UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2002
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
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 (IRS Employer
of incorporation or organization) Identification No.)
200 Cottontail Lane
Vantage Court North
Somerset, New Jersey 08873
(Address of principal executive office and zip code)
(800) 416-0555
(Registrant's telephone number, including area code)
Indicate by check mark whether 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, par value $0.001, 22,992,397 shares outstanding as of May 3,
2002.
VENTIV HEALTH, INC.
QUARTERLY REPORT ON
FORM 10-Q
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2002 (unaudited)
and December 31, 2001 ........................................................................... 1
Condensed Consolidated Statements of Earnings for the three-month
periods ended March 31, 2002 and 2001 (unaudited) ............................................... 2
Condensed Consolidated Statements of Cash Flows for the three-month
periods ended March 31, 2002 and 2001 (unaudited) ............................................... 3
Notes to Condensed Consolidated Financial Statements ................................................. 4-9
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ......................................................................... 10-15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk .................................... 15
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings ............................................................................... 16
ITEM 6. Exhibits and Reports on Form 8-K ................................................................ 16
SIGNATURES ................................................................................................... 17
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
2002 2001
---- ----
(unaudited)
ASSETS
Current assets:
Cash and equivalents .............................................................. $ 35,055 $ 44,057
Restricted cash ................................................................... 2,475 1,025
Accounts receivable, net of allowances for doubtful accounts of $1,719
and $1,743 at March 31, 2002 and December 31, 2001, respectively ............... 44,814 51,228
Unbilled services ................................................................. 28,310 43,803
Current deferred tax asset ........................................................ 963 956
Assets held for sale .............................................................. 6,728 8,101
Other current assets .............................................................. 7,671 6,529
--------- -----------
Total current assets ........................................................ 126,016 155,699
Property and equipment, net .......................................................... 31,989 34,708
Goodwill and other intangible assets, net ............................................ 32,677 32,837
Deferred tax assets .................................................................. 10,180 10,208
Note receivable, investments, deposits and other non-current assets .................. 661 616
--------- -----------
Total assets ................................................................ $ 201,523 $ 234,068
========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ................................................. $ -- $ 35,000
Current portion of capital lease obligations ......................................... 8,332 8,538
Liabilities held for sale ............................................................ 5,308 7,534
Accrued payroll, accounts payable and accrued expenses ............................... 49,726 52,903
Client advances and unearned revenue ................................................. 31,707 21,964
--------- -----------
Total current liabilities ................................................... 95,073 125,939
Capital lease obligations ............................................................ 15,012 16,974
Other non-current liabilities ........................................................ 151 134
--------- -----------
Total liabilities .................................................................... 110,236 143,047
Commitments and contingencies ........................................................ -- --
Stockholders' Equity:
Preferred stock, $.001 par value, 10,000,000 shares authorized, none issued
and outstanding at March 31, 2002 and December 31, 2001 ........................... -- --
Common stock, $.001 par value, 50,000,000 shares authorized;
22,992,397 shares issued at March 31, 2002 and December 31, 2001 .................. 23 23
Additional paid-in-capital ........................................................... 157,864 157,864
Deferred compensation ................................................................ (1,105) (1,275)
Accumulated other comprehensive losses ............................................... (4,373) (4,063)
Accumulated deficit .................................................................. (61,122) (61,528)
--------- -----------
Total stockholders' equity .................................................. 91,287 91,021
--------- -----------
Total liabilities and stockholders' equity .................................. $ 201,523 $ 234,068
========= ===========
See accompanying notes to condensed consolidated financial statements.
1
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share amounts)
For the Three Months
Ended March 31,
---------------
2002 2001
---- ----
(unaudited)
Revenues ....................................................................... $ 92,572 $ 102,131
Operating expenses:
Costs of services ........................................................... 81,834 85,605
Selling, general and administrative expenses ................................ 8,939 11,463
--------- ---------
Operating earnings ............................................................. 1,799 5,063
Interest expense ............................................................... (600) (996)
Investment income .............................................................. 110 207
Loss on investment in equity of non-affiliate .................................. -- (500)
--------- ---------
Earnings from continuing operations before income taxes ........................ 1,309 3,774
Provision for income taxes ................................................. 563 1,429
--------- ---------
Net earnings from continuing operations ........................................ 746 2,345
--------- ---------
Losses from discontinued operations:
Results of operations, net of taxes ........................................ (340) (975)
Estimated loss on disposal of discontinued operations, net of taxes ........ -- --
--------- ---------
(340) (975)
--------- ---------
Net earnings ................................................................... $ 406 $ 1,370
========= =========
Earnings (losses) per share (see Note 2):
Continuing operations
Basic ...................................................................... $ 0.03 $ 0.10
Diluted ..................................................................... $ 0.03 $ 0.10
Discontinued operations:
Basic ....................................................................... $ (0.01) $ (0.04)
Diluted ..................................................................... $ (0.01) $ (0.04)
Net earnings:
Basic ....................................................................... $ 0.02 $ 0.06
Diluted ..................................................................... $ 0.02 $ 0.06
See accompanying notes to condensed consolidated financial statements
2
VENTIV HEALTH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Three Months
Ended March 31,
---------------
2002 2001
---- ----
(unaudited)
Cash flows from operating activities:
Net earnings ......................................................................... $ 406 $ 1,370
Adjustments to reconcile net earnings to net cash provided by (used in)
operating activities:
Net loss from discontinued operations ............................................. 340 975
Depreciation ...................................................................... 3,479 3,130
Amortization ...................................................................... 75 1,060
Deferred taxes .................................................................... 21 314
Losses on disposals of capital assets ............................................. 185 183
Non-cash expense for write-off of deferred financing costs ........................ 314 --
Non-cash expense for restricted stock vesting ..................................... 170 166
Non-cash expense for valuation allowance on note receivable ...................... 412 --
Non-cash expense for loss on investment in equity of non-affiliate ................ -- 500
Net changes in assets and liabilities:
Restricted Cash ................................................................... -- 201
Accounts receivable, net .......................................................... 6,413 (3,940)
Unbilled services ................................................................. 15,241 (24,420)
Deposits and other non-current assets ............................................. (1,142) (1,252)
Accrued payroll, accounts payable and accrued expenses ............................ (3,176) (852)
Client advances and unearned revenue .............................................. 9,742 643
Other ............................................................................. 107 371
------- --------
Net cash provided by (used in) operating activities .................................. 32,587 (21,551)
------- --------
Cash flows from investing activities:
Capital expenditures ............................................................. (1,030) (1,571)
Other ............................................................................. -- (28)
------- --------
Net cash used in investing activities ................................................ (1,030) (1,599)
------- --------
Cash flows from financing activities:
Net borrowings (repayments) of debt ............................................... (35,000) 3,971
Repayments of capital lease obligations ........................................... (2,176) (1,907)
Collaterization of obligations under standby letter of credit .................... (1,450) --
Funding of product commercialization expenditures .............................. (320) --
Financing costs for new debt facility ............................................. (288) --
Proceeds from the exercise of stock options ....................................... -- 714
------- --------
Net cash provided by (used in) financing activities ..................................... (39,234) 2,778
------- --------
Net cash provided by (used in) discontinued operations .................................. (1,193) 2,146
Effect of exchange rate changes on cash and equivalents ................................. (132) (234)
------- --------
Net decrease in cash and equivalents .................................................... (9,002) (18,460)
Cash and equivalents, beginning of period ............................................... 44,057 27,157
------- --------
Cash and equivalents, end of period ..................................................... $35,055 $ 8,697
======= ========
Supplemental disclosures of cash flow information:
Cash paid for interest ............................................................ $ 845 $ 972
Cash paid for income taxes ........................................................ $ 29 $ 581
Supplemental disclosures of non-cash activities:
Vehicles acquired under capital lease arrangements ................................ $ 191 $ 4,674
See accompanying notes to condensed consolidated financial statements
3
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization, Business and Basis of Presentation:
Ventiv Health, Inc. ("Ventiv" or "the Company") is a leading global
provider of comprehensive outsourced marketing and sales solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range of
integrated services, in a context of consultative partnership that identifies
strategic goals and applies targeted, tailored solutions. The portfolio of
offerings includes: consulting, analytics and forecasting; market research and
intelligence; strategic and tactical planning; conventions and symposia targeted
to physicians; telemarketing and other marketing support services; product/brand
management; recruitment and training services; and sales execution. Over almost
three decades, Ventiv's businesses have provided a broad range of innovative
strategic and tactical solutions to clients across the United States and Europe,
including many of the world's leading pharmaceutical and life sciences
companies.
The accompanying unaudited condensed consolidated financial statements
present the financial position, results of operations and cash flows of the
Company and its subsidiaries (the "condensed consolidated financial
statements"). These condensed consolidated financial statements have been
prepared pursuant to the interim rules and regulations of the Securities and
Exchange Commission. Accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles ("GAAP") have been omitted. The Company believes
that the disclosures made herein are adequate such that the information
presented is not misleading. These condensed consolidated financial statements
reflect all adjustments (consisting of only normal recurring adjustments) that,
in the opinion of management, are necessary to fairly present the Company's
financial position as of March 31, 2002 and December 31, 2001, and the results
of operations and cash flows of the Company for the three-month periods ended
March 31, 2002 and 2001. Operating results for the three-month period ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2002. Certain balances as of December
31, 2001 have been reclassified to conform to the March 31, 2002 balance sheet
presentation.
These condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and accompanying
notes included in the Company's Annual Reports on Form 10-K and Form 10-K/A for
the year ended December 31, 2001, as filed with the Securities and Exchange
Commission on April 1, 2002 and April 30, 2002, respectively.
2. Adoption of New Goodwill Standard
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 142, "Accounting for Goodwill and Other
Intangible Assets." This statement requires that goodwill and intangible assets
deemed to have an indefinite life not be amortized. Instead of amortizing
goodwill and intangible assets deemed to have an indefinite life, the statement
requires a test for impairment to be performed annually, or immediately if
conditions indicate that such an impairment could exist. This statement is
effective for fiscal years beginning after December 15, 2001, and permits early
adoption for fiscal years beginning after March 15, 2001. We have adopted SFAS
No. 142 effective January 1, 2002. As a result of adopting SFAS No. 142, and
after consideration of our goodwill impairment charges recorded in third quarter
of 2001, we will no longer amortize the current net goodwill carrying amount of
approximately $31.1 million. SG&A expense for the three months ended March 31,
2001 includes goodwill amortization of approximately $0.8 million. We have not
completed our initial analysis under SFAS No. 142, but we expect to complete
this analysis prior to June 30, 2002. If the carrying amount of goodwill is
found to exceed its fair value, an impairment loss will be recognized in an
amount equal to that excess. Once an impairment loss is recognized, the adjusted
carrying amount of goodwill will become the new accounting basis of goodwill.
3. Earnings Per Share:
The following table presents a reconciliation of the numerators and
denominators of basic and diluted EPS for the three-month periods ended March
31, 2002 and 2001:
Three Months Ended March 31,
----------------------------
2002 2001
---- ----
(in thousands, except per share data)
Basic EPS Computation
Net earnings ................................................... $ 406 $ 1,370
Weighted average common shares issued and outstanding .......... 22,823 22,475
------------ ---------------
Basic EPS ...................................................... $ 0.02 $ 0.06
============ ===============
Diluted EPS Computation
Net earnings ................................................... $ 406 $ 1,370
Adjustments to net earnings .................................... -- --
------------ ---------------
Adjusted net earnings .......................................... $ 406 $ 1,370
------------ ---------------
Diluted common shares outstanding:
Weighted average common shares outstanding .................. 22,823 22,475
Stock options ............................................... -- 794
Restricted stock awards ..................................... -- 169
------------ ---------------
Total diluted common shares issued and outstanding .......... 22,823 23,438
------------ ---------------
Diluted EPS ................................................. $ 0.02 $ 0.06
============ ===============
4
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the three-month period ending March 31, 2002, there were no
adjustments for the effect of stock options and restricted stock awards, as they
would have had an anti-dilutive effect.
4. Significant Clients:
During the three-month period ended March 31, 2002, two clients, Reliant
Pharmaceuticals, Inc. ("Reliant"), and Bayer Corporation ("Bayer") accounted for
approximately 21.7% and 11.4% respectively, of the Company's total revenue. For
the three-month period ended March 31, 2001, two clients, Reliant and
Bristol-Myers Squibb, Inc. ("BMS"), accounted for 21.1% and 17.1%, respectively,
of the Company's total revenue.
At March 31, 2002 and 2001 the Company had one client, Reliant, that
accounted for 24% and 19%, respectively, of billed accounts receivable. The
Company had three clients at March 31, 2002, Reliant, BMS, and Endo
Pharmaceuticals, Inc., that accounted for 35%, 12% and 16%, respectively, of
unbilled receivables. At March 31, 2001 the Company had two clients, BMS and
Reliant, which comprised 39.9% and 28.9% of unbilled receivables, respectively.
In June 2001, BMS notified the Company of its intent to cease sales
force promotion services under the existing contract, effective as of December
31, 2001. Services with respect to sales force promotion of Cefzil(R) were
continued at the client's request through March 31, 2002, pursuant to a letter
agreement between Ventiv Health U.S. Sales LLC and BMS.
In February 2002, Ventiv was notified by Reliant of its intent to
convert the field sales force working under the Ventiv-Reliant contract from
full-time Ventiv employment to full-time Reliant employment effective April 1,
2002. The Ventiv-Reliant contract, which commenced on August 1, 2000, provided
Reliant with the option to convert all or a portion of the field sales force to
Reliant at any time. As a consequence of the conversion, Ventiv will not receive
revenues for contract sales services under this agreement commencing
April 1, 2002.
5. Restricted Cash
On February 19, 2002, the Company pledged approximately $1.5 million of
cash as collateral on an outstanding standby letter of credit, issued in support
of a fleet leasing arrangement for the Company's U.K. operation. The beneficiary
has not drawn on this letter of credit. As this cash has been pledged as
collateral, it is restricted from use for general purposes and has been
classified accordingly in the Condensed Consolidated Balance Sheet as of March
31, 2002.
The Company often receives cash advances from its clients as funding for
specific projects and engagements. These funds are deposited into segregated
bank accounts and used solely for purposes relating to the designated projects.
Although these funds are not held subject to formal escrow agreements, the
Company considers these funds to be restricted and has classified these balances
accordingly. Cash held in such segregated bank accounts totaled approximately
$1.0 million as of March 31, 2002 and December 31, 2001, respectively.
6. Comprehensive Earnings:
SFAS No. 130, "Reporting Comprehensive Income", became effective in
1998. This statement established standards for reporting comprehensive income in
financial statements. Comprehensive income reports the effect on net income of
transactions that are related to equity of the Company, but that have not been
transacted directly with the Company's shareholders. This statement only
modifies disclosures, including financial statement disclosures, and does not
result in other changes to the reported results of operations or financial
position of the Company.
5
VENTIV HEALTH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Three Months Ended
March 31,
--------------
2002 2001
---- ----
(unaudited)
(in thousands)
Net earnings ....................................................................... $ 406 $ 1,370
Other comprehensive losses, net of tax:
Foreign currency translation adjustment ......................................... (310) (898)
-------- -------
Comprehensive earnings ............................................................. $ 96 $ 472
======== =======
7. Capital Lease Obligations:
During 2000, the Company entered into a master lease agreement to
provide a fleet of automobiles for sales representatives of its U.S. Contract
Sales business unit. Based on the terms of the agreement, management concluded
that the leases were capital in nature based on the criteria established by
Statement of Financial Accounting Standards No. 13, "Accounting for Leases". The
Company capitalized leased vehicles and recorded the related lease obligations
totaling approximately $0.2 million and $4.7 million during the three-month
period ended March 31, 2002 and 2001, respectively.
8. Discontinued Operations:
Based on historical performance, in September 2001, the Company's Board
of Directors approved a plan to divest certain net assets of the Company's
medical education and communications' unit in Stamford, Connecticut. During the
first quarter of 2002, the Company entered into a non-binding letter of intent
for the sale of their business unit. Accordingly, all assets and liabilities
specifically related to this business unit have been classified as "held for
sale" in the accompanying balance sheets of March 31, 2002 and December 31,
2001.
Below is a summary of the results of this operation:
Three Months Ended
March 31,
---------------
2002 2001
---- ----
(unaudited)
(in thousands)
Revenue ............................................................................ $ 5,107 $ 2,718
Loss before income taxes ........................................................... (523) (1,371)
Benefit from income taxes .......................................................... 183 396
-------- --------
Net loss from discontinued operations .............................................. $ (340) $ (975)
======== ========
Effective May 7, 2002, the Company entered into a definitive purchase
and sale agreement, completing the sale of substantially all of the net assets
of its Stamford, Connecticut operations to Discovery East, LLC, a majority-owned
subsidiary of Bcom3 Group, Inc.'s Medicus business unit, a leading provider of
medical education and communications services. In consideration for the sale,
the Company received $2.4 million at closing (subject to a final working capital
adjustment calculation) and a note receivable for $550,000, due on February 3,
2003 and guaranteed by Bcom3 Group, Inc.
9. Segment Information:
During 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." During the fourth quarter of
2001, the Company evaluated its internal reporting practices and has identified
reportable segments based on its current management structure. The Company now
segregates reportable segments, based on products and services offered, into the
following five operating segments: U.S. Contract Sales, European Contract Sales,
Planning and Analytics, Communications and Other (including Ventiv Integrated
Solutions and corporate operations). Management measures operating performance
of the business segments based on operating income before restructuring and
other non-recurring charges.
6
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following presents information about the reported segments:
For the Three Months Ended
March 31,
---------
2002 2001
---- ----
(unaudited)
(in thousands)
Revenue:
U.S. Contract Sales ........................ $ 62,045 $ 66,967
European Contract Sales .................... 21,414 26,019
Planning and Analytics .................... 6,193 6,282
Communications ............................. 2,416 2,863
Other ...................................... 504 --
-------- --------
Total revenue .................... $ 92,572 $102,131
======== ========
For the Three Months Ended
March 31,
---------
2002 2001
---- ----
(unaudited)
(in thousands)
Operating earnings:
U.S. Contract Sales ............................ $ 3,587 $ 6,219
European Contract Sales ........................ (263) 1,190
Planning and Analytics ....................... 1,332 716
Communications ................................. (162) (459)
Other .......................................... (2,695) (2,603)
-------- --------
Total operating earnings ............. $ 1,799 $ 5,063
======== ========
March 31, December 31,
--------- ------------
2002 2001
---- ----
(in thousands)
(unaudited)
Total Assets:
U.S. Contract Sales ........................ $109,900 $121,552
European Contract Sales .................... 35,467 36,587
Planning and Analytics ................... 9,724 10,804
Communications ............................. 14,051 14,350
Other ...................................... 25,653 42,674
-------- --------
194,795 225,967
Assets held for sale ....................... 6,728 8,101
-------- --------
Total assets ............................... $201,523 $234,068
======== ========
Below is a reconciliation of total segment operating earnings before
restructuring and other non-recurring charges to earnings from continuing
operations before income taxes:
7
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the Three Months
Ended
March 31,
---------
2002 2001
---- ----
(unaudited)
(in thousands)
Operating earnings from segments ............................................... $ 1,799 $ 5,063
Interest expense ............................................................... (600) (996)
Investment income .............................................................. 110 207
Loss on investment in equity of non-affiliates ................................. -- (500)
------- -------
Earnings from continuing operations before income taxes ................... $ 1,309 $ 3,774
======= =======
The Company's operations are primarily in the United States and Western Europe.
Below is a geographic separation of the revenue sources:
For the Three Months Ended
March 31,
---------
2002 2001
---- ----
(unaudited)
(in thousands)
Revenue:
United States ................................ $ 71,158 $ 76,112
Europe ....................................... 21,414 26,019
-------- --------
Total ........................................ $ 92,572 $102,131
======== ========
10. Subsequent Events:
Ventiv Integrated Solutions
On April 26, 2002, the Company was notified by Cellegy Pharmaceuticals,
Inc. ("Cellegy") of its withdrawal of the New Drug Application for Cellegesic(R)
with the U.S. Food & Drug Administration ("FDA"). Cellegy decided to withdraw
the application after meetings with the FDA indicated that additional
information would be required before the FDA would grant marketing clearance of
Cellegesic(R) in the United States. The Company, through VIS and another
wholly-owned subsidiary, had entered into a contract with Cellegy to provide
funding and services in support of the commercialization of the Cellegesic(R)
product. Following Cellegy's announcement, management provided a valuation
allowance of $0.4 million or 50% of the amounts advanced to date and approved
for funding as of March 31, 2002. Cellegy has curtailed expenditures relating to
this commercialization effort, and funding has been suspended pending the
outcome of further discussions between Cellegy and the FDA.
Plan of Divestiture
As part of a strategic decision to better focus the Company on its core
capabilities and operating segments, in April 2002, the Company's Board of
Directors approved a plan to divest the net assets of its medical education
business based in Alpharetta, Georgia. This business unit independently develops
and organizes large symposia and congresses that are then sponsored by various
pharmaceutical, biotech and life sciences companies and related organizations.
On April 30, 2002, the Company signed a non-binding letter of intent for the
sale of substantially all the net assets of this business unit. We expect this
transaction to be completed in early June 2002.
8
VENTIV HEALTH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company intends to reflect the results of operations of this business
unit as a discontinued operation, in accordance with SFAS No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets", beginning in April 2002.
Results of operations from this business unit, net of tax, were a loss of $0.1
million and near break-even for the three-month periods ended March 31, 2002 and
2001, respectively, and income of $0.2 million and $0.5 million for the years
ended December 31, 2001 and 2000, respectively.
The Company is currently estimating the potential loss, if any, on disposal
of this discontinued operation.
Ventiv Health Inc.'s 1999 Stock Incentive Plan
On May 1, 2002, the Company filed a Schedule TO with the U.S. Securities
and Exchange Commission, relating to the commencement of an offer to exchange
stock options held by employees and consultants under the Company's 1999 Stock
Incentive Plan (the "Stock Plan"). At the election of the holders, unexercised
options may be surrendered for new option awards to be issued on or about
December 2, 2002, at a price equal to the greater of $4 or the then current
market value of the Company's common stock as listed on the NASDAQ. The
replacement options will be granted only to holders who elect to participate in
the exchange offer and are employees of our consultants to the Company on the
date the replacement options are issued. The Company has initiated this offer in
order to provide better performance incentives for its key employees and
consultants, in an effort to increase retention of these individuals.
Amended and Restated Contract Sales Force and Co-promotion Agreement with Bayer
Effective May 15, 2002, the Company's contract sales agreement with Bayer
has been amended and restated to provide for (i) an extension of the promotion
term end date from May 31, 2003 to December 31, 2003 and (ii) a new fixed fee
structure for services rendered from May 15, 2002 to the end of the promotion
term. Under the original terms of the Bayer agreement and through May 14, 2001,
the Company received certain fees that covered a substantial portion, but not
all of the Company's costs of services relating to this engagement.
9
VENTIV HEALTH, INC.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Ventiv Health, Inc. ("Ventiv" or "the Company") is a leading global
provider of comprehensive outsourced marketing and sales solutions for the
pharmaceutical and life sciences industries. The Company offers a broad range of
integrated services, in a context of consultative partnership that identifies
strategic goals and applies targeted, tailored solutions. The portfolio of
offerings includes: consulting, analytics and forecasting; market research and
intelligence; strategic and tactical planning; conventions and symposia targeted
to physicians; telemarketing and other marketing support services; product/brand
management; recruitment and training services; and sales execution. Over almost
three decades, Ventiv's businesses have provided a broad range of innovative
strategic and tactical solutions to clients across the United States and Europe,
including the majority of the world's leading pharmaceutical and life sciences
companies.
The following information should be read in conjunction with the
condensed consolidated financial statements, accompanying notes and other
financial information included in this Quarterly Report on Form 10-Q and in the
Company's most recent Annual Reports on Form 10-K and Form 10-K/A for the year
ended December 31, 2001.
Private Securities Litigation Reform Act of 1995--A Caution Concerning
Forward-Looking Statements
Any statement made in this Quarterly Report on Form 10-Q 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. Such forward-looking
statements involve known and unknown risks that may cause the Company's
performance to differ materially from the results expressed in our periodic
reports and registration statements filed with the Securities and Exchange
Commission, our press releases or other public communications. Such risks
include, but are not limited to: changes in trends in the pharmaceutical
industry or in pharmaceutical outsourcing; our ability to compete successfully
with other services in the market; our ability to maintain large client
contracts or to enter into new contracts; uncertainties related to future
incentive payments and earnings under revenue sharing arrangements; and our
ability to operate and compete successfully in new lines of business.
Overview
The Company provides integrated marketing services for its clients,
primarily pharmaceutical and life sciences companies. The Company conducts its
business throughout the United States ("U.S."), the United Kingdom ("U.K."),
France, Germany, Hungary and Austria. The Company is organized into operating
segments based on products and services. Ventiv's services are designed to
develop, execute and monitor strategic marketing plans for pharmaceutical and
other life sciences products and to conduct medical education and communications
programs, consisting primarily of sponsored events and clinical symposia for the
benefit of the medical community, as well as other marketing support services.
The Company is organized into five business segments, based on products and
services offered, as follows: U.S. Contract Sales, European Contract Sales,
Planning and Analytics, Communications and Other (which includes Ventiv
Integrated Solutions ("VIS") and corporate operations).
Recent Business Developments
In February 2002, the Company was notified by Reliant Pharmaceuticals,
Inc. ("Reliant") of their intent to convert the field sales force working under
the Ventiv-Reliant contract from full-time Ventiv employment to full-time
Reliant employment effective April 1, 2002. The Ventiv-Reliant contract, which
commenced on August 1, 2000, provided Reliant with the option to convert all or
a portion of the field sales force to Reliant employment at any time. Revenue
from this client relationship represented 21.7% and 20.4% of the Company's
revenues for the three-month period ended March 31, 2002 and twelve-month period
ended December 31, 2001, respectively. As a consequence of the conversion,
Ventiv will not receive revenues for contract sales services under the
Ventiv-Reliant contract commencing April 1, 2002.
On April 26, 2002, the Company was notified by Cellegy Pharmaceuticals,
Inc. ("Cellegy") of its withdrawal of the New Drug Application for Cellegesic
(R) with the U.S. Food & Drug Administration ("FDA"). Cellegy decided to
withdraw the application after meetings with the FDA indicated that additional
information would be required before the FDA would grant marketing clearance of
Cellegesic(R) in the United States. The Company, through VIS and another
wholly-owned subsidiary, had entered into a contract with Cellegy to provide
funding and services in support of the commercialization of the Cellegesic(R)
product. Following Cellegy's announcement, management provided a valuation
allowance of $0.4 million or 50% of the amounts advanced to date and approved
for funding as of March 31, 2002. Cellegy has curtailed expenditures relating to
this commercialization effort, and funding has been suspended pending the
outcome of further discussions between Cellegy and the FDA.
10
As part of a strategic decision to better focus the Company on its core
capabilities and operating segments, in April 2002, the Company's Board of
Directors approved a plan to divest the net assets of its communications
business based in Alpharetta, Georgia. This business unit independently develops
and organizes large symposia and congresses that are then sponsored by various
pharmaceutical, biotech and life sciences companies and related organizations.
On April 30, 2002, the Company signed a non-binding letter of intent for the
sale of substantially all the net assets of this business unit. We expect to
complete this transaction in early June 2002.
The Company intends to reflect the results of operations of this
business unit as a discontinued operation, in accordance with SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", beginning in
April 2002. Results of operations from this business unit, net of tax, were a
loss of $0.1 million and near break-even for the three-month periods ended March
31, 2002 and 2001, respectively, and income of $0.2 million and $0.5 million for
the years ended December 31, 2001 and 2000, respectively. The Company is
currently estimating the potential loss, if any, on disposal of this
discontinued operation.
Effective May 7, 2002, the Company entered into a definitive purchase
and sale agreement, completing the sale of substantially all of the net assets
of its Stamford, Connecticut - based business unit to Discovery East, LLC, a
majority-owned subsidiary of Bcom3 Group, Inc.'s Medicus business unit, a
leading provider of medical education and communications services. In
consideration for the sale, the Company received $2.4 million at closing
(subject to a final working capital adjustment calculation) and a note
receivable for $550,000, due on February 3, 2003 and guaranteed by Bcom3 Group,
Inc.
Amended and Restated Contract Sales Force and Co-promotion Agreement with
Bayer
Effective May 15, 2002, the Company's contract sales agreement with
Bayer has been amended and restated to provide for (i) an extension of the
promotion term end date from May 31, 2003 to December 31, 2003 and (ii) a new
fixed fee structure for services rendered from May 15, 2002 to the end of the
promotion term. Under the original terms of the Bayer agreement and through May
14, 2001, the Company received certain fees that covered a substantial portion,
but not all of the Company's costs of services relating to this engagement.
11
Results of Operations
The following sets forth, for the periods indicated, certain components
of Ventiv's condensed consolidated statements of earnings, including such data
as a percentage of revenues.
($'s in 000's) For the three months ended
March 31,
---------
2002 2001
---- ----
(in thousands)
(unaudited)
Revenues $ 92,572 100.0 % $ 102,131 100.0 %
Operating expenses
Costs of services 81,834 88.4 % 85,605 83.8 %
Selling, general and administrative expenses 8,939 9.5 % 11,463 11.2 %
--------- ------- ---------- -------
Operating earnings 1,799 1.9 % 5,063 5.0 %
Interest expense (600) (0.6)% (996) (1.0)%
Investment income 110 0.1 % 207 0.2 %
Loss on investment in equity of non-affiliate -- -- % (500) (0.5)%
--------- ------- ---------- -------
Earnings from continuing operations before income taxes 1,309 1.4 % 3,774 3.7 %
Provision for income taxes 563 0.6 % 1,429 1.4 %
--------- ------- ---------- -------
Net earnings from continuing operations 746 0.8 % 2,345 2.3 %
--------- ------- ---------- -------
Losses from discontinued operations:
Results of operations, net of taxes (340) (0.4)% (975) (1.0)%
Estimated loss on disposal of discontinued operations, net of taxes -- (0.0)% -- 0.0 %
--------- ------- ---------- -------
Net losses from discontinued operations (340) (0.4)% (975) (1.0)%
--------- ------- ---------- -------
Net earnings $ 406 0.4 % $ 1,370 1.3 %
========= ======= ========== =======
Three Months Ended March 31, 2002 Compared to Three Months Ended March 31, 2001
Revenues: Revenues decreased by approximately $9.6 million, or 9.4%, to
$92.6 million in the three-month period ended March 31, 2002, from $102.1
million in the three months ended March 31, 2001.
Revenues in our U.S. Sales business unit were $62.0 million, a decrease
of $5.0 million or 7.5% from the $67.0 million in the same period in 2001, and
accounted for 67.0% of total Ventiv revenues for the three months ended March
31, 2002. This decrease primarily resulted from the conclusion of contracts with
Novartis AG in the second quarter of 2001 and Forest Laboratories, Inc. in the
fourth quarter of 2001, and the planned conversion of the Novo Nordisk field
force in the second quarter of 2001. These reductions in revenues were partially
offset by new business with Bayer Corporation ("Bayer"), which commenced in the
second quarter of 2001, the continuation of the Bristol-Myers Squibb ("BMS")
contract term to the end of first quarter of 2002 and several other new
contracts that were entered into subsequent to the first quarter of 2001. At the
request of the client, we continued to promote Cefzil(R) through March 31, 2002,
pursuant to a letter agreement with BMS.
The Company's European Sales business generated revenues of $21.4
million, a decrease of 18% from the first quarter of 2001. Revenues generated by
the European Sales business represented 22.9% of total revenues for the fiscal
quarter ended March 31, 2002. The decrease in revenue was due in part to
the termination of certain contracts and lower overall syndicated sales force
utilization in both the U.K. and France. Revenues for the first quarter of 2001
included approximately $0.9 million from a favorable settlement with a client
of our French business unit. Revenues of our operation in Germany were
consistent with 2001 levels.
Communications' revenues represented 2.6% of the Company's total
revenues for the first quarter of 2002. Revenues for the business segment were
approximately $2.4 million for the three months ended March 31, 2002, which
represented a decrease of $0.5 million from the $2.9 million of revenue recorded
in 2001. The decrease in revenues was primarily a result of reduced demand for
telemarketing and other direct marketing services, plus a decrease in demand for
single sponsor symposia and conventions.
Our Planning and Analytics business, Health Products Research
("HPR"), generated 6.6% of total revenues, and $6.2 million and $6.3 million in
the three-month periods ended March 31, 2002 and 2001, respectively. Revenue was
12
consistent with the first quarter of 2001.
Costs of Services: Costs of services decreased by approximately $4.2
million or 4.9%, to $ 81.4 million this fiscal quarter from $85.6 million in the
three-month period ending March 31, 2001. Costs of services increased as a
percentage of revenues to 88.0% from 83.8% in the three-month periods ended
March 31, 2002 and 2001, respectively.
Costs of services at U.S. Sales decreased by approximately $1.3 million
or 2.3%, to $56.0 million in 2002 from $57.3 million in 2001. Costs of services
were 90.3% of revenue in 2002 compared to 85.6% in 2001. In 2001, the Company
received incentive fees of approximately $2.1 million for which there were no
corresponding costs of services. No similar payments were received in 2002. In
addition, the Bayer engagement operated at a break-even margin level on a
significant revenue stream in the first quarter of 2002. During the fourth
quarter of 2001, the Company recorded a reserve of approximately $6.1 million
for estimated future losses under this contract.
Costs of services for Ventiv's European Sales business were $19.3
million, a decrease of $2.7 million or 12.4%, from $22.0 million in 2001. Costs
of services increased to 90.0% of revenue in 2002 from 84.6% in 2001. This
increase was primarily due to the effect of a favorable settlement with a client
of our French business unit, recognized in the first quarter of 2001.
Costs of services for the Communications business were $2.1 million in
2002 compared to $2.5 million in 2001. This change is generally consistent with
the decrease in revenue, and included a modest amount of cost savings resulting
from changes in staffing levels at the telemarketing and other direct marketing
arm of the business.
HPR's costs of services were $3.6 million for 2002, a decrease of $0.2
million or 5.1%, from $3.8 million in 2001. Costs of services represented 57.6%
of revenue in 2002 compared to 59.8% in 2001. The increase as a percent of
revenue is due, primarily, to a static cost base while revenue had decreased
slightly.
Selling, General and Administrative Expenses: Selling, general and
administrative ("SG&A") expenses decreased by approximately $2.1 million, or
18.4%, to $9.4 million from $11.5 million in the three month periods ending
March 31, 2002 and 2001, respectively. SG&A expenses decreased as a percentage
of revenue to 10.1% for the three months ending March 31, 2002 from 11.4% for
the three months ending March 31, 2001. SG&A as a whole decreased by $1.0
million as a result of the adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"),
effective January 1, 2002.
SG&A expenses at U.S. Sales decreased by approximately $1.0 million or
28.8%, to $2.4 million at March 31, 2002 from $3.4 million at March 31, 2001.
This decrease is primarily due to restructuring actions taken during the third
quarter of 2001, together with the discontinuance of amortization of goodwill
pursuant to SFAS 142.
SG&A expenses at Ventiv's European Sales business were approximately
$2.4 million and $2.8 million at March 31, 2002 and 2001, respectively,
representing a decrease of $0.4 million or 14.8%. This decrease was primarily
the result of a combination of the write-down of intangible assets during the
third quarter of 2001 and the application of SFAS 142.
Communications' SG&A expenses were approximately $0.5 million and $0.8
million at March 31, 2002 and 2001 respectively. The decrease was primarily
related to the write-down of intangible assets relating to the Promotech
Research Associates, Inc. business unit in the third quarter of 2001 and the
elimination of the amortization of remaining goodwill following the
implementation of SFAS 142.
SG&A expenses at HPR decreased by approximately $0.5 million or 28.4% to
$1.3 million at March 31, 2002 from $1.8 million at March 31, 2001. The decrease
is due to a reduction of cost in the compensation and benefits to employees,
resulting from turnover involving some higher-level management positions.
SG&A for the Other business segment was approximately $2.7 million for
the three months ending March 31, 2002, an increase of approximately $0.1
million or 5.4% from $2.6 million for the three months ending March 31, 2001.
The increase was mainly related to the effect of a valuation allowance of $0.4
million recorded on the note receivable relating to cumulative funding and
funding commitments (through March 31, 2002) of the Cellegesic(R) product's
commercialization effort. Following Cellegy's announcement, management provided
a valuation allowance of $0.4 million or 50% of the amounts advanced to date and
approved for funding as of March 31, 2002. Cellegy has curtailed expenditures
relating to this commercialization effort, and funding has been suspended
pending the outcome of further discussions between Cellegy and the FDA.
Increases in the SG&A at VIS were partially offset by cost savings at corporate
which resulted from the restructuring actions taken in the third quarter of
2001.
13
Interest Expense: Ventiv recorded $0.6 million and $1.0 million of interest
expense in the three months ended March 31, 2002 and 2001, respectively.
Interest expense decreased in 2002 as a result of the Company's repayment of the
$35.0 million outstanding under its prior line of credit and reflects the effect
of lower overall interest rates in 2002. The Company incurred 0.1 million and
$0.4 million of interest expense related to payments made under the capital
lease arrangement for its U.S. Sales business unit's automobile fleet, in the
three-month periods ended March 31, 2002 and 2001, respectively,.
Investment Income: Ventiv recorded approximately $0.1 million and $0.2
million of investment income in the three months ended March 31, 2002 and 2001,
respectively. Variations in our investment income levels result from differences
in average amounts of cash and cash equivalents available for investment and the
prevailing short-term interest rates during these periods.
Loss on investment in equity of non-affiliate: During the first quarter
of 2001, one of our e-Health partners, HeliosHealth, Inc. ("Helios"), advised us
of their intent to effect a significant restructuring of their business. On May
8, 2001, Helios filed for protection under Chapter 7 of the U.S. Bankruptcy
Code. Accordingly, the Company wrote off its entire $0.5 million investment in
Helios, effective March 31, 2001. There was no similar charge recorded in first
quarter of 2002.
Provision for Income Taxes: Ventiv recorded a provision for income
taxes on continuing operations using estimated effective tax rates of 43.0% and
38% for the three-month periods ended March 31, 2002 and 2001, respectively. The
difference in the rate is primarily the result of a shift in the expected
distribution of earnings across the Company's various business units and legal
entities. Results of discontinued operations have been shown net of tax,
reflecting benefits from income taxes at estimated effective rates of 35.0% and
29.0% for the three-month periods ended March 31, 2002 and 2001, respectively.
Net Earnings and Earnings Per Share ("EPS"): Ventiv's net earnings
decreased by approximately $1.0 million to a $0.4 million, from earnings of $1.4
million, in the three months ended March 31, 2002 and 2001, respectively.
Earnings per share decreased to $0.02 for the three-month period ending March
31, 2002 from earnings of $0.06 for the three-month period ending March 31,
2001. Lower average margins, partially offset by the benefits of cost savings
strategies and the elimination of amortization of goodwill, contributed to the
decrease in net earnings, as more fully explained above.
Liquidity and Capital Resources
At March 31, 2002, Ventiv had $35.1 million of cash and cash
equivalents, a decrease of $9.0 million from December 31, 2001. For the
three-month periods ending March 31, 2002 compared to March 31, 2001, cash
provided by operations increased by $54.2 million from a use of $21.6 million to
a source of $32.6 million. Cash used in investing activities decreased by $0.6
million to $1.0 million, and cash used in financing activities decreased by
$42.0 million from a source of $2.8 million in 2001 to a use of $39.2 million
over the same comparative periods. The Company had a net use of cash through its
discontinued operations of $1.2 million and a source of $2.1 million in the
three-month periods ended March 31, 2002 and 2001, respectively.
Cash provided by operations was $32.6 million in the three-month period
ended March 31, 2002, as compared to a use of $21.6 million in 2001. This
increase was, in large part, due to the billing and collection of certain
payments due under the terms of the original Bayer agreement. Bayer paid the
Company $35.8 million in February 2002. The Company also had an overall
improvement in collections of outstanding billed accounts receivable. In
addition, there was a significant decrease in the amount of unbilled receivables
in 2002 as compared to 2001. This change was primarily attributable to changes
in the timing of billings and payments for services rendered under specific
contracts in the first quarter of 2001, most notably the BMS agreement.
Cash used in investing activities was $1.0 million and $1.6 million
through March 31, 2002 and 2001, respectively, consisting almost entirely of
capital expenditures in both periods.
Cash used in financing activities was $39.2 million, as compared to
cash provided by financing activities of $2.8 million for the three months ended
March 31, 2002 and 2001, respectively. During the three months ended March 31,
2002, the Company repaid the $35.0 million that was outstanding under its
previous credit facility (see below). The Company also commenced funding of the
Cellegesic commercialization effort, pursuant to the terms of VIS's agreement
with Cellegy, for costs incurred in the pre-launch phase. During the three-month
period ending March 31, 2002, the Company advanced approximately $0.3 million to
Cellegy, and had committed to advance an additional amount of approximately $0.5
million, pursuant to the terms of the funding arrangement. As a result of
Cellegy withdrawing its application to the FDA for their Cellegesic(R) product,
the Company has recorded a valuation reserve of 50% of the amounts advanced or
pending funding as of March 31, 2002. In addition, the Company paid fees of
approximately $0.3 million in connection with its new credit facility, effective
as of March 29, 2002. These fees have been capitalized and will be amortized
over
14
the three-year term of the agreement. During the three-month periods ending
March 31, 2002 and 2001, the Company made capital lease payments of $2.2 million
and $1.9 million, respectively, under its US Sales' fleet lease agreement .
On December 1, 1999, Ventiv entered into a $50 million unsecured revolving
credit facility, expiring on December 1, 2003. At December 31, 2001, the Company
had $35.0 million outstanding under this line of credit with a weighted average
interest rate of 4.39%. Based on the Company's financial results for the
twelve-month period ending September 30, 2001, Ventiv was not in compliance with
certain covenants under this facility. Accordingly, all amounts due under this
facility were classified as current as of December 31, 2001. On February 13,
2002, the Company repaid all amounts outstanding under this facility. On March
29, 2002, the Company entered into a new asset-based lending agreement with
Foothill Capital Corporation ("FCC"), a wholly owned subsidiary of Wells Fargo
and Company. This new revolving credit facility provides for a maximum borrowing
amount of $50 million, subject to a borrowing base calculation, on a revolving
basis and is secured by substantially all of the Company's assets. Interest on
the new facility is payable at the Company's option of a base rate (defined as
the lending institution's prime rate) plus a margin of up to 0.75% or LIBOR plus
a margin ranging from 2.25% to 2.75%, subject to a minimum borrowing rate of
4.75%. Under the facility, the Company pays an unused commitment fee of 0.375%.
The Company is also subject to certain financial and other restrictive
covenants, including, during any period in which any amounts are outstanding
under the credit agreement, a requirement to maintain minimum levels of Earnings
before Interest, Taxes, Depreciation and Amortization ("EBITDA") and U.S.
Earnings before Interest and Taxes ("EBIT").
After consideration of certain significant customer payments received in
the first quarter of 2002, and the repayment of obligations due under the
original credit facility, we believe that we currently have adequate cash and
equivalents available for our operating needs. Accordingly, we believe that our
cash and equivalents, cash to be provided by operations and available credit
under our new credit facility will be sufficient to fund our current operating
requirements, including projected funding obligations under the Cellegy
agreement (see "Recent Business Developments"), and planned capital expenditures
over the next 12 months and for the foreseeable future.
We plan to focus on internal growth in the near term as the primary
means of our expansion, although we may consider acquisition and investment
opportunities as they arise, to the extent permissible. Cash provided by
operations may not be sufficient to fund all internal growth initiatives that we
may wish to pursue. If we pursue significant internal growth initiatives or if
we wish to acquire additional businesses in transactions that include cash
payments as part of the purchase price, we may pursue additional debt or equity
sources to finance such transactions and activities, depending on market
conditions. In addition, the Company may consider divesting certain business
units in order to generate cash to support future growth initiatives. We cannot
assure you that we will be successful in raising the cash required to complete
all acquisition, investment or business opportunities which we may wish to
pursue in the future.
The Company is subject to the impact of foreign currency fluctuations,
specifically that of the British Pound, and, subsequent to January 1, 2002, the
Euro (in lieu of the French Franc and the German Mark). To date, changes in the
exchange rates of the British Pound, German Mark, French Franc and the Euro have
not had a material adverse impact on our liquidity or results of operations. We
continually evaluate our exposure to exchange rate risk but do not currently
hedge such risk. The introduction of the Euro has not had a material impact on
our operations or cash flows. We will continue to evaluate the impact of the
introduction of the Euro on our operations in France and Germany.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in market interest
rates and foreign currency exchange rates. To the extent we have borrowings
outstanding under our credit facility at any given time, we are subject to
interest rate risk on our debt for changes in LIBOR and other contractual base
rates, and we are also subject to foreign currency exchange rate risk with
respect to our international operations. We do not currently engage in hedging
or other market risk management tools with respect to these exposures.
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 assumed a
hypothetical 10% detrimental change in the exchange rates on our assets,
liabilities and revenue denominated in foreign currencies. A 10% fluctuation was
assumed for all exchange rates at March 31, 2002. The Company's material
exposures to foreign exchange rate fluctuations relate to the Euro and British
Pound. For the three-month period ending March 31, 2001, 23% of the Company's
consolidated revenue was from foreign sources, of which approximately 36%, 23%,
and 41% of those foreign-sourced revenues were generated by operating units
based in France, the United Kingdom and Germany, respectively. The table below
presents the hypothetical impact of an assumed 10% unfavorable change in all
exchange rates
15
to which we are exposed on total assets, liabilities and revenues.
10% Decrease in
Balance at Value of Local
March 31, Currencies to
2002 US Dollar
---- ---------
Total Assets .................................... $ 201,523 $ 197,976
Total Liabilities ............................... $ 110,236 $ 108,232
Revenues ........................................ $ 92,572 $ 90,431
PART II. OTHER INFORMATION
ITEM 1. 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.
In June 2001 Christian Levistre commenced an arbitration proceeding against
the Company before the International Chamber of Commerce arising from the
acquisition by the Company's predecessor of two healthcare marketing businesses,
one of which was wholly owned and one of which was partially owned by Mr.
Levistre. Mr. Levistre has asserted claims in the arbitration for (i) payment of
the remaining 10% of the sales price for the businesses, which amount
(originally consisting of shares of Snyder Communications, Inc. common stock)
was retained in escrow under the terms of the acquisition, as subsequently
amended by a settlement agreement between the parties, (ii) amounts arising from
the termination of his employment with Ventiv Health France under the terms of
the settlement agreement, (iii) payment of a price adjustment to the sale price
of the escrowed shares, (iv) financial prejudice arising from the decline in
value of the escrowed portion of the purchase price for the acquired businesses
and (v) improper resistance. The Company has asserted that Mr. Levistre violated
his contractual obligations under the relevant agreements and has requested the
retention of the escrowed securities and the stay of the arbitration proceedings
pending resolution of separate claims made by one of the Company's French
subsidiaries relating to unfair competition and related claims in the French
courts. The Company intends to defend the arbitration claims vigorously and
believes it has meritorious defenses.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Current Report on Form 8-K, filed as of February 6, 2002, regarding
notification to the Company by Reliant Pharmaceuticals, LLC ("Reliant") of their
intention to convert the field sales force working under the Ventiv-Reliant
contract from full-time Ventiv employment to full-time Reliant employment,
effective April 1, 2002. Reliant represented 20.6% and 20.4% of consolidated
revenues for the threemonths ended March 31, 2002 and the year ended December
31, 2001, respectively.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VENTIV HEALTH, INC.
Date: May 15, 2002 By: /s/ John R. Emery
____________________________________
John R. Emery
Chief Financial Officer
17