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 March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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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
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As at May 13, 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 March 31, 1998 1
Consolidated Statements of Income
for the Three Months Ended March 31, 1997 and 1998 2
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1998 3
Notes to the Consolidated Financial Statements 4
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 2 Changes in Securities and Use of Proceeds 10
Item 6 Exhibits and Reports on Form 8-K 10
SIGNATURES 11
EXHIBIT INDEX 11
Part I. Financial Information
Item 1. Financial Statements
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, 1997 March 31, 1998
----------------------- ------------------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $18,092 $16,678
Accounts receivable 14,269 17,359
Unbilled production charges 1,501 2,489
Other current assets 1,004 1,248
----------- -----------
Total current assets 34,866 37,774
Property and equipment, net 2,434 2,542
Goodwill, net 3,670 3,624
Other assets 839 679
=========== ===========
$41,809 $44,619
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans and overdrafts $634 $203
Current portion of long-term debt 702 679
Current portion of capitalized lease
obligations 125 107
Accounts payable 1,836 1,669
Accrued expenses 6,148 6,881
Advance billings 6,468 8,875
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Total current liabilities 15,913 18,414
Long-term debt 230 234
Capitalized lease obligations 99 110
Deferred rent 768 791
Other liabilities 33 -
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Total liabilities 17,043 19,549
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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 outstanding 74 74
Additional paid-in capital 22,746 22,746
Retained earnings 1,931 2,235
Cumulative foreign currency translation
adjustments 15 15
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Total stockholders' equity 24,766 25,070
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$41,809 $44,619
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The accompanying notes to consolidated financial statements are an
integral part of these statements.
1
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share data)
Three Months Ended
-----------------------------------------------
March 31, 1997 March 31, 1998
--------------------- ---------------------
Revenues $ 6,278 $ 13,988
--------------------- ---------------------
Operating expenses:
Salaries and related costs 4,749 11,542
Other operating expenses 1,313 2,122
--------------------- ---------------------
6,062 13,664
Income from operations 216 324
Interest income, net 20 190
--------------------- ---------------------
Income before provision for income taxes and minority interests 236 514
Provision for income taxes (Note 3) 5 210
Minority interests in net earnings of subsidiaries 40 -
===================== =====================
Net income $ 191 $ 304
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Per share Information:
Net income per common share:
Basic $ 0.04
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Diluted $ 0.04
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Common shares used in computing per share amounts:
Basic 7,415
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Diluted 7,617
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The accompanying notes to consolidated financial statements are an
integral part of these statements.
2
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Three Months Ended
---------------------------------------------
March 31, 1997 March 31, 1998
-------------------- ---------------------
Cash flows from operating activities:
Net income $ 191 $ 304
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 174 218
Deferred rent 30 23
Deferred income taxes 11 (9)
Minority interests in net earnings of subsidiaries 40 -
(Gain) Loss on sale of fixed assets - 1
Changes in operating assets and liabilities:
Accounts receivable 2,557 (2,957)
Unbilled production charges (1,164) (985)
Other current assets 64 (226)
Other assets (268) 169
Accounts payable (238) (177)
Advance billings 278 2,364
Accrued expenses (257) 645
Other liabilities (25) (33)
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Net cash provided by (used in) operating activities 1,393 (663)
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Cash flows from investing activities:
Capital expenditures, net (135) (259)
Proceeds from the sale of fixed assets - 25
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Net cash used in investing activities (135) (234)
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Cash flows from financing activities:
Repayments line of credit (400) -
Distributions to stockholders (23) -
Proceeds from bank loans 399 -
Repayment of bank loans and long term debt (33) (464)
Capital lease repayments (31) (53)
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Net cash used in financing activities (88) (517)
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Effect of exchange rates on cash (23) -
-------------------- ---------------------
Net increase in cash and cash equivalents 1,147 (1,414)
Cash and cash equivalents at beginning of period 2,214 18,092
-------------------- ---------------------
Cash and cash equivalents at end of period $ 3,361 $ 16,678
==================== =====================
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes $ 193 $ 392
==================== =====================
Interest $ 29 $ 36
==================== =====================
Supplemental schedule of noncash investing activities:
Capital leases for new equipment $ 10 $ 43
==================== =====================
The accompanying notes to consolidated financial statements are an
integral part of these statements.
3
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 health care. The Company provides many of the
world's largest pharmaceutical and other health care 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 located in 13 other
countries, of which the Company is a founding licensee.
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 years have been
reclassified to conform to the current year presentations for
comparative purposes.
The accompanying unaudited consolidated financial statements reflect
all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of the Company's management, necessary to present
fairly the financial position as of March 31, 1998 and the results of
operations and cash flows for the interim periods ended March 31,
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 footnotes
included in the Company's annual report on form 10-K for the year
ended December 31, 1997.
4
2. NET INCOME PER COMMON SHARE
Effective December 15, 1997, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share"
("SFAS No. 128"). This statement establishes standards for computing
and presenting Earnings Per Share ("EPS"), replacing the presentation
of primary EPS with a presentation of basic EPS. For companies with
complex capital structures, the statement requires dual presentation
of both basic EPS and diluted EPS on the face of the statement of
income. In accordance with SFAS No. 128, 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.
The following chart provides a reconciliation of information used in
calculating the per share amounts, for the three month period ended
March 31, 1998:
Net Income Weighted Shares
(in thousands, except per share data) (Numerator) (Denominator) Per Share Amount
------------------------------------- ----------- ---------------- ----------------
Net Income $ 304
Basic EPS
Net income available to common stockholders $ 304 7,415 $ 0.04
Effect of dilutive securities-stock options - 202 -
Diluted EPS
Net income available to common stock and assumed
option exercises $ 304 7,617 $ 0.04
3. INCOME TAXES
Income taxes have been provided using the liability method in
accordance with SFAS No. 109, "Accounting for Income Taxes." The
provision for income taxes (recorded at an effective rate of 40.9%
for the quarter ended March 31, 1998) reflects management's
estimation of the effective tax rate expected to be applicable for
the fiscal year. This estimate is evaluated by management each
quarter based on estimated tax expenses for the year. Prior to the
Consolidation, certain of the entities comprising GHB&M were treated
as S Corporations and 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 quarter ended March
31,1997.
4. COMPREHENSIVE INCOME
The Financial Accounting Standards Board 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.
5
Comprehensive income is as follows:
For the quarter ended March 31,
(in thousands) 1997 1998
-------------- ----------- ----------
Net income $191 $304
Other comprehensive income:
Foreign currency translation
adjustments, net of tax of $8 and $0,
respectively 12 -
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Comprehensive income $179 $304
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5. NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board 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.
6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This March 31, 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 health care
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.
The following discussion should be read in conjunction with the
attached unaudited consolidated financial statements and notes
thereto and with the Company's audited financial statements, notes to
the consolidated financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations relating
thereto included or incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
Results of Operations
Fiscal Three Months Ended March 31, 1998 Compared to Fiscal Three
Months Ended March 31, 1997
Revenues
Revenues for the first three months of 1998 were $14.0 million, an
increase of $7.7 million, or 122.8%, from $6.3 million for the first
three months of 1997. Contract sales revenues increased to $8.5
million, an increase of 280.7% from $2.3 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 revenue for the
quarter ended March 31, 1998 increased to $5.5 million, an increase
of 35.1% from $4.0 million in the first quarter of 1997.
Approximately $1.0 million was attributable to the growth of
advertising and promotion services, which resulted primarily from new
projects from existing clients.
Salaries and Related Costs
Salaries and related costs for the first three months of 1998 were
$11.5 million, an increase of $6.8 million, or 143.0%, from $4.7
million for the first three months of 1997. Salaries and related
costs include all compensation and related benefits for all employees
and contracted talent. Such increase was primarily attributable to
(i) $5.1 million of labor and
7
other direct costs relating to the growth of the Company's contract
sales operations, (ii) approximately $500,000 relating to the
additional support staff hired to handle the increased level of
contract sales business activity, and salaries related to the
start-up of the U.S. contract sales division, and (iii) approximately
$900,000 relating to staffing costs attributable to communications
services. Salaries and related costs represented 82.5% of revenues in
the first three months of 1998, compared to 75.6% in the first three
months 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 first three months of 1998 were $2.1
million, an increase of $809,000, or 61.6%, from $1.3 million for the
first three months of 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 occupancy and related costs of
approximately $218,000 as a result of increased rent and occupancy
related costs, (ii) increased business development costs of $422,000,
and (iii) increased professional costs of $127,000 relating to the
transition of the Company from being a private to a public company.
Other operating expenses represented 15.2% of revenues in the first
three months of 1998, compared to 20.9% of the revenues in the first
three 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 first three months of 1998 was
$324,000, an increase of $108,000 or 50.0%, from $216,000 for the
first three months of 1997. Income from operations represented 2.3%
of revenues in the first three months of 1998, compared to 3.4% in
the first three months of 1997.
Interest Income
Interest income, net, in the first three months of 1998 was $190,000,
an increase of $170,000 or 850% from $20,000 for the first three
months of 1997, primarily due to higher cash and cash equivalents for
the first three months of 1998. Such increase was 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.
8
Provision for Income Taxes
The provision for income taxes for the first three months of 1998 was
$210,000, an increase of $205,000 from $5,000 for the first three
months of 1997. Such increase was primarily attributable to the
Company being taxed as a C corporation for the first three months of
1998. During the first three months 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 first three months of 1998 was $304,000, an
increase of $113,000 or 59.2% from $191,000 for the first three
months of 1997. This was primarily attributable to the earnings from
operations relating to the $6.3 million increased sales in contract
sales and the increase in interest income relating to the increased
cash and cash equivalents from the IPO, offset by the increase in the
provision for income taxes which was not provided for in the first
three months of 1997. Net Income represented 2.2% of revenues in the
first three months of 1998 compared to 3.0% in the first three months
of 1997.
Liquidity and Capital Resources
At March 31, 1998 and December 31, 1997, the Company had cash and
cash equivalents of approximately $16.7 million and $18.1 million,
respectively, a decrease of $1.4 million. The decrease in cash and
cash equivalents was commensurate with the growth in the business
during the quarter ended March 31, 1998. The Company's working
capital was $19.4 million and $19.0 million at March 31, 1998 and
December 31, 1997, respectively. The increase in working capital is
primarily attributable to the Company's income from operations of
approximately $324,000.
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 expires
on June 30, 1998 and bears interest at the bank's prime rate (8.5% as
of March 31, 1998) plus 1.0% per annum, pursuant to which GHB&M may
request borrowings of, but the bank is not obligated to lend, up to
$3.5 million, (ii) a term note in the principle amount of $300,000
(the "GHB&M Term Note"), and (iii) a letter of credit in the amount
of $200,000 (the "GHB&M Letter of Credit"). 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 $100,000 outstanding as of March 31, 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 March 31, 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 $1.25million. Amounts drawn under the
Milton Overdraft Facility bear interest payable at the United
9
Kingdom base rate (7.25% as of March 31, 1998) plus 2.0% per annum
(the "Prevailing Rate"). As of March 31, 1998, Milton had an
outstanding balance of approximately $203,000 under the facility. In
addition, as of March 31, 1998, the Company had the following
outstanding indebtedness with respect to its U.K. operations: (i) a
term loan from Bank of Scotland (the "Milton Term Loan") in the
principle amount of $588,000 (of which $351,000 was outstanding on
March 31, 1998) which bears interest payable at the Prevailing Rate
with principle payable in installments of $58,000 each May and
November through November 2000; (ii) a term loan in the principle
amount of $460,000 (all of which was outstanding on March 31,1998),
which bears interest at the rate of 4% per annum, under which
principle is due and payable in July 1998: and (iii) a term loan from
National Westminster Bank plc in the principle amount of $75,000
($3,000 of which was outstanding as of March 31,1998, which bears
interest at 10.5% per annum payable in monthly installments, with the
final payment due in April 1998.
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 Offering,
after deducting underwriting discounts and commissions and expenses,
was approximately $16,445,000. Through December 31, 1997, the Company
had used approximately $1,000,000 of the net proceeds of the IPO
solely for working capital purposes. Subsequent to year-end until
March 31, 1998, the end of the reporting period, the Company had used
an additional $400,000 of the net proceeds of the IPO, solely for
working capital uses.
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.
10
SIGNATURES
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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: May 13, 1998 By: /s/ STEVEN GIRGENTI
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Steven Girgenti
Chairman and Chief Executive Officer
Date: May 13, 1998 By: /s/ STUART DIAMOND
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Stuart Diamond
Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
EXHIBIT INDEX
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Exhibit Number Description Sequential Page No.
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27 Financial Data Schedule 12