SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 April 30, 1997 there were outstanding 10,529,460 shares of Common Stock of
Walsh International Inc.
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial statements
Consolidated Statements of Operations (unaudited) for the
Three months ended March 31, 1997 and 1996 and Nine Months
Ended March 31, 1997 and 1996................................... 3
Consolidated Balance Sheets as of March 31, 1997
(unaudited) and June 30, 1996................................... 4
Consolidated Statements of Cash Flows (unaudited) for the
Nine Months Ended March 31, 1997 and 1996....................... 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
2
<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 NINE MONTHS ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
---------------------------- ----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 13,704 $ 12,108 $ 39,815 $ 34,181
------------ ------------ ------------ ------------
Costs and expenses:
Production costs 5,269 4,709 15,043 13,597
Selling, general and administrative
expenses 5,892 5,241 18,087 15,518
Research and development costs 893 873 2,812 2,601
Amortization of intangible assets 36 28 108 84
------------ ------------ ------------ ------------
Total costs and expenses 12,090 10,851 36,050 31,800
------------ ------------ ------------ ------------
Operating profit 1,614 1,257 3,765 2,381
Interest income 159 131 578 655
Interest expense (58) (559) (191) (1,747)
Minority Interest (34) -- 78 --
------------ ------------ ------------ ------------
Income from continuing operations
before income taxes 1,681 829 4,230 1,289
Income tax provision (380) (740) (1,004) (229)
------------ ------------ ------------ ------------
Income from continuing operations 1,301 89 3,226 1,060
Discontinued operations:
Loss from discontinued operations, net -- -- -- (1,755)
------------ ------------ ------------ ------------
Net income (loss) $ 1,301 $ 89 $ 3,226 $ (695)
============ ============ ============ ============
Income per share from continuing operations $ 0.12 $ 0.01 $ 0.30 $ 0.14
Loss per share from discontinued operations,
net -- -- -- (0.23)
------------ ------------ ------------ ------------
Net income (loss) per share $ 0.12 $ 0.01 $ 0.30 $ (0.09)
============ ============ ============ ============
Shares used in computing income (loss) per
share 10,633,650 7,539,135 10,595,987 7,569,612
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dollars in thousands
-----------------------
MARCH 31, JUNE 30,
----------------------
ASSETS 1997 1996
--------- ---------
Current Assets: (UNAUDITED)
<S> <C> <C>
Cash and cash equivalents $ 6,833 $ 8,629
Marketable securities 8,505 9,992
Accounts receivable, principally trade 12,486 13,050
Prepaid expenses and other current assets 1,264 923
--------- ---------
Total current assets 29,088 32,594
Property and equipment, net 4,413 4,663
Goodwill, net 3,467 3,551
Other assets, net 3,736 3,209
--------- ---------
Total assets $ 40,704 $ 44,017
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 14 $ 12
Current portion of capital lease obligations 463 443
Accounts payable 6,706 7,808
Accrued liabilities 11,708 17,467
Unearned income 5,075 4,541
--------- ---------
Total current liabilities 23,966 30,271
--------- ---------
Long-term debt 1,107 1,105
Capital lease obligations 1,701 1,652
Other liabilities 5,818 6,295
Minority interest 71 148
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares
authorized and 10,528,660 and 10,484,835 shares issued,
respectively 105 105
Paid-in capital 119,449 119,175
Accumulated deficit (111,722) (114,948)
Cumulative translation adjustment 668 675
Unrealized loss on available for sale securities, net of
tax (2) (4)
Treasury stock, at cost, 20,750 shares (457) (457)
--------- ---------
Total stockholders' equity 8,041 4,546
--------- ---------
Total liabilities and stockholders' equity $ 40,704 $ 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
Dollars in thousands, unaudited
---------------------
NINE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
-------- --------
Net cash flows used in operating activities $ (1,221) $ (1,983)
-------- --------
Cash flows (used in) provided by investing activities:
Sale of marketable securities, net of purchases 1,489 --
Capital expenditures (618) (712)
Capitalized software (665) (670)
-------- --------
Net cash provided by (used in) investing activities 206 (1,382)
-------- --------
Cash flows (used in) provided by financing activities:
Collateral receipts -- 1,088
Common stock issuance costs (1,086) --
Repayment of capital leases (269) (103)
Options exercised 274 --
Loan proceeds received from minority interest 111
Repayment of long-term debt -- (1,073)
-------- --------
Net cash used in financing activities (970) (88)
-------- --------
Effect of exchange rate movements 189 (295)
Effect of discontinued operations -- (6,853)
-------- --------
Net decrease in cash and cash equivalents (1,796) (10,601)
Cash and cash equivalents at beginning of period 8,629 15,110
-------- --------
Cash and cash equivalents at end of period $ 6,833 $ 4,509
======== ========
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 nine months ended March 31, 1997 and 1996, the consolidated
statements of cash flows for the nine months ended March 31, 1997 and
1996 the consolidated balance sheets as of March 31, 1997 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 nine months
ended March 31, 1997 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 nine months ended March 31, 1996 and the
consolidated statement of cash flows for the nine months ended March
31, 1996.
6
<PAGE>
3. EARNINGS PER SHARE
------------------
Earnings 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 nine months ended March 31, 1996.
4. INCOME TAXES
------------
For the three and nine months ended March 31, 1997 the effective tax
rates were 23% and 24% respectively compared to 89% and 18% 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 MARCH 31, 1997 AND 1996
Revenue for the third quarter of Fiscal 1997 was $13.7 million, an increase of
13% over the comparable period of the prior year. Excluding net adverse currency
fluctuations, revenue increased by 16%. The increase was primarily due to 19%
growth (excluding the impact of currency) in revenues from technology products;
Premiere, Precise and Pharbase.
Production costs in the third quarter were $5.3 million (38% of revenue),
compared with $4.7 million (39% of revenue) in the comparable quarter of Fiscal
1996. The decline in production costs as a percentage of revenue demonstrates
the Company's operating leverage. Production costs have increased in absolute
terms following the initial establishment costs associated with the creation of
a European Regional Support Centre to offer pan European support to customers,
particularly multi-country installations, of Premiere.
Selling, general and administrative expenses in the third quarter of Fiscal 1997
were $5.9 million (43% of revenue), compared with $5.2 million (43% of revenue)
in the comparable quarter of the prior year. This increase reflects costs
associated with the increased investment in senior sales resources as well as
development plans for business expansion into new geographical markets.
Research and development costs were $0.9 million (7% of revenues) which is at a
comparable level to the prior year reflecting continuing commitment to product
development.
Net interest income for the third quarter was $0.1 million compared to a net
interest expense of $0.4 million for the comparable fiscal 1996 period due to
the repayment of the Company's debentures following the IPO.
The effective tax rate for the quarter ended March 31, 1997 was 23% which
compares to 89% 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 accruals established in prior periods. The fiscal 1996
rate was 56% after adding back non deductible interest expense. This is higher
than the 1997 rate due to the mix of profits.
Income from continuing operations of 1.3 million for the third quarter (12 cents
per share) compared with $0.1 million (0.01 cents per share) for the comparable
period of 1996. The improvement reflects a $1.6 million increase in revenues and
a smaller increase in operating costs and expenses together with interest and
tax improvements.
8
<PAGE>
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
Revenue for nine months to March 31 1997 was $39.8 million, an increase of 16%
over the comparable period of the prior year. Revenue increases were in
substantially all geographical markets. Excluding net adverse currency movements
revenue increased by 19%. The increase was principally due to a 23% improvement
(excluding currency) in the Company's technology products; Premiere, Precise and
Pharbase.
Production costs in the nine months were $15.0 million (38% of revenue) compared
with $13.6 million (40% of revenue) in the comparable period of fiscal year
1996. The decline in production costs as a percentage of total revenues is due
to both the increasing percentage of high margin technology product sales and
the Company's operating leverage.
Selling, general and administrative expenses in the nine months to March 31,
1997 were $18.1 million (45% of revenue), compared with $15.5 million (45% of
revenue) in the comparable period of the prior year. The 17% 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 $2.8 million (7% of revenues) for the first
nine months compared with $2.6 million (8% of revenues) for the comparable
period of fiscal 1996 reflecting the continued investment in product innovation.
The amount of software costs capitalized expressed as a percentage of total
research and development has remained at similar levels in each period.
Net interest income for the nine months ended March 31, 1997 was $0.4 million,
compared to a net interest expense of $1.1 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 nine months ended March 31, 1997 was 24% which
compares to 18% 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 accruals established in prior periods. The fiscal 1996
effective tax rate is reduced due to benefits which 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.
Income from continuing operations of $3.2 million (30 cents per share) for the
nine months ended March 31, 1997 compared to a $1.1 million (0.14 cents per
share) for the comparable nine months of fiscal 1996. This $2.1 million
improvement is primarily due to a $1.4 million improvement in operating profit
which is a result of a 16% improvement in revenues and a 13% increase in total
costs and expenses.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997, the Company's cash and cash equivalents totalled $6.8
million, a decrease of $1.8 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 investment in capital assets plus some adverse timing differences in
respect of working capital.
The Company additionally holds $8.5 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.
RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the FASB issued SFAS No.128 "EARNINGS PER SHARE" which is
effective for financial statements issued for periods ending after December 15,
1997.
The new standard requires changes to the computation, presentation and
disclosure requirements of primary and fully diluted earnings per share.
The Company does not believe that the application of the new computation will
have a materially different impact from that calculated under its existing
accounting policy for the current period.
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: May 12, 1997 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 NINE MONTHS ENDED
------------------------- -------------------------
PRIMARY EARNINGS (LOSS) PER MARCH 31, MARCH 31, MARCH 31, MARCH 31,
SHARE 1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding 10,502,185 5,811,742 10,498,369 5,809,995
Assumed exercise of certain stock options and
other common stock equivalents (1) 131,465 1,727,393 97,618 1,759,617
----------- ----------- ----------- -----------
10,633,650 7,539,135 10,595,987 7,569,612
=========== =========== =========== ===========
Income from continuing operations $ 1,301 $ 89 $ 3,226 $ 1,060
Loss from discontinued operations, net -- -- -- (1,755)
----------- ----------- ----------- -----------
Net Income (Loss) $ 1,301 $ 89 $ 3,226 $ (695)
=========== =========== =========== ===========
Income per share from continuing operations $ 0.12 $ 0.01 $ 0.30 $ 0.14
Loss per share from discontinued operations,
net -- -- -- (0.23)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) PER SHARE $ 0.12 $ 0.01 $ 0.30 $ (0.09)
=========== =========== =========== ===========
FULLY DILUTED EARNINGS (LOSS) PER
SHARE
Weighted average common shares outstanding 10,502,185 5,811,742 10,498,369 5,809,995
Assumed exercise of certain stock options and
other common stock equivalents (1) 131,465 1,727,393 98,083 1,759,617
----------- ----------- ----------- -----------
10,633,650 7,539,135 10,596,452 7,569,612
=========== =========== =========== ===========
Income from continuing operations $ 1,301 $ 89 $ 3,226 $ 1,060
Loss from discontinued operations, net -- -- -- (1,755)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 1,301 $ 89 $ 3,226 $ (695)
=========== =========== =========== ===========
Income per share from continuing operations $ 0.12 $ 0.01 $ 0.30 $ 0.14
Loss per share from discontinued operations,
net -- -- -- (0.23)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) PER SHARE $ 0.12 $ 0.01 $ 0.30 $ (0.09)
=========== =========== =========== ===========
</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 nine months ended March 31, 1996, (using the
treasury stock method and the initial public offering price of $12.00 per
share).
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 6,833
<SECURITIES> 8,505
<RECEIVABLES> 12,776
<ALLOWANCES> 290
<INVENTORY> 90
<CURRENT-ASSETS> 29,088
<PP&E> 14,026
<DEPRECIATION> 9,613
<TOTAL-ASSETS> 40,704
<CURRENT-LIABILITIES> 23,966
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 8,148
<TOTAL-LIABILITY-AND-EQUITY> 40,704
<SALES> 39,815
<TOTAL-REVENUES> 39,815
<CGS> 15,043
<TOTAL-COSTS> 36,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191
<INCOME-PRETAX> 4,230
<INCOME-TAX> 1,004
<INCOME-CONTINUING> 3,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,226
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
</TABLE>
