UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K/A
Amendment No. 1 to Current Report
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) July 23, 1998
HEALTHWORLD CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
0-23059 13-3922288
(Commission File Number) (I.R.S. Employer Identification No.)
100 Avenue of the Americas
New York, New York 10013
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 966-7640
Item 7 of the Current Report on form 8-K of Healthworld Corporation filed on
August 6, 1998, is hereby amended to add the following financial statements
and pro forma financial information in connection with the acquisition on July
24, 1998 by Healthworld Corporation of Colwood House Medical Publications (UK)
Ltd.:
INDEX
PAGE(S)
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheet as of April 30, 1998 2
Statement of Income for the year ended April 30, 1998 3
Statement of Shareholders' Equity for the year ended April
30, 1998 4
Statement of Cash Flows for the year ended April 30, 1998 5
NOTES TO FINANCIAL STATEMENTS FOR THE YEAR ENDED APRIL 30, 1998 6 - 8
(B) PRO FORMA FINANCIAL INFORMATION
UNAUDITED PRO FORMA COMBINING BALANCE SHEETS AS OF JUNE 30, 1998 9
UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME FOR THE SIX
MONTHS ENDED JUNE 30, 1998 10
UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME FOR THE YEAR
ENDED DECEMBER 31, 1997 11
NOTES TO UNAUDITED PRO FORMA COMBINING FINANCIAL STATEMENTS 12 - 13
ITEM 7(A) COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD. HISTORICAL FINANCIAL
STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Colwood House Medical Publications (UK) Ltd.:
We have audited the accompanying balance sheet of Colwood House Medical
Publications (UK) Ltd. (a United Kingdom corporation) as of April 30, 1998,
and the related statements of income, shareholders' equity and cash flows for
the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Colwood House Medical
Publications (UK) Ltd. as of April 30, 1998, and the results of its operations
and its cash flows for the year ended April 30, 1998 in conformity with
United States generally accepted accounting principles.
/s/ Arthur Andersen LLP
Melville, New York
July 24, 1998
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COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD.
BALANCE SHEET
AS OF APRIL 30, 1998
(in thousands, except share data)
ASSETS
CURRENT ASSETS:
Cash $ 20
Accounts receivable 667
Unbilled production charges, at cost 80
Other current assets 113
------
Total current assets 880
FIXED ASSETS, net (Notes 2 and 3) 1,399
------
Total assets $2,279
======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank loans and overdrafts $ 359
Accounts payable 389
Accrued expenses 160
Advance production billings 114
------
Total current liabilities 1,022
DEFERRED INCOME TAXES 27
------
Total liabilities 1,049
COMMITMENTS (Note 7)
SHAREHOLDERS' EQUITY:
Ordinary shares of (pound)1 par value,
10,000 shares authorized, issued and outstanding 17
Retained earnings 1,157
Cumulative translation adjustments 56
------
Total shareholders' equity 1,230
------
Total liabilities and shareholders' equity $2,279
======
The accompanying notes to financial statements
are an integral part of this balance sheet.
-2-
COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD.
STATEMENT OF INCOME
FOR THE YEAR ENDED APRIL 30, 1998
(in thousands, except per share data)
REVENUES $3,443
------
OPERATING EXPENSES:
Salaries and related costs 2,058
Operating expenses 688
------
2,746
------
Income from operations 697
------
OTHER INCOME:
Gain on disposal of fixed assets 2
Interest income 12
------
14
------
INCOME BEFORE PROVISION FOR INCOME TAXES 711
PROVISION FOR INCOME TAXES 188
------
NET INCOME $ 523
======
PER SHARE DATA:
BASIC INCOME PER SHARE $52.30
======
WEIGHTED AVERAGE NUMBER OF SHARES (Note 2) 10
======
The accompanying notes to financial statements
are an integral part of this statement.
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COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED APRIL 30, 1998
(in thousands)
Cumulative
Ordinary Retained Translation
Shares Earnings Adjustments Total
------- ------- ------- -------
BALANCE, April 30, 1997 $ 17 $ 901 $ 25 $ 943
Net income -- 523 -- 523
Dividends to shareholders -- (267) -- (267)
Cumulative translation adjustments -- -- 31 31
------- ------- ------- -------
BALANCE, April 30, 1998 $ 17 $ 1,157 $ 56 $ 1,230
======= ======= ======= =======
The accompanying notes to financial statements
are an integral part of this statement.
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COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED APRIL 30, 1998
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 523
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 192
Gain on disposal of fixed assets (2)
Deferred income taxes (5)
Changes in operating assets and liabilities:
Accounts receivable 224
Unbilled production charges 147
Other current assets 21
Accounts payable (279)
Advance production billings (1,013)
Accrued expenses and deferred income (112)
-------
Net cash used in operating activities (304)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (225)
Proceeds from sale of fixed assets 36
-------
Net cash used in investing activities (189)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to shareholders (267)
Net proceeds from line of credit 359
-------
Net cash provided by financing activities 92
-------
EFFECT OF EXCHANGE RATES ON CASH 3
NET DECREASE IN CASH (398)
CASH AT BEGINNING OF YEAR 418
-------
CASH AT END OF YEAR $ 20
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $ 308
=======
Cash paid for interest $ 16
=======
The accompanying notes to financial statements
are an integral part of this statement.
-5-
COLWOOD HOUSE MEDICAL PUBLICATIONS (UK) LTD.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED APRIL 30, 1998
(in thousands)
1. BUSINESS:
Colwood House Medical Publications (UK) Ltd. ("Colwood") was established on
April 5, 1988. Colwood provides communications and product support services to
the pharmaceutical industry. This includes communicating the value of a
company's products both internally to its sales staff and affiliates and
externally to customers and supporting the launch of new drugs through press
and publications management.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Foreign Currency Translation
All assets and liabilities of Colwood are translated into United States
Dollars from United Kingdom Pounds Sterling at year-end exchange rates. Income
and expense items are translated at average exchange rates prevailing during
each fiscal year. The resulting translation adjustments are recorded as a
separate component of shareholders' equity.
Revenue Recognition
Income is recognized based upon percentage of completion. Income earned on
jobs completed by the balance sheet date is credited to the income statement
in the year-ended on that date. A proportion of fee income earned on
incomplete jobs is credited to profit and loss accounts for the year, based on
the estimated stage of completion of work-in-progress at the balance sheet
date. This credit is only taken where, in the opinion of the Directors, there
is reasonable certainty that costs incurred on these jobs will be recovered in
full.
Concentration of Credit Risk
Colwood provides communications and product support services to the
pharmaceutical industry. For the year ended April 30, 1998, Colwood had three
clients which constituted approximately 34%, 31% and 13% of total revenues and
34%, 47% and 14% of accounts receivable, respectively. Consequently, customer
relations are a vital element of the business, as the loss of a major customer
is likely to produce a significant shortfall in revenue.
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Unbilled Production Charges
Unbilled production charges are stated at the lower of cost or net realizable
value. Costs are comprised of all direct production cost not yet billed to the
clients.
Fixed Assets
Fixed assets are stated at cost, net of accumulated depreciation. Depreciation
is computed as a percentage of the written down value over the estimated
useful lives of the assets.
Advance Production Billings
Advance production billings represents invoicing in advance of work on known
projects. Amounts invoiced to clients are included on the balance sheet as
advance production billings until the related work has been performed, at
which time the revenue is recognized.
Income Taxes
Colwood accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This statement
requires a liability approach for measuring deferred taxes based on temporary
differences between the financial statement and income tax bases of assets and
liabilities existing at each balance sheet date using enacted rates for the
years in which the taxes are expected to be paid or recovered.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Basic Income Per Share
Basic income per share is computed based on the weighted average number of
ordinary shares outstanding during the period. Diluted income per share has
not been presented, as there were no common stock equivalents outstanding for
the period presented.
3. FIXED ASSETS:
Fixed assets consists of the following:
Furniture
and
Land Buildings Vehicles Computers Fixtures Total
------ ------ ------ ------ ------ ------
Cost $ 334 $ 476 $ 362 $ 283 $ 663 $2,118
Accumulated depreciation -- 37 138 124 420 719
------ ------ ------ ------ ------ ------
Net book value as of April 30, 1998
$ 334 $ 439 $ 224 $ 159 $ 243 $1,399
====== ====== ====== ====== ====== ======
Rates of depreciation on declining
balance -- 2% 25% 15% 25%
====== ====== ====== ====== ======
Depreciation expense of fixed assets for the year ended April 30, 1998 was
$192. Land is not depreciated.
-7-
4. BANK LOANS AND OVERDRAFTS:
Bank loans and overdrafts at April 30, 1998 is comprised of borrowings under
Colwood's overdraft facility provided by a bank. This facility is secured by a
fixed charge over the property and a fixed and floating charge over all of the
assets of the business. The authorized limit is $668 and borrowing up to this
limit is at 2% above the bank's base rate, 7.75% at April 30, 1998. Borrowing
over this limit is at 5% above the base rate and subject to a minimal service
charge per day. The overdraft facility is due for renewal in October 1998.
5. ACCRUED EXPENSES:
Income taxes $ 129
Other accruals and deferred income 31
---------
$ 160
=========
6. INCOME TAXES:
The provision for income taxes is comprised of the following:
Current taxes due $ 193
Deferred taxes (5)
---------
Total $ 188
=========
The following table reconciles the United Kingdom statutory rate to Colwood's
effective tax rate:
Statutory rate 31.0%
Nondeductible expense 1.4
Small and marginal company rate relief (6.0)
------
Effective tax rate 26.4%
======
The deferred tax liability of $27 is related to accelerated capital
allowances.
7. COMMITMENTS:
Leases
Colwood had entered into a lease for office space with minimum annual lease
payments of $67, which was due to expire on July 31, 2006. In July 1998,
Colwood terminated the lease at no cost. Total rent expense incurred for the
year ended April 30, 1998 was approximately $67.
8. SUBSEQUENT EVENT:
In July 1998, Colwood's shareholders entered into a purchase agreement with a
wholly-owned subsidiary of Healthworld Corporation ("Healthworld"), pursuant
to which all of the capital stock of Colwood was acquired by such subsidiary
of Healthworld on July 24, 1998 for approximately $6,600 in cash. 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 exceeding certain targeted operating profits, are not to exceed
$12,400.
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ITEM 7(B) PRO FORMA FINANCIAL INFORMATION
HEALTHWORLD CORPORATION
PRO FORMA COMBINING BALANCE SHEETS
AS OF JUNE 30, 1998
(in thousands)
(UNAUDITED)
Pro Forma
ASSETS Healthworld Colwood Adjustments Pro Forma
Current assets:
Cash and cash equivalents $ 19,266 $ 71 $ (7,467) (a) $ 10,170
(b) (1,700)
Accounts receivable 14,490 720 -- 15,210
Unbilled production charges 2,445 151 -- 2,596
Other current assets 1,247 105 -- 1,352
-------- -------- -------- --------
Total current assets 37,448 1,047 (9,167) 29,328
Fixed assets, net 2,488 1,415 132 (c) 4,035
Goodwill, net 3,563 -- 6,055 (d) 9,618
Other assets 803 -- 1,700 (b) 2,503
-------- -------- -------- --------
Total assets $ 44,302 $ 2,462 $ (1,280) $ 45,484
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans and overdrafts $ -- $ 304 $ -- $ 304
Current portion of long-term debt 649 -- -- 649
Current portion of capitalized lease obligations 100 -- -- 100
Accounts payable 4,372 399 -- 4,771
Accrued expenses 5,179 199 -- 5,378
Advance production billings 6,716 260 -- 6,976
-------- -------- -------- --------
Total current liabilities 17,016 1,162 -- 18,178
Long-term debt 175 -- -- 175
Capitalized lease obligations 87 -- -- 87
Deferred rent 817 -- -- 817
Deferred income taxes -- 20 -- 20
-------- -------- -------- --------
Total liabilities 18,095 1,182 -- 19,277
-------- -------- -------- --------
Stockholders' Equity:
Common stock 74 17 (17) (e) 74
Additional paid-in capital 22,746 -- -- 22,746
Retained earnings 3,366 1,209 (1,209) (e) 3,366
Cumulative foreign currency translation
adjustments 21 54 (54) (e) 21
-------- -------- -------- --------
Total stockholders' equity 26,207 1,280 (1,280) 26,207
-------- -------- -------- --------
$ 44,302 $ 2,462 $ (1,280) $ 45,484
======== ======== ======== ========
The accompanying notes are an integral part of these
unaudited pro forma combining financial statements.
-9-
HEALTHWORLD CORPORATION
PRO FORMA COMBINING STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(in thousands, except per share data)
(UNAUDITED)
Pro Forma
Healthworld Colwood Adjustments Pro Forma
REVENUES $ 28,865 $ 1,827 $ -- $ 30,692
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries and related costs 22,465 981 23,446
Operating expenses 4,345 394 101 (f) 4,840
-------- -------- -------- --------
26,810 1,375 101 28,286
Income (loss) from operations 2,055 452 (101) 2,406
Interest income (expense), net 403 8 (199)(h) 212
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION
(BENEFIT) FOR INCOME TAXES 2,458 460 (300) 2,618
PROVISION (BENEFIT) FOR INCOME TAXES 1,023 129 (88)(h) 1,064
-------- -------- -------- --------
NET INCOME (LOSS) $ 1,435 $ 331 $ (212) $ 1,554
======== ======== ======== ========
NET INCOME PER SHARE:
Basic .21
========
Diluted .20
========
SHARES USED IN COMPUTING
PER SHARE AMOUNTS:
Basic 7,415
========
Diluted 7,616
========
The accompanying notes are an integral part of these
unaudited pro forma combining financial statements.
-10-
HEALTHWORLD CORPORATION
PRO FORMA COMBINING STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(in thousands, except per share data)
(UNAUDITED)
Pro Forma
Healthworld Colwood Adjustments Pro Forma
REVENUES $ 35,292 $ 3,489 $ -- $ 38,781
-------- -------- -------- --------
OPERATING EXPENSES:
Salaries and related costs 24,186 2,164 26,350
Operating expenses 6,276 724 202 (f) 7,202
-------- -------- -------- --------
30,462 2,888 202 33,552
Income (loss) from operations 4,830 601 (202) 5,229
Interest income (expense), net 86 24 (398) (h) (288)
-------- -------- -------- --------
INCOME (LOSS) BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES AND MINORITY INTERESTS 4,916 625 (600) 4,941
PROVISION (BENEFIT) FOR INCOME TAXES 719 176 1,304 (g) 2,024
(175)(h) (175)
MINORITY INTERESTS IN NET EARNINGS OF
SUBSIDIARIES 192 -- -- 192
-------- -------- -------- --------
NET INCOME (LOSS) $ 4,005 $ 449 $ (1,729) $ 2,725
======== ======== ======== ========
NET INCOME PER SHARE:
Basic .54
========
Diluted .54
========
SHARES USED IN COMPUTING NET INCOME PER SHARE:
Basic 5,037
========
Diluted 5,047
========
The accompanying notes are an integral part of these
unaudited pro forma combining financial statements.
-11-
HEALTHWORLD CORPORATION
NOTES TO PRO FORMA COMBINING FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
On July 24, 1998, a wholly-owned subsidiary of Healthworld Corporation
("Healthworld") entered into a purchase agreement with the shareholders of
Colwood House Medical Publications (UK) Ltd. ("Colwood"), pursuant to which
such subsidiary of Healthworld acquired all of the outstanding capital stock
of Colwood in exchange for approximately $6.6 million in cash. 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 exceeding certain targeted operating profits, are not to exceed $12.4
million. In accordance with Emerging Issues Task Force Issue No. 95-8,
"Accounting for Contingent Consideration Paid to the Shareholders of an Acquired
Enterprise in a Purchase Business Combination", Healthworld will record these
contingent earn-out payments, to the extent earned, as additional purchase
price. As part of the agreement, approximately $1.7 million was deposited in
an interest bearing escrow account to be applied towards the potential
earn-out payments to be made.
The unaudited pro forma balance sheet combines the consolidated balance sheet
of Healthworld and the balance sheet of Colwood as of June 30, 1998, assuming
that the business combination, accounted for as a purchase, had been completed
as of that date. The pro forma statements of income combine the consolidated
statement of income of Healthworld for the year ended December 31, 1997 with
the statement of income of Colwood for the year ended December 31, 1997 and
the consolidated statement of income of Healthworld and the statement of
income of Colwood for the six months ended June 30, 1998, assuming that the
acquisition occurred at the beginning of the periods presented.
The historical balance sheets used in the preparation of the pro forma
financial statements have been derived from Healthworld's and Colwood's
unaudited financial statements as of June 30, 1998. The historical statements
of income for the year ended December 31, 1997 have been derived from the
audited consolidated statement of income of Healthworld and the unaudited
statement of income of Colwood. The historical statements of income for the
six months ended June 30, 1998 have been derived from Healthworld's and
Colwood's respective unaudited financial statements.
The pro forma adjustments are based on the historical financial position and
results of operations for the periods presented, available information and
upon certain estimates and assumptions that Healthworld believes are
reasonable under the circumstances. However, the actual recording of the
acquisition (which management does not expect to vary materially) will be
based on ultimate appraisals, evaluations and estimates of fair market values.
The pro forma financial data does not purport to represent what Healthworld's
consolidated financial position or results of operations would actually have
been if the acquisition of Colwood in fact had occurred on the dates
indicated; or to project Healthworld's financial position or results of
operations for any future period. In addition, since Healthworld and Colwood
were not under common control or management prior to the closing of the
acquisition, pro forma combining results may not be comparable to or
indicative of future performance.
-12-
2. UNAUDITED PRO FORMA ADJUSTMENTS:
Descriptions of the adjustments included in the unaudited pro forma financial
statements are as follows:
(a) Reflects $6.6 million in cash consideration paid upon the closing of
the acquisition and an estimated $867 in direct costs incurred in
connection with the acquisition.
(b) Reflects the deposit of $1.7 million into an interest bearing escrow
account to be applied towards the potential earn-out payments to be
made in April 2000 and August 2001.
(c) Adjustment to reflect the fair market value of property and
equipment.
(d) Represents the excess of the purchase price, including related
costs, over the fair value of the net assets acquired.
(e) Reflects the elimination of Colwood's common stock, retained
earnings and cumulative foreign currency translation adjustments.
(f) Reflects amortization of the excess of the purchase price, including
related costs, over the fair value of the net assets acquired using
a 30-year amortization period.
(g) Reflects a provision for federal and state income taxes for certain
U.S. subsidiaries of Healthworld as if these companies were treated
as "C" corporations rather than "S" corporations for the year ended
December 31, 1997.
(h) Reflects reduction to interest income and applicable income tax
benefit on the $7.5 million cash outflow to fund the purchase price.
-13-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 1 to Current Report on Form 8-K
to be signed on its behalf by the undersigned hereunto duly authorized.
HEALTHWORLD CORPORATION
By /s/ Stuart Diamond
--------------------------
Name: Stuart Diamond
Title: Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
Date: October 2, 1998
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