1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JUNE 30, 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 July 31, 2000: Common Stock, without par value: 20,312,952
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PRIMARK CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 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............ 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk...................................... 12
PART II -- OTHER INFORMATION
Item 4. Results of Votes of Security Holders............. 12
Item 6. Exhibits and Reports on Form 8-K................. 14
SIGNATURE................................................... 15
ii
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PART I -- FINANCIAL INFORMATION
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION -- UNAUDITED
JUNE 30, DECEMBER 31,
2000 1999
--------- -------------
(IN THOUSANDS OF DOLLARS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................. $ 12,046 $ 18,435
Accounts receivable, less allowance for doubtful accounts
of $8,942 and $5,157, respectively...................... 119,090 108,116
Unbilled and other receivables............................ 8,702 7,690
Federal and other income tax receivable................... 16,767 20,448
Other current assets...................................... 21,519 16,940
-------- --------
178,124 171,629
-------- --------
INTANGIBLE AND OTHER ASSETS
Goodwill, less accumulated amortization of $105,171 and
$99,327, respectively................................... 522,567 583,371
Capitalized data and other intangible assets, less
accumulated amortization of $38,055 and $36,984,
respectively............................................ 32,108 36,418
Capitalized software, less accumulated amortization of
$29,650 and $23,899, respectively....................... 81,175 66,640
Investments............................................... 15,390 2,535
Other..................................................... 11,863 12,432
-------- --------
Total intangible and other assets......................... 663,103 701,396
-------- --------
PROPERTY AND EQUIPMENT
Computer equipment........................................ 82,590 75,432
Leasehold improvements.................................... 23,542 20,568
Other..................................................... 17,832 21,937
-------- --------
123,964 117,937
Accumulated depreciation.................................. (60,278) (51,862)
-------- --------
Net property and equipment................................ 63,686 66,075
-------- --------
Total Assets.............................................. $904,913 $939,100
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving bank debt....................................... $ 87,000 $133,000
Notes payable and current portion of capital lease
obligations............................................. 8,464 8,774
Accounts payable.......................................... 13,185 10,120
Accrued employee payroll and benefits..................... 28,897 42,417
Income taxes payable...................................... 33,465 14,672
Deferred income........................................... 83,378 82,109
Other accrued expenses.................................... 44,941 54,457
-------- --------
Total current liabilities................................. 299,330 345,549
-------- --------
LONG-TERM DEBT AND OTHER LIABILITIES
Senior subordinated notes................................. 150,000 150,000
Deferred income taxes..................................... 13,718 14,484
Other liabilities......................................... 11,299 11,142
-------- --------
TOTAL LONG-TERM DEBT AND OTHER LIABILITIES.................. 175,017 175,626
-------- --------
Total liabilities......................................... 474,347 521,175
COMMITMENTS AND CONTINGENCIES (NOTE 6)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital............... 63,313 55,447
Retained earnings......................................... 391,828 372,052
Accumulated other comprehensive income (loss)............. (24,575) (9,574)
-------- --------
Total common shareholders' equity......................... 430,566 417,925
-------- --------
Total liabilities and common shareholders' equity......... $904,913 $939,100
======== ========
The accompanying notes to the unaudited consolidated financial statements
are an integral part of these statements.
1
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME -- UNAUDITED
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
------------------- ---------------------
2000 1999 2000 1999
-------- -------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING REVENUES................................. $129,700 $122,170 $254,951 $239,514
OPERATING EXPENSES
Cost of services................................. 54,345 50,173 107,620 99,340
Selling, general and administrative.............. 53,502 45,592 104,817 91,174
Depreciation..................................... 6,068 5,030 11,918 10,016
Amortization of goodwill......................... 4,858 4,709 10,245 8,867
Amortization of other intangible assets.......... 5,609 4,386 10,697 8,377
Restructuring.................................... -- (4) -- (4)
-------- -------- -------- --------
Total operating expenses...................... 124,382 109,886 245,297 217,770
-------- -------- -------- --------
Operating income.............................. 5,318 12,284 9,654 21,744
-------- -------- -------- --------
OTHER INCOME (EXPENSE)
Gain on sale of subsidiary....................... 32,970 -- 32,970 --
Interest expense -- net.......................... (4,984) (4,727) (10,798) (8,144)
Other income (expense) -- net.................... 647 (340) 1,404 (177)
-------- -------- -------- --------
Total other income (expense).................. 28,633 (5,067) 23,576 (8,321)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES......................... 33,951 7,217 33,230 13,423
INCOME TAX EXPENSE................................. 13,558 3,026 13,454 6,544
-------- -------- -------- --------
INCOME BEFORE CHANGE IN ACCOUNTING PRINCIPLE....... 20,393 4,191 19,776 6,879
-------- -------- -------- --------
CHANGE IN ACCOUNTING PRINCIPLE
Cumulative effect of change in accounting
principle (net of $108 tax benefit)........... -- -- -- (219)
-------- -------- -------- --------
NET INCOME......................................... $ 20,393 $ 4,191 $ 19,776 $ 6,660
======== ======== ======== ========
BASIC EARNINGS (LOSS) PER COMMON SHARE
Income........................................... $ 1.01 $ 0.20 $ 0.98 $ 0.33
Change in accounting principle................... -- -- -- (0.01)
-------- -------- -------- --------
Net income....................................... $ 1.01 $ 0.20 $ 0.98 $ 0.32
======== ======== ======== ========
DILUTED EARNINGS (LOSS) PER COMMON SHARE
Income........................................... $ 0.97 $ 0.20 $ 0.95 $ 0.33
Change in accounting principle................... -- -- -- (0.01)
-------- -------- -------- --------
Net income....................................... $ 0.97 $ 0.20 $ 0.95 $ 0.32
======== ======== ======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic............................................ 20,283 20,592 20,235 20,656
Dilutive effect of stock options................. 768 497 586 477
-------- -------- -------- --------
Diluted shares outstanding....................... 21,051 21,089 20,821 21,133
-------- -------- -------- --------
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
SIX MONTHS ENDED JUNE 30,
--------------------------
2000 1999
----------- -----------
(IN THOUSANDS OF DOLLARS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 19,776 $ 6,660
Adjustments to reconcile net income to cash flows from
operating activities:
Gain on sale of subsidiary................................ (32,970) --
Depreciation and amortization............................. 32,860 27,260
Other charges and credits -- net.......................... 588 2,496
Changes in operating working capital, excluding the effect
of acquisitions & dispositions:
Accounts receivable, unbilled and other
receivables -- net.................................... (26,447) (8,507)
Other current assets and liabilities................... (13,392) (9,989)
Accounts payable....................................... 4,497 (2,738)
Accrued payroll and benefits........................... (9,153) 360
Income and other taxes payable -- net.................. 23,945 4,168
Deferred income........................................ 17,540 10,566
--------- ---------
Net change in operating working capital.............. (3,010) (6,140)
--------- ---------
Net cash provided by operating activities............ 17,244 30,276
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable...................... 831,343 460,010
Repayment of short-term notes payable..................... (877,343) (381,687)
Common stock repurchased and retired...................... -- (25,653)
Common stock issuance and related tax benefits............ 1,866 4,371
Debt issue costs and other................................ (302) (1,492)
--------- ---------
Net cash provided by (used for) financing
activities.......................................... (44,436) 55,549
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (15,023) (13,452)
Software capitalized...................................... (17,314) (10,192)
Purchase of subsidiaries -- net of acquired cash.......... (3,480) (79,118)
Proceeds from sale of subsidiary.......................... 72,500 8,900
Tax paid on sale of subsidiary............................ -- (21,381)
Purchase of investments................................... (15,017) --
--------- ---------
Net cash provided by (used for) investing
activities.......................................... 21,666 (115,243)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (863) (339)
NET DECREASE IN CASH AND CASH EQUIVALENTS................... (6,389) (29,757)
CASH AND CASH EQUIVALENTS, JANUARY 1........................ 18,435 51,630
--------- ---------
CASH AND CASH EQUIVALENTS, JUNE 30.......................... $ 12,046 $ 21,873
========= =========
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
SIX MONTHS
ENDED
JUNE 30, 2000
----------------
(IN THOUSANDS OF
DOLLARS)
COMMON STOCK, without par value -- authorized 100,000,000
shares, issued 20,310,297 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 4)........................... 5
--------
Balance at June 30.......................................... 406
--------
ADDITIONAL PAID IN CAPITAL
Balance -- beginning of period.............................. 55,047
Tax benefit relating to stock options....................... 323
Issued for employee stock purchase and option plans......... 1,542
Issuance of common stock (Note 4)........................... 5,995
--------
Balance at June 30.......................................... 62,907
--------
RETAIN EARNINGS
Balance -- beginning of period.............................. 372,052
Net income.................................................. 19,776
--------
Balance at June 30.......................................... 391,828
--------
ACCUMULATED OTHER COMPREHENSIVE INCOME
Balance -- beginning of period.............................. (9,574)
Net gain on derivative instruments designated as cash flow
hedges.................................................... (219)
Foreign currency translation adjustments.................... (12,800)
Unrealized loss on investments.............................. (2,012)
Other....................................................... 30
--------
Balance at June 30.......................................... (24,575)
--------
TOTAL COMMON SHAREHOLDERS' EQUITY........................... $430,566
========
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)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------- ------------------
2000 1999 2000 1999
-------- ------- ------- -------
(IN THOUSANDS OF DOLLARS)
NET INCOME........................................... $20,393 $4,191 $19,776 $ 6,660
------- ------ ------- -------
Other comprehensive income (loss), net of tax:
Net gain (loss) on derivative instruments designated
as cash flow hedges................................ (153) 230 (219) 336
Cumulative translation adjustment.................... (9,373) (1,929) (12,800) (8,290)
Unrealized loss on investments....................... (2,012) -- (2,012) --
Other................................................ 7 -- 30 --
------- ------ ------- -------
OTHER COMPREHENSIVE LOSS............................. (11,531) (1,699) (15,001) (7,954)
------- ------ ------- -------
COMPREHENSIVE INCOME (LOSS).......................... $ 8,862 $2,492 $ 4,775 $(1,294)
======= ====== ======= =======
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 CONSOLIDATED FINANCIAL STATEMENTS
1. PLAN OF MERGER
Primark Corporation ("the Company") entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated June 5, 2000, with The Thomson
Corporation ("Thomson") and Marquee Acquisition Corporation ("Purchaser"), an
indirect wholly owned subsidiary of Thomson. Pursuant to the Merger Agreement,
on June 14, 2000, Purchaser commenced a cash tender offer (the "Tender Offer")
for all of the shares of the Company common stock for $38.00 per share. The
Merger Agreement provides that, as promptly as practicable after consummation of
the Tender Offer and the satisfaction or waiver of the conditions set forth in
the Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger"), resulting in the Company becoming an indirect wholly owned subsidiary
of Thomson. At the effective time of the Merger, each share of the Company's
common stock issued and outstanding (other than treasury shares, shares owned by
Thomson or Purchaser and shares held by holders that perfect their dissenters'
rights, if any, under Michigan law) will be converted automatically into the
right to receive $38.00 in cash, or any higher price per share that may be paid
in the Tender Offer. On June 28, 2000, the Company and Thomson announced that
they had received a request for additional information from the Antitrust
Division of the Department of Justice.
2. SALE OF SUBSIDIARY
On June 1, 2000, the Company sold all of the outstanding common stock of
its subsidiary, the Yankee Group Research, Inc. to Reuters Group plc for a cash
price of $72.5 million. The sale resulted in a gain of $33.0 million, which is
included in other income.
Prior to the sale and pursuant to the August 1996 Purchase Agreement
between the Company and The Yankee Group Research, Inc. the remaining $3.5
million contingent purchase price payment was made in the first quarter of 2000.
The total payment was recorded as an increase to goodwill.
3. INVESTMENTS
a. Trustnet Limited
During the second quarter of 2000, the Company made a 16.7% equity
investment in TrustNet Limited for $2.4 million. TrustNet Limited is a web-based
distributor of UK open- and closed-end mutual fund performance and profiling
data. This investment is accounted for using the equity method.
b. Wheatley Partners
In May 2000 the Company entered into a Limited Partnership Agreement to
invest a maximum of $3.0 million in Wheatley Partners III, L.P. ("Wheatley
Partners"). Wheatley Partners is a limited partnership with an investment
strategy that explores opportunity within technology-related sectors such as
Internet, software, Information Technology Consulting and telecommunications. On
May 1, 2000, $300,000 was paid to Wheatley Partners.
c. 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 the Company's products.
This investment is accounted for using the equity method.
6
9
d. 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.
e. 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. The Company will provide 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 available-for-sale
securities 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.
4. 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 the
Company. On June 30, 2000 this agreement was ammended by $1 million, bringing
the total consideration due MicroStrategy from $11 million to $10 million which
is payable at certain milestones in 2000.
On January 25, 2000, 230,770 shares of the Company's 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.
5. SEGMENT INFORMATION
Based upon the different requirements of the Company's customer base, the
Company has organized itself as follows:
PRIMARK FINANCIAL INFORMATION DIVISION. Primark Financial Information
Division ("PFID") develops "enterprise-wide" products and services for major
financial institutions on a global basis.
PRIMARK FINANCIAL ANALYTICS DIVISION. 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. 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. The 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 the operating divisions
with tax, accounting and legal services.
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COMPARATIVE SEGMENT ANALYSIS
THREE MONTHS ENDED JUNE SIX MONTHS ENDED JUNE
30, 30,
----------------------- ---------------------
2000 1999 2000 1999
--------- ---------- -------- ---------
Revenue:
PFID.......................... $ 80,741 $ 78,385 $157,146 $150,090
PFAD.......................... 28,112 22,788 54,863 44,606
PDID.......................... 14,038 14,773 29,682 28,400
PRC........................... 6,809 6,224 13,260 16,418
-------- -------- -------- --------
Total................. $129,700 $122,170 $254,951 $239,514
-------- -------- -------- --------
Operating Income (Loss)
PFID.......................... $ 1,643 $ 5,945 $ 2,724 $ 10,189
PFAD.......................... 4,691 4,657 9,772 8,834
PDID.......................... 1,867 2,095 2,310 2,745
PRC........................... 407 829 257 2,355
CORP.......................... (3,290) (1,242) (5,409) (2,379)
-------- -------- -------- --------
Total................. $ 5,318 $ 12,284 $ 9,654 $ 21,744
-------- -------- -------- --------
AT JUNE 30, 2000 AT DECEMBER 31, 1999
Total Assets*:
PFID.......................... $710,912 $696,214
PFAD.......................... 100,710 92,291
PDID.......................... 44,323 100,242
CORP.......................... 48,968 50,353
-------- --------
Total................. $904,913 $939,100
======== ========
- ---------------
* Total assets for PRC are not allocated by the Company.
6. CONTINGENCIES
There have been no 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.
8
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ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Plan of Merger
Primark ("the Company") entered into an Agreement and Plan of Merger (the
"Merger Agreement"), dated as of June 5, 2000, with The Thomson Corporation
("Thomson") and Marquee Acquisition Corporation ("Purchaser"), an indirect
wholly owned subsidiary of Thomson. Pursuant to the Merger Agreement, on June
14, 2000, Purchaser commenced a cash tender offer (the "Tender Offer") for all
of the shares of the Company's common stock for $38.00 per share. The Merger
Agreement provides that, as promptly as practicable after consummation of the
Tender Offer and the satisfaction or waiver of the conditions set forth in the
Merger Agreement, Purchaser will be merged with and into the Company (the
"Merger"), resulting in the Company becoming an indirect wholly owned subsidiary
of Thomson. At the effective time of the Merger, each share of Primark common
stock issued and outstanding (other than treasury shares, shares owned by
Thomson or Purchaser and shares held by holders that perfect their dissenters'
rights, if any, under Michigan law) will be converted automatically into the
right to receive $38.00 in cash, or any higher price per share that may be paid
in the Tender Offer. Management anticipates this Merger will be completed in the
second half of 2000. On June 28, 2000, the Company and Thomson announced that
they had received a request for additional information from the Antitrust
Division of the Department of Justice.
Sale of Subsidiary
On June 1, 2000, the Company sold all of the outstanding common stock of
its subsidiary, the Yankee Group Research, Inc. to Reuters Group plc for a cash
price of $72.5 million. The sale resulted in a gain of $33.0 million, which is
included in other income.
Prior to the sale and pursuant to the August 1996 Purchase Agreement
between the Company and the Yankee Group Research, Inc. the remaining $3.5
million contingent purchase price payment was made in the first quarter of 2000.
The total payment was recorded as an increase to goodwill.
Results of Operations
Primark Corporation reported net income for the second quarter of 2000 and
six months ended June 30, 2000 at $20.4 million ($0.97 per share) and $19.8
million ($0.95 per share) compared to $4.2 million ($0.20 per share) and $6.7
million ($0.32 per share) for the respective periods of 1999. Excluding the
effects of currency, revenues grew 9.2% and 8.5% for the second quarter and six
months ended June 30, 2000, respectively. A gain of $33.0 million is included in
other income related to the sale of the Yankee Group Research, Inc., a
previously wholly owned subsidiary of the Company. Exclusive of that gain and
related tax expense, Primark would have had a net loss in the second quarter and
for the six months ended June 30, 2000 of $298,000 ($0.01 per share) and
$915,000 ($0.04 per share), respectively. 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:
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------- ---------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ----------- -------- -------- -----------
Revenue
PFID............... $ 87,550 $ 84,609 3.5% $170,406 $166,508 2.3%
PFAD............... 28,112 22,788 23.4% 54,863 44,606 23.0%
PDID............... 14,038 14,773 (5.0%) 29,682 28,400 4.5%
-------- -------- -------- --------
$129,700 $122,170 6.2% $254,951 $239,514 6.4%
======== ======== ======== ========
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QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
--------------------------------- ---------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
-------- -------- ----------- -------- -------- -----------
EBITDA
PFID............... $ 15,054 $ 17,474 (13.8%) $ 28,620 $ 33,079 (13.5%)
PFAD............... 6,655 6,569 1.3% 13,663 12,610 8.3%
PDID............... 2,827 3,204 (11.8%) 4,421 4,936 (10.4%)
Corp............... (2,683) (842) (219%) (4,190) (1,625) (158%)
-------- -------- -------- --------
$ 21,853 $ 26,405 (17.2%) $ 42,514 $ 49,000 (13.2%)
======== ======== ======== ========
Operating Income
PFID............... $ 2,050 $ 6,774 (69.7%) $ 2,981 $ 12,544 (76.2%)
PFAD............... 4,691 4,657 0.7% 9,772 8,834 10.6%
PDID............... 1,867 2,095 (10.9%) 2,310 2,745 (15.8%)
Corp............... (3,290) (1,242) (165%) (5,409) (2,379) (127%)
-------- -------- -------- --------
$ 5,318 $ 12,284 (56.7%) $ 9,654 $ 21,744 (55.6%)
======== ======== ======== ========
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 for the second quarter and six months ended June 30, 2000 were
reported at $129.7 million and $255.0 million compared to $122.2 million and
$239.5 million for the same respective periods last year. Operating margins in
2000 are lower due to the cost of developing and supporting new Internet and
wireless-based product initiatives.
PRIMARK FINANCIAL INFORMATION DIVISION
The Primark Financial Information Division ("PFID") and its Research Center
("PRC") business experienced moderate growth during the first six months of
2000. Excluding the effect of currency, the division's revenues grew 5.0% for
the six months ended June 30, 2000 with the international operations growing at
7.2% and the US operations growing at 0.2%. Overseas revenues in Europe had
strong growth in key markets partially offset by flat revenues in Asia. The
PFID's domestic revenues were flat compared to last year, due to continued
decline of the PRC business and its Legacy products.
PRIMARK FINANCIAL ANALYTICS DIVISION
The Primark Financial Analytics Division ("PFAD") had a strong six months
with growth in revenues of 23.0%, growth in EBITDA of 8.3% and growth in
operating income of 10.6%. All product lines grew strongly with IBES reporting
an increase in revenues of 27.9%, followed by Baseline at 20.0% and Vestek at
12.2% . 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 $29.7
million for the six months ended June 30, 2000, representing growth of 6.1%
excluding the effect of currency. The results of Yankee are included in these
revenues until June 1, the date of sale of this former subsidiary. During 2000
Yankee's
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revenues increased, offsetting lower revenues at WEFA. The timing of recording
revenues for seminars and consulting agreements contributed to revenue
performance at WEFA.
CORPORATE
The Corporate operating loss increased $3 million to $5.4 million for the
six months ended June 30, 2000. This increase is attributed to the transfer of
certain financial and accounting functions from the divisions to a corporate
shared services center as well as increased professional service fees.
Other comprehensive income decreased by approximately $11.5 million and
$15.0 million for the second quarter and six months ended June 30, 2000
primarily due to a change in cumulative translation resulting from the US dollar
strengthening against the UK sterling. The Company has a significant goodwill
asset denominated in UK sterling.
Capital Resources and Liquidity
Primark's cash and cash equivalent balances decreased $6.4 million during
the six months ended June 30, 2000 as a result of operating activities
contributing $17.2 million, financing operations absorbing $44.4 million and
investing activities generating $21.7 million.
On June 1, 2000, the Company sold all of the outstanding common stock of
its subsidiary, the Yankee Group Research, Inc. to Reuters Group plc for a cash
price of $72.5 million. The sale of the Yankee Group resulted in a pre-tax gain
of $33.0 million, with after-tax cash proceeds of approximately $59.7 million. A
portion of the proceeds was used to repay Primark's bank debt. The remaining
cash proceeds are intended to be used to further invest in high growth Internet
and e-commerce initiatives within core business units.
The $17.2 million increase in cash flows from operating activities is a
result of timing differences associated with working capital accounts.
Financing activities, for the most part, reflect a net decrease of $46.0
million on Primark's revolving credit facility, resulting in $245.8 million of
funded debt outstanding as of June 30, 2000. Additionally, Primark received
proceeds of $1.9 million on the issuance of common stock associated with stock
option and employee stock purchase plans.
Investing activities for the six months ended June 30, 2000 include the
$72.5 million in cash proceeds from the sale of the Yankee Group. Also reflected
in investing actvities is the use of $15.0 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, 3) a 16.7% equity investment in TrustNet Limited
for $2.4 million, 4) a 6.9% equity interest in The Bulldog Group for $825,000
and 5) a $300,000 investment in the limited partnership, Wheatley Partners III,
L.P. 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 $15.0 million of capital expenditures and $17.3
million of capitalized software. The capital expenditures consisted primarily of
computer equipment purchases, which totaled $12.1 million for the six months
ended June 30, 2000. Capitalized software represents expenditures primarily on
new product offerings within the Primark Financial Information Division.
Investing activities also reflect a $3.5 million contingent purchase price
payment pursuant to the August 1996 Purchase Agreement between Primark
Corporation and the Yankee Group made prior to the sale of this subsidiary to
Reuters.
In a non-cash transaction excluded from the Consolidated Statement of Cash
Flows, the Company issued 230,770 shares of common stock to 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
the retail and professional investors.
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 June 30, 2000, approximately
55.7% of total revenues were denominated in non-US dollar
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currencies of which approximately 33.5%, 15.2%, and 7.0% are denominated in UK
sterling, currencies of Continental Europe, and Asian currencies, respectively.
For the quarter ended June 30, 2000, approximately 78.0% of operating
income excluding goodwill amortization was denominated in non-US dollar
currencies. This 78% can be broken down between 17.2% in UK sterling, 50.1% in
Continental Europe and 10.7% 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 Value at Risk model used to access foreign currency risk,
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 $2.74 million before hedging and
$2.13 million after taking into account the Company's hedging portfolio,
representing cover of 22.1%, as of June 30, 2000.
For the quarter ended June 30, 2000, there was no ineffective portion of
derivative gains or losses reported in earnings. Net gains from hedge
transactions reclassified from other comprehensive income to revenues totaled
$149,000. At June 30, 2000, the fair value of derivative instruments designated
as cash flow hedges was $67,000 and was recorded in other current assets with
the offset recorded as a component of 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. For the
three months ended June 30, 2000, the net gain on fair value hedging contracts
recorded as non-operating income was $183,000. At June 30, 2000, foreign
exchange contracts with a value of $293,000 are recorded on the balance sheet in
other current assets.
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 Financial Condition and Results of Operations. Also
see Item 7A. Quantitative and Qualitative Disclosures About Market Risk in
Primark's 1999 10-K.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company's Annual Meeting of shareholders was held on May 26, 2000 for
the purposes of electing a board of directors and approving the appointment of
independent auditors. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934.
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All management's nominees for directors listed in the proxy statement were
elected with the following vote:
SHARES VOTED SHARES
FOR % WITHHELD % NON-VOTES %
------------ ----- -------- ---- --------- -----
Kevin J. Bradley................. 15,188,539 74.93% 171,633 0.85% 4,908,049 24.22%
John C. Holt..................... 15,134,880 74.67% 225,292 1.11% 4,908,049 24.22%
Joseph E. Kasputys............... 15,187,281 74.93% 172,891 0.85% 4,908,049 24.22%
Steven Lazarus................... 15,189,867 74.94% 170,305 0.84% 4,908,049 24.22%
Patricia McGinnis................ 15,191,474 74.95% 168,698 0.83% 4,908,049 24.22%
Jonathan Newcomb................. 15,193,493 74.96% 166,679 0.82% 4,908,049 24.22%
Constance K. Weaver.............. 14,744,328 72.74% 615,844 3.04% 4,908,049 24.22%
The appointment of Deloitte and Touche LLP as independent auditors for the
year ended December 31, 2000 was approved by the following vote:
SHARES
VOTED SHARES
SHARES VOTED FOR % AGAINST % ABSTAINING % NON-VOTES %
---------------- ----- ------- ---- ---------- ---- --------- -----
15,264,428 75.30% 51,952 0.26% 43,792 0.22% 4,908,049 24.22%
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1* Amendment dated May 26, 2000 to Refinancing Agreements dated February 7,
1997, by and among Primark Corporation, Lenders Parties, Mellon Bank,
N.A.
27* Financial Data Schedule.
- ---------------
* Indicates document filed herewith.
(b) No Current Reports filed by the Company during the quarter ended June 30,
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: August 14, 2000
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