1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q/A
[ X ] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1999
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 000-23747
GETTY IMAGES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 98-0177556
(State of Incorporation) (I.R.S. Employer
Identification No.)
2101 Fourth Avenue 101 Bayham Street
Fifth Floor London, England
Seattle, Washington 98121 NW1 0AG
(206) 695-3400 (011 44 171) 544 3456
------------------
(Address, including zip code, and telephone numbers,
including area code, of principal executive offices)
------------------
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 twelve 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 ninety days. Yes X No
As of May 3, 1999, there were 35,069,307 shares of the Registrant's common
stock, par value $.01 per share, outstanding.
2
EXPLANATORY NOTE
This Form 10-Q/A amends Item 5 of Part II, of the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999, filed by the Registrant on May
17, 1999. The Item 5 in that report is being replaced in its entirety by the
item enclosed in this amendment.
GETTY IMAGES, INC.
Amendment No. 1 to Quarterly Report
On Form 10-Q for the
three months ended March 31, 1999
PART II.
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On May 4, 1999, Getty Images acquired all of the outstanding stock of Art.com in
a stock for stock merger transaction. Art.com is an Internet art seller and
framer.
The merger and the transactions contemplated thereby were approved by the
stockholders of Art.com and the directors of Getty Images on May 4, 1999.
Pursuant to the merger, Print Corp., a wholly owned subsidiary of Getty Images
("Merger Sub"), was merged with and into Art.com. Getty Images issued 4,252,271
shares of Getty Images common stock to the former stockholders of Art.com in
exchange for all of the issued and outstanding capital stock of Art.com. In
addition, the former stockholders of Art.com are entitled to a contingent
deferred payment equal to 11% of Getty Images' market capitalization increase
over the 90 day period following the closing of the merger. The contingent
deferred payment is only payable if Getty Images' market capitalization
increases at least 20% and any payment thereafter is capped at $84 million. The
number of shares of Getty Images common stock granted to the former Art.com
stockholders was determined by dividing (x) 4,510,000 by (y) the sum of the
number of shares of Art.com common stock and preferred stock issued and
outstanding prior to the merger and the number of shares of Art.com common stock
issuable upon exercise of all of Art.com's stock options and warrants granted
prior to the merger.
3
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998
TOGETHER WITH AUDITORS' REPORT
4
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Art.com, Inc.:
We have audited the accompanying balance sheet of ART.COM, INC. (formerly known
as Artuframe.com, Inc.) (a Delaware corporation) as of December 31, 1998, and
the related statements of operations, stockholders' 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 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Art.com, Inc. as of December 31, 1998, and
the results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Chicago, Illinois
March 12, 1999
(except for Note 10, as to
which the date is May 5, 1999)
5
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
BALANCE SHEET
AS OF DECEMBER 31, 1998
ASSETS
- --------------------------------------------------------------------------------
CURRENT ASSETS:
Cash and cash equivalents $ 6,400,674
Accounts receivable-
Trade 120,952
Commissions 31,725
Related party 26,750
Inventory 181,027
Prepaid expenses 77,472
-----------
Total current assets 6,838,600
-----------
PROPERTY AND EQUIPMENT:
Furniture, fixtures and equipment 230,336
Computer equipment 101,634
Computer software 330,716
Automobile 19,185
Leasehold improvements 29,067
-----------
710,938
Less- Accumulated depreciation (91,822)
-----------
Property and equipment, net 619,116
-----------
OTHER ASSETS:
Security deposits 100,753
Intangible assets, net of amortization of $26,222 831,278
-----------
Total other assets 932,031
-----------
Total assets $ 8,389,747
===========
6
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
BALANCE SHEET
AS OF DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 786,925
Current portion of capital leases 26,670
Accrued payroll expenses 50,962
Deferred compensation 80,327
Other accrued liabilities 94,316
------------
Total current liabilities 1,039,200
------------
CAPITAL LEASES, net of current portion 71,416
------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, convertible, $.001 par value, 30,000,000 shares
authorized, 11,500,000 issued and outstanding, at liquidation
value 11,500,000
Common stock, $.001 par value, 35,000,000 shares authorized,
5,317,000 issued and outstanding 5,317
Additional paid-in capital 1,204,049
Accumulated deficit (5,430,235)
------------
Total stockholders' equity 7,279,131
------------
Total liabilities and stockholders' equity $ 8,389,747
============
The accompanying notes to financial statements are an
integral part of this balance sheet.
7
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
REVENUE:
Sales $ 196,679
Commissions 187,396
-----------
Total revenue 384,075
COST OF GOODS SOLD 285,420
-----------
Gross profit 98,655
OPERATING EXPENSES:
Salaries and benefits 1,715,432
General and administrative 1,071,128
Commissions 39,456
Selling and marketing 1,772,191
Information technology 827,956
-----------
Total operating expenses 5,426,163
-----------
Operating loss (5,327,508)
-----------
OTHER INCOME (EXPENSE):
Other income 12,390
Interest expense (73,523)
-----------
Total other expense (61,133)
-----------
NET LOSS $(5,388,641)
===========
The accompanying notes to financial statements are an
integral part of this statement.
8
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss for the year $ (5,388,641)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization 122,543
Changes in operating assets and liabilities-
Increase in accounts receivable, net (142,933)
Increase in inventory (181,027)
Increase in prepaid expenses (72,972)
Increase in deposits (100,753)
Increase in accounts payable 768,873
Increase in accrued payroll expenses 90,962
Increase in deferred compensation 80,327
Increase in other accrued liabilities 43,380
Increase in capital lease obligation 98,085
------------
Net cash used in operating activities (4,682,156)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (683,871)
Acquisitions (857,500)
------------
Net cash used in investing activities (1,541,371)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term debt 11,500,000
Issuance of common stock 551,215
Capital contribution 472,424
------------
Net cash provided by financing activities 12,523,639
------------
NET INCREASE IN CASH 6,300,112
CASH, beginning of year 100,562
------------
CASH, end of year $ 6,400,674
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 73,523
============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued in connection of business acquisition $ 35,627
Common stock transferred from principal shareholder 472,424
Conversion of short-term debt to preferred stock 11,500,000
============
The accompanying notes to financial statements are an
integral part of this statement.
9
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
SERIES A PREFERRED STOCK,
$.001 PAR VALUE, COMMON STOCK,
30,000,000 SHARES $.001 PAR VALUE
AUTHORIZED 35,000,000 SHARES
(AT LIQUIDATION VALUE) AUTHORIZED
------------------------ ------------------------ ADDITIONAL
MEMBERS' ISSUED ISSUED PAID-IN ACCUMULATED
CAPITAL SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1997 $ 150,100 -- $ -- -- $ -- $ -- $ (41,594)
Members' capital contributions 551,215 -- -- -- -- -- --
Class B membership interest
issued in connection with
business acquisition 35,627 -- -- -- -- -- --
Transfer of members' capital
and Class B interest to
common stock related to
conversion from limited
liability company (LLC) to
a C-Corporation (736,942) -- -- 5,317,000 5,317 731,625 --
Value of services exchanged
for Common Stock from
principal shareholder -- -- -- -- -- 472,424 --
Conversion of debt to Series A
Preferred Stock -- 11,500,000 11,500,000 -- -- -- --
Net loss for the year -- -- -- -- -- -- (5,388,641)
----------- ----------- ----------- ----------- ----------- ----------- -----------
BALANCE, December 31, 1998 $ -- 11,500,000 $11,500,000 5,317,000 $ 5,317 $ 1,204,049 $(5,430,235)
=========== =========== =========== =========== =========== =========== ===========
The accompanying notes to financial statements are
an integral part of this statement
10
ART.COM, INC.
(FORMERLY KNOWN AS ARTUFRAME.COM, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. DESCRIPTION OF BUSINESS
Artuframe, LLC was formed on September 19, 1997, to engage in business as
an online retailer of print art and frames. In December of 1998, Artuframe,
LLC was merged into Artuframe.com, Inc. (the "Company"), a Delaware
C-Corporation. Subsequent to year end, the Company changed its name to
Art.com, Inc.
The Company offers a searchable selection of art prints, posters, limited
editions, reproductions, originals and custom framing through proprietary
visualization software on the Internet. The software allows customers to
choose a print, mat, frame and glass and view the assembled artwork online
prior to purchasing it.
In addition, the Company has a line of business called the Lederer Sales
Group ("LSG"). LSG consists of sales representatives that represent
manufacturers of framing and arts and crafts supplies. The Company sells
these supplies to customers in the United States and internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
The Company recognizes revenue from product sales, net of any discounts,
when the products are shipped to customers. Outbound shipping and handling
charges are included in net sales.
LSG recognizes commission income when the sales representative makes a sale
on behalf of the manufacturer.
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 reported amounts of assets and liabilities and
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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investments with
maturities of three months or less. The Company considers money market
funds to be a cash equivalent.
11
- 2 -
INVENTORIES
Inventories are valued at the lower of cost or market and consist primarily
of art prints and framing supplies. Approximately 98% of the inventory is
classified as raw materials.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation of property and equipment is provided using the straight-line
method over the estimated useful life of the asset. The estimated useful
lives used in computing depreciation are as follows:
ASSET DESCRIPTION LIVES
--------------------------------------- ---------------------------
Furniture, fixtures and equipment 5-7 years
Computer equipment 3 years
Computer software 1-3 years
Automobile 3 years
Leasehold improvements Shorter of lease or useful
life of the asset
COMPUTER SOFTWARE
In accordance with Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
development costs are capitalized. Once the software is placed in service,
it is depreciated using the straight-line method over a period of one to
three years.
SECURITY DEPOSITS
Security deposits consist of deposits on certain leased facilities and
equipment.
INTANGIBLES
Intangibles consist of a brand name, licenses, customer lists and a
business plan. Intangibles are amortized on a straight-line basis over a
period of 3 to 5 years.
MARKETING COSTS
Advertising costs are included in marketing expenses and are expensed as
incurred. Such costs were approximately $1,200,000 as of December 31, 1998.
The Company pays commissions to other Web sites that carry the Company's
icon through its Affiliate Program. The Company expenses these costs as
related product sales are recognized.
INTEREST EXPENSE
During 1998, the Company incurred interest expense of approximately $73,000
related to various short-term borrowings. There were no outstanding bank
borrowings at year-end.
12
- 3 -
3. ACQUISITIONS
On March 27, 1998, the Company acquired the assets of Lederer Sales Group,
Ltd. from the Company's president/shareholder in exchange for a 2.20%
interest in Class B Membership in the amount of $35,627, and the assumption
of a vehicle loan in the amount of $10,823, resulting in a purchase price
of $131,950. The assets acquired consisted of accounts receivable, a
vehicle and equipment, and intangibles. Since this transfer of assets was
between companies under common control, this transaction was accounted for
at historical cost in a manner similar to a pooling of interests. This
acquisition is being amortized, using the straight-line method, over its
useful life of three years.
On November 9, 1998, the Company purchased the rights, title, and interests
in the Uniform Resource Locator ("URL") "art.com" for $450,000. The
acquisition was accounted for as the purchase of a brand name and the
related asset has been classified as an intangible on the accompanying
balance sheet. This acquisition is being amortized, using the straight-line
method, over its useful life of five years.
On November 10, 1998, the Company purchased the rights, title and interest
in the URL "artunisource.com" and other intangibles for $250,000. The
acquisition was accounted for as a purchase of a brand name and the related
asset has been classified as an intangible on the accompanying balance
sheet. This acquisition is being amortized, using the straight-line method,
over its useful life of three years.
On November 10, 1998, the Company purchased certain assets of Art Print
Index, Inc. for $150,000. The assets purchased consisted of computer
software and intangible licenses. This acquisition is being amortized,
using the straight-line method, over its useful life of three years.
4. LIFE-INSURANCE POLICY
During 1998, the Company purchased a variable split-dollar life insurance
policy for its president/shareholder. The death benefit of the policy is
$3,000,000 payable to the Company's president's/shareholder's personal
trust. The policy is such that the Company's president/shareholder has the
sole right to surrender or cancel the policy; the Company has no right to
cancel or surrender the policy. As of December 31, 1998, the total premiums
paid on the plan during the year were approximately $11,000 and the cash
surrender value as of December 31, 1998, was $2.
5. DEFERRED COMPENSATION
An officer/shareholder has an employment contract with the Company whereby
his base salary is not to be paid until the earlier of (1) the first day of
the month following the first month the Company has net income or (2)
January 15, 1999. Subsequent to January 15, 1999, this amount was paid out.
6. STOCKHOLDERS' EQUITY
On December 2, 1998, the Company had authorized 30,000,000 shares of $.001
par value preferred stock ("Series A") and 35,000,000 shares of $.001 par
value common stock. From September, 1998, to December, 1998, the Company
received $11,500,000 in bridge loan financing. During December, 1998, the
Company issued 11,500,000 shares of Series A Convertible Preferred Stock,
having a stated value of $1 per share to convert $11,500,000 of debt to
equity.
13
- 4 -
Each share of Series A preferred stock is convertible into a number of
shares of common stock determined by dividing the issue price by the
conversion price, as defined in the Restated Certificate of Incorporation
dated December 2, 1998. At December 31, 1998, the 11,500,000 shares of
Series A preferred stock would be convertible into 11,500,000 shares of
common stock. Each share of Series A preferred stock automatically converts
upon a public offering, the agreement of the majority holders of the then
outstanding preferred shares or by special mandatory conversion, as defined
in the Restated Certificate of Incorporation. The holders of Series A
preferred stock are entitled to one vote for each share of common stock
into which the preferred stock could be converted at that time, and to
receive noncumulative dividends at the rate of $.08 per share per annum,
when and if declared by the Board. As of December 31, 1998, no dividends
have been declared by the Board.
In the event of liquidation or dissolution, the preferred stockholders are
entitled to receive, before any distributions or payments are made to the
holders of common stock, an amount per share equal to the sum of $1.00 for
each outstanding share, as adjusted for any stock splits, stock dividends,
combination, recapitalizations or the like, and all declared but unpaid
dividends on each share. Five years from the date of issuance of preferred
shares, by request of the preferred stock shareholders, the preferred
shares may be redeemed for $1 per share, as adjusted, plus all declared but
unpaid dividends.
During the year, the principal shareholder awarded 472,424 shares of common
stock to a third party for services rendered to the Company. The shares
have been valued at $472,424 and the have been reflected as additional
compensation expense and a capital contribution in the accompanying
financial statements in accordance with Staff Accounting Bulletin No. 79.
In connection with the conversion from an LLC to a C Corporation, all
amounts of members' capital were converted to common stock and additional
paid-in capital.
7. RELATED PARTY TRANSACTIONS
The Company has an amount due to a related party of approximately $39,000
for marketing services rendered.
The chief technical officer of the Company is a licensor of certain
software used by the Company to render images on the Company's web page.
The license agreement entitled the Company to the use of the software in
exchange for 1.5% of the net sales of art sold to customers using the
licensed software. Subsequent to year-end, this software was purchased by
the Company for $225,000.
8. INCOME TAXES
The Company provides for income taxes under the asset and liability method
of accounting. This method requires the recognition of deferred income
taxes based upon the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to
differences between the financial statement carrying amounts and the tax
basis of existing assets and liabilities. As of December 31, 1998, the
Company has generated tax net operating losses totaling approximately
$5,430,000 and has provided a valuation allowance for the entire benefit
because it has generated losses since its inception.
14
- 5 -
9. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
The Company currently leases office space, a warehouse and certain
equipment under noncancellable operating and capital leases. Rental expense
under operating lease agreements for 1998 was approximately $53,088.
Future annual minimum lease payments under all noncancellable leases are as
follows:
CAPITAL OPERATING
LEASES LEASES TOTAL
---------- ---------- ----------
Year ended December 31-
1999 $ 34,463 $ 409,948 $ 432,751
2000 33,663 425,980 451,199
2001 29,663 243,710 268,328
2002 27,191 163,427 188,872
2003 -- 111,471 111,471
---------- ---------- ----------
Total minimum lease payments 124,980 $1,354,536 $1,452,621
========== ==========
Less- Interest (26,894)
----------
Net minimum lease payments 98,086
Less- Current portion (26,670)
----------
Long-term capital lease obligation
$ 71,416
==========
LITIGATION
In the normal course of business, the Company is a party to various matters
involving disputes and/or litigation. While it is not possible at this time
to determine the ultimate outcome of these matters, management believes
that the ultimate liability, if any, will not be material to the financial
statements.
CONTRACTUAL OBLIGATIONS
During 1998, the Company promised certain employees 498,000 stock options.
The stock options were not issued and the stock option plan had not been
finalized at year-end.
The Company also promised a lessor 15,000 warrants during 1998. The
warrants were not issued and the warrant plan had not been finalized at
year-end.
10. SUBSEQUENT EVENT
Subsequent to year-end, the Company merged with a third-party buyer (the
"Buyer") and became a wholly owned subsidiary under the terms of a merger
agreement (the "Agreement") dated May 4, 1999. Under the terms of the
Agreement, the Company's shareholders exchanged all of their shares of
stock for 4.51 million shares of the Buyer's common stock. Based on the
closing market price of the Buyer's stock on the closing date of the
Agreement, the stock had a market value of approximately $117.8 million.
Under certain predetermined conditions stipulated by the Agreement, the
selling shareholders may receive up to an additional $84 million of
consideration in the future. The additional
15
- 6 -
consideration is payable in common stock and cash and is dependent upon the
value of the Buyer's stock at the time of required payment. In addition,
prior to the closing of the Agreement, the Buyer loaned the Company $10
million for working capital purposes.
16
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
INTRODUCTORY NOTE
The following unaudited condensed pro forma consolidated financial information
(the "Pro Forma Consolidated Financial Information") gives pro forma effect to
the completion of the acquisition of Art.com, Inc. (the "Art.com Acquisition"),
after giving effect to the pro forma adjustments described in the accompanying
notes. The Pro Forma Consolidated Financial Information has been prepared from,
and should be read in conjunction with, the audited historical consolidated
financial statements and notes thereto of Getty Images, Inc. ("Getty Images")
and the audited historical financial statements of Art.com, Inc. ("Art.com")
The Pro Forma Consolidated Financial Information is provided for illustrative
purposes only and does not purport to represent what the actual results of
operations of financial position of Getty Images would have been had the Art.com
Acquisition occurred on the respective dates assumed, nor is it necessarily
indicative of Getty Images' future operating results or consolidated financial
position.
Getty Images will account for the Art.com Acquisition by the purchase method of
accounting in accordance with U.S. GAAP. Accordingly, the purchase consideration
for acquiring the share capital of Art.com has, on the basis of a preliminary
review, been allocated to the tangible and intangible assets acquired and the
liabilities assumed with the excess cost being allocated to goodwill and
presented as an intangible asset.
17
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1998
The following unaudited condensed pro forma income statement for the year ended
December 31, 1998 is derived from the audited historical consolidated statement
of operations of Getty Images for the year then ended and the audited historical
consolidated statement of operations of Art.com for the year then ended, after
giving effect to the pro forma adjustments described in the notes to the Pro
Forma Consolidated Financial Information. Such adjustments have been determined
as if the Art.com Acquisition took place on January 1, 1998 the first day of the
financial period presented in the Pro Forma Consolidated Financial Information.
18
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
Pro forma Pro forma
Getty Images Art.com adjustments consolidated
(000's (000's (000's (000's
except per except per except per except per
share data) share data) share data) share data)
Sales $ 185,084 $ 384 $ 185,468
Cost of sales (52,830) (285) (53,115)
--------- --------- ---------
Gross profit 132,254 99 132,353
Selling, general and administrative expenses (96,904) (5,304) (102,208)
Amortization of intangibles (36,961) (26) (42,668)(1) (79,655)
Depreciation (14,397) (96) (14,493)
Non-recurring integration and restructuring costs (13,755) -- (13,755)
--------- --------- ---------
Operating loss (29,763) (5,327) (42,668) (77,758)
Net interest expense (2,986) (61) (3,047)
Net exchange losses (124) (124)
--------- --------- ---------
Loss before taxes (32,873) (5,388) (42,668) (80,929)
Income taxes (2,680) -- (2,680)
--------- --------- ---------
Loss before extraordinary items (35,553) (5,388) (42,668) (83,609)
Extraordinary items (830) -- (830)
--------- --------- ---------
Net loss $ (36,383) $ (5,388) (42,668) $ (84,439)
========= ========= =========
Loss per share:
Primary $ (1.25) $ (2.53)
========= =========
Average number of shares outstanding:
Primary 29,160 4,252(4) 33,412
========= =========
EBITDA (note 5) $ 35,350 $ (5,205) $ 30,145
========= ========= =========
See accompanying notes to the Pro Forma Consolidated Financial Information on
pages [20] to [22]
19
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
AT DECEMBER 31, 1998
The following unaudited condensed pro forma balance sheet at December 31, 1998
is derived from the audited historical consolidated balance sheet of Getty
Images at December 31, 1998 and the audited historical balance sheet of Art.com
at December 31, 1998, after giving effect to the pro forma adjustments described
in the notes to the Pro Forma Consolidated Financial Information. Such
adjustments have been determined as if the Art.com Acquisition took place on
December 31, 1998.
Pro forma Pro forma
Getty Images Art.com Adjustments adjustments consolidated
(in thousands) (in thousands) (in thousands) (in thousands) (in thousands)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,150 $ 6,401 (500)(3) (13,170)(1) $ 8,881
Accounts receivable, net 32,967 180 33,147
Inventories, net 2,834 181 3,015
Prepaid expenses and other assets 17,258 77 17,335
--------- --------- ---------
TOTAL CURRENT ASSETS 69,209 6,839 62,378
Fixed assets, net 62,757 619 63,376
Intangible assets, net 325,861 831 128,005(1) 454,697
Other long term assets 101 101
Deferred tax assets 5,036 5,036
--------- --------- ---------
TOTAL ASSETS $ 462,863 $ 8,390 $ 585,588
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable 26,232 787 27,019
Accrued expenses 20,148 225 20,373
Short term borrowings, including
current portion of long term debt 202 27 229
--------- --------- ---------
TOTAL CURRENT LIABILITIES 46,582 1,039 47,621
LONG TERM DEBT 72,354 72 72,426
--------- --------- ---------
TOTAL LIABILITIES 118,936 1,111 120,047
========= ========= =========
STOCKHOLDERS' EQUITY
Common stock 306 5 37(2) 348
Preferred stock 11,500 (11,500)(2)
Additional paid-in capital 368,267 1,204 120,368(2) 489,839
Retained deficit (28,259) (5,430) (500) 5,930(2) (28,259)
Cumulative translation adjustments 3,613 3,613
--------- --------- ---------
TOTAL STOCKHOLDERS' EQUITY 343,927 7,279 465,541
--------- --------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 462,863 $ 8,390 $ 585,588
========= ========= =========
See accompanying notes to the Pro Forma Consolidated Financial Information on
pages [20] to [22]
20
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
1. Under the terms of the Art.com Acquisition, holders of the shares of common
and preferred stock of Art.com are entitled to receive Base Consideration
and Supplemental Consideration. The Base Consideration, associated costs and
goodwill arising on the Art.com acquisition are summarised below:
$
(IN THOUSANDS)
Base consideration-4,252,271 shares of common stock of Getty Images at $27.21 per share 115,704
Convertible secured promissory note to Art.com subsequently treated as capital contribution 10,000
Getty Images' estimated transaction expenses 3,170
--------
13,170
Share options in Art.com exchanged for share options in Getty Images 5,910
--------
Total purchase price 134,784
Estimated fair value of Art.com at December 31, 1998 (note 3) (6,779)
--------
Excess of purchase price over net assets acquired allocated to goodwill (amortized over 3 years) 128,005
========
A preliminary review of the audited financial statements of Art.com indicated
that no material adjustment would arise from a purchase price allocation of
separate identifiable assets and that the excess of purchase price over net
assets should therefore be wholly allocated to goodwill.
Supplemental Consideration may be paid based on the performance of the average
closing and bid price of shares of common stock of Getty Images over a 30 day
period to August 4, 1999. The amount to be paid will be 11% of the increase in
the value of the market capitalization of Getty Images, as measured from a base
of $25 per share, subject to a maximum of $84 million. The Supplemental
consideration is only
21
payable if Getty Images market capitalisation increases by at least 20 per cent.
The Supplemental Consideration will be satisfied through the issue of shares of
common stock of Getty Images. In the event that the required share issue would
exceed 20% of the outstanding shares of common stock of Getty Images, the
balance may be paid in cash. As the Supplemental Consideration is contingent it
is not recognised in the Pro Forma Consolidated Financial Information.
The pro forma annual amortization charge in respect of the goodwill arising on
the Art.com Acquisition is $42,668,000.
2. The following consolidation adjustments are required in respect of
shareholders' equity as a result of the Art.com Acquisition:
$
(IN THOUSANDS)
COMMON STOCK
Elimination of shares of common stock of Art.com to common stock (5)
Shares of common stock of Getty Images issued at par to holders
of shares of common and preferred stock of Art.com 42
--------
37
========
PREFERRED STOCK
Conversion of preferred stock of Art.com to common stock (11,500)
========
ADDITIONAL PAID-IN CAPITAL
Elimination of additional paid-in capital of Art.com (1,204)
Premium on shares of Getty Images common stock issued to holders
of shares of common and preferred stock of Art.com 121,572
--------
120,368
========
22
RETAINED EARNINGS
Elimination of Art.com pre-acquisition retained deficit 5,930
=====
The preferred stock of Art.com was converted, as part of the
acquisition, into 11,500,000 shares of common stock and acquired
as part of the Art.com Acquisition.
3. The estimated fair value of Art.com as at December 31, 1998 is calculated as
follows:
$
(IN THOUSANDS)
Net assets at December 31, 1998 7,279
Art.com's transaction expenses (estimated) (500)
--------
6,779
========
4. The number of shares outstanding and used for the pro forma primary earnings
per share is calculated as follows:-
$
(IN THOUSANDS)
Getty Images shares at December 31, 1998 29,160
Shares issued as consideration 4,252
--------
33,412
========
5. Getty Images defines EBITDA as earnings before interest, taxes, exchange
gains/(losses), depreciation, amortization and non-recurring intergration
and restructuring costs.
23
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GETTY IMAGES, INC.
DATE: July 16, 1999 By: /s/ Christopher J. Roling
----------------------------------
Name: Christopher J. Roling
Title: Chief Financial Officer