35% statutory federal income tax rate as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended
June 30,
---------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Provision based on federal statutory rate $ (133) $(2,493) $(1,891)
Goodwill and other non-deductible items (304) (301) (1,149)
Foreign earnings and dividends taxed at
different rates (538) 1,124 (254)
Tax refund claims, audit issues & other matters -- 833 (1,490)
State tax, net of federal benefit (135) (149) (2,148)
Purchase accounting adjustments (1,182) -- --
Disposal of assets held for sale -- -- 3,078
Valuation of temporary differences 848 (2,386) (990)
All other, net 288 717 (861)
------- ------- -------
Consolidated effective tax rate $(1,156) $(2,655) $(5,705)
======= ======= =======
</TABLE>
F-21
<PAGE> 41
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
An additional provision for taxes was recorded during the
second quarter of the fiscal year of $1.5 million for probable
liabilities arising from tax audits in progress. The full liability
assessed by the tax authorities was approximately $3.0 million which,
at the request of the tax authorities, the Company paid into an escrow
account during the third quarter of fiscal 1998 pending the outcome of
an appeal. The escrow amount was included in other assets at June 30,
1998.
The tax effect of significant temporary differences
representing deferred tax assets and liabilities at June 30, 1997 and
1998 were as follows (in thousands):
<TABLE>
<CAPTION>
CURRENT ASSETS (LIABILITIES): 1997 1998
---- ----
<S> <C> <C>
Accrued liabilities $ 1,655 $ 2,427
Foreign tax credits -- --
Net operating losses -- 13,563
Prepaid and other current assets 212 2,768
Bad debts 130 115
-------- --------
1,997 18,873
Valuation allowance (405) (14,082)
-------- --------
Net current assets 1,592 4,791
-------- --------
NON-CURRENT ASSETS (LIABILITIES):
Fixed assets & intangibles (200) 496
Net operating losses 4,113 226
Other liabilities 222 88
-------- --------
4,135 810
Valuation allowance (3,412) (358)
-------- --------
Net non-current assets 723 452
-------- --------
Deferred taxes, net $ 2,315 $ 5,243
======== ========
</TABLE>
As of June 30, 1998, there was available for foreign income
tax purposes net operating loss carryforwards of approximately $
45,096,000 which expire as follows: 1999: $199,000, 2000: $146,000,
2001: $357,000, 2002: $2,343,000 and thereafter: $42,051,000.
The undistributed earnings of foreign subsidiary companies for
which deferred U.S. income taxes have not been provided at June 30,
1997 and June 30, 1998 because of permanent reinvestment of earnings in
the operations of those subsidiaries, amounted to $15,272,000 and
$1,041,000, 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 $3,727,000 and $206,000 at June 30, 1997 and June 30, 1998,
respectively.
F-22
<PAGE> 42
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, 1996, 1997 and
1998 were $729,000, $1,245,000 and $1,007,000, respectively.
13. LEASE OBLIGATIONS & OTHER COMMITMENTS
Various PMSI subsidiaries lease certain property and
equipment. Obligations under long-term non-cancelable lease agreements
expiring at various dates have the following aggregate approximate
annual minimum rentals (in thousands):
<TABLE>
<CAPTION>
Capital Operating
------- ---------
<S> <C> <C>
1999 $ 120 $ 2,060
2000 83 1,702
2001 11 1,430
2002 - 1,121
After 2002 - 832
------------- -------------
214 $ 7,145
=============
Less amount representing interest (39)
-------------
Present value of minimum lease payments 175
Less current portion (61)
-------------
$ 114
-------------
</TABLE>
Operating lease rental expense for the years ended June 30,
1996, 1997 and 1998 was $1,471,000, $1,559,000 and $1,676,000,
respectively. Included in furniture, fixtures and equipment are assets
subject to capitalized leases with an original cost of $337,000 (1997:
$1,332,000) and accumulated amortization of $166,000 (1997: $351,000).
F-23
<PAGE> 43
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, 1998
-------------
Operating Identifiable
Revenues Income(Loss) Assets
-------- ------------ ------
<S> <C> <C> <C>
United States $ 37,052 $ 7,221 $ 26,976
Europe and Pacific 40,914 (3,837) 48,339
General corporate -- (33,133) 111,043
-------- -------- --------
Total $ 77,966 $(29,749) $186,358
======== ======== ========
</TABLE>
<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>
F-24
<PAGE> 44
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, 1996, 1997 and 1998 amounted
to $1,308,000, $1,391,000 and $893,000, respectively.
16. RESTRUCTURING COSTS
During the third quarter of fiscal 1996, following the
completion of a strategic review of the Company's operations, 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 the write-off of prepaid data acquisition
expenses 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 balance of the restructuring liability as of June
30, 1996 was $0.9 million, which was fully utilized during fiscal year
1997.
17. IMPAIRMENT
During the third quarter of fiscal 1996, following the
completion of a strategic review of the Company's entire operations,
management concluded that, as well as divesting the non-database
businesses, the value of certain long-lived assets recorded in its
balance sheet could not be recovered, based upon a discounted cash flow
analysis, due to changes in market conditions. Therefore, in accordance
with Statement of Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of" and the Company's existing accounting policy, the Company
recorded a pre-tax charge of $2.4 million ($1.6 million after tax).
This principally related to the write-off of goodwill and capitalized
database costs arising on the acquisition of database businesses now
being exited.
F-25
<PAGE> 45
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. 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 through divestment have been segregated
in the accompanying statements of operations.
During the second quarter of fiscal 1997, the Company recorded
an additional 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 proceeds from the remaining businesses to be sold. The
estimated proceeds from the French point of sale marketing business,
IMR, were reduced by $9.6 million following an independent valuation
report commissioned as part of the process of preparing the memorandum
of sale. A net increase in the estimated loss on sale of the remainder
of the discontinued businesses accounted for a $0.3 million charge due
to changes in estimated sale proceeds. All discontinued businesses were
sold during the measurement period except IMR.
Summary operating results of the discontinued operations for
the years ended June 30, 1996 and 1997 were as follows:
<TABLE>
<CAPTION>
Year Ended
June 30,
--------
1996 1997
---- ----
<S> <C> <C>
Results of discontinued operations:
Revenue $ 44,849 $ --
Income (loss) from operations:
Income (loss) before taxes (2,288) --
Income tax provision (917) --
-------- --------
Loss from discontinued operations (3,205) --
Loss on disposal of discontinued operations, net --
of taxes of $1,236 and $0, respectively (5,710) (9,914)
-------- --------
Loss from discontinued operations $ (8,915) $ (9,914)
======== ========
</TABLE>
The operating 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 and at June 30, 1997, IMR
was the only operation that had not been sold and in accordance with
EITF 90-6, its net assets, together with the remaining accrual for the
loss expected to be generated on disposition, were reclassified to net
current assets held
F-26
<PAGE> 46
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for sale and net assets held for sale in the balance sheet at June 30,
1997. IMR's operating result for the fourth quarter of fiscal 1997 was
recorded in operating income as a separate item "income from assets
held for sale". The revenues attributable to assets held for sale in
the fourth quarter of fiscal 1997 and in the year ended June 30, 1998
were $5.2 million and $8.8 million, respectively.
On March 31, 1998, the Company divested IMR for consideration
of approximately $3.2 million in cash. The assets sold included cash
and cash equivalents of $1.2 million. A net charge of $8.0 million
relating to IMR is reflected in the statement of operations for the
year ended June 30, 1998. This comprises a pre-tax loss on sale in the
third quarter (after selling costs) of $2.1 million, an impairment
charge of $14.7 million in the second quarter and a total tax benefit
of $8.8 million.
19. INCOME (LOSS) PER SHARE
The Company has adopted the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"). Basic per share amounts are computed
using the weighted average number of shares of Common Stock
outstanding. Diluted per share amounts include common equivalent
shares, where dilutive, (using the treasury stock method) from stock
options and convertible debt. The prior periods presented have been
restated applying SFAS 128.
For the years ended June 30, 1996 and 1998 the effects of
common stock equivalents on the per share amounts were anti-dilutive
and accordingly such amounts were excluded from the computations. For
the year ended June 30, 1997, the effects of common stock equivalents
or per share amounts were not material.
These calculations are summarized below:
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Weighted average common shares outstanding
Shares used in computing basic earnings per share 13,123,998 13,186,564 12,771,195
Assumed exercise of in the money
stock options 980,700 1,283,950 1,543,600
Less assumed buy-back under the treasury
stock method (706,082) (1,173,193) (1,185,368)
----------- ----------- -----------
Shares used in computing diluted earnings per
share if the result is dilutive 13,398,616 13,297,321 13,129,427
=========== =========== ===========
</TABLE>
Options to purchase 887,500, 607,800 and 450,300 shares of
common stock at prices ranging from $13.50 to $22.00 were outstanding
at June 30, 1996, 1997 and 1998, respectively, but were not included in
the computation of diluted earnings per share amounts for those years
because the options exercise price was greater than the average market
price of the common shares.
F-27
<PAGE> 47
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The convertible debentures have not been assumed converted for
the 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 for each of the years ended June 30,
1996, 1997 and 1998. The reduced interest expense would have had a
favorable impact on net income (loss) of $2,588,000 for each of these
years.
20. SALE OF NON-US OPERATING ASSETS
On August 5, 1998 the Company announced that it had completed
the sale of its non-US operations, with the exception of its Source and
PMSI targeting businesses in Belgium, to IMS Health Incorporated ("IMS
Health") for consideration of 1,197,963 shares of IMS Health common
stock. IMS Health has an option to purchase the Company's businesses in
Belgium within a three-month period.
As of June 30, 1998, the total assets and total liabilities of
the non-US operations totaled $48.4 million and $33.8 million,
respectively. Total revenues for the year ended June 30, 1998 from the
non-US operations totaled $40.9 million.
This transaction superseded the merger agreement signed with
Cognizant Corporation ("Cognizant") on March 23, 1998, whereby IMS
Health (as assignee of Cognizant) would have acquired all outstanding
shares of PMSI common stock.
21. RETIREMENT OF DEBENTURES
Between September 2, 1998 and September 15, 1998 the Company
redeemed an aggregate amount of $14.7 million of its 6.25% Convertible
Subordinated Debentures due in 2003. The debentures were redeemed at
87% of the principal amount with interest accrued through the date of
redemption.
22. STOCKHOLDER RIGHTS PLAN
On December 30, 1997, the Board of Directors of the Company
adopted a stockholder rights plan (the "Rights Plan") and declared a
distribution of one common share purchase right (a "Right") for each
outstanding share of common stock, $.01 par value (the "Common
Shares"), of the Company. The distribution was payable to the
stockholders of record on January 9, 1998. The Rights will
automatically trade with the Company's common stock. Additional rights
are issuable upon subsequent issuances of common stock by the Company
so long as the Rights Plan is in effect.
The Rights are not currently exercisable but become
exercisable upon the earlier of (i) ten days following the first public
announcement that a person or group, which did not beneficially own 5%
of the common stock as of December 30, 1997, has acquired beneficial
ownership of 15% or more of the Company's common stock, and (ii) ten
business days following the announcement of an offer the consummation
of which would result in the beneficial ownership by a person or group
of 15% or more of the Company's common stock.
Once exercisable, the holder will be entitled to buy from the
Company one-third (1/3) of a
F-28
<PAGE> 48
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Common Share of the Company at a price of $60 per one-third of a Common
share or in certain circumstances to buy at the Rights exercise price a
number of shares of the Company's common stock having a market value of
twice the exercise price of each Right or, if the Company is acquired
in a merger or a business combination, to buy at the Rights exercise
price a number of shares of common stock of an acquiring company having
a market value of twice the exercise price of each Right. At the
Company's option the Rights are redeemable prior to becoming
exercisable for $0.001 per Right. The Rights expire on the close of
business on the tenth anniversary of the Rights Agreement.
F-29
<PAGE> 49
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Stamford, Connecticut
August 14, 1998
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.
PricewaterhouseCoopers L.L.P.
S-1
<PAGE> 50
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------------------------------ -------------------- ------------------ ----------------- -----------------
Additions
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions Period
- ------------------------------ -------------------- ------------------ ---------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
June 30, 1996 $ 415,000 207,000 - (222,000) $ 400,000
June 30, 1997 $ 400,000 246,000 - (258,000) $ 388,000
June 30, 1998 $ 388,000 461,000 - (311,000) $ 538,000
Valuation allowance
for deferred tax assets
June 30, 1996 $2,576,000 - - (1,145,000) $ 1,431,000
June 30, 1997 $1,431,000 2,386,000 - - $ 3,817,000
June 30, 1998 $3,817,000 1,200,000 13,240,000 (3,817,000) $14,440,000
</TABLE>
S-2
<PAGE> 51
PART III
Pursuant to General Instruction G(3) to the Annual Report on Form 10K,
the information required by Part III of Form 10-K is hereby incorporated by
reference from the Registrant's definitive Proxy Statement for its annual
meeting of stockholders, which is to be filed pursuant to Regulation 14A not
later than October 28, 1998.
S-3
<PAGE> 52
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)
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)
S-4
<PAGE> 53
3.3 Amendment to Certificate of Incorporation of
Pharmaceutical Marketing Services Inc.
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)
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)
S-5
<PAGE> 54
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)
10.1(q) Purchase Agreement, dated as of August 3, 1998, among
IMS Helath Incorporated, Pharmaceutical Marketing
Services Inc., PMSI Holdings Limited and Source
Informatics European Holdings LLC (incorporated by
reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K filed August 18, 1998)
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)
10.2(c) Pharmaceutical Marketing Services Inc. 1998 Employee
Stock Plan
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 PricewaterhouseCoopers 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, 1998.
(i) Form 8-K filed April 3, 1998 reporting the execution
of a merger agreement with Cognizant Corporation (that
has since been terminated)
S-6
<PAGE> 55
(ii) Form 8-K filed April 14, 1998 reporting the sale of
IMR Finance S.A.
Financial statements filed:
Unaudited Pro Forma Consolidated Balance Sheet at
December 31, 1997
Unaudited Pro Forma Consolidated Statement of
Operations for the Fiscal Year Ended June 30, 1997
Unaudited Pro Forma Consolidated Statement of
Operations for the Six Months Ended December 31, 1997
Notes to Pro Forma Financial Statements
S-7
<PAGE> 56
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, 1998
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 Raymund 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/ Dennis M.J. Turner Director, Chief Executive Officer September 15, 1998
- ---------------------------------
Dennis M.J. Turner
/s/ Frederick W. Kyle Director September 15, 1998
- -----------------------------------
Frederick W. Kyle
/s/ Robert J. Frattaroli Director September 15, 1998
- ----------------------------------
Robert J. Frattaroli
/s/ Raymund M. Davies Vice President, Chief Financial September 15, 1998
- --------------------- Officer and Treasurer
Raymund M. Davies
/s/ Carolyne K. Davis Director September 15, 1998
- -----------------------
Carolyne K. Davis
</TABLE>
S-8
<PAGE> 57
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ Robert A. Schwed Director September 15, 1998
- --------------------------
Robert A. Schwed
/s/ Carlos Gonzales Director September 15, 1998
- --------------------------
Carlos Gonzales
</TABLE>
S-9
<PAGE> 58
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
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)
S-11
<PAGE> 59
3.3 Amendment to Certificate of Incorporation of Pharmaceutical
Marketing Services Inc.
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.
S-12
<PAGE> 60
(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)
S-13
<PAGE> 61
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)
10.1(q) Purchase Agreement, dated as of August 3, 1998, among IMS
Helath Incorporated, Pharmaceutical Marketing Services Inc.,
PMSI Holdings Limited and Source Informatics European Holdings
LLC (incorporated by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K filed August 18, 1998)
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)
10.2(c) Pharmaceutical marketing Services Inc. 1998 Employee Stock
Plan
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 PricewaterhouseCoopers L.L.P.
27 Financial Data Schedule
* Certain portions of this Exhibit have been omitted pursuant to an order of the
Securities and Exchange Commission granting confidential treatment.
S-14
<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 August 14, 1998, except for Note 21 as
to which the date is September 2, 1998, on our audits of the consolidated
financial statements and financial statement schedule of Pharmaceutical
Marketing Services Inc. and Subsidiaries as of June 30, 1997 and 1998, and the
years ended June 30, 1996, 1997 and 1998, which reports are included in this
Form 10-K.
PricewaterhouseCoopers L.L.P.
Stamford, Connecticut
September 24, 1998
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