FORM
10-Q
|
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
PDI,
INC.
|
||
(Exact
name of registrant as specified in its charter)
|
||
|
Delaware
|
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, New Jersey 07458
|
||
(Address
of principal executive offices and zip code)
|
||
(201)
258-8450
|
||
(Registrant's
telephone number, including area code)
|
||
|
Large
accelerated filer o
|
Accelerated
filer ý
|
Non-accelerated
filer o
|
Class
|
Shares
Outstanding
May
5, 2006
|
Common
stock, $0.01 par value
|
14,047,940
|
PDI,
INC.
|
|||
Form
10-Q for Period Ended March 31, 2006
|
|||
TABLE
OF CONTENTS
|
|||
Page
No.
|
|||
PART
I - FINANCIAL INFORMATION
|
|||
Item
1.
|
Consolidated
Financial Statements
|
||
Consolidated
Balance Sheets
at
March 31, 2006 (unaudited) and December 31, 2005
|
3
|
||
Consolidated
Statements of Operations
for
the three month periods ended March 31, 2006 and 2005
(unaudited)
|
4
|
||
Consolidated
Statements of Cash Flows
for
the three month periods ended March 31, 2006 and 2005
(unaudited)
|
5
|
||
Notes
to Consolidated Financial Statements
|
6
|
||
Item
2.
|
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
|
16
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
23
|
|
Item
4.
|
Controls
and Procedures
|
23
|
|
PART
II - OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
24
|
|
Item
1A.
|
Risk
Factors
|
25
|
|
Item
6.
|
Exhibits
|
26
|
|
Signatures
|
27
|
PDI,
INC.
|
|||||||
CONSOLIDATED
BALANCE SHEETS
|
|||||||
(in
thousands, except share and per share data)
|
|||||||
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
(unaudited)
|
|||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
78,268
|
$
|
90,827
|
|||
Short-term
investments
|
23,933
|
6,807
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of
|
|||||||
$193
and $778, respectively
|
19,931
|
27,148
|
|||||
Unbilled
costs and accrued profits on contracts in progress
|
14,323
|
5,974
|
|||||
Income
tax receivable
|
2,480
|
6,292
|
|||||
Other
current assets
|
13,518
|
14,078
|
|||||
Total
current assets
|
152,453
|
151,126
|
|||||
Property
and equipment, net
|
15,214
|
16,053
|
|||||
Goodwill
|
13,112
|
13,112
|
|||||
Other
intangible assets, net
|
16,911
|
17,305
|
|||||
Other
long-term assets
|
3,053
|
2,710
|
|||||
Total
assets
|
$
|
200,743
|
$
|
200,306
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
2,869
|
$
|
5,693
|
|||
Income
taxes payable
|
7,179
|
6,805
|
|||||
Unearned
contract revenue
|
11,056
|
12,598
|
|||||
Accrued
returns
|
231
|
231
|
|||||
Accrued
incentives
|
14,943
|
12,028
|
|||||
Accrued
payroll and related benefits
|
7,476
|
7,556
|
|||||
Other
accrued expenses
|
15,468
|
19,785
|
|||||
Total
current liabilities
|
59,222
|
64,696
|
|||||
Commitments
and Contingencies (Note 6)
|
|||||||
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;
|
|||||||
15,065,946
and 14,947,771 shares issued, respectively;
|
|||||||
14,047,940
and 13,929,765 shares outstanding, respectively
|
151
|
149
|
|||||
Additional
paid-in capital
|
117,696
|
118,325
|
|||||
Retained
earnings
|
36,804
|
31,183
|
|||||
Accumulated
other comprehensive income
|
84
|
71
|
|||||
Unamortized
compensation costs
|
-
|
(904
|
)
|
||||
Treasury
stock, at cost (1,018,006 shares)
|
(13,214
|
)
|
(13,214
|
)
|
|||
Total
stockholders' equity
|
$
|
141,521
|
$
|
135,610
|
|||
Total
liabilities & stockholders' equity
|
$
|
200,743
|
$
|
200,306
|
|||
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)
|
|||||||
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(unaudited)
|
(unaudited)
|
||||||
Revenue,
net
|
$
|
78,812
|
$
|
82,024
|
|||
Program
expenses
|
59,717
|
63,981
|
|||||
Gross
profit
|
19,095
|
18,043
|
|||||
Compensation
expense
|
6,622
|
9,004
|
|||||
Other
selling, general and administrative expenses
|
4,596
|
9,814
|
|||||
Total
operating expenses
|
11,218
|
18,818
|
|||||
Operating
income (loss)
|
7,877
|
(775
|
)
|
||||
Other
income, net
|
975
|
669
|
|||||
Income
(loss) before income tax
|
8,852
|
(106
|
)
|
||||
Income
tax expense (benefit)
|
3,231
|
(44
|
)
|
||||
Net
income (loss)
|
$
|
5,621
|
$
|
(62
|
)
|
||
Net
income (loss) per share of common stock:
|
|||||||
Basic
|
$
|
0.41
|
$
|
(0.00
|
)
|
||
Assuming
dilution
|
$
|
0.40
|
$
|
(0.00
|
)
|
||
Weighted
average number of common shares and
|
|||||||
common
share equivalents outstanding:
|
|||||||
Basic
|
13,824
|
14,675
|
|||||
Assuming
dilution
|
13,914
|
14,849
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
PDI,
INC.
|
|||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
(in
thousands)
|
|||||||
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
(unaudited)
|
(unaudited)
|
||||||
Cash
Flows From Operating Activities
|
|||||||
Net
income (loss) from operations
|
$
|
5,621
|
$
|
(62
|
)
|
||
Adjustments
to reconcile net income to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation
and amortization
|
1,485
|
1,486
|
|||||
Loss
on disposal of assets
|
-
|
91
|
|||||
Stock
compensation costs
|
190
|
269
|
|||||
Deferred
income taxes, net
|
(238
|
)
|
288
|
||||
Provision
for bad debt
|
(710
|
)
|
42
|
||||
Other
changes in assets and liabilities:
|
|||||||
Decrease
(increase) in accounts receivable
|
7,788
|
(930
|
)
|
||||
Increase
in unbilled costs
|
(8,349
|
)
|
(4,786
|
)
|
|||
Decrease
in income tax receivable
|
3,812
|
-
|
|||||
Decrease
(increase) in other current assets
|
370
|
(574
|
)
|
||||
(Increase)
decrease in other long-term assets
|
184
|
8
|
|||||
Decrease
in accounts payable
|
(2,824
|
)
|
(2,412
|
)
|
|||
Increase
(decrease) in income taxes payable
|
374
|
(448
|
)
|
||||
(Decrease)
increase in unearned contract revenue
|
(1,542
|
)
|
1,331
|
||||
Decrease
in accrued returns
|
-
|
(2,657
|
)
|
||||
Increase
(decrease) in accrued incentives
|
2,915
|
(8,285
|
)
|
||||
(Decrease)
increase in accrued payroll and related benefits
|
(80
|
)
|
515
|
||||
(Decrease)
increase in accrued liabilities
|
(4,141
|
)
|
3,362
|
||||
Net
cash provided by (used in) operating activities
|
4,855
|
(12,762
|
)
|
||||
Cash
Flows From Investing Activities
|
|||||||
(Purchases)
sales of short-term investments, net
|
(17,113
|
)
|
15,488
|
||||
Repayments
from Xylos
|
75
|
-
|
|||||
Purchase
of property and equipment
|
(428
|
)
|
(1,721
|
)
|
|||
Cash
paid for acquisition, including acquisition costs
|
-
|
(29
|
)
|
||||
Net
cash (used in) provided by investing activities
|
(17,466
|
)
|
13,738
|
||||
Cash
Flows From Financing Activities
|
|||||||
Net
proceeds from exercise of stock options
|
52
|
388
|
|||||
Net
cash provided by financing activities
|
52
|
388
|
|||||
Net
(decrease) increase in cash and cash equivalents
|
(12,559
|
)
|
1,364
|
||||
Cash
and cash equivalents - beginning
|
90,827
|
81,000
|
|||||
Cash
and cash equivalents - ending
|
$
|
78,268
|
$
|
82,364
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements
|
1.
|
BASIS
OF PRESENTATION:
|
2.
|
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES:
|
Three
Months Ended March 31,
|
|||||||
2006
|
2005
|
||||||
Basic
weighted average number of common
|
13,824
|
14,675
|
|||||
Dilutive
effect of stock options, SARs
|
|||||||
and
restricted stock
|
90
|
174
|
|||||
Diluted
weighted average number
|
|||||||
of
common shares
|
13,914
|
14,849
|
|||||
3.
|
INVESTMENTS
IN MARKETABLE SECURITIES:
|
March
31,
|
December
31,
|
||||||
2006
|
2005
|
||||||
Cash/money
accounts
|
$
|
1,630
|
$
|
1,953
|
|||
Certificate
of deposit
|
2,155
|
2,131
|
|||||
Municipal
bonds
|
21,595
|
2,620
|
|||||
US
Treasury obligations
|
997
|
987
|
|||||
Government
agency obligations
|
5,488
|
7,742
|
|||||
Total
|
$
|
31,865
|
$
|
15,433
|
4.
|
GOODWILL AND OTHER INTANGIBLE ASSETS: |
As
of March 31, 2006
|
As
of December 31, 2005
|
||||||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||||||||
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
||||||||||||||
Covenant
not to compete
|
$
|
140
|
$
|
44
|
$
|
96
|
$
|
1,634
|
$
|
1,491
|
$
|
143
|
|||||||
Customer
relationships
|
16,300
|
1,721
|
14,579
|
17,371
|
2,491
|
14,880
|
|||||||||||||
Corporate
tradename
|
2,500
|
264
|
2,236
|
2,652
|
370
|
2,282
|
|||||||||||||
Total
|
$
|
18,940
|
$
|
2,029
|
$
|
16,911
|
$
|
21,657
|
$
|
4,352
|
$
|
17,305
|
2006
|
2007
|
2008
|
2009
|
2010
|
||||
$
1,354
|
|
$
1,281
|
|
$
1,281
|
|
$
1,272
|
|
$
1,253
|
5.
|
OTHER
ASSETS:
|
6.
|
COMMITMENTS
AND CONTINGENCIES:
|
7.
|
OTHER
COMPREHENSIVE INCOME:
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Net
income (loss)
|
$
|
5,621
|
$
|
(62
|
)
|
||
Other
comprehensive income
|
|||||||
Unrealized
holding gain/(loss) on
|
|||||||
available-for-sale
securities arising during period
|
25
|
(51
|
)
|
||||
Reclassification
adjustment for realized losses
|
|||||||
included
in net income (loss)
|
(12
|
)
|
-
|
||||
Other
comprehensive income (loss)
|
$
|
5,634
|
$
|
(113
|
)
|
2006
|
2005
|
||
Risk-free
interest rate
|
4.74%
|
4.05%
|
|
Expected
life
|
3.5
years
|
4
years
|
|
Expected
dividends
|
$0
|
$0
|
|
Expected
volatility
|
66.97%
|
100%
|
|
Weighted-
|
|||||||||||||
Weighted-
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Exercise
|
Contractual
|
Intrinsic
|
|||||||||||
Shares
|
Price
|
Term
(in years)
|
Value
|
||||||||||
Outstanding
at January 1, 2006
|
1,381,096
|
$
|
26.20
|
6.58
|
$
|
494,463
|
|||||||
Granted
|
105,782
|
12.05
|
4.98
|
|
|||||||||
Exercised
|
(16,667
|
)
|
5.26
|
||||||||||
Forfeited
or expired
|
(373,595
|
)
|
30.17
|
||||||||||
Outstanding
at March 31, 2006
|
1,096,616
|
23.81
|
6.03
|
98,708
|
|||||||||
Exercisable
at March 31, 2006
|
937,334
|
25.78
|
6.02
|
92,408
|
Weighted-
|
Average
|
||||||||||||
Average
|
Remaining
|
Aggregate
|
|||||||||||
Grant
|
Vesting
|
Intrinsic
|
|||||||||||
Shares
|
Price
|
Period
(in years)
|
Value
|
||||||||||
Outstanding
at January 1, 2006
|
112,723
|
$
|
17.49
|
1.08
|
$
|
1,521,761
|
|||||||
Granted
|
108,021
|
11.87
|
2.27
|
1,260,605
|
|||||||||
Vested
|
(10,000
|
)
|
26.67
|
||||||||||
Forfeited
or expired
|
(6,513
|
)
|
20.06
|
||||||||||
Outstanding
at March 31, 2006
|
204,231
|
13.99
|
1.58
|
2,383,376
|
|
|
Three
Months
|
|
|
|
|
Ended
March 31,
|
|
|
|
|
2005
|
|
|
Net
loss, as reported
|
|
$
|
(62
|
)
|
Add:
Stock-based employee compensation
|
|
|
|
|
expense
included in reported net loss,
|
|
|
|
|
net
of related tax effects
|
|
|
190
|
|
Deduct:
Total stock-based
|
|
|
|
|
employee
compensation expense determined
|
|
|
|
|
under
fair value based methods for all
|
|
|
|
|
awards,
net of related tax effects
|
|
|
(4,852
|
)
|
Pro
forma net loss
|
|
$
|
(4,724
|
)
|
|
|
|
|
|
Loss
per share
|
|
|
|
|
Basic—as
reported
|
|
$
|
(0.00
|
)
|
Basic—pro
forma
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
Diluted—as
reported
|
|
$
|
(0.00
|
)
|
Diluted—pro
forma
|
|
$
|
(0.32
|
)
|
9.
|
INCOME TAXES: |
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Income
tax expense (benefit)
|
$
|
3,231
|
$
|
(44
|
)
|
||
Effective
income tax rate
|
36.5
|
%
|
(41.5
|
%)
|
10.
|
SEGMENT
INFORMATION:
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Revenue:
|
|||||||
Sales
services
|
$
|
67,953
|
$
|
72,718
|
|||
Marketing
services
|
10,859
|
9,306
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
78,812
|
$
|
82,024
|
|||
Operating
income (loss):
|
|||||||
Sales
services
|
$
|
6,337
|
$
|
1,441
|
|||
Marketing
services
|
1,540
|
101
|
|||||
PPG
|
-
|
(2,317
|
)
|
||||
Total
|
$
|
7,877
|
$
|
(775
|
)
|
||
Reconciliation
of income (loss) from operations to
|
|||||||
income
(loss) before income taxes:
|
|||||||
Total
income (loss) from operations
|
|||||||
for
operating groups
|
$
|
7,877
|
$
|
(775
|
)
|
||
Other
income, net
|
975
|
669
|
|||||
Income
before income taxes
|
$
|
8,852
|
$
|
(106
|
)
|
||
Capital
expenditures:
|
|||||||
Sales
services
|
$
|
353
|
$
|
78
|
|||
Marketing
services
|
75
|
1,643
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
428
|
$
|
1,721
|
|||
Depreciation
expense:
|
|||||||
Sales
services
|
$
|
932
|
$
|
894
|
|||
Marketing
services
|
159
|
117
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
1,091
|
$
|
1,011
|
11.
|
SUBSEQUENT EVENT: |
¨
|
Sales
Services:
|
·
|
dedicated
contract sales (Performance Sales Teams);
|
·
|
shared
contract sales (Select Access);
|
·
|
medical
devices and diagnostics (MD&D) contract sales and clinical sales teams
|
¨
|
Marketing
Services:
|
·
|
Education
and communication (Vital Issues in Medicine or
VIM);
|
·
|
Pharmakon;
and
|
·
|
TVG
Marketing Research and Consulting
(MR&C)
|
¨
|
PDI
Products Group (PPG)
|
Three
Months Ended March 31,
|
|||||||
Operating
data
|
2006
|
2005
|
|||||
Revenue,
net
|
100.0
|
%
|
100.0
|
%
|
|||
Program
expenses
|
75.8
|
%
|
78.0
|
%
|
|||
Gross
profit
|
24.2
|
%
|
22.0
|
%
|
|||
Compensation
expense
|
8.4
|
%
|
11.0
|
%
|
|||
Other
selling, general and administrative expenses
|
5.8
|
%
|
12.0
|
%
|
|||
Total
operating expenses
|
14.2
|
%
|
22.9
|
%
|
|||
Operating
income (loss)
|
10.0
|
%
|
(0.9
|
%)
|
|||
Interest
income, net
|
1.2
|
%
|
0.8
|
%
|
|||
Income
(loss) before income tax
|
11.2
|
%
|
(0.1
|
%)
|
|||
Income
tax expense (benefit)
|
4.1
|
%
|
(0.1
|
%)
|
|||
Net
income (loss)
|
7.1
|
%
|
(0.1
|
%)
|
Exhibit
No.
|
Description
|
|
31.1
|
Certification
of Interim Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith as Exhibit
31.1.
|
|
31.2
|
Certification
of Interim Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith as Exhibit
31.2.
|
|
32.1
|
Certification
of Interim 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 as Exhibit 32.1.
|
|
32.2
|
Certification
of Interim 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 as Exhibit 32.2.
|
Date:
May 10, 2006
|
PDI,
INC.
|
||
(Registrant)
|
|||
/s/Larry Ellberger | |||
Larry
Ellberger
|
|||
Interim
Chief Executive Officer
|
|||
/s/DeLisle B. Callender | |||
DeLisle
B. Callender
|
|||
Interim
Chief Financial Officer
|