SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 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 (I.R.S. Employer
of 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
-------------
----------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 to 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
--- ---
As of January 31, 1997 there were outstanding 10,502,085 shares of
Common Stock of Walsh International Inc.
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page Number
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PART I FINANCIAL INFORMATION
- ------ ---------------------
Item 1. Financial statements
Consolidated Statements of Operations (unaudited) for the Three
and Six Months Ended December 31, 1996 and 1995......................3
Consolidated Balance Sheets as of December 31, 1996
(unaudited) and June 30, 1996........................................4
Consolidated Statements of Cash Flows (unaudited) for the
Six Months Ended December 31, 1996 and 1995..........................5
Notes to Consolidated Financial Statements...........................6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition...................................8
PART II OTHER INFORMATION
- ------- -----------------
Item 6. Exhibits and Reports on Form 8-K....................................10
Signatures..........................................................11
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
WALSH INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except per share amounts, unaudited
<TABLE>
<CAPTION>
---------------------------------------------------
Three Months Ended
December 31, December 31,
----------------------------------------------
1996 1995
-------------------- ------------------
<S> <C> <C>
Revenue $ 13,353 $ 11,773
-------------------- ------------------
Costs and expenses:
Production costs 4,921 4,409
Selling, general and administrative
expenses 6,117 5,286
Research and development costs 957 831
Amortization of intangible assets 36 28
-------------------- ------------------
Total costs and expenses 12,031 10,554
-------------------- ------------------
Operating profit 1,322 1,219
Interest income 229 243
Interest expense (79) (592)
Minority Interest 39 -
-------------------- ------------------
Income from continuing operations
before income taxes 1,511 870
Income tax benefit (provision) (388) 534
-------------------- ------------------
Income from continuing operations 1,123 1,404
Discontinued operations:
Loss from discontinued operations, net - (958)
-------------------- ------------------
Net income (loss) $ 1,123 $ 446
==================== ==================
Income per share from continuing operations $ 0.11 $ 0.19
Loss per share from discontinued operations,
net - (0.13)
-------------------- ------------------
Net income (loss) per share $ 0.11 $ 0.06
==================== ==================
Shares used in computing income (loss) per
share 10,648,239 7,424,527
</TABLE>
<PAGE>
Item 1. FINANCIAL STATEMENTS
WALSH INTERNATIONAL AND SUBSIDIARIES
(continued)
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands, except per share amounts, unaudited
<TABLE>
<CAPTION>
-------------------------------------------------
Six Months Ended
December 31, December 31,
------------------------------------------------
1996 1995
---------------------- ------------------
<S> <C> <C>
Revenue $ 26,111 $ 22,073
---------------------- ------------------
Costs and expenses:
Production costs 9,774 8,888
Selling, general and administrative
expenses 12,195 10,277
Research and development costs 1,919 1,728
Amortization of intangible assets 72 56
---------------------- ------------------
Total costs and expenses 23,960 20,949
---------------------- ------------------
Operating profit 2,151 1,124
Interest income 419 524
Interest expense (133) (1,188)
Minority Interest 112 -
---------------------- ------------------
Income from continuing operations
before income taxes 2,549 460
Income tax benefit (provision) (624) 511
---------------------- ------------------
Income from continuing operations 1,925 971
Discontinued operations:
Loss from discontinued operations, net - (1,755)
---------------------- ------------------
Net income (loss) $ 1,925 $ (784)
====================== ==================
Income per share from continuing operations $ 0.18 $ 0.13
Loss per share from discontinued operations,
net - (0.23)
---------------------- ------------------
Net income (loss) per share $ 0.18 $ (0.10)
====================== ==================
Shares used in computing income (loss) per
share 10,651,030 7,584,850
The accompanying notes are an integral part of these financial statements
</TABLE>
3
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
Consolidated Balance Sheets
Dollars in thousands
<TABLE>
<CAPTION>
------------------------------------------------------
December 31, June 30,
------------------------------------------------------
1996 1996
------------------------ ----------------------
<S> <C> <C>
ASSETS
Current Assets: (Unaudited)
Cash and cash equivalents $ 6,010 $ 8,629
Marketable securities 10,416 9,992
Accounts receivable, principally trade 15,071 13,050
Prepaid expenses and other current assets 1,012 923
------------------------ ----------------------
Total current assets 32,509 32,594
Property and equipment, net 4,600 4,663
Goodwill, net 3,495 3,551
Other assets, net 3,653 3,209
------------------------ ----------------------
Total assets $ 44,257 $ 44,017
======================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 14 $ 12
Current portion of capital lease obligations 455 443
Accounts payable 9,110 7,808
Accrued liabilities 13,345 17,467
Unearned income 5,928 4,541
------------------------ ----------------------
Total current liabilities 28,852 30,271
------------------------ ----------------------
Long-term debt 1,084 1,105
Capital lease obligations 1,584 1,652
Other liabilities 5,980 6,295
Minority interest 37 148
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares
authorized and 10,517,210 and 10,484,835 shares issued,
respectively. 105 105
Paid-in capital 119,379 119,175
Accumulated deficit (113,024) (114,948)
Cumulative translation adjustment 663 675
Unrealized gain (loss) on available for sale securities, net of
tax 54 (4)
Treasury stock, at cost, 20,750 shares (457) (457)
------------------------ ----------------------
Total stockholders' equity 6,720 4,546
------------------------ ----------------------
Total liabilities and stockholders' equity $ 44,257 $ 44,017
======================== ======================
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Dollars in thousands, unaudited
---------------------------------------------
Six Months Ended
December 31,
---------------------------------------------
1996 1995
------------------ -------------------
<S> <C> <C>
Net cash flows provided by (used in) operating activities $ (396) $ 90
------------------ -------------------
Cash flows used in investing activities:
Purchases of marketable securities (366) -
Capital expenditures (572) (338)
Capitalized software (482) (500)
------------------ -------------------
Net cash used in investing activities (1,420) (838)
------------------ -------------------
Cash flows (used in) provided by financing activities:
Collateral receipts - 1,088
Common stock issuance costs (951) -
(Repayment) increase of capital leases 76 (103)
Options exercised 204 -
Repayment of long-term debt (135) (1,163)
------------------ -------------------
Net cash used in financing activities (806) (178)
------------------ -------------------
Effect of exchange rate movements 3 186
Effect of discontinued operations - (6,671)
------------------ -------------------
Net decrease in cash and cash equivalents (2,619) (7,411)
Cash and cash equivalents at beginning of period 8,629 15,110
------------------ -------------------
Cash and cash equivalents at end of period $ 6,010 $ 7,699
================== ===================
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1. INTERIM UNAUDITED FINANCIAL INFORMATION
The consolidated financial statements include the accounts of Walsh
International Inc. (the "Company") and all of its majority-owned
subsidiaries.
The accompanying consolidated statements of operations for the three
and six months ended December 31, 1996 and 1995, the consolidated
statements of cash flows for the six months, the consolidated balance
sheets as of December 31, 1996 and the related information of Walsh
International Inc. included in these notes to the consolidated
financial statements are unaudited. In the opinion of management, the
interim financial information reflects all adjustments (consisting only
of items of a normal recurring nature except for discontinued
operations) necessary for the fair presentation of the financial
position, results of operations and cash flows for the periods
presented. Results of operations for the three and six months and ended
December 31, 1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
The June 30, 1996 balance sheet was derived from the Company's June 30,
1996 audited consolidated financial statements, but does not include
all disclosures required by generally accepted accounting principles.
These interim financial statements should be read in conjunction with
the audited consolidated financial statements and related notes thereto
included in the Company's Consolidated Financial Statements on Form
10-K for the year ended June 30, 1996.
2. DISCONTINUED OPERATIONS - SOURCE BUSINESS
The Company consummated an Initial Public Offering ("IPO") in April
1996. Immediately prior to the IPO, the Company spun-off the Source
business to its stockholders by the distribution of all of the issued
and outstanding capital stock of Source Informatics Inc., a holding
company formed for that purpose. The results of the Source business are
shown as discontinued operations in the consolidated statements of
operations, for the three and six months ended December 31, 1995 and
the consolidated statement of cash flows for the six months ended
December 31, 1995.
6
<PAGE>
3. 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 in
the calculations for the three and six months ended December 31, 1995.
4. INCOME TAXES
For the three and six months ended December 31, 1996 the effective tax
rates were 25.7% and 24.5% respectively compared to tax benefits for
the equivalent periods of fiscal 1996. The effective income tax rate is
based on the Company's projected mix of the profits of its subsidiaries
operating in different countries, together with a reassessment of
income tax provisions established in prior periods.
7
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
WALSH INTERNATIONAL INC AND SUBSIDIARIES
Three Months Ended December 31, 1996 and 1995
Revenue for the second quarter of Fiscal 1997 was $13.4 million, an increase of
13% over the comparable period of the prior year. The increase was primarily due
to revenues from technology products, Premiere, Precise and Pharbase which
showed a 20% improvement compared with the same period last year.
Production costs in the second quarter were $4.9 million (36.9% of revenue),
compared with $4.4 million (37.5% of revenue) in the comparable quarter of
Fiscal 1996.
Selling, general and administrative expenses in the second quarter of fiscal
1997 were $6.1 million (45.8% of revenue), compared with $5.3 million (44.9% of
revenue) in the comparable quarter of the prior year. This increase reflects the
continued investment being made to meet the growing demand for Premiere.
Research and development costs were $1.0 million (7.2% of revenues) for the
second quarter compared with $0.8 million (7.1% of revenues) in the comparable
period last year.
Net interest income for the second quarter was $0.2 million compared to a net
interest expense of $0.3 million for the comparable Fiscal 1996 period, as a
result of the repayment of the Company's debentures following the IPO.
The effective tax rate for the quarter ended December 31, 1996 was 25.7% which
compares to a tax benefit for the comparable fiscal 1996 period. The effective
fiscal 1997 tax rate is based on the Company's projected mix of the profits of
its subsidiaries operating in different countries, together with an updated
assessment of income tax provisions established in prior periods. The fiscal
1996 tax benefit arose as a result of the recognition of a deferred tax asset on
available-for-sale securities. These shares were transferred to Source
Informatics at the Spin-Off.
8
<PAGE>
Six Months Ended December 31, 1996 and 1995
Revenue for the Company's first half of fiscal year 1997 was $26.1 million, an
increase of 18% over the comparable period of the prior year. The revenue
increases were spread across substantially all markets. Excluding net adverse
currency movements revenue increased by 20%. The increase was principally due to
a 25% improvement in the Company's Precise and Premiere revenues.
Production costs in the first half year were $9.8 million (37.4% of revenue)
compared with $8.9 million (40.3% of revenue) in the comparable period of fiscal
year 1996. The decline in production costs as a percentage of total revenues
reflect the Company's operating leverage.
Selling, general and administrative expenses in the first half of the year were
$12.2 million (46.7% of revenue), compared with $10.3 million (46.6% of revenue)
in the comparable period of the prior year. The 18.5% increase is due to
significant investment in senior sales and client service personnel to meet the
growing demand for Premiere.
Research and development costs were $1.9 million (7.3% of revenues) for the
first six months compared with $1.7 million (7.8% of revenues) for the
comparable period of fiscal 1996 reflecting the continued investment in research
and development. The percentage of software costs capitalized has remained at
similar rates in each period.
Net interest income for the half year ended December 31, 1996 was $0.3 million,
compared to a net interest expense of $1.4 million for the comparable fiscal
1996 period, as a result of the repayment of the debentures following the IPO.
The effective tax rate for the half year ended December 31, 1996 was 24.5% which
compares to a tax benefit for the comparable fiscal 1996 period. The effective
fiscal 1997 tax rate is based on the Company's projected mix of the profits of
its subsidiaries operating in different countries, together with an updated
assessment of income tax provisions established in prior periods. The fiscal
1996 tax benefit arose as a result of the recognition of a deferred tax asset on
available-for-sale securities. These shares were transferred to Source
Informatics at the Spin-Off.
The Company has received a ruling from the IRS that the Spin-Off of the Source
business qualified as a tax-free distribution pursuant to Section 355 of the
Internal Revenue Code of 1986.
9
<PAGE>
Liquidity and Capital Resources
At December 31, 1996, the Company's cash and cash equivalents totalled $6.0
million, a decrease of $2.6 million from the $8.6 million balance at June 30,
1996. The decrease is primarily due to the payment of costs associated with the
IPO, and cash used for investment in capital assets and the acquisition of
marketable securities.
The Company additionally holds $10.4 million in a professionally managed
portfolio of marketable securities. The marketable securities are considered
current assets by the Company as it has both the ability and the intent to
realize these securities in the normal operating cycle of the 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.
10
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Number
3.1 Restated Certificate of Incorporation of
Walsh International Inc., incorporated by
reference to Exhibit 3.1 to the Registration
Statement on Form S-1 of the Company (file
no. 333-316)
3.2 By-laws of Walsh International Inc., as
amended, incorporated by reference to
Exhibit 3.2 to the Registration Statement on
Form S-1 of the Company (file no. 333-316)
11 Computation of Earnings (Loss) per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements 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: Walsh International Inc.
By /s/Martyn D Williams
---------------------------------
Martyn D Williams
Chief Financial Officer
On behalf of the registrant and as principal
financial officer.
12
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
3.1 Restated Certificate of Incorporation of Walsh International
Inc., incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 of the Company (file no.
333-316)
3.2 By-laws of Walsh International Inc., as amended, incorporated
by reference to Exhibit 3.2 to the Registration Statement on
Form S- 1 of the Company (file no. 333-316)
11 Computation of Earnings (Loss) per Share
27 Financial Data Schedule
13
EXHIBIT 11
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
-----------------------------------------------
Computation of Earnings (Loss) Per Common Share
Dollars in thousands, except per share amounts
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
PRIMARY EARNINGS PER SHARE December 31, December 31, December 31, December 31,
------------ ------------ ------------ ------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,486,848 5,810,351 10,482,041 5,809,121
Assumed exercise of certain stock options and
other common stock equivalents (1) 161,391 1,614,176 168,989 1,775,729
----------------- ------------------- ------------------ -----------------
10,648,239 7,424,527 10,651,030 7,584,850
================= =================== ================== =================
Income from continuing operations $ 1,123 $ 1,404 $ 1,925 $ 971
Loss from discontinued operations, net - (958) - (1,755)
----------------- ------------------- ------------------ -----------------
Net Income (Loss) $ 1,123 $ 446 $ 1,925 $ (784)
================= =================== ================== =================
Income per share from continuing operations $ 0.11 $ 0.19 $ 0.18 $ 0.13
Loss per share from discontinued operations,
net - (0.13) - (0.23)
----------------- ------------------- ------------------ -----------------
Net Earnings (Loss) per share $ 0.11 $ 0.06 $ 0.18 $ (0.10)
================= =================== ================== =================
FULLY DILUTED EARNINGS PER SHARE
Weighted average common shares outstanding 10,486,848 5,810,351 10,482,041 5,809,121
Assumed exercise of certain stock options and
other common stock equivalents (1) 162,786 1,614,176 174,201 1,775,729
----------------- ------------------- ------------------ -----------------
10,649,633 7,424,527 10,656,241 7,584,850
================= =================== ================== =================
Income from continuing operations $ 1,123 $ 1,404 $ 1,925 $ 971
Loss from discontinued operations, net - (958) - (1,755)
----------------- ------------------- ------------------ -----------------
Net Income (Loss) $ 1,123 $ 446 $ 1,925 $ (784)
================= =================== ================== =================
Income per share from continuing operations $ 0.11 $ 0.19 $ 0.18 $ 0.13
Loss per share from discontinued operations,
net - (0.13) - (0.23)
----------------- ------------------- ------------------ -----------------
Net Earnings (Loss) per Share $ 0.11 $ 0.06 $ 0.18 $ (0.10)
================= =================== ================== =================
</TABLE>
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 assumed public
offering price during the twelve-month period prior to the offering
have been included in the calculation as if they were outstanding for
the three and six months ended December 31, 1995, (using the treasury
stock method and the initial public offering price of $12.00 Per
share).
14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-01-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,010
<SECURITIES> 10,416
<RECEIVABLES> 15,071
<ALLOWANCES> 318
<INVENTORY> 80
<CURRENT-ASSETS> 32,509
<PP&E> 14,399
<DEPRECIATION> 9,799
<TOTAL-ASSETS> 44,257
<CURRENT-LIABILITIES> 28,852
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 6,615
<TOTAL-LIABILITY-AND-EQUITY> 44,257
<SALES> 26,111
<TOTAL-REVENUES> 26,111
<CGS> 9,774
<TOTAL-COSTS> 23,960
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 133
<INCOME-PRETAX> 2,549
<INCOME-TAX> 624
<INCOME-CONTINUING> 1,925
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,925
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.18
</TABLE>
