SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
TO
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, 1997 or
o 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, 1996 TO JUNE 30, 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 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 August 18, 1997 was approximately $108,020,373.
As of August 18, 1997 there were 10,538,573 outstanding shares of the
registrant's Common Stock.
Total Number of Pages: 57
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DOCUMENTS INCORPORATED BY REFERENCE
The registrant's definitive proxy statement for its meeting of
stockholders in connection with its fiscal year ended June 30, 1997, which is to
be filed pursuant to Regulation 14A not later than October 28, 1997 is
incorporated by reference into Part III of this Form 10-K.
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PART 1
ITEM 1. BUSINESS
INTRODUCTION
Walsh International Inc. ("Walsh" or the "Company") develops, markets, provides
and supports 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. In December 1991 the business
of Pharmaceutical Marketing Services Inc. ("PMSI") was carved out of Walsh and
taken public. Following the carve out Walsh operated in two business segments
and on April 16, 1996 the Source Business, which develops and provides
proprietary databases of prescriptions dispensed by retail outlets
internationally was spun off.
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"). The results of the Source Business are presented as "discontinued
operations" throughout this document.
The Company's principal executive offices are located at 105 Terry Drive, Suite
118, Newtown, Pennsylvania, telephone no. (215) 860 4949. Walsh has a technology
development center in Belgium, Regional Support Centres in Europe and North
America, with a third one planned for Asia-Pacific 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, 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.
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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 PREMIERE, the Company's SMIS which was
launched in fiscal 1996 and PRECISE, the Company's established advanced
ETMS;
o Data Services, consisting of the PHARBASE customer database service; and
o Marketing Support Services, consisting of PHARBASE-driven selective direct
marketing services which support the sales organization, research and
consulting services.
TECHNOLOGY SERVICES
PREMIERE, the Company's SMIS introduced in Fiscal 1996, is a Windows-based
system designed to support both the client's sales and marketing teams and all
other employees within the client company who interact with customers, including
general management, medical, clinical research and planning personnel.
PREMIERE is a true Windows-based application, 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.
Additionally, it allows multi-tasking by end-users through an icon-driven
graphical user interface. PREMIERE is based on a proprietary, highly
sophisticated and flexible data model which both reflects the current healthcare
environment and, importantly, also permits any changes or unforeseen
requirements to be incorporated quickly. It is due to this extensive data model
that the PREMIERE relational database can integrate data from many different
sources - clients' own data, third-party data or Walsh's own data. In addition,
its relational links ensure that each user has fast access to the information
which is relevant to them, without having to go through large quantities of
data. Like PRECISE, PREMIERE 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 supports both Oracle and SQL server database engines
under Windows NT at the server end and Oracle and SQL Anywhere database engines
under Windows 3.11 and Windows `95 at the remote end.
PREMIERE is an open system and, due to the fact that it is Open Data Base
Connectivity ("ODBC") compliant, PREMIERE can be developed to support other
ODBC compliant database engines as the need arises. This allows any client
selecting PREMIERE to standardize database software enterprise-wide, if
required.
As of June 30, 1997 the Company and its licensee had implemented PREMIERE for
more than 50 sales forces.
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, 1997, the Company and its
licensee had implemented PRECISE for more than 440 sales forces.
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PREMIERE and PRECISE systems are customized for each client to meet the needs
of the various end-users within the client organization. PREMIERE and PRECISE
systems have been developed to help clients maintain their competitive edge by
making the initial application build, the implementation and any
post-installation changes quickly in response to evolving market conditions.
These changes are made, not by reprogramming which can be costly, but by
applying the unique, Walsh developed suite of Application Builders which enables
the modified system to be operational more quickly than other systems that rely
on source code reprogramming. Sales representatives are provided with a
user-friendly, comprehensive system enabling them to:
o Maintain sophisticated customer databases
o Plan sales calls
o Report sales calls on medical and other health 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
o Manage promotional meetings, samples and inventories
Field and head office managers are able to:
o Monitor and direct the activities of sales representatives
o Analyze calling and promotional activities versus sales and marketing
strategy
o Compare the performance of sales representatives or sales forces
o Analyze effort versus results
o Set and monitor individual representative training and development plans
o Allocate resources
Walsh currently maintains client sales and support teams and facilities
management centers for PREMIERE and PRECISE clients in 13 countries through its
local operating companies and one licensee. These operations are responsible for
the initial implementation and ongoing support of a PREMIERE or PRECISE system.
Because installations are conducted by these local operating companies, each of
which can customize a
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client's system using proprietary Application Builders, Walsh can implement
multi-national contracts for PREMIERE or PRECISE in different countries
concurrently.
Walsh's clients receive only fully executable applications. Walsh retains the
source codes for PREMIERE and PRECISE at its development center, distributing
only executable program code and Application Builders to the local operating
companies for use in the installation process. The process, which usually takes
between three and five months, typically involves:
o Project management designed to ensure delivery of an application 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 PREMIERE or PRECISE.
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 PREMIERE or PRECISE system, as appropriate.
All PREMIERE and PRECISE 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.
PREMIERE and PRECISE 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 PREMIERE or PRECISE technology
with Application 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,
telecommunications server and lines, 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.
In South Africa, Walsh has licensed PRECISE technology to a third party and
receives royalties on the revenue.
In July 1997 Walsh acquired 100% of the stock of an Australian company,
Pharmaceutical Marketing Systems Pty Ltd (PMS) which gives the Company
additional technology services; EPIC and RXPLORE. EPIC is a salesforce
automation system based on Lotus Notes. It was developed by PMS to meet the
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requirements of the many pharmaceutical companies in Australia which specify
Lotus Notes as a corporate standard. RXPLORE is a sophisticated analysis report
generator which is capable of operating as an integration product between a data
warehouse and any proprietary salesforce automation system. Both these products
are complementary to and not in competition with the other Walsh technology
services and will form part of the PREMIERE range of products.
DATA SERVICES
PHARBASE provides demographic information and data on physicians in most
national markets and on their professional affiliations and other prescribing
influences. 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, with
government and healthcare agencies in certain markets using PHARBASE-driven mail
programs to communicate with medical professionals for critical medical
information such as drug recalls, contra-indication notices, etc.
PHARBASE is available in Europe, Canada, Australia and New Zealand and is used
by over 350 sales forces. It is delivered to clients embedded in PREMIERE,
PRECISE, or can be used in a third-party ETMS 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
PREMIERE and PRECISE clients also contract for PHARBASE to provide data for
their PREMIERE and PRECISE applications. Data services are generally provided
under contracts with an initial two or three year term that become "evergreen."
PHARBASE is available on a country-by-country basis. Through PHARBASE-Link,
clients can also reach healthcare professionals throughout the world from a
single point of contact. Access to data on a global scale is supported by a full
range of direct marketing, list selection, mailing and fulfillment services
including the creation of a responder database.
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 PREMIERE, PRECISE 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). By these means PHARBASE data is kept up to date and in
some countries is used as the government reference.
ALLIANCES
In addition to developing its own databases and system technology, Walsh works
closely with a number of organizations to provide its clients with the most
effective solution for their particular needs.
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These organizations include:
o Microsoft Consulting Services which works with Walsh as a development
partner for PREMIERE. Microsoft has been involved in the design,
specification and programming of the source code for PREMIERE. It also
advises on how Microsoft technologies and products could be developed for
use in the future.
o Walsh entered into a strategic partnership with Oracle in fiscal year 1997
with PREMIERE as the focus of this global business alliance. The
partnership enables the PREMIERE system to run on Oracle's database
technology at both the server and field sales level. The two organizations
also work together to optimise the integration of Oracle's latest On Line
Analytical Processing ("OLAP") technology into PREMIERE enabling powerful
analysis to be carried out quickly at every level of the client's
organization.
o Source Informatics which specializes in prescription-level information. In
general, prescription data must be re-processed before being distributed
through ETMS or SMIS, which can delay significantly the receipt of data by
the sales force. Source Informatics has a Preferred Technology Partnership
Agreement with Walsh which means that Walsh clients will benefit from the
collaboration in building, maintaining and promoting a seamless interface
between SourceTM, or PREMIERE and PRECISE to facilitate swift delivery of
prescription data to sales representative level.
o Zuellig Pharma which is the Pacific Rim's leading pharmaceutical
distribution and services company. Walsh and Zuellig Pharma have
established a joint venture, Walsh Asia-Pacific, to promote the Walsh
product range in the region - including PREMIERE.
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 cost effective 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.
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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 Company to develop
integrated, customized solutions specific to each national selling environment.
Each local operating company has a team of sales and client support staff
responsible for sales and support of the Company's services in its market,
providing services in local languages, and take into account local market
conditions.
The Company's locally-based sales executives are supported by a corporate sales
and marketing group responsible for initiating, coordinating and managing
multi-national sales opportunities and creating strategic relationships with the
Company's multi-national clients. Increasingly, international pharmaceutical
companies are making decisions regarding sales and marketing information systems
centrally. Together with the local operating companies, the corporate sales and
marketing group has developed strategies specific to each client and potential
client in order to address more effectively all key influencers and
decision-makers wherever they may be in the client's organisation. Walsh also
presents 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, 1997, the Company had installed
PREMIERE for 50 sales forces.
o PRECISE is currently provided under contracts and licensing arrangements to
more than 440 sales forces. 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 90% of
which are also PREMIERE or 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 PREMIERE and PRECISE.
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EXPANSION OF BUSINESSES
The Company continues 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.
The Company has also expanded its business in Australia through the acquisition
in July of Pharmaceutical Marketing Solutions Pty Ltd (PMS). The new company has
significant combined market presence. This expansion is further enhanced by the
previously owned PMS products which have been incorporated within the Company's
product range (see Technology Services).
EXPANSION INTO NEW GEOGRAPHIC MARKETS
The Company intends to continue its expansion 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 PREMIERE, PRECISE and PHARBASE services in 12 countries in
Asia-Pacific. The joint venture company was formed in Singapore. Walsh owns 51%
of the equity and has operational control of the joint venture. 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 Company also intends to continue its expansion into Central and Eastern
Europe and is also investigating a number of other markets where demand from
Walsh clients is high
DIVERSIFICATION WITHIN THE HEALTHCARE INDUSTRY
PREMIERE, PRECISE and PHARBASE have been designed to support the sales and
marketing function of healthcare industry suppliers outside the ethical
pharmaceutical industry. The Company continues to diversify within the
healthcare industry and currently provides PREMIERE or PRECISE to 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 sales.
ENTERING NEW INDUSTRY MARKETS
Building on its experience in the healthcare industry, the Company will explore
opportunities for exploiting the PREMIERE and PRECISE 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.
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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 PREMIERE and PRECISE
are offered, including Dendrite International, Sales Technologies and CorNET 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 and data expertise, product functionality, flexibility and speed of
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 and modification without changing the underlying source code,
allows the Company to deliver a fully-customized or updated system more rapidly
and more cost effectively 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. The Company
believes that its unique Application Builder technology which allows PREMIERE
and PRECISE to be customised and modified without re-programming the source code
removes the need for large numbers of technical staff. 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 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.
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 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.
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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 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, 1997, Walsh employed approximately 537 employees in 13 countries.
Local operating companies in the United States, Australia, Belgium, Canada,
France, Germany, Italy, the Netherlands, Spain and the United Kingdom employ at
least 20 people dedicated to client sales and support, facilities management and
database maintenance. The Company has completed an extensive personal
development program for its senior country management, as well as skills
training for its client sales, support and technical specialists at both a local
and regional level.
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 150,000 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.
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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, liquidity or financial condition of the
Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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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, 1997 were:
Fiscal Year Period High Low
1996
Fourth Quarter 15 1/8 9
1997
First Quarter 10 1/2 6 3/4
Second Quarter 9 3/4 7
Third Quarter 9 5/8 7 1/4
Fourth Quarter 9 5/8 7 1/4
As of August 18, 1997 there were approximately 95 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.
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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 year ended
December 31, 1992, the six month transition period ended June 30, 1993 and the
years ended June 30, 1994, 1995, 1996 and 1997. The selected financial data for
the years ended June 30, 1995, 1996 and 1997 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.
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<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
=====================================================================================
YEAR ENDED SIX MONTHS YEARS ENDED
DECEMBER 31 ENDED JUNE 30,
JUNE 30,
------------ ------------- ------------------------------------------------------
(Dollars in thousands, except per share
amounts) 1992 1993 1994 1995 1996 1997
------------ ------------- ------------ ----------- ------------ ---------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 33,293 $ 16,506 $ 34,532 $ 40,269 $ 47,262 $ 54,088
Costs and expenses:
Production costs 16,023 7,374 15,401 17,733 18,442 20,049
Selling, general and administrative expenses 24,080 11,121 21,366 19,423 21,348 24,433
Research and development costs 3,898 1,152 3,049 3,953 3,510 3,683
Amortization of intangible assets 4,982 142 138 112 130 144
Restructuring costs - - 824 - - -
----------- ------------ ----------- ---------- ----------- ---------
Total costs and expenses 48,983 19,789 40,778 41,221 43,430 48,309
----------- ------------ ----------- ---------- ----------- ---------
Operating profit (loss) (15,690) (3,283) (6,246) (952) 3,832 5,779
Interest income 793 132 525 950 843 796
Interest expense (2,393) (1,162) (2,076) (2,325) (2,045) (265)
Gain on sale of shares in PMSI 10,026 - 2,420 402 - -
Equity income of PMSI 3,165 555 973 1,180 - -
Other income, net - 838 - - - -
Minority Interest - - - - 113 20
----------- ------------ ----------- ---------- ----------- ----------
Income (loss) from continuing operations
before income taxes (4,099) (2,920) (4,404) (745) 2,743 6,330
Income tax (provision) benefit 483 237 (1,509) (2,212) (658) (1,540)
----------- ------------ ----------- ---------- ----------- ---------
Income (loss) from continuing operations (3,616) (2,683) (5,913) (2,957) 2,085 4,790
Discontinued operations:
Loss from discontinued operations, net (18,214) (5,123) (5,800) (1,554) (1,755) -
============ ============= ============ =========== =========== ===========
Net income (loss) $ (21,830) $ (7,806) $ (11,713) $ (4,511) $ 330 $ 4,790
============ ============= ============ =========== =========== ===========
Income (loss) per share from continuing
operations $ (0.64) $ (0.46) $ (0.81) $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, (3.24) (0.88) (0.79) (0.21) (0.21) -
net ============ ============= ============ ============ =========== ===========
Net income (loss) per share $ (3.88) (1.34) (1.60) $ (0.61) $ 0.04 $ 0.45
============ ============= ============ =========== =========== ===========
Shares used in computing income (loss) per 5,614,339 5,807,319 7,326,591 7,346,274 8,197,796 10,657,920
share(1)
===================================================================================
AS AT AS AT JUNE 30,
DECEMBER 31,
-------------- --------------------------------------------------------------------
Dollars in thousands 1992 1993 1994 1995 1996 1997
------------- ------------- ------------ ----------- ------------ ----------
BALANCE SHEET DATA:
Cash and cash equivalents $ 1,901 $ 2,083 $ 11,881 $ 15,110 $ 8,629 $ 5,784
Working capital (deficit) (2) (3,536) (6,448) 7,061 (14,168) 2,323 4,825
Total assets 58,771 40,440 51,402 49,391 44,017 40,538
Total long-term debt and capital lease
obligations (less current portion) 17,101 17,115 17,792 17,022 2,757 2,667
Series A Convertible Preferred Stock,
redemption value $25,000,000 - - 23,491 23,911 -
Total stockholders' (deficit) equity $ (232) $ (24,406) $ (35,878) $ (38,844) $ 4,546 $ 9,657
------------ ------------- ------------ ----------- ------------ ---------
</TABLE>
1 Shares used in computing income (loss) per share are calculated based on the
policy explained in Note 1 to the Consolidated Financial Statements.
2 As of June 30, 1995, includes net liabilities of discontinued operations of
$10,310,000.
16
<PAGE>
================================================================================
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion contains "forward looking" statements, within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, that involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the "forward looking" statements.
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.
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.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth statement of operations information as a
percentage of total revenues:
<TABLE>
<CAPTION>
=====================================================
YEARS ENDED JUNE 30,
-----------------------------------------------------
1995 1996 1997
--------------- -------------- ---------------
Revenues 100% 100% 100%
--------------- -------------- ---------------
<S> <C> <C> <C>
Operating Costs and Expenses:
Production costs 44 39 37
Selling, general and administrative expenses 48 45 45
Research and development costs 10 7 7
--------------- -------------- ---------------
Total operating costs and expenses 102 91 89
=============== ============== ===============
Operating profit (loss) (2)% 9% 11%
=============== ============== ===============
</TABLE>
REVENUES
Walsh derives its revenues primarily from technology services, including PRECISE
and PREMIERE, along with other sales force management products, and from data
services, principally PHARBASE. Technology services and data services accounted
for approximately 76% of the Company's revenues in fiscal 1997. 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 manner. 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 $54.1 million for fiscal 1997, compared to $47.3 million
for fiscal 1996, an increase of 18% excluding adverse currency movements in the
year. The growth in revenues primarily reflected a growing demand for PREMIERE
with 22% growth in PREMIERE and PRECISE revenues (27% excluding currency).
PHARBASE revenues showed strong growth of 14% for the year. The revenue
increases were spread across substantially all geographic markets, most notably
the US, UK and Spain.
Revenues increased to $47.3 million for fiscal 1996, compared to $40.3 million
for fiscal 1995, representing an increase of 17%. The increase in revenues for
fiscal 1996 primarily reflected an 18% increase in PRECISE revenues and start-up
PREMIERE revenues.
18
<PAGE>
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 $20.0 million (37% of revenues) for fiscal 1997, compared
to $18.4 million (39% of revenues) for fiscal 1996. The increase in costs was
due to the increased revenue; the decrease as a percentage of revenues
demonstrate the Company's operating leverage and the increased percentage of
high margin technology product sales.
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 dollar
amount for fiscal 1996 was due to increased revenues. 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 $24.4 million (45% of
revenues) for fiscal 1997 from $21.3 million (45% of revenues) in fiscal 1996.
This increase of $3.1 million reflects the continued investment in senior sales
and client service personnel, made to meet the growing demand for PREMIERE.
Selling, general and administrative expenses increased to $21.3 million (45% of
revenues) for fiscal 1996, from $19.4 million (48% of revenues) for 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.
19
<PAGE>
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 No. 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 $3.7 million (7% of revenues) for fiscal
1997 compared to $3.5 million (7% of revenues) for fiscal 1996. This reflected
the company's on-going commitment to product development.
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.
INTEREST EXPENSE
Interest expense in 1997 was $0.3 million versus $2.0 million in 1996 due to the
repayment of $14.7 million subordinated debentures from the proceeds from the I
PO, during the 4th quarter of 1996. In 1995 interest expense was $2.3 million.
The decrease by $0.3 million to $2.0 million in 1996 was due to the reduction in
the average remaining debt outstanding.
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 incurred losses on a
consolidated basis for the year ended June 30, 1995, income taxes were 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 years 1997, 1996 and 1995 from approximately 33% to approximately 41%.
The Company's provision for taxes in fiscal years ended June 30, 1995, 1996 and
1997 represented primarily accruals for foreign taxes. The Company's 1997
effective income tax rate benefitted from the reassessment of income tax
reserves established in prior periods. United States federal and state income
taxes for fiscal years ended June 30, 1995, 1996 and 1997 were not provided as a
result of current year operating losses. At June 30, 1997, the Company had
20
<PAGE>
available foreign NOLs of approximately $12.7 million and U.S. NOLs of
approximately $24.0 million, which may provide future tax benefits.
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 may 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,
1995 the Company had established a full valuation allowance against these
carryforward benefits. Pursuant to the requirements of SFAS No. 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. In the year
ended June 30, 1997 a full valuation allowance has been recorded against all
deferred tax assets. See Note 12 of Notes to Consolidated Financial Statements.
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 (LOSS) FROM CONTINUING OPERATIONS
The Company had income from continuing operations of $4.8 million for the year
ended June 30, 1997, compared with income from continuing operations of $2.1
million for the comparable period of fiscal 1996. The improvement in the
Company's results reflects a $6.8 million (14%) increase in revenues and a
smaller increase in total operating costs and expenses ($4.9 million or 11%).
The Company's income from continuing operations was $2.1 million for fiscal
1996, compared to a net loss of $3.0 million for fiscal 1995. For fiscal 1996,
revenues increased by 17% while total operating costs and expenses increased by
5%.
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.
Approximately 89% of the Company's revenues for fiscal 1997 were generated
outside the United States in local currencies. 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 foreign currency risk applicable to the
operations of Walsh has not been hedged.
21
<PAGE>
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 completed an
Initial Public Offering ("IPO") which, including the overallotment generated net
proceeds of $33.3 million of which $14.7 million was utilized to repay high
interest debentures. At June 30, 1997 the Company had cash and cash equivalents
totaling $5.8 million and a further $8.2 million invested in a portfolio of
marketable securities.
Net cash used in operating activities amounted to $1.9 million for the year
ended June 30, 1997 as compared to cash used by operating activities of $0.2
million for the year ended June 30, 1996. Net cash provided by operating
activities was $8.8 million for fiscal 1995. 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, 1997 included
$1.8 million withdrawn from a professionally managed portfolio of marketable
securities offset by expenditures for property and equipment and capitalized
software development costs. For the year ended June 30, 1996, net cash used by
investing activities was $11.6 million due to $10.0 million invested in a
professionally managed portfolio. This compared to $6.0 million provided by
investing activities in Fiscal 1995.
Net cash used in financing activities for the year ended June 30, 1997, due to
the settlement of IPO costs, was $1.1 million compared with net cash provided by
financing activities of $14.5 million in fiscal 1996. The cash provided in
fiscal 1996 was primarily due to the completion of the IPO.
For fiscal 1996 and 1995, discontinued operations consumed cash of $8.3 million
and $11.6 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 beyond fiscal 1998.
YEAR 2000
PREMIERE has been developed to ensure compliance for the year 2000. PRECISE
V3.7 is not totally year 2000 compliant however, a detailed plan to revise V3.7
has been implemented.
The internal systems within the Walsh local operations are to be reviewed for
the impact of the year 2000. No significant impact on the Company's results of
operations, financial condition or liquidity, is expected.
22
<PAGE>
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings
Per Share" which is effective for financial statements issued for period 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.
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.
23
<PAGE>
================================================================================
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants.................................................... F-1
Financial Statements:
Consolidated Balance Sheets as of June 30, 1996 and 1997......................... F-2
Consolidated Statements of Operations for the years ended
June 30, 1995, 1996 and 1997..................................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended
June 30, 1995, 1996 and 1997..................................................... F-4
Consolidated Statements of Cash Flows for the years ended
June 30, 1995, 1996 and 1997..................................................... 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, 1995, 1996 and 1997..................................................... 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.
24
<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, 1996 and 1997 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, 1997. 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, 1996 and 1997 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1997 in conformity with generally
accepted accounting principles.
Stamford, Connecticut COOPERS & LYBRAND L.L.P.
August 20, 1997
F-1
<PAGE>
WALSH INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
===================================
AS AT JUNE 30,
-----------------------------------
ASSETS 1996 1997
-------------- ---------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,629 $ 5,784
Marketable securities 9,992 6,803
Accounts receivable, principally trade (less allowance for
doubtful accounts of $336 and $454, respectively) 13,050 14,227
Prepaid expenses and other current assets 923 702
-------------- ---------------
Total current assets 32,594 27,516
Property and equipment, net 4,663 4,169
Goodwill, net 3,551 3,439
Marketable securities - 1,437
Other assets, net 3,209 3,727
-------------- ---------------
Total assets $ 44,017 $ 40,288
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 12 $ 17
Current portion of capital lease obligations 443 509
Accounts payable 7,808 6,896
Accrued liabilities 17,467 11,166
Unearned income 4,541 4,103
-------------- ---------------
Total current liabilities 30,271 22,691
-------------- ---------------
Long-term debt 1,105 1,260
Capital lease obligations 1,652 1,407
Other liabilities 6,295 5,145
Minority interest 148 128
Commitments
Stockholders' equity:
Common stock, $0.01 par value, 20,000,000 shares authorized and
10,484,835 and 10,533,960 shares issued, respectively. 105 105
Paid-in capital 119,175 119,475
Accumulated deficit (114,948) (110,158)
Cumulative translation adjustment 675 657
Unrealized (loss) gain on available for sale securities, net of tax (4) 35
Treasury stock, at cost, 20,750 shares (457) (457)
-------------- ---------------
Total stockholders' equity 4,546 9,657
============== ===============
Total liabilities and stockholders' equity $ 44,017 $ 40,288
============== ===============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Dollars in thousands, except per share amounts)
---------------------------------------------
Years Ended June 30,
---------------------------------------------
1995 1996 1997
------------ ------------- -----------
<S> <C> <C> <C>
Revenue $ 40,269 $ 47,262 $ 54,088
------------ ------------- -----------
Costs and expenses:
Production costs 17,733 18,442 20,049
Selling, general and administrative
expenses 19,423 21,348 24,433
Research and development costs 3,953 3,510 3,683
Amortization of intangible assets 112 130 144
------------ ------------- -----------
Total costs and expenses 41,221 43,430 48,309
------------ ------------- -----------
Operating profit (loss) (952) 3,832 5,779
Interest income 950 843 796
Interest expense (2,325) (2,045) (265)
Gain on sale of shares in PMSI 402 - -
Equity income of PMSI 1,180 - -
Minotiry Interest - 113 20
------------ ------------- -----------
Income (loss) from continuing operations
before income taxes (745) 2,743 6,330
Income tax provision (2,212) (658) (1,540)
------------ ------------- -----------
Income (loss) from continuing operations (2,957) 2,085 4,790
Discontinued operations:
Loss from discontinued operations, net (1,554) (1,755) -
============ ============= ===========
Net income (loss) $ (4,511) $ 330 $ 4,790
============ ============= ===========
Income (loss) per share from continuing
operations $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations,
net (0.21) (0.21) -
------------ ------------- -----------
Net income (loss) per share $ (0.61) $ 0.04 0.45
============ ============= ============
Shares used in computing income (loss) per
share 7,346,274 8,197,796 10,657,920
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
---------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(Dollars and shares in thousands)
====================================================================================================================================
Common Stock
------------ Cumulative Net Unrealized
Shares Par Paid-In Accumulated Translation Gain/Loss
Value Capital Deficit Adjustment net of Tax
---------- ---------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1994 5,803 $ 58 $ 74,076 $ (110,755) $ 1,103 -
Net loss for 1995 - - - (4,511) - -
Exercise of Stock Options 6 - 29 - - -
Acretion of preferred stock - - (420) - - -
Cumulative Translation Adjustment - - - - (171) -
Unrealized gain of available for sale
securities, net of tax - - - - - $2,107
------- ------- ---------- ----------- ----------- ---------------
Balance June 30, 1995 5,809 58 73,685 (115,266) 932 2,107
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 - - - - (257) -
Net unrealized gain on available for
sale securities, net of tax - - - - - 2,046
Purchase of Treasury Stock - - - - - -
Spin-off of Source Business - - - (12) - (4,157)
Shares issued 3 - 67 - - -
------- ------- ---------- ----------- ----------- ---------------
Balance June 30, 1996 10,485 105 119,175 (114,948) 675 (4)
Exercise of Stock Options 49 - 300 - - -
Net income for 1997 - - - 4,790 - -
Cumulative translation adjustment - - - - (18) -
Net unrealised gain on available for
sale securities, net of tax - - - - - 39
------- ------- ---------- ----------- ----------- ---------------
Balance June 30, 1997 10,534 $105 $119,475 $ (110,158) $ 657 $ 35
======= ======= ========== =========== =========== ===============
</TABLE>
Treasury Stock
--------------
Shares Amount
------ ------
Balance at June 30, 1994 (20) $ (360)
Net loss for 1995 - -
Exercise of Stock Options - -
Acretion of preferred stock - -
Cumulative Translation Adjustment - -
Unrealized gain of available for sale
securities, net of tax - -
----- -----
Balance June 30, 1995 (20) (360)
Net income for 1996 - -
Initial Public Offering, net - -
Conversion of preferred stock - -
Cumulative translation adjustment - -
Net unrealized gain on available for
sale securities, net of tax - -
Purchase of Treasury Stock (1) (97)
Spin-off of Source Business - -
Shares issued - -
----- -----
Balance June 30, 1996 (21) (457)
Exercise of Stock Options - -
Net income for 1997 - -
Cumulative translation adjustment - -
Net unrealised gain on available for
sale securities, net of tax - -
----- -----
Balance June 30, 1997 (21) $ (457)
===== =====
F-4
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
==============================================================
YEARS ENDED JUNE 30,
--------------------------------------------------------------
1995 1996 1997
----------------- ---------------- -----------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $ (4,511) $ 330 $ 4,790
Loss from discontinued operations 1,554 1,755 -
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,485 1,241 1,688
Gain on sale of shares in PMSI (402) - -
Equity income of PMSI (1,180) - -
Deferred taxes (286) (2,739) 371
Minority interest - (113) (20)
Gain on sale of marketable securities - - (162)
Change in assets and liabilities
(Increase) decrease in accounts receivable 2,922 500 (471)
(Increase) decrease in prepaid expenses and
other current assets 228 (588) (87)
(Decrease) increase in accounts payable and 8,628 1,153 (6,818)
accrued liabilities
(Decrease) increase in unearned income 381 (2,459) (622)
Other 25 753 (572)
----------- -------- -------
Net cash (used in) provided by operating activities 8,844 (167) (1,903)
----------- -------- -------
Cash flows (used in) provided by investing activities:
Sales (purchases) of marketable securities - (9,936) 1,953
Proceeds from sale of shares in PMSI 7,811 - -
Capital expenditures (697) (780) (826)
Capitalized software (1,092) (896) (1,010)
------------- -------- -------
Net cash (used in) provided by investing activities $ 6,022 $(11,612) $ 117
------------- -------- -------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS CONTINUED
(Dollars in Thousands)
====================================================
YEARS ENDED JUNE 30,
----------------------------------------------------
1995 1996 1997
------------- -------------- --------------
Cash provided by (used in) financing activities:
<S> <C> <C> <C>
Collateral receipts $ - $ 1,088 $ -
Issuance of common stock 28 34,519 300
Common stock issuance costs - - (1,174)
Treasury stock purchases - (97) -
Dividend to Source business - (5,182) -
Repayments of long-term debt (8) (15,737) -
Repayments of capital leases (335) (358) (360)
Cash provided by minority interest - 261 111
--------- -------- ----------
Net cash (used in) provided by financing activities (315) 14,494 (1,123)
----------- -------- ----------
Effect of exchange rate movements 278 (856) 64
Effect of discontinued operations (11,600) (8,340) -
----------- -------- ----------
Net (decrease) increase in cash and cash
equivalents 3,229 (6,481) (2,845)
Cash and cash equivalents at beginning of year 11,881 15,110 8,629
----------- -------- ----------
Cash and cash equivalents at end of year $ 15,110 $ 8,629 $ 5,784
=========== ======== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,213 $ 1,989 $ 201
======= ======== ==========
Income taxes $ 3,339 $ 1,995 $ 964
======= ======== ==========
Supplemental disclosures of non-cash investing
and financing activities:
Capital lease obligations $ 89 $ 444 $ 509
======= ======== ==========
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 consummated 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.
F-7
<PAGE>
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.
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, 1997 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 in accordance with Statement of Position No 91-1,
"Software 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
F-8
<PAGE>
bundles the fees for the use of the software together with post contract support
revenues of 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.
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 and cash
equivalent and marketable securities in a professionally managed fund. 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
F-9
<PAGE>
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
Management determines the appropriate classification of its investments in debt
and equity securities at the time of purchase and re-evaluates 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 investments 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, 1997,
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 prior to the
offering 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 liabilities 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.
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
F-10
<PAGE>
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.
EMPLOYEE STOCK OPTION AND PURCHASE PLANS
The Company accounts for its stock-based compensation plans in accordance with
the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations. Generally,
compensation expense would be recorded over the vesting period if the current
market price of the underlying stock exceeded the exercise price on the date of
grant. On July 1, 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock Based Compensation". Under SFAS No. 123, the Company must disclose
proforma net income and proforma earnings per share for employee stock option
grants and employee stock purchases made in 1995 and future years as if the fair
value based method defined in SFAS No 123 had been employed.
IMPAIRMENT OF LONG-LIVED ASSETS
The Financial Accounting Standards Board recently adopted SFAS No. 121,
"Accounting for the Impairment of Long Lived Assets and for Long Lived Assets to
be Disposed of". This statement requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. The Company adopted SFAS No
121 on July 1, 1996. The adoption of SFAS No 121 did not have a material impact
on the Company's consolidated results of operations.
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 for pharmaceutical companies primarily based on a
proprietary database of prescriptions dispensed in the United States. 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.
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
F-11
<PAGE>
$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 consummate 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 the
Spin-Off, is as follows:
------------------------------------
Results of discontinued operations: YEARS ENDED JUNE, 30
------------------------------------
Dollars in thousands 1995 1996
--------------- --------------
Revenues $ 48,710 $ 40,181
Loss from operations:
Loss before taxes (2,653) (1,570)
Income tax provision - -
---------- ---------
Loss from operations (2,653) (1,570)
---------- ---------
(Loss) gain on disposal of operations:
(Loss) gain on disposal 1,322 (185)
Income taxes on disposal (223) -
---------- ---------
(Loss) gain on disposal, net 1,099 (185)
---------- ---------
Loss from discontinued
operations, net $ (1,554) $ (1,755)
========== =========
3. TRANSACTIONS WITH SOURCE
- ----------------------------
In connection with the Spin-off, Walsh and Source have entered into several
agreements:
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
F-12
<PAGE>
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. All transitional service agreements were
completed during fiscal year 1997. The Chief Executive Officer of Source, who
serves as the Chairman of Walsh continues to be made available as a consultant
to Walsh.
4. INVESTMENTS
- ---------------
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, 1997 (in
thousands):
<TABLE>
<CAPTION>
==================================================================================================================
NAME OF ISSUER
AND TITLE OF EACH ISSUE AMORTIZED FAIR VALUE UNREALIZED GAINS
COST OF EACH
ISSUE
- -------------------------------------------- ----------------- ----------------- -------------------
<S> <C> <C> <C>
CURRENT ASSETS:
Corporate debt securities $ 4,985 $ 5,000 $ 15
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies 1,047 1,056 9
Debt securities issued by foreign
governments 741 747 6
---------- ------------ -----------------
$ 6,773 $ 6,803 $ 30
========== ============ =================
NON-CURRENT ASSETS:
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies $ 348 $ 348 $ -
Debt securities issued by foreign
governments 1,084 1,089 5
========== ============ =================
$ 1,432 $ 1,437 $ 5
========== ============ =================
Maturities
Due after one year through five years $ 805 $ 808 $ 3
Due after five years 627 629 2
========== ============ =================
$ 1,432 $ 1,437 $ 5
========== ============ =================
</TABLE>
F-14
<PAGE>
Marketable securities consist of the following as of June 30, 1996 (in
thousands):
<TABLE>
<CAPTION>
==================================================================================================================
NAME OF ISSUER FAIR VALUE
AND TITLE OF EACH ISSUE AMORTIZED UNREALIZED LOSSES
COST OF EACH
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 was the Company's
intention to utilize the marketable securities within the next operating cycle.
During 1997 the following sales of securities took place (there were no sales of
securities in 1996) (in thousands):
Net Proceeds of Sale $ 43,612
Cost 43,450
============
Realized Gain $ 162
============
F-15
<PAGE>
6. PROPERTY AND EQUIPMENT
- -------------------------
Property and equipment at June 30, 1996 and 1997 comprised the following (in
thousands):
=================================
JUNE 30,
---------------------------------
1996 1997
------------- -------------
Property including leasehold improvements $ 2,702 $ 2,514
Furniture, computer & office equipment 12,716 11,058
---------- --------
15,418 13,572
Less accumulated depreciation and
amortization (10,755) (9,403)
---------- --------
$ 4,663 $ 4,169
========== ========
Depreciation and amortization charged to operations for the years ended June 30,
1995, 1996 and 1997 were $839,000, $1,106,000 and $1,297,000 respectively.
7. OTHER ASSETS
Other assets at June 30, 1996 and 1997 comprised the following (in thousands):
================================
JUNE 30,
--------------------------------
1996 1997
----------- --------------
Capitalized software $ 2,035 $ 3,045
Deferred Taxes 250 0
Collateral and other deposits 924 924
--------- ---------
3,209 3,969
Less accumulated amortization - (242)
--------- ---------
$ 3,209 $ 3,727
========= =========
The Company capitalized software development costs of $896,000 and $1,010,000
for the years ended June 30, 1996 and 1997, respectively. Amortization expense
and adjustments to net realizable value charged to production costs amounted to
$520,000, $0 and $242,000 for the years ended June 30, 1995, 1996 and 1997,
respectively.
F-16
<PAGE>
8. LONG-TERM DEBT
- ------------------
Long term debt at June 30, 1996 and 1997 comprised the following (in thousands):
==========================================
JUNE 30,
------------------------------------------
1996 1997
------------------- -----------------
Long-term debt (1) $ 1,117 $ 1,277
Less current portion (12) (17)
-------------- ---------------
$ 1,105 $ 1,260
============== ===============
(1) 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, 1997 for the next five
fiscal years are as follows: 1998-$17,000; 1999-$14,000; 2000-$1,131,000;
and 2002 -$115,000.
9. ACCRUED LIABILITIES
- -----------------------
Accrued liabilities at June 30, 1996 and 1997 comprised the following (in
thousands):
------------------------------------------
JUNE 30,
------------------------------------------
1996 1997
------------------- -----------------
Employee compensation and benefits $ 4,374 4,101
Sales taxes 978 1,057
Other liabilities 12,115 6,008
-------------- -----------
$ 17,467 $ 11,166
============== ===========
10. EQUITY PLANS
- -----------------
A Stock Option and Restricted Stock Purchase Plan, "The 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. At June 30, 1997 the Company had available 381,299
shares of Common Stock outstanding for issuance under the Plan.
Under the Plan, the exercise price for incentive options is at least 100% of the
fair market value on the date of the grant and options generally expire in 10
years. Vesting periods are determined by the Board of Directors and generally
provide for shares to vest ratably over 5 years.
F-17
<PAGE>
During 1993, the Company established a Non-Employee Director's Stock Option
Plan, "The Director's Plan". There are 120,000 shares reserved for issuance
under the Director's Plan. The options granted under the Director's Plan have a
vesting term of 3 years and expire after 10 years.
Information relating to the Company's Fixed Option Plan is as follows:
<TABLE>
=================================================================
AT JUNE 30,
-----------------------------------------------------------------
1995 1996 1997
----------------- ------------------- -----------------
<S> <C> <C> <C>
Options outstanding at beginning of year 584,543 626,951 992,576
Options granted 93,189 401,250 172,200
Options exercised (6,825) (50) (49,125)
Options lapsed (43,956) (35,575) (51,700)
-------------- --------------- -------------
Options outstanding at end of year 626,951 992,576 1,063,951
============== ============== ==============
Options exercisable at end of year 344,863 392,950 507,880
Option prices per share:
Granted $ 6.36 $ 6.36-12.00 $ 8.87
Exercised $ 2.12-6.36 $ 6.36 $ 2.12-8.48
</TABLE>
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.
11. ACCOUNTING FOR STOCK-BASED COMPENSATION
- --------------------------------------------
The Company has elected to continue to use the intrinsic value based method to
account for all of its employee stock-based compensation plans. Under APB
Opinion No. 25, "Accounting for Stock Issued to Employees", the Company has
recorded no compensation costs related to its stock option plans for the years
ended June 30, 1995, 1996 and 1997.
Pursuant to SFAS No. 123, "Accounting for Stock-Based Compensation", the Company
is required to disclose the pro-forma effects on net income and net income per
share data as if the Company had elected to use the fair value approach to
account for all its employee stock-based compensation plans.
F-18
<PAGE>
Had compensation cost for the Company's plans been determined consistent with
the fair value approach enumerated in SFAS No. 123 the Company's net income and
net income per share for the year ended June 30, 1997 and 1996 would have been
decreased as indicated below (in thousands, except per share data):
JUNE 30
1996 1997
-----------------------------
Net Income As reported $330 $4,790
pro forma $230 $4,355
Net Income Per Share
As reported $0.04 $0.45
pro forma $0.02 $0.41
The weighted average fair value of options granted during the period at exercise
price equal to market price at grant date is $6.32 and $5.51 for the fiscal
years ended June 30, 1996 and 1997 respectively.
The fair value of options granted was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1997; risk-free interest rate of 6.4%;
weighted average expected life of 5 years; 60% expected volatility and no
dividends.
A summary of the status of the Company's fixed option plans as of June 30, 1996
and 1997 and changes during the years ended on those dates is presented below:
<TABLE>
<CAPTION>
YEARS ENDING JUNE 30, 1996 JUNE 30, 1997
----------------------------------------- ---------------------------------------
SHARES WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICE EXERCISE PRICE
-------------- -------------------------- ------------- -------------------------
<S> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year 626,951 6.49 992,576 8.13
Granted 401,250 10.56 172,200 8.87
Exercised (50) 6.36 (49,125) 6.02
Cancelled (35,575) 6.65 (51,700) 9.04
============ -----------
Outstanding at end of year 992,576 8.13 1,063,951 8.23
============ ============
Options vested at year end 392,950 6.49 507,880 7.10
</TABLE>
F-19
<PAGE>
A summary of information regarding the options outstanding and those
exerciseable at the year end is provided in the two tables below;
OPTIONS OUTSTANDING AT JUNE 30, 1997
- ------------------------------------
EXERCISE PRICE ($) NUMBER OF OPTIONS WEIGHTED AVERAGE
REMAINING CONTRACTUAL
LIFE (YRS)
2.12 8,094 1.73
6.36 503,045 5.63
7.42 93,800 8.38
8.48 30,737 5.74
8.87 170,200 9.26
10.60 13,325 5.37
12.00 244,750 8.81
================== =========================
1,063,951 7.15
================== =========================
OPTIONS EXERCISABLE AT JUNE 30, 1997
- ------------------------------------
EXERCISE PRICE NUMBER OF OPTIONS
($) EXERCISABLE
2.12 8,094
6.36 390,269
7.42 18,650
8.48 28,837
8.87 -
10.60 13,080
12.00 48,950
==========================
507,880
==========================
A Directors' Deferred Fee Program was approved by the Board of Directors on June
27th 1996. This provides non-employee directors to defer income until
termination of status as a director. Amounts deferred in a calendar year will be
deemed to have been invested in shares of Walsh International Inc. Common Stock.
F-20
<PAGE>
12. 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 1995 1996 1997
------------------- ------------------ ------------------
<S> <C> <C> <C>
U.S. state taxes currently payable $ - $ - $ (45)
Foreign taxes currently payable (2,498) (3,397) (1,124)
Deferred income taxes 286 2,739 (371)
=============== =============== ================
$ (2,212) $ (658) $ (1,540)
=============== =============== ================
The domestic and foreign components of income (loss) from continuing operations
before income taxes were as follows:
==================================================================
YEARS ENDED JUNE 30,
------------------------------------------------------------------
Dollars in thousands 1995 1996 1997
------------------- ------------------ ------------------
<S> <C> <C> <C>
Domestic $ (4,728) $ (3,729) $ (2,732)
Foreign 3,983 6,472 9,062
============== ============== ===============
$ (745) $ 2,743 $ 6,330
============== ============== ===============
</TABLE>
Deferred tax (assets) liabilities comprised the following at June 30, 1996 and
1997:
==========================================
JUNE 30,
------------------------------------------
Dollars in thousands 1996 1997
------------------- ------------------
Deferred tax liabilities:
Other $ - $ 121
---------------- -----------------
Gross deferred tax liabilities - 121
---------------- -----------------
Deferred tax assets:
Loss carryforwards (13,625) (13,629)
Capitalized software (3,335) (1,561)
Other accrued liabilities (1,215) (694)
Other (513) (47)
---------------- -----------------
Gross deferred tax assets (18,688) (15,931)
Valuation allowance 18,438 15,931
---------------- -----------------
Net deferred tax assets (250) 0
================ =================
Deferred taxes, net $ (250) $ 121
================ =================
F-21
<PAGE>
A reconciliation of federal statutory and effective income tax rates follows:
<TABLE>
<CAPTION>
====================================================
YEARS ENDED JUNE 30,
----------------------------------------------------
1995 1996 1997
-------------- -------------- --------------
<S> <C> <C> <C>
U.S. federal rate (34)% 34% 34%
Effect of:
Net operating losses 321 (54) 5
Foreign income taxes 9 44 (1)
Reduction of taxes provided in prior years (15)
State taxes 1 - 1
======== ======== =========
Effective income tax rate 297% 24% 24%
======== ========= =========
</TABLE>
At June 30, 1997 there were available for U.S. federal income tax purposes
operating loss carryforwards of approximately $24,015,000 expiring in the years
2008, 2009, 2010 and 2011 which may provide future tax benefits for U.S. federal
income tax purposes.
At June 30, 1997 there were available for foreign income tax purposes operating
loss carryforwards of approximately $12,719,000. These operating loss
carryforwards may provide future tax benefits totaling $5,465,000, expiring as
follows: 1999, $227,000; 2000, $302,000; 2001, $267,000; 2002, $588,000 and
thereafter $4,081,000.
U.S. income taxes have not been provided at June 30, 1997, on unremitted
earnings aggregating $13,176,000 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 $562,000.
Included within accounts payable is $2,948,000 and $3,008,000 of current income
taxes payable for the years ended June 30, 1996 and 1997, respectively.
F-22
<PAGE>
13. 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 1995 1996 1997
------------------ ------------------- -------------------
<S> <C> <C> <C>
United States $ 16 $ 6 $ 24
United Kingdom 185 214 251
The Netherlands 89 79 62
Belgium 48 59 60
================== =================== ===================
$ 338 $ 358 $ 397
================== =================== ===================
</TABLE>
F-23
<PAGE>
14. LEASING ARRANGEMENTS
- ------------------------
The Company leases certain property and equipment.
Obligations under long-term and non-cancelable lease agreements expiring at
various dates have the following aggregate approximate annual minimum rentals:
<TABLE>
<CAPTION>
=====================================================
Dollars in thousands CAPITAL LEASING OPERATING LEASES
---------------------- ------------------------
<S> <C> <C>
June 30, 1998 $ 568 $ 3,011
June 30, 1999 541 2,168
June 30, 2000 160 1,228
June 30, 2001 160 720
June 30, 2002 160 433
After June 30, 2002 501 1,508
---------------------- ========================
Total minimum lease payments 2,090 $ 9,068
========================
========================
Less amount representing interest (174)
----------------------
Present value of minimum lease payments 1,916
Less current portion (509)
======================
$ 1,407
======================
</TABLE>
Rental Expense for the years ended June 30, 1995, 1996 and 1997 was $2,901,000,
$2,633,000 and $3,474,000, respectively.
Included in property and equipment at June 30, 1996 and 1997 are assets subject
to capitalized leases with a cost of $3,206,000 and $3,459,000, respectively,
and accumulated amortization of $874,000 and $1,346,000 for the years ended June
30, 1996 and 1997, respectively.
F-24
<PAGE>
15. GEOGRAPHIC DATA
- -------------------
The following table presents information about the Company by geographic area:
======================================================
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
======== ========= ============
======================================================
YEAR ENDED
JUNE 30, 1997
------------------------------------------------------
OPERATING
PROFIT IDENTIFIABLE
REVENUES (LOSS) ASSETS
-------- --------- ------------
United States $ 6,041 $ 124 $ 2,048
Canada 3,955 2 1,833
Europe 39,241 9,253 20,863
Pacific 4,790 (254) 1,779
Other 61 61 -
General corporate - (3,407) 14,015
======== ======== ========
$ 54,088 $ 5,779 $ 40,538
======== ======== ========
The accompanying notes are an integral part of these financial statements
F-25
<PAGE>
16. SUBSEQUENT EVENTS
- ---------------------
On July 24, 1997, the Company acquired 100% of the equity of Pharmaceutical
Marketing Solutions Pty Ltd (PMS), a privately held Australian company for $3.8
million in cash. PMS uses a salesforce automation system based on Lotus Notes
and an analysis system which operates as an integration product between a data
warehouse and proprietary salesforce automation system.
The Company is in the process of completing its valuation of the acquired assets
and cannot therefore estimate the allocation of the purchase price.
F-26
<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 24 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.
Stamford, Connecticut COOPERS & LYBRAND L.L.P.
August 20, 1997
S-1
<PAGE>
<TABLE>
<CAPTION>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996 AND 1995
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
BALANCE AT CHARGED TO CHARGED TO BALANCE
DESCRIPTIONS BEGINNING OF COSTS AND OTHER END TO
PERIOD EXPENSES ACCOUNTS DEDUCTIONS
Allowance for doubtful
accounts
<S> <C> <C> <C> <C> <C>
June 30, 1997 $ 336,000 147,000 - (29,000) $ 454,000
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
Valuation allowance for
deferred tax assets
June 30, 1997 $ 18,438,000 (2,507,000) $ 15,931,000
June 30, 1996 $ 13,015,000 5,423,000 - - $ 18,438,000
June 30, 1995 $ 12,695,000 320,000 - - $ 13,015,000
</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 28, 1997.
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 28, 1997.
PART IV
ITEM 10. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
- ----------------------------------------------------------------
Filed as part of this report are:
a) 1-2 All financial statements and schedules
b) Reports on Form 8K
None
c) Exhibits
Exhibit Description
------- -----------
3.1 Restated Certificate of Incorporation of Walsh International
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
23 Consent of Independent Accountants
27 Selected Financial Data Schedule
<PAGE>
WALSH INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE YEARS ENDED JUNE 30, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
PRIMARY EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding 5,806,661 6,783,837 10,505,245
Assumed exercise of certain stock options and other common
stock equivalents 1,539,613 1,413,959 152,675
========= ========= ==========
7,346,274 8,197,796 10,657,920
========= ========= ==========
Income (loss) from continuing operations $ (2,957) $ 2,085 $ 4,790
Loss from discontinued operations, net $ (1,554) $ (1,755) $ -
========= ========= ==========
Net Income (Loss) $ (4,511) $ 330 $ 4,790
========= ========= ==========
Income (loss) per share from continuing operations $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net $ (0.21) $ (0.21) $ -
========= ========= ==========
Net income (loss) per share $ (0.61) $ 0.04 $ 0.45
========= ========= ==========
1995 1996 1997
---- ---- ----
FULLY DILUTED EARNINGS (LOSS) PER SHARE
Weighted average common shares outstanding 5,806,661 6,783,837 10,505,245
Assumed exercise of certain stock options and other common
stock equivalents 1,539,613 1,413,959 152,281
========= ========= ==========
7,346,274 8,197,796 10,657,526
========= ========= ==========
Income (loss) from continuing operations $ (2,957) $ 2,085 $ 4,790
Loss from discontinued operations, net $ (1,554) $ (1,755) $ -
========= ========= ==========
Net Income (Loss) $ (4,511) $ 330 $ 4,790
========= ========= ==========
Income (loss) per share from continuing operations $ (0.40) $ 0.25 $ 0.45
Loss per share from discontinued operations, net $ (0.21) $ (0.21) $ -
========= ========= ==========
Net earnings (loss) per share $ (0.61) $ 0.04 $ 0.45
========= ========= ==========
</TABLE>
<PAGE>
EXHIBIT 23
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 20, 1997, on our
audits of the consolidated financial statements and financial statement schedule
of Walsh International Inc. and Subsidiaries as of June 30, 1996 and 1997, and
for the years ended June 30, 1995, 1996 and 1997 which reports are included in
this Annual Report on Form 10-K.
Stamford, Connecticut COOPERS & LYBRAND L.L.P.
September 3, 1997
<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: WALSH INTERNATIONAL INC
By: /s/ Michael A. Hauck
------------------------------------
Name: Michael A. Hauck
Title: 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.
Signature Title
_______________ Director, Chief Executive Officer
Michael A. Hauck
_______________ Director, President,
Robert Mander Chief Operating Officer
________________ Director, Chairman of the Board
Dennis M. J. Turner
________________ Director
James W. Stevens
________________ Director
Harry C. Groome
________________ Director
Leonard M. Lodish
________________ Chief Financial Officer
Martyn D. Williams
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. Dollar
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1.000
<CASH> 5,784
<SECURITIES> 6,803
<RECEIVABLES> 14,681
<ALLOWANCES> 454
<INVENTORY> 0
<CURRENT-ASSETS> 27,516
<PP&E> 13,572
<DEPRECIATION> 9,403
<TOTAL-ASSETS> 40,288
<CURRENT-LIABILITIES> 22,691
<BONDS> 0
0
0
<COMMON> 105
<OTHER-SE> 9,552
<TOTAL-LIABILITY-AND-EQUITY> 40,288
<SALES> 54,088
<TOTAL-REVENUES> 54,088
<CGS> 0
<TOTAL-COSTS> 48,309
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 265
<INCOME-PRETAX> 6,330
<INCOME-TAX> 1,540
<INCOME-CONTINUING> 4,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,790
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
</TABLE>
