(Mark
One)
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|
ý
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2005
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|
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For
the transition period from
____________to_________________
|
PDI,
INC.
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||
(Exact
name of registrant as specified in its charter)
|
||
Delaware
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22-2919486
|
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
Saddle
River Executive Centre
1
Route 17 South, Saddle River, NJ 07458
|
||
(Address
of principal executive offices and zip code)
|
||
(201)
258-8450
|
||
(Registrant's
telephone number, including area code)
|
||
Securities
registered pursuant to Section 12(b) of the Act:
None
|
||
Securities
registered pursuant to Section 12(g) of the Act: Common
Stock
|
Large
accelerated filer o
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Accelerated
filer ý
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Non-accelerated
filer o
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Page
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|||
PART
I
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|||
Item
1.
|
Business
|
5
|
|
Item
1A.
|
Risk
Factors
|
9
|
|
Item
1B.
|
Unresolved
Staff Comments
|
14
|
|
Item
2.
|
Properties
|
14
|
|
Item
3.
|
Legal
Proceedings
|
15
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
16
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|
PART
II
|
|||
Item
5.
|
Market
for our Common Equity, Related Stockholder Matters
and
Issuer Purchases of Equity Securities
|
16
|
|
Item
6.
|
Selected
Financial Data
|
18
|
|
Item
7.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
19
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures about Market Risk
|
35
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
35
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
35
|
|
Item
9A.
|
Controls
and Procedures
|
36
|
|
Item
9B.
|
Other
Information
|
37
|
|
PART
III
|
|||
Item
10.
|
Directors
and Executive Officers
|
37
|
|
Item
11.
|
Executive
Compensation
|
37
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
37
|
|
Item
13.
|
Certain
Relationship and Related Transactions
|
37
|
|
Item
14.
|
Principal
Accounting Fees and Services
|
38
|
|
PART
IV
|
|||
Item
15.
|
Exhibits
and Financial Statement Schedules
|
38
|
|
Signatures
|
40
|
·
|
the
number and types of products covered by these types of
agreements;
|
·
|
the
applicable stage of the drug regulatory process of the products at
the
time we enter into these agreements;
|
·
|
the
incidence of adverse patent and other intellectual property developments
relating to our product portfolio;
and
|
·
|
our
control over the manufacturing, distribution and marketing
processes.
|
·
|
assimilate
the operations and services or products of the acquired
company;
|
·
|
integrate
new personnel due to the
acquisition;
|
·
|
retain
and motivate key employees;
|
·
|
retain
customers; and
|
·
|
minimize
the diversion of management’s attention from other business
concerns.
|
·
|
volatility
in the trading markets generally;
|
·
|
significant
fluctuations in our quarterly operating
results;
|
·
|
announcements
regarding our business or the business of our
competitors;
|
·
|
industry
and/or regulatory developments;
|
·
|
changes
in revenue mix;
|
·
|
changes
in revenue and revenue growth rates for us and for our industry as
a
whole; and
|
·
|
statements
or changes in opinions, ratings or earnings estimates made by brokerage
firms or industry analysts relating to the markets in which we operate
or
expect to operate.
|
·
|
commencement,
delay, cancellation or completion of programs;
|
·
|
regulatory
developments;
|
·
|
uncertainty
related to compensation based on achieving performance benchmarks;
|
·
|
mix
of services provided and /or mix of programs, i.e., contract sales,
medical education, marketing research;
|
·
|
timing
and amount of expenses for implementing new programs and accuracy
of
estimates of resources required for ongoing programs;
|
·
|
timing
and integration of acquisitions;
|
·
|
changes
in regulations related to pharmaceutical companies; and
|
·
|
general
economic conditions.
|
2005
|
2004
|
||||||
HIGH
|
|
LOW
|
|
HIGH
|
|
LOW
|
|
First
quarter
|
$
21.45
|
|
$
19.00
|
|
$
31.77
|
|
$
23.29
|
Second
quarter
|
$
20.77
|
|
$
11.27
|
|
$
32.06
|
|
$
24.40
|
Third
quarter
|
$
15.99
|
|
$
12.36
|
|
$
29.98
|
|
$
21.60
|
Fourth
quarter
|
$
15.24
|
|
$
12.38
|
|
$
31.55
|
|
$
21.78
|
(c)
|
||||||
(a)
|
(b)
|
Number
of securities
|
||||
|
Number
of securities to
|
Weighted-average
|
remaining
available for
|
|||
be
issued upon exercise
|
exercise
price of
|
future
issuance
|
||||
of
outstanding options,
|
of
outstanding options,
|
(excluding
securities
|
||||
Plan
Category
|
|
warrants
and rights
|
warrants
and rights
|
reflected
in column (a))
|
||
Equity
compensation plans
|
||||||
approved by security holders
|
1,271,890
|
$
27.19
|
1,028,453
|
|||
Equity
compensation plans not
|
||||||
approved by security holders
|
-
|
-
|
-
|
|||
Total
|
1,271,890
|
$
27.19
|
1,028,453
|
|||
(c)
|
(d)
|
|||||||
Total
Number
|
Maximum
Number
|
|||||||
(a)
|
(b)
|
of
Shares
|
(or
Dollar Value)
|
|||||
Total
Number
|
Average
|
Purchased
as
|
of
Shares that May
|
|||||
of
Shares
|
Price
Paid
|
Part
of Publicly
|
Yet
Be Purchased
|
|||||
Period
|
Purchased
|
per
Share
|
Announced
Plans
|
Under
the Plans
|
||||
September
1-30, 2001 (1)
|
5,000
|
$
22.00
|
5,000
|
$
-
|
||||
May
1 - 31, 2005 (2)
|
226,900
|
$
12.36
|
226,900
|
773,100
shares
|
||||
June
1 - 30, 2005
(2)
|
353,330
|
$
11.92
|
353,330
|
419,770
shares
|
||||
July
1 - 31, 2005 (2)
|
315,570
|
$
13.77
|
315,570
|
104,200
shares
|
||||
August
1 - 31, 2005 (2)
|
101,100
|
$
14.39
|
101,100
|
3,100
shares
|
||||
December
1 - 31, 2005 (3)
|
16,106
|
$
15.00
|
-
|
-
|
||||
Total
|
1,018,006
|
|||||||
(1)
|
On
September 21, 2001, we announced that our Board of Directors had
unanimously authorized the repurchase of up to $7.5 million of our
common
stock. Subject to availability, the transactions were authorized
to be
made from time to time in the open market or directly from stockholders
at
prevailing market prices. This plan was terminated on April 27,
2005.
|
(2)
|
On
May 2, 2005, we announced that our Board of Directors had unanimously
authorized the repurchase of up to one million shares of our common
stock.
Subject to availability, the transactions may be made from time to
time in
the open market or directly from stockholders at prevailing market
prices.
The plan has no expiration date.
|
(3)
|
Represents
shares delivered back to us for the payment of taxes resulting from
the
vesting of restricted stock.
|
(in
thousands, except per share data)
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||||||||||||||||
Operations
data:
|
||||||||||||||||||||||||||||||
Total
revenue, net
|
$
|
319,415
|
$
|
364,444
|
(3
|
)
|
$
|
344,530
|
(4
|
)
|
$
|
307,875
|
(4
|
)
|
$
|
716,761
|
(6
|
)
|
||||||||||||
Gross
profit
|
61,936
|
98,830
|
89,081
|
29,873
|
135,783
|
(6
|
)
|
|||||||||||||||||||||||
Operating
expenses
|
74,472
|
(1
|
)
|
63,639
|
69,491
|
80,048
|
(5
|
)
|
123,078
|
(7
|
)
|
|||||||||||||||||||
Asset
impairment
|
14,351
|
(2
|
)
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||
Total
operating expenses
|
88,823
|
63,639
|
69,491
|
80,048
|
123,078
|
|||||||||||||||||||||||||
Net
(loss) income
|
$
|
(19,454
|
)
|
$
|
21,132
|
$
|
12,258
|
$
|
(30,761
|
)
|
$
|
6,354
|
||||||||||||||||||
Per
share data:
|
||||||||||||||||||||||||||||||
(Loss)
income per share of common stock:
|
||||||||||||||||||||||||||||||
Basic
|
$
|
(1.37
|
)
|
$
|
1.45
|
$
|
0.86
|
$
|
(2.19
|
)
|
$
|
0.46
|
||||||||||||||||||
Diluted
|
$
|
(1.37
|
)
|
$
|
1.42
|
$
|
0.85
|
$
|
(2.19
|
)
|
$
|
0.45
|
||||||||||||||||||
Weighted
average number of shares outstanding:
|
||||||||||||||||||||||||||||||
Basic
|
14,232
|
14,564
|
14,231
|
14,033
|
13,886
|
|||||||||||||||||||||||||
Diluted
|
14,232
|
14,893
|
14,431
|
14,033
|
14,113
|
|||||||||||||||||||||||||
Balance
sheet data:
|
||||||||||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
90,827
|
$
|
81,000
|
$
|
113,288
|
$
|
64,086
|
$
|
158,948
|
||||||||||||||||||||
Working
capital
|
86,430
|
96,156
|
100,009
|
81,854
|
113,685
|
|||||||||||||||||||||||||
Total
assets
|
200,306
|
224,705
|
219,623
|
190,939
|
302,671
|
|||||||||||||||||||||||||
Total
long-term debt
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||||||||
Stockholders'
equity
|
135,610
|
165,425
|
138,488
|
123,211
|
150,935
|
|||||||||||||||||||||||||
(1)
|
Includes
$5.7 million for executive severance costs and $2.4 million for facilities
realignment costs. See Notes 17 and 18 to the consolidated financial
statements for more details.
|
(2)
|
Asset
impairment charges include an $8.2 million non-cash charge for impairment
of goodwill and other intangible assets associated with the 2006
closing
of the MD&D reporting unit;: a $3.3 million non-cash charge for the
impairment of the goodwill associated with the Select Access reporting
unit; and a $2.8 million non-cash charge for the impairment of the
Siebel
sales force automation platform. See Notes 4 and 5 to the consolidated
financial statements for more
details.
|
(3)
|
Includes
revenue of $4.9 million associated with the acquisition of Pharmakon
on
August 31, 2004.
|
(4)
|
Includes
product revenue of negative $11.6 million in 2003 for the Ceftin
returns
reserve, which we began selling in the fourth quarter of 2000. For
2002,
it includes product revenue of $6.4 million that related to Ceftin.
See
Note 16 to the consolidated financial statements for more details.
|
(5)
|
Includes
$15.0 million for the initial licensing fee associated with the Cellegy
License Agreement, and $3.2 million associated with our 2002
restructuring.
|
(6)
|
Includes
product revenue and gross profit of $415.3 million and $86.7 million,
respectively, that pertained to sales of Ceftin. Includes $2.8 million
of
service revenue associated with the InServe acquisition on September
10,
2001.
|
(7)
|
Includes
$46.9 million in Ceftin sales force and promotional costs.
|
·
|
dedicated
contract sales (CSO);
|
·
|
shared
contract sales (Select Access);
|
·
|
medical
devices and diagnostics (MD&D) contract sales and clinical sales teams
|
¨
|
Marketing
Services:
|
·
|
Education
and communication (EdComm);
|
·
|
Pharmakon;
and
|
·
|
TVG
Marketing Research and Consulting
(TVG)
|
Years
Ended December 31,
|
|||||||||
Operating
data
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||
Revenue
|
|||||||||
Service,
net
|
100.0%
|
100.4%
|
103.4%
|
97.9%
|
42.1%
|
||||
Product,
net
|
0.0%
|
(0.4%)
|
(3.4%)
|
2.1%
|
57.9%
|
||||
Total
revenue, net
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
||||
Cost
of goods and services
|
|||||||||
Program
expenses
|
80.6%
|
72.8%
|
73.8%
|
90.3%
|
35.3%
|
||||
Cost
of goods sold
|
0.0%
|
0.1%
|
0.4%
|
0.0%
|
45.8%
|
||||
Total
cost of goods and services
|
80.6%
|
72.9%
|
74.2%
|
90.3%
|
81.1%
|
||||
Gross
profit
|
19.4%
|
27.1%
|
25.8%
|
9.7%
|
18.9%
|
||||
Operating
expenses
|
|||||||||
Compensation
expense
|
9.2%
|
9.3%
|
10.7%
|
10.6%
|
5.5%
|
||||
Other
selling, general and administrative
|
11.1%
|
7.4%
|
8.8%
|
14.3%
|
11.5%
|
||||
Facilities
realignment
|
0.7%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
||||
Executive
severance
|
1.8%
|
0.1%
|
0.0%
|
0.0%
|
0.0%
|
||||
Legal
and related costs
|
0.5%
|
0.6%
|
0.7%
|
1.0%
|
0.2%
|
||||
Asset
impairment
|
4.5%
|
0.0%
|
0.0%
|
0.0%
|
0.0%
|
||||
Total
operating expenses
|
27.8%
|
17.4%
|
20.2%
|
25.9%
|
17.2%
|
||||
Operating
(loss) income
|
(8.4%)
|
9.7%
|
5.7%
|
(16.2%)
|
1.7%
|
||||
(Loss)
gain on investments
|
1.4%
|
(0.3%)
|
0.0%
|
0.0%
|
0.0%
|
||||
Interest
income, net
|
1.0%
|
|
0.5%
|
0.3%
|
0.6%
|
0.3%
|
|||
(Loss)
income before income taxes
|
(6.0%)
|
9.9%
|
6.0%
|
(15.6%)
|
2.0%
|
||||
Provision
for income taxes
|
0.1%
|
4.1%
|
2.4%
|
(5.6%)
|
1.2%
|
||||
Net
(loss) income
|
(6.1%)
|
5.8%
|
3.6%
|
(10.0%)
|
0.8%
|
||||
Revenue
(in thousands)
|
|||||||||||||
|
|
|
Change
|
Change
|
|||||||||
|
2005
|
2004
|
($)
|
(%)
|
|||||||||
Sales
services
|
$
|
284,629
|
$
|
332,431
|
$
|
(47,802
|
)
|
(14.4
|
%)
|
||||
Marketing
services
|
34,786
|
29,057
|
5,729
|
19.7
|
%
|
||||||||
PPG
|
-
|
2,956
|
(2,956
|
)
|
(100.0
|
%)
|
|||||||
Total
|
$
|
319,415
|
$
|
364,444
|
$
|
(45,029
|
)
|
(12.4
|
%)
|
Cost
of goods and services (in thousands)
|
|||||||||||||
|
|||||||||||||
|
|
|
Change
|
Change
|
|||||||||
|
2005
|
2004
|
($)
|
(%)
|
|||||||||
Sales
services
|
$
|
236,444
|
$
|
249,131
|
$
|
(12,687
|
)
|
(5.1
|
%)
|
||||
Marketing
services
|
21,035
|
16,352
|
4,683
|
28.6
|
%
|
||||||||
PPG
|
-
|
131
|
(131
|
)
|
(100.0
|
%)
|
|||||||
Total
|
$
|
257,479
|
$
|
265,614
|
$
|
(8,135
|
)
|
(3.1
|
%)
|
·
|
A
decrease in incentive payments ($2.6 million) received in 2005 as
compared
to 2004;
|
·
|
Higher
amount of net penalties accrued in 2005 ($2.0 million) as compared
to
2004;
|
·
|
Lower
contractual margins for some of our 2005 contract
renewals;
|
·
|
Market
conditions that led to increases in field compensation and other
field
costs (i.e. gas, travel) that were, in some cases, higher than the
rates
specified in our contracts; and
|
·
|
No
PPG revenues or gross profit earned in 2005 as compared to 2004
when
revenue was $3.0 million and gross profit was $2.8
million.
|
Compensation
Expense (in thousands)
|
|||||||||||||||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|||||||||||||
|
2005
|
revenue
|
2004
|
revenue
|
($)
|
(%)
|
|||||||||||||
Sales
services
|
$
|
21,867
|
7.7
|
%
|
$
|
25,022
|
7.5
|
%
|
$
|
(3,155
|
)
|
(12.6
|
%)
|
||||||
Marketing
services
|
7,499
|
21.6
|
%
|
7,367
|
25.4
|
%
|
132
|
1.8
|
%
|
||||||||||
PPG
|
1
|
0.0
|
%
|
1,441
|
48.7
|
%
|
(1,440
|
)
|
(99.9
|
%)
|
|||||||||
Total
|
$
|
29,367
|
9.2
|
%
|
$
|
33,830
|
9.3
|
%
|
$
|
(4,463
|
)
|
(13.2
|
%)
|
Other
SG&A (in thousands)
|
|||||||||||||||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|||||||||||||
|
2005
|
revenue
|
2004
|
revenue
|
($)
|
(%)
|
|||||||||||||
Sales
services
|
$
|
29,545
|
10.4
|
%
|
$
|
21,986
|
6.6
|
%
|
$
|
7,559
|
34.4
|
%
|
|||||||
Marketing
services
|
5,775
|
16.6
|
%
|
3,686
|
12.7
|
%
|
2,089
|
56.7
|
%
|
||||||||||
PPG
|
10
|
0.0
|
%
|
1,244
|
42.1
|
%
|
(1,234
|
)
|
(99.2
|
%)
|
|||||||||
Total
|
$
|
35,330
|
11.1
|
%
|
$
|
26,916
|
7.4
|
%
|
$
|
8,414
|
31.3
|
%
|
Operating
Income (Loss) (in thousands)
|
|||||||||||||||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|||||||||||||
|
2005
|
revenue
|
2004
|
revenue
|
($)
|
(%)
|
|||||||||||||
Sales
services
|
$
|
(25,434
|
)
|
-8.9
|
%
|
$
|
34,018
|
10.2
|
%
|
$
|
(59,452
|
)
|
(174.8
|
%)
|
|||||
Marketing
services
|
(1,185
|
)
|
-3.4
|
%
|
1,535
|
5.3
|
%
|
(2,720
|
)
|
(177.2
|
%)
|
||||||||
PPG
|
(268
|
)
|
0.0
|
%
|
(362
|
)
|
(12.2
|
%)
|
94
|
(26.0
|
%)
|
||||||||
Total
|
$
|
(26,887
|
)
|
-8.4
|
%
|
$
|
35,191
|
9.7
|
%
|
$
|
(62,078
|
)
|
(176.4
|
%)
|
Revenue
(in thousands)
|
|||||||||||||
|
|
|
Change
|
Change
|
|||||||||
|
2004
|
2003
|
($)
|
(%)
|
|||||||||
Sales
services
|
$
|
332,431
|
$
|
271,210
|
$
|
61,221
|
22.6
|
%
|
|||||
Marketing
services
|
29,057
|
29,436
|
(379
|
)
|
(1.3
|
%)
|
|||||||
PPG
|
2,956
|
43,884
|
(40,928
|
)
|
(93.3
|
%)
|
|||||||
Total
|
$
|
364,444
|
$
|
344,530
|
$
|
19,914
|
5.8
|
%
|
Cost
of goods and services (in thousands)
|
|||||||||||||
|
|
|
Change
|
Change
|
|||||||||
|
2004
|
2003
|
($)
|
(%)
|
|||||||||
Sales
services
|
$
|
249,131
|
$
|
201,059
|
$
|
48,072
|
23.9
|
%
|
|||||
Marketing
services
|
16,352
|
15,674
|
678
|
4.3
|
%
|
||||||||
PPG
|
131
|
38,716
|
(38,585
|
)
|
(99.7
|
%)
|
|||||||
Total
|
$
|
265,614
|
$
|
255,449
|
$
|
10,165
|
4.0
|
%
|
Compensation
Expense (in thousands)
|
|||||||||||||||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|||||||||||||
|
2004
|
revenue
|
2003
|
revenue
|
($)
|
(%)
|
|||||||||||||
Sales
services
|
$
|
25,022
|
7.5
|
%
|
$
|
17,783
|
6.6
|
%
|
$
|
7,239
|
40.7
|
%
|
|||||||
Marketing
services
|
7,367
|
25.4
|
%
|
7,463
|
25.4
|
%
|
(96
|
)
|
(1.3
|
%)
|
|||||||||
PPG
|
1,441
|
48.7
|
%
|
11,865
|
27.0
|
%
|
(10,424
|
)
|
(87.9
|
%)
|
|||||||||
Total
|
$
|
33,830
|
9.3
|
%
|
$
|
37,111
|
10.8
|
%
|
$
|
(3,281
|
)
|
(8.8
|
%)
|
Other
SG&A (in thousands)
|
||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|
2004
|
revenue
|
2003
|
revenue
|
($)
|
(%)
|
Sales
services
|
$
21,986
|
6.6%
|
$
16,004
|
5.9%
|
$
5,982
|
37.4%
|
Marketing
services
|
3,686
|
12.7%
|
2,590
|
8.8%
|
1,096
|
42.3%
|
PPG
|
1,244
|
42.1%
|
11,357
|
25.9%
|
(10,113)
|
(89.0%)
|
Total
|
$
26,916
|
7.4%
|
$
29,951
|
8.7%
|
$
(3,035)
|
(10.1%)
|
Operating
Income (Loss) (in thousands)
|
|||||||||||||||||||
|
|
%
of
|
|
%
of
|
Change
|
Change
|
|||||||||||||
|
2004
|
revenue
|
2003
|
revenue
|
($)
|
(%)
|
|||||||||||||
Sales
services
|
$
|
34,018
|
10.2
|
%
|
$
|
34,891
|
12.9
|
%
|
$
|
(873
|
)
|
(2.5
|
%)
|
||||||
Marketing
services
|
1,535
|
5.3
|
%
|
3,567
|
12.1
|
%
|
(2,032
|
)
|
(57.0
|
%)
|
|||||||||
PPG
|
(362
|
)
|
-12.2
|
%
|
(18,868
|
)
|
-43.0
|
%
|
18,506
|
(98.1
|
%)
|
||||||||
Total
|
$
|
35,191
|
9.7
|
%
|
$
|
19,590
|
5.7
|
%
|
$
|
15,601
|
79.6
|
%
|
·
|
decrease
in the net deferred tax asset of $6.4
million;
|
·
|
depreciation
and other non-cash expense of $23.3 million which
included:
|
o
|
asset
impairments of $14.4 million associated with InServe, Select Access,
and
our former sales force automation software -
Siebel,
|
o
|
bad
debt expense of $1.4 million, which includes the $755,000 associated
with
the write off of the TMX loan,
|
o
|
stock
compensation expense of $1.5
million,
|
o
|
amortization
of intangible assets of approximately $1.9 million,
and
|
o
|
loss
on disposal or sale of assets of approximately
$269,000.
|
·
|
Approximately
$21.7 million received from the sale of short-term investments. Our
investments consist of a laddered portfolio of investment grade debt
instruments such as obligations of the U.S. Treasury and U.S. Federal
Government agencies, municipal bonds and commercial paper. We are
focused
on preserving capital, maintaining liquidity, and maximizing returns,
in
accordance with our investment criteria.
|
·
|
Approximately
$4.4 million received on the sale of our investment in
In2Focus.
|
·
|
Capital
expenditures for the year ended December 31, 2005 of $5.8 million,
which
consisted primarily of capital expenditures associated with the relocation
of our offices within the Marketing Services group and for costs
associated with the rollout of our new sales force automation software.
There was approximately $8.1 million in capital expenditures for
the year
ended December 31, 2004, which consisted primarily of costs for furniture
and information technology associated with moving to our new corporate
headquarters. For both periods, all capital expenditures were funded
out
of available cash.
|
·
|
Cash
disbursed for the Pharmakon acquisition for the year ended December
31,
2005 of approximately $1.9 million.
|
Average.
Price
|
Shares
|
|||
Period
|
Per
Share
|
Purchased
|
||
September
2001
|
$
22.00
|
5,000
|
||
May
2005
|
$
12.36
|
226,900
|
||
June
2005
|
$
11.92
|
353,330
|
||
July
2005
|
$
13.77
|
315,570
|
||
August
2005
|
$
14.39
|
101,100
|
||
Total
|
$
12.90
|
1,001,900
|
Less
than
|
1
to 3
|
3
to 5
|
After
|
|||||||||||||
(in
thousands)
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
|||||||||||
Contractrual
obligations (1)
|
$
|
11,406
|
$
|
5,576
|
$
|
5,830
|
$
|
-
|
$
|
-
|
||||||
Operating
Lease Obligations
|
||||||||||||||||
Minimum
lease payments
|
33,488
|
3,090
|
6,155
|
6,334
|
17,909
|
|||||||||||
Less
minimum sublease rentals
(2)
|
(1,852
|
)
|
(401
|
)
|
(801
|
)
|
(650
|
)
|
-
|
|||||||
Net
minimum lease payments
|
31,636
|
2,689
|
5,354
|
5,684
|
17,909
|
|||||||||||
Total
|
$
|
43,042
|
$
|
8,265
|
$
|
11,184
|
$
|
5,684
|
$
|
17,909
|
(1)
|
Amounts
represent contractual obligations related to software license contracts,
IT consulting contracts and outsourcing contracts for employee benefits
administration and software system
support.
|
(2)
|
On
June 21, 2005, we signed an agreement to sublease our first floor
at our
corporate headquarters facility in Saddle River, NJ, for approximately
16,000 square feet. The sublease is for a five-year term commencing
on
July 15, 2005, and provides for approximately $2 million in lease
payments
over the five-year period.
|
For
the Quarters ended
|
|||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
||||||||||
2005
Quarters:
|
|||||||||||||
Total
revenue, net
|
$
|
82,024
|
$
|
79,615
|
$
|
76,486
|
$
|
81,290
|
|||||
Gross
profit
|
18,043
|
15,287
|
12,560
|
16,046
|
|||||||||
Operating
(loss) income (1)
|
(775
|
)
|
4
|
(8,250
|
)
|
(17,866
|
)
|
||||||
Net
(loss) income
|
(62
|
)
|
4,513
|
(4,184
|
)
|
(19,721
|
)
|
||||||
(Loss)
income per share:
|
|||||||||||||
Basic
|
$
|
(0.00
|
)
|
$
|
0.31
|
$
|
(0.30
|
)
|
$
|
(1.43
|
)
|
||
Diluted
|
$
|
(0.00
|
)
|
$
|
0.31
|
$
|
(0.30
|
)
|
$
|
(1.43
|
)
|
||
Weighted
average number of shares:
|
|||||||||||||
Basic
|
14,675
|
14,605
|
13,867
|
13,797
|
|||||||||
Diluted
|
14,849
|
14,695
|
13,867
|
13,797
|
|||||||||
2004
Quarters:
|
|||||||||||||
Total
revenue, net (2)
|
$
|
92,648
|
$
|
91,388
|
$
|
92,522
|
$
|
87,812
|
|||||
Gross
profit (2)
|
26,515
|
21,816
|
24,385
|
26,112
|
|||||||||
Operating
income (2)
|
9,809
|
8,235
|
9,035
|
8,112
|
|||||||||
Net
income (2)
|
5,975
|
5,043
|
5,467
|
4,647
|
|||||||||
Income
per share:
|
|||||||||||||
Basic
|
$
|
0.41
|
$
|
0.35
|
$
|
0.37
|
$
|
0.32
|
|||||
Diluted
|
$
|
0.40
|
$
|
0.34
|
$
|
0.37
|
$
|
0.31
|
|||||
Weighted
average number of shares:
|
|||||||||||||
Basic
|
14,461
|
14,533
|
14,621
|
14,641
|
|||||||||
Diluted
|
14,767
|
14,918
|
14,933
|
14,922
|
(1)
|
The
quarter ended March 31, 2005 includes a $1.2 million charge for employee
severance costs and a $0.2 million charge for executive severance
costs.
The quarter ended June 30, 2005 includes a $2.8 million charge for
the
impairment of the Siebel sales force automation platform and a $0.4
million charge for executive severance costs; the quarter ended September
30, 2005 includes a $1.7 million charge for executive severance costs.
The
quarter ended December 31, 2005 includes a $3.4 million charge for
executive severance costs; a $2.4 million charge for facilities
realignment costs; an $8.2 million charge for impairment of goodwill
and
other intangible asset associated with the 2006 closing of the MD&D
reporting unit; a $3.3 million charge for the impairment of the goodwill
associated with the Select Access reporting unit.
|
(2)
|
On
August 31, 2004, the Company acquired Pharmakon
LLC.
|
/s/Ernst
&Young LLP
|
|
New
York, NY
|
|
March
15, 2006
|
(a)
|
The
following documents are filed as part of this
report:
|
Exhibit
No.
|
Description
|
|
3.1
|
Certificate
of Incorporation of PDI, Inc. (1)
|
|
3.2
|
By-Laws
of PDI, Inc . (1)
|
|
3.3
|
Certificate
of Amendment of Certificate of Incorporation of PDI, Inc. (4)
|
|
4.1
|
Specimen
Certificate Representing the Common Stock (1)
|
|
10.1*
|
Form
of 1998 Stock Option Plan (1)
|
|
10.2*
|
Form
of 2000 Omnibus Incentive Compensation Plan (2)
|
|
10.4*
|
Form
of Employment Agreement between the Company and Charles T. Saldarini
(4)
|
|
10.5*
|
Agreement
between the Company and John P. Dugan (1)
|
|
10.6*
|
Form
of Amended and Restated Employment Agreement between the Company
and
Steven K. Budd (4)
|
|
10.7*
|
Form
of Amended and Restated Employment Agreement between the Company
and
Bernard C. Boyle (4)
|
|
10.8*
|
Form
of Employment Agreement between the Company and Christopher Tama
(5)
|
|
10.9*
|
Form
of Amended and Restated Employment Agreement between the Company
and
Stephen Cotugno (4)
|
|
10.10*
|
Form
of Employment Agreement between the Company and Beth Jacobson (5)
|
|
10.11*
|
Form
of Employment Agreement between the Company and Alan Rubino (7)
|
|
10.12*
|
Form
of Loan Agreement between the Company and Steven K. Budd (3)
|
|
10.13*
|
Exclusive
License Agreement between the Company and Cellegy Pharmaceuticals,
Inc.
(5)(6)
|
|
10.14
|
Saddle
River Executive Centre Lease, as amended filed herewith
|
|
Exhibit
No.
|
Description
|
|||
10.15*
|
2004
Stock Award and Incentive Plan (8)
|
|||
10.16*
|
Form
of Agreement between the Company and Larry Ellberger filed
herewith
|
|||
10.17*
|
Form
of Agreement between the Company and Bernard C. Boyle filed
herewith
|
|||
10.18*
|
Memorandum
of Understanding between the Company and Bernard C. Boyle filed
herewith
|
|||
10.19
|
Saddle
River Executive Centre Sublease Agreement filed
herewith
|
|||
14.1
|
Code
of Conduct (7)
|
|||
21.1
|
Subsidiaries
of the Registrant (4)
|
|||
23.1
|
Consent
of Ernst & Young LLP filed herewith.
|
|||
23.2
|
Consent
of PricewaterhouseCoopers LLP filed herewith.
|
|||
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 filed herewith.
|
|||
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002 filed herewith.
|
|||
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.
|
|||
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 filed
herewith.
|
|||
______________
|
||||
*
|
Denotes
compensatory plan, compensation arrangement or management
contract.
|
|||
(1)
|
Filed
as an exhibit to our Registration Statement on Form S-1 (File No
333-46321), and incorporated herein by reference
|
|||
(2)
|
Filed
as an Exhibit to our definitive proxy statement dated May 10, 2000,
and
incorporated herein by reference.
|
|||
(3)
|
Filed
as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 1999, and incorporated herein by reference
|
|||
(4)
|
Filed
as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2001, and incorporated herein by reference
|
|||
(5)
|
Filed
as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2002, and incorporated herein by reference
|
|||
(6)
|
The
Securities and Exchange Commission granted the Registrant’s application
for confidential treatment, pursuant to Rule 24b-2 under the Exchange
Act,
of certain portions of this exhibit. These portions of the exhibit
have
been redacted from the exhibit as filed
|
|||
(7)
|
Filed
as an exhibit to our Annual Report on Form 10-K for the year ended
December 31, 2003, and incorporated herein by reference
|
|||
(8)
|
Filed
as an Exhibit to our definitive proxy statement dated April 28, 2004,
and
incorporated herein by reference.
|
(b)
|
We
have filed, as exhibits to this annual report on Form 10-K, the exhibits
required by Item 601 of the Regulation
S-K.
|
(c)
|
We
have filed, as financial statements schedules to this annual report
on
Form 10-K, the financial statements required by Regulation S-X, which
are
excluded from the annual report to shareholders by Rule
14a-3(b).
|
PDI,
INC.
|
|
/s/
Larry
Ellberger
|
|
Larry
Ellberger
|
|
Chief
Executive Officer
|
|
Signature
|
Title
|
|
/s/
John P. Dugan
|
Chairman
of the Board of Directors
|
|
John
P. Dugan
|
||
/s/
Larry
Ellberger
|
Chief
Executive Officer
|
|
Larry
Ellberger
|
||
/s/
Bernard C. Boyle
|
Chief
Financial Officer and Treasurer
|
|
Bernard
C. Boyle
|
(principal
accounting and financial officer)
|
|
/s/
John M. Pietruski
|
Director
|
|
John
M. Pietruski
|
||
/s/
Jan Martens Vecsi
|
Director
|
|
Jan
Martens Vecsi
|
||
/s/
Frank Ryan
|
Director
|
|
Frank
Ryan
|
||
/s/
John Federspiel
|
Director
|
|
John
Federspiel
|
||
/s/
Dr. Joseph T. Curti
|
Director
|
|
Dr.
Joseph T. Curti
|
||
/s/
Stephen J. Sullivan
|
Director
|
|
Stephen
J. Sullivan
|
||
/s/
Jack Stover
|
Director
|
|
Jack
Stover
|
Page
|
||
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Report
of Independent Registered Public Accounting Firm
|
F-3
|
|
Financial
Statements
|
||
Consolidated
Balance Sheets at December 31, 2005 and 2004
|
F-4
|
|
Consolidated
Statements of Operations for each of the three years
|
||
in
the period ended December 31, 2005
|
F-5
|
|
Consolidated
Statements of Stockholders’ Equity for each of the three
years
|
||
in
the period ended December 31, 2005
|
F-6
|
|
Consolidated
Statements of Cash Flows for each of the three years
|
||
in
the period ended December 31, 2005
|
F-7
|
|
Notes
to Consolidated Financial Statements
|
F-8
|
|
Schedule
II. Valuation and Qualifying Accounts
|
F-31
|
|
/s/Ernst
&Young LLP
|
|
New
York, NY
|
|
March
15, 2006
|
|
PDI,
INC.
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
(in
thousands, except share and per share data)
|
|||||||
December
31,
|
December
31,
|
||||||
2005
|
2004
|
||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
90,827
|
$
|
81,000
|
|||
Short-term
investments
|
6,807
|
28,498
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of
|
|||||||
$778
and $74 as of December 31, 2005 and 2004, respectively
|
27,148
|
26,662
|
|||||
Unbilled
costs and accrued profits on contracts in progress
|
5,974
|
3,393
|
|||||
Income
tax refund receivable
|
6,292
|
-
|
|||||
Other
current assets
|
14,078
|
15,883
|
|||||
Total
current assets
|
151,126
|
155,436
|
|||||
Property
and equipment, net
|
16,053
|
17,170
|
|||||
Goodwill
|
13,112
|
23,791
|
|||||
Other
intangible assets, net
|
17,305
|
19,548
|
|||||
Other
long-term assets
|
2,710
|
8,760
|
|||||
Total
assets
|
$
|
200,306
|
$
|
224,705
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
5,693
|
$
|
7,217
|
|||
Income
taxes payable
|
6,805
|
5,263
|
|||||
Unearned
contract revenue
|
12,598
|
6,924
|
|||||
Accrued
returns
|
231
|
4,316
|
|||||
Accrued
incentives
|
12,028
|
16,282
|
|||||
Accrued
payroll and related benefits
|
7,556
|
8,414
|
|||||
Other
accrued expenses
|
19,785
|
10,864
|
|||||
Total
current liabilities
|
64,696
|
59,280
|
|||||
Commitments
and Contingencies (note 9)
|
|||||||
Stockholders’
equity:
|
|||||||
Preferred
stock, $.01 par value; 5,000,000 shares authorized, no
|
|||||||
shares
issued and outstanding
|
-
|
-
|
|||||
Common
stock, $.01 par value; 100,000,000 shares authorized;
14,947,771
|
|||||||
and
14,820,499 shares issued at December 31, 2005 and 2004, respectively;
|
|||||||
13,929,765
and 14,815,499 shares outstanding at December 31, 2005 and
|
|||||||
2004,
respectively
|
149
|
148
|
|||||
Additional
paid-in capital
|
118,325
|
116,737
|
|||||
Retained
earnings
|
31,183
|
50,637
|
|||||
Accumulated
other comprehensive income
|
71
|
76
|
|||||
Unamortized
compensation costs
|
(904
|
)
|
(2,063
|
)
|
|||
Treasury
stock, at cost: 1,018,006 and 5,000 shares
|
|||||||
at
December 31, 2005 and 2004, respectively
|
(13,214
|
)
|
(110
|
)
|
|||
Total
stockholders' equity
|
$
|
135,610
|
$
|
165,425
|
|||
Total
liabilities & stockholders' equity
|
$
|
200,306
|
$
|
224,705
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements
|
PDI,
INC.
|
||||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||
(in
thousands, except for per share data)
|
||||||||||
For
The Years Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Revenue
|
||||||||||
Service,
net
|
$
|
319,415
|
$
|
365,965
|
$
|
356,143
|
||||
Product,
net
|
-
|
(1,521
|
)
|
(11,613
|
)
|
|||||
Total
revenue, net
|
319,415
|
364,444
|
344,530
|
|||||||
Cost
of goods and services
|
||||||||||
Program
expenses (including related party amounts of
|
||||||||||
$0,
$180, and $983 for the periods ended
|
||||||||||
December
31, 2005, 2004 and 2003, respectively)
|
257,479
|
265,360
|
254,162
|
|||||||
Cost
of goods sold
|
-
|
254
|
1,287
|
|||||||
Total
cost of goods and services
|
257,479
|
265,614
|
255,449
|
|||||||
Gross
profit
|
61,936
|
98,830
|
89,081
|
|||||||
Compensation
expense
|
29,367
|
33,830
|
37,111
|
|||||||
Other
selling, general and administrative expenses
|
35,330
|
26,916
|
29,951
|
|||||||
Asset
impairment
|
14,351
|
-
|
-
|
|||||||
Executive
severance
|
5,730
|
495
|
-
|
|||||||
Legal
and related costs
|
1,691
|
2,398
|
2,429
|
|||||||
Facilities
realignment
|
2,354
|
-
|
-
|
|||||||
Total
operating expenses
|
88,823
|
63,639
|
69,491
|
|||||||
Operating
(loss) income
|
(26,887
|
)
|
35,191
|
19,590
|
||||||
Gain
(loss) on investments
|
4,444
|
(1,000
|
)
|
-
|
||||||
Interest
income, net
|
3,190
|
1,779
|
1,073
|
|||||||
(Loss)
income before income tax
|
(19,253
|
)
|
35,970
|
20,663
|
||||||
Provision
for income tax
|
201
|
14,838
|
8,405
|
|||||||
Net
(loss) income
|
$
|
(19,454
|
)
|
$
|
21,132
|
$
|
12,258
|
|||
Net
(loss) income per share of common stock:
|
||||||||||
Basic
|
$
|
(1.37
|
)
|
$
|
1.45
|
$
|
0.86
|
|||
Assuming
dilution
|
$
|
(1.37
|
)
|
$
|
1.42
|
$
|
0.85
|
|||
Weighted
average number of common shares and
|
||||||||||
common
share equivalents outstanding:
|
||||||||||
Basic
|
14,232
|
14,564
|
14,231
|
|||||||
Assuming
dilution
|
14,232
|
14,893
|
14,431
|
|||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
PDI,
INC.
|
|||||||||||||||||||
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
|
|||||||||||||||||||
(in
thousands)
|
|||||||||||||||||||
2005
|
2004
|
2003
|
|||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Shares
|
Amount
|
||||||||||||||
Common
stock:
|
|||||||||||||||||||
Balance
at January 1,
|
14,820
|
$
|
148
|
14,523
|
$
|
145
|
14,210
|
$
|
142
|
||||||||||
Common
stock issued
|
68
|
1
|
68
|
1
|
143
|
1
|
|||||||||||||
Restricted
stock issued
|
43
|
-
|
98
|
1
|
129
|
1
|
|||||||||||||
Restricted
stock forfeited
|
(24
|
)
|
-
|
(14
|
)
|
-
|
-
|
-
|
|||||||||||
Stock
options exercised
|
41
|
-
|
145
|
1
|
41
|
1
|
|||||||||||||
Balance
at December 31,
|
14,948
|
149
|
14,820
|
148
|
14,523
|
145
|
|||||||||||||
Treasury
stock:
|
|||||||||||||||||||
Balance
at January 1,
|
5
|
(110
|
)
|
5
|
(110
|
)
|
5
|
(110
|
)
|
||||||||||
Treasury
stock purchased
|
1,013
|
(13,104
|
)
|
-
|
-
|
-
|
-
|
||||||||||||
Balance
at December 31,
|
1,018
|
(13,214
|
)
|
5
|
(110
|
)
|
5
|
(110
|
)
|
||||||||||
Additional
paid-in capital:
|
|||||||||||||||||||
Balance
at January 1,
|
116,737
|
109,531
|
106,673
|
||||||||||||||||
Common
stock issued
|
699
|
1,511
|
1,326
|
||||||||||||||||
Restricted
stock issued
|
533
|
2,626
|
814
|
||||||||||||||||
Restricted
stock forfeited
|
(494
|
)
|
(174
|
)
|
-
|
||||||||||||||
Stock-based
compensation issued
|
259
|
-
|
-
|
||||||||||||||||
Stock
options exercised
|
591
|
2,369
|
526
|
||||||||||||||||
Tax
benefit on options exercised
|
-
|
641
|
192
|
||||||||||||||||
Acceleration
of stock option vesting
|
233
|
-
|
|||||||||||||||||
Balance
at December 31,
|
118,325
|
116,737
|
109,531
|
||||||||||||||||
Retained
earnings:
|
|||||||||||||||||||
Balance
at January 1,
|
50,637
|
29,505
|
17,247
|
||||||||||||||||
Net
(loss) income
|
(19,454
|
)
|
21,132
|
12,258
|
|||||||||||||||
Balance
at December 31,
|
31,183
|
50,637
|
29,505
|
||||||||||||||||
Accumulated
other
|
|||||||||||||||||||
comprehensive
income (loss):
|
|||||||||||||||||||
Balance
at January 1,
|
76
|
25
|
(100
|
)
|
|||||||||||||||
Reclassification
of realized (gain) loss, net of tax
|
(49
|
)
|
21
|
80
|
|||||||||||||||
Unrealized
holding gain, net of tax
|
44
|
30
|
45
|
||||||||||||||||
Balance
at December 31,
|
71
|
76
|
25
|
||||||||||||||||
Unamortized
compensation costs:
|
|||||||||||||||||||
Balance
at January 1,
|
(2,063
|
)
|
(608
|
)
|
(641
|
)
|
|||||||||||||
Restricted
stock issued
|
(533
|
)
|
(2,627
|
)
|
(521
|
)
|
|||||||||||||
Restricted
stock forfeited
|
494
|
137
|
-
|
||||||||||||||||
Restricted
stock vested
|
1,198
|
1,035
|
554
|
||||||||||||||||
Balance
at December 31,
|
(904
|
)
|
(2,063
|
)
|
(608
|
)
|
|||||||||||||
Total
stockholders' equity
|
135,610
|
165,425
|
138,488
|
||||||||||||||||
Comprehensive
income:
|
|||||||||||||||||||
Net
(loss) income
|
$
|
(19,454
|
)
|
$
|
21,132
|
$
|
12,258
|
||||||||||||
Reclassification
of realized (gain) loss, net of tax
|
(49
|
)
|
21
|
80
|
|||||||||||||||
Unrealized
holding gain, net of tax
|
44
|
30
|
45
|
||||||||||||||||
Total
comprehensive income
|
$
|
(19,459
|
)
|
$
|
21,183
|
$
|
12,383
|
||||||||||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
PDI,
INC.
|
||||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||||
(in
thousands)
|
||||||||||
For
The Years Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Cash
Flows From Operating Activities
|
||||||||||
Net
(loss) income from operations
|
$
|
(19,454
|
)
|
$
|
21,132
|
$
|
12,258
|
|||
Adjustments
to reconcile net income to net cash
|
||||||||||
provided
by operating activities:
|
||||||||||
Depreciation
and amortization
|
5,820
|
5,916
|
6,243
|
|||||||
(Gain)
loss on investment
|
(4,444
|
)
|
1,000
|
-
|
||||||
Asset
impairment
|
14,351
|
-
|
-
|
|||||||
Loss
on disposal of assets
|
269
|
622
|
-
|
|||||||
Stock
compensation costs
|
1,457
|
1,232
|
554
|
|||||||
Deferred
income taxes, net
|
6,447
|
9,199
|
(3,117
|
)
|
||||||
Provision
for bad debt
|
1,385
|
683
|
1,939
|
|||||||
Other
changes in assets and liabilities, net of acquisitions:
|
||||||||||
(Increase)
decrease in accounts receivable
|
(1,229
|
)
|
15,807
|
(1,277
|
)
|
|||||
(Increase)
decrease in unbilled costs
|
(2,581
|
)
|
648
|
(681
|
)
|
|||||
(Increase)
in income tax refund receivable
|
(6,292
|
)
|
-
|
-
|
||||||
Decrease
(increase) in inventory
|
-
|
43
|
(216
|
)
|
||||||
Decrease
(increase) in other current assets
|
448
|
(33
|
)
|
14,276
|
||||||
Decrease
(increase) in other long-term assets
|
218
|
(28
|
)
|
(2,052
|
)
|
|||||
(Decrease)
increase in accounts payable
|
(41
|
)
|
(3,439
|
)
|
3,316
|
|||||
Increase
(decrease) in income taxes payable
|
1,542
|
(3,529
|
)
|
7,071
|
||||||
Increase
(decrease) in unearned contract revenue
|
5,674
|
507
|
(5,869
|
)
|
||||||
(Decrease)
increase in accrued returns
|
(4,085
|
)
|
(18,495
|
)
|
6,311
|
|||||
(Decrease)
increase in accrued incentives
|
(4,254
|
)
|
(4,204
|
)
|
9,543
|
|||||
(Decrease)
increase in accrued payroll and related benefits
|
(858
|
)
|
(617
|
)
|
2,414
|
|||||
Increase
(decrease) in accrued liabilities
|
8,742
|
2,538
|
(9,082
|
)
|
||||||
Net
cash provided by operating activities
|
3,115
|
28,982
|
41,631
|
|||||||
Cash
Flows From Investing Activities
|
||||||||||
Sales
(purchases) of short-term investments, net
|
21,686
|
(27,103
|
)
|
7,355
|
||||||
Proceeds
from sale of investment
|
4,444
|
-
|
-
|
|||||||
Repayments
from (loans to) Xylos and TMX
|
100
|
(1,500
|
)
|
-
|
||||||
Purchase
of property and equipment
|
(5,832
|
)
|
(8,104
|
)
|
(1,829
|
)
|
||||
Proceeds
from sale of assets
|
63
|
-
|
-
|
|||||||
Cash
paid for acquisition, including acquisition costs
|
(1,936
|
)
|
(28,443
|
)
|
-
|
|||||
Net
cash provided by (used in) investing activities
|
18,525
|
(65,150
|
)
|
5,526
|
||||||
Cash
Flows From Financing Activities
|
||||||||||
Net
proceeds from employee stock purchase plan
|
||||||||||
and
the exercise of stock options
|
1,291
|
3,880
|
2,045
|
|||||||
Cash
paid to repurchase shares
|
(13,104
|
)
|
-
|
-
|
||||||
Net
cash (used in) provided by financing activities
|
(11,813
|
)
|
3,880
|
2,045
|
||||||
Net
increase (decrease) in cash and cash equivalents
|
9,827
|
(32,288
|
)
|
49,202
|
||||||
Cash
and cash equivalents - beginning
|
81,000
|
113,288
|
64,086
|
|||||||
Cash
and cash equivalents - ending
|
$
|
90,827
|
$
|
81,000
|
$
|
113,288
|
||||
Cash
paid for interest
|
$
|
2
|
$
|
3
|
$
|
25
|
||||
Cash
paid for taxes
|
$
|
1,513
|
$
|
7,389
|
$
|
9,619
|
||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
1.
|
Nature
of Business and Significant Accounting
Policies
|
For
the Year Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Net
income (loss), as reported
|
$
|
(19,454
|
)
|
$
|
21,132
|
$
|
12,258
|
|||
Add:
Stock-based employee
|
||||||||||
compensation
expense included
|
||||||||||
in
reported net income (loss),
|
||||||||||
net
of related tax effects
|
974
|
721
|
368
|
|||||||
Deduct:
Total stock-based
|
||||||||||
employee
compensation expense
|
||||||||||
determined
under fair value based
|
||||||||||
methods
for all awards, net of
|
||||||||||
related
tax effects
|
(6,670
|
)
|
(3,946
|
)
|
(6,133
|
)
|
||||
Pro
forma net income (loss)
|
$
|
(25,150
|
)
|
$
|
17,907
|
$
|
6,493
|
|||
Earnings
(loss) per share
|
||||||||||
Basic—as
reported
|
$
|
(1.37
|
)
|
$
|
1.45
|
$
|
0.86
|
|||
Basic—pro
forma
|
$
|
(1.77
|
)
|
$
|
1.23
|
$
|
0.46
|
|||
Diluted—as
reported
|
$
|
(1.37
|
)
|
$
|
1.42
|
$
|
0.85
|
|||
Diluted—pro
forma
|
$
|
(1.77
|
)
|
$
|
1.20
|
$
|
0.45
|
|||
2005
|
2004
|
2003
|
|||
Risk-free
interest rate
|
3.79%
|
3.63%
|
4.49%
|
||
Expected
life
|
5
years
|
5
years
|
5
years
|
||
Expected
volatility
|
100%
|
100%
|
100%
|
||
2.
|
Acquisition
|
Year
ended December 31,
|
|||||||
2004
|
2003
|
||||||
Revenue
|
$
|
377,577
|
$
|
361,687
|
|||
Net
income
|
22,842
|
14,713
|
|||||
Earnings
per share
|
$
|
1.53
|
$
|
1.02
|
|||
3.
|
Investments
in Marketable Securities
|
2005
|
2004
|
||||||
Available-for-sale
|
|||||||
Cash/money
accounts
|
$
|
1,076
|
$
|
921
|
|||
Mutual
funds
|
811
|
637
|
|||||
1,887
|
1,558
|
||||||
Held-to-maturity
|
|||||||
Cash/money
accounts
|
1,953
|
3,530
|
|||||
Certificate
of deposit
|
2,131
|
||||||
Municipal
bonds
|
2,620
|
26,847
|
|||||
US
Treasury obligations
|
987
|
498
|
|||||
Government
agency obligations
|
7,742
|
5,075
|
|||||
15,433
|
35,950
|
||||||
Total
|
$
|
17,320
|
$
|
37,508
|
|||
4.
|
Property
and Equipment
|
December
31,
|
|||||||
2005
|
2004
|
||||||
Furniture
and fixtures
|
$
|
3,925
|
$
|
3,942
|
|||
Office
equipment
|
1,663
|
3,787
|
|||||
Computer
equipment
|
7,402
|
5,727
|
|||||
Computer
software
|
9,350
|
13,674
|
|||||
Leasehold
improvements
|
5,730
|
4,565
|
|||||
28,070
|
31,695
|
||||||
Less
accumulated depreciation
|
(12,017
|
)
|
(14,525
|
)
|
|||
$
|
16,053
|
$
|
17,170
|
5.
|
Goodwill
and Other Intangible
Assets
|
Sales
|
Marketing
|
||||||||||||
Services
|
Services
|
PPG
|
Total
|
||||||||||
Balance
as of December 31, 2004
|
$
|
11,132
|
$
|
12,659
|
$
|
-
|
$
|
23,791
|
|||||
Amortization
|
-
|
-
|
-
|
-
|
|||||||||
Goodwill
additions
|
-
|
568
|
-
|
568
|
|||||||||
Goodwill
deductions
|
-
|
(115
|
)
|
-
|
(115
|
)
|
|||||||
Goodwill
impairments
|
(11,132
|
)
|
-
|
-
|
(11,132
|
)
|
|||||||
Balance
as of December 31, 2005
|
$
|
-
|
$
|
13,112
|
$
|
-
|
$
|
13,112
|
2006
|
2007
|
2008
|
2009
|
2010
|
|||||||||
$
1,354
|
$
|
1,281
|
$
|
1,281
|
$
|
1,272
|
$
|
1,253
|
As
of December 31, 2005
|
As
of December 31, 2004
|
||||||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||||||||
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
||||||||||||||
Covenant
not to compete
|
$
|
1,634
|
$
|
1,491
|
$
|
143
|
$
|
1,826
|
$
|
1,126
|
$
|
700
|
|||||||
Customer
relationships
|
17,371
|
2,491
|
14,880
|
17,508
|
1,163
|
16,345
|
|||||||||||||
Corporate
tradename
|
2,652
|
370
|
2,282
|
2,672
|
169
|
2,503
|
|||||||||||||
Total
|
$
|
21,657
|
$
|
4,352
|
$
|
17,305
|
$
|
22,006
|
$
|
2,458
|
$
|
19,548
|
6.
|
Loans
and Investments in Privately-Held
Entities
|
7.
|
Retirement
Plans
|
8.
|
Deferred
Compensation Arrangements
|
9.
|
Commitments
and Contingencies
|
Less
than
|
1
to 3
|
3
to 5
|
After
|
|||||||||||||
|
Total
|
1
Year
|
Years
|
Years
|
5
Years
|
|||||||||||
Contractrual
obligations (1)
|
$
|
11,406
|
$
|
5,576
|
$
|
5,830
|
$
|
-
|
$
|
-
|
||||||
Operating
Lease Obligations
|
||||||||||||||||
Minimum
lease payments
|
33,488
|
3,090
|
6,155
|
6,334
|
17,909
|
|||||||||||
Less
minimum sublease rentals
(2)
|
(1,852
|
)
|
(401
|
)
|
(801
|
)
|
(650
|
)
|
-
|
|||||||
Net
minimum lease payments
|
31,636
|
2,689
|
5,354
|
5,684
|
17,909
|
|||||||||||
Total
|
$
|
43,042
|
$
|
8,265
|
$
|
11,184
|
$
|
5,684
|
$
|
17,909
|
(1)
|
Amounts
represent contractual obligations related to software license contracts,
IT consulting contracts and outsourcing contracts for employee benefits
administration and software system
support.
|
(2)
|
On
June 21, 2005, the Company signed an agreement to sublease the first
floor
at its corporate headquarters facility in Saddle River, NJ. (approximately
16,000 square feet) The sublease is for a five-year term commencing
on
July 15, 2005, and provides for approximately $2 million in lease
payments
over the five-year period.
|
10.
|
Preferred
Stock
|
11.
|
Stock-Based
Compensation
|
2005
|
2004
|
2003
|
|||||||||||||||||
Weighted
|
Weighted
|
Weighted
|
|||||||||||||||||
Average
|
Average
|
Average
|
|||||||||||||||||
Exercise
|
Exercise
|
Exercise
|
|||||||||||||||||
Shares
|
Price
|
Shares
|
Price
|
Shares
|
Price
|
||||||||||||||
Outstanding
balance
|
|||||||||||||||||||
at
beginning of year
|
1,343,745
|
$
|
27.86
|
1,037,599
|
$
|
27.33
|
1,514,297
|
$
|
39.23
|
||||||||||
Granted
|
62,500
|
11.96
|
520,000
|
25.46
|
115,303
|
16.13
|
|||||||||||||
Exercised
|
(41,291
|
)
|
14.33
|
(144,686
|
)
|
16.38
|
(42,373
|
)
|
13.06
|
||||||||||
Terminated
|
(93,064
|
)
|
32.39
|
(69,168
|
)
|
15.10
|
(549,628
|
)
|
58.86
|
||||||||||
Outstanding
balance
|
|||||||||||||||||||
at
end of year
|
1,271,890
|
$
|
27.19
|
1,343,745
|
$
|
27.86
|
1,037,599
|
$
|
27.33
|
||||||||||
Options
exercisable
|
|||||||||||||||||||
at
end of year
|
1,229,889
|
$
|
27.71
|
691,798
|
$
|
32.58
|
608,811
|
$
|
31.87
|
Options
Outstanding
|
Options
Exercisable
|
|||||||||||||||
Remaining
|
||||||||||||||||
Number
of
|
weighted
|
Weighted
|
Number
of
|
Weighted
|
||||||||||||
Exercise
price
|
options
|
contractual
|
exercise
|
options
|
exercise
|
|||||||||||
per
share
|
outstanding
|
life
(years)
|
price
|
exercisable
|
price
|
|||||||||||
$
5.21 - $ 9.15
|
38,668
|
6.9
|
$
|
6.89
|
38,668
|
$
|
6.89
|
|||||||||
$11.49
- $18.38
|
391,686
|
6.5
|
15.28
|
349,685
|
15.67
|
|||||||||||
$21.10
- $31.62
|
667,990
|
7.4
|
25.74
|
667,990
|
25.74
|
|||||||||||
$59.50
|
137,196
|
5.1
|
59.50
|
137,196
|
59.50
|
|||||||||||
$80.00
- $93.75
|
36,350
|
5.1
|
81.90
|
36,350
|
81.90
|
|||||||||||
1,271,890
|
6.8
|
$
|
27.19
|
1,229,889
|
$
|
27.71
|
12.
|
Loans
to Stockholders/Officers
|
13.
|
Related
Party Transactions
|
14.
|
Treasury
Stock
|
Average.
Price
|
Shares
|
||||||
Period
|
Per
Share
|
Purchased
|
|||||
September
2001
|
$
|
22.00
|
5,000
|
||||
May
2005
|
$
|
12.36
|
226,900
|
||||
June
2005
|
$
|
11.92
|
353,330
|
||||
July
2005
|
$
|
13.77
|
315,570
|
||||
August
2005
|
$
|
14.39
|
101,100
|
||||
Total
|
$
|
12.90
|
1,001,900
|
15.
|
Significant
Customers
|
Years
Ended December 31,
|
||||||||||
Customers
|
2005
|
2004
|
2003
|
|||||||
A
|
$
|
107,260
|
$
|
153,801
|
$
|
118,713
|
||||
B
|
69,452
|
76,744
|
-
|
|||||||
C
|
48,051
|
-
|
-
|
|||||||
D
|
-
|
-
|
118,291
|
16.
|
Performance
Based Contracts
|
17.
|
Changes
in Executive Management
|
18.
|
Facility
Realignment
|
19.
|
Restructuring
and Other Related Expenses
|
Balance
at
|
Balance
at
|
|||||||||
December
31,
|
December
31,
|
|||||||||
2004
|
Payments
|
2005
|
||||||||
Severance
|
$
|
13.00
|
$
|
(13.00
|
)
|
$
|
-
|
|||
Exit
costs
|
148.00
|
(148.00
|
)
|
-
|
||||||
Total
|
$
|
161.00
|
$
|
(161.00
|
)
|
$
|
-
|
|||
20.
|
Income
Taxes
|
2005
|
2004
|
2003
|
||||||||
Current:
|
||||||||||
Federal
|
$
|
(5,867
|
)
|
$
|
3,709
|
$
|
10,308
|
|||
State
|
(379
|
)
|
1,930
|
1,181
|
||||||
Total
current
|
(6,246
|
)
|
5,639
|
11,489
|
||||||
Federal
|
3,662
|
8,039
|
(3,856
|
)
|
||||||
State
|
2,785
|
1,160
|
772
|
|||||||
Total
deferred
|
6,447
|
9,199
|
(3,084
|
)
|
||||||
Provision
for income taxes
|
$
|
201
|
$
|
14,838
|
$
|
8,405
|
||||
2005
|
2004
|
2003
|
||||||||
Federal
statutory rate
|
(35.0
|
%)
|
35.0
|
%
|
35.0
|
%
|
||||
State
income tax rate, net
|
||||||||||
of
Federal tax benefit
|
9.4
|
%
|
5.6
|
%
|
6.1
|
%
|
||||
Meals
and entertainment
|
0.4
|
%
|
0.2
|
%
|
0.3
|
%
|
||||
Valuation
allowance
|
26.3
|
%
|
0.9
|
%
|
0.0
|
%
|
||||
Other
|
0.0
|
%
|
(0.4
|
%)
|
(0.7
|
%)
|
||||
Effective
tax rate
|
1.10
|
%
|
41.30
|
%
|
40.70
|
%
|
2005
|
2004
|
||||||
Current
deferred tax assets (liabilities)
|
|||||||
included
in other current assets:
|
|||||||
Allowances
and reserves
|
$
|
2,001
|
$
|
2,604
|
|||
Contract
costs
|
2,394
|
-
|
|||||
Compensation
|
717
|
635
|
|||||
Valuation
allowance on deferred tax assets
|
(2,402
|
)
|
-
|
||||
Other
|
-
|
86
|
|||||
2,710
|
3,325
|
||||||
Noncurrent
deferred tax assets (liabilities)
|
|||||||
included
in other long-term assets:
|
|||||||
Property,
plant and equipment
|
(1,631
|
)
|
(3,676
|
)
|
|||
State
net operating loss carryforwards
|
1,955
|
1,356
|
|||||
State
taxes
|
1,731
|
1,652
|
|||||
Intangible
assets
|
3,088
|
(433
|
)
|
||||
Equity
investment
|
509
|
2,204
|
|||||
Self
insurance and other reserves
|
1,766
|
1,185
|
|||||
Contract
costs
|
-
|
5,748
|
|||||
Valuation
allowance on deferred tax assets
|
(7,418
|
)
|
(2,204
|
)
|
|||
-
|
5,832
|
||||||
Net
deferred tax asset
|
$
|
2,710
|
$
|
9,157
|
21.
|
Historical
Basic and Diluted Net (Loss)/Inocme Per Share
|
Years
Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Basic
weighted average number of common
|
14,232
|
14,564
|
14,231
|
|||||||
Dilutive
effect of stock options, SARs,
|
||||||||||
and
restricted atock
|
-
|
329
|
200
|
|||||||
Diluted
weighted average number
|
||||||||||
of
common shares
|
14,232
|
14,893
|
14,431
|
22.
|
MD&D
Discontinuation
|
23.
|
Subsequent
Event
|
24.
|
Segment
Information
|
For
the Year Ended December 31,
|
||||||||||
2005
|
2004
|
2003
|
||||||||
Revenue:
|
||||||||||
Sales
services
|
$
|
284,629
|
$
|
332,431
|
$
|
271,210
|
||||
Marketing
services
|
34,786
|
29,057
|
29,436
|
|||||||
PPG
|
-
|
2,956
|
43,884
|
|||||||
Total
|
$
|
319,415
|
$
|
364,444
|
$
|
344,530
|
||||
Operating
(loss) income:
|
||||||||||
Sales
services
|
$
|
(25,434
|
)
|
$
|
34,018
|
$
|
34,891
|
|||
Marketing
services
|
(1,185
|
)
|
1,535
|
3,567
|
||||||
PPG
|
(268
|
)
|
(362
|
)
|
(18,868
|
)
|
||||
Total
|
$
|
(26,887
|
)
|
$
|
35,191
|
$
|
19,590
|
|||
Reconciliation
of (loss) income from operations to
|
||||||||||
(loss)
income before income taxes:
|
||||||||||
Total
(loss) income from operations
|
||||||||||
for
operating groups
|
$
|
(26,887
|
)
|
$
|
35,191
|
$
|
19,590
|
|||
Gain
(loss) on investments
|
4,444
|
(1,000
|
)
|
-
|
||||||
Other
income, net
|
3,190
|
1,779
|
1,073
|
|||||||
(Loss)
income before income taxes
|
$
|
(19,253
|
)
|
$
|
35,970
|
$
|
20,663
|
|||
Capital
expenditures:
|
||||||||||
Sales
services
|
$
|
2,951
|
$
|
7,671
|
$
|
1,750
|
||||
Marketing
services
|
2,881
|
433
|
54
|
|||||||
PPG
|
-
|
-
|
25
|
|||||||
Total
|
$
|
5,832
|
$
|
8,104
|
$
|
1,829
|
||||
Depreciation
expense:
|
||||||||||
Sales
services
|
$
|
3,375
|
$
|
4,222
|
$
|
3,935
|
||||
Marketing
services
|
550
|
627
|
522
|
|||||||
PPG
|
-
|
27
|
1,173
|
|||||||
Total
|
$
|
3,925
|
$
|
4,876
|
$
|
5,630
|
||||
Total
assets
|
||||||||||
Sales
services
|
$
|
148,789
|
$
|
179,754
|
$
|
151,768
|
||||
Marketing
services
|
51,517
|
44,516
|
10,949
|
|||||||
PPG
|
-
|
435
|
56,906
|
|||||||
Total
|
$
|
200,306
|
$
|
224,705
|
$
|
219,623
|
||||
Schedule
II
|
|||||||||||||
PDI,
INC.
|
|||||||||||||
VALUATION
AND QUALIFYING ACCOUNTS
|
|||||||||||||
YEARS
ENDED DECEMBER 31, 2002, 2003 AND 2004
|
|||||||||||||
Balance
at
|
Additions
|
(1)
|
Balance
at
|
||||||||||
Beginning
|
Charged
to
|
Deductions
|
end
|
||||||||||
Description
|
of
Period
|
Operations
|
Other
|
of
Period
|
|||||||||
2003
|
|||||||||||||
Allowance
for doubtful accounts
|
$
|
1,063,477
|
$
|
1,526,626
|
$
|
(1,840,762
|
)
|
$
|
749,341
|
||||
Tax
valuation allowance
|
2,941,161
|
-
|
(1,059,310
|
)
|
1,881,851
|
||||||||
Inventory
valuation allowance
|
-
|
835,448
|
(17,583
|
)
|
817,865
|
||||||||
Accrued
product rebates, sales
|
|||||||||||||
discounts
and returns
|
16,499,861
|
12,000,000
|
(5,689,035
|
)
|
22,810,826
|
||||||||
$
|
3,692,047
|
$
|
366,125
|
$
|
(2,994,695
|
)
|
$
|
1,063,477
|
|||||
2004
|
|||||||||||||
Allowance
for doubtful accounts
|
$
|
749,341
|
$
|
654,903
|
$
|
(1,330,660
|
)
|
$
|
73,584
|
||||
Allowance
for doubtful notes
|
-
|
500,000
|
-
|
500,000
|
|||||||||
Tax
valuation allowance
|
1,881,851
|
322,436
|
-
|
2,204,287
|
|||||||||
Inventory
valuation allowance
|
817,865
|
-
|
(817,865
|
)
|
-
|
||||||||
Accrued
product rebates, sales
|
|||||||||||||
discounts
and returns
|
22,810,826
|
1,676,000
|
(20,171,058
|
)
|
4,315,768
|
||||||||
2005
|
|||||||||||||
Allowance
for doubtful accounts
|
$
|
73,584
|
$
|
713,669
|
$
|
(8,847
|
)
|
$
|
778,407
|
||||
Allowance
for doubtful notes
|
500,000
|
842,378
|
(100,000
|
)
|
1,242,378
|
||||||||
Tax
valuation allowance
|
2,204,287
|
9,318,890
|
(1,703,076
|
)
|
2,204,287
|
||||||||
Accrued
product rebates, sales
|
|||||||||||||
discounts
and returns
|
4,315,768
|
31,551
|
(4,116,460
|
)
|
230,859
|
||||||||
(1)
Includes payments and actual write offs, as well as changes in
estimates
in the reserves and
|
|||||||||||||
the
impact of acquisitions.
|
|||||||||||||