Exhibit 99.1
MARKETWATCH, INC.
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
Report of Independent Registered Public Accounting Firm................ 1
Consolidated Balance Sheets as of December 31, 2004 and 2003........... 2
Consolidated Statements of Operations for the years ended
December 31, 2004, 2003 and 2002....................................... 3
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended December 31, 2004, 2003 and 2002............ 4
Consolidated Statements of Cash Flows for the years ended
December 31, 2004, 2003 and 2002....................................... 5
Notes to Consolidated Financial Statements............................. 6
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of MarketWatch, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material
respects, the financial position of MarketWatch, Inc. and its subsidiaries
at December 31, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended December
31, 2004 in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with the standards of the Public Company
Accounting Oversight Board (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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
February 22, 2005
1
MARKETWATCH, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares and per share data)
December 31, 2004 December 31, 2003
------------------------- --------------------------
ASSETS
Current assets:
Cash and cash equivalents................................... $ 32,108 $ 48,079
Short-term investments in marketable securities............. 34,810 --
Restricted cash............................................. 1,104 --
Accounts receivable, net of provision for doubtful
accounts of $600 and $396, respectively................... 12,672 7,022
Prepaid expenses and other current assets................... 1,808 685
------------------------- --------------------------
Total current assets...................................... 82,502 55,786
Long-term investments in marketable securities................... 3,369 --
Property and equipment, net...................................... 4,357 4,387
Goodwill......................................................... 87,516 22,429
Intangibles, net................................................. 6,559 --
Prepaid acquisition costs........................................ -- 2,498
Other assets..................................................... 654 128
------------------------- --------------------------
Total assets..... $ 184,957 $ 85,228
========================= ==========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 5,741 $ 1,216
Accrued expenses (of which $2,041 and $1,440,
respectively, is payable to related parties)............. 10,816 6,605
Capital lease obligations................................... 328 --
Deferred revenue............................................ 6,160 1,377
------------------------- --------------------------
Total current liabilities............................... 23,045 9,198
Other liabilities................................................ 810 865
------------------------- --------------------------
Total liabilities................................. 23,855 10,063
------------------------- --------------------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized; no shares issued and outstanding............. -- --
Common stock, $.01 par value; 50,000,000 shares
authorized; 27,709,540 shares and 17,484,239 shares
issued and outstanding, respectively..................... 277 180
Additional paid-in capital.................................. 407,978 323,141
Deferred stock-based compensation.......................... (939) --
Accumulated other comprehensive income..................... 31 --
Accumulated deficit...................................... (246,245) (248,156)
------------------------- --------------------------
Total stockholders' equity.............................. 161,102 75,165
------------------------- --------------------------
Total liabilities and stockholders' equity.............. $ 184,957 $ 85,228
========================= ==========================
The accompanying notes are an integral part of these
consolidated financial statements.
2
MARKETWATCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended December 31,
-------------------------------------------------------------------
2004 2003 2002
------------------- ------------------- ---------------------
Net revenues:
Advertising............................. $ 32,334 $ 24,084 $ 18,970
Licensing............................... 46,249 21,281 24,631
Subscription............................ 1,894 1,808 923
------------------ ------------------- ---------------------
Total net revenues ................. 80,477 47,173 44,524
Cost of net revenues......................... 24,728 16,943 16,339
------------------ ------------------- ---------------------
Gross profit............................ 55,749 30,230 28,185
------------------ ------------------- ---------------------
Operating expenses:
Product development..................... 18,459 6,586 6,954
General and administrative.............. 17,153 11,431 11,315
Sales and marketing..................... 15,191 9,910 20,279
Write-off of in-process research
and development...................... 300 -- --
Amortization of intangibles............. 557 -- --
Merger and related costs................ 2,662 -- --
------------------ ------------------- ---------------------
Total operating expenses ........... 54,322 27,927 38,548
------------------ ------------------- ---------------------
Income (loss) from operations................ 1,427 2,303 (10,363)
Interest income.............................. 703 502 710
Interest expense............................. (61) -- --
------------------ ------------------- ---------------------
Income (loss) before taxes................... 2,069 2,805 (9,653)
Provision for income taxes................... 158 150 --
------------------ ------------------- ---------------------
Net income (loss)............................ $ 1,911 $ 2,655 $ (9,653)
================== =================== =====================
Basic net income (loss) per share............ $ 0.08 $ 0.15 $ (0.57)
================== =================== =====================
Diluted net income (loss) per share.......... $ 0.07 $ 0.14 $ (0.57)
================== =================== =====================
Shares used in the calculation of basic net
income (loss) per share................. 24,937 17,317 16,959
================== =================== =====================
Shares used in the calculation of diluted
net income (loss) per share............. 27,038 18,594 16,959
================== =================== =====================
The accompanying notes are an integral part of these consolidated
financial statements.
3
MARKETWATCH, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
Accumulated
Common Stock Additional Deferred Other
------------------- Paid-In Contribution Stock-based Comprehensive Accumulated
Shares Amount Capital Receivable Compensation Income Deficit Total
--------- -------- --------- ------------ ------------ ------------ ----------- ----------
Balances, December 31, 2001 16,741,530 $ 168 $ 319,940 $ (9,899) $ -- $ -- $ (241,158) $ 69,051
Issuance of common stock upon
exercise of options............ 18,491 -- 67 67
Issuance of common stock through
employee stock purchase plan... 162,039 2 387 389
Issuance of common stock upon
acquisition of Hulbert
Financial Digest............... 138,651 1 599 600
Advertising received from CBS.... 9,843 9,843
Net loss......................... (9,653) (9,653)
---------- -------- ---------- ------------ ------------ ------------ ----------- ----------
Balances, December 31, 2002 17,060,711 171 320,993 (56) -- -- (250,811) 70,297
Issuance of common stock upon
exercise of options........... 328,687 7 1,287 1,294
Issuance of common stock through
employee stock purchase plan... 94,841 2 388 390
Contribution of non-cash services
from CBS....................... 473 473
Advertising received from CBS.... 56 56
Net income....................... 2,655 2,655
---------- -------- ---------- ------------ ------------ ------------ ----------- ----------
Balances, December 31, 2003 17,484,239 180 323,141 -- -- -- (248,156) 75,165
Foreign currency translation
adjustment............. 52 52
Unrealized losses on
marketable securities.. (21) (21)
Net income.................. 1,911 1,911
----------
Comprehensive income............. 1,942
----------
Issuance of common stock upon
exercise of options........... 3,917,118 35 22,735 22,770
Issuance of common stock through
employee stock purchase plan. 80,730 1 556 557
Issuance of common stock upon
acquisition of Pinnacor, Inc. 6,141,428 61 60,333 (54) 60,340
Issuance of restricted stock.... 85,000 993 (993) --
Issuance of common stock in
connection with warrants..... 1,025 -- -- --
Tax benefit related to stock
options...................... 220 220
Amortization of deferred
stock-based compensation..... 108 108
---------- -------- ---------- ------------ ------------ ------------ ----------- ----------
Balances, December 31, 2004 27,709,540 $ 277 $ 407,978 $ -- $ (939) $ 31 $ (246,245) $ 161,102
========== ======== ========== ============ ============ ============ =========== ==========
The accompanying notes are an integral part of these consolidated
financial statements.
4
MARKETWATCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
--------------------------------------------------------------
2004 2003 2002
-------------------- ------------------- ---------------
Cash flows from operating activities:
Net income (loss).......................................... $ 1,911 $ 2,655 $ (9,653)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for (recovery of) doubtful accounts............. 291 (66) --
Depreciation and amortization............................. 4,799 3,755 4,753
Non-cash charges from stockholder......................... -- 56 9,843
Amortization of deferred stock compensation............... 108 -- --
Loss on disposal of equipment............................. 15 -- --
Changes in operating assets and liabilities, net of acquired amounts:
Accounts receivable ...................................... (1,822) (1,592) 2,978
Prepaid expenses and other assets......................... (162) 31 73
Accounts payable and accrued expenses..................... 682 1,304 (746)
Deferred revenue.......................................... (405) 460 74
------------------ ------------------- ------------------
Net cash provided by operating activities............... 5,417 6,603 7,322
------------------ ------------------- ------------------
Cash flows used in investing activities:
Purchase of property and equipment........................ (1,806) (1,605) (1,856)
Proceeds from disposal of property and equipment.......... 53 -- --
Purchase of marketable securities......................... (38,200) -- --
Prepaid acquisition costs................................. -- (1,931) --
Decrease in restricted cash............................... 850 -- --
Acquisition of business, net of cash acquired ............ (4,897) -- (231)
------------------ ------------------- -----------------
Net cash used in investing activities................... (44,000) (3,536) (2,087)
------------------ ------------------- -----------------
Cash flows provided by financing activities:
Principal payments under capital lease obligations....... (740) -- --
Issuance of common stock................................. 23,327 1,684 456
------------------ ------------------- ------------------
Net cash provided by financing activities............... 22,587 1,684 456
------------------ ------------------- -----------------
Effect of exchange rate changes on cash and cash equivalents. 25 -- --
------------------ ------------------- -----------------
Net change in cash and cash equivalents..................... (15,971) 4,751 5,691
Cash and cash equivalents at the beginning of the year...... 48,079 43,328 37,637
------------------ ------------------- ----------------
Cash and cash equivalents at the end of the year............ $ 32,108 $ 48,079 $ 43,328
================== =================== ================
Cash payments for:
Interest $ 61 $ -- $ --
Income taxes 190 -- --
Supplemental disclosure of non-cash investing activity:
Acquisition cost for Pinnacor included in prepaid expenses
and accounts payable.................................. $ -- $ 567 $ --
Non-cash contribution of services from CBS.............. -- 473 --
Common stock issued for acquisition of business......... 60,394 -- 600
The accompanying notes are an integral part of these
consolidated financial statements.
5
MARKETWATCH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF BUSINESS
The Company
MarketWatch, Inc. (the "Company"), is a leading multi-media publisher of
business and financial news and provider of information and analytical
tools. It was formed on October 29, 1997 in the state of Delaware as a
limited liability company and was jointly owned by Data Broadcasting
Corporation ("DBC"), now known as Interactive Data Corporation ("IDC"), and
CBS Broadcasting Inc. ("CBS"), with each member owning a 50% interest in
the Company.
In connection with the formation of the limited liability company, the
Company, CBS and DBC entered into a contribution agreement (the
"Contribution Agreement"), under which DBC contributed to the Company cash
and DBC's then existing "Online/News" business, which primarily consisted
of customer contracts and intellectual property, and CBS agreed to provide
$50.0 million of rate card amount of advertising and promotions over a
period of five years in return for its ownership interest. Subsequently,
the $50.0 million rate card amount was revised to $30.0 million upon
completion of the Company's initial public offering (see Note 3).
In addition, CBS and the Company entered into a license agreement dated
October 29, 1997 (the "License Agreement") where CBS, in exchange for a
royalty of 30% of net advertising revenue, as defined, granted to the
Company the non-exclusive right and license to use certain CBS news content
and registered trademarks, including the CBS "Eye" design, until October
29, 2005, subject to termination on the occurrence of certain events.
Subsequently, the 30% royalty was decreased to 8% (see Note 3). In
addition, the Company entered into a services agreement with DBC (the
"Services Agreement") on October 29, 1997 under which DBC charged the
Company for certain general services, the Company received payment from DBC
for supplying news and the Company receives a fee for licensing MarketWatch
RT and MarketWatch Live.
On January 6, 2000, the Company entered into a joint venture agreement with
the Financial Times Group, a part of Pearson plc, a British media company
("Pearson") to establish Financial Times MarketWatch.com (Europe) Limited,
an Internet provider of real time business news, financial programming and
analytical tools. Under the agreement, the Company licensed its trademark
and technology to the joint venture, contributed certain domain names and
500,000 pounds sterling in exchange for 500,000 shares of the joint
venture. The Financial Times contributed trademarks for an ongoing royalty
fee, provided 15.0 million pounds sterling worth of rate card advertising
over five years and contributed 500,000 pounds sterling in cash for 500,000
shares in the joint venture. The Company recorded 50% of the loss incurred
by FT MarketWatch.com based on its ownership percentage and accounted for
the joint venture under the equity method.
In October 2001, the Company signed a non-binding memorandum of
understanding ("MOU") to transfer its ownership of the joint venture to the
Financial Times Group. Since the Company no longer had a commitment to fund
the joint venture, the previously recorded losses of $645,000 were reversed
during the three months ended September 30, 2001. In November 2001, the
Company completed the sale and purchase agreement finalizing the transfer
of ownership in the joint venture to the Financial Times Group. As part of
the ownership transfer, the Company signed a transitional services
agreement with the Financial Times Group under which the Company would
migrate the technology developed for the joint venture Web site to the
Financial Times Group for a fee. The agreement also assigned certain
equipment to the Company that was owned by the joint venture. In addition,
the Company signed a license agreement with the Financial Times Group under
which it will provide content and tools for a monthly fee. The total
contributions to the joint venture for the years ended December 31, 2001
and 2000 were $1.5 million and $5.0 million, respectively.
On May 5, 2000, the Company issued 1,136,814 shares of the Company's common
stock to DBC for $43.0 million in cash and the same number of shares to CBS
for $13.0 million in cash and $30.0 million in rate card advertising and
promotion, which expired on May 5, 2002. The remaining $56,000 of rate card
advertising and promotion from CBS was utilized by April 25, 2003.
In January 2001, an affiliate of Pearson acquired DBC's 34.1% stake in the
Company.
6
On January 16, 2004, the Company completed the acquisition of Pinnacor Inc.
("Pinnacor"), formerly known as ScreamingMedia, a provider of information
services and analytical applications to financial services companies and
global corporations and issued 6,141,428 shares in connection with the
acquisition. After the acquisition, CBS and Pearson each owned
approximately 24% of the Company.
On August 4, 2004, the Company changed its name from MarketWatch.com, Inc.
to MarketWatch, Inc.
On January 19, 2005, the Company's stockholders approved the terms and
conditions of the Agreement and Plan of Merger, dated as of November 14,
2004, entered into by the Company and Dow Jones & Company, Inc. ("Dow
Jones"). On January 21, 2005, the merger was completed and the Company
became a wholly-owned subsidiary of Dow Jones (See Note 13).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Reclassifications
Certain prior year balances have been reclassified to conform to the
current year presentation.
Use of Estimates
The preparation of financial statements in accordance with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported on the Company's consolidated
financial statements and accompanying notes. Actual results could differ
materially from those estimates.
Revenue Recognition
The Company generates its net revenues from three primary sources: the sale
of advertising on the Company's Web sites, broadcast properties and
membership center fees; the license of content; and subscription revenues
from newsletters and other products.
The Company recognizes revenue in accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 104 "Revenue Recognition," and
Emerging Issues Task Force Issue 00-21, "Revenue Arrangements with Multiple
Deliverables." In all cases, revenue is recognized only when the price is
fixed or determinable, persuasive evidence of an arrangement exists, the
service is performed, and collectibility of the resulting receivable is
reasonably assured.
Online advertising revenues are derived from the sale of advertisements on
the Company's Web sites. Revenue from the sale of advertisements is
recognized using the lesser of the ratio of impressions delivered over
total guaranteed impressions or on the straight line basis over the term of
the arrangement in the period the advertising is displayed, provided that
no significant Company obligations remain and collection of the resulting
receivable is reasonably assured. Company obligations typically include
guarantees of a minimum number of "impressions" or times that an
advertisement is viewed by users of the Company's Web sites. Additionally,
certain sponsorship agreements provide links to third-party Web sites and
generate either fixed transaction fees for monthly access or variable fees,
which are dependent upon the number of transactions consummated at the
third-party Web site by linked customers. Such amounts are recognized as
revenue in the month earned.
The Company produces a weekend television program for distribution by
KingWorld on CBS affiliates and daily radio broadcasts for distribution by
Westwood One Radio Network. The Company shares in the revenue earned
through the sale by CBS sales forces and Westwood One of advertising space
during its television and radio programming, respectively. Revenue for the
television program is recognized as the shows are aired and revenue is
earned. Revenue for the radio show is recognized monthly as advertisements
are run and earned. Membership center revenues consist of fees for leads
generated from promotions placed in the membership center section of the
CBS.MarketWatch.com Web site. Membership center customers pay MarketWatch a
fixed fee for each customer that comes to their site and registers for
their product from the CBS.MarketWatch.com Web site. Revenue from the
membership center is recognized as the leads are delivered to the
customers.
Licensing revenues consist of revenue earned from the licensing of
MarketWatch content and tools. License revenues consist of fixed monthly
amounts related to the license of financial tools and news content that are
recognized ratably over the term of the licensing agreement and/or variable
amounts based on content usage by the licensee.
7
Subscription revenue relates to customer subscriptions to the Company's
newsletters, and the IDC online services, which provide subscribers access
to real-time exchange data and analytical products and are sold through the
Company's Web sites. Revenue from subscriptions is recognized ratably over
the subscription period.
Deferred revenue primarily comprises contractual billings in excess of
recognized revenue and subscriptions received in advance of revenue
recognition.
The Company engages in barter transactions for marketing services in
exchange for license content and advertisements on the Company's website.
Barter revenue is recognized over the periods in which the Company
completes its obligations under the arrangement. The Company recognizes
revenue on barter arrangements in accordance with EITF Issue No. 99-17,
"Accounting for Advertising Barter Transactions," which requires
advertising barter transactions to be valued based on similar cash
transactions that have occurred within six months prior to the barter
transaction, and also Accounting Principles Board No. 29 ("APB 29")
"Accounting for Nonmonetary Transactions," which requires nonmonetary
transactions to be based on the fair values involved, similar to monetary
transactions. For the years ended December 31, 2004, 2003 and 2002, the
Company recognized $974,000, $572,000 and $483,000, respectively, in barter
revenue.
For the year ended December 31, 2002, the Company did not record barter
revenue and the related expenses for advertising provided to American
Online, Inc. ("AOL") under an agreement in accordance with Emerging Issues
Task Force 99-17, EITF 99-17 "Accounting for Advertising Barter
Transactions". Under the provisions of EITF 99-17, revenue and expense
should be recognized at fair value from an advertising barter transaction
only if the fair value of the advertising surrendered in the transaction is
determinable based on the entity's own historical practice of receiving
cash, marketable securities, or other consideration that is readily
convertible to a known amount of cash for similar advertising from buyers
unrelated to the counterparty in the barter transaction. Since these
criteria were not met with respect to the Company's barter agreement with
AOL, which ended on December 31, 2002, the Company did not recognize
revenue.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less from the purchase date to be cash equivalents.
Restricted Cash
The Company maintains certificates of deposit with a bank primarily under a
standby letter of credit agreement, serving as collateral against a capital
lease obligation and a security deposit for office space.
Marketable Securities
The Company accounts for marketable securities in accordance with the
provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"). SFAS 115 addresses the accounting and reporting for investments in
fixed maturity securities and for equity securities with readily
determinable fair values. Management determines the appropriate
classification of debt securities at the time of purchase and reevaluates
such designation as of each balance sheet date. Currently, all of the
Company's marketable securities are classified as available-for-sale.
Available-for-sale securities are carried at fair value as determined by
quoted market prices, with unrealized gains and losses, net of tax,
reported as a separate component of stockholders' equity. Realized gains or
losses on available-for-sales securities are reported in other income, net.
Interest and dividends on securities classified as available-for-sale are
included in interest income. Accumulated other comprehensive income
included an unrealized loss of $21,000 at December 31, 2004 related to
these available-for-sale securities (see Note 5). No realized gains or
losses were recognized from the sale of available-for-sale securities or
other-than-temporary impairments for the years presented.
Property and Equipment
Property and equipment is recorded at cost and depreciated using the
straight-line method over its estimated useful life, ranging from three to
five years. Leasehold improvements are amortized using the straight-line
method over the shorter of their useful lives or the remaining lease term.
Depreciation expense relating to property and equipment for the years ended
December 31, 2004, 2003 and 2002 was $2.9 million, $3.8 million and $4.8
million, respectively.
Goodwill and Intangible Assets
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." In accordance with SFAS 142, the Company ceased amortizing
goodwill and performed an impairment review of its goodwill balance upon
the initial adoption of SFAS 142. The Company reviews goodwill and purchased
8
intangible assets with indefinite lives for impairment annually and
whenever events or changes in circumstances indicate the carrying value of
an asset may not be recoverable in accordance with SFAS 142. The Company
uses a two-step process to evaluate impairment. The first step is to
identify a potential impairment by comparing the fair value of the Company
to the carrying value, including goodwill. The second step of the goodwill
impairment test measures the amount of the impairment loss (measured as of
the beginning of the year of adoption), if any. The Company completed the
impairment review under SFAS 142 and determined that an adjustment for
impairment was not required during the years ended December 31, 2004, 2003
and 2002.
Intangible assets are carried at cost less accumulated amortization and are
amortized on a straight-line basis over the economic lives of the
respective assets, generally three to seven years.
Basic and Diluted Net Income (Loss) per Share
Basic net income (loss) per share is computed using the weighted average
number of common shares outstanding, net of unvested restricted shares
during the period. Diluted net income (loss) per share is computed using
the weighted average number of common and, if dilutive, potential common
shares outstanding during the period. Potential common shares consist of
the incremental common shares issuable upon the exercise of stock options
(using the treasury stock method).
The reconciliation of the numerators and denominators of the basic and
diluted net income (loss) per share calculations was as follows for the
fiscal years ended December 31:
Years Ended December 31,
-------------------------------------------------------
2004 2003 2002
---------------- --------------- ---------------
Numerator for basic and diluted net
income (loss) per share.................... $ 1,911 $ 2,655 $ (9,653)
=============== ============== ===============
Denominator:
Weighted-average shares used to
compute basic EPS....................... 24,937 17,317 16,959
Effect of dilutive securities:
Stock option plans.......................... 2,077 1,277 -
Weighted-average shares of restricted
stock................................... 24 - -
---------------- --------------- ---------------
Denominator for diluted net income (loss)
per share................................. 27,038 18,594 16,959
=============== ============== ===============
In 2004 and 2003, options to purchase approximately 355,515 and 449,991
shares, respectively, were excluded from the calculation of diluted net
income per share because the effect was antidilutive. For 2002, potential
common shares were not included in the computation because they were
antidilutive.
Product Development Costs
The Company develops software that enables users to access information on
its Web sites and subscription services. Development costs incurred prior
to technological feasibility are expensed as incurred. The Company
capitalized certain internal use software totaling $211,000, $0 and $0 for
the years ended December 31, 2004, 2003 and 2002, respectively. The
estimated useful life of costs capitalized is evaluated for each specific
project and will be amortized on a straight-line basis over three years.
The amortization of capitalized costs total $3,000, $0 and $0 for years
ended December 31, 2004, 2003 and 2002, respectively. Capitalized internal
use software is included in property and equipment, net.
Promotion and Advertising
Advertising costs are expensed as incurred. Promotion and advertising
provided by CBS under the Contribution Agreement are recognized as an
expense during the period in which the services are provided based on the
rate card value of such services (See Notes 3 and 12). Total advertising
expense for the years ended December 31, 2004, 2003 and 2002 was $1.8
million, $1.2 million and $11.0 million, respectively.
9
Income Taxes
Income taxes are computed using the asset and liability method. Under the
asset and liability method, deferred income tax assets and liabilities are
determined based on the differences between the financial reporting and tax
bases of assets and liabilities and are measured using the currently
enacted tax rates and laws. A valuation allowance is provided for the
amount of deferred tax assets that, based on available evidence, are not
expected to be realized.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to a significant
concentration of credit risk consist primarily of cash and cash
equivalents, investments and accounts receivable. As of December 31, 2004,
management deposits its cash within five financial institutions and its
investments were managed by one financial institution. Accounts receivable
are typically unsecured and are derived from revenue earned from customers
primarily located in the United States. The Company performs ongoing credit
evaluations of its customers and maintains allowances for potential credit
losses. Historically, such losses have been within management's
expectations. As of December 31, 2004 and 2003, no one customer accounted
for 10 percent or more of the accounts receivable balance. We do not expect
to incur material losses with respect to financial instruments that
potentially subject the Company to concentration of credit risk.
Segment Reporting
The Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information," established standards
for reporting information about operating segments in a company's financial
statements. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group,
in deciding how to allocate resources and in assessing performance. The
Company operates in one reportable segment.
Foreign Currency
The functional currency of the Company's international subsidiaries is the
local currency. The financial statements of these subsidiaries are
translated to United States dollars using period-end rates of exchange for
assets and liabilities, and average rates of exchange for the year for
revenues and expenses. Translation gains (losses) are recorded in
accumulated other comprehensive income (loss) as a component of
stockholders' equity. Net gains and losses resulting from foreign exchange
transactions are included in other income, net and were not significant
during the periods presented.
Comprehensive Income
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. Accumulated other comprehensive income, as
presented on the accompanying consolidated balance sheets, consists of the
net unrealized gains and losses on available-for-sale securities, net of
tax, and the cumulative foreign currency translation adjustment, net of
tax.
Stock-Based Compensation
The Company accounts for its stock-based employee compensation agreements
in accordance with the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and its related
interpretations, and has adopted the disclosure-only alternative of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), as amended by Statement of
Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an Amendment of SFAS Statement
No. 123." In accounting for stock-based transactions with non-employees,
the Company records compensation expense in accordance with SFAS No. 123
and Emerging Issues Task Force 96-18, "Accounting for Equity Instruments
That are Issued to Other Than Employees for Acquiring, or in Conjunction
with Selling, Goods or Services."
The following pro forma information presents the Company's net income
(loss) and basic and diluted net income (loss) per share for the years
ended December 31, 2004, 2003 and 2002 as if compensation cost had been
measured under the fair value method of SFAS No. 123, "Accounting for Stock
Based Employee Compensation," for the employee stock option and employee
stock purchase plans.
10
Years Ended December 31,
-------------------------------------------------------
2004 2003 2002
---------------- --------------- ---------------
Net income (loss):
As reported................................... $ 1,911 $ 2,655 $ (9,653)
Add: Stock-based employee compensation
expense included in reported net
income (loss)............................ 108 - -
Deduct: Stock-based employee compensation
expense determined under fair value
based method.............................. (3,445) (2,754) (3,964)
---------------- --------------- ---------------
Pro forma net income (loss)................... $ (1,426) $ (99) $ (13,617)
================ =============== ===============
Net income (loss) per share:
As reported, basic............................ $ 0.08 $ 0.15 $ (0.57)
================ =============== ===============
As reported, diluted.......................... $ 0.07 $ 0.14 $ (0.57)
================ =============== ===============
Pro forma net income (loss) per share, basic.. $ (0.06) $ (0.01) $ (0.80)
================ =============== ===============
Pro forma net income (loss) per share, $ (0.06) $ (0.01) $ (0.80)
diluted................................... ================ =============== ===============
The Company calculated the fair value compensation expense associated with
its stock-based employee compensation plans using the Black-Scholes model.
The following weighted average assumptions were used related to option
grants:
Years Ended December 31,
-------------------------------------------------------
2004 2003 2002
---------------- --------------- ---------------
Stock Options
-------------
Expected dividend 0% 0% 0%
Risk-free interest rate 2.9% 2.4% 3.4%
Expected volatility 52% 68% 105%
Expected life (in years) 4 4 4
Employee Stock Purchase Plan
----------------------------
Expected dividend 0% 0% 0%
Risk-free interest rate 1.6% 1.3% 1.8%
Expected volatility 50% 78% 105%
Expected life (in months) 6 6 6
According to the Black-Scholes option-pricing model, the weighted average
estimated fair value of employee stock option grants during 2004, 2003 and
2002 was $5.02, $3.71 and $2.93 per share, respectively, and the weighted
average fair value of shares granted under the Purchase Plan for the years
ended December 31, 2004, 2003 and 2002 was $2.46, $4.10 and $2.40,
respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's stock options have
characteristics significantly different from those of traded options, and
because changes with respect to the subjective assumptions can materially
affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair
value of its stock options.
Because additional stock options are expected to be granted each year, the
above pro forma disclosures are not representative of pro forma effects on
reported financial results for future periods.
11
Recent Accounting Pronouncements
In September 2004, the EITF delayed the effective date for the recognition
and measurement guidance previously discussed under EITF Issue No. 03-01,
"The Meaning of Other-Than-Temporary Impairment and Its Application to
Certain Investments" ("EITF 03-01") as included in paragraphs 10-20 of the
proposed statement. The proposed statement will clarify the meaning of
other-than-temporary impairment and its application to investments in debt
and equity securities, in particular investments within the scope of FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and investments accounted for under the cost method. The
Company is currently evaluating the effect of this proposed statement on
its financial position and results of operations.
On December 16, 2004, the Financial Accounting Standards Board (FASB)
issued FASB Statement No. 123 (revised 2004), Share-Based Payment
("Statement 123(R)"), which is a revision of FASB Statement No. 123,
Accounting for Stock-Based Compensation. Statement 123(R) supercedes APB
Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and
amends FASB Statement No. 95, Statement of Cash Flows. Generally, the
approach in Statement 123(R) is similar to the approach described in
Statement 123. However, Statement 123(R) requires all share-based payments
to employees, including grants of employee stock options, to be recognized
in the income statement based on their fair values. Pro forma disclosure is
no longer an alternative. Statement 123(R) must be adopted no later than
July 1, 2005. Early adoption will be permitted in periods in which
financial statements have not yet been issued. The Company expects to adopt
Statement 123(R) on July 1, 2005.
As permitted by Statement 123, the Company currently accounts for
share-based payments to employees using the intrinsic value method under
APB 25 and, as such, generally recognizes no compensation cost for employee
stock options. Accordingly, the adoption of Statement 123(R)'s fair value
method will have a significant impact on our result of operations, although
it will have no impact on our overall financial position. The impact of
adoption of Statement 123(R) cannot be predicted at this time because it
will depend on levels of share-based payments granted in the future.
However, had we adopted Statement 123(R) in prior periods, the impact of
that standard would have approximated the impact of Statement 123 as
described in the disclosure of pro forma net income and earnings per share
in Note 2 to the consolidated financial statements.
In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary
Assets - An Amendment of APB Opinion No. 29, Accounting for Nonmonetary
Transactions" ("SFAS 153"). SFAS 153 eliminates the exception from fair
value measurement for nonmonetary exchanges of similar productive assets in
paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary
Transactions," and replaces it with an exception for exchanges that do not
have commercial substance. SFAS 153 specifies that a nonmonetary exchange
has commercial substance if the future cash flows of the entity are
expected to change significantly as a result of the exchange. SFAS 153 is
effective for the fiscal periods beginning after June 15, 2005. The Company
is currently evaluating the effect that the adoption of SFAS 153 will have
on its consolidated results of operations and financial condition but does
not expect it to have a material impact.
NOTE 3 - AGREEMENTS WITH CBS AND PEARSON
In January 1999, the Company entered into a Stockholders' Agreement
("Stockholders' Agreement") with CBS and IDC under which CBS reduced the
advertising commitment from the Contribution Agreement to an aggregate rate
card amount of $30.0 million in return for a change in the royalty rate
payable under the License Agreement, extension of the License Agreement to
2005 and modified to certain non-competition provisions. Additionally, both
CBS and Pearson, which acquired IDC's 34.1% stake in the Company (see Note
1), have a right of first refusal in the event either party desires to sell
any securities of the Company to a third-party or if the Company issues new
securities.
In addition, the Company and CBS entered into an Amended and Restated
License Agreement (the "Amended and Restated License"), which became
effective immediately prior to the Company's initial public offering in
January 1999. Under the Amended and Restated License, in return for the
right to use the CBS name and logo as well as the CBS Television Network
news content, the Company is obligated to pay a royalty to CBS of: (i)
during 1999: (a) 8% of Gross Revenues (as defined below) in excess of
$500,000 and up to and including $50.5 million and (b) 6% of Gross Revenues
in excess of $50.5 million; and (ii) in subsequent years through the
termination of the license agreement on October 29, 2005: (a) 8% of Gross
Revenues up to and including $50.0 million and (b) 6% of Gross Revenues in
excess of $50.0 million.
CBS has the right to terminate the agreement in certain circumstances,
including the Company's breach of a material term or condition of the
agreement, insolvency, bankruptcy or other similar proceeding,
discontinuance of use of the MarketWatch logo without providing an
acceptable substitute, or acquisition or issuance of certain percentages of
the Company's common stock or voting power by or to a CBS competitor. In
addition, CBS has retained significant editorial control over the use and
12
presentation of the CBS news content and the CBS logo and has the ability
to prevent the Company from displaying certain types of content, which are
unacceptable to CBS.
Gross Revenues means gross operating revenues that are derived from an
Internet service or Web site that provides information or services of a
financial nature or uses the CBS trademarks licensed to the Company. Gross
Revenues excludes certain revenues including those from Pearson, an amount
equal to certain commissions paid to sales representatives and an amount
equal to certain revenues attributable to any acquired company's results of
operations for the 12 months prior to the acquisition.
The terms of the Amended and Restated License do not prohibit CBS from
licensing its name and logo to another Web site or Internet service that
does not have as its primary function and its principal theme and format
the delivering of comprehensive real-time or delayed stock market
quotations and financial news in the English language to consumers. CBS is
also not prohibited from licensing its news content to, or investing in,
another Web site or Internet service.
In January 1999, the Company and IDC entered into an Amended and Restated
Services Agreement (the "Amended Services Agreement"), in which IDC would
provide the Company with hosting services, software programming assistance,
data feeds, communications lines, office space and related facilities,
network operations and Web site management services, as well as certain
administrative and engineering services if requested by the Company. The
Amended Services Agreement provides for IDC to grant the Company certain
nonexclusive licenses to its data and information feeds and provides for
certain network Web site hosting performance standards. IDC also paid the
Company a monthly per subscriber fee ranging from $2.50 to $5.00, subject
to a monthly minimum of $100,000 through October 2002, for delivery of the
Company's news to all IDC subscribers, as defined. The Company is also
required to pay IDC 25% and 75% of subscription revenues for MarketWatch
RT(TM) and MarketWatch Live(TM), respectively. The term of the Amended
Services Agreement will expire on October 29, 2005.
In January 1999, the Company, CBS and DBC entered into a Registration
Rights Agreement ("Registration Agreement"). CBS and DBC, and their
affiliates and permitted transferees, were given certain registration
rights for the securities of the Company held by them under the
Registration Agreement.
In October 1999, CBS committed to provide advertising and promotions over a
five-year period in return for its ownership position (see Note 1). The
Company recorded the $50.0 million commitment by CBS as a contribution
receivable and reduced the receivable and recorded expense based on the
rate card amount of the advertising and promotion during the period
provided. Under the terms of the Stockholders' Agreement, the Company
recorded a $20.0 million reduction to the contribution receivable and
additional paid-in capital upon completion of the initial public offering.
Under the terms of the stock purchase agreement that was entered into with
CBS in March 2000, CBS agreed to provide an additional $30.0 million in
advertising during the period from March 1, 2000 through April 25, 2003. As
of December 31, 2003, CBS delivered fully under these commitments.
NOTE 4 - BALANCE SHEET COMPONENTS
Provision for doubtful accounts was as follows (in thousands):
Years Ended December 31,
-------------------------------------------------------
2004 2003 2002
---------------- --------------- ---------------
Balance at beginning of period................. $ 396 $ 450 $ 752
Charged to expenses........................ 291 (66) -
Write-offs................................. (142) (158) (339)
Recoveries................................. 55 170 37
---------------- --------------- ---------------
Balance at end of period....................... $ 600 $ 396 $ 450
================ =============== ===============
13
Prepaid expenses and other current assets were as follows (in thousands):
December 31,
-----------------------------------
2004 2003
---------------- ---------------
Prepaid insurance.............................. $ 521 $ 221
Prepaid marketing.............................. -- 128
Security deposits.............................. 430 --
Other.......................................... 857 336
---------------- ---------------
Balance at end of period....................... $ 1,808 $ 685
================ ===============
Property and equipment, net, consisted of the following (in thousands):
December 31,
-----------------------------------
2004 2003
---------------- ---------------
Computer and equipment.......................... $ 13,360 $ 13,224
Leasehold improvements.......................... 6,208 5,967
Furniture and fixtures.......................... 2,162 2,111
---------------- ---------------
21,730 21,302
Less: accumulated depreciation.................. (17,373) (16,915)
---------------- ---------------
Total property and equipment, net............... $ 4,357 $ 4,387
================ ===============
Accrued expenses were as follows (in thousands):
December 31,
-----------------------------------
2004 2003
---------------- ---------------
Accrued compensation and related expenses....... $ 4,329 $ 2,767
Sales tax payable............................... 1,652 385
Accrued royalty payable to related party........ 1,331 972
Accrued acquisition costs related to Pinnacor
acquisition................................. 928 549
Accrued data fees............................... 451 102
Accrued acquisition costs related to
merger (See Note 13)........................ 441 --
Advances received from customers................ 383 --
Accrued professional fees ...................... 255 119
Accrued television production payable to
related party .............................. 246 266
Accrued other taxes............................. 234 227
Customer refunds (1)............................ -- 845
Other........................................... 566 373
---------------- ---------------
$ 10,816 $ 6,605
================ ===============
<FN>
(1) In January 2004, the Company cancelled one of its subscription
newsletters and refunded its customers a pro-rated share of their
remaining subscriptions.
</FN>
14
NOTE 5 - INVESTMENTS
The following table summarizes the Company's investments in
available-for-sales securities (in thousands):
December 31, 2004
----------------------------------------------------------------------------
Gross Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------------- ----------------- ----------------- -------------
U.S. Government and agencies............ $ 37,589 $ -- $ (20) $ 37,569
Municipal bonds......................... 698 -- (1) 697
Corporate bonds......................... 5,000 -- -- 5,000
----------------- ----------------- ----------------- -------------
Balance at end of period................ $ 43,287 $ -- $ (21) $ 43,266
================= ================= ================= =============
At December 31, 2004, $5.1 million and $38.2 million in available-for-sale
securities were included in cash and cash equivalents and investments in
marketable securities, respectively.
The contractual maturities of available-for-sale securities are as follows
(in thousands):
December 31,
2004
-----------------
Due within one year.......................... $ 39,897
Due after one year through five years........ 3,369
-----------------
Total available-for-sale securities.......... $ 43,266
=================
NOTE 6 - GOODWILL AND PURCHASED INTANGIBLE ASSETS
Goodwill
Goodwill consisted of the following (in thousands):
Balance at December 31, 2002 $ 22,429
Goodwill acquired during period --
-------------------
Balance at December 31, 2003 22,429
Goodwill acquired during period 65,087
-------------------
Balance at December 31, 2004 $ 87,516
===================
The increase in goodwill at December 31, 2004 was due to the acquisition of
Pinnacor on January 16, 2004 (See Note 7).
On January 1, 2002, the Company adopted SFAS No. 142, which requires that
goodwill no longer be amortized and instead be tested for impairment on a
periodic basis.
Based on the results of its annual impairment tests, the Company determined
that no impairment of goodwill existed as of December 31, 2004, 2003 or
2002. However, future goodwill impairment tests could result in a charge to
earnings. The Company will continue to evaluate goodwill annually at the
end of its fourth quarter and whenever events and changes in circumstances
indicate that there may be a potential impairment.
15
Purchased Intangible Assets
Purchased intangible assets associated with completed acquisitions
consisted of the following (in thousands):
December 31, 2004
--------------------------------------------
Gross Net
Carrying Accumulated Intangible
Amount Amortization Assets
----------- -------------- -------------
Developed technology......... $ 4,214 $ 1,014 $ 3,200
Acquired customer base ...... 3,915 556 3,359
----------- -------------- -------------
$ 8,129 $ 1,570 $ 6,559
=========== ============== =============
Intangibles for developed technology and acquired customer base are being
amortized on a straight-line basis over a period of 4 to 7 years,
respectively. The weighted-average amortization period is 4 and 6.8 years
for developed technology and acquired customer base, respectively. The
amortization expense related to identifiable intangible assets was $1.6
million for the year ended December 31, 2004, of which $1.0 million was
expensed to cost of revenues.
Estimated future amortization expense related to identifiable purchased
intangible assets at December 31, 2004 is as follows:
Fiscal year: In thousands
-------------------------------- ---------------
2005 $ 1,658
2006 1,658
2007 1,571
2008 578
2009 536
Thereafter 558
---------------
Total $ 6,559
===============
NOTE 7 - ACQUISITION
On January 16, 2004, the Company completed its acquisition of Pinnacor,
Inc. Under the terms of the agreement, a new company ("Holdco") with two
wholly-owned subsidiaries, Pine Merger Sub, Inc. ("Pine Merger Sub") and
Maple Merger Sub, Inc. ("Maple Merger Sub"), were formed to combine the
businesses of the Company and Pinnacor. Each Company stockholder received
one share of Holdco common stock for each share of the Company common stock
held by such stockholder. Each Pinnacor stockholder received either $2.42
in cash or 0.2659 of a share of Holdco common stock for each share of
Pinnacor common stock held by such stockholder, subject to proration. Upon
closing of the acquisition, Maple Merger Sub merged with and into
MarketWatch, which was the surviving corporation, and Pine Merger Sub
merged with and into Pinnacor, which was the surviving corporation.
MarketWatch and Pinnacor became a wholly-owned subsidiary of Holdco, which
was renamed "MarketWatch.com, Inc." MarketWatch, one of Holdco's operating
subsidiaries after the merger, was renamed "MarketWatch Media, Inc." and
Pinnacor, the other Holdco operating subsidiary after the merger, continued
to be named "Pinnacor Inc." Shortly after the acquisition, each of
MarketWatch Media, Inc. and Pinnacor Inc. merged into MarketWatch.com, Inc.
On August 4, 2004, the Company changed its name from MarketWatch.com, Inc.
to MarketWatch, Inc.
The purchase price of $107.7 million was determined as follows (in
thousands):
Fair value of common stock $ 53,676
Fair value of options and warrants 6,718
Cash 44,002
Direct transaction costs 3,342
--------------------
$ 107,738
====================
The fair value of the common stock was determined based on 6,141,428 shares
of the Company common stock issued and priced using the average market
price of the common stock over the five-day period surrounding the date the
acquisition was announced in July 2003. The fair value of the Company's
stock options and warrants issued was determined using the Black-Scholes
option-pricing model. The following assumptions were used to perform the
calculations: expected life of 48 months for options and a remaining
16
contractual life of eight to ten months for warrants, risk-free interest
rate of 1.51%, expected volatility of 60% and no expected dividend yield.
The allocation of the purchase price to the assets acquired and liabilities
assumed based on their estimated fair values was as follows (in thousands):
Cash acquired (includes $1,963 in restricted cash) $ 41,335
Other tangible assets acquired 6,257
Amortizable intangible assets:
Developed technology 4,050
Acquired customer base 3,750
In-process research and development 300
Goodwill 65,087
------------
120,779
Liabilities assumed (13,095)
Deferred stock-based compensation 54
------------
Total $ 107,738
============
The assets will be amortized on a straight-line basis over a period of
years shown on the following table:
Developed technology 4 years
Acquired customer base 7 years
Property and equipment acquired 1 to 5 years
The fair value underlying the $300,000 assigned to in-process research and
development ("IPR&D") from the Pinnacor acquisition was expensed
immediately during the quarter ended March 31, 2004 as amortization of
intangibles and was determined by identifying the research projects in
areas which technological feasibility had not been established and there
was no alternative future use.
Of the total purchase price for this acquisition, $65.1 million was
allocated to goodwill. Goodwill represents the excess of the purchase price
over the fair value of the net tangible and intangible assets acquired, and
is not deductible for tax purposes. Goodwill will not be amortized and
evaluated annually at the end of the fourth quarter and whenever events and
changes in circumstances indicate that there may be a potential impairment.
The following attributes of the combination of the two businesses were
considered significant factors to the establishment of the purchase price,
resulting in the recognition of goodwill:
o Pinnacor's acquired technology included certain additional
products that would allow the combined company to develop more
comprehensive products and pursue expanded market opportunities.
o The ability to hire the Pinnacor workforce, which included a
significant number of experienced engineering, development and
technical staff with specialized knowledge of the sector in which
the combined company operates.
o Potential operating synergies are anticipated to arise, including
cost savings from the elimination of redundant data content
provision, data center operations and expenses associated with
operating as a public company and limited reductions in
overlapping staffing positions and general facility costs.
The results of operations of Pinnacor, Inc. have been included in the
Company's consolidated statements of operations since the completion of the
acquisitions on January 16, 2004. The following unaudited pro forma
information presents a summary of the results of operations of the Company
assuming the acquisition of Pinnacor occurred on January 1, 2003,
respectively (in thousands, except per share amounts):
17
Years Ended December 31,
------------------------------
2004 2003
------------- -------------
Net revenues....................... $ 81,344 $ 79,494
============= =============
Net income (loss).................. $ 2,039 $ (73)
============= =============
Net income (loss) per share:
Basic.............................. $ 0.09 (0.00)
============= =============
Diluted............................ $ 0.08 $ (0.00)
============= =============
NOTE 8 - INCOME TAXES
The provision for income taxes is composed of the following (in thousands):
Years Ended December 31,
---------------------------------------
2004 2003 2002
----------- ---------- ----------
Current:
Federal............................... $ 132 $ 60 $ -
State................................. 26 90 -
----------- ---------- ----------
Total current provision............... $ 158 $ 150 $ -
=========== ========== ==========
The components of the net deferred tax assets and liabilities were as
follows (in thousands):
December 31,
------------------------------------------
2004 2003 2002
----------- ------------ -----------
Deferred tax assets:
Net operating loss carryforwards...... $ 74,448 $ 39,221 $ 40,107
Property and equipment................ 3,023 2,758 3,595
Accruals and reserves................. 2,332 1,087 1,062
----------- ------------ ----------
Total deferred tax assets................. 79,803 43,066 44,764
----------- ------------ ----------
Deferred tax liabilities:
Intangible assets .................... (2,516) (6) -
----------- ------------ ----------
Net deferred assets....................... 77,287 43,060 44,764
Less valuation allowance.............. (77,287) (43,060) (44,764)
----------- ------------ ----------
Deferred tax asset.................... $ - $ - $ -
=========== ============ ==========
Due to the uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation
allowance against its deferred tax assets. The valuation allowance for the
year ended December 31, 2004 increased by $34.2 million and decreased by
$1.7 million for the year ended December 31, 2003. For the year ended
December 31, 2002, the valuation allowance increased by $3.4 million.
At December 31, 2004, the Company had federal and state net operating loss
carry-forwards of approximately $103.8 million and $77.0 million,
respectively, available to offset future regular taxable income. At
December 31, 2004, the Company had federal and state net operating loss
carry-forwards of $170.3 million and $141.2 million, respectively, due to
the Pinnacor acquisition. The Company's net operating loss carryforwards
will expire on various dates through 2023, if not utilized. The
availability of net operating losses to offset future taxable income may be
limited as a result of ownership changes in 1999 and the acquisition of
Pinnacor, Inc. on January 16, 2004. The amount of such limitations, if any,
has not been determined.
18
U.S. operating loss carryforwards of approximately $20.5 million resulted
from the exercise of employee stock options, the tax benefit of which, when
recognized, will be accounted for as a credit to additional paid-in capital
rather than a reduction of the income tax provision. The Company recorded a
tax benefit resulting from the exercise of stock options and approximately
$220,000 was recorded to stockholders' equity for the year ended December
31, 2004.
The difference between the income tax expense (benefit) at the statutory
rate of 34% and the Company's effective tax rate was due primarily to the
tax losses not benefited for financial reporting purposes to offset the
deferred tax asset and the impact of state taxes. The provision for income
tax was different than the amount computed using the applicable statutory
federal income tax rate with the difference for the years summarized below:
Years Ended December 31,
------------------------
2004 2003 2002
------------- -------------- -------------
Provision computed at federal
statutory rate......................... 34% 34% (34)%
State taxes, net of federal benefit......... 1 5 (4)
In-process research and development......... 6 - -
Other permanent differences................. 2 37 3
Tax losses not benefited.................... (35) (71) 35
------------- -------------- -------------
Provision for income taxes.................. 8% 5% -%
============= ============== =============
NOTE 9 - COMMITMENTS AND CONTINGENCIES
Leases
The Company subleases office space from CBS for its corporate headquarters
in San Francisco, California, and its operations in New York City through
2010. In addition, the Company leases space in Minneapolis, Minnesota;
Washington D.C.; Los Angeles, California; Chicago, Illinois; Boston,
Massachusetts; Dallas, Texas; Coral Gables, Florida; and London. Rent
expense under the leased properties was $2.7 million, $1.7 million and $1.7
million for the years ended December 31, 2004, 2003 and 2002, respectively.
Net noncancelable lease commitments as of December 31, 2004 can be
summarized as follows (in thousands):
Gross Lease Sublease Net Lease
Commitments Income Commitments
----------------- --------------- --------------
2005................... $ 3,154 $ (230) $ 2,924
2006................... 3,336 -- 3,336
2007................... 3,397 -- 3,397
2008................... 1,492 -- 1,492
2009................... 477 -- 477
Due after 5 years...... 98 -- 98
----------------- --------------- --------------
Total $ 11,954 $ (230) $ 11,724
================= =============== ==============
As a result of the Pinnacor, Inc. acquisition, the Company assumed capital
lease agreements, which expire in 2005. The total minimum capital lease
payments to be made in 2005 are $343,000, of which $15,000 represents
interest.
Commitments
As of December 31, 2004, the Company has entered into employment agreements
with seven of its officers. These agreements expire through February 2006.
Such agreements provide for annual salary levels ranging from $195,000 to
$350,000, as well as annual bonuses of up to 100% of the base salary.
The Company maintains agreements with independent content providers for
certain news, stock quotes and other information. The terms of these
agreements are generally one to two years, with optional extension periods
ranging from one to three years.
19
Contingencies
In 2001, several plaintiffs filed class action lawsuits in federal court
against the Company, certain of its current and former officers and
directors and its underwriters in connection with its January 1999 initial
public offering. The complaints generally assert claims under the
Securities Act, the Exchange Act and rules promulgated by the Securities
and Exchange Commission. The complaints seek class action certification,
unspecified damages in an amount to be determined at trial, and costs
associated with the litigation, including attorneys' fees. The action
against the Company is being coordinated with approximately 300 other
nearly identical actions filed against other companies. On June 25, 2003, a
committee of the Company's board of directors approved a Memorandum of
Understanding ("MOU"), which has now been memorialized in a settlement
agreement and related agreements that set forth the terms of a settlement
between the Company, the plaintiff class and a vast majority of the other
approximately 300 issuer defendants. Among other provisions, the settlement
provides for a release of the Company and the individual defendants for the
conduct alleged in the action to be wrongful. The Company would agree to
undertake certain responsibilities, including agreeing to assign, not
assert, or release certain potential claims the Company may have against
its underwriters and no claims have been made so far. No estimate can be
made of the possible loss or possible range of losses associated with the
resolution of this matter and it is anticipated that any potential
financial obligation of the Company to plaintiffs pursuant to the terms of
the settlement agreement and related agreements will be covered by existing
insurance. Therefore, the Company does not expect that the settlement will
involve any material payment by the Company and no liability associated
with these lawsuits has been recorded at December 31, 2004. The settlement
agreement has been submitted to the Court for approval. Approval by the
Court cannot be assured. On October 13, 2004, the Court certified a class
in six of the approximately 300 other nearly identical actions and noted
that the decision is intended to provide strong guidance to all parties
regarding class certification in the remaining cases. Plaintiffs have not
yet moved to certify a class in the Company's case.
On June 7, 2002, an action was commenced against Pinnacor alleging a breach
of contract claim and, as amended, sought damages in the amount of
$290,000. On February 7, 2003, Pinnacor filed counterclaims against the
plaintiff for breach of contract, breach of warranty and misrepresentation.
Motions for summary judgment were filed in early 2003. In December 2004,
the Court ruled in favor of the Company on part of its Summary Judgment
Motion, dismissing plaintiff's action as it related to certain damages
plaintiff was seeking. The Court ruled in favor of plaintiff on part of
plaintiff's Summary Judgment motion as it related to certain damages
plaintiff was seeking. The Court awarded plaintiff damages in the sum of
$37,000. The Court ruled that there were triable issues of fact with regard
to certain other liabilities of the Parties, thus necessitating a trial on
the merits of those issues. The Court has limited the Company's potential
remaining liability to $60,000. Parties are currently engaging in
settlement discussions. The Company has established an appropriate accrual
based on the expected outcome of the legal proceeding and does not expect
the ultimate resolution of the claim to have a material impact on the
balance sheet, results of operations and cash flows.
On July 24, 2003, a shareholder class action lawsuit was filed against
Pinnacor, Pinnacor's then-current directors, a then-current Pinnacor
officer, and the Company in the Delaware Court of Chancery. The lawsuit
alleged that Pinnacor's directors breached their fiduciary duties in
proceeding with the acquisition by agreeing to an inadequate proposed
purchase price and alleged that the Company aided and abetted these
breaches of fiduciary duty in some unspecified way. The parties have
settled the action, pursuant to which the Company has paid plaintiff's
counsel $300,000 in attorney's fees and $15,000 in actual costs. The action
has been dismissed with prejudice and all defendants have been released
from liability. The settlement and associated costs were paid in October
2004.
On September 8, 2003, an action was commenced in the Supreme Court of the
State of New York against Tendagio, Inc. (formerly Inlumen, Inc.), Pinnacor
and several unnamed defendants. The lawsuit alleged a breach of contract
claim and a fraudulent conveyance claim. In April 2004, the Company served
upon the plaintiff its cross motion for summary judgment seeking dismissal
of the complaint with prejudice. In May 2004, the Company was served with
plaintiff's cross motion seeking dismissal of the action in its entirety,
without prejudice, or alternatively, additional time to respond to
defendants' summary judgment motions. In July 2004, the parties settled the
action, pursuant to which the action has been dismissed with prejudice, all
defendants have been released from liability and the Company has no
financial obligation to the plaintiff.
On October 18, 2004, an action was commenced in the United States District
Court for the Southern District of New York against the Company. The
lawsuit alleges a breach of contract claim in the amount of $400,000. The
parties are now engaged in discovery. No estimate can be made of the
possible loss associated with the resolution of this matter. As a result,
no losses have been accrued in the Company's financial statements as of
December 31, 2004. Accordingly, the result of this lawsuit could have a
material impact on the balance sheet, results of operations and cash flows.
On or about November 2, 2004, a former employee of Pinnacor Inc.
("Pinnacor") filed a demand for arbitration before Judicial Arbitration and
Mediation Services ("JAMS") seeking compensation related to the termination
agreement he entered into with the Company. The former employee claimed he
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was entitled to lost wages of $284,000 plus certain additional fees and
damages. The Company and the former employee settled the dispute for the
sum of $220,000. The Company has accrued costs associated with this matter
at December 31, 2004.
On or about January 28, 2005, another former employee of Pinnacor filed a
demand for arbitration before JAMS seeking compensation related to the
termination agreement he entered into with the Company. The former employee
claims he is entitled to lost wages of $308,000 plus certain additional
fees and damages. The Company has established an appropriate accrual based
on the expected outcome of the legal proceeding at December 31, 2004, and
does not expect the ultimate resolution of the claim to have a material
impact on the balance sheet, results of operations and cash flows.
On or about November 5, 2004, a shareholder class action lawsuit was filed
against the Company, the Company's directors, and Viacom, Inc. ("Viacom")
in the Delaware Court of Chancery. The plaintiff filed an amended complaint
on or about December 6, 2004 and removed Viacom as a defendant to the
action. The lawsuit alleged that the preliminary proxy statement filed by
the Company with the Securities and Exchange Commission in connection with
the special meeting of stockholders to approve the merger with Dow Jones &
Company, Inc. (the "Merger") contained material misrepresentations and
omissions which rendered it defective. The lawsuit also alleged that the
Company's directors breached their fiduciary duties by not disclosing all
material information reasonably available to them to the Company's
stockholders. On or about January 18, 2005, the parties entered into a
final settlement agreement relating to the action. The settlement is
subject to final approval by the Delaware Court of Chancery. The final
settlement provides, among other things, (i) that the action would be
dismissed with prejudice and all defendants would be released from all
claims relating to the Merger; and (ii) for payment to plaintiff's counsel
of up to $250,000 in attorneys' fees and expenses. The hearing for the
final court approval of the settlement has been set for April 18, 2005. The
Company has accrued costs associated with this matter at December 31, 2004.
On November 16, 2004, the Company received a preliminary audit report from
a data provider. The audit was routine in nature and intended to ensure the
Company's compliance with the data vendor's contractual obligations. The
preliminary report reflected a potential exposure of approximately $7.4
million, with possible additional liability for retroactive payment of 8%
thereon. The Company believes the value of the claim is significantly
overstated and has officially responded to the data provider. The Company
has established an appropriate accrual based on the expected outcome of
negotiations, which are anticipated to take some time to complete. However,
given the magnitude of the claim, the ultimate resolution could have a
material impact on the balance sheet, results of operations and cash flow.
In addition, the Company from time to time is subject to legal proceedings
and claims in the ordinary course of business. The Company is not currently
aware of any other legal proceedings or claims that will have a material
adverse effect on its financial position or results of operations.
Indemnifications
During its normal course of business, the Company has made certain
indemnifications, commitments and guarantees under which it may be required
to make payments in relation to certain transactions. These indemnifications
include intellectual property indemnifications to the Company's customers
in connection with the sales of its products and services, indemnifications
to various lessors in connection with facility leases for certain claims
arising from such facility or lease, and indemnifications to directors and
officers of the Company to the maximum extent permitted under the laws of
the State of Delaware. To date, the Company has not incurred any costs
related to these indemnifications.
NOTE 10 - STOCKHOLDERS' EQUITY
Employee Stock Purchase Plan
Effective August 15, 2000, the Company's Board of Directors adopted the
Employee Stock Purchase Plan (the "Purchase Plan"), which provides for the
issuance of a maximum of 500,000 shares of the Company's common stock.
Eligible employees can have up to 15% of their earnings withheld, up to
certain maximums, to be used to purchase shares of the Company's common
stock on every February 14th and August 14th. The price of the common stock
purchased under the Purchase Plan will be equal to 85% of the lower of the
fair market value of the common stock on the commencement date of each
six-month offering period or the specified purchase date. In addition, on
each January 1, the aggregate number of shares of the Company's common
stock reserved for issuance under the Plan shall be increased automatically
by a number of shares purchased under the Plan in the preceding calendar
year, provided that the Board may in its sole discretion reduce the amount
of the increase in any particular year. During the years ended December 31,
2004, 2003 and 2002, 33,957, 94,841 and 162,039 shares, respectively, were
purchased under the Purchase Plan.
In January 2004, the Company adopted the 2004 Employee Stock Purchase Plan
(the "2004 Purchase Plan"), which provides for the issuance of a maximum of
500,000 shares of the Company's common stock. The number of shares reserved
for issuance under the 2004 Purchase Plan increases annually beginning on
the first business day of the 2005 calendar year by an amount equal to the
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lesser of (i) 200,000 shares, (ii) the number of shares purchased under the
2004 Purchase Plan in the preceding calendar year, or (iii) a lesser number
of shares determined by the Company's board of directors. Eligible
employees can have up to 15% of their earnings withheld, up to certain
maximums, to be used to purchase shares of the Company's common stock on
every February 15th and August 15th. The price of the common stock
purchased under the 2004 Purchase Plan will be equal to 85% of the lower of
the fair market value of the common stock on the commencement date of each
six-month offering period or the specified purchase date. During the year
ended December 31, 2004, 46,773 shares were purchased under the 2004
Purchase Plan. At December 31, 2004, 453,227 shares were available under
the 2004 Purchase Plan for future issuance.
Stock Option Plans
In 1998, the Board of Directors adopted the 1998 Equity Incentive Plan (the
"1998 Plan") and the 1998 Directors' Stock Option Plan (the "1998
Directors' Plan") and all outstanding employee options became part of the
1998 Plan. The 1998 Plan and 1998 Directors' Plan became effective upon the
completion of the Company's initial public offering. Stockholders have
approved both plans. In each of the calendar years 2000 and 2002, the Board
of Directors reserved an additional 1,500,000 shares for issuance under the
1998 Plan. In 2002, the Board of Directors reserved an additional 50,000
shares for issuance under the 1998 Directors' Plan. As of December 31,
2003, the Company had an aggregate of 4.65 million shares reserved for
issuance under both plans.
The 1998 Plan allows for the issuance of incentive stock options and
non-qualified stock options. The 1998 Directors Plan allows for the
issuance of non-qualified stock options. The stated exercise price of all
options granted are not less than 100% of the fair market value on the date
of grant. Options are generally granted for a term of ten years and vest
one-third after each year of service over a three-year period.
Pursuant to the consummation of the acquisition of BigCharts during 1999,
the Company assumed the BigCharts, Inc. 1995 Stock Plan (the "BigCharts
Plan"). Options issued under the BigCharts Plan become exercisable over
varying periods as provided in the individual plan agreements. BigCharts
had issued 585,824 shares under the BigCharts Plan.
In June 2001, the Company offered a voluntary stock option exchange program
that provided the Company's employees and directors the opportunity to
cancel certain stock options of the Company's common stock, in exchange for
new options to purchase 75% of the shares subject to the cancelled options
six months and one day after the options were cancelled. The new options
would be granted on or after January 19, 2002 at the then fair market value
of the Company's common stock. Options to purchase approximately 2.7
million shares were eligible for the exchange program. On July 18, 2001,
the Company cancelled options to purchase approximately 989,000 shares, and
granted new options to purchase approximately 725,000 shares on January 22,
2002.
In January 2004, the Company adopted the 2004 Stock Incentive Plan (the
"2004 Plan"). The Company reserved an aggregate of 4.3 million shares for
issuance under the plan. In addition, the maximum aggregate number of
shares that may be issued under the 2004 Plan shall be increased by any
shares (up to a maximum of 2.7 million shares) that are represented by
awards under the Company's 1998 Plan that are forfeited, expire or
canceled. The 2004 Plan allows for the issuance of incentive stock options,
non-qualified stock options, restricted stock awards and other awards. The
stated exercise price of all options granted under the 2004 Plan are not
less than 100% of the fair market value on the date of grant. Options are
generally granted for a term of ten years and vest one-third after each
year of service over a three-year period.
Pursuant to the consummation of the acquisition of Pinnacor in January
2004, the Company assumed the Pinnacor Inc. 1999 Stock Option Plan and the
Pinnacor Inc. Equity Incentive Plan (collectively, the "Pinnacor Plans").
Options issued under the Pinnacor Plans become exercisable over varying
periods as provided in the individual plan agreements. Pinnacor issued
794,983 shares subject to the Pinnacor Inc. 1999 Stock Option Plan and
1,450,988 shares subject to the Pinnacor Inc. 2000 Equity Incentive Plan.
Restricted Stock
In September 2004, the Company issued to an executive of the Company 85,000
shares of restricted stock (the "Restricted Stock"), pursuant to the 2004
Plan. The restricted stock was issued under the terms and conditions set
forth in the 2004 Plan. The Company did not receive proceeds from the
issuance of the Restricted Stock and the value of the restricted stock
issued was $993,000 based on the fair market value on the date of grant.
The restricted stock award will vest after five years after the date of
issuance. The vesting schedule is subject to acceleration if certain
performance goals, established by the compensation committee of the
Company's Board of Directors, are achieved. The amount of stock-based
compensation expense was $108,000 for the year ended December 31, 2004 and
$0 for the years ended December 31, 2003 and 2002.
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The following summarizes the activity in the Company's stock option plans:
Weighted
Options Average
Outstanding Exercise Price
Options outstanding, December 31, 2001... 1,828,026 $ 8.15
Options granted.......................... 1,617,318 4.04
Options canceled......................... (145,130) 7.73
Options exercised........................ (18,491) 3.65
--------------
Options outstanding, December 31, 2002... 3,281,723 6.17
Options granted.......................... 952,640 8.17
Options canceled......................... (125,460) 7.31
Options exercised........................ (328,437) 7.31
--------------
Options outstanding, December 31, 2003 3,780,466 6.83
Options granted.......................... 1,501,765 11.35
Options assumed through acquisition...... 2,231,294 8.63
Options canceled......................... (317,623) 9.11
Options exercised........................ (3,917,118) 5.81
--------------
Options outstanding, December 31, 2004... 3,278,784 $ 11.06
==============
At December 31, 2004, 2003 and 2002, 2,913,385, 376,389 and 1,203,569
options were available for future grant, respectively, and 1,035,678,
1,914,835 and 1,429,107 options were exercisable, respectively. The
weighted average exercise price and weighted average remaining contractual
life of the vested options were $13.68 and 6.07 years, respectively, at
December 31, 2004; $7.59 and 6.61 years, respectively, at December 31,
2003; and $8.66 and 8.16 years, respectively, at December 31, 2002.
The following table summarizes information about options at December 31,
2004:
Options outstanding Options exercisable
----------------------------------- ------------------------
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices per Number Life Price per Number Price per
Share Outstanding (in years) Share Exercisable Share
- ------------- ---------- ----------- ---------- ----------- ---------
$1.32 - $3.95 384,293 7.06 $ 3.58 229,057 $ 3.36
$4.00 - $5.83 368,170 6.57 4.26 289,016 4.21
$6.00 - $8.51 664,339 8.38 8.13 135,775 6.77
$8.54 - $10.04 495,165 9.19 9.74 79,578 8.18
$10.10 - $11.97 962,488 9.59 11.61 21,253 11.23
$12.04 - $19.00 141,755 8.83 14.77 18,425 17.32
$21.31 - $74.00 262,574 4.58 37.42 262,574 37.42
--------- ----------
Total 3,278,784 8.21 11.06 1,035,678 13.68
========= ==========
NOTE 11 - 401(K)
The Company has a 401(k) deferred savings plan covering substantially all
employees. Employee contributions were matched 25% by the Company, up to a
maximum of $2,500 per employee per year in 2004, 2003 and 2002. Matching
contributions by the Company in the years ended December 31, 2004, 2003 and
2002 were approximately $321,000, $266,000 and $192,000, respectively.
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NOTE 12 - RELATED PARTY TRANSACTIONS
Under its license agreement with CBS, the Company expensed $2.7 million,
$3.0 million and $2.8 million for the years ended December 31, 2004, 2003
and 2002, respectively, related to the licensing of CBS news content and
trademarks. In addition, the Company recorded advertising expenses of $0,
$56,000 and $9.8 million at rate card value for the years ended December
31, 2004, 2003 and 2002, respectively, for in-kind advertising and
promotion provided by CBS. Rental payments to CBS for leasing of certain
facilities were $1.4 million, $1.2 million and $1.1 million for the years
ended December 31, 2004, 2003 and 2002, respectively. In 2003, CBS forgave
$473,000 in rental expenses which was recorded in equity as a CBS
contribution to the Company.
Licensing revenues from IDC were $0, $0 and $1.0 million for the years
ended December 31, 2004, 2003 and 2002, respectively. Licensing revenues
from FT.com and Financial Times, subsidiaries of Pearson plc, were $1.5
million, $1.5 million and $1.8 million for the years ended December 31,
2004, 2003 and 2002, respectively. The Company recognized costs to IDC of
$615,000, $633,000 and $641,000 for the years ended December 31, 2004, 2003
and 2002, respectively, for data feeds. In March 2003, IDC purchased
Comstock, Inc. and the Company expensed $1.9 million for the year ended
December 31, 2004 for data feeds from Comstock, Inc. Direct charges for
subscription revenues for certain IDC data feeds were $22,000, $38,000 and
$58,000 for the years ended December 31, 2004, 2003 and 2002, respectively.
In addition, the Company recognized revenue of $2.4 million, $2.6 million
and $2.2 million for the years ended December 31, 2004, 2003 and 2002,
respectively, from television and radio programming on CBS stations. The
Company recognized costs to CBS of $1.4 million, $1.2 million and $1.6
million for the years ended December 31, 2004, 2003 and 2002, respectively,
for production of television and radio programming. In December 2004, CBS
purchased Sportsline.com, and the Company recognized $82,000 in licensing
revenue from Sportsline.com.
IDC purchased $0, $56,000 and $33,000 for the years ended December 31,
2004, 2003 and 2002, respectively, of advertising under an insertion order.
At December 31, 2004 and 2003, $365,000 and $453,000, respectively, were
included in accounts receivable for radio and television revenue due from
CBS. In addition, at December 31, 2004 and 2003, $5,000 and $11,000,
respectively, were included in the Company's accounts receivable related to
licensing and subscription revenues due from IDC, and $16,000 and $92,000,
respectively, were included in the Company's accounts receivable related to
licensing revenues due from FT.com and Financial Times, subsidiaries of
Pearson plc. At December 31, 2004, $2,000 was included in the Company's
accounts receivable related to licensing revenue due from Sportsline.com.
At December 31, 2004 and 2003, the Company had a liability of $1.3 million
and $972,000, respectively, recorded for CBS royalty fees, a liability of
$246,000 and $266,000, respectively, owed to CBS for television production
and facilities costs, and a liability of $465,000 and $203,000,
respectively, to IDC and Comstock, Inc. for data feeds.
NOTE 13 - SUBSEQUENT EVENT
On January 19, 2005, the Company's stockholders approved the terms and
conditions of the Agreement and Plan of Merger, dated as of November 14,
2004, entered into by the Company and Dow Jones & Company, Inc. ("Dow
Jones"). On January 21, 2005, the merger was completed and the Company
became a wholly-owned subsidiary of Dow Jones.
Dow Jones acquired the Company for a purchase price of $18 per share in
cash for each share of the Company's common stock outstanding on January
21, 2005, the effective date of the merger. Each outstanding option to
purchase shares of the Company's common stock was assumed using an exchange
ratio based on the five day trading average of Dow Jones common stock
immediately preceding and excluding the effective date of the merger using
a $18 value. Based on the number of shares of the Company's common stock and
options outstanding as of the acquisition date, Dow Jones made a payment of
approximately $507.8 million and issued options to purchase approximately
1.2 million shares of Dow Jones common stock.
The Company recognized $2.7 million in merger and related costs for the
year ended December 31, 2004.
Licensing revenues from Dow Jones were $243,000 for the year ended December
31, 2004. In addition, the Company recognized costs to Dow Jones of
$334,000 for data feeds for the year ended December 31, 2004. At December
31, 2004, $13,000 was included in accounts receivable related to licensing
revenue and the Company had a liability of $176,000 to Dow Jones for data
feeds.
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