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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------ ------
COMMISSION FILE NUMBER 0-23059
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HEALTHWORLD CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3922288
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
100 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10013
(Address of principle executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 966-7640
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES X NO
--- ---
As at August 12, 1998, 7,415,000 shares of Common Stock of the Registrant were
issued and outstanding.
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HEALTHWORLD CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page No.
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Item 1 Financial Statements
Consolidated Balance Sheets as of
December 31, 1997 and June 30, 1998
Consolidated Statements of Income
for the Three Months and Six Months
Ended June 30, 1997 and 1998
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1998
Notes to the Consolidated Financial Statements
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds
Item 4 Submission of Matters to a Vote of Security Holders
Item 6 Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
----------- --------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $18,092 $19,266
Accounts receivable 14,269 14,490
Unbilled production charges 1,501 2,445
Other current assets 1,004 1,247
------- -------
Total current assets 34,866 37,448
Property and equipment, net 2,434 2,488
Goodwill, net 3,670 3,563
Other assets 839 803
------- -------
$41,809 $44,302
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans and overdrafts $ 634 $ --
Current portion of long-term debt 702 649
Current portion of capitalized lease obligations 125 100
Accounts payable 1,836 4,372
Accrued expenses 6,148 5,179
Advance billings 6,468 6,716
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Total current liabilities 15,913 17,016
Long-term debt 230 175
Capitalized lease obligations 99 87
Deferred rent 768 817
Other liabilities 33 --
------- -------
Total liabilities 17,043 18,095
======= =======
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
no shares outstanding -- --
Common stock, $.01 par value; 20,000,000 shares authorized;
and 7,415,000 shares outstanding 74 74
Additional paid-in capital 22,746 22,746
Retained earnings 1,931 3,366
Cumulative foreign currency translation adjustments 15 21
------- -------
Total stockholders' equity 24,766 26,207
------- -------
$41,809 $44,302
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
1
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HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues $ 7,473 $14,877 $13,751 $28,865
------- ------- ------- -------
Operating expenses:
Salaries and related costs 5,058 10,923 9,807 22,465
Other operating expenses 1,516 2,223 2,829 4,345
------- ------- ------- -------
6,574 13,146 12,636 26,810
Income from operations 899 1,731 1,115 2,055
Interest income, net 7 213 27 403
------- ------- ------- -------
Income before provision for income taxes
and minority interests 906 1,944 1,142 2,458
Provision for income taxes (Note 2) 102 813 107 1,023
Minority interests in net earnings of
subsidiaries 42 -- 82 --
------- ------- ------- -------
Net income $ 762 $ 1,131 $ 953 $ 1,435
======= ======= ======= =======
Per share information (Note 3):
Net income per common share:
Basic $ 0.16 $ 0.15 $ 0.20 $ 0.19
======= ======= ======= =======
Diluted $ 0.16 $ 0.15 $ 0.20 $ 0.19
======= ======= ======= =======
Common shares used in computing per share amounts:
Basic 4,741 7,415 4,741 7,415
======= ======= ======= =======
Diluted 4,741 7,615 4,741 7,616
======= ======= ======= =======
Pro forma information (Note 4):
Income before provision for income taxes
and minority interests $ 906 $ 1,142
Pro forma provision for income taxes 373 470
Minority interests in net earnings of
subsidiaries 42 82
------- -------
Pro forma net income $ 491 $ 590
======= =======
Pro forma per share information:
Net income per common share:
Basic $ 0.10 $ 0.12
======= =======
Diluted $ 0.10 $ 0.12
======= =======
Common shares used in computing pro forma per share amounts:
Basic 4,741 4,741
======= =======
Diluted 4,741 4,741
======= =======
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
2
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HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------
JUNE 30, JUNE 30,
1997 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 953 $ 1,435
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 359 443
Deferred rent . 50 49
Deferred income taxes 59 (22)
Minority interests in net earnings of subsidiaries 82 --
Changes in operating assets and liabilities:
Accounts receivable 2,170 (221)
Unbilled production charges (1,856) (944)
Other current assets (85) (243)
Other assets (639) 58
Accounts payable (47) 2,576
Advance billings 214 251
Accrued expenses (373) (969)
Other liabilities (27) (33)
-------- --------
Net cash provided by operating activities 860 2,380
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Cash flows from investing activities:
Capital expenditures, net (275) (428)
Proceeds from the sale of fixed assets -- 37
-------- --------
Net cash (used in) investing activities (275) (391)
-------- --------
Cash flows from financing activities:
Repayments of line of credit (400) --
Distributions to stockholders (498) --
Payments of minority interest shareholders dividends (39) --
Proceeds from bank loans 376 --
Repayment of bank loans and long term debt (98) (742)
Capital lease repayments (71) (79)
-------- --------
Net cash (used in) financing activities (730) (821)
-------- --------
Effect of exchange rates on cash (20) 6
-------- --------
Net increase (decrease) in cash and cash equivalents (165) 1,174
Cash and cash equivalents at beginning of period 2,214 18,092
-------- --------
Cash and cash equivalents at end of period $ 2,049 $ 19,266
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes $ 300 $ 652
======== ========
Interest $ 60 $ 34
======== ========
Supplemental schedule of noncash investing activities:
Capital leases for new equipment $ -- $ 42
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
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HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
On November 12, 1997, Healthworld Corporation (the "Company")
acquired (the "Consolidation"), in exchange for shares of its Common
Stock, all of the issued and outstanding common stock of each of (i)
Girgenti, Hughes, Butler & McDowell, Inc. and its affiliated entities
("GHB&M") and (ii) Milton Marketing Group Limited and its subsidiaries
("Milton"). Unless otherwise indicated, all references herein to the
"Company" include GHB&M and Milton and give effect to the Consolidation.
The Consolidation was accounted for under the pooling of interests method
of accounting. Accordingly, the Company's consolidated financial
statements and notes thereto have been restated to include the results of
GHB&M and Milton for all periods presented.
The Company is an international marketing and communications
services company specializing in healthcare. The Company provides many of
the world's largest pharmaceutical and other healthcare companies with a
comprehensive range of integrated strategic marketing services designed
to accelerate the market acceptance of new products and to sustain
marketability throughout their life-cycles. The Company's services
include advertising and promotion, contract sales, consulting,
publishing, medical education, public relations, interactive multimedia,
database marketing and marketing research services. The Company offers
its clients global reach and expertise through its operations in the
United States and the United Kingdom, and through Healthworld B.V., a
world-wide network of licensed independent marketing and communications
agencies.
The accompanying consolidated financial statements include the
accounts of the Company and all of its subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation.
Certain amounts in the financial statements for prior periods have
been reclassified to conform to the current year presentation for
comparative purposes.
The accompanying unaudited consolidated financial statements reflect
all adjustments, consisting of normal recurring accruals, which are, in
the opinion of the Company's management, necessary to present fairly the
financial position as of June 30, 1998 and the results of operations and
cash flows for the interim periods ended June 30, 1997 and 1998. Interim
results are not necessarily indicative of results for a full year. For
further information, refer to the consolidated financial statements and
the accompanying notes included in the Company's annual report on form
10-K for the year ended December 31, 1997.
4
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2. INCOME TAXES
Income taxes have been provided using the liability method in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes". The provision for income taxes
(recorded at an effective rate of 41.8% and 41.6% for the three month and
six month periods ended June 30, 1998, respectively) reflects
management's estimation of the effective tax rate expected to be
applicable for the fiscal year. Prior to the Consolidation, certain of
the entities comprising GHB&M were treated as S corporations and were not
subject to Federal corporate income taxes. Such entities were subject to
certain corporate level state and local income taxes which are provided
for in the three month and six month periods ended June 30, 1997.
3. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings Per Share", basic
earnings per common share amounts were computed by dividing net earnings
by the weighted average number of common shares outstanding, excluding
any potential dilution. Diluted earnings per common share amounts were
computed by reflecting potential dilution from the exercise of stock
options. As there were no dilutive securities for the three month and six
month periods ended June 30, 1997, no reconciliation for such periods is
presented herein.
The following chart provides a reconciliation of information used in
calculating the per share amounts, for the three month and six month
periods ended June 30, 1998:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1998 JUNE 30, 1998
------------------ ----------------
(In thousands, except per share data)
Numerator:
Net income $1,131 $1,435
------ ------
Denominator for basic
net income per common share 7,415 7,415
Effect of dilutive securities:
Stock options 200 201
------ ------
Denominator for diluted
net income per share 7,615 7,616
====== ======
Basic net income per
common share $ 0.15 $ 0.19
====== ======
Diluted net income
per common share $ 0.15 $ 0.19
====== ======
5
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4. PRO FORMA NET INCOME
Pro forma net income for the three month and six month periods ended
June 30, 1997 includes the pro forma effect of a C corporation income tax
provision as if each of the companies comprising GHB&M (other than
Syberactive, Inc., which was already treated as a C corporation) were
treated as C corporations for the entire period.
5. COMPREHENSIVE INCOME
The Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income", which establishes standards for
reporting and display of comprehensive income and its components in a
full set of general-purpose financial statements. This statement is
effective for fiscal years beginning after December 15, 1997, including
interim periods.
Comprehensive income is as follows:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------ -------------------
1997 1998 1997 1998
------- ------- ------- -------
(In Thousands)
<S> <C> <C> <C> <C>
Net income $ 762 $ 1,131 $ 953 $ 1,435
Other comprehensive income:
Foreign currency translation adjustments -- 6 (20) 6
Income tax effect -- (2) 8 (2)
------- ------- ------- -------
Comprehensive income $ 762 $ 1,135 $ 941 $ 1,439
======= ======= ======= =======
</TABLE>
6. NEW ACCOUNTING STANDARDS
The FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS No. 131"), which establishes
standards for the way that public business enterprises report information
about operating segments in financial statements issued to shareholders.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers. SFAS No. 131 is
effective for financial statements for fiscal years beginning after
December 15, 1997.
7. SUBSEQUENT EVENTS
In July 1998, the Company acquired 80% of the capital stock of HFT,
a French holding company, which owns 100% of the capital stock of
Torrent, S.A. ("Torrent"), a French healthcare communications agency,
which in turn owns 100% of the capital stock of Aigue Marine SARL,
("Aigue") and Katchina Productions SARL ("Katchina"), each a French
company. The Company's initial cash payment was approximately 15.3
million French Francs (approximately US$2.6 million). Total amounts to be
paid in connection with the acquisition, including potential subsequent
earn-out payments to take place on or prior to April 15, 2000 and April
15, 2002 based upon a multiple of operating income of HFT, Torrent, Aigue
and Katchina (together the "HFT Group Companies") and the seller's option
to sell and the Company's option to purchase the remaining 20% of the
capital stock
6
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of HFT, will not exceed 45.3 million French Francs (approximately US$7.6
million). The acquisition will be accounted for using the purchase method
of accounting, whereby the excess purchase price over the fair values of
the net assets acquired will be recorded as goodwill.
In July 1998, the Company acquired all of the capital stock of
Colwood House Medical Publications (U.K.) Limited ("Colwood"), a U.K.
medical education company. The Company's initial cash payment was
(pound)4.0 million (approximately US$6.6 million). Total amounts to be
paid in connection with the acquisition, including potential subsequent
earn-out payments to take place in April 2000 and August 2001 based upon
Colwood achieving certain targeted operating profits, are not to exceed
(pound)7.5 million (approximately US$12.4 million). The acquisition will
be accounted for using the purchase method of accounting, whereby the
excess purchase price over the fair values of the net assets acquired
will be recorded as goodwill.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This June 30, 1998 Quarterly Report on Form 10-Q contains statements
which constitute forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Those statements include
statements regarding the intent, belief or current expectations of the
Company and its management team. The Company's stockholders and
prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ materially from those
projected in the forward-looking statements. Such risks and uncertainties
include, among other things, competitive, economic and regulatory factors
in the healthcare marketing and communications industry and the
pharmaceutical and health-care industry, general economic conditions, the
ability of the Company to manage its growth and successfully implement
its business strategy and other risks and uncertainties that are
discussed herein.
7
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RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
The following table sets forth certain data as a percentage of
revenues for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------- ----------------
1997 1998 1997 1998
----- ----- ----- -----
Revenues 100.0% 100.0% 100.0% 100.0%
Salaries and related costs 67.7 73.4 71.3 77.8
Other operating expenses 20.3 15.0 20.6 15.1
Income from operations 12.0 11.6 8.1 7.1
Interest income, net 0.1 1.4 0.2 1.4
Provision for income taxes 1.4 5.4 0.8 3.5
Minority interests 0.5 -- 0.6 --
===== ===== ===== =====
Net income 10.2% 7.6% 6.9% 5.0%
===== ===== ===== =====
The following table sets forth certain operating data with respect
to the Company's contract sales operations and communications operations
for the periods indicated:
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------- -------------------
1997 1998 1997 1998
------- ------- ------- -------
Revenues
--------
Contract sales $ 2,349 $ 7,772 $ 4,591 $16,307
Communications 5,124 7,105 9,160 12,558
Income From Operations
----------------------
Contract sales $ 195 $ 336 $ 347 $ 631
Communications 704 1,395 768 1,424
FISCAL THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO FISCAL THREE MONTHS
ENDED JUNE 30, 1997
Revenues
Revenues for the three months ended June 30, 1998 were $14.9
million, an increase of $7.4 million, or 99.1%, from $7.5 million for the
three months ended June 30, 1997. Contract sales revenues increased to
$7.8 million, an increase of 230.9% from $2.4 million in the prior year's
quarter. This was attributable to the growth of the contract sales
operation in the United Kingdom, which resulted primarily from additional
business from new clients. Communications revenues for the quarter ended
June 30, 1998 increased to $7.1 million, an increase of 38.7% from $5.1
million in the second quarter of 1997. Approximately $1.5 million of such
increase was attributable to the growth of advertising and promotion
services, which resulted primarily from assignments from new clients and
additional assignments from existing clients.
8
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Salaries and Related Costs
Salaries and related costs for the three months ended June 30, 1998
were $10.9 million, an increase of $5.9 million, or 116.0%, from $5.1
million for the three months ended June 30, 1997. Salaries and related
costs include all compensation and related benefits for all employees and
contracted talent. Such increase was primarily attributable to (i) $4.2
million of additional labor and other direct costs relating to the growth
of the Company's U.K. contract sales operations, (ii) approximately
$890,000 relating to the additional support staff hired to handle the
increased level of contract sales business activity in the U.K., and
salaries related to the start-up of the U.S. contract sales division, and
(iii) approximately $820,000 relating to additional staffing costs to
support the growth in communications services. Salaries and related costs
represented 73.4% of revenues in the second quarter of 1998, compared to
67.7% in the second quarter of 1997. Such increase, as a percentage of
revenues, was primarily attributable to growth of the Company's contract
sales operations and the corresponding increase in labor costs and
increased staffing costs for such operations. Generally, labor costs
associated with contract sales operations are greater as a percentage of
corresponding revenues than those for the Company's other services.
Other Operating Expenses
Other operating expenses for the three months ended June 30, 1998
were $2.2 million, an increase of $707,000, or 46.6%, from $1.5 million
for the three months ended June 30, 1997. Other operating expenses
primarily include occupancy and related costs, client development and
other related administrative costs. Such increase includes increased
spending to support (i) increased business development costs and start-up
costs for the U.S. contract sales division of approximately $380,000,
(ii) increased professional and other related costs of $190,000 partially
attributable to the transition of the Company from being a private to a
public company, and (iii) increased level of business activity. Other
operating expenses represented 15.0% of revenues in the second quarter of
1998, compared to 20.3% of the revenues in the second quarter of 1997.
The decrease in other operating expenses, as a percentage of revenues,
was primarily attributable to such expenses generally being fixed
relative to increases in the Company's revenues.
Income From Operations
Income from operations for the three months ended June 30, 1998 was
$1.7 million, an increase of $832,000, or 92.5%, from $899,000 for the
three months ended June 30, 1997. Income from operations represented
11.6% of revenues in the second quarter of 1998, compared to 12.0% in the
second quarter of 1997.
Interest Income
Interest income, net for the three months ended June 30, 1998 was
$213,000, an increase of $206,000 from $7,000 for the three months ended
June 30, 1997, primarily due to higher cash and cash equivalents for the
second quarter of 1998. Such increase was
9
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attributable to the receipt of the net proceeds from the Company's
initial public offering ("IPO") of Common Stock which was consummated in
November 1997.
Provision for Income Taxes
The provision for income taxes for the three months ended June 30,
1998 was $813,000, an increase of $711,000 from $102,000 for the three
months ended June 30, 1997. Such increase was primarily attributable to
the Company being taxed as a C corporation for the second quarter of
1998. During the second quarter of 1997, certain of the companies
comprising GHB&M were treated as S corporations, pursuant to which income
or loss of each of such companies was allocated to its stockholders by
inclusion in their respective individual income tax returns.
Net Income
Net income for the three months ended June 30, 1998 was $1.1
million, an increase of $369,000, or 48.4%, from $762,000 for the three
months ended June 30, 1997. Net income represented 7.6% of revenues in
the second quarter of 1998 compared to 10.2% in the second quarter of
1997. Net income on a pro forma basis for the three months ended June 30,
1997 was 6.6% of revenues.
FISCAL SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO FISCAL SIX MONTHS ENDED
JUNE 30, 1997
Revenues
Revenues for the six months ended June 30, 1998 were $28.9 million,
an increase of $15.1 million, or 109.9%, from $13.8 million for the six
months ended June 30, 1997. Contract sales revenues increased to $16.3
million, an increase of 255.2% from $4.6 million for the same period in
the prior year. This was attributable to the growth of the contract sales
operation in the United Kingdom, which resulted primarily from business
from new clients. Communications revenues for the six months ended June
30, 1998 increased to $12.6 million, an increase of 37.1% from $9.2
million for the same period in the prior year. This growth resulted
primarily from assignments from new clients and additional assignments
from existing clients.
Salaries and Related Costs
Salaries and related costs for the six months ended June 30, 1998
were $22.5 million, an increase of $12.7 million, or 129.1%, from $9.8
million for the six months ended June 30, 1997. Salaries and related
costs include all compensation and related benefits for all employees and
contracted talent. Such increase was primarily attributable to (i) $9.2
million of additional labor and other direct costs relating to the growth
of the Company's contract sales operations, (ii) approximately $1.6
million relating to the additional support staff hired to handle the
increased level of U.K. contract sales business activity, and salaries
related to the start-up of the U.S. contract sales division, and (iii)
approximately $1.8 million relating to additional staffing costs to
support the growth in communications
10
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services. Salaries and related costs represented 77.8% of revenues for
the first six months of 1998, compared to 71.3% for the first six months
of 1997. Such increase, as a percentage of revenues, was primarily
attributable to the growth of the Company's contract sales operations and
the corresponding increase in labor costs and increased staffing costs
for such operations. Generally, labor costs associated with contract
sales operations are greater as a percentage of corresponding revenues
than those for the Company's other services.
Other Operating Expenses
Other operating expenses for the six months ended June 30, 1998 were
$4.3 million, an increase of $1.5 million, or 53.6%, from $2.8 million
for the six months ended June 30, 1997. Other operating expenses
primarily include occupancy and related costs, client development and
other related administrative costs. Such increase includes increased
spending to support (i) increased business development costs and start up
costs for the U.S. contract sales division of approximately $800,000,
(ii) increased occupancy and related costs of approximately $280,000 as a
result of increased rent and occupancy related costs commensurate with
the growth of the business, and (iii) increased professional costs and
other related costs of $320,000 partially relating to the transition of
the Company from being a private to a public company. Other operating
expenses represented 15.1% of revenues for the first six months of 1998,
compared to 20.6% of revenues for the first six months of 1997. The
decrease in other operating expenses, as a percentage of revenues, was
primarily attributable to such expenses generally being fixed relative to
increases in the Company's revenues.
Income From Operations
Income from operations for the six months ended June 30, 1998 was
$2.1 million, an increase of $940,000, or 84.3%, from $1.1 million for
the six months ended June 30, 1997. Income from operations represented
7.1% of revenues for the first six months of 1998, compared to 8.1% for
the first six months of 1997.
Interest Income
Interest income, net for the six months ended June 30, 1998 was
$403,000, an increase of $376,000 from $27,000 for the six months ended
June 30, 1997, primarily due to higher cash and cash equivalents for the
six months ended June 30, 1998. Such increase was attributable to the
receipt of the net proceeds from the Company's IPO of Common Stock which
was consummated in November 1997.
Provision for Income Taxes
The provision for income taxes for the six months ended June 30,
1998 was $1.0 million, an increase of $916,000 from $107,000 for the six
months ended June 30, 1997. Such increase was primarily attributable to
the Company being taxed as a C corporation for the six months ended June
30, 1998. During the first six months of 1997, certain of the companies
comprising GHB&M were treated as S corporations, pursuant to which income
11
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or loss of each of such companies was allocated to its stockholders by
inclusion in their respective individual income tax returns.
Net Income
Net income for the six months ended June 30, 1998 was $1.4 million,
an increase of $482,000, or 50.6%, from $953,000 for the six months ended
June 30, 1997. Net income represented 5.0% of revenues for the six months
ended June 30, 1998 compared to 6.9% for the six months ended June 30,
1997. Net income on a pro forma basis for the six months ended June 30,
1997 was 4.3% of revenues.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998 and December 31, 1997, the Company had cash and
cash equivalents of approximately $19.3 million and $18.1 million,
respectively, an increase of $1.2 million. The increase in cash and cash
equivalents was commensurate with the growth in the business during the
six months ended June 30, 1998. The Company's working capital was $20.4
million and $19.0 million at June 30, 1998 and December 31, 1997,
respectively. The increase in working capital is primarily attributable
to the Company's net income of approximately $1.4 million partially
offset by capital expenditures of 428,000 for the six months ended June
30, 1998.
Bank borrowings for the Company's U.S. operations from Chase
Manhattan Bank , N.A. (the "GHB&M Credit Facility") consist of (i) an
uncommitted line of credit (the "GHB&M Line of Credit") which expired on
June 30, 1998, and bore interest at the bank's prime rate (8.5% as of
June 30, 1998) plus 1.0% per annum, pursuant to which GHB&M was able to
request borrowings of, but the bank was not obligated to lend, up to $3.5
million; the Company is currently negotiating an extension of the GHB&M
Credit Facility to September 30, 1998 under the same terms, and a new 3
year facility similar to the one currently in place, although to date, no
agreement has been entered into and there can be no assurance that a new
credit facility will be entered into on favorable terms or at all, (ii) a
term note in the principal amount of $300,000 (the "GHB&M Term Note"),
and (iii) a letter of credit in the amount of $200,000. The GHB&M Credit
Facility is secured by a first security interest in GHB&M's personal
property and is personally guaranteed by certain of GHB&M's stockholders.
The GHB&M Term Note had $73,000 outstanding as of June 30, 1998 and bears
interest at 7.75% per annum and is payable in 36 equal monthly
installments with the last installment due February 1999. No amounts were
outstanding under the GHB&M Line of Credit as of June 30, 1998.
Borrowings for the Company's U.K. operations consist of an overdraft
facility (the "Milton Overdraft Facility") with Bank of Scotland for an
aggregate amount of up to $1.25 million. Amounts drawn under the Milton
Overdraft Facility bear interest payable at the United Kingdom base rate
(7.5% as of June 30, 1998) plus 1.75% per annum (the "Prevailing Rate").
As of June 30, 1998, Milton had no amounts outstanding under the Milton
Overdraft Facility. In addition, as of June 30, 1998, the Company had the
following outstanding indebtedness with respect to its U.K. operations:
(i) a term loan from Bank of Scotland in the principal amount of $588,000
(of which $291,000 was outstanding on June
12
<PAGE>
30, 1998) which bears interest payable at the Prevailing Rate with
principal payable in installments of $58,000 each May and November
through November 2000, and (ii) a term loan in the principal amount of
$460,000 (all of which was outstanding on June 30, 1998), which bore
interest at the rate of 4% per annum, under which all principal was
repaid in July 1998.
In July 1998, the Company acquired 80% of the capital stock of HFT,
a French holding company which owns 100% of the capital stock of Torrent,
a French healthcare communications agency, which in turn owns 100% of the
capital stock of Aigue and Katchina, each a French company. The Company,
using cash reserves, paid an initial cash purchase price of approximately
15.3 million French Francs (approximately US$2.6 million). Total amounts
to be paid in connection with the acquisition, including potential
subsequent earn-out payments to take place on or prior to April 15, 2000
and April 15, 2002 based upon a multiple of operating income of the HFT
Group Companies and the seller's option to sell and the Company's option
to purchase the remaining 20% of the capital stock of HFT, will not
exceed 45.3 million French Francs (approximately US$7.6 million).
In July 1998, the Company acquired all of the capital stock of
Colwood, a U.K. medical education company. The Company, using cash
reserves, paid an initial cash purchase price of (pound)4.0 million
(approximately US$6.6 million). Total amounts to be paid in connection
with the acquisition, including potential subsequent earn-out payments to
take place in April 2000 and August 2001 based upon Colwood achieving
certain targeted operating profits, are not to exceed (pound)7.5 million
(approximately US$12.4 million).
Pursuant to the acquisition agreement with respect to the Colwood
transaction, the Company deposited an amount equal to approximately
US$1.7 million in an interest bearing escrow account to be applied
towards the potential earn-out payments to be made in April 2000 and
August 2001, and is required to deposit into such escrow account
potential additional amounts based on net operating profits to be applied
towards such future earn-out payments. Accordingly, such committed
amounts will not be available for working capital purposes.
Inflation did not have a significant impact upon the results of the
Company during fiscal 1997 or the six months ended June 30, 1998.
13
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 21, 1997, the Company commenced an IPO of 2,415,000
shares of its Common Stock, par value $.01 per share. The Company's
registration statement on form S-1 (File No. 333-34571) filed with
the Securities and Exchange Commission (the "Commission") with
respect to the IPO was declared effective by the Commission on
November 21, 1997. All of the shares of the Common Stock included in
the IPO were sold by the Company.
The aggregate net proceeds received by the Company from the
IPO, after deducting underwriting discounts and commissions and
related expenses, was approximately $16,445,000. Through March 31,
1998, the Company had used approximately $1.4 million of the net
proceeds of the IPO solely for working capital purposes. Subsequent
to that date, until June 30, 1998, the end of the current reporting
period, the Company used an additional $300,000 of the net proceeds
of the IPO, solely for working capital uses.
In connection with the acquisitions in July 1998, of the HFT
Group Companies and Colwood, the Company used 15,271,000 French
Francs (approximately US$2.6 million) and (pound)4.0 million
(approximately US$6.6 million) of the net proceeds of the IPO for
initial payments.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 10, 1998, the Company held its Annual Meeting of
Stockholders (the "Annual Meeting"). The holders of 7,174,005 shares
of Common Stock were present in person or represented by proxy at
the meeting. At the Annual Meeting, the Company's stockholders
approved the following:
(1) Election of Directors
The stockholders elected the following persons to serve as
directors of the Company until the next Annual Meeting, or until
their successors are duly elected and qualified. Votes were cast as
follows:
NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST
----------------- -------------------
Steven Girgenti 6,870,905 303,100
William Leslie Milton 6,870,905 303,100
Francis Hughes 6,870,905 303,100
Peter Knight 6,870,905 303,100
Colin Lloyd 6,870,905 303,100
Jonah Shacknai 6,870,905 303,100
Alex Spizz 6,870,905 303,100
14
<PAGE>
(2) Amendment of 1997 Stock Option Plan
The Stockholders approved the amendment of the Company's 1997
Stock Option Plan to increase by 700,000 the aggregate number of
shares of the Company's Common Stock available under the 1997 Stock
Option Plan. Votes were cast as follows:
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST VOTES ABSTAINING
------------------ -------------------- ------------------
6,157,092 22,842 994,071
(2) Appointment of Auditors
The stockholders approved the appointment of Arthur Andersen
LLP as independent auditors of the Company for the 1998 fiscal year.
Votes were casts as follows:
NUMBER OF NUMBER OF NUMBER OF
VOTES FOR VOTES AGAINST VOTES ABSTAINING
---------------- -------------------- --------------------
7,157,172 5,100 11,733
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits- The exhibits to this Form 10-Q are listed in the
accompanying Exhibit Index.
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HEALTHWORLD CORPORATION
Date: August 12, 1998 By: /s/ Steven Girgenti
---------------------------------------
Steven Girgenti
Chairman and Chief Executive Officer
Date: August 12, 1998 By: /s/ Stuart Diamond
---------------------------------------
Stuart Diamond
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT INDEX
Number Description of Exhibits
- ------ -----------------------
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HEALTHWORLD CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10Q
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 19266
<SECURITIES> 0
<RECEIVABLES> 14490
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 37448
<PP&E> 5212
<DEPRECIATION> 2724
<TOTAL-ASSETS> 44302
<CURRENT-LIABILITIES> 17016
<BONDS> 0
0
0
<COMMON> 74
<OTHER-SE> 26133
<TOTAL-LIABILITY-AND-EQUITY> 44302
<SALES> 0
<TOTAL-REVENUES> 28865
<CGS> 0
<TOTAL-COSTS> 26810
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (403)
<INCOME-PRETAX> 2458
<INCOME-TAX> 1023
<INCOME-CONTINUING> 1435
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1435
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HEALTHWORLD CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10Q
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2068
<SECURITIES> 0
<RECEIVABLES> 9987
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16287
<PP&E> 4631
<DEPRECIATION> 2480
<TOTAL-ASSETS> 21480
<CURRENT-LIABILITIES> 12739
<BONDS> 0
0
0
<COMMON> 290
<OTHER-SE> 6563
<TOTAL-LIABILITY-AND-EQUITY> 21480
<SALES> 0
<TOTAL-REVENUES> 13751
<CGS> 0
<TOTAL-COSTS> 12636
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (27)
<INCOME-PRETAX> 1142
<INCOME-TAX> 107
<INCOME-CONTINUING> 953
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 953
<EPS-PRIMARY> 0.20
<EPS-DILUTED> 0.20
</TABLE>
