DENDRITE INTERNATIONAL INC - 10-K Annual Report

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Dendrite International, Inc.
(Exact Name of Registrant as Specified in Its Charter)

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. ý

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). ý

The aggregate market value of shares of common stock held by non-affiliates of the registrant as of June 30, 2003 was $350,144,821 based upon the June 30, 2003, closing price of $12.79 per share.

The number of shares of common stock outstanding as of March 5, 2004 was 41,039,493.

Portions of the registrant's Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference into Part III.

Dendrite International, Inc. (collectively, with its subsidiaries, the "Company," "Dendrite," "we," and "our") was incorporated in 1987 with a mission to improve sales and marketing productivity for the pharmaceutical industry. Since then, through organic growth and strategic acquisitions, Dendrite has consistently broadened its offerings to include a wide range of pharmaceutical sales and marketing solutions.

Dendrite leverages its extensive knowledge of the pharmaceutical industry's complex and unique selling process to deliver valuable solutions that address today's business issues. Today, Dendrite's products and services are used across 50 countries and Dendrite is clearly a worldwide leader in providing pharmaceutical-focused solutions. With our flexible solutions and global reach, we are able to offer our clients a common technology and service platform, which offers the benefits of consistent performance, delivery and management. Dendrite's customers include the world's top 20 pharmaceutical companies. Our core competencies include the ability to design, develop, implement and train users on industry-specific software solutions. Dendrite also has the ability to quickly and reliably reach thousands of physicians and other healthcare professionals with promotional and drug safety information through a suite of well-branded communication channels. These capabilities are difficult to replicate and we believe set us apart from our competition.

Dendrite's integrated sales and marketing solutions enable pharmaceutical companies to tie their sales and marketing initiatives together. From clinical trial support to drug sample distribution, from sales automation technology to regulatory compliance, Dendrite helps pharmaceutical and other life sciences companies maximize the effectiveness of their sales and marketing resources.

Dendrite's solutions span the pharmaceutical commercialization process and fit into five main categories which include Sales Effectiveness, Clinical Development, Brand Marketing, Customer Management and Compliance Management.

Sales Effectiveness solutions cover a range of products and services including sales force automation ("SFA") software, technology support services, sales territory management and performance analysis.

These solutions consist of software and services that enable clients to manage and support their sales forces. Dendrite has a proven history of delivering software and support across the world to sales forces ranging from less than 50 representatives to the world's largest pharmaceutical sales forces of more than 12,000 representatives. Implementing complex software solutions and training pharmaceutical sales forces continues to be a major core competency of Dendrite.

WebForce™. A comprehensive suite of sales force tools used for managing sales territories that includes data sharing, analysis and interfacing capabilities, WebForce™ serves as the basis of the customer relationship management ("CRM") environment for mid-size to large, national and multinational pharmaceutical clients. With country-specific functionality, the WebForce™ product suite

offers a common architecture with interfaces that can be configured to support software solutions for various pharmaceutical user markets.

Pharbase SFA™. This European-based solution combines Dendrite's PharBase customer data service with a pre-configured, cost effective SFA solution. Clients using PharbaseSFA™ benefit from our proven track record of providing the pharmaceutical industry with software and services. For those companies that require basic functionality, this solution offers an affordable way to remain competitive in the market.

j-force™. This software solution suite was specifically developed for the Asian hospital-driven pharmaceutical market. j-force™ offers solutions such as:

VisiForce®. This application is designed for developing markets around the world. VisiForce® is a complete sales force management system that can be rapidly deployed and is highly configurable and scalable. VisiForce® combines the business model of Dendrite's popular Medicheck™ solution with the more robust and flexible technology platform of Dendrite's WebForce™ solution. Fully functional on PDAs and laptops, VisiForce® also allows companies to use technology appropriate to their budgets and specific market conditions.

WebForceCG™. Dendrite has leveraged its experience in delivering SFA technology to the pharmaceutical industry and applied it to the consumer goods industry. Our solution consists of a software solution suite configured to address the needs of this market. This comprehensive, web-enabled product suite guides consumer goods companies in effectively managing objective-driven, bi-directional communication among head office, sales management and remote field sales forces. WebForceCG™ facilitates effective product promotions, management objectives, event activities and funds management. Simultaneously, it provides sales forces with a single, centralized location from

which to access product information, enter orders, report shelf conditions, evaluate competitors, record and catalogue client and prospect data and access customer and account databases. The WebForceCG™ suite consists of three core applications (ForceCG™, ForceMobileCG™ and ForceAnalyzerCG™) for sales and marketing units within traditional consumer goods companies, over-the-counter/consumer health care units and generic pharmaceutical divisions.

In addition to software applications, Dendrite offers a comprehensive range of technical services designed to support field-based technology users. With our strategic acquisition of Synavant Inc. ("Synavant"), we are now able to offer platform-independent technology support. Many of the technical support needs of field-based users are the same whether they use a Dendrite software application or that of another vendor. Examples of this include hardware break/fix and hardware asset management. Our hardware and help desk service centers are trained to support a variety of applications. Typically, services are provided under multi-year contracts.

Implementation Services. These services include: the implementation and, if applicable, configuration of a Dendrite or third-party software product to meet customer requirements; loading of data onto the customer's computer hardware; and training customer employees on the technical and business uses of the application(s).

Technical Support Services. These offerings include: technical support for software products; continuing support of the customer's database; loading and linking new releases of data; providing software defect resolution; and issuing performance enhancements.

Data Center Services. Dendrite provides clients with data storage, cleansing, retrieval and analysis, enabling them to manage large volumes of critical information. We also operate and maintain Company and client servers in state-of-the-art data centers complete with redundant power systems, battery backup capabilities and other contingency options to ensure that clients' systems remain consistently available.

Call Center Services. We deliver help desk support services to head office and field technology users, providing responses to support requests and offering a single point of contact and accountability through our call center technology and support personnel. Call center personnel are trained on the core software they support as well as a host of other business-related applications. This group is focused on minimizing downtime due to technical or business-related issues.

Hardware Support Services. Dendrite provides complete repair, maintenance, asset control and upgrade support for a wide variety of hardware devices and components to keep sales forces effective and operational. In addition, at the request of certain customers, we may resell computer hardware.

Training and Educational Services. Dendrite provides one-time and ongoing training to our clients. We offer a range of training options including remote online learning, computer-based training, just-in-time training and instructor-led classes. Training large numbers of users on the software and, more importantly, the business use of the applications is one of Dendrite's core competencies.

Additional Ongoing Support Services. These services include project management as well as assistance in planning and executing realignments of sales territories to allow for more effective resource allocation.

Dendrite's Clinical Development solutions support the development and commercialization process that pharmaceutical companies follow to bring therapeutic treatments to market.

Dendrite's Clinical Development solutions enhance the productivity and speed the process of bringing drugs from testing to market. Solutions that fall into this category include:

Clinical trial accelerator services that expedite trial site and patient recruitment;

Thought Leader Influence Network™, which identifies thought leaders in a particular therapy area that can be recruited for trials or for leading the physician community in approaches to treatment;

Clinical trial effectiveness solutions that bring unique, targeted and efficient approaches to trial support and operation; and

Proactive risk management solutions to enhance pharmacovigilance and safety initiatives.

j-centre™. This suite of applications was designed specifically for the Asian market. The clinical development support component of j-centre™ is:

Dendrite's Brand Marketing solutions support direct marketing initiatives such as direct mail, peer-to-peer communications, sample fulfillment and campaign analysis.

Dendrite offers a full suite of brand marketing solutions that leverage Dendrite's data validation and prescriber tracking capabilities to deliver promotional programs. Combining Dendrite's data capabilities with its promotional analysis solutions allows customers to precisely target their audience. Dendrite's Brand Marketing solutions include:

Dendrite's Customer Management solutions help pharmaceutical companies to manage and understand their customers through the use of data analysis and validation. Proper targeting and segmentation of customers is almost always at the core of the pharmaceutical commercialization process. Our Customer Management solutions are focused on helping pharmaceutical companies accurately and effectively target and segment their customers for maximum impact.

Pharmaceutical companies' customers can include wholesalers, prescribers and patients. Our Customer Management solutions are primarily focused on the prescriber customer.

NUCLEUS Pharma™. This comprehensive information management system enables users to capture, centralize and manage customer-related information. NUCLEUS Pharma™ provides sales organizations with a view of each customer based on all available data from any and every source. It enables pharmaceutical companies to define and store unique customer views that support enterprise-wide business activities. This provides sales forces, management, operations and head office personnel with accurate, timely and comprehensive customer information for making critical business decisions.

Validator™. This solution keeps customer data clean, up-to-date and verified, by standardizing, matching and merging duplicate information. Validator™ enables pharmaceutical companies to: validate prescribers to ensure that only client-defined prescribers are in their database; repair incorrect or vacant Drug Enforcement Agency, medical education and state license numbers; repair incorrect or outdated address information; and validate addresses to ensure the accuracy and efficiency of customer data.

Organization Manager®. This application enables pharmaceutical companies to quickly and effectively respond to changing market conditions and business requirements by simplifying the task of capturing and maintaining sales force demographic information and aligning field sales forces. Organization Manager® lets users create centralized sales representative rosters and alignments that are easily accessible across the entire organization. This permits the efficient management of sales force information in order to effectively deploy and direct field force resources.

Pharbase™. This European- and Canadian-based healthcare database service provides a current source of intelligence to pharmaceutical companies. Dendrite receives daily input from an array of information sources such as professional healthcare organizations, doctors, pharmacists, online data sources and pharmaceutical company representatives. Powerful marketing programs can be developed by database subscribers with precise targeting characteristics based on elements such as doctor profile data, response to previous promotional approaches, specialty, interests, areas of influence and socio-demographic data.

Docscan®. This physician profiling service enables pharmaceutical clients to analyze physician prescribing behavior, market trends and demographics. Docscan® provides these clients with business intelligence for a broad range of strategic sales and marketing actions, including projecting prescriber product acceptance, predicting consumer utilization and preparing subsequent promotional initiatives. Docscan® is currently available in Italy, Belgium, Spain and the Netherlands.

ScripMax™. This U.S.-based suite of business intelligence applications is powered by Dendrite's LPD. ScripMax™ enables pharmaceutical companies to develop powerful and actionable sales and

marketing strategies based on analysis of specific patterns of prescribing events. Component applications include:

Longitudinal Prescription Data, Analytics and Consulting. Dendrite also provides analytical and consulting services based on the development of a customer-specific database and the application of unique tools. We have developed strategic alliances with a consortium of chain and independent retail pharmacies across the U.S. that are demographically and geographically diverse. These pharmacy partners deliver timely, accurate and anonymous data for incorporation into Dendrite's proprietary algorithms and tools. Through these alliances, Dendrite offers clients access to unique data, that when combined with advanced analytics and predictive modeling capabilities, provides information regarding prescriber behavior not typically available from standard forms of analysis. Dendrite's analytical and consulting services include:

Dendrite offers solutions to help companies maintain compliance with certain of the multitude of regulations to which they are subject. Dendrite's Compliance Management solutions include:

Sample Guardian™. This application provides tools used to manage the accountability, compliance and maintenance of critical sample information required by pharmaceutical companies doing business in the U.S. to comply with the regulations promulgated under the Prescription Data Marketing Act.

Sample Allocations™. This comprehensive intranet-based solution enables pharmaceutical personnel to manage product sample allocations to the field. Sample Allocations™ automates tasks, at

the head office and in the field, related to ordering, managing and processing sample product fulfillment.

Sample Reporting™. This reporting solution is designed to provide easy and rapid access to head office users to analyze, report and trend sample information. Based on an optimized query infrastructure, reports are designed and delivered using our business intelligence tools.

Computer Systems Validation Services™. This service is focused on ensuring that our clients' software applications and systems meet all business and regulatory requirements through the application of formalized testing exercises, such as the Prescription Drug Marketing Act regulations for 21 CFR Part 11 and Part 203 regulatory testing and validation services.

Our major clients consist of multinational pharmaceutical and other life sciences companies including: Abbott; Allergan; AstraZeneca; Aventis; Bayer; Boehringer-Ingelheim; Bristol-Myers Squibb; Celltech Medeva; Dainippon; Eli Lilly; Forest Laboratories; GlaxoSmithKline; Kissei; Merck, Mitsubishi Tokyo; Novartis; Novo Nordisk; Ono Pharmaceuticals; Pfizer; Procter & Gamble; Sankyo; Sanofi; Solvay; Takeda Pharma; Teijin; Tokyo Tanabe; Torii; Tsumura; and Wyeth Lederle.

Approximately 36% of our total revenues in 2003 and 2002 came from our largest client, Pfizer. Approximately 41% and 10% of our total revenues in 2001 came from Pfizer and Bristol-Myers Squibb, respectively.

Our solutions compete with others principally on the basis of industry applicability and product flexibility. They also compete on the basis of name recognition, global competence, service standards, cost, breadth of customer base and technical support and service. We believe that our solutions compete favorably with respect to these factors, and that we are positioned to maintain strong market leadership through innovative new product and application developments and continued focus on support services.

While we face a number of significant competitors in each of our specific market areas, with our recent acquisitions, we believe that there is no single competitor that currently offers our breadth of solutions in the pharmaceutical and life sciences industries on a worldwide basis. We expect competition to increase as new competitors enter our markets and as existing competitors expand their product lines, consolidate or offer more compelling solutions. We believe that we have distinguished ourselves and are well positioned in the pharmaceutical market due to our combination of deep pharmaceutical business knowledge, recognized technical support, depth of personnel experienced in the pharmaceutical industry and the quality of our proprietary products and product architecture which is uniquely suited to the pharmaceutical industry. In addition, we face competition from current customers and potential customers who may elect to design and install or operate their own systems.

We continue to take advantage of new technologies in developing new products and services. We work closely with our customers to develop new products designed directly for their business needs. This approach requires less upfront research costs, therefore keeping our research and development expenditures relatively flat. We recorded approximately $11,633,000, $10,396,000 and $11,104,000 of research and development expense in the years ended December 31, 2003, 2002 and 2001, respectively.

Dendrite has capitalized certain costs related to the development of new software products and the enhancement of existing software products consistent with Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed."

Capitalized software development costs net of accumulated amortization were $6,126,000 and $5,605,000 at December 31, 2003 and 2002, respectively.

Dendrite relies on a combination of methods to protect our proprietary rights, including:

Existing U.S. copyright laws provide only limited protection for our proprietary rights, and even less protection may be available under foreign laws.

As of December 31, 2003, the Company employed 2,524 employees: 1,549 in the U.S. and Canada; 636 in Europe; 212 in the Pacific Rim; and 127 in Latin America. The primary increase in headcount from 2002 to 2003 was due to the addition of 869 employees associated with the Synavant acquisition.

See Note 17 to the Consolidated Financial Statements concerning information relating to the Company's geographic areas.

Name	Age	Capacities in Which They Serve
John E. Bailye	50	Chairman of the Board and Chief Executive Officer
Paul L. Zaffaroni	57	President and Chief Operating Officer
Kathleen E. Donovan	43	Senior Vice President and Chief Financial Officer
Christine A. Pellizzari	36	Senior Vice President, General Counsel and Secretary
Mark H. Cieplik	49	Senior Vice President
Garry D. Johnson	52	Senior Vice President and Chief Technology Officer
Marc Kustoff	48	Senior Vice President
Jean-Paul Modde	39	Senior Vice President

John E. Bailye has served as Chief Executive Officer and Director since the Company's founding in 1987 and since 1991 in the additional position of Chairman of the Board. Prior to 1987, Mr. Bailye served as Managing Director of Foresearch Pty., Limited ("Foresearch"), a consulting company to the pharmaceutical industry in Australia. Mr. Bailye served in that capacity from the time he acquired Foresearch in 1976 until he sold the company in 1986. Mr. Bailye served as a market researcher for Foresearch prior to 1976. Mr. Bailye holds a Bachelor's of Commerce in Finance, Marketing and Business from the University of New South Wales.

Paul L. Zaffaroni has served as President and Chief Operating Officer of Dendrite since 2001. Prior to joining the Company, Mr. Zaffaroni spent 10 years at Acxiom Corporation, serving in various capacities including Corporate Sales Leader, Division Leader and Senior Vice President. Prior to Acxiom, Mr. Zaffaroni spent 21 years at IBM Corporation. Mr. Zaffaroni holds a Bachelors of Science in Business Administration from Youngstown State University.

Kathleen E. Donovan has served as Senior Vice President and Chief Financial Officer since March 2003. Ms. Donovan has been with Dendrite since 1997 and has previously served as Vice President and Acting Chief Financial Officer, Vice President and Treasurer, Vice President and Chief Financial Officer of American Operations, Vice President and Corporate Controller, and Vice President of Financial Operations. Prior to joining the Company, Ms. Donovan spent 14 years at Unisys Corporation, most recently as Director of Corporate Financial Planning. Ms. Donovan holds a Bachelors of Science in Finance from Georgetown University.

Christine A. Pellizzari has served as Senior Vice President, General Counsel and Secretary since 2000. Ms. Pellizzari served as Associate Counsel from 1998 to 2000. Prior to joining the Company, Ms. Pellizzari was an Associate at Wilentz, Goldman & Spitzer, P.A. from 1995 to 1998 and law clerk to the Honorable Reginald Stanton, Superior Court of New Jersey, from 1994 to 1995. Ms. Pellizzari holds a Bachelors of Arts in Legal Studies from the University of Massachusetts at Amherst and a Juris Doctorate from the University of Colorado School of Law.

Mark H. Cieplik has served as Senior Vice President responsible the Company's operations and sales efforts for a major customer since 2002 and, additionally, for clinical services since 2003. Mr. Cieplik has been with Dendrite since 1997, previously serving in key senior positions including Senior Vice President, Worldwide Sales. Prior to joining the Company, Mr. Cieplik served as Vice President of Americas of Interleaf, Inc. from 1995 to 1997 and Director of North America Major Accounts for System Software Associates from 1991 to 1995. Mr. Cieplik also served in various capacities with IBM from 1976 until 1991. Mr. Cieplik holds a Bachelors of Science in Marketing from Millikin University.

Garry D. Johnson has served as Senior Vice President and Chief Technology Officer since November 2003. Mr. Johnson has been with Dendrite since 2000 and has previously served as Vice President of North American Technical Operations. Prior to joining the Company, Mr. Johnson previously served as Vice President of Information Technology at Boron Lepore and, prior to that, as Director, IT Strategy & Quality, at Allied Signal. Mr. Johnson holds a Bachelors of Arts in Management from Fairfield University.

Marc Kustoff has served as Senior Vice President responsible for North American sales and marketing efforts since November 2003. Mr. Kustoff has been with Dendrite since 2000 and has previously served as Senior Vice President and Chief Technology Officer. Prior to joining the Company, Mr. Kustoff served as Vice President, Information Systems at Parke-Davis Pharmaceutical Co., and has held information technology management positions at Corning Life Sciences, Inc. and Rhone-Poulenc Rorer, Inc. Mr. Kustoff holds a Bachelors of Arts degree in Philosophy from the State University of New York, Master's in Labor and Industrial Relations from Michigan State University and Master's in Information Systems from Long Island University.

Jean-Paul Modde has served as Senior Vice President responsible for international sales and marketing and operations since June 2003. Mr. Modde has been with Dendrite since 1988, previously serving in other key management positions including: Senior Vice President, Asia/Pacific and Latin American region; Regional Director, Latin America; and Sales Director, Europe. Mr. Modde holds a Bachelors of Science in Computer Science from Macquarie University, Australia.

For additional information regarding the Company's business, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations."

We make available free of charge through our website, www.dendrite.com, all materials that we file electronically with the SEC, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC.

You may also read and copy any materials filed by the Company with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549, and you may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet website, www.sec.gov, that contains reports, proxy and information statements and other information which the Company files electronically with the SEC.

The Company leases the following facilities in the U.S.: a 101,500 square foot building in Morristown, New Jersey, which serves as our current corporate headquarters; a 137,000 square foot facility in Totowa, New Jersey, which serves as a distribution center, warehouse and call center for our interactive marketing business; a 33,000 square foot facility in Bridgewater, New Jersey, which serves as administrative offices; a 26,280 square foot building in Basking Ridge, New Jersey, which houses customer support personnel; a 37,745 square foot building in Bethlehem, Pennsylvania and a 15,000 square foot warehouse in Somerset, New Jersey, both of which serve as hardware repair and maintenance facilities; 10,038 square feet of office space in Stroudsburg, Pennsylvania, which houses customer support personnel; a 100,000 square foot facility in Chesapeake, Virginia, which houses a data and call center; a 67,000 square foot facility in Norcross, Georgia, which serves as a data and call center and hardware repair and maintenance facility; and a 9,490 square foot office in Durham, North Carolina, which houses certain employees in our data and analytics business. The Company also leases a 233,000 square foot facility in Bedminster, New Jersey, which will serve as our corporate headquarters commencing in the latter part of 2004 and at which time we will consolidate several of our New Jersey facilities. The Bedminster facility is subleased from Pharmacia & Upjohn Company, a subsidiary of Pfizer, Inc.

We also lease a total of 204,320 square feet for local management, sales offices and operations in the following countries: Australia, Austria, Belgium, Brazil, Canada, Colombia, China, France, Germany, Greece, Hungary, Italy, Japan, Mexico, The Netherlands, New Zealand, Portugal, South Korea, Spain and the United Kingdom.

The Company owns a 145,000 square foot building in Piscataway, New Jersey, which was purchased for the purpose of establishing a new U.S. operations facility to accommodate the Company's growth. In connection with its second quarter 2001 restructuring plan, the Company determined to shift its operations to other existing facilities and therefore determined to sell this facility. See Notes 1, 3 and 7 to the Consolidated Financial Statements.

Dendrite is from time-to-time involved in litigation relating to personnel and other claims arising in the ordinary course of business. The Company is not currently engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business.

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

The Company's common stock, no par value, is quoted on the Nasdaq National Market System under the symbol "DRTE."

The following table sets forth for the periods indicated the high and low sale prices for our common stock as reported by the Nasdaq National Market System.

Period	High		Low
Quarter Ended December 31, 2003	$	17.89	$	13.08
Quarter Ended September 30, 2003		15.70		12.12
Quarter Ended June 30, 2003		13.43		8.28
Quarter Ended March 31, 2003		10.29		6.18
Quarter Ended December 31, 2002	$	8.38	$	5.10
Quarter Ended September 30, 2002		10.46		4.80
Quarter Ended June 30, 2002		14.04		9.36
Quarter Ended March 31, 2002		15.80		9.79

As of March 5, 2004, there were approximately 336 holders of record of our common stock.

The Company has never paid any cash dividends on its common stock and does not intend to pay any cash dividends on common stock in the foreseeable future. If the Company were to consider paying cash dividends, certain of the covenants of the Company's line of credit may limit the amount of any such dividends we may pay. See Note 11 to the Consolidated Financial Statements and "Liquidity and Capital Resources" in Item 7 for a discussion of our credit agreement.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

This Form 10-K may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21-E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbors created by such acts. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements, including the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding our strategy, future operations, future expectations or future estimates, future financial position or results and future plans and objectives of management. Those statements in this Form 10-K containing the words "believes," "anticipates," "plans," "expects" and similar expressions constitute forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on our current expectations, assumptions, estimates and projections about our Company and the pharmaceutical and consumer packaged goods industries. All such forward-looking statements involve significant risks and uncertainties, including those risks identified in this Form 10-K under "Factors That May Affect Future Results," many of which are beyond our control. Although we believe that the assumptions underlying our forward-looking statements are reasonable, any of the assumptions could be inaccurate and actual results may differ materially from those indicated by the forward-looking statements included in this Form 10-K, as more fully described under "Factors That May Affect Future Results." In light of the significant uncertainties inherent in the forward-looking statements included in this Form 10-K, you should not consider the inclusion of such information as a representation by us or anyone else that we will achieve such results. Moreover, we assume no obligation to update these forward-looking statements to reflect actual results or changes in assumptions, expectations or projections. In addition, our financial and performance outlook concerning future revenues, margins, earnings, earnings per share and other operating or performance results does not include the impact of any future acquisitions, future acquisition-related expenses or any future restructuring or other charges that may occur from time-to-time due to management decisions and changing business circumstances and conditions.

We provide a broad array of solutions worldwide that enable pharmaceutical and other life science companies to strategically optimize their sales and marketing channels and clinical resources. Our strategy is to continue to diversify and expand our solutions portfolio, customer base and geographic reach by leveraging our extensive knowledge of the pharmaceutical and life sciences industries and capitalizing upon our deep relationships in these industries. We have and will continue to rely on both internal growth and acquisitions to meet to our growth objectives.

Our acquisition of Synavant in 2003 and its subsequent integration into our business is an important milestone in our history. This acquisition diversifies and expands our solutions portfolio, particularly as it relates to the pharmaceutical marketing channel, by adding interactive marketing services in the U.S. and abroad, as well as new data and services solutions in Europe. Additionally, our sales force effectiveness capabilities have extended beyond clients using Dendrite's sales force effectiveness software solutions to those using software products of our competitors. This expansion outside of supporting only our own software users has provided us the opportunity to gain an additional recurring revenue base with several key global pharmaceutical companies. Finally, this acquisition diversifies and expands our geographic reach, particularly in Europe, and enables us to capitalize on economies of scale within certain geographic markets.

As we enter 2004, we have more solutions and a broader customer base than ever before and we believe that this combination presents significant opportunity for future growth. However, as we seek to

expand our business, we face competition not only from other companies, but also from solutions developed internally by our clients. As a result, we plan to increase our investments in marketing and sales resources and programs in fiscal 2004 to help us better sell in this challenging climate. Our future growth will be dependent on our ability to further penetrate the markets in which we operate and increase the adoption rate of our expanded portfolio of solutions.

We evaluate our performance based upon a number of operating metrics. Chief among these are revenues, services gross margin percent, operating margins, earnings per diluted share, operating cash flow and days sales outstanding. All of these items are addressed in detail throughout the MD&A. Fiscal 2003 was a significant year for us, as we saw the execution of our strategy yield strong growth in revenues, operating margin and earnings per share. We also continued to exhibit strong cash generation attributes, improving days sales outstanding from the prior year and generating a strong positive operating cash flow, even as we paid off a significant amount of liabilities associated with the Synavant acquisition.

A critical accounting policy is one that is both very important to the portrayal of a company's financial position and results of operations and requires management's most difficult, subjective or complex judgments. The Company believes its critical accounting policies to be revenue recognition, acquisitions, impairments, income taxes and restructuring.

The area of revenue recognition requires the Company's management to make significant judgments and estimates. AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition," governs revenue recognition for arrangements that include software which is more than incidental to the arrangement. Under SOP 97-2, if a sale of software includes services that are essential to the functionality of the software, then the software and essential services are to be accounted for using contract accounting as described in Accounting Research Bulletin 45, "Long-Term Construction-Type Contracts," and SOP 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." The determination of whether or not services are essential to the functionality of the software can differ from arrangement to arrangement and requires the use of significant judgment by management. Factors used in determining whether or not services are essential to the functionality may include: whether or not physical changes are being made to the software's underlying source code; the complexity of software configuration services; the level of effort required to build interfaces; the overall relationship of the service fees to the license fees; the length of time expected to complete the services; and whether or not the services can be obtained by a customer from their internal resources or another third-party vendor. If services are not considered to be essential to the functionality of the software, SOP 97-2 generally allows companies to recognize revenue for software licenses upon delivery of the licenses, prior to configuration or implementation services, provided that the other requirements of the SOP are met. In management's judgment, the Company's configuration and implementation services generally are essential to the functionality of its software. Therefore, the Company typically recognizes revenues using the percentage-of-completion method as detailed in SOP 81-1.

Many of the Company's arrangements include multiple deliverables. In the absence of higher-level specific authoritative guidance, the Company determines the units of accounting for multiple element arrangements in accordance with Emerging Issues Task Force Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables" ("EITF 00-21"). Specifically, the Company will consider a delivered item as a separate unit of accounting if it has value to the customer on a stand-alone basis, if there is objective and reliable evidence of the fair value of the undelivered elements, and if the arrangement includes a general right of return relative to the delivered element, if delivery or performance of the undelivered

element is considered probable and is substantially within the Company's control. The determination of whether or not arrangements meet these criteria requires significant judgment on the part of the Company's management. If the Company's arrangements did not meet the separation criteria of EITF 00-21, the timing of revenue recognition could be delayed.

PART I
ITEM 1.	BUSINESS	3
ITEM 2.	PROPERTIES	12
ITEM 3.	LEGAL PROCEEDINGS	12
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	13
PART II
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	13
ITEM 6.	SELECTED FINANCIAL DATA	14
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	40
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	41
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	41
ITEM 9A.	CONTROLS AND PROCEDURES	41
PART III
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT	41
ITEM 11.	EXECUTIVE COMPENSATION	42
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	42
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	43
ITEM 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	43
PART IV
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K	43

		Year Ended December 31,
		2003(a)		2002			2001			2000		1999
		(In Thousands, Except Per Share Data)
Statement of Operations Data:
Revenues:
	License fees	$	10,860	$	13,507		$	18,695		$	23,966	$	24,244
	Services		310,247		212,249			208,667			194,093		152,118

			321,107		225,756			227,362			218,059		176,362

Cost of revenues:
	Cost of license fees		4,915		4,730			4,897			3,420		2,360
	Purchased software impairment(b)		—		—			2,614			—		—
	Cost of services		158,597		106,817			117,312			91,967		76,057

			163,512		111,547			124,823			95,387		78,417

			157,595		114,209			102,539			122,672		97,945

Operating expenses:
	Selling, general and administrative		111,139		77,301			94,578			67,884		56,927
	Research and development		11,633		10,396			11,104			10,875		7,669
	Mergers and acquisitions		—		—			—			—		3,466
	Restructuring (benefit) expense(c)		—		(47	)		6,110			—		—
	Asset impairment(d)		—		1,832			11,723			—		—

			122,772		89,482			123,515			78,759		68,062

Operating income (loss):			34,823		24,727			(20,976	)		43,913		29,883
	Interest income, net		731		1,085			2,439			3,541		1,880
	Other income (expense)		560		(149	)		3			5		(189	)

Income (loss) before income tax expense			36,114		25,663			(18,534	)		47,459		31,574
	Income tax expense (benefit)		15,054		10,265			(6,063	)		16,848		12,234

Net income (loss)		$	21,060	$	15,398		$	(12,471	)	$	30,611	$	19,340

Net income (loss) per share:
	Basic	$	0.52	$	0.39		$	(0.31	)	$	0.78	$	0.51

	Diluted	$	0.51	$	0.38		$	(0.31	)	$	0.74	$	0.48

Shares used in computing net income (loss) per share:
	Basic		40,340		39,872			39,681			39,354		37,725

	Diluted		41,415		40,127			39,681			41,344		40,599

	As of December 31,
	2003		2002		2001		2000		1999
	(In Thousands)
Balance Sheet Data:
Working capital	$	48,909	$	86,037	$	93,721	$	113,738	$	78,131
Total assets		262,457		188,476		166,483		175,903		124,720
Capital lease obligation, less current portion		187		275		—		—		285
Stockholders' equity		176,135		146,759		128,847		153,298		101,116

New Jersey (State or Other Jurisdiction of Incorporation or Organization)		22-2786386 (I.R.S. Employer Identification No.)
1200 Mt. Kemble Avenue Morristown, NJ 07960-6797 (Address of Principal Executive Offices)