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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (Fee Required) For the fiscal year ended December 31, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period
from ___________ to ___________
Commission file number: 0-30318
VENTIV HEALTH, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 52-2181734
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1114 Avenue of the Americas
New York, New York 10036
(212) 768-8000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock, par value $0.001 per share Nasdaq National Market System
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [x] No [ ]
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 statement
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 voting stock of the registrant held by non-
affiliates as of March 21, 2000 was approximately $152,253,276.
As of March 21, 2000, there were 22,830,724 outstanding shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the registrant's definitive proxy statement to be filed with
the Commission for use in connection with the 2000 annual meeting of
stockholders are incorporated by reference into Part III of this Form 10-K.
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TABLE OF CONTENTS
ITEM DESCRIPTION PAGE
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PART I
1 Business 1
2 Properties 11
3 Legal Proceedings 11
4 Submission of Matters to a Vote of Securities Holders 11
PART II
5 Market for Registrant's Common Equity and Related
Stockholder Matters 12
6 Selected Financial Data 13
7 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
7A Quantitative and Qualitative Disclosures About
Market Risk 20
8 Financial Statements and Supplementary Data 22
9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 44
PART III
10 Directors and Executive Officers of the Registrant 45
11 Executive Compensation 45
12 Security Ownership of Certain Beneficial Owners
and Management 45
13 Certain Relationships and Related Transactions 45
PART IV
14 Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 46
Signatures 48
Index to Exhibits
PART I
Item 1. Business.
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Overview
The business currently conducted by Ventiv Health, Inc. ("Ventiv") was created
in 1997 by Snyder Communications, Inc. ("Snyder") in a merger transaction with a
U.S. provider of pharmaceutical sales and marketing services. After forming the
pharmaceutical sales and marketing services business in 1997, Snyder completed a
series of acquisitions that expanded both the scope of services and geographic
presence of the pharmaceutical sales and marketing business to create the
business conducted by Ventiv today. On September 27, 1999, Snyder completed the
distribution of Ventiv's common stock to the shareholders of Snyder (the
"Distribution"). Ventiv now operates as an independent, publicly traded
company.
Ventiv provides global marketing and sales services for the pharmaceutical
and life sciences industries. Our clients include leading pharmaceutical, life
sciences, biotechnology, medical device, and diagnostics companies. We offer a
broad range of integrated services, including educational programs which target
leading physicians, specially-designed strategic marketing plans and product
sales programs which are executed through our extensive sales network.
Our organization and service offerings reflect the changing needs of our
clients as their new products move through the development and regulatory
approval process. As a potential drug or device advances in the clinical trial
process towards commercialization, our clients must first educate medical
decision makers through a variety of informational media. These pharmaceutical
and life sciences companies subsequently need to design a focused launch
campaign to maximize product profitability upon regulatory approval of their
product. Prescription products are typically sold through product detailing,
which involves one-on-one meetings between a sales representative and a targeted
prescriber. Pharmaceutical manufacturers, in particular rely on this sales
process as the most effective means of influencing prescription-writing
patterns, although these companies increasingly supplement their marketing
programs with direct-to-consumer advertising. In the past, product detailing was
handled by the pharmaceutical manufacturers themselves. However, the recent
focus among our clients on flexibility in cost management has led to an
increased frequency of this work being outsourced to contract providers.
Our service offerings are designed to facilitate the development and execution
of marketing strategies as new products advance from clinical trials to product
launch and throughout their useful life. We believe that we are not only one of
the leading providers of healthcare marketing services, but that we are also
uniquely positioned to provide global integrated services that address the full
spectrum of client demands. To date, our clients are comprised primarily of
pharmaceutical companies, which are estimated to have outsourced under 5% of the
amount they spend worldwide on such services.
We serve our clients through three operating groups: Health Products Research
("HPR"), the Healthcare Communications Group ("HCG") and the Contract Sales
Group ("CSG"). These groups reflect the three primary aspects of the marketing
process for pharmaceutical and other life sciences products. First, a product's
targeted marketing and sales effort must be carefully designed to maximize the
manufacturer's return on investment (HPR); second, product awareness and demand
within the medical community must be created and maintained throughout the pre-
and post-launch marketing effort (HCG); third, the product must be sold by a
team of highly trained sales representatives (CSG); and, finally, sales results
must be constantly monitored and sales strategies must be adjusted to respond to
a dynamic marketplace (HPR). Each group is integrated as part of the overall
program but performs very specific functions. Our clients may choose either to
work with us across our full spectrum of services or narrowly focus their
service needs within one of these groups. There is significant overlap among
product lines and extensive opportunities for cross-selling. Most of our largest
clients utilize the services of more than one group.
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Our three operating groups possess significant combined experience, as each
has developed and conducted successful marketing programs for hundreds of
individual pharmaceutical and life science products. Our expertise spans most
therapeutic categories, including the significant markets of cardiology, anti-
infectives, oncology, and neurology. Our core competencies and track record of
proven success enables us to establish strong relationships with our clients'
senior marketing and sales personnel, leading to a high rate of repeat business.
Our strategic goal is to provide the pharmaceutical and life sciences
industries with value-added support services that will enable our clients to
achieve superior product sales through higher market penetration.
Ventiv's Operating Groups
We offer the full spectrum of marketing and sales services through our three
operating groups: Health Products Research, the Healthcare Communications Group
and the Contract Sales Group.
Health Products Research
HPR is responsible for the design of a product launch program and monitoring
that program's development to maximize the potential for a product's success.
This is achieved by using proprietary software to analyze data compiled from
internal sources (such as the contract pharmaceutical salesforce) and third
parties (such as IMS Health Inc., a provider of market research data for the
healthcare industry) to determine specifically how a targeted strategy can
maximize asset utilization and return on investment for our clients.
HPR offers the following core services which it customizes for particular
clients:
. Market Segmentation Analyses
HPR conducts segmentation analyses of the physician universe using
pharmacy-level data in combination with numerous variables such as product
potential, market share, the medical professionals' specialties and
reputations as innovators, and many other individually weighted qualitative
and quantitative data points. Segmenting this physician-level data supports
analyses and modeling that are designed to address issues such as promotion
response, targeting, message development, and forecasting. HPR also links
segment data to primary market research to identify differences in
attitudes and estimate future prescribing patterns.
. Promotion Planning and Evaluation (PROM(sm))
HPR's proprietary PROM(sm) family of analytical models measures historical
promotion response by physicians from various personal and non-personal
promotional events (including market trials). This provides a comprehensive
understanding of the sales responsiveness to an individual product or
marketing effort. PROM(sm) is unique in that it can measure a separate
response for individual physicians by promotional channel. PROM(sm) is also
designed to quantify the interactive effect of promotional media. This data
is used to determine the optimal promotional mix. Ultimately, PROM(sm) is
used to provide market intelligence to enhance market share, identify
optimal sampling levels, evaluate the cost of a detail over time,
understand the impact of marketing programs and measure field force
effectiveness.
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. Resource Allocation (Single and Multi-Product)
Utilizing segmentation and promotional response data, HPR's resource
allocation models determine the resource needs for single-product or
multiple brand promotions.
The UniBrand(sm) model uses the output of a PROM(sm) analysis and market
research as inputs into a causal forecasting model that develops, by brand,
future promotion response curves and optimal, unconstrained details by
physician segment while considering future market events and the knowledge
of product management. Based on the response by promotion type and an
understanding of the interaction among promotion types, a promotion mix
analysis can determine the optimal promotion by brand. The UniBrand(sm)
approach focuses on increasing return on investment through the evaluation
of content and capital employed for each promotion type. Additionally, it
also identifies how one type of promotion can substitute for and/or enhance
other promotion types.
Once the future response curves have been calibrated by UniBrand(sm), this
leading-edge technology can be incorporated in a multi-product resource
allocation model, or RAM(sm). RAM(sm) is designed to maximize sales and
profits by determining optimal salesforce size and structure, as well as
constrained details across brands. The RAM(sm) approach also can be used to
examine "what if" scenarios for different strategic and tactical
alternatives.
. Call Planning System (CAPS(sm))
Through its proprietary technologies, HPR's CAPS(sm) provides an easily
implemented targeting plan for the sales representative while ensuring the
optimum allocation of field force effort across brands and physicians. The
CAPS(sm) system determines the best call frequency and brand detailing
priorities for each physician. CAPS(sm) also supports changes in the
portfolio focus on short notice, thereby enabling organizations to respond
quickly to internal and external developments.
. Salesforce Deployment and Analysis Group
HPR provides strategic salesforce alignment and deployment strategies for
home office and field teams. Alignment services are conducted by analysts
with technical expertise as well as healthcare industry experience who are
committed to the design and realignment of salesforces.
. Data Services
HPR provides healthcare-specific data management services by integrating
data from multiple sources, including internal legacy systems and purchased
third-party data, to identify opportunities that drive business
performance. Data service consultants design customized data collection and
manipulation software programs which analyze data, maintain report
generation functions and manage operational activities such as production
control, data clean-up, matching and ad hoc projects.
. Strategic Consulting
HPR's consultants in the strategic planning group work with clients,
designing solutions for issues such as resource allocation, forecasting,
pricing, and compensation. Their focus on incorporating best practices
within the culture of organizations yields pragmatic and easily implemented
business solutions that can be integrated throughout the organization.
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HPR's distinctive process for developing strategic and tactical resource
allocation is predicated upon the linking of services and data through
solutions based on doctor-level intelligence.
The direct link that exists between the strategy and the data ensures
pragmatic and effective solutions and yields tangible results for our
clients.
Healthcare Communications Group
HCG is responsible for the education of physicians and other decision makers
in the medical community regarding the profile of a product. According to the
requirements of the client's marketing department, HCG will specifically target
the appropriate decision makers for maximum impact. The goal is to provide
sufficient information to generate interest and stimulate demand both prior to
and after a product launch. Therefore, the educational process begins in early-
stage clinical trials and is accomplished through a variety of media customized
to a client's needs.
HCG maintains accreditation status with both the Accreditation Counsel for
Continuing Medical Education ("ACCME") and American College of Physician
Executives ("ACPE"). This distinction provides our programs essential
credibility in the medical community and mitigates the skepticism of many
physicians regarding information provided directly by life sciences companies.
In fact, our ACCME and ACPE accreditations have resulted in significant
attendance at HCG events because physicians are required by law to participate
in accredited education activities in order to maintain their licenses.
The following describes several of our more frequently used product formats
for the delivery of information:
Monographs. HCG publishes highly focused educational reports which typically
carry ACCME or ACPE accreditation. Usually 12 to 24 pages in length, these
reports present topical, state-of-the-art materials on a specific clinical issue
by leading the practitioner through the treatment analysis for appropriate
patients.
Interactive. Pharmaceutical companies have been allocating more promotional
spending into "alternative media," and HCG is well positioned to serve their
needs with its successful track record of developing CD-ROM, Internet and other
interactive products. These interactive programs can be designed as a training
tool for a pharmaceutical company's own salesforce, a board review study guide
for physicians, or a self-paced instructional package on a wide variety of
topics for doctors, nurses, patients, and other target groups.
Full-Color Books. The group also publishes full-color books which range from
100 to 250 pages in length that can be designed to offer in-depth educational
discussion pieces or simply provide an attractive photographic journal narrated
by a well respected physician or medical archivist. As tabletop volumes or
softcover reference books, they provide ongoing reminders of the sponsoring
pharmaceutical company and/or product.
Audio Cassettes. Audio cassettes typically deliver topical information to
doctors such as lectures by leading physicians, roundtable discussions,
summaries of conferences, interviews with prominent specialists, and similar
information. Generally 30 to 60 minutes in length, they can be accredited or
non-accredited, but are always educational in nature or content.
Symposia. HCG products and services include the development and management of
all types of meetings, including symposia, satellite training teleconferences,
and advisory panels. Medical symposia typically involve physicians hearing
presentations regarding a drug or treatment protocol presented by a faculty of
experts in the field for the purpose of being trained to serve as consultants
and spokespeople for the sponsoring pharmaceutical company. Attendees and
faculty from numerous remote locations can also interact in satellite-
transmitted symposia organized by HCG.
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Telemarketing. By providing a complete staff of trained telemarketers, our
telemarketing services significantly enhance a life sciences company's ability
to communicate effectively with physicians. These services give us the ability
to conduct physician awareness programs, focus group recruitment, physician
profiling, physician detailing, sampling follow-ups, qualification of sales
leads, phone surveys, consumer surveys, customer service, compliance building
and patient care management.
Direct Mail. HCG's direct mail capabilities are often combined with its
integrated marketing programs to deliver materials efficiently to its target
audience. We offer a full complement of packaging and mailing services, as well
as state-of-the-art warehousing that provides quick and efficient assembly of
promotional programs and inventory tracking.
Sample Fulfillment. Registered with the FDA as a secondary re-packager, HCG
can assemble promotional materials, insert pharmaceutical samples under
controlled conditions and ship samples to potential prescribers from its
warehouse. The group's combination of pharmaceutical warehousing and direct mail
capabilities allow it to coordinate sample delivery with sales calls on
physicians as well as administer drug recalls and rebate programs, all part of a
seamless automated product offering for the client.
Other Products. In addition, HCG offers a number of auxiliary products and
services and maintains an ability to deliver content in substantially all forms
of media that life sciences companies use to communicate promotional educational
messages. Other media can involve drug utilization reviews, color atlases,
posters, videotapes, convention kiosks and screen savers. HCG also assists its
clients through higher value-added services such as product marketing strategy
consulting, database management focused towards sales targeting, and field sales
support services.
HCG's ability to deliver its marketing and educational messages through a wide
range of media has enhanced our reputation as a "one-stop shop" offering an
integrated range of services to life sciences companies. However, each marketing
solution is customized to deliver a specific message to a highly targeted
audience. HCG also searches constantly for ways to expand its products to meet
the needs of our clients and combine its services with those of our other
operating groups. For example, offering avenues of support through the direct
mail and sample fulfillment programs enables CSG's salesforces to operate more
efficiently and effectively by automating a significant portion of the post-
physician consultation follow-up work (such as literature and sample mailings).
Contract Sales Group
CSG is responsible for the implementation and execution of outsourced sales
programs for prescription pharmaceutical and other life sciences products. This
service is otherwise known as "product detailing." CSG maintains and operates
the requisite systems, facilities, and support services to recruit and deploy a
customized, full-service and highly targeted salesforce within 8-12 weeks.
Currently, CSG operates one of the largest sales organizations in the United
States (larger, in fact, than many pharmaceutical companies), with approximately
2,250 sales representatives in the U.S. and approximately 3,600 worldwide as of
December 31, 1999. It also has significant global coverage through its
operations in the United Kingdom, France, Germany, and Hungary.
Life sciences companies, particularly pharmaceutical manufacturers, have
traditionally relied upon product detailing as the primary means of influencing
prescription writing patterns and promoting their products. Product detailing
consists of a one-on-one meeting in a physician's office where a sales
representative reviews the medical profile of a product's FDA-approved
indications. Information provided by the sales representative includes the
product's role in treatment, efficacy, potential side-effects, dosage, danger of
contra-interactions with other drugs, cost, and any other appropriate
information. The dialogue is two-way with the salesperson collecting the views
of each individual physician. Discussions will often include topics such as the
type of patient most likely to benefit from a particular therapy as well as the
relative benefits of alternative products. This requires the salesperson to be
well-educated and highly trained, both of which are core competencies of CSG. In
addition to engaging in an educational dialogue with the medical professional,
the sales representative will provide free product samples as a supplement to
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the sales effort. This affords the prescription writer and his or her patients
first-hand exposure to the medical product and creates a sense of familiarity
and comfort with the product.
Providing clients with the highest quality sales people requires effective
recruiting and training. To accomplish a coordinated recruiting effort, we
maintain a national recruitment office that locates and hires potential sales
representatives. Our in-house human resources team adheres to selective hiring
criteria and conducts detailed evaluations to ensure the highest-quality of
representation for our clients. CSG's recruiters maintain a fully automated
database of qualified candidates for immediate hiring opportunities, and its
Internet home page offers an online application for employment. CSG hires a mix
of full-time and flex-time representatives in order to accommodate the detailing
level required by clients and maximize cost efficiency.
We also emphasize the training of our personnel, and believe we are the only
contract sales organization with a fully dedicated stand-alone training
department. CSG's professional development group has the largest dedicated
training facility of its type in the United States. Our goal is to ensure that
sales representatives are knowledgeable and operate professionally, effectively,
and efficiently. Topics such as sample accountability, negotiation tactics,
personal writing skills, integrity selling, time and territory management, team
productivity, and pharma-manager leadership are covered extensively in order to
prepare the representatives for their eventual contact with medical
professionals. CSG's trainers are top professionals in their field and rely upon
proprietary information regarding physician prescribing behavior and industry
best practices. As the students are from both CSG's salesforce and our clients'
salesforces, the training and recruiting services are essential to maintaining
and building our relationships with the pharmaceutical companies. These
strengths are widely recognized as differentiating factors which benefit the
overall contract sales effort.
Once recruited and trained, CSG operates two types of salesforces: dedicated
and syndicated. A dedicated salesforce is responsible for the sales of only one
product or of multiple products of a single manufacturer. Dedicated salesforces
facilitate focus and one-on-one conversations with prescribing physicians. A
syndicated salesforce represents products of multiple manufacturers, and, as
such, the client purchases a share of the time the salesperson spends with the
physician, thereby decreasing overall cost for the service. The applicability of
each salesforce depends on the specific circumstance and the client's portfolio
of products. Syndicated salesforces are seldom used in the U.S., but have been
common in the U.K. and parts of continental Europe.
We are committed to providing our clients with customized cost-effective sales
support. This is reflected in the variety of options clients have to choose
from, including the type of salesforce (dedicated vs. syndicated), the
specialties of the salesforce (oncology, cardiology, etc.), the methodology
employed to target decision makers in the medical community and the type of
analysis to be conducted based on the information the salesforce collects. We
work closely with our clients in all aspects of our service offering to ensure
maximum impact of the product's promotional effort.
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The combination of our contract sales capabilities with HPR and HCG has
resulted in our proven ability to:
Maximize product launch tactics
Our salesforce has launched products where it had both partial and complete
promotional responsibility. The emphasis is on speed-to-market and impact, and
there are examples where CSG's efforts have helped our client's product to
become the most prescribed drug in its category within the first three months.
Provide globally targeted pharmacy promotions
International and domestic coverage of independent and chain pharmacies for
product launch, pipeline fill, and other related programs enable us to provide a
simultaneous geographic launch. As regulatory filings by pharmaceutical
customers are now coordinated globally, this capability is an increasingly
important competitive advantage.
Mobilize specialized salesforces
CSG's ability to execute and implement tailored programs and sales teams for
managed care initiatives; hospital coverage for surgery, cardiac device, and
advanced wound care treatment products; and clinical laboratory programs
collectively demonstrate to our clients the utility of Ventiv's high level of
salesforce training, mobilization and integration.
Support mature lines
Our services include the promotion of existing products in addition to
products emerging from our client's research pipeline. For example, we helped a
client elevate a ten-year-old product to a number one market share position in
13 months.
Collect and analyze sales information
We believe that CSG leads the industry in the collection and analysis of data
necessary to make marketing resource allocation decisions. Sales representatives
are equipped with palm-top computers in order to collect sales call and
physician profiling information, which is uploaded into a central data storage
server after each day of sales calls. Our state-of-the-art information
processing system allows sales management teams to analyze real-time data
constantly, compare the results with targeted initiatives and historical data,
and make necessary adjustments to the sales strategy.
Our ability to increase the incremental sales of older life sciences products
and enhance the sale of newer products is critical to the financial success of
our clients. Our integrated approach to contract sales, an experienced
management team, recruiting, professional training and development, and use of
technology provide the company with a competitive advantage in marketing
products for our clients. With the ability to leverage off of the capabilities
of HPR and HCG, CSG is well-positioned to provide value-added services across an
array of product types in the life sciences industry.
Competitive Advantages
Leading Global Healthcare Marketing and Sales Services Company. We are one of
the largest competitors in the global market for outsourced pharmaceutical
marketing solutions, with significant operations throughout Western Europe
(United Kingdom, Germany, France and Hungary) and the United States. We are a
large-scale provider of contract sales with a salesforce ranked in the top
three, based on size, among outside providers in the United States, Germany,
France and the United Kingdom, constituting four of the top six worldwide
pharmaceutical markets. We are also a significant provider of medical
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communications and strategic sales and marketing planning. We service a large
number of physicians, nurses, pharmacists and formularies. We reached over
500,000 individual healthcare professionals during 1999. These people are
regularly contacted by our representatives--approximately 3.5 million calls on
physicians in 1999 alone--enabling the collection of valuable profiling data.
Our large-scale presence in each key market provides significant advantages in
terms of experience, speed, capabilities, and technology.
A Broad and Integrated Service Offering. We offer a broad and integrated
range of services, from the education of physicians on a drug's development,
through the strategic analysis and design of a targeted product launch, to the
availability of approximately 3,600 sales representatives to implement a
targeted sales plan. The comprehensive education programs include conventions,
symposia and Continuing Medical Education ("CME") credit classes necessary for
physicians to retain their licenses. When a drug is ready to be launched, Health
Products Research utilizes proprietary call planning, territory alignment and
workload analysis to ascertain the ideal staff levels and coverage required to
reach forecasts, subsequently monitoring progress on a real-time basis to
maximize return on investment for pharmaceutical clients. The deployment of our
highly trained salesforce is managed by a national recruitment team that ensures
that calls begin on a coordinated basis within 8-12 weeks.
Proprietary Technologies and Data. We maintain and operate a number of
proprietary software programs and systems for marketing development and data
gathering. HCG develops interactive CD-ROMs for our clients which can be
designed to educate and train a pharmaceutical salesforce about a new drug,
provide a board review study guide for a physician, or function as a self-paced
instructional package on a wide variety of topics for medical target groups.
Pharmaceutical companies are allocating more marketing dollars to instructional
software due to the success of these tools, and our established expertise
positions us to serve this segment. To conduct strategic studies, HPR employs a
series of programs which were designed in-house and utilizes data which is
gathered and processed by our Contract Sales Group. Simultaneous access to the
aforementioned resources enables HPR to produce unique and intricate value-added
studies for the benefit of our clients. These value-added offerings are a
significant advantage for us because they directly translate into an increase in
our clients' return on investment through better salesforce sizing and targeting
and higher salesforce productivity. Moreover, we have made a considerable
investment in technology and are focused on using cutting-edge salesforce
automation tools to increase our efficiency. Approximately 60% of our salesforce
is currently equipped with palm-top computers, and our deployment of this
technology will increase throughout 2000. Such real-time data is important for
pharmaceutical clients during the launch of a drug, allowing rapid profiling of
the impact on targeted physicians and facilitating the refinement of calling
frequency and marketing tactics.
Existing Broad "Blue Chip" Client Base. In addition to serving many of the
largest pharmaceutical companies, we also serve a large number of mid-size and
smaller life sciences companies. As each of these companies uses our services,
our relationship is expanded and the opportunity to cross-sell products
increases. Due to the nature of the business, contracts tend to be longer in
duration and rarely are terminated prior to their expiration. Our business is
not overly concentrated on a small number of clients. As a result, the existing
client base, while not captive, is likely to become more intertwined with us as
the relationships grows in tandem with the clients' needs for additional
services.
Experienced and Visionary Management Team. Our management team includes
entrepreneurs who founded their respective businesses and continue to manage
them after their integration into Ventiv's business, as well as executives with
substantial expertise managing pharmaceutical salesforces and establishing sales
and marketing strategies. We believe our mix of senior management with
pharmaceutical salesforce management, entrepreneurial talent and strategic
perspective is unique in the industry.
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Our senior management team has outlined an exciting vision which includes
expanding the services offered by our communications unit, expanding HPR and HCG
in Europe, and developing Internet applications which allow physicians to access
our training and communications materials online. Additionally, we intend to
capitalize on our real-time data access through our 3,600-person salesforce.
Because of our high level of quality service, our pharmaceutical clients have
rewarded us with contract extensions and high rates of repeat business.
Physicians routinely give us the highest marks in surveys of medical education
programs. Our CME program was recently awarded a four-year accreditation period
by ACCME. We are one of only a few ACCME-accredited commercial enterprises.
Additionally, we provide the most advanced strategic analysis in the industry
through Health Products Research.
Clients
We provide our services to leading pharmaceutical, biotechnology, medical
device and diagnostics companies on a global basis. During 1999, approximately
59% of our revenues were derived from our ten largest clients. One client,
Bristol Myers Squibb, Inc., accounted for approximately 14% of our revenue
during 1999. No other single client accounted for more than approximately 8% of
our revenues during 1999. Our top ten clients based on 1999 revenue, listed
alphabetically, are Abbot Laboratories, AstraZeneca, Bristol-Myers Squibb, Eli
Lilly, Endo Pharmaceuticals, Forest Laboratories, Johnson & Johnson, Merck,
Monsanto Company and Novartis. We consider our close relationships with leading
pharmaceutical manufacturers to be an important competitive advantage, providing
us with a source for recurring revenues as well as sales growth opportunities as
new products are developed and launched. The services are sold to the same
target groups for each client, namely their marketing and sales departments.
This provides the basis for continuous interaction and feedback, allowing us to
continuously improve our services and identify new business opportunities, a
process augmented by the long-term nature of our contracts.
We have developed sustained relationships with blue chip clients that provide
us with recurring revenue streams and service cross-selling opportunities. Our
ability to add value at every part of the product life cycle enhances our
ability to form long-lasting relationships with clients.
Our relationships with a client's marketing and sales organizations also
benefit from high switching costs, as retaining another salesforce and
redesigning a market program would create substantial additional expense and
cause losses in time and productivity for our clients. In addition, the
successful medical marketing outsourcers have established their reputations due
to sophisticated performance evaluation capabilities, and clients are unlikely
to use vendors without widely recognized expertise.
Competition
We believe that no other organization offers the same scope of integrated
healthcare marketing services as we offer our clients. Our competitors include
contract sales organizations as well as contract research organizations that
offer healthcare marketing services. Additionally, drug distribution companies
have indicated a desire to enter this lucrative market by leveraging their
knowledge base and effecting strategic acquisitions. Each of our operating
groups faces distinct competitors in the individual markets in which the group
operates. However, none of our competitors provides the full scope of services
we currently offer through our three operating groups.
Contract Sales. A small number of providers comprise the market for contract
sales, which we believe represents more than 75% of outsourcing revenues in the
healthcare marketing services market as a whole. We believe that Ventiv, Innovex
(Quintiles), Professional Detailing Inc., and Pharmaceutical Detailing Network
combined account for most of the United States contract sales market share, with
Ventiv and Innovex being the only participants to have an international
presence. These organizations historically have not been significant competitors
with regard to healthcare marketing services other than contract sales. However,
because the rest of the industry is fragmented, with a large number of small
providers attempting to develop niche services one or more of our large
competitors in the contract sales market could become significant competitors
with regard to the other services which we offer by either developing additional
capabilities or acquiring smaller companies.
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Contract Marketing Services. The contract marketing services sector contains
many more competitors and is also highly fragmented. This is due in part to the
wide variety of marketing activities required by medical product companies,
including promotional meetings, symposia, video satellite conferencing, peer-to-
peer meetings, medical educational material and conferences, teleservices, field
force logistics and product management. As a result, accurate relative market
share is more difficult to define as we encounter different competitors for each
of these services. The only competitors of significant scale in the broad
marketing sector are narrowly focused: Boron LePore & Associates, which provides
peer-to-peer physician education meetings, and privately owned ZS Associates,
which provides strategic assessments similar to the services of HPR. Neither
company is a significant competitor with us in the contract sales market.
Seasonality
Various aspects of Ventiv's business are subject to seasonal variation,
most notably our European contract sales organization where activity decreases
during the third quarter of the year due to European summer holiday season.
However, we believe that the seasonality of the various aspects of our business
is not coincident, such that on an aggregate basis Ventiv's business is not
subject to significant seasonal variation.
Employees
At December 31, 1999, we employed approximately 4,400 people worldwide. We
believe that our relations with our employees are satisfactory.
Government Regulation
Several of the industries in which our clients operate are subject to varying
degrees of governmental regulation, particularly the pharmaceutical and
healthcare industries. Generally, compliance with these regulations is the
responsibility of our clients. However, we could be subject to a variety of
enforcement or private actions for our failure or the failure of our clients to
comply with such regulations.
In connection with the handling and distribution of pharmaceutical products
samples, we are subject to regulation by the Prescription Drug Marketing Act of
1987 and other applicable federal, state and local laws and regulations in the
United States, and certain regulations of the United Kingdom, France, Hungary,
Germany and the European Union. These laws regulate the distribution of drug
samples by mandating storage, handling and record-keeping requirements for drug
samples and by banning the purchase or sale of drug samples. In certain
jurisdictions, including the United Kingdom and France, pharmaceutical sales
representatives are subject to examination and licensing requirements under
local law and industry guidelines. Ventiv believes it is in compliance in all
material respects with these regulations.
Our physician education services are also subject to a variety of federal and
state regulations relating to both the education of medical professionals and
the marketing and sale of pharmaceuticals. In addition, certain ethical
guidelines promulgated by the American Medical Association ("AMA") govern the
receipt by physicians of gifts in connection with the marketing of healthcare
products. These guidelines govern the honoraria and other items of value which
AMA physicians may receive, directly or indirectly, from pharmaceutical
companies. Ventiv follows similar guidelines in effect in other countries where
it provides services. Any changes in such regulations or their application could
have a material adverse effect on Ventiv. Failure to comply with these
requirements could result in the imposition of fines, loss of licenses and other
penalties and could have a material adverse effect on Ventiv.
10
From time to time, state and federal legislation is proposed with regard to
the use of proprietary databases of consumer and health groups. The uncertainty
of the regulatory environment is increased by the fact that we generate and
receive data from many sources. As a result, there are many ways both domestic
and foreign governments might attempt to regulate our use of its data. Any such
restriction could have a material adverse effect on Ventiv.
Item 2. Properties.
----------
Our headquarters is located in New York, New York at a site we lease. Ventiv
and its operating subsidiaries own facilities in Boulder, Colorado and
Lenggries, Germany. We lease a total of 19 facilities in the U.S., U.K.,
France, Germany, Austria and Hungary. We believe that our properties are well
maintained and are in good operating condition.
Item 3. Legal Proceedings.
-----------------
From time to time we are involved in litigation incidental to our business.
In our opinion, no pending or threatened litigation of which we are aware has
had or is expected to have a material adverse effect on our results of
operations, financial condition or liquidity.
Item 4. Submission of Matters to a Vote of Securities Holders.
-----------------------------------------------------
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1999.
11
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
----------------------------------------------------------------
Matters.
-------
The following table contains the high and low sales prices of our existing
common stock traded on the Nasdaq National Market during the periods indicated:
High Low
-------- ------
Year ended December 31, 1999
First Quarter n/a n/a
Second Quarter n/a n/a
Third Quarter (1) 10 7 3/4
Fourth Quarter 10 7/8 5 1/4
(1) Information regarding Ventiv's common stock is only available beginning on
September 23, 1999 when Ventiv's common stock began trading on a "when
issued" basis on the Nasdaq National Market. Ventiv's common stock began
its first day of "regular way" trading on September 28, 1999
On March 21, 2000, the closing price for Ventiv's common stock was $9.50 per
share, and there were approximately 7,278 beneficial owners of Ventiv's common
stock as of that date.
Ventiv did not declare cash dividends on its common stock in 1999. Ventiv
currently intends to retain future earnings to finance its growth and
development and therefore, does not anticipate paying any cash dividends in the
foreseeable future. Payment of any future dividends will depend upon the future
earnings and capital requirements of Ventiv and other factors which our Board of
Directors considers appropriate.
The transfer agent for Ventiv's common stock is American Stock Transfer and
Trust Company, 40 Wall Street, 46th Floor, New York, New York, 10005.
12
Item 6. Selected Financial Data.
-----------------------
SELECTED FINANCIAL DATA
The following table summarizes certain historical financial data with respect
to Ventiv and is qualified in its entirety by reference to, and should be read
in conjunction with, the Ventiv historical consolidated financial statements and
related notes included elsewhere in this Form 10-K. The historical financial
data for the years ended December 31, 1999, 1998 and 1997 have been derived from
the audited financial statements of Ventiv. Historical financial information
may not be indicative of Ventiv's future performance. Prior to their respective
acquisitions, certain U.S.-based acquirees were not subject to federal or state
income taxes. Pro forma net income (loss) represents net income (loss)
adjusted to reflect a provision for income taxes as if Ventiv had been taxed
similarly to a C corporation for all periods presented. See also "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For the Years Ended December 31,
-------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------------------
(unaudited) (unaudited)
(in thousands, except per share data)
Statement of income data:
Revenues.................................. $344,655 $321,500 $208,967 $144,704 $120,354
========= ======== ========= ========= =========
Net income (loss)......................... $ (6,793) $ 1,446 $ (8,718) $ 83 $ 8,430
========= ======== ========= ========= =========
Basic and diluted net income (loss)
per share (1)............................ $ (0.28) $ 0.06 $ (0.37) $ -- $ (0.36)
========= ======== ========= ========= =========
Unaudited:
Pro forma net income (loss)............... $ (6,793) $ 1,446 $(10,700) $ (2,729) $ 5,131
========= ======== ========= ========= =========
Pro forma basic and diluted net income
(loss) per share (1)..................... $ (0.28) $ 0.06 $ (0.45) $ (0.12) $ 0.22
========= ======== ========= ========= =========
Shares used in computing basic and
diluted net income (loss) per share (1).. 23,907 23,715 23,715 23,715 23,715
========= ======== ========= ========= =========
Balance sheet data:
Total assets.............................. $233,264 $193,644 $100,947 $ 51,180 $ 58,623
========= ======== ========= ========= =========
Long-term debt............................ $ 1,155 $ 1,473 $ 4,154 $ 2,634 $ 1,420
========= ======== ========= ========= =========
Total investments and advances from
Snyder Communications, Inc. (2).......... $ -- $119,727 $ 10,371 $ 4,697 $ 13,591
========= ======== ========= ========= =========
Total equity.............................. $ 145,753
=========
(1) For all dates prior to the Distribution, the number of shares used to
calculate net income per share is equal to the shares of Ventiv common stock
that were issued upon the Distribution based on the number of outstanding
shares of Snyder common stock on September 27, 1999. From the date of the
Distribution through December 31, 1999, the number of shares used to
calculate net income per share are the actual number of shares of Ventiv
common stock outstanding.
(2) Investments and advances from Snyder represents the net cash transferred to
Ventiv from Snyder and businesses acquired by Snyder and contributed to
Ventiv.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
On September 27, 1999, Ventiv Health, Inc. ("Ventiv") was spun off from
Snyder Communications, Inc. ("Snyder") in the form of a tax-free dividend to
Snyder stockholders (the "Distribution"). Ventiv is now an independent
publicly-traded company. This Management's Discussion and Analysis of Financial
Condition and Results of Operations covers periods prior to the Distribution,
during which the operations of Ventiv were part of Snyder. The following
information should be read in conjunction with Ventiv's Consolidated Financial
Statements and notes thereto included elsewhere in this Annual Report on Form
10-K. See "Index to Financial Statements."
Private Securities Litigation Reform Act of 1995 -- A Caution Concerning
Forward-Looking Statements
Any statement made in this Form 10-K that deals with information that
is not historical, such as statements concerning our anticipated financial
results, are forward-looking statements. We wish to caution readers not to
place undo reliance on any of these forward-looking statements, which speak only
as of the date made. Forward-looking statements are subject to the occurrence
of many events outside our control and to various risk factors that could cause
results to differ materially from those expressed in our periodic reports and
registration statements filed with the Securities and Exchange Commission, our
press releases or other public communications.
Overview
Ventiv's services are designed to develop, execute and monitor strategic
marketing plans for pharmaceutical and other life sciences products and to
conduct educational research and communication services for the medical
community. Snyder created the business currently conducted by Ventiv in January
1997 in a merger transaction with a U.S. provider of pharmaceutical sales and
marketing services. After forming the pharmaceutical sales and marketing service
business in 1997, Snyder completed a series of acquisitions which expanded both
the scope of services and geographic presence of the pharmaceutical sales and
marketing business to create the business conducted by Ventiv today. We plan to
focus on internal growth for the foreseeable future as the primary means of our
expansion, although we will consider attractive acquisition opportunities as
they arise.
We expect that the complementary services, which Ventiv is able to offer to
its customers as a result of the acquisitions described above, will increase our
opportunities and strengthen our client relationships. We strive to integrate
our service capabilities to provide a spectrum of healthcare marketing and sales
services. Ventiv's Health Products Research Group designs and monitors product
launches and sales strategies with its proprietary programs to maximize asset
utilization and return on investment for pharmaceutical and other life sciences
companies. Ventiv's Healthcare Communications Group provides educational
programs to physicians and other healthcare professionals. The Contract Sales
Group implements and executes outsourced sales programs for pharmaceutical and
other life sciences products. Most of Ventiv's largest clients utilize the
services of more than one of our operating groups.
Results of Operations
Revenues and associated costs under pharmaceutical detailing contracts are
generally based on the number of physician calls made or the number of sales
representatives utilized. For consulting and educational services, Ventiv's
revenues are generally based on a fixed project amount.
Cost of services consists of all costs specifically associated with client
programs, such as salary, commissions and benefits paid to personnel, including
senior management associated with specific service offerings, payments
to third-party vendors and systems and other support facilities specifically
associated with client programs.
Selling, general and administrative expenses consist primarily of costs
associated with administrative functions, such as finance, accounting, human
resources, and information technology, as well as personnel costs of senior
management not specifically associated with client services.
14
Non-recurring costs include compensation to stockholders, recapitalization
costs, and acquisition and related costs. Compensation to stockholders consists
of excess compensation paid to certain stockholders of acquired companies prior
to their respective mergers with Ventiv. The amount by which the historical
compensation of these stockholders exceeds that provided in their employment
contracts with Ventiv has been classified as compensation to stockholders. 1999
recapitalization costs consist of restricted stock granted to certain key
employees of the Company, which vested immediately following the Distribution.
1997 recapitalization costs were recorded at the time of the recapitalization by
one of the companies acquired by Ventiv during 1998 in a pooling of interests
transition. Acquisition and related costs consist primarily of investment
banking fees, other professional service fees, certain tax payments and other
contractual payments resulting from the consummation of the pooling of interests
transactions, as well as the costs of consolidating certain of our acquired
operations.
The following sets forth, for the periods indicated, certain components of
Ventiv's income statement data, including such data as a percentage of revenues.
Compensation to stockholders, recapitalization costs and acquisition and related
costs are considered to be non-recurring by Ventiv because Ventiv's current
operations will not result in any compensation to stockholders, recapitalization
costs or acquisition and related costs in future periods.
For the Years Ended
December 31,
---------------------------------------------------------------------------
1999 1998 1997
------------------- -------------------- ------------------------
(dollars in thousands)
Revenues............................ $344,655 100.0% $321,500 100.0% $208,967 100.0%
Operating expenses:
Cost of services................... 295,296 85.7 236,047 73.4 156,346 74.8
Selling, general & administrative
expenses.......................... 47,426 13.8 43,029 13.4 32,787 15.7
Non-recurring costs................ 10,054 2.9 27,664 8.6 25,569 12.2
-------- ----- -------- ----- --------- -----
Income (loss) from operations....... (8,121) (2.4) 14,760 4.6 (5,735) (2.7)
-------- ----- -------- ----- --------- -----
Interest expense.................... (405) (0.1) (2,315) (0.7) (1,617) (0.8)
Investment income................... 1,080 0.3 1,850 0.5 568 0.3
-------- ----- -------- ----- --------- -----
Income (loss) before income taxes... (7,446) (2.2) 14,295 4.4 (6,784) (3.2)
-------- ----- -------- ----- --------- -----
Income taxes provision (benefit) (653) (0.2) 12,849 4.0 1,934 1.0
-------- ----- -------- ----- --------- -----
Net income (loss)................... $ (6,793) (2.0)% $ 1,446 0.4% $ (8,718) (4.2)%
======== ===== ======== ===== ========= =====
Pro forma net income (loss)......... $ (6,793) (2.0)% $ 1,446 0.4% $(10,700) (5.1)%
======== ===== ======== ===== ========== =====
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Revenues. Revenues increased $23.2 million, or 7.2%, to $344.7 million in
1999 from $321.5 million in 1998. Revenues increased $36.1 million , or 34.8%,
within our U.S. Contract Sales Group primarily as a result of new contracts
which were secured in 1999, an incentive compensation payment received from a
client and the purchase of HCP in 1998 which has been integrated into our U.S.
Contract Sales Group. Revenues increased $5.2 million, or 33.2%, within our
Healthcare Products Research Group, reflecting new business contracts secured in
1999. The increases in revenues are offset by a $7.0 million, or 11.4%, decrease
in revenues from our Healthcare Communications Group and $11.1 million, or 7.9%,
decrease in revenue from our European Contract Sales Group attributed to the
business challenges associated with the integration of acquired businesses
during 1999, market and competitive conditions in Europe, and a change in the
business mix toward live events in our Healthcare Communications Group.
15
Cost of services. Cost of services increased $59.3 million, or 25.1%, to
$295.3 million in 1999 from $236.0 million in 1998. The year-over-year increases
in cost of sales of $46.5 million and $3.8 million at our U.S. Contract Sales
Group and our Healthcare Products Research Group, respectively, is driven by the
increases in revenue within those groups. In addition, recruiting and other
start-up related costs for several new contract sales forces in the U.S.,
including a 725 person sales force to provide services under a new contract with
Bristol-Myers Squibb, were incurred during 1999 with no offsetting revenue,
increasing 1999 expenses approximately $14 million over 1998 levels. Cost of
services were favorably impacted in 1999 by a one-time $2.0 million reduction in
the estimated amount of employee-related social costs to be paid as a result of
the integration of our French salesforce. In the Healthcare Communications
Group, a shift in the mix of business toward live events such as
teleconferences, symposia, and speaker bureau meetings, lowered gross margins.
The closure of a syndicated sales team in the U.K. resulted in one-time
expenditures of approximately $0.2 million. Revenue reductions in the Healthcare
Communications Group and the European Contract Sales Group yielded only marginal
cost reduction opportunities, primarily because the predominant component of
cost of services is personnel driven. We believe that actions taken late in
1999, including the closure of a syndicated sales team, will result in a lower
cost of services as a percentage of revenues in future periods. As a result of
the above factors, cost of services as a percentage of revenues increased to
85.7% in 1999 from 73.4% in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $4.4 million, or 10.2%, to $47.4 million in
1999 from $43.0 million in 1998. Selling, general, and administrative expenses
as a percentage of revenues increased to 13.8% in 1999 from 13.4% in 1998, due
in part to additional ongoing overhead costs incurred during the second half of
1999 which are related to changes in Ventiv's management and administrative
infrastructure necessary to become an independent, publicly traded company.
Non-recurring Costs. Our non-recurring costs include compensation to
stockholders, recapitalization costs and acquisition and related costs. Total
non-recurring costs were $10.1 million in 1999 compared to $27.7 million in
1998. Ventiv recorded no compensation to stockholders in 1999 as compared to
$0.8 million recorded by an acquired company in 1998. Ventiv recorded $2.1
million in recapitalization costs during 1999. The cost consists of restricted
stock granted to certain key employees of Ventiv which vested immediately
following the Distribution. No recapitalization costs were recorded for 1998.
Ventiv recorded $8.0 million in acquisition and related costs during 1999.
Included in this amount is $5.7 million related to a payment made by Ventiv, in
the form of 695,304 shares of Ventiv common stock, to the prior owners of
PromoTech in exchange for the release of any and all claims against Snyder or
Ventiv related to the purchase of PromoTech. The payment was not provided for in
the purchase agreement and is not part of the purchase price for accounting
purposes. $3.1 million of the $8.0 million is due to additional costs related
to the consolidation and integration of certain Ventiv's acquired operations in
the U.S., U.K. and France under the Company's plan initiated in 1998. The charge
consists of $1.8 million in severance and related payments associated with the
termination of 23 employees, and $1.3 million in consulting services and other
costs related to these integration activities. In addition, we recorded a
reduction of $0.8 million for previously recorded acquisition and related costs
due to changes in estimates. Ventiv recorded $26.9 million in acquisition and
related costs during 1998. $16.2 million of these costs were related to the
consummation of pooling of interests transactions during 1998. Ventiv completed
four pooling of interests transactions valued at approximately $259 million
during 1998. The remaining $10.7 million of the $26.9 million was due to the
consolidation and integration of certain of Ventiv's acquired operations within
the Contract Sales Group and the Healthcare Communications Group. See
discussion below in the section "Year Ended December 31, 1998 Compared to Year
Ended December 31, 1997."
Interest expense. Ventiv recorded $0.4 million of interest expense during
1999 compared with $ 2.3 million of interest expense during 1998. Ventiv did not
have any significant debt obligations outstanding during 1999. The interest
expense recorded during 1998 consists primarily of interest on debt at acquired
companies prior to their acquisition by Ventiv. Ventiv generally repaid the debt
of its acquired companies. If Ventiv borrows money for acquisitions, shares
repurchases, or for other purposes, interest expense will increase in future
periods.
16
Investment Income. Ventiv recorded $1.1 million of investment income during
1999 and $1.9 million of investment income during 1998. Variations in investment
income result from differences in average amounts of cash and equivalents
available for investment and the prevailing short-term interest rates during
these periods.
Income Tax Provision (Benefit). Ventiv recorded a tax benefit of $0.7
million in 1999. Ventiv's effective tax rate on its recurring operations is
approximately 85.9% for 1999. The actual tax provision recorded differs from the
effective rate primarily due to the non-deductibility of certain of the non-
recurring costs recorded during the period.
Net Income (Loss). Ventiv's net loss was $6.8 million in 1999 compared to
net income of $1.4 million in 1998 due to the increases in operating costs which
exceeded increases in revenue, offset by the decrease in non-recurring costs.
Pro Forma Net Income (Loss). Pro forma net income (loss) shows the effect on
net income (loss) assuming Ventiv and its subsidiaries were taxed as C
corporations for all periods. There is no difference between pro forma net
income (loss) and net income (loss) for 1999 and 1998.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues increased $112.5 million, or 53.8%, to $321.5 million in
1998 from $209.0 million in 1997. We experienced revenue growth at each of our
operating companies during 1998 and it consists of an $82.7 million, or 51.0%,
increase at our Contract Sales Group, a $26.7 million, or 77.9%, increase at our
Healthcare Communications Group, and a $3.1 million, or 24.8%, increase at our
Health Products Research group. The increased revenue in our Contract Sales
Group resulted in the growth of services provided to both new and existing
customers during 1998, the purchase of HCP and CLI Pharma in the first quarter
of 1998, and the purchase of Halliday Jones in the third quarter of 1997. The
increased revenue in both the Healthcare Communications Group and the Health
Products Research group is attributable to the growth services provided to new
and existing customers during 1998.
Cost of Services. Cost of Services increased $79.7 million, or 51.0%, to
$236.0 million in 1998 from $156.3 million in 1997 as a result of the increased
revenues discussed above. Cost of services as a percentage of revenues decreased
to 73.4% in 1998 from 74.8% in 1997. This is due to Ventiv's overall growth and
the ability of the client support personnel to handle increased client services.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $10.2 million, or 31.1%, to $43.0 million in
1998 from $32.8 million in 1997 as a result of the growth in revenues discussed
above. Selling, general and administrative expenses as a percentage of revenues
decreased to 13.4% in 1998 from 15.7% in 1997 due primarily to the revenue
growth from the significant increase in services provided throughout 1998 and
the lower proportional increase in selling, general and administrative expenses
necessary to support the revenue growth.
Non-recurring Costs. Non-recurring costs include compensation to
stockholders, acquisition and related costs and recapitalization costs.
Compensation to stockholders was $0.8 million in 1998 and $15.6 million in 1997.
Compensation to stockholders reflects compensation paid to certain stockholders
of acquired companies prior to their respective mergers with Ventiv that is in
excess of the compensation provided for in their employment contracts with
Ventiv. The amount by which the historical compensation paid to these
stockholders exceeds the amount provided for in their respective employment
contracts with Ventiv has been classified as compensation to stockholders. No
compensation to stockholders is recorded subsequent to an acquisition by Ventiv.
The $0.8 million recorded in 1998 relates to certain companies acquired in the
third and fourth quarters of 1998, and therefore, was incurred during 1998 by
the acquired companies prior to their acquisition.
Ventiv recorded $26.9 million in nonrecurring acquisition and related costs
during 1998. These costs were primarily related to the consummation of
acquisitions and consisted of investment banking fees, expenses associated with
the accelerated vesting of options held by employees of certain acquired
companies, other professional service fees, transfer taxes and other contractual
payments. In addition, this amount included a charge of approximately $10.7
million for costs necessary to consolidate and integrate certain of Ventiv's
acquired operations in the U.S., the U.K. and France. Ventiv has integrated
acquired subsidiaries that provided similar services within the same geographic
regions. Approximately nine locations have been consolidated into four, and the
efforts have not had a significant impact on Ventiv's workforce. These
integration activities were substantially completed as of December 31, 1999. The
charge consists of $4.1 million to consolidate and terminate lease obligations,
$5.3 million of severance and other costs associated with the termination of 142
employees, and $1.3 million of fees incurred for consulting services and other
costs related to these integration activities. The employees who were terminated
were primarily redundant operations and administrative personnel, as well as one
under-utilized sales team in the U.K. Ventiv recorded $8.0 million in non-
recurring acquisition and related costs during 1997 related to the consummation
of acquisitions, primarily consisting of investment banking fees, other
professional service fees and certain U.K. excise and transfer taxes.
Recapitalization Costs were $1.9 million in 1997. One of our acquired entities
completed a recapitalization in 1997 prior to its 1998 merger with Ventiv. No
recapitalization costs were incurred in 1998.
17
Interest Expense. Ventiv recorded $2.3 million of interest expense in 1998
and $1.6 million of interest expense in 1997. The interest expense recorded in
both 1998 and 1997 consists primarily of interest on debt at acquired companies
prior to their acquisition by Ventiv. Ventiv generally repaid the debt of
acquired companies.
Investment Income. Ventiv recorded $1.9 million of investment income in
1998 and $0.6 million of investment income in 1997. The increase in investment
income corresponds to the increase in funds available for investment.
Income Tax Provision (Benefit). Ventiv recorded a tax provision of $12.8
million during 1998. Ventiv's effective tax rate on its recurring operations was
approximately 41.0% in 1998. The actual tax provision recorded differs from the
effective rate due to the non-deductibility of certain of the non-recurring
costs recorded during the period. Pro forma net income (loss) discussed below
includes a provision for income taxes as if all our operations had been taxed as
a C corporation for the year ended 1998.
Net Income (Loss). Net income increased $10.1 million to income of $1.4
million in 1998 from a loss of $8.7 million in 1997 due primarily to Ventiv's
overall growth and containment of costs.
Pro Forma Net Income (Loss). Pro forma net income (loss) shows the effect on
net income (loss) assuming Ventiv and its subsidiaries were taxed as C
corporations for all of 1998 and 1997. Pro forma net income (loss) is less than
net income (loss) for 1997. Pro forma net income (loss) increased $12.1 million
to pro forma net income of $1.4 million in 1998 from a pro forma net loss of
$10.7 million in 1997, due primarily to the overall growth in revenues and
containment of costs. Revenue growth exceeded the growth in cost of services and
selling, general and administrative expenses.
Liquidity and Capital Resources
At December 31, 1999, Ventiv had $37.6 million in cash and equivalents.
Cash and equivalents increased $12.0 million during 1999, due to the $13.4
million provided by operating activities and the $11.5 million provided by
financing activities, offset by the $11.9 million used in investing activities
and the $1.0 million effect of changes in the exchange rate. The $11.4 million
in cash provided by financing activities consists primarily of $18.1 million of
investments and advances from Snyder Communications prior to the Distribution,
offset by $4.3 million used to purchase treasury stock and $1.7 million net
repayments of debt. The $9.9 million used in investing activities consists
primarily of capital expenditures including the purchase of intangibles, the
purchase of marketable securities, net of cash acquired in the purchase of
PromoTech.
On December 1, 1999, we entered into a $50 million unsecured revolving
credit facility with a term of four years for acquisitions and general corporate
purposes, as well as the repurchase of up to $37.5 million of Ventiv Health,
Inc. common stock. Interest on amounts borrowed under the credit facility is
based on the London Interbank Offered Rate or the lending bank's base rate of
interest. Availability under this credit facility is subject to our compliance
with various financial ratios, operating covenants and other customary
conditions. The financial covenants are summarized as follows:
18
. the ratio of our consolidated debt to trailing four quarter earnings
before interest, taxes, depreciation and amortization (EBITDA), as
defined in the agreement, may not be more than a specified ratio (3.0
until September 30, 2000, 2.5 on September 30, 2000 and thereafter)
. our consolidated trailing four quarter EBITDA may not be less than 3.5
times our consolidated interest expense;
. our consolidated net worth must exceed $133 million, adjusted
prospectively to include 50% of our net income and 100% of the proceeds
of any future equity issuance; and
. our consolidated trailing four quarter EBITDA must meet specified levels
($4 million at March 31, 2000, $12 million at June 30, 2000, $18 million
at September 30, 2000 and $30 million thereafter).
At December 31, 1999, there were no outstanding borrowings under the credit
facility.
We believe our cash and equivalents, as well as cash provided by operations,
will be sufficient to fund our current operations and planned capital
expenditures over the next 12 months and also for a longer-term basis.
We plan to focus on internal growth for the foreseeable future as the primary
means of our expansion, although we will consider attractive acquisition
opportunities as they arise. Cash provided from operations may not be sufficient
to fund internal growth initiatives which we may pursue. If we pursue
significant internal growth initiatives or if we acquire additional businesses
in transactions that include any cash payment as part of the purchase price,
both in the short-term and the long-term, we will first use excess cash
available from operations and then pursue additional debt or equity financing as
sources of cash necessary to complete any acquisitions. In addition to
borrowing under our line of credit, we could pursue additional debt or equity
transactions to finance acquisitions, depending on market conditions. We can not
assure you that we will be successful in raising the cash required to complete
all acquisition opportunities which we may pursue in the future.
We are subject to the impact of foreign currency fluctuations, specifically
that of the British pound, German mark and French franc. To date, changes in the
exchange rates of the British pound, German mark and French franc have not had a
material impact on our liquidity or results of operations. We continually
evaluate our exposure to exchange rate risk but do not currently hedge such
risk. We do not expect the introduction of the Euro to have a material impact on
our operations or cash flows in the near term. We will continue to evaluate the
impact of the introduction of the Euro as we continue to expand our services in
Europe.
Effect of Inflation
Because of the relatively low level of inflation experienced in the United
States and Europe, inflation did not have a material impact on our consolidated
results of operations for 1999, 1998, or 1997.
19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
-----------------------------------------------------------
We are exposed to market risk from changes in market interest rates and
foreign currency exchange rates. We are subject to interest rate risk on our
debt for changes in the fair value of our debt caused by changes in the interest
rates. We are subject to foreign currency exchange rate risk related to our
international operations. We do not currently engage in hedging or other market
risk management tools.
Long-Term Debt Exposure
For purposes of quantifying our potential loss in fair value of our long-
term fixed rate debt due to changes in interest rates, we used a sensitivity
analysis model. While there is exposure related to the fair market value of our
fixed rate debt, we believe that changes in market interest rates over the next
year would not materially impact our earnings or cash flows. The weighted
average maturity of all outstanding long-term fixed rate debt as of December 31,
1999 is two years. To determine potential changes in the fair value of our fixed
rate long-term debt, we assumed a hypothetical 150 basis point increase/decrease
to all interest rates on our outstanding long-term debt at December 31, 1999. If
interest rates change as hypothetically assumed, the fair value of our debt will
change as follows (in thousands):
Fair Value with Fair Value with
Carrying Amount Fair Value 150 Basis Point 150 Basis Point
December 31, 1999 (1) Increase (2) Decrease (2)
------------------ ----------- ----------------- ----------------
Long-term debt (fixed rate)...... $1,155 $1,108 $1,039 $1,183
(1) Fair Value is calculated using the discounted cash flows method.
(2) Basis point change is assumed on all interest rates of outstanding debt.
Foreign Currency Exchange Rate Exposure
Fluctuations in foreign currency exchange rates affect the reported amounts
of our assets, liabilities and operations. For purposes of quantifying the risk
associated with fluctuations in the foreign exchange rate, we used a sensitivity
analysis model. We assumed a hypothetical detrimental change of 10% in the
exchange rates on our assets, liabilities and revenues denominated in a foreign
currency. A 10% fluctuation was assumed for all exchange rates at December 31,
1999. Our material exposures to foreign exchange rate fluctuations on continuing
operations are the French franc, British pound and German mark. Approximately
52%, 31% and 17% of our 1999 international operations were conducted in France,
the United Kingdom and Germany, respectively. The amounts below represent the
impact of all exchange rates on our total assets, liabilities and revenues.
10% Decrease in
value
Balance at of Local
December 31, Currencies to
1999 U.S. Dollar
------------ -------------------
Assets.......... $233,264 $224,404
Liabilities..... $ 87,511 $ 79,072
Revenue......... $344,655 $331,605
20
The following chart illustrates the impact on the fair value of all of our
long-term fixed rate debt assuming 10% fluctuations in all of our foreign
exchange rates (in thousands):
Fair Value with Fair Value with
10% increase in 10% decrease in
Fair Value strength of U.S. strength of U.S.
December 31, 1999 dollar to foreign dollar to foreign
----------------------- -------------------------- --------------------------
Long-term debt (fixed rate) $1,108 $1,007 $1,231
21
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
INDEX TO FINANCIAL STATEMENTS
Ventiv Health, Inc.
Consolidated Financial Statements Page
Report of Independent Public Accountants................................ 23
Consolidated Balance Sheet as of December 31, 1999 and 1998............. 24
Consolidated Statement of Income for the years ended December
31, 1999, 1998 and 1997............................................... 25
Consolidated Statement of Stockholders' Equity and Comprehensive Loss
for the period from September 27, 1999 to December 31, 1999........... 26
Consolidated Statement of Cash Flows for the years ended December
31, 1999, 1998 and 1997............................................... 27
Notes to Consolidated Financial Statements.............................. 28
22
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Ventiv Health, Inc.:
We have audited the accompanying consolidated balance sheets of Ventiv Health,
Inc. (the "Company"), as defined in Note 1 to the consolidated financial
statements, as of December 31, 1999 and 1998, the related consolidated
statements of income and cash flows for each of the years in the three year
period ended December 31, 1999, and the related consolidated statement of
stockholders' equity and comprehensive loss for the year ended December 31,
1999. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ventiv
Health, Inc. as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 18, 2000
23
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
---------------------------
1999 1998
-------------- -----------
ASSETS
Current assets:
Cash and equivalents....................................................... $ 37,627 $ 25,664
Marketable securities...................................................... 1,898 --
Accounts receivable, net of allowance for doubtful accounts of
$2,517 and $2,971 at December 31, 1999 and 1998,
respectively............................................................. 51,158 43,521
Unbilled services.......................................................... 13,430 15,212
Current portion of deferred tax asset...................................... -- 683
Other current assets....................................................... 7,568 10,369
-------- --------
Total current assets.................................................... 111,681 95,449
-------- --------
Property and equipment, net.................................................. 14,742 10,028
Goodwill and other intangible assets, net.................................... 95,816 80,728
Deferred tax asset........................................................... 9,732 3,414
Deposits and other assets.................................................... 1,293 4,025
-------- --------
Total assets............................................................ $233,264 $193,644
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Lines of credit............................................................ $ 36 $ 198
Current maturities of long-term debt....................................... 55 --
Accrued payroll............................................................ 18,082 13,989
Accounts payable........................................................... 8,801 5,791
Accrued expenses........................................................... 26,971 40,613
Client advances............................................................ 4,346 1,965
Unearned revenue........................................................... 28,060 8,446
-------- --------
Total current liabilities............................................... 86,351 71,002
-------- --------
Long-term debt............................................................... 1,155 1,473
Other liabilities............................................................ 5 1,442
Commitments and contingencies
Investments and advances from Snyder......................................... -- 119,727
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000 shares authorized, none issued and
outstanding at December 31, 1999, respectively.............................. -- --
Common stock, $.001 par value, 50,000 shares authorized; 25,231 shares
issued and outstanding at December 31, 1999................................. 25 --
Additional paid-in-capital................................................... 176,495 --
Deferred compensation........................................................ (4,219) --
Treasury stock, at cost, 494 shares at December 31, 1999..................... (4,307) --
Accumulated other comprehensive loss......................................... (2,401) --
Retained deficit............................................................. (19,840) --
-------- --------
Total stockholders' equity.............................................. 145,753 --
-------- --------
Total liabilities and stockholders' equity.............................. $233,264 $193,644
======== ========
The accompanying notes are an integral part of this consolidated balance sheet.
24
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenues............................................................ $344,655 $321,500 $208,967
Operating expenses:
Cost of services.................................................. 295,296 236,047 156,346
Selling, general and administrative expenses...................... 47,426 43,029 32,787
Non-recurring costs............................................... 10,054 27,664 25,569
-------- -------- --------
Income (loss) from operations....................................... (8,121) 14,760 (5,735)
Interest expense.................................................... (405) (2,315) (1,617)
Investment income................................................... 1,080 1,850 568
-------- -------- --------
Income (loss) from operations before income taxes................... (7,446) 14,295 (6,784)
Income tax (benefit) provision...................................... (653) 12,849 1,934
-------- -------- --------
Net income (loss)................................................... $ (6,793) $ 1,446 $ (8,718)
======== ======== ========
Net income (loss) per share data:
Basic and diluted net income (loss) per share..................... $(0.28) $0.06 $(0.37)
======== ======== ========
Shares used in computing net income (loss) per
Share........................................................... 23,907 23,715 23,715
======== ======== ========
The accompanying notes are an integral part of this consolidated statement of
income.
25
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS
(in thousands)
Common Common Additional
Stock Stock Paid-in Retained Deferred Treasury
Shares Par Value Capital Deficit Compensation Stock
-------- --------- ----------- ---------- --------------- ----------
Balance at September 27, 1999............ -- $ -- $ -- $ -- $ -- $ --
Capital contribution..................... 23,704 24 164,660 (11,289) -- --
Net loss................................. -- -- -- (8,551) -- --
Restricted stock - deferred
compensation............................ 832 1 6,599 -- (4,219) --
Issuance of shares to former owners
of PromoTech............................ 695 -- 5,736 -- -- --
Loan to officer for purchase of stock.... -- -- (500) -- -- --
Purchase of treasury shares.............. -- -- -- -- -- (4,307)
Foreign currency translation
adjustment.............................. -- -- -- -- -- --
Unrealized loss on marketable
securities.............................. -- -- -- -- -- --
------- ------ -------- --------- -------- -------
Balance at December 31, 1999............. 25,231 $25 $176,495 $ (19,840) $ (4,219) $(4,307)
======= ====== ======== ========= ======== =======
Accumulated
Other
Comprehensive Comprehensive
Loss Total Loss
------------- --------- -------------
Balance at September 27, 1999............ $ -- $ -- $ --
Capital contribution..................... (1,269) 152,126 1,758
Net loss................................. -- (8,551) (8,551)
Restricted stock - deferred
compensation............................ -- 2,381 --
Issuance of shares to former owners
of PromoTech............................ -- 5,736 --
Loan to officer for purchase of stock.... -- (500) --
Purchase of treasury shares.............. -- (4,307) --
Foreign currency translation
adjustment.............................. (1,020) (1,020) (1,020)
Unrealized loss on marketable
securities.............................. (112) (112) (112)
------- -------- --------
Balance at December 31, 1999............. $(2,401) $145,753 $ (7,925)
======= ======== ========
The accompanying notes are an integral part of this consolidated statement of
equity and comprehensive loss.
26
VENTIV HEALTH, INC.
(See Note 1)
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
For the Years Ended
-------------------------------
December 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income (loss)............................................................................... $ (6,793) $ 1,446 $ (8,718)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization................................................................. 8,170 5,359 2,169
Non-cash expense for stock issuances.......................................................... 5,736 -- --
Non-cash expense for restricted stock and option vesting...................................... 2,381 2,173 --
Deferred taxes................................................................................ (5,635) 1,324 (3,914)
Loss on disposal of assets.................................................................... 1,023 151 371
Other noncash amounts......................................................................... -- 126 (934)
Changes in assets and liabilities:
Accounts receivable, net...................................................................... (6,360) (1,040) (7,043)
Unbilled services............................................................................. 1,948 (8,443) (3,074)
Deposits and other assets..................................................................... 2,733 (3,533) (1,066)
Other current assets.......................................................................... 3,059 (813) 1,314
Accrued payroll, accounts payable and accrued expenses........................................ (12,837) 8,599 16,385
Client advances............................................................................... 413 1,965 --
Unearned revenue.............................................................................. 19,573 (8,535) 2,586
-------- -------- --------
Net cash provided by (used in) operating activities......................................... 13,411 (1,221) (1,924)
-------- -------- --------
Cash flows from investing activities:
Cash on hand at acquired businesses............................................................. 2,916 6,083 452
Purchase of subsidiaries........................................................................ (1,134) (10,386) --
Purchase of property and equipment.............................................................. (8,654) (4,916) (2,127)
Proceeds from sale of equipment................................................................. -- 780 184
Net (purchases) sales of marketable securities.................................................. (2,010) 1,262 2,274
Purchase of license agreements.................................................................. (3,012) (13) (4,359)
-------- -------- --------
Net cash used in investing activities....................................................... (11,894) (7,190) (3,576)
-------- -------- --------
Cash flows from financing activities:
Net repayment of long-term debt................................................................. (1,697) (4,210) (1,838)
Loan to officer for purchase of stock........................................................... (500) -- --
Purchase of treasury stock...................................................................... (4,307) -- --
Redemption of mandatorily redeemable preferred stock............................................ -- -- (2,147)
Net (repayments) borrowing on lines of credit................................................... (162) (22,707) 20,603
Loans provided by related parties............................................................... -- -- 10,000
Payment of related party loans.................................................................. -- -- (10,000)
Investments and advances from Snyder............................................................ 18,211 42,753 (167)
-------- -------- --------
Net cash provided by financing activities................................................... 11,545 15,836 16,451
-------- -------- --------
Effect of exchange rate changes................................................................... (1,099) 199 (177)
Net increase in cash and equivalents.............................................................. 11,963 7,624 10,774
Cash and equivalents, beginning of period......................................................... 25,664 18,040 7,266
-------- -------- --------
Cash and equivalents, end of period............................................................... $ 37,627 $ 25,664 $ 18,040
======== ======== ========
Disclosure of supplemental cash flow information:
Cash paid for interest.......................................................................... $ 384 $ 1,526 $ 899
Cash paid for income taxes...................................................................... 7,256 2,542 1,550
Disclosure of noncash activities:
Businesses acquired with Snyder stock........................................................... $ 16,336 $ 64,546 $ 13,320
The accompanying notes are an integral part of this consolidated statement of
cash flows.
27
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization, Basis of Presentation and Business:
Organization
Snyder Communications, Inc. ("Snyder"), a Delaware corporation, was
incorporated on June 25, 1996, to continue the business operations of Collegiate
Marketing and Communications, L.P. Snyder completed an initial public offering
of its common stock on September 24, 1996. The business currently conducted by
Ventiv Health, Inc. ("Ventiv") was created in 1997 by Snyder in a merger
transaction with a U.S. provider of pharmaceutical sales and marketing services.
After forming the pharmaceutical sales and marketing services business in 1997,
Snyder completed a series of acquisitions that expanded both the scope of
services and geographic presence of Ventiv.
On June 22, 1999, the Board of Directors of Snyder approved a plan to effect
the distribution (the "Distribution") of Snyder's healthcare marketing
services business to existing stockholders. Snyder contributed its healthcare
marketing services business in the third quarter of 1999 to a newly formed
subsidiary, Ventiv Health, Inc. Snyder consummated the Distribution on September
27, 1999 through a special dividend of one share of common stock of Ventiv
Health, Inc. for every three shares of Snyder common stock. As a result of the
Distribution, Ventiv became an independent, publicly traded corporation.
Basis of Presentation
The operations of Ventiv Health, Inc. consist principally of the healthcare
sales, healthcare market research and strategic planning, and healthcare
educational communications services formerly conducted by the healthcare
marketing services operating group of Snyder.
The consolidated financial statements present the financial position, results
of operations and cash flows of Snyder's healthcare marketing services business,
referred to herein as "Ventiv", "Ventiv Health" or the "Company", as if it
were formed as a separate entity of Snyder for all periods presented. Snyder's
historical basis in the assets and liabilities of the Company has been carried
over to the consolidated financial statements. All expenses reflected in the
consolidated financial statements are costs specifically identified to the
Company. It is not practicable to estimate costs that would have been incurred
by the Company if it had been operated on a stand-alone basis.
Throughout 1998 and 1997, acquisitions were completed by Ventiv that were
accounted for as poolings of interests for financial reporting purposes. During
1999, 1998 and 1997, several additional acquisitions were made that have been
accounted for as purchase business combinations. The companies with which Ventiv
has entered into mergers accounted for as poolings of interests for financial
reporting purposes will be collectively referred to as the "Pooled Entities,"
and their mergers will be referred to herein as the "Acquisitions." The
accompanying consolidated financial statements have been retroactively restated
to reflect the consolidated financial position and consolidated results of
operations and cash flows of the Company and the Pooled Entities, after
elimination of all significant intercompany transactions, for all periods
presented, giving effect to the Acquisitions as if they had occurred at the
beginning of the earliest period presented.
Changes in the investments and advances from Snyder represent the net income
(loss) of the Company, the comprehensive income (loss) of the Company, the net
change in cash transferred between the Company and Snyder (or previous owners
with respect to the Pooled Entities prior to their merger with Snyder) and the
effect of businesses acquired by Snyder in purchase transactions and contributed
to Ventiv Health.
28
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An analysis of the investments and advances from Snyder for the years ended
December 31, 1997 and 1998, and the period January 1, 1999 to September 27, 1999
is as follows (in thousands):
Balance, December 31, 1996............................ $ 4,697
Net loss........................................... (8,718)
Comprehensive income............................... 152
Noncash transfers from Snyder...................... 13,320
Cash transfers from Snyder, net.................... 920
---------
Balance, December 31, 1997............................ 10,371
---------
Net income......................................... 1,446
Comprehensive income............................... 611
Noncash transfers from Snyder...................... 64,546
Cash transfers from Snyder, net.................... 42,753
---------
Balance, December 31, 1998............................ 119,727
---------
Net loss, excluding $2.1 million recapitalization
costs............................................. 1,758
Comprehensive loss................................. (2,232)
Noncash transfers from Snyder...................... 16,336
Cash transfers from Snyder, net.................... 16,537
Contribution of healthcare marketing services
group by Snyder to Ventiv....................... (152,126)
---------
Balance, September 27, 1999........................... $ --
---------
Subsequent to the Distribution, amounts owed to Snyder Communications by
Ventiv are recorded as due to Snyder Communications. All outstanding amounts are
required to be repaid monthly pursuant to an interim services agreement. As of
December 31, 1999, $662,000 due to Snyder Communications is included in accrued
expenses on the accompanying consolidated balance sheet.
Business
The Company provides integrated marketing services for its clients, primarily
pharmaceutical companies. The Company's operations are conducted throughout the
United States ("U.S."), the United Kingdom ("U.K."), France, Germany and
Hungary.
The Company's services are designed to establish and monitor strategic
marketing plans, to provide face-to-face interaction with physicians and to
conduct educational research and communication services. During 1998 and 1997,
Snyder issued 6,475,105 and 4,035,184 shares, respectively, in pooling of
interests transactions with companies in the healthcare marketing services
industry. Of the total shares issued in pooling of interests transactions,
1,318,798 were to Health Products Research, 6,008,210 were to companies which
became part of Ventiv's Contract Sales Group, and 3,183,281 were to companies
which became part of Ventiv's Healthcare Communications Group.
The Company further expanded the size and geographic presence of its Contract
Sales Group with the purchase of Halliday Jones Sales Ltd. which was valued at
$19.4 million including 425,478 Snyder shares issued in August 1997 and with the
purchases of Healthcare Promotions, LLC which was valued at $23.7 million
including 584,951 Snyder shares issued and CLI Pharma S.A. which was valued at
$30.7 million including 576,078 Snyder shares issued in the first quarter of
1998. We also increased the scope of services offered by the Healthcare
Communications Group with the purchase of PromoTech Research Associates, Inc.
which was valued at $16.3 million including 583,431 Snyder shares issued in
March 1999.
Health Products Research designs and monitors product launches and sales
strategies with our proprietary programs to maximize asset utilization and
return on investment for pharmaceutical and other life sciences companies. The
Healthcare Communications Group provides educational programs to physicians and
other healthcare professionals. The Contract Sales Group implements and executes
outsourced sales programs for pharmaceutical and other life sciences products.
Most of the Company's largest clients utilize the services of more than one of
our operating groups.
29
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following details revenues and net income (loss) for each of the years
ended December 31, 1999, 1998 and 1997 of the Company and the Pooled Entities
through the dates of their respective Acquisitions:
For the Years Ended December 31,
----------------------------------------
1999 1998 1997
------------ ------------ ------------
(in thousands)
Revenues:
The Company..................... $344,655 $270,323 $ 60,124
Pooled Entities................. -- 51,177 148,843
-------- -------- --------
$344,655 $321,500 $208,967
======== ======== ========
Net income (loss):
The Company..................... $ (6,793) $ 5,933 $ 1,987
Pooled Entities................. -- (4,487) (10,705)
-------- -------- --------
$ (6,793) $ 1,446 $ (8,718)
======== ======== ========
During 1999, the Company completed the acquisition of PromoTech Research
Associates, Inc. ("PromoTech") (March 25, 1999). The total consideration paid
was $16.3 million and consisted of 583,431 shares of Snyder common stock. This
purchase business combination has resulted in additional goodwill of $17.5
million. During 1998, the Company completed purchase business combinations,
including CLI Pharma S.A. ("CLI Pharma") (March 25, 1998) and Healthcare
Promotions, LLC ("HCP") (February 13, 1998), for total consideration paid of
approximately $64.0 million (1,211,029 shares of Snyder common stock and $4.3
million in net cash). Based upon an allocation of purchase consideration, these
purchase business combinations have resulted in additional goodwill of
approximately $55.7 million. The following table presents pro forma financial
information as if the 1999 purchase of PromoTech and the 1998 purchases of HCP
and CLI Pharma had been consummated at the beginning of each of the periods
presented and all of the Company's operations had been taxed as a C corporation.
For the Years Ended
-------------------------
December 31,
-------------------------
1999 1998
------------ -----------
(unaudited)
(in thousands, except
per share data)
Pro forma revenues................................................ $346,582 $335,628
Pro forma net income (loss)....................................... (6,499) 2,113
Pro forma basic and diluted net income (loss) per
share........................................................... (0.27) 0.09
The Company's other purchase business combinations are immaterial to the
consolidated financial statements.
Net Income (Loss) Per Share
The Company has applied Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" ("SFAS No. 128") to all periods presented in these
financial statements. SFAS No. 128 requires disclosure of basic and diluted
earnings per share ("EPS"). Basic EPS is computed by dividing reported earnings
available to common stockholders by the weighted average number of shares
outstanding without consideration of common stock equivalents or other
potentially dilutive securities. Diluted EPS gives effect to common stock
equivalents and other potentially dilutive securities outstanding during the
period for periods prior to the Distribution, the number of shares used to
calculate net income (loss) per share is equal to the number of shares of Ventiv
common stock that were issued upon the Distribution. From the date of the
Distribution through December 31, 1999, the number of shares used to calculate
net income (loss) per share is based on the actual number of shares of Ventiv
common stock outstanding. Basic and diluted EPS are the same from the date of
the earliest period presented through the date of the Distribution as there were
no Ventiv options granted until the date of the Distribution.
30
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Business Considerations
There are important risks associated with the Company's business and financial
results. These risks include (i) the Company's reliance on significant clients;
(ii) the Company's ability to sustain and manage future growth; (iii) the
Company's ability to manage and successfully integrate the businesses it has
acquired and may acquire in the future; (iv) the Company's ability to
successfully manage its international operations; (v) the potential adverse
effects of fluctuations in foreign exchange rates; (vi) the Company's dependence
on industry trends toward outsourcing of marketing services in the
pharmaceutical industry; (vii) the risks associated with the Company's reliance
on technology and the risk of business interruption resulting from a temporary
or permanent loss of such technology; (viii) government regulation of the
pharmaceutical industry; (ix) the Company's ability to recruit and retain
qualified personnel; and (x) lack of operating history as an independent
company.
2. Significant Clients:
The Company had two clients that represented 8.2% and 14.2%, respectively,
of total revenue for the year ended December 31, 1999, 13.9% and 10.4% for the
year ended December 31, 1998, and 12.0% and 12.7% for the year ended
December 31, 1997.
3. Summary of Significant Accounting Policies:
Cash and Equivalents
Cash and equivalents are comprised principally of amounts in operating
accounts, money market investments and other short-term instruments, stated at
cost, which approximates market value, with original maturities of three months
or less.
Marketable Securities
The Company's securities classified as "available-for-sale" are reported
at market value. Unrealized gains and losses from securities "available-for-
sale" are reported as comprehensive loss and included as a component of
investments and advances from Snyder from the date of the earliest period
presented through the date of the Distribution and as a component of
stockholders' equity and comprehensive income (loss) at December 31, 1999.
Property and Equipment
Property and equipment is stated at cost. The Company depreciates furniture,
fixtures and office equipment on a straight-line basis over three to ten years;
computer equipment over two to four years and buildings over forty years.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or the estimated useful lives of the improvements.
When assets are retired or sold, the cost and related accumulated
depreciation and amortization are removed from the accounts, and any gain or
loss is reflected in income.
31
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
On pharmaceutical detailing contracts, the Company recognizes revenue and
associated costs when services have been performed. For strategic consulting
services, the Company recognizes revenues and associated costs as services are
performed on behalf of clients. For educational programs and live events,
revenue is recognized at time of the event or upon completion of the program for
our client. Unbilled services represent revenues earned on contracts but billed
in a subsequent accounting period. Unearned revenue represents billings or
client payments made in advance of services performed. Client advances represent
amounts received to be disbursed to third parties for payment on behalf of
clients.
Goodwill and Other Intangible Assets
Goodwill equal to the fair value of consideration paid in excess of the fair
value of net assets purchased has been recorded in conjunction with several of
the Company's purchase business combinations and is being amortized on a
straight-line basis over periods of fifteen to thirty years.
The costs of licenses to market pharmaceutical products and contractual
covenants are amortized on a straight-line basis over the term of the related
agreements, which are ten to fifteen years and four years, respectively.
When conditions or events occur that management believes might indicate that
the goodwill or any other intangible asset is impaired, an analysis of estimated
future undiscounted cash flows is undertaken to determine if any write down in
the carrying value of the asset is required.
Income Taxes
Prior to their merger with Ventiv, certain of the U.S.-based Pooled Entities
were treated as S corporations or limited liability companies for income tax
purposes. Accordingly, no provision for federal or state income taxes, except in
certain states that do not recognize S corporations or limited liability
companies, has been made for these entities through the date of their mergers
with the Company in the accompanying consolidated financial statements.
The Company's subsidiaries with operations in the U.K., France and Germany
pay taxes in their respective countries, on a corporate level similar to a C
corporation in the U.S.
Pro Forma Net Income (Loss) Data (Unaudited)
The following unaudited pro forma net income (loss) amounts include a
provision for federal and state income taxes as if the Company had been a
taxable C corporation for all periods presented. The pro forma income tax rate
on the Company's recurring operations reflects the combined federal, state and
foreign income taxes of approximately 85.9%, 41.0% and 48.8%, for the years
ended December 31, 1999, 1998 and 1997, respectively. The pro forma income tax
rates in the table below differ from the pro forma income tax rates on the
Company's recurring operations due to the nondeductibility of certain of the
non-recurring costs.
32
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The table below presents this pro forma calculation of net income (loss)
(unaudited):
For the Years Ended December 31,
---------------------------------------
1999 1998 1997
-------------- ---------- -----------
(in thousands)
Pro forma net income (loss)
data (unaudited):
Income (loss) from operations before income taxes........... $(7,446) $14,295 $ (6,784)
Pro forma (benefit) provision for income taxes.............. (653) 12,849 3,916
------- ------- --------
Pro forma adjusted net income (loss)........................ $(6,793) $ 1,446 $(10,700)
======= ======= ========
Foreign Currency Translations
Assets and liabilities of the Company's international operations are
translated using the exchange rate in effect at the balance sheet date. Revenue
and expense accounts for these subsidiaries are translated using the average
exchange rate during the period. Foreign currency translation adjustments are
reported as comprehensive income (loss) and included as a component of
investments and advances from Snyder from the date of the earliest period
presented through the date of the Distribution and as a component of equity and
comprehensive income at December 31, 1999.
Estimates and Assumptions
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and 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.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
requires disclosure of the fair value of certain financial instruments. For
purposes of this disclosure, the fair value of a financial instrument is the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Cash and equivalents, marketable securities, accounts
receivable, unbilled services and accounts payable approximate fair value
because of the relatively short maturity of these instruments. Long-term debt
approximates fair value as the majority of this debt has a variable interest
rate.
Concentration of Credit Risk
Concentration of credit risk is limited to cash and equivalents, marketable
securities, accounts receivable and unbilled services. The Company places its
investments in highly rated financial institutions, U.S. Treasury bills, money
market accounts, investment grade short-term debt instruments and state and
local municipalities, while limiting the amount of credit exposure to any one
entity. The Company's receivables are concentrated with customers in the
pharmaceutical industry. The Company does not require collateral or other
security to support clients' receivables.
New Accounting Pronouncements
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). Included within
accumulated other comprehensive income are the cumulative amounts for foreign
currency translation adjustments and unrealized gains and losses on marketable
securities. The cumulative foreign currency translation adjustment was $2.3
million and $0.9 million as December 31, 1999 and 1998, respectively. There was
$0.1 million cumulative unrealized loss on marketable securities as of December
31, 1999.
During 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." The Company's management
33
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
considers its business to be a single reportable segment--the providing of
integrated marketing and sales services to pharmaceutical and life sciences
companies. The Company's foreign operations are disclosed in Note 14.
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," ("SFAS No. 133"). This statement was
originally effective for all fiscal quarters of fiscal years beginning after
June 15, 1999; however, during the second quarter of 1999, the FASB deferred the
effective date. The Company believes that the adoption of SFAS No. 133 will not
have a significant impact on its consolidated financial statements.
Accounting for Stock Options
The Company accounts for its stock-based compensation plan using the
intrinsic value based method in accordance with the provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees." Pro forma disclosure of
net income and earnings per share, calculated as if the Company accounted for
its stock-based compensation plan using the fair value based method in
accordance with the provisions of Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") appears
in Note 10.
4. Marketable Securities:
The unrealized gains and losses and market values of the Company's
available-for-sale securities as of December 31, 1999, are summarized as follows
(in thousands).
Amortized Unrealized Unrealized Market
---------- ---------- ----------- ----------
Cost Gains Losses Value
---------- ---------- ----------- ----------
Available for sale:
Mortgage backed securities............ $2,010 $ -- $(112) $1,898
====== ========== ===== ======
The Company did not have any marketable securities outstanding as of December
31, 1998.
5. Property and Equipment:
Property and equipment consist of the following:
As of December 31,
-----------------------
1999 1998
----------- ----------
(in thousands)
Buildings and leasehold improvements........ $ 9,197 $ 5,178
Computers and equipment..................... 8,847 8,465
Furniture and fixtures...................... 3,502 1,331
------- -------
21,546 14,974
Accumulated depreciation.................... (6,804) (4,946)
------- -------
$14,742 $10,028
======= =======
Depreciation expense totaled $3.6 million, $2.2 million, and $1.0 million in
1999, 1998 and 1997, respectively.
34
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Goodwill and Other Intangible Assets:
Goodwill and other intangible assets consist of the following:
As of December 31,
------------------------
1999 1998
----------- -----------
(in thousands)
Goodwill........................................ $ 98,198 $80,436
License agreements.............................. 7,708 6,159
Contractual covenant and marketing rights....... 1,101 1,112
-------- -------
107,007 87,707
Accumulated amortization........................ (11,191) (6,979)
-------- -------
$ 95,816 $80,728
======== =======
Amortization expense of goodwill and other intangible assets totaled $4.6
million, $3.2 million and $1.2 million in 1999, 1998 and 1997, respectively.
7. Debt:
Long-term borrowings
Long-term borrowings consist of the following:
As of December 31,
----------------------
1999 1998
----------- ---------
(in thousands)
German bank debt, 6.0% weighted average interest rate, due April 2004,
partially secured by building in Germany................................ $1,170 $1,388
French bank debt, 10.85% weighted average rate, due August 2002............. 40 85
------ ------
1,210 1,473
Current maturities of long-term borrowings.................................. (55) --
------ ------
$1,155 $1,473
====== ======
The foreign term debt requires certain subsidiaries to meet restrictive
covenants concerning net worth and debt service coverage and are secured by the
assets of those subsidiaries.
In addition to the debt listed above, approximately $0.6 million in debt with
a weighted average interest rate of 8.6%, primarily classified as current as of
December 31, 1996, was paid in full during 1997.
Future minimum payments as of December 31, 1999, on long-term borrowings, are
as follows (in thousands):
2000............ $ 55
2001............ 75
2002............ 75
2003............ 55
2004............ 55
Thereafter...... 895
------
Total........ $1,210
======
35
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Related Party Borrowings
Related party borrowings as of December 31, 1997, consisted of a $457,000
promissory note payable to a founder of one of the acquired subsidiaries.
Interest on the note accrued at 6.0%. The note was repaid in full on September
30, 1998, together with accrued interest of $14,000.
In accordance with the provisions of its formation agreement and prior to its
merger with Ventiv, a subsidiary issued promissory notes to its founder and an
investor in the principal amounts of $6.7 million and $10.0 million,
respectively. The notes were unsecured, with interest at the prime rate plus
2.0%, and were payable no later than August 1, 1998. The notes were repaid in
full on November 25, 1997, together with accrued interest of $0.5 million.
Lines of Credit
Lines of credit consist of the following:
As of December 31,
-------------------
1999 1998
--------- --------
(in thousands)
French bank line of credit, 8.02% weighted average stated interest rate,
$4.1 million aggregate borrowing limit, renewable on a monthly basis.......... $ 36 $ 198
On December 1, 1999, the Company obtained a revolving line of credit from a
syndicated group of U.S. banks. The facility matures on December 1, 2003 and
has a $50 million maximum borrowing limit. Interest is payable at the Company's
option of a base rate (defined as the higher of the federal funds rate plus .5%
or the prime rate) plus a margin of up to .25% or LIBOR plus a margin ranging
from 1.25% to 2%. There were no borrowings outstanding under this line of credit
at December 31, 1999.
The Company maintains various unsecured lines of credit with banking and
financial institutions, requiring the consolidated group to meet restrictive
covenants concerning net worth and debt service coverage. In aggregate, the
Company had lines of credit available for approximately $54 million with
interest rates ranging from 7.0% to 9.0% at December 31, 1999.
8. Income Taxes:
The Company's income tax provision (benefit) includes the following
components:
For the Years
-------------------------------------
Ended December 31,
-------------------------------------
1999 1998 1997
----------- ----------- -----------
(in thousands)
Current:
U.S.--Federal........................ $(1,779) $ 5,826 $ 2,228
U.S.--State and city................. (498) 1,672 1,207
Foreign.............................. 504 4,622 3,078
------- ------- -------
$(1,773) $12,120 $ 6,513
------- ------- -------
Deferred:
U.S.--Federal........................ $ 578 $ 807 $(3,984)
U.S.--State and city................. 161 260 (766)
Foreign.............................. 381 (338) 171
------- ------- -------
1,120 729 (4,579)
------- ------- -------
Income tax (benefit) provision....... $ (653) $12,849 $ 1,934
======= ======= =======
36
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for taxes on income differs from the amount computed by applying
the U.S. federal income tax rate as a result of the following:
For the Years Ended
---------------------------------
December 31,
---------------------------------
1999 1998 1997
---------- ---------- ---------
Taxes at statutory U.S. federal income tax rate............ 35.0% 35.0% 35.0%
Losses passed through to owners............................ 0.0 0.0 40.9
State and city income taxes, net of federal tax benefit.... 5.3 9.4 (9.4)
Tax effect of acquired subsidiary reorganization........... 0.0 0.0 (4.4)
Foreign tax rate differential.............................. 4.1 2.1 (5.5)
Goodwill amortization...................................... (14.6) 3.7 (2.0)
Non-recurring costs and other permanent differences........ (21.1) 39.7 (83.1)
----- ---- ------
Effective tax rate......................................... 8.7% 89.9% (28.5)%
===== ==== ======
Deferred income taxes are recorded based upon differences between the
financial statement and tax bases of assets and liabilities. As of December 31,
1999 and 1998, temporary differences that give rise to the deferred tax assets
and liabilities consist of the following (in thousands):
As of December 31,
-----------------------
1999 1998
----------- ----------
Reserve for doubtful accounts....... $ 163 $ 724
Accrued expenses.................... 3,685 2,498
Deferred compensation............... 135 128
Intangible assets................... 22,063 --
Tax losses of subsidiaries.......... 8,070 3,955
Other............................... 905 337
-------- -------
Gross deferred tax assets........... 35,021 7,642
-------- -------
Property and equipment.............. (274) (180)
Deferred revenues................... (2,023) (2,868)
Other............................... (2,274) (497)
-------- -------
Gross deferred tax liabilities...... (4,571) (3,545)
-------- -------
Valuation allowance................. (20,785) --
-------- -------
Net deferred tax asset.............. $ 9,665 $ 4,097
======== =======
Several of the Company's subsidiaries have operating loss tax carryforwards
that can be realized only if these subsidiaries generate taxable operating
income. The amounts and respective expiration dates of operating loss tax
carryforwards are as follows: net operating losses generated between 1997 and
1999 of approximately $20.3 million, of which approximately $9.5 million expires
in 2012, approximately $8.8 million expires in 2019 and approximately $2.0 which
is not subject to expiration. Management continually assesses whether the
Company's deferred tax asset associated with these operating tax loss
carryforwards is realizable and believes that the deferred tax asset is
realizable at December 31, 1999.
One of the Company's subsidiaries has certain intangibles and other assets
which are depreciable and amortizable for tax purposes and can be realized only
if that subsidiary generates sufficient taxable income. At December 31, 1999,
management determined that a valuation allowance against the deferred tax asset
associated with these intangibles and other assets was required. Management
continually assesses whether the Company's deferred tax asset is realizable and
believes that the deferred tax asset, net of the valuation allowance, is
realizable at December 31, 1999.
At December 31, 1999, cumulative undistributed earnings of the Company's
foreign subsidiaries was approximately $1.9 million. However, undistributed
earnings exist at several of the Company's foreign subsidiaries. No provision
for U.S. income taxes or foreign withholding taxes has been made since the
Company considers the undistributed earnings to be permanently invested in the
foreign countries. Determination of the amount of unrecognized deferred tax
liability, if any, for the cumulative undistributed earnings of the foreign
subsidiaries is not practicable since it would depend upon a number of factors
which cannot be known until such time as a decision to repatriate the earnings
is made.
37
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Non-Recurring Costs:
The Company recorded $10.1 million of non-recurring costs during 1999. These
costs include: (a) a $5.7 million non-cash charge related to a payment made to
the former owner of PromoTech in the form of 695,304 shares of Ventiv common
stock in exchange for the release of any and all claims against Snyder or Ventiv
relating to the merger transaction. This consideration was not provided for in
the purchase agreement and is not part of the purchase price for accounting
purposes; (b) a reduction of $0.8 million in previously recorded acquisition and
related costs due to a revision of estimates; (c) a $3.1 million charge for
costs necessary to consolidate and integrate certain of Ventiv's acquired
operations under the plan initiated during 1998 as discussed below; and (d) $2.1
million of expenses related to restricted stock which was granted to certain key
employees of Ventiv. The $2.1 million represents the portion of restricted
stock which vested in conjunction with the Distribution.
The Company recorded $27.7 million in non-recurring costs during 1998. $16.2
million of these costs are related to the consummation of 1998 acquisitions and
consist of investment banking fees, expenses associated with the accelerated
vesting of options held by employees of certain of the Company's acquirees,
other professional service fees, transfer taxes and other contractual payments.
Also included in the 1998 non-recurring costs is a charge of approximately $10.7
million for costs necessary to consolidate and integrate certain of the
Company's acquired operations in the U.S., the U.K. and France. The Company
integrated acquired subsidiaries that provide similar services within the same
geographic regions. Approximately nine locations have been combined into four,
and the efforts did not have a significant impact on the Company's workforce.
The $10.7 million charge consists of approximately $4.1 million to consolidate
and terminate lease obligations, $5.3 million of severance and other costs
associated with the termination of 142 employees, and $1.3 million of fees
incurred for consulting services and other costs related to these integration
activities. The employees who were terminated are primarily redundant operations
and administrative personnel, as well as one underutilized sales team in the
United Kingdom. The $3.1 million charge recorded in 1999 consists of $1.8
million in severance and related costs associated with the termination of 23
employees and $1.3 million in consulting services and other costs related to
these integration activities. 1998 non-recurring costs also include compensation
to stockholders of $0.8 million. Prior to their merger with the Company,
certain stockholders of the acquired companies received annual compensation in
their roles as managers in excess of amounts that they will receive pursuant to
employment agreements they have entered into with Ventiv. The excess amount is
recorded as non-recurring costs in the periods prior to the acquisitions and the
Company records no compensation to stockholders following an acquisition.
The Company recorded $25.6 million in non-recurring costs during 1997. $8.0
million of these costs relate to the consummation of the 1997 acquisitions and
consist primarily of investment banking fees, professional service fees, travel
expenses and other contractual payments. Non-recurring costs also include $1.9
million of recapitalization costs associated with one of Ventiv's acquired
subsidiaries. These costs consist of investment banking, legal and accounting
fees. The recapitalization occurred prior to acquisition of the subsidiary by
Ventiv. 1997 non-recurring costs also include $15.7 million in compensation to
stockholders.
The integration activities recorded in 1999 and 1998 were recorded in
accordance with Emerging Issues Task Force 94-3, "Liability Recognition for
Costs to Exit an Activity (including certain costs incurred in a
restructuring)" ("EITF 94-3"). Additional expenses for the Company's
integration activities recorded in 1999 represent additional costs incurred that
did not qualify for accrual at December 31, 1998 in accordance with EITF 94-3.
38
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the activity in the integration activities
liability account:
Beginning Deductions for Balance at End
--------- -------------- ---------------
Balance Additions Amounts Paid of Period
--------- --------- -------------- ---------------
Year Ended December 31, 1999........ $ 7,971 $ 3,064 $ 10,036 $ 999
Year Ended December 31, 1998........ $ -- $10,654 $ 2,683 $7,971
10. Stock Incentive Plans:
In September 1999, concurrent with the Distribution, Ventiv Health, Inc.'s
1999 Stock Incentive Plan ("Stock Plan") became effective. The Stock Plan
authorizes the Company to grant incentive stock options, nonqualified stock
options, restricted stock awards and stock appreciation rights. Ventiv granted
options under its Stock Plan to Ventiv employees whose existing Snyder stock
options were terminated as a consequence of the Distribution. The Ventiv
options granted on the Distribution date had exercise prices equal to the
closing price of Ventiv common stock on that date. The aggregate number of
shares of Ventiv common stock that may be issued under the Stock Plan upon
exercise of options, SARs or in the form of restricted stock is 4.8 million,
increased by 17.5% of the number of shares of Ventiv common stock authorized for
issuance by Ventiv's Board of Directors following the Distribution.
The exercise price of Ventiv options granted under the Stock Plan may not be
less than 100% of the fair market value per share of Ventiv common stock on the
date of the option grant. The vesting and other provisions of the options are
determined by Ventiv Health, Inc.'s Board of Directors.
A summary of the option activity within the Stock Plan, for the year ended
December 31, 1999, is as follows:
Options Outstanding
1999
---------------------
(in thousands)
Beginning of year --
Granted.......................................... 3,495
Exercised........................................ --
Forfeited or expired............................. (55)
-----
End of year........................................ 3,440
=====
Exercisable at end of year......................... 396
=====
Weighted Average
Exercise Price
1999
--------------------
Beginning of year --
Granted.......................................... $7.95
Exercised........................................ --
Forfeited or expired............................. $7.94
-----
End of year........................................ $7.95
=====
Exercisable at end of year......................... $7.94
=====
The Ventiv options outstanding at December 31, 1999 have exercise prices that
range from $5.38 to $8.06. The weighted average remaining contractual life on
the options outstanding at December 31, 1999 is 9.32 years.
39
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999: risk-free interest rate of 6.36%, expected
dividend yield of zero, expected life of 4 years and expected volatility of 50%.
The weighted average option fair value on the grant date was $3.68 for options
issued from the date of the Distribution through December 31, 1999.
If Ventiv had recorded compensation expense from the date of the Distribution
through December 31, 1999, using the fair value based method prescribed by SFAS
No. 123, Ventiv's 1999 pro forma net income, which reflects a pro forma
adjustment for income taxes, would have been reduced to the following as
adjusted amounts:
As of December 31, 1999
--------------------------
(in thousands except per
share data, unaudited)
Pro forma net income (loss):
As reported............................................. $(6,793)
As adjusted............................................. (7,308)
Pro forma basic net income (loss) per share:
As reported............................................. (0.28)
As adjusted............................................. (0.31)
Pro forma diluted net income (loss) per share:
As reported............................................. (0.28)
As adjusted............................................. (0.31)
During 1999, the Company granted 831,502 Restricted Shares of Ventiv common
stock at a purchase price of $0.001, to certain employees. 269,608 of the shares
vested immediately following the Distribution with the remaining Restricted
Shares vesting ratably over the four years following the grant date. During
1999, the Company recognized $2.4 million in expense related to these Restricted
Shares, $2.1 million of which is due to the vesting of Restricted Shares which
occurred immediately following the Distribution.
11. Pension and Profit-Sharing Plans:
Snyder and certain of its subsidiaries maintain defined contribution benefit
plans. Pension and profit sharing costs incurred by the Company related to these
plans amounted to approximately $1.0 million, $0.8 million and $0.2 million for
1999, 1998 and 1997, respectively.
12. Leases:
The Company leases certain facilities, office equipment and other assets. The
following is a schedule of future minimum lease payments for these operating
leases at December 31, 1999 (in thousands):
Years Ending December 31,
2000................................. $ 7,111
2001................................. 4,463
2002................................. 3,244
2003................................. 2,968
2004................................. 2,742
Thereafter........................... 12,406
-------
Total minimum lease payments......... $32,934
=======
Rental expense for all operating leases was approximately $9.3 million, $8.2
million and $8.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
40
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Commitments and Contingencies:
The Company has entered into employment agreements with certain key executives
and consulting agreements with certain former executives that call for
guaranteed minimum salaries and bonuses for varying terms.
The Company is subject to lawsuits, investigations and claims arising out of
the conduct of its business, including those related to commercial transactions,
contracts, government regulation and employment matters. Certain claims, suits
and complaints have been filed or are pending against the Company. In the
opinion of management and based on the advice of legal counsel, all matters are
without merit or are of such kind, or involve such amounts, as would not have a
material effect on the financial position or results of operations of the
Company if disposed of unfavorably.
14. Related Parties:
The Company receives certain administrative services, under an interim
services agreement with Snyder Communications, Inc. Certain directors of the
company are also directors of Snyder Communications, Inc. The balance owed to
Snyder Communications, Inc. at December 31, 1999 is approximately $0.6 million.
No interest is being paid on outstanding amounts.
15. Geographical Data:
The Company has operations in the United States, as well as the more mature
markets of Western Europe, which include the United Kingdom, France and Germany.
1999 1998 1997
----------- ----------- -----------
Revenues:
United States........... $214,395 $175,840 $118,293
Western Europe.......... 130,260 145,660 90,674
-------- -------- --------
Total................ $344,655 $321,500 $208,967
======== ======== ========
16. Selected Quarterly Financial Data (unaudited, in thousands):
The following table summarizes financial data by quarter for the Company for
1999 and 1998.
1999 Quarter Ended
-------------------------------------------------------------------
March 31 June 30 September 30 December 31 Total
----------- --------- -------------- ------------- ------------
Revenues....................................... $86,939 $94,320 $ 72,900 $90,496 $344,655
Gross profit................................... 19,659 23,456 1,005 5,239 49,359
Net income (loss).............................. 5,090 7,549 (12,981) (6,451) (6,793)
Net income (loss) per share (diluted).......... 0.21 0.32 (0.55) (0.26) (0.28)
1998 Quarter Ended
----------
March 31 June 30 September 30 December 31 Total
---------- --------- ------------- ------------ -----------
Revenues....................................... $67,356 $83,957 $ 80,232 $89,955 $321,500
Gross profit................................... 18,193 23,443 20,091 23,726 85,453
Net income (loss).............................. (4,052) 6,670 (3,771) 2,599 1,446
Net income (loss) per share (diluted).......... (0.17) 0.28 (0.16) 0.11 0.06
Pro forma amounts which include a provision for federal, foreign and state
income taxes as if the Company had been a taxable C corporation for all periods
presented are not presented in this table as no difference exists between the
pro forma net income (loss) and net income (loss) for the years ended December
31, 1999 and 1998.
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Ventiv Health, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the consolidated financial statements of Ventiv Health, Inc.
(the "Company"), as defined in Note 1 to the consolidated financial statements,
included in this Form 10-K and have issued our report thereon dated February 18,
2000. Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II Valuation and
Qualifying Accounts included in the Form 10-K is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 18, 2000
42
VENTIV HEALTH, INC.
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(in thousands)
Deductions from
Additions Reserve for
Balance at Charged to Purpose for
Beginning of Cost and Which Reserve Translation Balance at End
Year Expense was Created Adjustment of Year
------------ ------------ --------------- ------------- --------------
1999 allowance for doubtful
accounts.................... $2,971 $ 1,198 $ 1,554 $ (98) $ 2,517
1998 allowance for doubtful
accounts.................... 3,924 1,162 2,118 3 2,971
1997 allowance for doubtful
accounts.................... 510 3,717 296 (7) 3,924
Deductions from
Additions Reserve for
Balance at Charged to Purpose for
Beginning of Cost and Which Reserve Translation Balance at End
Year Expense was Created Adjustment of Year
------------ ------------ --------------- ------------- --------------
1999 accrual for
integration activities....... $ 7,971 $ 3,064 $10,036 $ -- $ 999
1998 accrual for
integration activities....... -- 10,654 2,683 -- 7,971
1997 accrual for
integration activities....... -- -- -- -- --
43
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
44
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The information contained in Ventiv's Proxy Statement under the sections
entitled "Election of Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" is incorporated herein by reference in response to this
item.
Item 11. Executive Compensation.
----------------------
The information contained in Ventiv's Proxy Statement under the section
entitled "Executive Compensation" is incorporated herein by reference in
response to this item, except that the information contained in the Proxy
Statement under the sub-headings of "Report of the Board of Directors of Ventiv
Health, Inc. on Executive Compensation" and "Stockholder Return Performance
Graph" is not incorporated herein by reference and is not deemed "filed" as part
of this filing.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
--------------------------------------------------------------
The information contained in Ventiv's proxy statement under the section
entitled "Security Ownership of Directors, Executive Officers and Certain
Beneficial Owners" is incorporated herein by reference in response to this item.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information contained in Ventiv's Proxy Statement under the section
entitled "Compensation Committee Interlocks and Insider Participation" is
incorporated herein by reference in response to this item.
45
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
----------------------------------------------------------------
(a) 1. The following Consolidated Financial Statements of Ventiv Health, Inc.
are filed under "Item 8. Financial Statements and Supplementary Data."
Consolidated Balance Sheet as of December 31, 1999 and 1998
Consolidated Statement of Income for the years ended December 31, 1999,
1998 and 1997
Consolidated Statement of Equity and Comprehensive Income for the
period from September 27, 1999 to December 31, 1999
Consolidated Statement of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. The following financial statement schedule is filed under "Item 8.
Financial Statements and Supplementary Data."
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or are
not required under Regulation S-X.
3. The following exhibits are filed herewith or are incorporated herein by
reference, as indicated.
Exhibit Description Page
------- ----------- -----
3.1 Amended and Restated certificate of Incorporation of Ventiv Health, Inc. (filed as
Exhibit 3.1 to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of 1934, as amended).*
3.2 By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
4.1 Specimen form of certificate representing Ventiv Health, Inc. common stock (filed as
Exhibit 4.1 to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of 1934, as amended).*
10.1 Form of Distribution Agreement between Snyder Communications, Inc. and Ventiv Health,
Inc. (filed as Exhibit 10.1 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the Securities Act of 1934, as
amended).*
10.2 Form of Tax Sharing Agreement between Snyder Communications, Inc. and Ventiv Health,
Inc. (filed as Exhibit 10.2 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the Securities Act of 1934, as
amended).*
10.3 Form of Interim Services Agreement between Snyder Communications, Inc. and Ventiv
Health, Inc. (filed as Exhibit 10.3 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the Securities Act of 1934,
as amended).*
10.4 Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Exhibit 10.4 to the
Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
46
Exhibit Description Page
------- ----------- ----
10.5 Employment Agreement, dated June 14, 1999 by and between Eran Broshy and Snyder
Communications, Inc. (filed as Exhibit 10.5 to the Registrant's Form 10 (File No.
001-15125) filed with the Securities and Exchange Commission under the Securities Act
of 1934, as amended).*
10.6 Employment Agreement, dated February 13, 1999 by and between Dr. Robert Brown and
Health Products Research, Inc. (filed as Exhibit 10.6 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.7 Employment Agreement, dated February 13, 1998 by and between William Pollock and
Healthcare Promotions, LLC (filed as Exhibit 10.9 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.8 Employment Agreement, dated August 18, 1999 by and between Gregory S. Patrick and
Ventiv Health, Inc. (filed as Exhibit 10.10 to the Registrant's Form 10 (File No.
001-15125) filed with the Securities and Exchange Commission under the Securities
Act of 1934, as amended).*
10.9 Credit Agreement, dated December 1, 1999, among Ventiv Health, certain subsidiaries
of Ventiv Health, Inc., the lenders named therein and Bank of America, N.A.
21.1 Subsidiaries of Ventiv Health, Inc. (filed as Exhibit 21.1 to the Registrant's Form
10 (File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
23 Consent of Arthur Andersen LLP.
27 Financial Date Schedule
* Incorporated by reference.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31, 1999.
47
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.
VENTIV HEALTH, INC.
Date: March 30, 2000 By: /s/ Gregory S. Patrick
---------------------------------------
Gregory S. Patrick
Chief Financial Officer
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.
Date: March 30, 2000 By: /s/ Daniel M. Snyder
----------------------------------------
Daniel M. Snyder
Co-Chairperson of the Board
Date: March 30, 2000 By: /s/ Michele D. Snyder
----------------------------------------
Michele D. Snyder
Co-Chairperson of the Board
Date: March 30, 2000 By: /s/ Eran Broshy
----------------------------------------
Eran Broshy
Chief Executive Officer and Director
(Principal Executive Officer)
Date: March 30, 2000 By: /s/ Gregory S. Patrick
----------------------------------------
Gregory S. Patrick
Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 30, 2000 By: /s/ Mortimer B. Zuckerman
----------------------------------------
Mortimer B. Zuckerman
Director
Date: March 30, 2000 By: /s/ Fred Drasner
-----------------------------------------
Fred Drasner
Director
Date: March 30, 2000 By: /s/ A. Clayton Perfall
-----------------------------------------
A. Clayton Perfall
Director
Date: March 30, 2000 By: /s/ Donald Conklin
-----------------------------------------
Donald Conklin
Director
48
Exhibit Description Page
------- ----------- -----
3.1 Amended and Restated certificate of Incorporation of Ventiv Health, Inc. (filed as
Exhibit 3.1 to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of 1934, as amended).*
3.2 By-Laws of Ventiv Health, Inc. (filed as Exhibit 3.2 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
4.1 Specimen form of certificate representing Ventiv Health, Inc. common stock (filed as
Exhibit 4.1 to the Registrant's Form 10 (File No. 001-15125) filed with the
Securities and Exchange Commission under the Securities Act of 1934, as amended).*
10.1 Form of Distribution Agreement between Snyder Communications, Inc. and Ventiv Health,
Inc. (filed as Exhibit 10.1 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the Securities Act of 1934, as
amended).*
10.2 Form of Tax Sharing Agreement between Snyder Communications, Inc. and Ventiv Health,
Inc. (filed as Exhibit 10.2 to the Registrant's Form 10 (File No. 001-15125) filed
with the Securities and Exchange Commission under the Securities Act of 1934, as
amended).*
10.3 Form of Interim Services Agreement between Snyder Communications, Inc. and Ventiv
Health, Inc. (filed as Exhibit 10.3 to the Registrant's Form 10 (File No. 001-15125)
filed with the Securities and Exchange Commission under the Securities Act of 1934,
as amended).*
10.4 Ventiv Health, Inc. 1999 Stock Incentive Plan (filed as Exhibit 10.4 to the
Registrant's Form 10 (File No. 001-15125) filed with the Securities and Exchange
Commission under the Securities Act of 1934, as amended).*
10.5 Employment Agreement, dated June 14, 1999 by and between Eran Broshy and Snyder
Communications, Inc. (filed as Exhibit 10.5 to the Registrant's Form 10 (File No.
001-15125) filed with the Securities and Exchange Commission under the Securities Act
of 1934, as amended).*
10.6 Employment Agreement, dated February 13, 1999 by and between Dr. Robert Brown and
Health Products Research, Inc. (filed as Exhibit 10.6 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.7 Employment Agreement, dated February 13, 1998 by and between William Pollock and
Healthcare Promotions, LLC (filed as Exhibit 10.9 to the Registrant's Form 10
(File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
10.8 Employment Agreement, dated August 18, 1999 by and between Gregory S. Patrick and
Ventiv Health, Inc. (filed as Exhibit 10.10 to the Registrant's Form 10 (File No.
001-15125) filed with the Securities and Exchange Commission under the Securities
Act of 1934, as amended).*
10.9 Credit Agreement, dated December 1, 1999, among Ventiv Health, certain subsidiaries
of Ventiv Health, Inc., the lenders named therein and Bank of America, N.A.
21.1 Subsidiaries of Ventiv Health, Inc. (filed as Exhibit 21.1 to the Registrant's Form
10 (File No. 001-15125) filed with the Securities and Exchange Commission under the
Securities Act of 1934, as amended).*
23 Consent of Arthur Andersen LLP.
27 Financial Date Schedule
* Incorporated by reference.