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, 2007
|
Common
stock, $0.01 par value
|
14,173,402
|
PDI,
Inc.
|
|||
Form
10-Q for Period Ended March 31, 2007
|
|||
TABLE
OF CONTENTS
|
|||
Page
No.
|
|||
PART
I - FINANCIAL INFORMATION
|
|||
Item
1.
|
Consolidated
Financial Statements
|
||
Consolidated
Balance Sheets
at
March 31, 2007 (unaudited) and December 31, 2006
|
3
|
||
Consolidated
Statements of Operations
for
the three month periods ended March 31, 2007 and 2006
(unaudited)
|
4
|
||
Consolidated
Statements of Cash Flows
for
the three month periods ended March 31, 2007 and 2006
(unaudited)
|
5
|
||
Notes
to Consolidated Financial Statements
|
6
|
||
Item
2.
|
Management's
Discussion and Analysis of Financial
Condition
and Results of Operations
|
14
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
20
|
|
Item
4.
|
Controls
and Procedures
|
21
|
|
PART
II - OTHER INFORMATION
|
|||
Item
1.
|
Legal
Proceedings
|
21
|
|
Item
1A.
|
Risk
Factors
|
22
|
|
Item
6.
|
Exhibits
|
23
|
|
Signatures
|
24
|
CONSOLIDATED
BALANCE SHEETS
|
|||||||
(in
thousands, except share and per share data)
|
|||||||
March
31,
|
December
31,
|
||||||
2007
|
2006
|
||||||
(unaudited)
|
|||||||
ASSETS
|
|||||||
Current
assets:
|
|||||||
Cash
and cash equivalents
|
$
|
54,866
|
$
|
45,221
|
|||
Short-term
investments
|
66,410
|
69,463
|
|||||
Accounts
receivable, net of allowance for doubtful accounts of
|
|||||||
$164
and $36, respectively
|
10,987
|
25,416
|
|||||
Unbilled
costs and accrued profits on contracts in progress
|
2,274
|
4,224
|
|||||
Income
tax receivable
|
1,888
|
1,888
|
|||||
Other
current assets
|
9,972
|
10,528
|
|||||
Total
current assets
|
146,397
|
156,740
|
|||||
Property
and equipment, net
|
12,096
|
12,809
|
|||||
Goodwill
|
13,612
|
13,612
|
|||||
Other
intangible assets, net
|
15,630
|
15,950
|
|||||
Other
long-term assets
|
2,350
|
2,525
|
|||||
Total
assets
|
$
|
190,085
|
$
|
201,636
|
|||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
1,880
|
$
|
3,915
|
|||
Accrued
income taxes
|
1,765
|
1,761
|
|||||
Unearned
contract revenue
|
10,338
|
14,252
|
|||||
Accrued
incentives
|
5,374
|
9,009
|
|||||
Accrued
payroll and related benefits
|
1,399
|
1,475
|
|||||
Other
accrued expenses
|
13,500
|
14,142
|
|||||
Total
current liabilities
|
34,256
|
44,554
|
|||||
Long-term
liabilities
|
8,209
|
7,885
|
|||||
Total
liabilities
|
42,465
|
52,439
|
|||||
Commitments
and contingencies (Note 7)
|
|||||||
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;
|
|||||||
15,191,408
and 15,096,976 shares issued, respectively;
|
|||||||
14,173,402
and 14,078,970 shares outstanding, respectively
|
152
|
151
|
|||||
Additional
paid-in capital
|
119,518
|
119,189
|
|||||
Retained
earnings
|
41,091
|
42,992
|
|||||
Accumulated
other comprehensive income
|
73
|
79
|
|||||
Treasury
stock, at cost (1,018,006 shares)
|
(13,214
|
)
|
(13,214
|
)
|
|||
Total
stockholders' equity
|
147,620
|
149,197
|
|||||
Total
liabilities and stockholders' equity
|
$
|
190,085
|
$
|
201,636
|
|||
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,
|
|||||||
2007
|
2006
|
||||||
(unaudited)
|
(unaudited)
|
||||||
Revenue,
net
|
$
|
32,802
|
$
|
77,144
|
|||
Cost
of services
|
23,827
|
58,440
|
|||||
Gross
profit
|
8,975
|
18,704
|
|||||
Compensation
expense
|
6,099
|
6,469
|
|||||
Other
selling, general and administrative expenses
|
5,119
|
4,730
|
|||||
Total
operating expenses
|
11,218
|
11,199
|
|||||
Operating
(loss) income
|
(2,243
|
)
|
7,505
|
||||
Other
income, net
|
1,360
|
975
|
|||||
(Loss)
income before income tax
|
(883
|
)
|
8,480
|
||||
Provision
for income tax
|
1,018
|
3,058
|
|||||
(Loss)
income from continuing operations
|
(1,901
|
)
|
5,422
|
||||
Income
from discontinued operations, net of tax
|
-
|
199
|
|||||
Net
(loss) income
|
$
|
(1,901
|
)
|
$
|
5,621
|
||
(Loss)
income per share of common stock:
|
|||||||
Basic:
|
|||||||
Continuing
operations
|
$
|
(0.14
|
)
|
$
|
0.39
|
||
Discontinued
operations
|
-
|
0.01
|
|||||
$
|
(0.14
|
)
|
$
|
0.41
|
|||
Assuming
dilution:
|
|||||||
Continuing
operations
|
$
|
(0.14
|
)
|
$
|
0.39
|
||
Discontinued
operations
|
-
|
0.01
|
|||||
$
|
(0.14
|
)
|
$
|
0.40
|
|||
Weighted
average number of common shares and
|
|||||||
common
share equivalents outstanding:
|
|||||||
Basic
|
13,908
|
13,824
|
|||||
Assuming
dilution
|
13,908
|
13,914
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|||||||
(in
thousands)
|
|||||||
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
(unaudited)
|
(unaudited)
|
||||||
Cash
Flows From Operating Activities
|
|||||||
Net
(loss) income from operations
|
$
|
(1,901
|
)
|
$
|
5,621
|
||
Adjustments
to reconcile net (loss) income to net cash
|
|||||||
provided
by operating activities:
|
|||||||
Depreciation,
amortization and accretion
|
1,452
|
1,497
|
|||||
Deferred
income taxes, net
|
882
|
(238
|
)
|
||||
Provision
for (recovery of) bad debt, net
|
128
|
(560
|
)
|
||||
Recovery
of doubtful notes, net
|
(150
|
)
|
(75
|
)
|
|||
Stock-based
compensation
|
330
|
190
|
|||||
Loss
on disposal of assets
|
7
|
-
|
|||||
Other
changes in assets and liabilities:
|
|||||||
Decrease
in accounts receivable
|
14,301
|
7,788
|
|||||
Decrease
(increase) in unbilled costs
|
1,950
|
(8,349
|
)
|
||||
Decrease
in income tax receivable
|
-
|
3,812
|
|||||
Decrease
in other current assets
|
556
|
295
|
|||||
Decrease
in other long-term assets
|
175
|
184
|
|||||
Decrease
in accounts payable
|
(2,035
|
)
|
(2,824
|
)
|
|||
(Decrease)
increase in accrued income taxes
|
4
|
2,985
|
|||||
Decrease
in unearned contract revenue
|
(3,914
|
)
|
(1,542
|
)
|
|||
(Decrease)
increase in accrued incentives
|
(3,635
|
)
|
2,915
|
||||
Decrease
in accrued payroll and related benefits
|
(76
|
)
|
(80
|
)
|
|||
Decrease
in accrued liabilities
|
(733
|
)
|
(4,305
|
)
|
|||
Decrease
in long-term liabilities
|
(558
|
)
|
(2,459
|
)
|
|||
Net
cash provided by operating activities
|
6,783
|
4,855
|
|||||
Cash
Flows From Investing Activities
|
|||||||
Sales
(purchases) of short-term investments, net
|
2,965
|
(17,113
|
)
|
||||
Repayments
from Xylos
|
150
|
75
|
|||||
Purchase
of property and equipment
|
(253
|
)
|
(428
|
)
|
|||
Net
cash provided by (used in) investing activities
|
2,862
|
(17,466
|
)
|
||||
Cash
Flows From Financing Activities
|
|||||||
Net
proceeds from exercise of stock options
|
-
|
52
|
|||||
Net
cash provided by financing activities
|
-
|
52
|
|||||
Net
increase (decrease) in cash and cash equivalents
|
9,645
|
(12,559
|
)
|
||||
Cash
and cash equivalents - beginning
|
45,221
|
90,827
|
|||||
Cash
and cash equivalents - ending
|
$
|
54,866
|
$
|
78,268
|
|||
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,
|
|||||||
2007
|
2006
|
||||||
Basic
weighted average number of
|
13,908
|
13,824
|
|||||
of
common shares
|
|||||||
Dilutive
effect of stock options, SARs,
|
|||||||
and
restricted stock
|
-
|
90
|
|||||
Diluted
weighted average number
|
|||||||
of
common shares
|
13,908
|
13,914
|
|||||
3.
|
INVESTMENTS
IN MARKETABLE SECURITIES:
|
March
31,
|
December
31,
|
||||||
2007
|
2006
|
||||||
Cash/money
accounts
|
$
|
1,756
|
$
|
332
|
|||
Municipal
securities
|
6,103
|
32,843
|
|||||
US
Treasury obligations
|
1,500
|
1,499
|
|||||
Government
agency obligations
|
6,796
|
8,394
|
|||||
Other
securities
|
2,937
|
2,879
|
|||||
Total
|
$
|
19,092
|
$
|
45,947
|
|||
4.
|
GOODWILL
AND OTHER INTANGIBLE
ASSETS:
|
As
of March 31, 2007
|
As
of December 31, 2006
|
||||||||||||||||||
Carrying
|
Accumulated
|
Carrying
|
Accumulated
|
||||||||||||||||
Amount
|
Amortization
|
Net
|
Amount
|
Amortization
|
Net
|
||||||||||||||
Covenant
not to compete
|
$
|
140
|
$
|
72
|
$
|
68
|
$
|
140
|
$
|
65
|
$
|
75
|
|||||||
Customer
relationships
|
16,300
|
2,807
|
13,493
|
16,300
|
2,536
|
13,764
|
|||||||||||||
Corporate
tradename
|
2,500
|
431
|
2,069
|
2,500
|
389
|
2,111
|
|||||||||||||
Total
|
$
|
18,940
|
$
|
3,310
|
$
|
15,630
|
$
|
18,940
|
$
|
2,990
|
$
|
15,950
|
|||||||
2007
|
2008
|
2009
|
2010
|
2011
|
||||
$
1,281
|
|
$
1,281
|
|
$
1,272
|
|
$
1,253
|
|
$
1,253
|
5.
|
OTHER
ASSETS:
|
6.
|
FACILITIES
REALIGNMENT:
|
Sales
|
Marketing
|
|||||||||
Services
|
Services
|
Total
|
||||||||
Balance
as of December 31, 2006
|
$
|
1,549
|
$
|
763
|
$
|
2,312
|
||||
Accretion
|
5
|
3
|
8
|
|||||||
Payments
|
(110
|
)
|
(61
|
)
|
(171
|
)
|
||||
Balance
as of March 31, 2007
|
$
|
1,444
|
$
|
705
|
$
|
2,149
|
||||
7.
|
COMMITMENTS
AND CONTINGENCIES:
|
8.
|
OTHER
COMPREHENSIVE (LOSS)
INCOME:
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
Net
(loss) income
|
$
|
(1,901
|
)
|
$
|
5,621
|
||
Other
comprehensive income
|
|||||||
Unrealized
holding gain on
|
|||||||
available-for-sale
securities
|
6
|
25
|
|||||
Reclassification
adjustment for
|
|||||||
realized
losses
|
-
|
(12
|
)
|
||||
Other
comprehensive (loss) income
|
$
|
(1,895
|
)
|
$
|
5,634
|
||
9.
|
STOCK-BASED
COMPENSATION:
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
Restricted
Stock
|
$
|
238
|
$
|
171
|
|||
SARs
|
50
|
9
|
|||||
Stock
Options and Performance Based Shares
|
42
|
10
|
|||||
Total
Stock-Based Compensation
|
$
|
330
|
$
|
190
|
|||
Weighted-
|
|||||||||||||
Weighted-
|
Average
|
Aggregate
|
|||||||||||
Average
|
Remaining
|
Intrinsic
|
|||||||||||
Exercise
|
Contractual
|
Value
|
|||||||||||
Shares
|
Price
|
Term
(in years)
|
(in
thousands)
|
||||||||||
Outstanding
at January 1, 2007
|
1,016,618
|
$
|
23.44
|
5.23
|
$
|
36
|
|||||||
Granted
|
157,304
|
9.52
|
5.00
|
-
|
|||||||||
Exercised
|
-
|
-
|
|||||||||||
Forfeited
or expired
|
(38,739
|
)
|
14.86
|
||||||||||
Outstanding
at March 31, 2007
|
1,135,183
|
21.80
|
5.03
|
23
|
|||||||||
Exercisable
at March 31, 2007
|
886,841
|
$
|
25.03
|
5.04
|
$
|
23
|
|||||||
Weighted-
|
Average
|
Aggregate
|
|||||||||||
Average
|
Remaining
|
Intrinsic
|
|||||||||||
Grant
Date
|
Vesting
|
Value
|
|||||||||||
Shares
|
Fair
Value
|
Period
(in years)
|
(in
thousands)
|
||||||||||
Outstanding
at January 1, 2007
|
196,738
|
$
|
14.57
|
1.31
|
$
|
2,286
|
|||||||
Granted
|
99,226
|
9.52
|
3.00
|
945
|
|||||||||
Vested
|
(46,104
|
)
|
21.53
|
||||||||||
Forfeited
|
(5,458
|
)
|
12.28
|
||||||||||
Outstanding
at March 31, 2007
|
244,402
|
$
|
11.26
|
2.45
|
$
|
1,587
|
|||||||
10.
|
INCOME
TAXES:
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2007
|
2006
|
||||||
Income
tax expense (benefit)
|
$
|
1,018
|
$
|
3,058
|
|||
Effective
income tax (benefit) rate
|
115.3
|
%
|
36.1
|
%
|
|||
Jurisdiction
|
Tax
Years
|
|
Federal
|
2003-2006
|
|
State
and Local
|
2002-2006
|
|
11.
|
DISCONTINUED
OPERATIONS:
|
|
Three
Months
|
|||
Ended
|
||||
March
31,
|
||||
2006
|
||||
Revenue,
net
|
$
|
1,668
|
||
Income
from discontinued operations
|
||||
before
income tax
|
$
|
372
|
||
Income
tax expense (benefit)
|
173
|
|||
Income
from discontinued
|
||||
operations
|
$
|
199
|
||
12.
|
LOSS
OF MATERIAL CONTRACT
|
13.
|
SEGMENT
INFORMATION:
|
Three
Months Ended March 31,
|
|||||||
2007
|
2006
|
||||||
Revenue:
|
|||||||
Sales
services
|
$
|
26,167
|
$
|
66,285
|
|||
Marketing
services
|
6,686
|
10,859
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
32,853
|
$
|
77,144
|
|||
Revenue,
intersegment:
|
|||||||
Sales
services
|
$
|
-
|
$
|
-
|
|||
Marketing
services
|
51
|
-
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
51
|
$
|
-
|
|||
Revenue,
less intersegment:
|
|||||||
Sales
services
|
$
|
26,167
|
$
|
66,285
|
|||
Marketing
services
|
6,635
|
10,859
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
32,802
|
$
|
77,144
|
|||
Operating
(loss) income:
|
|||||||
Sales
services
|
$
|
(1,981
|
)
|
$
|
5,882
|
||
Marketing
services
|
(262
|
)
|
1,540
|
||||
PPG
|
-
|
83
|
|||||
Total
|
$
|
(2,243
|
)
|
$
|
7,505
|
||
Reconciliation
of operating (loss)
|
|||||||
income
to (loss) income from
|
|||||||
continuing
operations before
|
|||||||
income
taxes
|
|||||||
Total
operating (loss) income from
|
|||||||
operating
groups
|
$
|
(2,243
|
)
|
$
|
7,505
|
||
Other
income, net
|
1,360
|
975
|
|||||
(Loss)
income from continuing operations
|
|||||||
before
income taxes
|
$
|
(883
|
)
|
$
|
8,480
|
||
Capital
expenditures:
|
|||||||
Sales
services
|
$
|
207
|
$
|
353
|
|||
Marketing
services
|
46
|
75
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
253
|
$
|
428
|
|||
Depreciation
expense:
|
|||||||
Sales
services
|
$
|
938
|
$
|
924
|
|||
Marketing
services
|
186
|
159
|
|||||
PPG
|
-
|
-
|
|||||
Total
|
$
|
1,124
|
$
|
1,083
|
|||
14.
|
SUBSEQUENT
EVENT:
|
¨
|
Sales
Services:
|
·
|
Performance
Sales Teams; and
|
·
|
Select
Access.
|
¨
|
Marketing
Services:
|
·
|
Vital
Issues in Medicine (VIM)®;
|
·
|
Pharmakon;
and
|
·
|
TVG
Marketing Research and Consulting
(TVG).
|
¨
|
PDI
Products Group (PPG)
|
Three
Months Ended March 31,
|
|||||||
Operating
data
|
2007
|
2006
|
|||||
Revenue,
net
|
100.0
|
%
|
100.0
|
%
|
|||
Cost
of services
|
72.6
|
%
|
75.8
|
%
|
|||
Gross
profit
|
27.4
|
%
|
24.2
|
%
|
|||
Compensation
expense
|
18.6
|
%
|
8.4
|
%
|
|||
Other
selling, general and administrative expenses
|
15.6
|
%
|
6.1
|
%
|
|||
Total
operating expenses
|
34.2
|
%
|
14.5
|
%
|
|||
Operating
(loss) income
|
(6.8
|
%)
|
9.7
|
%
|
|||
Other
income, net
|
4.1
|
%
|
1.3
|
%
|
|||
(Loss)
income before income tax
|
(2.7
|
%)
|
11.0
|
%
|
|||
Provision
for income tax
|
3.1
|
%
|
4.0
|
%
|
|||
(Loss)
income from continuing operations
|
(5.8
|
%)
|
7.0
|
%
|
|||
Income
from discontinued operations, net of tax
|
0.0
|
%
|
0.3
|
%
|
|||
Net
(loss) income
|
(5.8
|
%)
|
7.3
|
%
|
|||
·
|
the
net loss when adjusted for depreciation and other non-cash expense
of $2.6
million, which includes depreciation expense of $1.1 million and
stock
compensation expense of $330,000, resulted in cash flow of approximately
$600,000;
|
Exhibit
No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith as Exhibit 31.1.
|
|
31.2
|
Certification
of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002, filed herewith as Exhibit 31.2.
|
|
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
as Exhibit 32.1.
|
|
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
as Exhibit 32.2.
|
Date:
May 10, 2007
|
PDI,
Inc.
|
||
(Registrant)
|
|||
/s/
Michael J. Marquard
|
|||
Michael
J. Marquard
|
|||
Chief
Executive Officer
|
|||
/s/
Jeffrey E. Smith
|
|||
Jeffrey
E. Smith
|
|||
Chief
Financial Officer
|