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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
Commission file number 01-9723
PHARMACEUTICAL MARKETING SERVICES INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 51-0335521
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
Suite 912, 45 Rockefeller Plaza, NY10111
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 841 0610
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days Yes X No
--- ---
As of April 30, 1997, there were outstanding 13,196,975 shares of Common Stock
of Pharmaceutical Marketing Services Inc.
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations
(unaudited) for the Three and Nine Months
Ended March 31, 1997 and 1996.................... 3
Consolidated Balance Sheets as of
March 31, 1997 (unaudited) and
June 30, 1996.................................... 4
Consolidated Statements of Cash Flows
(unaudited) for the Nine Months Ended
March 31, 1997 and 1996.......................... 5
Notes to Consolidated Financial Statements....... 6
Item 2. Management's Discussion and Analysis
of Results of Operations and
Financial Condition.............................. 8
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security-Holders................................. 11
Item 6. Exhibits and Reports on Form 8-K................. 11
Signatures....................................... 12
Index to Exhibits................................ 13
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
MARCH 31, MARCH 31,
--------- ---------
1997 1996 1997 1996
---- ---- ---- ----
Revenue $ 22,794 $ 23,126 $ 71,268 $ 68,125
Production costs (12,453) (13,651) (39,249) (38,005)
Selling, general and administrative expenses (8,031) (8,490) (26,048) (25,620)
Amortization of intangible assets (438) (524) (1,289) (1,558)
Impairment of long-lived assets -- (2,368) -- (2,368)
Restructuring charge -- (2,314) -- (2,314)
Operating loss from assets held for sale (287) -- (287) --
-------- -------- -------- --------
Operating income (loss) 1,585 (4,221) 4,395 (1,740)
Interest expense (756) (610) (2,293) (2,047)
Interest and other income 729 435 2,141 1,859
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes 1,558 (4,396) 4,243 (1,928)
Income tax provision (546) (276) (1,502) (276)
Minority interest 34 12 (12) 41
-------- -------- -------- --------
Income (loss) from continuing operations 1,046 (4,660) 2,729 (2,163)
Loss from discontinued operations, net -- (1,452) -- (3,205)
Loss on disposal of discontinued operations,
net -- (5,710) (9,914) (5,710)
-------- -------- -------- --------
Net income (loss) $ 1,046 $(11,822) $ (7,185) $(11,078)
======== ======== ======== ========
Income (loss) per share:
Income (loss) from continuing operations $ 0.08 $ (0.35) $ 0.21 $ (0.17)
Loss from discontinued operations -- (0.11) -- (0.24)
Loss on disposal of discontinued operations -- (0.43) (0.75) (0.44)
-------- -------- -------- --------
Net income (loss) per share $ 0.08 $ (0.89) $ (0.54) $ (0.85)
======== ======== ======== ========
Common stock and common stock equivalents 13,316 13,146 13,268 13,110
The accompanying notes are an integral part of these financial statements
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE DATA)
ASSETS
MARCH 31, 1997 JUNE 30, 1996
-------------- -------------
Current assets (Unaudited)
Cash and cash equivalents $ 23,204 $ 12,669
Marketable securities 37,686 16,174
Accounts receivable, principally trade
(less allowance for doubtful accounts of
$561 and $400, respectively) 23,689 29,283
Work in process 3,075 2,986
Prepaid expenses and other current assets 9,285 7,398
Net current assets held for sale 3,425 --
Net current assets of discontinued operations -- 9,276
-------- ---------
Total current assets 100,364 77,786
Marketable securities 4,312 18,515
Property and equipment, net 11,025 9,004
Goodwill, net 25,185 25,895
Other assets, net 9,140 8,613
Net assets held for sale 16,462 --
Net assets of discontinued operations -- 33,595
-------- ---------
Total assets $166,488 $ 173,408
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt $ 143 $ 219
Accounts payable 4,665 4,411
Accrued liabilities 12,685 11,489
Unearned income 16,867 14,040
-------- ---------
Total current liabilities 34,360 30,159
Long-term debt 69,044 69,131
Other liabilities 585 454
Minority interest 125 710
-------- ---------
Total liabilities 104,114 100,454
-------- ---------
Stockholders' equity
Common stock, $0.01 par value, 25,000,000
shares authorized and 13,196,975 and 13,169,275 shares
issued and outstanding, respectively 132 132
Paid-in capital 87,158 86,923
Accumulated deficit (21,959) (14,776)
Cumulative translation adjustment (2,938) 722
Unrealized loss on investments, net of
income tax benefit of $12 and $32, respectively (19) (47)
-------- ---------
62,374 72,954
-------- ---------
Total stockholders' equity -- --
Total liabilities and stockholders' equity $166,488 $ 173,408
======== =========
The accompanying notes are an integral part of these financial statements
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS ENDED
-----------------
MARCH 31,
---------
1997 1996
---- ----
Net cash provided by (used in) operating activities $11,194 $(3,325)
------- -------
Cash flows provided by (used in) investing activities:
Capital expenditures (3,607) (3,484)
Proceeds from the sale of property and equipment -- 162
Proceeds from sale of assets relating to discontinued operations 3,825 --
Purchase of marketable securities, net (7,287) (240)
Acquisitions payments, net of cash acquired -- (607)
------- -------
Net cash used in investing activities (7,069) (4,169)
------- -------
Cash flows provided by (used in) financing activities:
Net proceeds from options exercised 235 746
Repayments of long-term debt and capital lease obligations (165) (476)
------- -------
Net cash provided by financing activities 70 270
Effect of discontinued operations 8,261 1,808
Effect of exchange rate movements (1,921) (2,231)
------- -------
Net increase (decrease) in cash and cash equivalents 10,535 (7,647)
Cash and cash equivalents at beginning of period 12,669 27,840
------- -------
Cash and cash equivalents at end of period $23,204 $20,193
======= =======
The accompanying notes are an integral part of these financial statements
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PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The accompanying statements of operations for the three and
nine months ended March 31, 1997 and 1996, the statements of cash flows
for the nine months ended March 31, 1997 and 1996, the balance sheet as
of March 31, 1997 and the related information of Pharmaceutical
Marketing Services Inc. (the "Company" or "PMSI") included in these
notes to the financial statements are unaudited. These financial
statements, where applicable, have been restated for discontinued
operations. In the opinion of management, the interim financial
information reflects all adjustments (consisting only of items of a
normal recurring nature, except for discontinued operations) necessary
for the fair presentation of the financial position, results of
operations and cash flows for the periods presented. Results of
operations for the three and nine months ended March 31, 1997 are not
necessarily indicative of the results to be expected for the entire
fiscal year.
The June 30, 1996 balance sheet was derived from the Company's
June 30, 1996 audited consolidated financial statements, but does not
include all disclosures required by generally accepted accounting
principles.
These interim financial statements should be read in
conjunction with the audited consolidated financial statements and
related notes thereto included in the Company's Annual Report for the
year ended June 30, 1996.
At March 31, 1997, Source Informatics Inc. ("Source") owned
7.6% of the Company's common stock.
2. INCOME (LOSS) PER SHARE
Earnings per share for the three and nine months ended March
31, 1997 and 1996 were computed based upon the weighted average number
of shares outstanding and common stock equivalents (stock options), to
the extent that their inclusion had a dilutive effect on earnings per
share, using the treasury stock method.
3. INCOME TAXES
The effective continuing operations income tax rates for the
quarters ended March 31, 1997 and 1996 were 35% and 106%, respectively.
For the nine months ended March 31, 1997 and 1996 the effective income
tax rates were 35% and 114%, respectively. The 1997 fiscal year
effective income tax rate is based on the Company's projected mix of
country profits which includes actual results for the nine months ended
March 31, 1997.
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4. GOODWILL
The Company assesses the recovery of its goodwill on a
subsidiary-by-subsidiary basis by determining whether amortization of
goodwill can be recovered through expected net future cash flows
(undiscounted and without interest charges). Impairment is measured
based on the present value of estimated expected future net cash flows
using a discount rate reflecting the Company's cost of funds.
5. DISCONTINUED OPERATIONS
In the third quarter of fiscal 1996, the Company made the
determination that substantially all of its non-database marketing and
communication businesses would be sold and, therefore, accounted for
those businesses as Discontinued Operations.
Upon adoption of the plan, the Company recorded a charge of
$5.7 million in Discontinued Operations which included an estimate of
operating income, net of tax, of $2.0 million during the phase out
period. Based on its quarterly review of the assumptions used in
determining the estimated loss relating to the Discontinued Operations,
the Company recorded an additional net charge for loss on the disposal
of the Discontinued Operations of $9.9 million during the quarter
ending December 31, 1996. This charge was principally a result of the
changes in the estimated proceeds from the remaining businesses to be
sold. The charge also included a reduction of $1.8 million, net of an
income tax benefit of $1.0 million, to the original estimate of the
income to be generated in the phase out period.
Of the three businesses remaining to be sold at 31 December
1996, one was sold during the third quarter, the Company entered into a
firm commitment regarding the sale of another, and one business
remained to be sold. In accordance with EITF90-6, the net assets of
this remaining business, together with the remaining accrual for the
loss expected to be generated on disposition, are now classified as net
current assets held for sale and net assets held for sale in the
balance sheet at March 31, 1997 and its operating loss for the quarter
is recorded in operating income as a separate item.
The loss from the Discontinued Operations for the three and
nine months ended March 31, 1997 were $0.4 million and $1.3 million net
of income taxes, respectively.
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ITEM 2.
PHARMACEUTICAL MARKETING SERVICES INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
The operating results for the three and nine months ended March 31,
1997 reflect the Company's decision to focus on being an information provider to
the pharmaceutical and healthcare industries. One business from the Company's
non-database segment consisting of its European communication and marketing
services group is still to be divested. This business is reflected as "Assets
held for sale". The Company also plans to sell its international publishing
business which is included in continuing operations.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUE
Revenue from continuing operations for the Company's third quarter of
fiscal 1997 decreased to $22.8 million from $23.1 million for the corresponding
quarter of 1996, representing a decrease of 1%. The decrease in revenue related
primarily to the Company's international publishing business and the divestment
of two poorly performing database businesses during fiscal 1997. The revenue
reduction in these businesses masked the growth recorded by the ongoing
information services businesses. Currency exchange rate movements, principally
in Japan and the Netherlands, negatively impacted the quarter's revenues by $0.7
million, or 3%.
PRODUCTION COSTS
Production costs from continuing operations decreased to $12.5 million
(55% of revenue) from $13.6 million (59% of revenue) in the comparable quarter
of fiscal 1996. The 8% decrease in costs was associated with the reduced
revenue.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs from continuing operations
decreased to $8.0 million (35% of revenue) from $8.5 million (37% of revenue) in
the comparable quarter of fiscal 1996. The 6% decrease was principally due to
improved control over administrative expenses following the divestment of poorly
performing database businesses which had disproportionately high selling,
general and administrative costs.
NET INTEREST EXPENSE
Net interest expense from continuing operations for the quarter ended
March 31, 1997 was $0.1 million, compared with $0.2 million in the equivalent
quarter in fiscal 1996. The net improvement was due to improved rates of return
and interest income from assets held for sale.
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INCOME TAXES
The Company incurred an income tax charge of $0.5 million for the three
months ended March 31, 1997 on pre-tax profit of $1.6 million, an effective rate
of 35%. The fiscal 1996 effective tax rate was 106% on a pre-tax operating loss
of $4.4 million.
The rate differential reflected changes in the anticipated mix of
country profits for the year ending June 30, 1997 and the effects, in the third
quarter of fiscal 1996, of charges for impairment of long-lived assets and
restructuring.
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
REVENUE
Revenue for the nine months ended March 31, 1997 increased to $71.3
million from $68.1 million for the corresponding period in 1996. The 5% increase
was due to growth in all businesses, but in particular, the Company's targeting
and market research businesses in the US. Currency exchange rate movements,
mainly in Japan and the Netherlands, negatively impacted revenue for the nine
month period by $2.5 million, or 4%.
PRODUCTION COSTS
Production costs increased to $39.3 million (55% of revenue) from $38.0
million (56% of revenue) in the comparable period of fiscal 1996. The 3%
increase in costs was attributable to revenue growth.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs increased to $26.0 million
(36% of revenue) from $25.6 million (38% of revenue) in the comparable period of
fiscal 1996. The 2% increase in costs was attributable to higher selling costs
partially offset by savings from the divestment of non-performing database
businesses.
NET INTEREST EXPENSE
The net interest expense for the nine months ended March 31, 1997 and
for the same period in fiscal 1996 was $0.2 million.
INCOME TAXES
The Company recorded a tax charge of $1.5 million for the nine months
ended March 31, 1997 on a pre-tax profit of $4.2 million, an effective rate of
35%. The fiscal 1996 effective rate for the comparable period was 114% on a
pre-tax operating loss of $1.9 million.
The rate differential reflected changes in the anticipated mix of
profits for the year ended June 30, 1997 plus the effects of charges for
impairment of long-lived assets and restructuring in fiscal 1996.
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's cash, cash equivalents and marketable
securities in continuing operations totalled $65.2 million, an increase of $17.8
million from the $47.4 million balance at June 30, 1996. The increase was
primarily due to movements in working capital and proceeds from the sale of
assets relating to discontinued operations. The current ratio at March 31, 1997
increased to 2.9 from 2.6 at June 30, 1996 due to the increase in cash and cash
equivalents.
The Company anticipates, in fiscal year 1997 and in subsequent years,
its capital expenditures and working capital requirements will be funded from
existing cash, cash equivalents and marketable securities, internally generated
funds, and funds from the divestiture of its non-database business segment and
its international publishing unit. The timing and magnitude of future
acquisitions will continue to be the single most important factor in determining
the Company's long-term capital needs.
RECENTLY ISSUED ACCOUNTING STANDARD
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share",
which is effective for financial statements issued for periods ending after
December 15, 1997. The new standard requires changes to computation,
presentation and disclosure requirements of primary and fully diluted earnings
per share. The Company has not yet made a determination of the impact of the new
standard on the financial statements and related disclosures, but does not
expect the calculated earnings per share to be significantly affected.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
11 Computation of Earnings per Share.
Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 14, 1997 Pharmaceutical Marketing Services Inc.
By /s/ Norman Lindsay
----------------------------------
Norman Lindsay
Chief Financial Officer
On behalf of the registrant and as principal
financial officer.
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INDEX TO EXHIBITS
Exhibit Description Page Number
- ------- ----------- -----------
11 Computation of Earnings (Loss) per Share 14
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