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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2000
COMMISSION FILE NUMBER 1-8260
PRIMARK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MICHIGAN 38-2383282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1000 WINTER STREET, SUITE 4300N, WALTHAM, MA 02451-1241
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
781-466-6611
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NO CHANGES
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 2000:
Common Stock, without par value: 20,269,551
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PRIMARK CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
PAGE
NUMBER
------
COVER......................................................................... i
INDEX......................................................................... ii
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements............................................... 1
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................ 8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk........................................................ 11
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................... 12
SIGNATURE..................................................................... 13
ii
3
PART I -- FINANCIAL INFORMATION
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- UNAUDITED
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 17,204 $ 18,435
Accounts receivable, less allowance for doubtful accounts
of $6,445 and $5,157, respectively...................... 134,646 108,116
Unbilled and other receivables............................ 9,998 7,690
Federal and other income tax receivable................... 11,342 20,448
Other current assets...................................... 17,545 16,940
-------- --------
190,735 171,629
-------- --------
INTANGIBLE AND OTHER ASSETS
Goodwill, less accumulated amortization of $104,388 and
$99,327, respectively................................... 578,439 583,371
Capitalized data and other intangible assets, less
accumulated amortization of $38,758 and $36,984,
respectively............................................ 34,731 36,418
Capitalized software, less accumulated amortization of
$26,894 and $23,899, respectively....................... 77,276 66,640
Investments............................................... 16,773 2,535
Other..................................................... 12,684 12,432
-------- --------
Total intangible and other assets......................... 719,903 701,396
-------- --------
PROPERTY AND EQUIPMENT
Computer equipment........................................ 80,309 75,432
Leasehold improvements.................................... 23,455 20,568
Other..................................................... 18,514 21,937
-------- --------
122,278 117,937
Accumulated depreciation.................................. (58,018) (51,862)
-------- --------
Net property and equipment................................ 64,260 66,075
-------- --------
Total Assets.............................................. $974,898 $939,100
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving bank debt....................................... $145,810 $133,000
Notes Payable and current portion of capital lease
obligations............................................. 8,484 8,774
Accounts Payable.......................................... 18,594 10,120
Accrued employee payroll and benefits..................... 34,278 42,417
Income taxes payable...................................... 22,470 14,672
Deferred income........................................... 107,875 82,109
Other accrued expenses.................................... 41,162 54,457
-------- --------
Total current liabilities................................. 378,673 345,549
-------- --------
LONG-TERM DEBT AND OTHER LIABILITIES
Senior subordinated notes................................. 150,000 150,000
Deferred income taxes..................................... 14,557 14,484
Other liabilities......................................... 11,019 11,142
-------- --------
Total long-term debt and other liabilities................ 175,576 175,626
-------- --------
Total liabilities....................................... 554,249 521,175
COMMITMENTS AND CONTINGENCIES (NOTE 5)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital............... 62,258 55,447
Retained earnings......................................... 371,435 372,052
Accumulated other comprehensive income (loss)............. (13,044) (9,574)
-------- --------
Total common shareholders' equity....................... 420,649 417,925
-------- --------
Total liabilities and common shareholders' equity......... $974,898 $939,100
======== ========
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME -- UNAUDITED
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
OPERATING REVENUES.......................................... $125,251 $117,344
OPERATING EXPENSES
Cost of services.......................................... 53,275 49,167
Selling, general and administrative....................... 51,315 45,582
Depreciation.............................................. 5,850 4,985
Amortization of goodwill.................................. 5,387 4,158
Amortization of other intangible assets................... 5,088 3,992
-------- --------
Total operating expenses............................... 120,915 107,884
-------- --------
Operating income....................................... 4,336 9,460
-------- --------
OTHER EXPENSE
Interest expense -- net................................... (5,814) (3,417)
Other expense -- net...................................... 757 163
-------- --------
Total other expense.................................... (5,057) (3,254)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (721) 6,206
INCOME TAX EXPENSE (BENEFIT)................................ (104) 3,518
-------- --------
INCOME (LOSS) BEFORE CHANGE IN ACCOUNTING PRINCIPLE......... (617) 2,688
-------- --------
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect of change in accounting principle (net
of $108 tax benefit)................................... -- (219)
-------- --------
NET INCOME (LOSS)........................................... $ (617) $ 2,469
======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income (loss)............................................. $ (0.03) $ 0.13
Change in accounting principle............................ -- (0.01)
-------- --------
Net income (loss)......................................... $ (0.03) $ 0.12
======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income (loss)............................................. $ (0.03) $ 0.13
Change in accounting principle............................ -- (0.01)
-------- --------
Net income (loss)......................................... $ (0.03) $ 0.12
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic..................................................... 20,187 20,984
Dilutive effect of stock options.......................... -- 463
-------- --------
Diluted shares outstanding (first quarter 2000 excludes
options to purchase 442 shares)........................ 20,187 21,447
-------- --------
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- UNAUDITED
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)......................................... $ (617) $ 2,469
Adjustments to reconcile net income to cash flows from
operating activities:
Depreciation and amortization............................. 16,325 13,135
Other charges and credits -- net.......................... 1,242 (136)
Changes in operating working capital, excluding the effect
of acquisitions:
Accounts receivable, unbilled and other
receivables -- net.................................... (29,369) (4,846)
Other current assets and liabilities................... (14,180) (821)
Accounts payable....................................... 8,609 (2,311)
Accrued payroll and benefits........................... (7,776) (7,809)
Income and other taxes payable -- net.................. 17,181 (2,931)
Deferred income........................................ 26,385 9,479
--------- ---------
Net change in operating working capital.............. 850 (9,239)
--------- ---------
Net cash provided by operating activities............ 17,800 6,229
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable...................... 394,848 207,973
Repayment of short-term notes payable..................... (382,038) (146,473)
Common stock repurchased and retired...................... -- (16,077)
Common stock issuance and related tax benefits............ 811 3,202
Debt issue costs and other................................ (306) (75)
--------- ---------
Net cash provided by financing activities............ 13,315 48,550
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (6,576) (6,642)
Software capitalized...................................... (8,165) (4,303)
Purchase of subsidiaries -- net of acquired cash.......... (3,341) (66,831)
Proceeds from disposal of discontinued operations......... -- 8,900
Tax paid on disposal of discontinued operations........... -- (8,943)
Purchase of investments................................... (14,163) --
Other -- net.............................................. -- (620)
--------- ---------
Net cash used for investing activities............... (32,245) (78,439)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (101) (342)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (1,231) (24,002)
CASH AND CASH EQUIVALENTS, JANUARY 1........................ 18,435 51,630
--------- ---------
CASH AND CASH EQUIVALENTS, MARCH 31......................... $ 17,204 $ 27,628
========= =========
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMMON SHAREHOLDERS' EQUITY -- UNAUDITED
THREE MONTHS ENDED
MARCH 31, 2000
------------------
(IN THOUSANDS OF
DOLLARS)
COMMON STOCK, without par value -- authorized 100,000,000
shares, issued 20,268,221 shares, at $0.02 stated value
Balance -- beginning of period.............................. $ 400
Issued for employee stock purchase and option plans......... 1
Issuance of common stock -- (Note 3)....................... 5
--------
Balance at March 31......................................... 406
--------
ADDITIONAL PAID IN CAPITAL
Balance -- beginning of period.............................. 55,047
Tax benefit relating to stock options....................... 153
Issued for employee stock purchase and option plans......... 657
Issuance of common stock -- (Note 3)........................ 5,995
--------
Balance at March 31......................................... 61,852
--------
RETAINED EARNINGS
Balance -- beginning of period.............................. 372,052
Net (loss).................................................. (617)
--------
Balance at March 31......................................... 371,435
--------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance -- beginning of period.............................. (9,574)
Net gain on derivative instruments designated as cash flow
hedges.................................................... (66)
Foreign currency translation adjustments.................... (3,427)
Other....................................................... 23
--------
Balance at March 31......................................... (13,044)
--------
TOTAL COMMON SHAREHOLDERS' EQUITY........................... $420,649
========
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) -- UNAUDITED
THREE MONTHS ENDED
MARCH 31,
------------------
2000 1999
------- -------
(IN THOUSANDS OF
DOLLARS)
NET INCOME (LOSS)........................................... $ (617) $ 2,469
------- -------
Other comprehensive income, net of tax:
Net gain on derivative instruments designated as cash flow
hedges.................................................... (66) 106
Cumulative translation adjustment........................... (3,427) (6,361)
Other....................................................... 23 --
------- -------
OTHER COMPREHENSIVE INCOME (LOSS)........................... (3,470) (6,255)
------- -------
COMPREHENSIVE LOSS.......................................... $(4,087) $(3,786)
======= =======
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS
Pursuant to the August 1996 Purchase Agreement between Primark Corporation
("the Company") and the Yankee Group Research Inc. on March 31, 2000, $3,340,525
of the remaining $3,480,775 contingent purchase price payment was paid. The
total payment was recorded as an increase to goodwill. The balance of $140,250
was paid on April 6, 2000.
2. INVESTMENTS
a. Tradeportal.com
On March 30, 2000, the Company purchased a 20% equity interest in
Tradeportal.com for $6 million. TradePortal is a leading direct access execution
firm offering Internet-based trading and information. The Company and
TradePortal also announced a strategic business alliance to share certain
product capabilities. The Company will license certain real-time pricing feeds,
user display technology and investment research information for use in
TradePortal products in return for a percentage of gross revenues. TradePortal
will provide access to its trading systems directly from Primark products. This
investment is accounted for using the equity method.
b. Bulldog.com
In February 2000, the Company invested $825,000 in The Bulldog Group Inc
for a 6.9% equity interest. In connection with this investment, the Company has
the right to appoint a board representative. The Bulldog Group is a privately
held content management software and services company that enables media-rich
businesses to leverage content and take advantage of new opportunities. Bulldog
is licensing financial data from the Company for use on its Web site. This
investment is accounted for using the equity method.
c. The Money Channel
In February 2000, the Company invested $5.1 million in The Money Channel
for a 5% equity interest. The Money Channel is the UK's first dedicated TV
channel for finance and investment information and is listed on the London Stock
Exchange. Primark will be the exclusive provider of financial information to The
Money Channel for broadcast programming and the interactive services that the
Money Channel intends to develop. This investment is classified as an
available-for-sale security in accordance with Statement of Financial Accounting
Standards ("FAS") 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES, and is reported at market value. Unrealized gains and losses on
available-for-sale securities are recognized as a separate component of
stockholders' equity, net of tax.
3. ISSUANCE OF COMMON STOCK
In January 2000, the Company entered into an agreement with MicroStrategy
Inc. for the development and licensing of The Primark Financial Channel. The
Primark Financial Channel will combine the leading wireless delivery technology
of Microstrategy with the global financial and economic information of Primark.
The total consideration related to this agreement will be approximately $11.0
million payable at certain milestones in 2000. On January 25, 2000, 230,770
shares of Primark common stock were issued to MicroStrategy's designee, Fletcher
International LTD, in partial payment of this agreement at a market value of $6
million. This is a non-cash transaction and has been excluded from the Company's
Consolidated Statement of Cash Flows.
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4. SEGMENT INFORMATION
Based upon the different requirements of the Company's customer base, the
Company has organized itself as follows:
PRIMARK FINANCIAL INFORMATION DIVISION. ("PFID") develops
"enterprise-wide" products and services for major financial institutions on a
global basis.
PRIMARK FINANCIAL ANALYTICS DIVISION. ("PFAD") concentrates on developing
and marketing a wide variety of analytical products for money managers, fund
sponsors and other investors.
PRIMARK DECISION INFORMATION DIVISION. ("PDID") acquires, develops and
operates information content businesses that are primarily focused in areas
other than the financial marketplace.
PRIMARK RESEARCH CENTERS. ("PRC") provide a full range of research
solutions from personalized research support to fast and convenient document
retrieval.
The Primark Corporate Division ("CORP") supports all operating divisions
with tax, accounting and legal services.
COMPARATIVE SEGMENT ANALYSIS
MARCH 31,
--------------------
2000 1999
-------- --------
(000)S
Revenue:
PFID................................. $ 76,405 $ 71,706
PFAD................................. 26,751 21,818
PDID................................. 15,644 13,627
PRC.................................. 6,451 10,193
CORP................................. -- --
-------- --------
Total........................ $125,251 $117,344
======== ========
Operating Income (Loss):
PFID................................. $ 1,039 $ 4,244
PFAD................................. 5,081 4,178
PDID................................. 117 237
PRC.................................. (150) 1,526
CORP................................. (1,751) (725)
-------- --------
Total........................ $ 4,336 $ 9,460
======== ========
Total Assets*:
PFID................................. $726,685 $673,922
PFAD................................. 96,779 80,634
PDID................................. 107,114 105,256
CORP................................. 44,320 27,514
-------- --------
Total........................ $974,898 $887,326
======== ========
- ---------------
* Total assets for PRC are not allocated by the Company.
5. SUBSEQUENT EVENTS
On May 8, 2000, the Company entered into an agreement with Reuters Group
plc to sell all of the outstanding common stock of its subsidiary, the Yankee
Group Research, Inc. for a cash price of $72.5 million. The closing of this
transaction is subject to various conditions including but not limited to no
material adverse changes occurring in the business since the signing of the
stock purchase agreement and regulatory clearance under the Hart-Scott-Rodino
Anti-Trust Improvements Act.
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6. CONTINGENCIES
There have been no other significant developments with respect to the
Company's contingent liabilities which were disclosed in the Company's 1999
Annual Report on Form 10-K. Management cannot predict the final disposition of
such issues, but believes that adequate provision has been made in the financial
statements and that the ultimate resolution of any outstanding issues will not
have a material adverse effect on the Company's financial condition.
7. GENERAL
In the opinion of management, the accompanying balance sheets and related
interim statements of income and cash flows include all adjustments (consisting
only of normal recurring items) necessary for their fair presentation in
conformity with generally accepted accounting principles. Preparing financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. Examples include
provision for bad debts and the length of asset lives. Actual results may differ
from these estimates. Interim results are not necessarily indicative of results
for a full year. The information included in this Form 10-Q should be read in
conjunction with Management's Discussion and Analysis and financial statements
and notes thereto included in the Primark Corporation 1999 Annual Report on Form
10-K.
Certain reclassifications have been made to prior year statements to
conform to the 2000 presentation.
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Primark Corporation ("the Company") reported a loss for the first quarter
2000 of $617,000 ($0.03 per share) compared to a profit of $2.5 million ($0.12
per share) in the first quarter of 1999. The decrease from historic performance
levels is a result of planned expenditures on new product initiatives in the
real time and Internet markets in addition to higher interest costs and
unfavorable currency movements.
The following table summarizes the operating results of Primark by Division
in thousand of dollars:
2000 1999 % CHANGE
-------- -------- --------
Revenue
PFID.............................. $ 76,405 $ 71,706 6.6%
PFAD.............................. 26,751 21,818 22.6%
PDID.............................. 15,644 13,627 14.8%
PRC............................... 6,451 10,193 (36.7%)
-------- --------
$125,251 $117,344 6.7%
======== ========
EBITDA
PFID.............................. $ 12,615 $ 13,273 (5.0%)
PFAD.............................. 7,008 6,041 16.0%
PDID.............................. 1,269 1,319 (3.8%)
PRC............................... 909 2,332 (61.0%)
CORP.............................. (1,140) (370) (208%)
-------- --------
$ 20,661 $ 22,595 (8.6%)
======== ========
8
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2000 1999 % CHANGE
-------- -------- --------
Operating Income (Loss)
PFID.............................. $ 1,039 $ 4,244 (75.5%)
PFAD.............................. 5,081 4,178 21.6%
PDID.............................. 117 237 (50.6%)
PRC............................... (150) 1,526 (109.8%)
CORP.............................. (1,751) (725) (142%)
-------- --------
$ 4,336 $ 9,460 (54.2%)
======== ========
EBITDA represents operating income plus depreciation and amortization
expense and should not be considered in isolation from, or as a substitute for,
operating income, net income or cash flows from operating activities computed in
accordance with generally accepted accounting principles. While not a required
disclosure under generally accepted accounting principles, EBITDA is a widely
used measure of a company's performance in its industry because it assists in
comparing performance on a consistent basis without regard to depreciation and
amortization, which may vary significantly depending on accounting methods
(particularly where acquisitions are involved). Management of the company
believes that EBITDA is a meaningful measure given the widespread industry
acceptance as a basis for financial analysis. Further, certain of the company's
debt agreements include financial covenants that are based upon EBITDA, as
defined above. Due to the variety of methods that may be used by companies and
analysts to calculate EBITDA, the EBITDA measures presented herein may not be
comparable to that presented by other companies.
Revenues during the first quarter were reported at $125.3 million compared
to $117.3 million in 1999, a 6.7% increase. Operating margins in 2000 are lower
due to the cost of developing and supporting new Internet and wireless-based
initiatives.
PRIMARK FINANCIAL INFORMATION DIVISION
The Primark Financial Information Division ("PFID") and its Research Center
("PRC") business experienced minimal growth during the first quarter of 2000.
Excluding the effect of currency, the revenues grew 4.4% in the first quarter
with the international operations growing at 4.6% and the US operations growing
at 4%. Overseas revenues had strong growth in key markets partially offset by
flat revenues in the United Kingdom. Because the real time products were
introduced in Europe at the end of the first quarter, the growth rates do not
yet fully reflect the revenue impact of these new products. Although the
Financial Information Division's domestic revenues were up 4% over last year,
these results were hampered by the division's Research Center business. The
transition of Laser D customers to Global Access Pro and lower demand product
sales accounted for a combined $3.8 million revenue shortfall over last year.
When the Demand and Laser D products are eliminated, Domestic revenues grew 16%.
PRIMARK FINANCIAL ANALYTICS DIVISION
The Primark Financial Analytics Division ("PFAD") had another strong
quarter with growth in revenues of 22.6%, growth in EBITDA of 16% and growth in
operating income of 21.6%. All product lines grew strongly with IBES reporting
an increase in revenues of 26%, followed by Vestek at 19.5% and Baseline at
18.8%. Management expects this strong performance to continue with the sale of
new or recently released products.
PRIMARK DECISION INFORMATION DIVISION
The Primark Decision Information Division ("PDID") had revenues of $15.6
million in the first quarter, representing growth of 14.8%. Yankee revenues
continued to increase, offsetting lower revenues at WEFA. The timing of
recording revenues for seminars and consulting agreements contributed to revenue
performance at both Yankee and WEFA.
9
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CORPORATE
The Corporate operating loss increased $1 million to $1.7 million at March
31, 2000. This increase is attributed to the centralization of our financial and
accounting functions and increased professional service fees.
Other comprehensive income decreased by approximately $3.5 million
primarily due to a change in cumulative translation resulting from the dollar
strengthening against the pound. The Company has a significant goodwill asset
denominated in pounds.
Capital Resources and Liquidity
Primark's cash and cash equivalent balances decreased $1.2 million during
the three months ended March 31, 2000 as a result of operating activities
contributing $17.8 million, financing operations generating $13.3 million and
investing activities absorbing $32.2 million.
The $11.6 million increase in cash flows from operating activities is a
result of increased earnings at the operating level as well as timing
differences associated with working capital accounts.
Financing activities, for the most part, reflect a net increase of $12.8
million on Primark's revolving credit facility, resulting in $304.7 million of
funded debt outstanding as of March 31, 2000. Additionally, Primark received
proceeds of $811,000 on the issuance of common stock associated with stock
option and employee stock purchase plans.
Investing activities during the first quarter of 2000 reflect the use of
$14.2 million for the purchase of 1) a 20% equity interest in Tradeportal for $6
million, 2) a 5% equity investment in the Money Channel for $5.1 million and 3)
a 6.9% equity interest in The Bulldog Group for $825,000. All of these
investments are part of the Company's aggressive development plan for both
Internet and wireless services during 2000. Additionally, investing activities
included $6.6 million of capital expenditures and $8.2 million of capitalized
software. The capital expenditures consisted primarily of computer equipment
purchases, which totaled $5.2 million in the first quarter. Capitalized software
represents expenditures primarily on new product offerings within the Primark
Financial Information Division. Investing activities also reflect a $3.3 million
contingent purchase price payment pursuant to the August 1996 Purchase Agreement
between Primark Corporation and the Yankee Group.
In a non-cash transaction excluded from the Consolidated Statement of Cash
Flows, the Company issued 230,770 shares of common stock to MicroStrategy's
designee, Fletcher International Ltd. in partial payment of a contract with
MicroStrategy to provide licenses and develop software for wireless channels to
deliver Primark's data to retail and professional investors.
On May 8, 2000, the Company entered into an agreement with Reuters Group
plc to sell all of the outstanding common stock of its subsidiary, the Yankee
Group Research, Inc. for a cash price of $72.5 million. The closing of this
transaction is subject to various conditions including but not limited to no
material adverse changes occurring in the business since the signing of the
stock purchase agreement and regulatory clearance under the Hart-Scott-Rodino
Anti-Trust Improvements Act. The sale of the Yankee Group is estimated to result
in a pre-tax gain of $35 million, with after-tax cash proceeds of approximately
$60 million. Primark intends to use the cash proceeds to further invest in its
high growth Internet and e-commerce initiatives within its core business units.
A portion of the proceeds will also be used to repay Primark's bank debt.
Foreign Currency Exchange Risk Management
A significant portion of Primark's revenues are denominated in currencies
other than the US dollar. For the quarter ended March 31, 2000, approximately
56% of total revenues were denominated in non-US dollar currencies of which
approximately 31.1%, 17.7%, and 7% are denominated in UK sterling, currencies of
Continental Europe, and Asian currencies, respectively.
10
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For the quarter ended March 31, 2000, approximately 70.7% of operating
income excluding goodwill amortization was denominated in non-US dollar
currencies. This 70.7% can be broken down between a negative margin of (18.8%)
in UK sterling, 76% in Continental Europe and 13.5% in Asia. The primary market
risk that Primark faces is the risk of the US dollar strengthening versus the
euro, Swiss franc, Swedish krona, and Japanese yen.
Based on the VAR model, Primark estimates there is a 5% chance that the
forecast for operating income for the next four quarters will deteriorate due to
foreign exchange fluctuations over the next calendar quarter by more than $2.43
million before hedging and $1.89 million after taking into account the Company's
hedging portfolio, representing cover of 22.2%, as of March 31, 2000.
For the quarter ended March 31, 2000, there was no ineffective portion of
derivative gains or losses reported in earnings and net gains from hedge
transactions reclassified from other comprehensive income to revenues totaled
$239,000. At March 31, 2000, the fair value of derivative instruments designated
as cash flow hedges was $306,000 and was recorded in other current assets with
the offset to other comprehensive income, net of applicable income taxes. The
gain will be recognized in revenues over the next 24 months as the forecasted
revenues are recognized.
Forward and option contracts are also entered into to protect anticipated
repatriations of excess cash flow, primarily from the UK, under intercompany
loan agreements or other financial transactions. The Company accounts for these
instruments as fair value hedges and changes in the fair market value of such
contracts are recorded each period in non-operating income or loss. During the
quarter ended March 31, 2000, the net gain on fair value hedging contracts
recorded as non-operating income was $284,000.
Certain Factors that May Affect Future Results
In addition to historical information presented here, this report includes
statements that may constitute forward-looking statements made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Although Primark believes the expectations contained in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove correct. This information may involve risks and uncertainties that could
cause the actual results of Primark to differ materially from the
forward-looking statements. Factors which could cause or contribute to such
differences included, but are not limited to (i) the risks associated with
operating on a global basis, including fluctuations in the value of foreign
currencies relative to the US dollar, and the ability to successfully hedge such
risks, (ii) the extent to which Primark seeks growth through acquisitions, and
the ability to identify and consummate acquisitions on satisfactory terms, (iii)
uncertainty regarding the development and market acceptance of new products,
(iv) loss of market share through competition, and (v) deterioration in economic
conditions, particularly in the financial services industry.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by this item is provided under the caption
"Foreign Currency Exchange Risk Management" under Item 2 -- Management's
Discussion and Analysis of Results of Operations and Financial Condition. Also
see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in
Primark's 1999 10-K.
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1* Stock Purchase Agreement dated May 8, 2000 between the
Company and Reuters Holding Switzerland SA.
10.1* Amendment dated March 28, 2000 to Refinancing Agreements
dated February 7, 1997, by and among Primark Corporation,
Lenders Parties, Mellon Bank, N.A.
10.2* Amendment dated March 31, 2000 to Refinancing Agreements
dated February 7, 1997, by and among Primark Corporation,
Lenders Parties, Mellon Bank, N.A.
10.3* Amendment dated April 10, 2000 to Refinancing Agreements
dated February 7, 1997, by and among Primark Corporation,
Lenders Parties, Mellon Bank, N.A.
27* Financial Data Schedule.
99.1* Press release dated May 9, 2000.
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* Indicates document filed herewith.
(b) No Current Reports were filed by the Company during the quarter ended March
31, 2000.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMARK CORPORATION
By: /s/ STEPHEN H. CURRAN
--------------------------------------
Stephen H. Curran
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 2000
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