SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (Fee required)
For fiscal year ended June 30, 1996 or
|_| Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the period from July 1, 1995 to June 30, 1996
Commission File Number: 0-28202
WALSH INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 51-0309207
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
105 Terry Drive, Suite 118, Newtown, Pennsylvania 18940
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 860 4949
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No ____.
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. [ ]
The aggregate market value of the Common Stock of the registrant held by
non-affiliates as of September 18, 1996 was approximately $109,949,280.
As of September 18, 1996 there were 10,471,360 outstanding shares of the
registrant's Common Stock.
1
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its meeting of stockholders
in connection with its fiscal year ended June 30, 1996, which is to be filed
pursuant to Regulation 14A not later than October 28 1996 is incorporated by
reference into Part III of this Form 10-K.
2
<PAGE>
Part I
ITEM 1. BUSINESS
INTRODUCTION
Walsh International Inc. ("Walsh" or the "Company") develops, markets and
provides comprehensive sales and marketing information systems for
pharmaceutical companies to assist them in the more efficient management of
their sales organizations. Walsh is a market leader in providing electronic
territory management systems ("ETMS") and sales management information solutions
("SMIS") to the pharmaceutical industry worldwide. Walsh also provides data
services and marketing support services based on proprietary databases of
medical professionals and others who influence prescribing decisions.
The Company was incorporated in Delaware in 1988 and following the carve out of
Pharmaceutical Marketing Services Inc. ("PMSI") Walsh operated in two business
segments:
(i) the Walsh Business, which includes sales force management and integrated
sales and marketing information services, associated medical professional
databases and other services related to those databases, such as direct
mail marketing and consulting, and
(ii) the Source Business, which develops and provides proprietary databases of
prescriptions dispensed by retail outlets in the United States. Source and
PMSI currently collaborate in commercializing the Source prescription
databases. Source is developing similar databases in several European
countries, and it is anticipated that these would also be commercialized
jointly by PMSI and Source.
All of the issued and outstanding capital stock of a newly-formed holding
company of the Source Business, Source Informatics Inc. ("Source"), was spun-off
to the existing stockholders of the Company as of April 16, 1996 (the
"Spin-Off"). Immediately prior to the Spin-Off, Walsh and its subsidiaries held
approximately 9.2% of the outstanding common stock of PMSI, all of which was
transferred to Source in the Spin-Off. The results of the Source Business are
presented as "discontinued operations" throughout document.
The Company's principal executive offices are located at 105 Terry Drive, Suite
118, Newtown, Pennslyvania, telephone no. (215) 860 4949. Walsh has a technology
development center in Belgium and local operating companies in the United
States, Australia, Austria, Belgium, Canada, France, Germany, Italy, the
Netherlands, New Zealand, Singapore, Spain and the United Kingdom. With the
exception of Austria, Singapore and New Zealand, all such local operating
companies provide full service support for Walsh's technology and data services,
including a client sales and support team, a database maintenance team and a
facilities management center.
3
<PAGE>
SERVICES
Walsh provides three types of services that it has designed to work either
independently or together to provide a comprehensive sales and marketing
information solution:
o Technology Services, consisting of PRECISE, the Company's established
advanced ETMS, and Premiere, the Company's SMIS which was launched in
fiscal 1996;
o Data Services, consisting of the Pharbase customer database service; and
o Marketing Support Services, consisting of Pharbase-driven selective direct
marketing services supporting the sales organization, and research and
consulting services.
TECHNOLOGY SERVICES
PRECISE is an advanced DOS-based ETMS that can be run on virtually any PC,
enabling the Company to convert clients from other systems without the
requirement for a hardware upgrade. As of June 30, 1996, the Company and its
licensee had implemented PRECISE for more than 380 sales forces with over 9,300
end-users.
Premiere, the Company's SMIS introduced during fiscal 1996, is a Windows-based
system designed to support the client's entire sales and marketing team, with
additional applications for other users within the client company who either
need access to the sales organization or to customer data. Premiere's open
architecture facilitates integration with other client systems and access by
users outside the sales organization, including general management, medical,
clinical research and planning personnel.
Premiere was designed as a Windows-based system, rather than an upgrade of a
DOS-based system with a Windows user interface. As a result, Premiere does not
have the file size and networking limitations imposed by a DOS-based system, but
does require PC's with sufficient memory to run Windows and the Premiere
applications. Additionally, it allows full multi-tasking by all end-users
through an icon-driven graphic user interface. The Premiere software is built on
distributed relational databases, which provide greater flexibility in
retrieving and displaying various data elements, and, like PRECISE, is designed
to handle data over a wide area network ("WAN"). Multiple file servers can
operate on a local area network ("LAN"), giving Premiere the capability of
supporting the largest of pharmaceutical sales forces. Premiere can be operated
using the client's choice of any database engine that meets the international
standards for open databases ("SQL" and "ODBC"). This allows any client
selecting Premiere to standardize database software enterprise-wide, if
required.
PRECISE and Premiere systems are fully customized for each client to meet the
needs of the various end-users within the client organization. Generally, sales
representatives are provided with a user-friendly, comprehensive system enabling
them to:
4
<PAGE>
o plan sales calls
o report sales calls on medical professionals
o analyze calling activity
o track sales and promotional activity
o collate and report discretionary promotional expenditure
o communicate and coordinate across sales forces and divisions within the
client organization
Field and head office managers are able to:
o monitor and direct the activities of sales representatives
o analyze calling and promotional activities
o compare the performance of sales representatives or sales forces
Both PRECISE and Premiere are designed to manage and distribute customer
information (such as that compiled in the Pharbase databases) as well as to
integrate prescription data provided by Source or any other supplier of such
data. In general, prescription data must be reprocessed before being distributed
through ETMS or SMIS, which can significantly delay the receipt of data by the
sales force. The Company and Source have entered into a Preferred Technology
Agreement whereby the parties will collaborate to build and maintain a seamless
data interface between their respective technologies to facilitate delivery, by
means of Premiere, of prescription data at the sales representative level.
Walsh currently provides client sales and support teams and facilities
management centers for PRECISE and Premiere in 13 countries through its local
operating companies and one licensee. These operations are responsible for the
initial implementation and ongoing support of a PRECISE or Premiere system.
Because installations are conducted by these local operating companies, each of
which can customize a client's system using proprietary System Builders, Walsh
can implement multi-national contracts for PRECISE or Premiere concurrently.
Walsh's clients receive only fully executable applications. Walsh retains the
source codes for PRECISE and Premiere at its development center, distributing
only executable program code and System Builders to the local operating
companies for use in the installation process. The process, which usually takes
between three and five months, typically involves:
5
<PAGE>
o Project management designed to ensure delivery of a system to
specification, on time and on budget.
o Design consultancy to assist the client in creating detailed specifications
for its system.
o System customization to the client's specific requirements.
o Software loading and testing with PRECISE or Premiere.
o Data loading with Pharbase, the client's own data and/or third-party data.
o User documentation customized to match the client's functionality.
o LAN set-up, as appropriate.
o End-user training on the PRECISE or Premiere system, as appropriate.
All PRECISE and Premiere systems are available in the client's language of
choice. The Company has delivered systems that operate in over 15 languages.
Where appropriate to the market, e.g. Canada and Belgium, the system is
delivered in a dual or multi-language format.
PRECISE and Premiere are generally offered to clients as part of an overall
service package under initial two or three year contracts, which then become
"evergreen" (subject to automatic annual renewal unless terminated). All
contracts require the Company to customize its PRECISE or Premiere technology
with System Builders to deliver a client-specific version of the service, with
applications appropriate for sales representatives, field managers and head
office users. In most markets, the majority of the Company's clients also
contract for comprehensive facilities management by the Walsh facilities
management center, including location and maintenance of the file server, full
data back-up and archiving procedures, user help line support, user problem
reporting, change management, hardware swap and other client support. Continuing
support is provided to each client by Walsh's local operating company in the
country where the client operates. Walsh does not offer perpetual licenses of
its technology services to any client, nor does it sell its software.
In South Africa, Walsh has licensed PRECISE and Premiere technology to a third
party and receives royalties.
DATA SERVICES
Pharbase provides contact information and data on professional affiliations and
other prescribing influences with respect to all physicians in particular
national markets. In some of these markets, the database also contains
information on other medical professionals, such as pharmacists and key
administrators. Pharbase is a leading source of pharmaceutical industry customer
data, and government and healthcare agencies in certain markets use
Pharbase-driven mail programs to communicate with medical professionals for drug
recalls, contra-indication notices and other critical medical information.
6
<PAGE>
Pharbase is available in Europe, Canada, Australia and New Zealand and is used
by approximately 350 sales forces. It is delivered to clients embedded in
PRECISE or Premiere, through a third-party ETMS, by magnetic media for
integration with a client's head office systems, or as part of a direct
marketing campaign, often in support of the sales force's activities. See
"Marketing Support Services." Over 75% of PRECISE clients also contract for
Pharbase to provide data for their PRECISE service. Data services are generally
provided under contracts with an initial two or three year term that become
"evergreen."
Each of Walsh's local operating companies has a database maintenance team that
is responsible for the maintenance of the comprehensive national Pharbase
databases, subsets of which are delivered to clients as part of the Pharbase
service. The primary sources of information for the maintenance of the Pharbase
databases are client pharmaceutical companies, questionnaires to physicians and
hospital administrators, mailing returns and publications. Every client that
contracts to use Pharbase within PRECISE, Premiere or another ETMS agrees to
notify the Company of any additions, deletions or changes within its customer
database (such as changes of location, affiliation or medical specialty of
medical professionals).
Updating information is also supplied by PMSI and by Source. These updates are
then aggregated into the Pharbase databases and released to all Pharbase clients
once the changes have been verified.
MARKETING SUPPORT SERVICES
In certain of its markets, Walsh provides marketing support services using the
Pharbase databases. Marketing support services generally include direct mail and
market research services, and are contracted on a project-by-project basis.
Walsh's direct mail services provide a relatively inexpensive means for its
clients to reinforce the impact of personal sales calls by their
representatives. The Company is able to enhance the effectiveness of a client's
direct mail promotions by using Data Selector programs to extract from Pharbase
databases specific information regarding the targeted mailing audience. In
Belgium, Spain and Australia, the Company provides a selective mailing label
supply service. In the United Kingdom, the Netherlands, Germany and Canada, the
Company combines this service with mailing facilities capable of processing the
range and size of mailings required by the pharmaceutical and healthcare
industries, to provide full-service direct mail marketing.
Walsh's market research services include data analysis, interviews (in person or
by telephone) and postal surveys. These services, which are available in Canada,
Australia and New Zealand, support the primary Walsh services by focusing on the
effectiveness of the sales and marketing process and general market forces. They
include both syndicated and client-specific services.
SALES AND MARKETING
The Company has organized its business in substantially all its current national
markets through local operating companies. Walsh believes that the local
expertise developed by these companies permits the
7
<PAGE>
Company to develop integrated, customized solutions for the problems presented
by each national selling environment. Each local operating company has a team of
sales and client support staff responsible for sales of the Company's services
in its market.
The Company's locally-based sales executives are supported by a corporate sales
and marketing group responsible for initiating, coordinating and managing
multinational sales opportunities and creating strategic relationships with the
Company's clients. The Company's experience has been that some international
pharmaceutical industry clients make decisions regarding sales and marketing
management systems centrally while others make such decisions locally, with
regard to a particular national market. Together with the local operating
companies, the corporate sales and marketing group has developed strategies
specific to each client and potential client, reflecting the perceived manner in
which the client makes its decisions. Walsh also seeks to present a consistent
service and company image internationally to its clients and potential clients
through international marketing campaigns, industry exhibitions, client meetings
and regular user group forums.
GROWTH STRATEGY
The Company's growth strategy is to build on its established position as a
market leader through:
Increased Market Penetration for New and Existing Services
o The Company believes that there is significant opportunity to sell the
Premiere service to new clients and upgrade existing PRECISE clients to
Premiere, while increasing the penetration of the Company's Pharbase
service in established markets.
o Premiere, a Microsoft Windows-based system that can serve large sales
forces more effectively than a DOS-based system such as PRECISE, was
introduced in November 1995. As of June 30, 1996, the Company had installed
Premiere for 8 clients. The Company currently has contracted to provide
Premiere to 8 further clients, and has entered into letters of intent with
an additional 15 prospective clients.
o PRECISE is currently provided under contracts and licensing arrangements to
more than 380 sales forces, representing over 9,300 end-users. Since no
client uses PRECISE in more than 7 of the 11 markets where Walsh has
operations, the Company expects to continue to sell PRECISE to clients
wishing to standardize ETMS internationally. In addition, because PRECISE
can run on inexpensive hardware, the Company expects that there will be
continuing opportunities to market PRECISE to clients that do not have
Windows-compatible hardware.
o Pharbase currently supports over 350 sales forces, approximately 270 of
which are also PRECISE customers. The Company believes that the
introduction of Premiere will present an opportunity for further market
penetration for its Pharbase service. Walsh will continue to market
Pharbase independently of PRECISE and Premiere.
8
<PAGE>
Expansion of U.S. Business
The Company intends to expand its U.S. presence in conjunction with the
introduction of Premiere, which can serve large sales forces more effectively
than DOS-based systems such as PRECISE. The Company may also seek to expand its
U.S. presence by acquiring businesses with complementary client bases, databases
or technology.
Expansion into New Geographic Markets
The Company intends to expand into other growing healthcare markets worldwide.
On January 25, 1996, the Company entered into a Joint Venture Agreement with an
affiliate of Zuellig Pharma S.A. ("Zuellig"), pursuant to which the parties have
established a joint venture for the commercialization of the Company's PRECISE,
Premiere and Pharbase services in 12 countries in Asia-Pacific. The joint
venture company has been formed in Singapore. Walsh owns 51% of the equity and
has operational control of the joint venture. The joint venture has an initial
capitalization of $500,000. After June 30, 1997, the joint venture will have the
option to acquire the Company's Australian and New Zealand operations, although
the Company does not have any current plans to cause such option to be
exercised. Zuellig is a major healthcare company in the Asia-Pacific market,
providing pharmaceutical distribution, wholesaling, manufacturing and sales
services to a number of international pharmaceutical and healthcare companies.
It will assist the joint venture in establishing commercial relationships with
potential clients in the market. The joint venture became operational in the
third quarter of fiscal 1996. It is not anticipated that the joint venture or
its option to purchase the Company's Australian and New Zealand operations, if
exercised, will materially affect the Company's results of operations or
financial condition over the next two fiscal years.
Diversification within the Healthcare Industry
PRECISE, Premiere and Pharbase have been designed to support the sales and
marketing function of healthcare industry suppliers outside the ethical
pharmaceutical industry. The Company intends to diversify within the healthcare
industry and currently provides PRECISE to eight such clients, including
suppliers of OTC pharmaceuticals, nutritional products and medical diagnostics.
The Company anticipates that the OTC market will become increasingly important
as branded prescription-only drugs are reclassified to permit OTC sale.
Entering New Industry Markets
Building on its experience in the healthcare industry, the Company will explore
opportunities for exploiting the PRECISE and Premiere services in other
industries that have complex selling environments. Walsh anticipates that such
expansion would be implemented primarily through joint ventures, strategic
partnerships or licensing agreements with established businesses in such
industries that could provide the necessary data expertise. The Company is not
currently involved in negotiations or party to any agreements or understandings
with respect to any such arrangement that would be material.
9
<PAGE>
COMPETITION
The market for sales and marketing information systems is highly competitive.
Many companies offer ETMS and other sales force automation products, although
few focus on the pharmaceutical industry. The Company believes that there are
approximately 10 other companies that supply products automating sales,
marketing and customer service functions and specifically target the
pharmaceutical industry. Certain of these companies have a significantly greater
market share than Walsh in certain of the markets in which PRECISE and Premiere
are offered, including Dendrite International, Sales Technologies and CorNET
International in the United States and Cegedim in France.
Sales and marketing information systems differ greatly in terms of
functionality, flexibility and the type of hardware platform supported. The
Company's products and services compete with others principally on the basis of
market expertise, product functionality, flexibility and customization, name
recognition, global coverage, service standards, breadth of customer base,
technical support and cost. Management believes the Company's systems compete
favorably with respect to these factors. In particular, the Company believes
that its development strategy, which permits system customization without
modifying the underlying source code, allows the Company to deliver a
fully-customized system more rapidly and at less cost than competing systems.
Some of the Company's existing competitors, as well as a number of potential
market entrants, have larger technical staffs, larger marketing and sales
organizations and greater financial resources than the Company. Additionally,
the corporate parent of one of the Company's competitors, Sales Technologies,
controls certain of the proprietary data collection systems that provide
prescription sales data in some countries (including the United States) to
pharmaceutical companies. It may be possible for Sales Technologies to gain a
competitive advantage in the pricing of its ETMS for customers who are
interested in purchasing the data collected by its corporate affiliate. However,
the Company believes that its proposed preferred technology partnership with
Source, which offers similar prescription sales data, will enable the Company to
compete effectively.
Competition will increase in the future if new competitors enter the market to
supply sales management systems to the pharmaceutical industry and as existing
competitors expand and enhance their product lines. The Company may encounter
additional competition in the future from firms offering outsourcing of
information technology services, from vendors of software products providing
specialized applications not offered by the Company and from the development
and/or operation of in-house systems by pharmaceutical companies. There can be
no assurance that the Company will be able to compete successfully or that
competition will not have a material adverse effect on the Company's business,
operating results or financial condition.
GOVERNMENT REGULATION
Walsh's pharmaceutical industry clients are subject to constraints put in place
by government payers in certain countries that restrict prescriber choices among
various drugs, and may also be subject to changes in the healthcare delivery
systems in Europe, the United States and other countries in which the Company
operates. These factors may affect the sales and marketing budget of
pharmaceutical companies and, in
10
<PAGE>
turn, reduce the demand for the Company's products and services. There can be no
assurance that the Company will respond effectively to all of these or other
changes in the market place.
In addition to regulations affecting its pharmaceutical industry clients, Walsh
is directly subject to certain restrictions on the collection of data. There
have been legislative efforts in many markets to limit the dissemination and
sale of certain information that may be considered private. The Company neither
collects nor disseminates data concerning the names or identities of patients.
The Company believes that its data collection and dissemination practices comply
with the requirements of applicable national data privacy legislation, as well
as industry-promulgated and nationally recognized codes of conduct. However,
there can be no assurance that future legislation or regulations will not
directly or indirectly restrict the collection or dissemination of information
regarding physicians, the prescribing history of physicians or other data
currently collected or disseminated by the Company. Any such restrictions could
have a material adverse effect on the operations of the Company.
EMPLOYEES
As of June 30, 1996, Walsh employed approximately 525 employees in 13 countries
with each of the 10 local operating companies in the United States, Australia,
Belgium, Canada, France, Germany, Italy, the Netherlands, Spain and the United
Kingdom employing at least 20 people staffing the client sales and support team,
facilities management center and database maintenance team. The Company has
completed an extensive personal development program within its senior country
management, as well as skills training within its client sales and support and
technical specialists.
The Company believes that relations with employees are good. There are no
collective bargaining agreements in place. In the Netherlands, France and
Germany, the Company has Workers Councils, which is a legal requirement in those
countries.
ITEM 2 PROPERTIES
The Company's principal executive offices in the United States are located in
Newtown, Pennsylvania. Walsh owns office space consisting of 10,000 square feet
in the United Kingdom. The Company leases 144,000 square feet of office and
warehouse space in various locations in the United States, Canada, Europe,
Australia, New Zealand and Singapore. Management believes that its current
facilities, and other space which is readily available, are adequate to meet its
needs for the foreseeable future.
On-line, batch processing and file server operations, which are performed at the
Company's database maintenance and facilities management centers, are backed up
each night in fireproof surroundings and stored off-site weekly. Copies of the
Company's operating systems, key applications and critical client data are
maintained off-site. The Company does not rely on unique hardware systems, and
its purchase and maintenance agreements with third parties provide for backup
support in the event of a computer failure. Each center has a documented
disaster recovery plan, which is subject to regular test.
All clients require that Walsh hold their confidential databases separate from
those of other clients. Facilities management centers are maintained as secure
areas.
11
<PAGE>
ITEM 3 LEGAL PROCEEDINGS
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 the
business, results of operations or financial condition of the Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 16, 1996, the holders of an aggregate 4,505,477 shares of Common
Stock and 1,435,002 shares of the Company's then outstanding Series A
Convertible Preferred Stock executed an action by written consent as to the
following matters (each of which was consented to by the holders of all such
shares, with no abstentions or votes against):
(a) Adoption of the Company's Restated Certificate of Incorporation;
(b) Adoption of the Company's Restated By-Laws;
(c) Approval of the Master Reorganization Agreement between the Company and
Source Informatics Inc.;
(d) Approval of the Company's Restated Stock Option and Restricted Stock
Purchase Plan; and
(e) Approval of an amendment to the Company's Non-Employee Director Stock
Option Plan to increase the number of shares reserved for issuance
thereunder to 120,000.
The above share numbers are adjusted to give effect to the 1-for-4 reverse split
effected on April 16, 1996.
12
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been included in The Nasdaq National Market under
the symbol "WSHI" since April 17, 1996.
The reported high and low closing sales prices for the Company's Common Stock as
reported by NASDAQ for the period to June 30, 1996 were:
Fiscal Year Period High Low
------------------ ---- ---
1996
Fourth Quarter 15 1/8 9
As of September 18, 1996 there were approximately 182 holders of record
of the Company's Common Stock.
The Company has never paid dividends to holders of its Common Stock.
The Company intends to retain all earnings to finance the operation and growth
of its business and does not anticipate paying cash dividends in the foreseeable
future.
13
<PAGE>
ITEM 6 SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
The selected consolidated financial data set forth below has been derived from
the audited consolidated financial statements of Walsh for the two years ended
December 31, 1991 and 1992, the six month transition period ended June 30, 1993
and the years ended June 30, 1994, 1995 and 1996. The selected financial data
for the years ended June 30, 1994, 1995 and 1996 should be read in conjunction
with Management's Discussion and Analysis of Results of Operations and Financial
Condition and the historical consolidated financial statements, including the
notes thereto, included elsewhere in this Report. The results of the Source
business are presented as discontinued operations for all periods presented.
14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Six
Months
Years Ended Ended Years Ended
December 31 June 30, June 30,
------------------------ ------------ -----------------------------------------
(Dollars in thousands, except per share amounts) 1991(1) 1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues $ 88,716 $ 33,293 $ 16,506 $ 34,532 $ 40,269 $ 47,262
Costs and expenses:
Production costs 51,091 16,023 7,374 15,401 17,733 18,442
Selling, general and administrative
expenses 31,713 24,080 11,121 21,366 19,423 21,348
Research and development costs 4,964 3,898 1,152 3,049 3,953 3,510
Amortization of intangible assets 16,283 4,982 142 138 112 130
Restructuring costs 3,939 -- -- 824 -- --
----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses 107,990 48,983 19,789 40,778 41,221 43,430
----------- ----------- ----------- ----------- ----------- -----------
Operating profit (loss) (19,274) (15,690) (3,283) (6,246) (952) 3,832
Interest income 444 793 132 525 950 843
Interest expense (4,466) (2,393) (1,162) (2,076) (2,325) (2,045)
Gain on sale of shares in PMSI 40,832 10,026 -- 2,420 402 --
Equity income of PMSI -- 3,165 555 973 1,180 --
Other income, net -- -- 838 -- -- --
Minority Interest -- -- -- -- -- 113
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes 17,536 (4,099) (2,920) (4,404) (745) 2,743
Income tax (provision) benefit (5,613) 483 237 (1,509) (2,212) (658)
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations 11,923 (3,616) (2,683) (5,913) (2,957) 2,085
Discontinued operations:
Loss from discontinued operations, net (7,467) (18,214) (5,123) (5,800) (1,554) (1,755)
----------- ----------- ----------- ----------- ----------- -----------
Net income (loss) $ 4,456 $ (21,830) $ (7,806) $ (11,713) $ (4,511) $ 330
=========== =========== =========== =========== =========== ===========
Income (loss) per share from continuing $ 2.09 $ (0.64) $ (0.46) $ (0.81) $ (0.40) $ 0.25
operations
Loss per share from discontinued operations, net (1.31) (3.24) (0.88) (0.79) (0.21) (0.21)
----------- ----------- ----------- ----------- ----------- ------------
Net income (loss) per share $ 0.78 $ (3.88) $ (1.34) $ (1.60) $ (0.61) $ 0.04
=========== =========== =========== =========== =========== ===========
Shares used in computing income (loss) per 5,695,941 5,614,339 5,807,319 7,326,591 7,346,274 8,197,796
share(2)
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
As at As at June 30,
December 31,
--------------------------- ----------------------------------------------------------
Dollars in thousands 1991 1992 1993 1994 1995 1996
------------ ----------- ------------ -------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents $ 40,903 $ 1,901 $ 2,083 $ 11,881 $ 15,110 $ 8,629
Working capital (deficit) (3) 27,254 (3,536) (6,448) 7,061 (14,168) 2,323
Total Assets 112,219 58,771 40,440 51,402 49,391 44,017
Total long-term debt and capital, lease
obligations (less current portion) 18,244 17,101 17,115 17,792 17,022 2,757
Series A Convertible Preferred Stock,
redemption value $25,000,000 - - - 23,491 23,911 -
Total stockholders' (deficit) equity $ 16,106 $ (232) $ (24,406) $ (35,878) $ (38,844) $ 4,546
------------ ----------- ------------ -------------- -------------- ------------
</TABLE>
1 The consolidated financial data for 1991 include the results of PMSI on a
consolidated basis.
2 Shares used in computing income (loss) per share are calculated based on
the policy explained in Note 1 to the Consolidated Financial Statements.
3 As of June 30, 1995, includes net liabilities of discontinued operations of
$10,310,000.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Since its inception in 1988 the Company has been built principally through the
acquisition of companies providing technology and data services to the
pharmaceutical industry. Until April 16, 1996 the Company operated in two
business segments: (i) the Walsh Business, which includes sales force management
and integrated sales and marketing information services, associated medical
professional databases and other services related to those databases such as
direct mail marketing and consulting and ii) the Source Business which includes
a range of products and services primarily marketed under the name "Source",
that utilize proprietary databases of prescriptions dispensed by retail outlets
in the United States.
The Board of Directors decided that the businesses needed separate management
focus, as two independent companies. Accordingly, prior to Walsh's public stock
offering in April 1996 all the issued and outstanding capital stock of Source
Informatics Inc., a newly formed holding company for the Source Business
("Source") was spun-off to the Company's stockholders (the "Spin-Off"). The
results of the Source Business are presented as discontinued operations in the
Consolidated Financial Statements.
Approximately 90% of the Company's revenues for fiscal 1996 were generated
outside the United States in local currencies. Because of its international
operations, the Company's operating results are subject to fluctuations in
foreign currency exchange rates. Although most of the Company's services are
priced in the local currency of the client's operations, the effects of foreign
currency fluctuations are mitigated by the fact that expenses of the local
operating company servicing the client are generally incurred in the same
currency as sales. The reported net income (loss) of foreign subsidiaries will
be affected by changes in the exchange rates of foreign currencies against the
U.S. dollar. The foreign currency risk applicable to the operations of Walsh has
not been hedged in the past.
The Company's future results will be dependent in part upon management's ability
to take advantage of the operating leverage in the Walsh Business by increasing
revenues from both existing and new services.
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations items as a percentage of
total revenues:
<TABLE>
<CAPTION>
------------------------------------
Years Ended June 30,
------------------------------------
1994 1995 1996
----------- ----------- ----------
<S> <C> <C> <C>
Revenues 100% 100% 100%
----------- ----------- ----------
Operating Costs and Expenses:
Production costs 45 44 39
Selling, general and administrative expenses 62 48 45
Research and development costs 9 10 7
Restructuring costs 2 - -
----------- ----------- ----------
Total operating costs and expenses 118 102 91
----------- ----------- ----------
Operating profit (loss) (18)% (2)% 9%
=========== =========== ==========
</TABLE>
Revenues
- --------
Walsh derives its revenues primarily from technology services, including PRECISE
and other sales force management products, and from data services, principally
Pharbase. The Company began recognizing initial revenues from Premiere, its new
technology service, in the fourth quarter of fiscal 1996. Technology services
and data services accounted for approximately 72% of the Company's revenues in
fiscal 1996. To a lesser extent, revenues are also generated by marketing
support services, including direct mail marketing, market research and other
data services. The Company sells its PRECISE and Premiere services under
multi-year contracts, generally with an initial term of two or three years and
subject to automatic renewal annually thereafter unless terminated. PRECISE
revenues are recognized proportionately over the life of the contract with the
exception of certain set-up and training charges, which are recognized on
delivery. Revenues from Premiere are recognized in the same fashion. Over 95% of
PRECISE contracts are renewed annually. The Company has also achieved a high
degree of repeat business with respect to other products and services that are
not provided under multi-year agreements. Because the Company has a short lead
time between contract signing and commencing service delivery, it does not have
material backlog.
Revenues increased to $47.3 million for fiscal 1996, compared to $40.3 million
for fiscal 1995, an increase of 17%. The growth in revenues primarily reflected
an 18% increase in PRECISE revenues and start up Premiere revenues. This
increase was principally attributable to the developing markets of France, Spain
and Italy. Pharbase revenues also showed strong growth for the year.
Revenues increased to $40.3 million for fiscal 1995, compared to $34.5 million
for fiscal 1994 representing an increase of 17%. Eliminating the impact of
favorable exchange rate movements in the period, revenues would have increased
by 13%. The increase in revenues for fiscal 1995 primarily reflected an 18%
increase in PRECISE revenues attributable to new PRECISE contracts both in the
17
<PAGE>
United Kingdom and in the Company's developing businesses in Italy, Australia
and France. The PRECISE revenue increase was offset by declines in direct mail
revenues, principally in the United Kingdom.
Production Costs
- ----------------
The Company's production costs include internal computer costs, the cost of data
collection, the amortization of capitalized software development costs and costs
attributable to personnel involved in both database maintenance and the
processing and delivery of the Company's services. The Company expenses as
incurred the costs associated with the creation, development and maintenance of
its databases. As a consequence, the Company's balance sheets do not reflect a
value assigned to such databases. Certain elements of production costs for
technology services and database services, such as data collection costs and
amortization of capitalized software development costs are fixed costs that do
not increase as a result of adding new clients. Most of the remaining production
costs, such as personnel and internal computer costs, generally have increased
at a lower rate than revenues. These costs are variable in nature, but do not
increase directly in proportion to the number of new clients or end-users. Such
costs increase from time to time as new hardware or staff are required to
support a larger client base.
As a result of this operating leverage, production costs have consistently
declined as a percentage of revenues for the periods presented. The decline also
reflects, to a lesser degree, that revenues from direct mail services decreased
as a percentage of total revenues over the periods presented. Production costs
for direct mail marketing services are significantly higher as a percentage of
associated revenues than production costs for other Walsh services, reflecting
their relatively higher labor costs.
Production costs were $18.4 million (39% of revenues) for fiscal 1996, compared
to $17.7 million (44% of revenues) for fiscal 1995. The increase in costs was
due to the increased revenue; the fall as a percentage of revenues demonstrate
the Company's operating leverage.
Production costs were $17.7 million (44% of revenues) for fiscal 1995, compared
to $15.4 million (45% of revenues) for fiscal 1994. The increase in dollar
amount for fiscal 1995 primarily reflects the build-up of database maintenance
and facilities management infrastructure in Germany, Italy and Spain. Production
costs have declined as a percentage of revenues reflecting the Company's
operating leverage.
Selling, General and Administrative Expenses
- --------------------------------------------
Selling, general and administrative expenses increased to $21.3 million (45% of
revenues) for fiscal 1996 from $19.4 million (48% of revenues) in fiscal 1995.
This increase of $1.9 million is primarily due to increased selling costs,
including expansion of its worldwide management and sales capacities at both the
corporate and local levels and costs incurred with the launch of Premiere.
Selling, general and administrative expenses decreased to $19.4 million (48% of
revenues) for fiscal 1995, from $21.4 million (62% of revenues) for fiscal 1994,
a decrease of 9%.
18
<PAGE>
The decrease as a percentage of revenues for fiscal 1995 reflects the
implementation of plans developed at the end of fiscal 1994 to review the
Company's cost structure and improve efficiency on a worldwide basis, including,
among other things, reductions in work force, restructuring of certain local
operating companies and elimination of duplicated functions. The improvement in
selling, general and administrative expenses in fiscal 1995 would have been
greater but for the impact of exchange rate movements.
Research and Development Costs
- ------------------------------
The Company has made significant investments in Premiere and actively invests in
expanding its databases and enhancing its technology and services. The Company's
accounting policy is to expense as incurred costs associated with developing the
Company's databases and computer technology for internal use. Expenditures to
develop software for resale to clients are capitalized pursuant to Statement of
Financial Accounting Standards No. 86, "Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed" ("SFAS 86"). The Company has
capitalized no more than 22% of its total research and development costs in any
period. Capitalized costs are amortized (as part of production costs) over the
life of the software. See Note 1 to Consolidated Financial Statements.
Research and development costs were $3.5 million (7% of revenues) for fiscal
1996 compared to $4.0 million (10% of revenues) for fiscal 1995 due to the
reduction in consultants required for developing Premiere.
Research and development costs were $4.0 million (10% of revenues) for fiscal
1995, compared to $3.0 million (9% of revenues) for fiscal 1994. The increase
for fiscal 1995 reflects costs associated with the development of Premiere.
Income Taxes
- ------------
Federal, foreign and state income taxes in the consolidated financial statements
have been computed for each country according to the fiscal and legal structure
under which the various entities operate. Although Walsh has incurred losses on
a consolidated basis for the years ended June 30, 1994 and 1995, income taxes
have been paid by profitable foreign subsidiaries due to the inability to offset
profitable operations against loss making operations in the differing tax
jurisdictions.
Statutory income tax rates on such profitable foreign subsidiaries ranged in
fiscal 1996 and 1995 from approximately 33% to approximately 41%. The Company's
provision for taxes in fiscal years ended June 30, 1994, 1995 and 1996
represented primarily accruals for foreign taxes. United States federal and
state income taxes for fiscal years ended June 30, 1994, 1995 and 1996 were not
provided as a result of the utilization of federal and state net operating loss
carryforwards ("NOLs") or current year operating losses. At June 30, 1996, the
Company had available foreign NOLs of approximately $15.8 million and U.S. NOLs
of approximately $21.0 million, which may provide future tax benefits.
19
<PAGE>
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," requires that a valuation allowance be recorded against tax
assets which are not likely to be realized. The Company's carryforwards expire
at various future dates. Realization is entirely dependent upon future earnings
in specific tax jurisdictions. While the need for this valuation allowance is
subject to periodic review, if the allowance is reduced, the tax benefits of the
carryforwards will be recorded in future operations as a reduction of the
Company's income tax expense. Due to the uncertainty of their ultimate
realization based upon past performance and expiration dates, as of June 30,
1994 and 1995 the Company had established a full valuation allowance against
these carryforward benefits. Pursuant to the requirements of SFAS 109, in the
year ended June 30, 1996 the Company recognized a tax benefit for the reversal
of previously established valuation allowances principally related to the
transfer of the shares of PMSI stock by Walsh to Source in the Spin-off and a
reassessment of the carryforwards available in Spain and Italy as it is now more
likely than not that a corresponding future tax benefit in those jurisdictions
will be realized. The deferred taxes related to the PMSI shares were
subsequently transferred to Source as part of the Spin-off. See Note 13 of Notes
to Consolidated Financial Statements.
The Company believes, based on discussions with its independent public
accountants, Coopers & Lybrand, L.L.P., that the Spin-Off should qualify as a
tax-free distribution pursuant to Section 355 of Internal Revenue Code of 1986
(the "Code"). The Company has applied for a ruling from the IRS that the
Spin-Off so qualifies. However, Coopers & Lybrand, L.L.P. has advised the
Company that there can be no assurance that the IRS will provide the Company
with a favorable ruling or that the Spin-Off will qualify under Section 355 of
the Code. If the Spin-Off does not qualify as a tax-free distribution, the
Company would be required to utilize a substantial portion of its U.S. NOLs to
offset income deemed to be realized by the Company in the Spin-Off. Because any
cash expenditure would not be material, and because such U.S. NOLs are not
otherwise expected to be significantly utilized in the near future, the Company
does not believe that the failure of the Spin-Off to qualify as a tax-free
distribution would have a material effect on the Company's liquidity or results
of operations.
Income (Loss) from Continuing Operations
- ----------------------------------------
The Company had income from continuing operations of $2.1 million for the year
ended June 30, 1996, compared with a net loss from continuing operations of $3.0
million for the comparable period of fiscal 1995. The improvement in the
Company's results reflects a $ 7.0 million (17%) increase in revenues and a
smaller increase in total operating costs and expenses ($2.2 million or 5%). In
addition, the results for the current period include the effect of recognizing a
tax benefit related to the transfer of PMSI stock, as discussed above and in
Note 13 of Notes to Consolidated Financial Statements. The Company's loss from
continuing operations was $3.0 million for fiscal 1995, compared to $5.9 million
for fiscal 1994. For fiscal 1995, revenues increased by 17% while total
operating costs and expenses increased by 1%.
Liquidity and Capital Resources
- -------------------------------
Since inception the Company has been financed primarily through private sales of
equity and debt securities, sales of shares in PMSI and, to a lesser extent,
from cash generated from operations. On April 16, 1996 the Company underwent an
Initial Public Offering ("IPO") which, including the overallottment,
20
<PAGE>
generated net proceeds of $33.3 million of which $14.7 million was utilized to
repay high interest debentures. At June 30, 1996 the Company had cash and cash
equivalents totalling $8.6 million and a further $10.0 million invested in a
portfolio of marketable securities. In connection with the Spin-Off, the Company
transferred $5.2 million of cash to Source, together with its remaining shares
in PMSI.
Net cash used in operating activities amounted to $0.2 million for the year
ended June 30, 1996 as compared to net cash provided by operating activities of
$8.8 million for the year ended June 30, 1995. Fiscal 1995 benefitted from the
improvement in working capital management over fiscal 1994, referred to below
plus some substantial favorable timing differences in settlement of receivables
and payables. Net cash used in operating activities was $4.3 million for fiscal
1994. Substantially all of the improvement in 1995 was due to improved operating
performance and working capital management.
The Company's investing activities for the year ended June 30, 1996 totalled
$11.6 million including $10.0 million invested in a professionally managed
portfolio of marketable securities plus expenditures for property and equipment
and capitalized software development costs. The marketable securities held by
the Company are considered current assets since it has both the ability and
intent to realize these securities in the normal operating cycle of the
business. For the year ended June 30, 1995, net cash provided by investing
activities was $6.0 million due to the sale of PMSI shares in fiscal 1995. The
proceeds of such sales were used to fund the development of Premiere and the
Walsh operations in Germany and France. This compared to $1.9 million provided
by investing activities in Fiscal 1994.
Net cash provided by financing activities for the year ended June 30, 1996,
primarily due to the completion of the IPO, was $14.5 million compared with net
cash used in financing activities of $0.3 million in fiscal 1995. Of the IPO
proceeds $14.7 million was used to repay debentures. The completion in fiscal
1994 of a private financing through the issuance of Series A Convertible
Preferred Stock, generated net proceeds of $23.2 million, causing net cash
provided by financing activities of $24.2 million in fiscal 1994.
For fiscal 1996, 1995 and 1994, discontinued operations consumed cash amounting
to $8.3 million, $11.6 million and $12.1 million, respectively. In addition to
funding operations, in fiscal 1995 cash was used to repay a loan of $5.0 million
received in connection with the acquisition of a Source business.
The Company believes that the anticipated cash flow from operations and existing
cash balances will satisfy the Company's projected working capital and capital
expenditure requirements through at least the end of fiscal 1998.
New Accounting Standards
- ------------------------
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 requires companies to adopt its provisions for
fiscal years beginning after December 15, 1995. The provisions of SFAS No. 121
require the Company to review its long-lived assets for impairment on an
exception basis whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable through future cash flows.
An impairment loss is indicated when the
21
<PAGE>
carrying amount exceeds such cash flows. The Company believes that the adoption
of SFAS No. 121 will have no material impact on the consolidated financial
statements.
Additionally, the FASB has issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company will choose the "disclosure only" alternative and is
in the process of evaluating the impact of the pro forma disclosures. The
Company will adopt SFAS No. 123 effective fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements and Supplementary Data listed in the accompanying
Index to Consolidated Financial Statements and Financial Statement Schedules
that appear elsewhere in this Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
22
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
- ----------------------------------------------------------------------------------------------
Page
<S> <C>
Report of Independent Accountants....................................................... F-1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1995 and 1996............................ F-2
Consolidated Statements of Operations for the Years ended
June 30, 1994, 1995 and 1996........................................................ F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended
June 30, 1994, 1995 and 1996........................................................ F-4
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1994, 1995 and 1996........................................................ F-5
Notes to Consolidated Financial Statements.......................................... F-7
Report of Independent Accountants on Financial
Statement Schedule...................................................................... S-1
Financial Statement Schedule:
Schedule II Valuation and Qualifying Accounts for the Years Ended
June 30, 1994, 1995 and 1996........................................................ S-2
</TABLE>
All financial statement schedules not mentioned above are omitted for the reason
that they are not required or are not applicable, or the information is included
in the Consolidated Financial Statements or the Notes thereto.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and Stockholders of
Walsh International Inc.
We have audited the accompanying consolidated balance sheets of Walsh
International Inc. and Subsidiaries as of June 30, 1995 and 1996 and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Walsh
International Inc. and Subsidiaries as of June 30, 1995 and 1996 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
August 30, 1996
F-1
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------
AS AT JUNE 30,
---------------------------------------------
ASSETS 1995 1996
------------------ -------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 15,110 $ 8,629
Marketable securities - 9,992
Accounts receivable, principally trade (less allowance for
doubtful accounts of $214 and $336, respectively) 11,466 13,050
Prepaid expenses and other current assets 347 923
------------------ -------------------
Total current assets 26,923 32,594
Property and equipment, net 5,194 4,663
Goodwill, net 3,663 3,551
Investment in PMSI 10,510 -
Other assets, net 3,101 3,209
------------------ -------------------
Total assets $ 49,391 $ 44,017
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Current maturities of long-term debt $ 1,162 $ 12
Current portion of capital lease obligations 278 443
Accounts payable 6,481 7,808
Accrued liablities 17,686 17,467
Unearned income 5,174 4,541
Net liabilities of discontinued operations 10,310 -
------------------ -------------------
Total current liabilities 41,091 30,271
------------------ -------------------
Long-term debt 15,541 1,105
Capital lease obligations 1,481 1,652
Deferred income taxes 2,489 -
Other liabilities 3,722 6,295
Minority interest - 148
Series A Convertible Stock, redemption value $25,000,000 23,911 -
Commitments
Stockholders' equity (deficit):
Common stock, $0.01 par value, 20,000,000 shares authorized and
5,808,847 and 10,484,835 shares issued, respectively. 58 105
Paid-in capital 73,685 119,175
Accumulated deficit (115,266) (114,948)
Cumulative translation adjustment 932 675
Unrealized gain (loss) on available for sale securities, net of tax 2,107 (4)
Treasury stock, at cost, 20,000 and 20,750 shares, respectively (360) (457)
------------------ -------------------
Total stockholders' equity (deficit) (38,844) 4,546
------------------ -------------------
Total liabilities and stockholders' equity (deficit) $ 49,391 $ 44,017
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEARS ENDED JUNE 30,
----------------------------------------------------------------------
1994 1995 1996
----------------- ------------------- -------------------
<S> <C> <C> <C>
Revenue $ 34,532 $ 40,269 $ 47,262
----------------- ------------------- -------------------
Costs and expenses:
Production costs 15,401 17,733 18,442
Selling, general and administrative
expenses 21,366 19,423 21,348
Research and development costs 3,049 3,953 3,510
Amortization of intangible assets 138 112 130
Restructuring costs 824 - -
----------------- ------------------- -------------------
Total costs and expenses 40,778 41,221 43,430
----------------- ------------------- -------------------
Operating profit (loss) (6,246) (952) 3,832
Interest income 525 950 843
Interest expense (2,076) (2,325) (2,045)
Gain on sale of shares in PMSI 2,420 402 -
Equity income of PMSI 973 1,180 -
Minority Interest - - 113
----------------- ------------------- -------------------
Income (loss) from continuing operations
before income taxes (4,404) (745) 2,743
Income tax provision (1,509) (2,212) (658)
----------------- ------------------- -------------------
Income (loss) from continuing operations (5,913) (2,957) 2,085
Discontinued operations:
Loss from discontinued operations, net (5,800) (1,554) (1,755)
----------------- ------------------- -------------------
Net income (loss) $ (11,713) $ (4,511) $ 330
================= =================== ===================
Income (loss) per share from continuing operations $ (0.81) $ (0.40) $ 0.25
Loss per share from discontinued operations, net (0.79) (0.21) (0.21)
----------------- ------------------- -------------------
Net income (loss) per share $ (1.60) $ (0.61) $ 0.04
================== =================== ===================
Shares used in computing income (loss) per share 7,326,591 7,346,274 8,197,796
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Common Stock
Par Paid-In Accumulated
Shares Value Capital Deficit
------------------------------------------------------------ --------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1993 5,762 $ 57 $ 73,732 $ (99,042)
Net loss for 1994 - - - (11,713)
Shares issued in lieu of bonus 40 1 651 -
Exercise of stock options 1 - 8 -
Accretion of preferred stock - - (315) -
Cumulative translation adjustment - - - -
-------------- ------------- ------------------- --------------------
Balance at June 30, 1994 5,803 58 74,076 (110,755)
Net loss for 1995 - - - (4,511)
Exercise of Stock Options 6 - 29 -
Accretion of preferred stock - - (420) -
Cumulative translation adjustment - - - -
Unrealized gain of available-for-sale - - - -
securities, net of tax
-------------- ------------- ------------------- --------------------
Balance June 30, 1995 5,809 58 73,685 (115,266)
Net income for 1996 - - - 330
Initial Public Offering, net 3,187 32 33,329 -
Conversion of preferred stock 1,486 15 12,094 -
Cumulative translation adjustment - - - -
Unrealized gain on available-for-sale - - - -
securities, net of tax - - - -
Purchase of Treasury Stock - - - -
Spin-off of Source Business - - - (12)
Shares issued 3 - 67 -
-------------- ------------- ------------------- --------------------
Balance June 30, 1996 10,485 $ 105 $ 119,175 $ (114,948)
============== ============= =================== ====================
------------------------------------------------------------------------------------------
Cumulative Net Unrealized Gain Treasury Stock
Translation (loss) on Available-for-
Adjustment Sale Securities, net Shares Amount
of tax
------------------- -------------------------- -------------- ---------------
Balance at June 30, 1993 $ 1,207 $ - (20) $ (360)
Net loss for 1994 - - - -
Shares issued in lieu of bonus - - - -
Exercise of stock options - - - -
Accretion of preferred stock - - - -
Cumulative translation adjustment (104) - - -
------------------- -------------- -------------- ---------------
Balance at June 30, 1994 1,103 - (20) (360)
- - -
Net loss for 1995 - - - -
Exercise of Stock Options - - - -
Accretion of preferred stock - - - -
Cumulative translation adjustment (171) - - -
Unrealized gain of available-for-sale - 2,107 - -
securities, net of tax
------------------- -------------- -------------- ---------------
Balance June 30, 1995 932 2,107 (20) (360)
Net income for 1996 - - - -
Initial Public Offering, net - - - -
Conversion of preferred stock - - - -
Cumulative translation adjustment (257) - - -
Net Unrealized gain on available- - - - -
for-sale securities, net of tax - 2,046 - -
Purchase of Treasury Stock - - (1) (97)
Spin-off of Source Business - (4,157) - -
Shares issued - - - -
------------------- -------------- -------------- ---------------
Balance June 30, 1996 $ 675 $ (4) (21) $ (457)
=================== ============== ============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
----------------------------------------------------------------------
YEARS ENDED JUNE 30,
---------------------------------------------------------------------
1994 1995 1996
--------------------- -------------------- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (11,713) $ (4,511) $ 330
Loss from discontinued operations 5,800 1,554 1,755
Adjustments to reconcile net income (loss) to net
cash provided by (used in)
operating activities:
Depreciation and amortization 1,217 1,485 1,241
Gain on sale of shares in PMSI (2,420) (402) -
Equity income of PMSI (973) (1,180) -
Restructuring costs 824 - -
(Decrease) increase in deferred taxes 181 (286) (2,739)
Minority interest - - (113)
Change in assets and liabilities:
Decrease in accounts receivable 2,878 2,922 500
(Increase) decrease in prepaid expenses and
other current assets 111 228 (588)
Increase in accounts payable and 851 8,628 1,153
accrued liabilities
(Decrease) increase in unearned income (587) 381 (2,459)
Other (440) 25 753
--------------------- -------------------- ---------------------
Net cash (used in) provided by operating activities (4,271) 8,844 (167)
--------------------- -------------------- ---------------------
Cash flows (used in) provided by investing activities:
Purchases of marketable securities - - (9,936)
Proceeds from sale of shares in PMSI 2,879 7,811 -
Capital expenditures (671) (697) (780)
Capitalized software (317) (1,092) (896)
--------------------- -------------------- ---------------------
Net cash (used in) provided by investing activities $ 1,891 $ 6,022 $ (11,612)
--------------------- -------------------- ---------------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Dollars in Thousands)
<TABLE>
<CAPTION>
--------------------------------------------------------------------
YEARS ENDED JUNE 30,
--------------------------------------------------------------------
1994 1995 1996
----------------- ----------------- ------------------
<S> <C> <C> <C>
Cash provided by (used in) financing activities:
Collateral receipts $ 772 $ - $ 1,088
Issuance of common stock 8 28 34,519
Treasury stock purchases - - (97)
Issuance of preferred stock 23,176 - -
Dividend to Source business - - (5,182)
Repayments of long-term debt - (8) (15,737)
Increase (repayments) of capital leases 201 (335) (358)
Cash provided by Minority Interest - - 261
----------------- ----------------- ------------------
Net cash provided by (used in) financing activities 24,157 (315) 14,494
----------------- ----------------- ------------------
Effect of exchange rate movements 76 278 (856)
Effect of discontinued operations (12,055) (11,600) (8,340)
----------------- ----------------- ------------------
Net (decrease) increase in cash and cash
equivalents 9,798 3,229 (6,481)
Cash and cash equivalents at beginning of year 2,083 11,881 15,110
----------------- ----------------- ------------------
Cash and cash equivalents at end of year $ 11,881 $ 15,110 $ 8,629
================= ================= ==================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,240 $ 2,213 $ 1,989
================= ================= ==================
Income taxes $ 442 $ 3,339 $ 1,995
================= ================= ==================
Supplemental disclosures of non-cash investing
and financing activities:
Capital lease obligations $ 68 $ 89 $ 444
================= ================= ==================
Common stock issued for non-cash consideration $ 652
=================
Spin-off of the Source Business:
PMSI shares $ 13,663
Unrealized gain on PMSI shares $ (4,157)
Net liabilities of Source business $ (4,124)
Preferred stock $ (11,802)
Other corporate assets $ 1,250
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------
THE COMPANY
Walsh International Inc. ("Walsh" or the "Company") provides electronic
territory management systems and sales management information solutions, as well
as data services and associated support services, to the pharmaceutical and
healthcare industries. The Company's principal markets are located in Australia,
Austria, Belgium, Canada, France, Germany, Italy, the Netherlands, New Zealand,
Singapore, Spain, the United Kingdom and the United States.
INITIAL PUBLIC OFFERING
On April 16, 1996 the Company consumated an Initial Public Offering ("IPO") or
("Offering"). The Offering resulted in the issuance of approximately 3,187,000
shares of the Company's common stock and generated net proceeds of $33.3
million.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Walsh and all of
its majority-owned subsidiaries. The consolidated financial statements have been
restated for discontinued operations (see Note 2). The accompanying notes
present amounts related only to continuing operations. All inter-company
balances and transactions have been eliminated on consolidation. On February 21,
1996 the Company's Board of Directors approved a one-for-four reverse stock
split of the Company's Common and Series A Convertible Preferred Stock
("Preferred Stock"). All references in the accompanying consolidated financial
statements to the number of shares and per share amounts have been retroactively
adjusted to reflect the reverse stock split.
GOODWILL
Under the purchase method of accounting, the excess of the purchase price of
businesses acquired over the fair value of tangible and identifiable intangible
assets at the dates of acquisition has been assigned to goodwill. The net assets
and results of operations of the acquisitions have been included in the
consolidated financial statements of the Company from their respective dates of
purchase. The goodwill reflected in the Company's balance sheets principally
relates to the Company's direct mail marketing business and is amortized on a
straight-line basis over periods not exceeding 40 years.
The Company assesses the recoverability of its goodwill, on a subsidiary by
subsidiary basis, by determining whether amortization of goodwill can be
recovered through undiscounted projected net income, excluding goodwill
amortization, of the respective subsidiary. Impairment, if any, is measured
based on projected discounted net income, excluding goodwill amortization, using
a discount rate reflecting the Company's cost of funds.
F-7
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. All maintenance and repairs are
expensed as incurred.
Depreciation and amortization are provided on the straight-line basis.
Furniture, office equipment and computer equipment are depreciated over five
years. Leasehold improvements are amortized over the estimated useful lives of
the assets or the lease terms (maximum of 10 years), whichever are shorter.
Buildings are being depreciated over 50 years.
On disposal, costs and accumulated depreciation are removed from the balance
sheet and gains (losses) are recognized in the statement of operations.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
The Company capitalizes certain costs related to the development of new software
products or the enhancement of existing software products for sale or license.
These costs are capitalized from the point in time that technological
feasibility has been established, as evidenced by a working model or a detailed
working program design, to the point in time that the product is available for
general release to customers.
Capitalized software development costs are amortized on a product-by-product
basis over the ratio of current revenues to total anticipated revenues or on a
straight-line basis over the estimated economic lives of the products (no longer
than five years), using whichever method yields the greater amortization,
beginning with the release to the customer. Research and development costs
incurred prior to establishing technological feasibility and costs incurred
subsequent to general product release to customers are charged to expense as
incurred. The Company continually evaluates whether events or circumstances have
occurred that indicate that the remaining useful life of the capitalized
software development costs should be revised or that the remaining balance of
such assets may not be recoverable. As of June 30, 1996 management believes that
no revisions to the remaining useful life or write-down of capitalized
development costs are required.
REVENUE RECOGNITION
The Company recognizes revenue from the usage of its electronic territory
management systems ratably over the term of the customer agreements. The
contract can include use of the software, maintenance, support and related data
server/network management fees ("on-going fees"). As part of providing these
services, certain fees ("one-time fees") relating to project scope and design,
application building and testing, loading and installation of user equipment and
training are recognized as revenues when the service has been completed and
accepted by the customer. Other special projects are recognized as revenue upon
completion of the project.
Revenue from market research and direct mail marketing is recognized on delivery
of the product. Revenue from medical professional database services is
recognized ratably over the term of the contract.
F-8
<PAGE>
Prebillings for products that have not been delivered or for services not
rendered are classified as unearned income until the earnings process is
complete.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash balances, marketable securities and
trade receivables. The Company invests its excess cash with major banks. The
Company's customer base principally comprises companies within the
pharmaceutical industry. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations given the
generally strong credit ratings of the customers. The Company does not require
collateral from its customers.
FOREIGN CURRENCY
The balance sheet and results of operations of the Company's foreign
subsidiaries that operate outside the United States are measured using local
currency as the functional currency.
Assets and liabilities have been translated into United States dollars at the
rates of exchange at the balance sheet date. Revenues and expenses are
translated into United States dollars at the average rate during the period.
Translation gains and losses arising from the use of differing exchange rates
from year to year are included in the cumulative translation adjustment on the
balance sheet.
Transaction gains and losses are recognized in the statement of operations as
incurred. For the years presented, these amounts were not material.
INCOME TAXES
Federal, foreign and state income taxes in the consolidated financial statements
have been computed on a stand-alone return basis according to the fiscal and
legal structure under which the various tax-paying entities operate. Deferred
income taxes are recorded to reflect the tax consequences on future years of
differences between the tax basis of assets and liabilities and financial
reporting amounts at each year-end.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturity dates of three
months or less from the date of acquisition by the Company to be cash
equivalents.
INVESTMENTS
The Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
in fiscal year 1995. The adoption resulted in a decrease in stockholders'
deficit of $2.1 million. In accordance with SFAS 115, prior years financial
statements were not restated to reflect the change in accounting method.
F-9
<PAGE>
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and reevaluates such determination
at each balance sheet date. Debt securities for which the Company does not have
the intent or ability to hold to maturity are classified as available for sale,
along with any investment in equity securities. Securities available for sale
are carried at fair value, as determined by the quoted market value at the
balance sheet date, with the unrealized gains and losses, net of tax, reported
in a separate component of stockholders' equity. At June 30, 1996, the Company
had no investments that qualified as trading or held to maturity.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed using the weighted average number of
shares of Common Stock outstanding. Common equivalent shares from stock options
and warrants (using the treasury stock method) have been included in the
computation when dilutive except that, pursuant to the Securities and Exchange
Commission Staff Accounting Bulletin, all stock options and warrants issued by
the Company at an exercise price below the public offering price during the
twelve-month period prior to the offering have been included in the calculations
as if they were outstanding for all periods presented using the treasury stock
method and the IPO price of $12.00. Common equivalent shares from the Preferred
Stock (using the if-converted method) have been included for all periods in
which the Preferred shares were outstanding.
USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liablities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the fiscal 1995 financial statements have been reclassified
to conform to fiscal 1996 presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of certain of the Company's financial instruments including
cash and cash equivalents, accounts receivable, accounts payable and other
accrued liabilities approximates fair value due to their short maturities. Based
on borrowing rates currently available to the Company for loans with similar
terms, the carrying value of its capital lease obligations approximates fair
value.
2. DISCONTINUED OPERATIONS - SOURCE BUSINESS
- ---------------------------------------------
In conjunction with the IPO, the Company spun off the Source Business to its
stockholders (the "Spin-Off") as of April 16, 1996. The Source Business provides
a range of data services, primarily based on a proprietary database of
prescriptions dispensed in the United States, which are used by pharmaceutical
companies in sales force compensation, territory realignment and focused
promotion. The Source Business is currently developing similar databases in
major European markets. The Spin-Off was accomplished by the distribution of all
the issued and outstanding capital stock of Source International Inc., a holding
company formed for purposes of the Spin-Off.
F-10
<PAGE>
Pursuant to the amendments to the Preferred Stock, at the time of the Spin-Off,
one-half of the shares of the Company's Preferred Stock were exchanged for
shares of Preferred Stock of Source having substantially similar terms. Based on
the relative fair value of Walsh and Source, $11,802,000 of obligations of the
Preferred Stock were transferred to the newly issued Source Preferred Stock. The
Company also contributed the Pharmaceutical Marketing Services Inc. ("PMSI")
shares; certain other corporate assets of the Company with a carrying value of
$1,250,000; the identifiable net liabilities of the Source business in the
amount of $4,124,000 and $5,182,000 of cash to consumate the Spin- Off.
The remaining issued and outstanding Preferred Stock after the Spin-Off was
converted into 1,486,252 shares of Common Stock concurrently with the
consummation of the offering.
The results of operations of Source have been reclassified to identify them as
discontinued operations. The summarized data for Source through the date of
Spin-Off, is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Results of discontinued operations: YEARS ENDED JUNE, 30
---------------------------------------------------------------------------
Dollars in thousands 1994 1995 1996
-------------------- -------------------- ------------------
<S> <C> <C> <C>
Revenues $ 47,699 $ 48,710 $ 40,181
-------------------- -------------------- ------------------
Loss from operations:
Loss before taxes (7,301) (2,653) (1,570)
Income tax provision (224) - -
-------------------- -------------------- ------------------
Loss from operations (7,525) (2,653) (1,570)
-------------------- -------------------- ------------------
(Loss) gain on disposal of operations:
(Loss) gain on disposal 2,873 1,322 (185)
Income taxes on disposal (1,148) (223) -
-------------------- -------------------- ------------------
(Loss) gain on disposal, net 1,725 1,099 (185)
-------------------- -------------------- ------------------
Loss from discontinued
operations, net $ (5,800) $ (1,554) $ (1,755)
==================== ==================== ==================
</TABLE>
The net loss from discontinued operations of $7,525,000 in the year ended June
30, 1994 includes $2,117,000 of restructuring costs following plans to
significantly reduce the Source Business' cost structure and to improve
efficiency. The implementation of the restructuring program involved reductions
in the number of employees and consolidation of development activities.
F-11
<PAGE>
The gain on disposal of the Source Business in the years ended June 30, 1994 and
1995 represents the sale of part of the Source segment (the targeting business)
in Belgium and the Netherlands to PMSI. The sale resulted in a profit before tax
of $6,100,000 of which $2,850,000 has been deferred in respect of the
Netherlands where the purchase price is repayable if certain profit targets are
not achieved. A portion of the gain was also deferred as a result of accounting
for PMSI under the equity method. In the fiscal year ended June 30, 1995 a gain
of $1,322,000 was recorded from the sale of these businesses. This has arisen as
a result of the amortization of a portion of the deferred gain from the
Netherlands plus the recognition of the deferred gain as a result of accounting
for the investment in PMSI using the cost method. The loss on disposal in the
year ended June 30, 1996 included losses generated by the Source Business from
January 1, 1996 through the date of the Spin-Off of $471,000 net of the
recognition of the deferred gain from the Netherlands in the period up to the
date of the Spin-Off.
3. TRANSACTIONS WITH SOURCE
- ----------------------------
In connection with the Spin-off, Walsh and Source have entered into several
ageements:
PREFERRED TECHNOLOGY PARTNER AGREEMENT. Walsh and Source have created a
preferred technology partnership whereby the companies collaborate to build,
maintain and promote a seamless data interface between their respective
technologies to facilitate delivery by means of Premiere of prescription data at
the sales representative level. No compensation is payable under this agreement.
PHARBASE LICENSE. Walsh has granted to Source a non-exclusive license to its
Pharbase medical professional databases in certain European countries. Source is
allowed to use the Pharbase databases only for internal purposes and in
connection with the development, delivery and marketing of its prescriber-linked
prescription databases. The initial term of the license runs for ten years and
the license is renewable for two additional five-year terms. Source has agreed
to provide Walsh with all updating information which it receives with regard to
medical professionals, their specialties, affiliations and locations generated
as a result of the use of Pharbase by Source. Source has agreed to pay $1.00 per
prescriber in the database universe in the first year of prescription data
collection in a particular market. In consideration of Source's obligation to
provide updating information to Walsh, such fee will be reduced to $0.75 in the
second year, $0.50 in the third year and $0.25 per prescriber thereafter. In
addition, Source has agreed to pay Walsh 75% of the list price of the Pharbase
service for each Source client to which it delivers prescriber-level data and
which does not have a current Pharbase license.
TRANSITIONAL SERVICES ARRANGEMENTS. The Company and Source have entered into
certain transitional services arrangements relating to the provision of
management services and the sharing of facilities. The Chief Financial Officer
and the General Counsel of Walsh are, for a transitional period of approximately
six months after the Spin-Off, providing certain services to Source. In
addition, the Chief Executive Officer of Walsh is made available to Source as a
consultant. Such officers will provide services to Source only to the extent
that they are not inconsistent with their duties to the Company, and the Company
expects that these officers will devote at least 80% of their business time to
Walsh during this transition period. The Chief Executive Officer of Source, who
serves as the Chairman of Source, will be made available as a consultant to
Walsh. To permit some
F-12
<PAGE>
flexibility for the Company in securing new office space in the United States,
Source will sublet to the Company, for an interim period, the space the Company
currently occupies within the Source Business facilities.
4. INVESTMENTS
- ---------------
On July 1, 1993 the Company owned 21% of the Common Stock of PMSI, a company it
had formed in 1991. The Company reduced its investment to 19% during fiscal 1994
and recorded a gain of $2,420,000 relating to these transactions. The Company
continued to account for its investment in PMSI under the equity method.
In May 1995, the Company reduced its holdings in PMSI to approximately 9% and,
accordingly, changed its method of accounting for its investment to comply with
SFAS 115 effective from the date of the transaction. The Company recorded a gain
of $402,000 relating to the sale of PMSI shares. At June 30 1995, the marketable
securities (shares of PMSI stock) constitute equity securities and have been
categorized as available-for-sale. Available-for-sale securities are stated at
fair market value, with unrealized gains or losses, net of tax, reported as a
separate component of stockholders' deficit. At April 16, 1996, the Company
contributed the PMSI shares to Source as part of the Spin- Off.
On January 25, 1996, the Company entered into a Joint Venture Agreement with an
affiliate of Zuellig Pharma S.A., pursuant to which the parties have established
a joint venture for the commercialization of the Company's PRECISE, Premiere and
Pharbase services in 12 countries in Asia-Pacific. The joint venture company has
been formed in Singapore. Walsh owns 51% of the equity and has operational
control of the joint venture. As such, the Company has included the results of
operations of the joint venture in its consolidated statement of operations
since January 25, 1996.
F-13
<PAGE>
5. MARKETABLE SECURITIES
- -------------------------
Marketable securities consist of the following as of June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
NAME OF ISSUER AMORTIZED FAIR VALUE UNREALIZED GAINS
AND TITLE OF EACH COST OF EACH (LOSSES)
ISSUE ISSUE
- --------------------------------- ---------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Corporate debt securities $ 6,608 $ 6,606 $ (2)
Debt securities issued by the
U.S. Treasury and other U.S.
government corporations and
agencies 2,613 2,613 -
Debt securities issued by
foreign governments 775 773 (2)
---------------------- ---------------------------- ----------------------------
$ 9,996 $ 9,992 $ (4)
====================== ============================ ============================
Maturities
Short-term investments $ 6,794 $ 6,790 (4)
Due after one year through
five years 2,260 2,260 -
Due after five years 942 942 -
---------------------- ---------------------------- ----------------------------
$ 9,996 $ 9,992 $ (4)
====================== ============================ ============================
</TABLE>
The fair value of the marketable securities has been reflected entirely within
current assets in the balance sheet at June 30, 1996 as it is the Company's
intention to utilize the marketable securities within the next operating cycle.
F-14
<PAGE>
6. PROPERTY AND EQUIPMENT
- -------------------------
Property and equipment at June 30, 1995 and 1996 comprised the following (in
thousands):
-----------------------------------
JUNE 30,
-----------------------------------
1995 1996
---------------- --------------
Property including leasehold improvements $ 2,873 $ 2,702
Furniture, computer & office equipment 9,489 12,716
---------------- --------------
12,362 15,418
Less accumulated depreciation and
amortization (7,168) (10,755)
---------------- --------------
$ 5,194 $ 4,663
================ ==============
Depreciation and amortization charged to operations for the years ended June 30,
1994, 1995 and 1996 were $639,000, $839,000 and $1,106,000 respectively.
7. OTHER ASSETS
- ----------------
Other assets at June 30, 1995 and 1996 comprised the following (in thousands):
---------------------------------------
JUNE 30,
---------------------------------------
1995 1996
----------------- ------------------
Capitalized software $ 1,139 $ 2,035
Deferred Taxes - 250
Collateral and other deposits 1,962 924
----------------- ------------------
3,101 3,209
Less accumulated amortization - -
----------------- ------------------
$ 3,101 $ 3,209
================= =================
The Company capitalized software development costs of $1,092,000 and $896,000
for the years ended June 30, 1995 and 1996 respectively. Amortization expense
and adjustments to net realizable value charged to production costs amounted to
$326,000, $520,000 and $0 for the years ended June 30, 1994, 1995 and 1996
respectively.
F-15
<PAGE>
8. LONG-TERM DEBT
- ------------------
Long term debt at June 30, 1995 and 1996 comprised the following (in thousands):
-----------------------------------
JUNE 30,
-----------------------------------
1995 1996
----------------- ---------------
Bank Loan (1) $ 1,153 $ -
13% Class A Subordinated Debentures (2) 13,331 -
12% Class B Subordinated Debentures (2) 1,333 -
Original issue discount (2) (178) -
Other long-term debt (3) 1,064 1,117
----------------- ---------------
16,703 1,117
Less current portion (1,162) (12)
----------------- ---------------
$ 15,541 $ 1,105
================= ===============
(1) Represents the balance of a multi-currency term loan entered into on
June 26, 1990 with a stated rate of interest of 2.5% above LIBOR per
annum. The loan was repaid in total on December 29, 1995.
(2) The Class A and Class B debentures were repaid in full before June 30,
1996.
(3) Other long-term debt is principally comprised of the carrying value
of a note payable to PMSI to cover taxes payable by Walsh on gains on the
sale of the Source segment targeting business. This note which is due in
fiscal year 2000, is non-interest bearing with a face value of $1.2
million
Aggregate maturities of long-term debt at June 30, 1996 for the next five
fiscal years are as follows: 1997-$12,000; 1998-$14,000; 1999-$14,000;
and 2000-$1,077,000.
9. ACCRUED LIABILITIES
- -----------------------
Accrued liabilities at June 30, 1995 and 1996 comprised the following (in
thousands):
-------------------------------------
JUNE 30,
-------------------------------------
1995 1996
---------------- --------------
Employee compensation and benefits $ 3,799 $ 4,374
Other liabilities 13,887 13,093
---------------- --------------
$ 17,686 $ 17,467
================ ==============
10. PREFERRED STOCK
- --------------------
At June 30, 1994 and 1995, the Company had 5,000,000 shares of preferred stock
authorized, of which 1,041,667 shares had been designated as $1.00 par value
redeemable Series A Convertible Preferred Stock. As discussed in Note 2,
one-half of the Preferred shares were exchanged for shares of Preferred Stock of
Source resulting in $11,802,000 of obligations relating to the Preferred Stock
being transferred to Source. The remaining Preferred shares were converted into
1,486,252 shares of common stock concurrently with the consumation of the
offering.
F-16
<PAGE>
11. EQUITY PLANS
- -----------------
A Stock Option and Restricted Stock Purchase Plan has been established by the
Company for selected employees, officers and directors of the Company or any of
its subsidiaries. There are 1,500,000 shares of Common Stock reserved for
issuance under the plan and a registration statement for such stock was filed on
August 22, 1996.
Information relating to the Company's Stock Option and Restricted Stock Purchase
Plan is as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
AT JUNE 30,
--------------------- ----------------------------------------------------
1994 1995 1996
--------------------- --------------------- -----------------------
<S> <C> <C> <C>
Options outstanding July 1 495,006 584,543 626,951
Options granted 114,000 93,189 401,250
Options exercised (588) (6,825) (50)
Options lapsed (23,875) (43,956) (35,575)
--------------------- --------------------- -----------------------
Options outstanding at end of period 584,543 626,951 992,576
===================== ===================== =======================
Options exercisable at end of period 284,094 344,863 392,950
Option prices per share:
Granted $ 6.36-10.60 $ 6.36 $ 6.36 -12.00
Exercised $ 6.36-8.48 $ 2.12 - 6.36 $ 6.36
</TABLE>
During 1993, the Company established a Non-Employee Directors' Stock Option
Plan. There are 120,000 shares reserved for issuance under the plan, of which
15,000 options were granted in the six months ended June 30, 1993 at an exercise
price per share of $12.00. A further 3,750 options were granted in each of the
years ended June 30, 1994 and 1995 at an exercise price per share of $12.00.
11,250 options were granted during fiscal 1996 at exercise prices of between
$12.25-$12.38.
Under agreements dated May 31, 1994 and December 8, 1995, the Company issued
warrants to purchase 25,789 shares of Common Stock to a supplier. These warrants
are exercisable at $12.72 per share at any time for a period of three years from
April 16, 1996.
The exercise price of outstanding options and warrants to purchase Walsh Common
Stock was allocated, as of the date of the Spin-Off, between such options and
warrants and the options and warrants to be granted by Source in proportion to
the relative fair market values of the Walsh Common Stock and the Source common
stock as of such date. As such, the ratio of the exercise price per option to
the market value per share has not been reduced. The vesting provisions and the
option period of the original grant have not been affected by the amendments to
the exercise price.
12. RESTRUCTURING COSTS
- ------------------------
In June 1994, plans were developed to significantly reduce the Company's cost
structure and to improve efficiency on a worldwide basis. The restructuring
program involved reductions in the number of employees and consolidation of
development activities. The consolidated statement of operations for 1994
includes $824,000 of pre-tax charges relating to this program.
F-17
<PAGE>
13. INCOME TAX
- ---------------
The components of the income tax provision for the years ended June 30, 1994,
1995 and 1996 are comprised of the following:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------
Dollars in thousands 1994 1995 1996
----------------------- ---------------------- ----------------------
<S> <C> <C> <C>
U.S. federal taxes currently payable $ - $ - $ -
U.S. state taxes currently payable 390 - -
Foreign taxes currently payable (1,718) (2,498) (3,397)
Deferred income taxes (181) 286 2,739
----------------------- ---------------------- ----------------------
$ (1,509) $ (2,212) $ (658)
----------------------- ---------------------- ----------------------
</TABLE>
The domestic and foreign components of income (loss) from continuing operations
before income taxes were as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------
Dollars in thousands 1994 1995 1996
----------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Domestic $ (4,473) $ (4,728) $ (3,729)
Foreign 69 3,983 6,472
----------------------- ---------------------- ----------------------
$ (4,404) $ (745) $ 2,743
======================= ====================== ======================
</TABLE>
Deferred tax (assets) liabilities comprised the following at June 30, 1995 and
1996:
<TABLE>
<CAPTION>
----------------------------------------------------
JUNE 30,
----------------------------------------------------
Dollars in thousands 1995 1996
----------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Basis difference in PMSI shares $ 2,489 $ -
---------------------- ----------------------
Gross deferred tax liabilities 2,489 -
----------------------- ----------------------
Deferred tax assets:
Loss carryforwards (9,489) (13,625)
Capitalized software (1,715) (3,335)
Other accrued liabilities (1,525) (1,215)
Other (286) (513)
----------------------- ----------------------
Gross deferred tax assets (13,015) (18,688)
Valuation allowance 13,015 18,438
----------------------- ----------------------
Net deferred tax assets - (250)
----------------------- ----------------------
Deferred taxes, net $ 2,489 $ (250)
======================= ======================
</TABLE>
F-18
<PAGE>
A reconciliation of federal statutory and effective income tax rates follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
YEARS ENDED JUNE 30,
-------------------------------------------------------------------
1994 1995 1996
------------------ ------------------ -----------------
<S> <C> <C> <C>
U.S. federal rate (34)% (34)% 34%
Effect of:
Net operating losses 46 321 (54)
Foreign income taxes 21 9 44
State taxes 1 1 -
------------------ ------------------ -----------------
Effective income tax rate 34% 297% 24%
================== ================== =================
</TABLE>
At June 30, 1996 there were available for U.S. federal income tax purposes
operating loss carryforwards of approximately $20,995,000 expiring in the years
2007, 2008, 2010 and 2011 which may provide future tax benefits for U.S. federal
income tax purposes. If the Spin-Off does not qualify as a tax-free distribution
pursuant to Section 355 of the Internal Revenue Code of 1986, as amended, the
Company would be required to utilize substantially all of these U.S. operating
loss carryforwards to offset income deemed to be realized by the Company in the
Spin-Off.
At June 30, 1996 there were available for foreign income tax purposes operating
loss carryforwards of approximately $15,831,000. These operating loss
carryforwards may provide future tax benefits totalling $6,487,000, expiring as
follows: 1997, $349,000; 1998, $175,000; 1999, $550,000; 2000, $784,000; 2001,
$795,000 and thereafter $3,834,000.
U.S. income taxes have not been provided at June 30, 1996, on unremitted
earnings aggregating $13,567,000 of entities located outside of the United
States, as such earnings are considered to be permanently invested. If such
earnings were to be remitted without offsetting tax credits in the United
States, withholding taxes would be approximately $1,460,000.
Included within accounts payable is $2,168,000 and $3,745,000 of current income
taxes payable for the years ended June 30, 1996 and 1995 respectively.
F-19
<PAGE>
14. EMPLOYEE BENEFIT PLANS
- --------------------------
In the U.S., the Company maintains a defined contribution profit-sharing plan.
The Company's contribution is a discretionary amount to match employee
contributions.
In the United Kingdom, a money purchase plan is maintained with the Company
contributing an average of approximately 5% of salaries.
In the Netherlands, a defined contribution plan was established in 1990. The
contributions (which vary, depending on age and salary) are between 8% and 13%
of each employee's basic salary less a fixed deduction. The Company pays 60% of
the premiums and the employee pays the remaining 40%.
In Belgium the company maintains a defined contribution plan. The Company's
contribution is 5% of basic salary.
The total costs associated with these plans were as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------
Dollars in thousands 1994 1995 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
United States $ 40 $ 16 $ 6
United Kingdom 168 185 214
The Netherlands 108 89 79
Belgium 54 48 59
---------------------- ---------------------- ----------------------
$ 370 $ 338 $ 358
====================== ====================== ======================
</TABLE>
F-20
<PAGE>
15. LEASING ARRANGEMENTS
- ------------------------
The Company leases certain property and equipment.
Obligations under long-term and non-cancellable lease agreements expiring at
various dates have the following aggregate approximate annual minimum rentals:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Dollars in thousands CAPITAL LEASES OPERATING LEASES
--------------------------- ----------------------------
<S> <C> <C>
To June 30, 1997 $ 507 $ 2,559
To June 30, 1998 522 1,933
To June 30, 1999 241 1,624
To June 30, 2000 160 806
To June 30, 2001 160 704
After June 30, 2001 691 270
--------------------------- ----------------------------
Total minimum lease payments 2,281 $ 7,896
============================
Less amount representing interest (186)
---------------------------
Present value of minimum lease payments 2,095
Less current portion (443)
---------------------------
$ 1,652
===========================
</TABLE>
Operating lease rentals for the years ended June 30, 1994, 1995 and 1996 were
$1,743,000, $2,901,000 and $2,633,000 respectively.
Included in property and equipment at June 30, 1995 and 1996 are assets subject
to capitalized leases with a cost of $2,581,000 and $3,206,000 respectively, and
accumulated amortization of $831,000 and $874,000 for the years ended June 30,
1995 and 1996, respectively.
F-21
<PAGE>
16. GEOGRAPHIC DATA
- -------------------
The following table presents information about the Company by geographic area:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
YEAR ENDED
JUNE 30, 1994
-------------------------------------------------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
------------------- --------------------- -----------------------
<S> <C> <C> <C>
United States $ 2,410 $ (2,018) $ 832
Canada 4,930 927 2,182
Europe 25,275 328 22,270
Pacific 1,917 (259) 489
General corporate - (5,224) 25,629
------------------- --------------------- -----------------------
$ 34,532 $ (6,246) $ 51,402
=================== ===================== =======================
-------------------------------------------------------------------------------
YEAR ENDED
JUNE 30, 1995
-------------------------------------------------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
------------------- --------------------- -----------------------
United States $ 3,010 $ (1,480) $ 2,073
Canada 4,384 465 2,193
Europe 30,179 3,957 23,464
Pacific 2,696 26 695
General corporate - (3,920) 20,966
------------------- --------------------- -----------------------
$ 40,269 $ (952) $ 49,391
=================== ===================== =======================
-------------------------------------------------------------------------------
YEAR ENDED
JUNE 30, 1996
-------------------------------------------------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
------------------- --------------------- -----------------------
United States $ 3,351 $ 373 $ 861
Canada 4,163 190 2,065
Europe 36,256 6,714 25,280
Pacific 3,432 (68) (667)
Other 60 60 -
General corporate - (3,437) 16,478
------------------- --------------------- -----------------------
$ 47,262 $ 3,832 $ 44,017
=================== ===================== =======================
</TABLE>
The accompanying notes are an integral part of these financial statements
F-22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders of
Walsh International Inc.
Our report on the consolidated financial statements of Walsh International Inc.
is included on Page F-1 of this Form 10-K. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index on Page 23 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
August 30, 1996
S-1
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
- ------ ------ ------ ------ ------
Additions
---------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Descriptions Period Expenses Accounts Deductions Period
- ------------ ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts
June 30, 1996 214,000 181,000 (9,000) (50,000) 336,000
June 30, 1995 261,000 15,000 20,000 (82,000) 214,000
June 30, 1994 165,000 94,000 40,000 (38,000) 261,000
Valuation allowance
for deferred tax assets
June 30, 1996 13,015,000 5,423,000 - - 18,438,000
June 30, 1995 12,695,000 320,000 - - 13,015,000
June 30, 1994 5,346,000 7,349,000 - - 12,695,000
</TABLE>
S-2
<PAGE>
PART III
The information required by Part III of Form 10-K is incorporated by
reference from the Registrant's definitive Proxy Statement for its meeting of
stockholders in connection with its transition period, which is to be filed
pursuant to Regulation 14A not later than October 30, 1996.
Pursuant to General Instruction G(3) to the Annual Report on Form 10-K,
the information required by Part III of 10-K regarding executive officers of the
Company required by Item 401 of Regulation S-K is hereby incorporated by
reference from the Registrants' Definitive Proxy Statement for its annual
meeting of stockholders, which is to be filed pursuant to Registration 14A not
later than October 30, 1996.
PART IV
ITEM 10. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
(a)(1-2) Financial Statements and Schedule
See Index to Financial Statements and Schedule which appears on
page 23 of this Annual Report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 26, 1996 WALSH INTERNATIONAL INC
By: /s/Michael A. Hauck
-------------------
Michael A. Hauck
Director, Chief Executive Officer
POWER OF ATTORNEY
Each person whose individual signature appears below hereby
authorizes Michael A. Hauck, Martyn D. Williams and Leonard R. Benjamin, and
each of them, with full power of substitution and full power to act without the
other, his true and lawful attorney-in-fact and agent in his name, place and
stead, to execute in the name and on behalf of such person, individually and in
each capacity stated below, and to file any and all amendments to this report.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C> <C>
/s/Michael A. Hauck Director, Chief Executive Officer September 26, 1996
- -----------------------
Michael A. Hauck
/s/Robert Mander Director, President,
- -----------------------
Robert Mander Chief Operating Officer September 26, 1996
/s/Dennis M. J. Turner Director, Chairman of the Board September 26, 1996
- -----------------------
Dennis M. J. Turner
/s/James W. Stevens Director September 26, 1996
- -----------------------
James W. Stevens
- -----------------------
Harry C. Groome Director
- -----------------------
Leonard M. Lodish Director
/s/Martyn D. Williams Chief Accounting and Financial Officer September 26, 1996
- -----------------------
Martyn D. Williams
</TABLE>
EXHIBIT 11
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the years ended June 30, 1994, 1995 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996
---- ---- ----
PRIMARY AND FULLY DILUTED
EARNINGS PER SHARE
<S> <C> <C> <C>
Common shares outstanding 5,786,978 5,806,661 6,783,837
Assumed exercise of certain stock options
and other common stock equivalents (1) 1,539,613 1,539,613 1,413,959
-------------------- ------------------- ---------------------
7,326,591 7,346,274 8,197,796
==================== =================== =====================
Income (loss) from continuing operations $ (5,913) $ (2,957) $ 2,085
(Loss) income from discontinued operations,
net $ (5,800) $ (1,554) $ (1,755)
-------------------- ------------------- ---------------------
Net Income (Loss) $ (11,713) $ (4,511) $ 330
==================== =================== =====================
Income (loss) per share from continuing
operations $ (0.81) $ (0.40) $ 0.25
(Loss) income per share from discontinued
operations, net $ (0.79) $ (0.21) $ (0.21)
-------------------- ------------------- ---------------------
Net income loss per share $ (1.60) $ (0.61) $ 0.04
==================== =================== =====================
(1) The Common Stock equivalents consist of stock options, warrants and the
Series A Convertible Preferred Stock. Common equivalent shares from
convertible preferred stock (using the if- converted method) and stock
options and warrants (using the treasury stock method) have been
included in the computation when dilutive (except that, pursuant to the
Securities and Exchange Commission rules, the Series A Convertible
Preferred Stock which was converted into Common Stock in connection
with the Company's initial public offering is included as if converted
at the original date of issuance even though inclusion may be
anti-dilutive). Pursuant to the Securities and Exchange Commission
Staff Accounting Bulletin all common and common equivalent shares
issued by the Company at an exercise price below the public offering
price during the twelve-month period prior to the offering have been
included in the calculation as if they were outstanding for all periods
presented (using the treasury stock method and the initial public
offering price of $12.00 per share).
Had all common stock equivalents been factored into the fully diluted
calculations for all years presented, the common stock equivalents
would increase by 255,000, 305,000 and 0 for 1994, 1995 and 1996,
respectively and would have resulted in fully diluted net (loss)
earnings per share of $(1.54); $(0.59) and $0.04 in 1994, 1995 and
1996, respectively.
</TABLE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 (File No. 333- 10625), of our reports dated August 30, 1996, on our
audits of the consolidated financial statements and financial statement schedule
of Walsh International Inc. and Subsidiaries as of June 30, 1995 and 1996, and
for the years ended June 30, 1994, 1995 and 1996 which reports are included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
September 24, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,629
<SECURITIES> 9,992
<RECEIVABLES> 13,386
<ALLOWANCES> 336
<INVENTORY> 0
<CURRENT-ASSETS> 32,594
<PP&E> 15,418
<DEPRECIATION> 10,755
<TOTAL-ASSETS> 44,017
<CURRENT-LIABILITIES> 30,271
<BONDS> 0
105
0
<COMMON> 0
<OTHER-SE> 4,441
<TOTAL-LIABILITY-AND-EQUITY> 44,017
<SALES> 0
<TOTAL-REVENUES> 47,262
<CGS> 0
<TOTAL-COSTS> 18,442
<OTHER-EXPENSES> 24,866
<LOSS-PROVISION> 122
<INTEREST-EXPENSE> 1,202
<INCOME-PRETAX> 2,743
<INCOME-TAX> 658
<INCOME-CONTINUING> 2,085
<DISCONTINUED> (1,755)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 330
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
