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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q/A-1
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1995 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 02154
(Address of principal executive offices) (Zip Code)
617-466-6611
(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 November 2, 1995:
Common Stock, without par value: 19,040,315
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PRIMARK CORPORATION
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 1995
Page
Number
------
COVER i
INDEX ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 12
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PART I - FINANCIAL INFORMATION
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
September 30, December 31,
1995 1994
(Thousands of Dollars)
------------- -----------
ASSETS
Current Assets
Cash and cash equivalents, at cost (which approximates market value) $11,809 $20,059
Receivables:
Billed receivables less allowance for doubtful accounts of $4,635,000 and
$2,226,000, respectively 102,194 78,940
Unbilled and other receivables 40,359 22,453
Other current assets 17,981 13,546
-------- --------
172,343 134,998
-------- --------
Deferred Charges and Other Assets
Goodwill, less accumulated amortization of $24,149,000 and
$18,072,000, respectively 440,152 256,345
Other intangible assets, less accumulated amortization of
$22,677,000 and $15,981,000, respectively 29,482 29,280
Capitalized software, less accumulated amortization of
$4,363,000 and $1,810,000, respectively 19,379 10,472
Net long-term investment in financing leases 12,643 14,960
Other 15,318 8,384
-------- --------
516,974 319,441
-------- --------
Property, Plant and Equipment, at cost
Computer equipment 54,995 42,446
Property leased to others 16,020 16,020
Other 35,995 24,638
-------- --------
107,010 83,104
Less-Accumulated depreciation 38,014 29,627
-------- --------
68,996 53,477
-------- --------
$758,313 $507,916
======== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $16,873 $13,375
Accrued employee payroll and benefits 26,093 18,618
Federal income, property and other taxes payable 13,036 12,383
Deferred income 43,279 20,983
Notes Payable 55,178 -
Current portion of long-term debt, including capital lease obligations 5,636 4,907
Other 37,943 26,842
-------- --------
198,038 97,108
-------- --------
Long-Term Debt and Other Liabilities
Long-term debt, including capital lease obligations 267,364 145,926
Accumulated deferred income taxes 15,479 13,220
Other 16,828 10,007
-------- --------
299,671 169,153
-------- --------
Total liabilities 497,709 266,261
-------- --------
Contingencies (Note 4)
Redeemable Preferred Stock 16,874 16,874
-------- --------
Common Shareholders' Equity
Common stock and additional paid-in-capital 115,575 114,094
Retained earnings 137,085 124,964
-------- --------
252,660 239,058
Less - Treasury stock, at average cost 8,340 13,145
Less - Unearned compensation 950 1,674
Less - Cumulative foreign currency translation adjustment (360) (542)
-------- --------
Total common shareholders' equity 243,730 224,781
-------- --------
$758,313 $507,916
======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
(Thousands Except Per Share Amounts)
Operating Revenues $168,710 $120,997 $447,612 $352,400
-------- -------- -------- --------
Operating Expenses
Cost of services 109,522 78,854 296,763 230,739
Selling, general and administrative 31,797 24,977 83,544 72,660
Depreciation 4,377 2,997 10,514 8,491
Amortization of goodwill and other intangible assets 6,765 3,797 15,612 11,384
-------- -------- -------- --------
Total operating expenses 152,461 110,625 406,433 323,274
-------- -------- -------- --------
Operating income 16,249 10,372 41,179 29,126
-------- -------- -------- --------
Other Income and (Deductions)
Investment income 111 193 757 439
Interest expense (6,867) (3,336) (13,822) (10,610)
Foreign currency transaction loss - net (77) (946) (2,184) (1,239)
Other (551) (153) (863) 263
-------- -------- -------- --------
Total other income and (deductions) (7,384) (4,242) (16,112) (11,147)
-------- -------- -------- --------
Income Before Income Taxes and Extraordinary Item 8,865 6,130 25,067 17,979
Income Tax Expense 4,164 2,846 11,336 7,994
-------- -------- -------- --------
Income Before Extraordinary Item 4,701 3,284 13,731 9,985
Extraordinary Item - Loss on Early Extinguishment of Debt,
net of income tax benefit of $288,000 (Note 3c) - - (534) -
-------- -------- -------- --------
Net Income 4,701 3,284 13,197 9,985
Dividends on Preferred Stock (359) (359) (1,076) (1,076)
-------- -------- -------- --------
Net Income Applicable to Common Stock $4,342 $2,925 $12,121 $8,909
======== ======== ======== ========
Earnings Per Common and Common Equivalent Share
Income before extraordinary item $0.21 $0.15 $0.63 $0.45
Extraordinary item (Note 3c) - - (0.03) -
-------- -------- -------- --------
Earnings per share $0.21 $0.15 $0.60 $0.45
-------- -------- -------- --------
Weighted Average Common and
Common Equivalent Shares Outstanding 20,634 19,877 20,097 19,905
======== ======== ======== ========
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ------------------
1995 1994 1995 1994
--------- --------- -------- --------
(Thousands of Dollars)
Balance- Beginning of period $132,743 $118,632 $124,964 $112,648
Add - Net Income 4,701 3,284 13,197 9,985
Deduct- Dividends on Preferred Stock (359) (359) (1,076) (1,076)
--------- --------- -------- --------
Balance- End of period $137,085 $121,557 $137,085 $121,557
========= ========= ======== ========
The accompanying notes to the consolidated financial statements are an
integral part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
---------------------
1995 1994
--------- ---------
(Thousands of Dollars)
Cash Flows from Operating Activities
Net income $13,197 $ 9,985
Adjustments to reconcile net income to net cash flows from operating activities:
Extraordinary loss on early extinguishment of debt 534 -
Debt issue costs (4,737) -
Foreign currency transaction loss - net 2,184 1,239
Depreciation and amortization 26,126 19,875
Other (3,992) (2,526)
Changes in assets and liabilities which provided (used) cash,
exclusive of changes shown separately (5,366) 14,820
-------- --------
Net cash provided from operating activities 27,946 43,393
-------- --------
Cash Flows from Financing Activities
Issuance of short-term notes payable 210,148 157,100
Repayment of short-term notes payable (154,970) (174,100)
Issuance of long-term debt 125,000 -
Repayment of long-term debt (2,821) (3,075)
Common stock issuance and other 4,039 231
-------- --------
Net cash provided from (used for) financing activities 181,396 (19,844)
-------- --------
Cash Flows from Investing Activities
Capital expenditures (14,889) (11,430)
Capitalized software (3,326) (4,505)
Purchase of subsidiaries - net of acquired cash (199,395) (6,106)
Proceeds from sale of a subsidiary - 6,500
Principal payments received under financing leases 2,330 2,329
Cash contributed to discontinued operations - net - (847)
Other - net (2,330) 1,505
-------- --------
Net cash used for investing activities (217,610) (12,554)
-------- --------
Effect of Exchange Rate Changes on Cash 18 423
-------- --------
Net Decrease in Cash and Cash Equivalents (8,250) 11,418
Cash and Cash Equivalents, January 1 20,059 18,415
-------- --------
Cash and Cash Equivalents, September 30 $11,809 $29,833
======== ========
Changes in Assets and Liabilities which Provided (Used)
Cash, Exclusive of Changes Shown Separately
Billed, unbilled and other receivables-net ($14,535) $1,098
Accounts payable (7,467) (5,677)
Federal income, property and other taxes payable-net 1,909 1,103
Other current assets and liabilities 12,598 14,133
Other noncurrent assets and liabilities 2,129 4,163
-------- --------
($5,366) $14,820
======== ========
The accompanying notes to the 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. OFFERING OF COMMON STOCK
On November 1, 1995, Primark Corporation (the Company ) filed a
registration statement with the Securities and Exchange Commission
related to a proposed public offering of 3,788,000 shares of Common
Stock, which is expected to commence in late November. The net
proceeds to the Company of the offering will be used to repay
outstanding borrowings under the Company's revolving credit facility
and the TASC term loan (See Note 3). Both borrowings were incurred to
finance the Disclosure acquisition (See Note 2).
Of the total shares to be offered, 3,500,000 are to be offered by the
Company and 288,000 are to be offered by selling officer shareholders.
More than three fourths of the shares offered by the selling
shareholders result from the anticipated exercise of stock options
granted prior to June 30, 1987, which would otherwise expire prior to
June 30, 1997. The Company has granted its underwriters an option to
sell an additional 568,200 shares for the purpose of covering
over-allotments.
2. ACQUISITION OF DISCLOSURE INCORPORATED AND AFFILIATES
a. CONSUMMATION OF ACQUISITION
On June 29, 1995, the Company acquired from VNU International B.V.
(VNU) and certain of its affiliates, the entire equity interest of
Disclosure Incorporated and certain of its affiliates, including
I/B/E/S Inc. (Disclosure) pursuant to a May 26, 1995 Stock Purchase
Agreement. The acquisition also included a 50% ownership of Worldscope,
a joint venture with Wright Investors' Service. The total purchase
price of $200,000,000 in cash was determined based upon arms length
negotiations between the Company and VNU. The Company incurred debt
fees and acquisition fees of approximately $6,076,000 associated with
the acquisition.
Founded in 1968, Disclosure is a provider of as reported and
abstracted financial information, primarily derived from Securities and
Exchange Commission filings and supplemented with information
from companies, stock exchanges and other sources, both in the United
States and worldwide. Disclosure's customers include major investment
banks, accounting firms, money managers, law firms, corporations and a
wide array of reference market on-line end-users. I/B/E/S is a source
of earnings estimates for investors, financial institutions and
portfolio managers on a global basis. Worldscope supplies company
fundamental data on 11,900 companies in 45 countries, both directly and
through distributors.
b. ACQUISITION FINANCING
The Company obtained $215,000,000 of external financing, of which
$185,000,000 was used to finance the cash consideration paid in the
acquisition. Bank financing was obtained through a $125,000,000 term
loan and a $45,000,000 draw on a $75,000,000 revolving line of credit,
pursuant to a Term Loan Agreement and a Revolving Credit Agreement
entered into June 29, 1995 (Note 3). The remaining $15,000,000 of bank
financing was obtained pursuant to a Loan Agreement dated June 29, 1995
between the Company's wholly-owned subsidiary TASC, Inc. ( TASC ) and
Mellon Bank, N.A. (Note 3).
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PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
c. ACCOUNTING RECOGNITION
The acquisition of Disclosure was accounted for as a purchase and,
accordingly, the $200,000,000 purchase price was allocated to
Disclosure's tangible net assets acquired, based upon preliminary
estimates of their fair values as of the acquisition date. Preliminary
allocations were also made to certain intangible net assets acquired,
consisting principally of non-compete covenants and an acquired
database totaling approximately $5,017,000 and a $3,738,000 liability
for an unfavorable lease commitment. These intangibles and related
deferred taxes are being amortized on a straight-line basis over 2 to
8.5 years. The excess of the purchase price over the estimated fair
value of total net assets acquired of approximately $188,105,000 was
allocated to goodwill and will be amortized over lives ranging between
25 and 40 years. Future adjustments to the total purchase price
allocation, if any, are not expected to materially affect the Company's
financial statements.
Disclosure's operating results for the period beginning from the June
29, 1995 acquisition date through September 30, 1995 have been
reflected in the Company's consolidated operating results for the third
quarter of 1995.
d. SUPPLEMENTAL CASH FLOW INFORMATION
A summary of the cash components of the Disclosure acquisition is as
follows (in thousands of dollars):
Fair value of assets acquired $247,475
Liabilities assumed 47,475
--------
Total purchase price 200,000
Acquisition fees paid to date (excluding accrued amounts) 5,737
--------
Total cash paid 205,737
Acquired cash 1,605
--------
Total cash paid- net of acquired cash $204,132
========
3. SHORT AND LONG-TERM DEBT
a. TASC LOAN AGREEMENT
On June 29, 1995, TASC, a wholly-owned subsidiary of the Company
entered into a $15,000,000 unsecured Loan Agreement (the Loan ) due
June 28, 1996. Interest on outstanding borrowings under the Loan is
payable at a rate of 1.75% above the current prevailing LIBOR rate of
interest or, at the Company's option, at 0.50% above the higher of the
current prevailing Federal Funds rate plus 0.50% or the prime rate of
interest. The Loan contains various restrictive covenants which, among
other things, require the Company to maintain certain minimum levels of
consolidated net worth and specific performance requirements.
b. PRIMARK TERM LOAN
On June 29, 1995, the Company entered into a $125,000,000 Term Loan
Agreement (the Term Loan) due June 30, 2002. Principal payments are
due semi-annually commencing on December 31, 1997. Interest on
outstanding borrowings under the Term Loan is payable at a rate of 2.0%
above the current prevailing LIBOR rate of interest or, at the
Company's option, at 0.75% above the higher of the current prevailing
Federal Funds
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PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
rate plus 0.50% or the prime rate of interest. Beginning in 1997, the
Company is eligible for performance pricing adjustments, based upon
meeting certain financial tests, which would reduce the applicable
interest rates. The Term Loan contains various restrictive covenants
which, among other things, require the Company to maintain certain
minimum levels of consolidated net worth and specific consolidated
liquidity and long-term solvency ratios. The Term Loan is secured by a
pledge of the outstanding common stock of certain of the Company's
subsidiaries.
c. PRIMARK REVOLVING CREDIT AGREEMENT
On June 29, 1995, the Company entered into a new $75,000,000 revolving
credit facility (the Credit Facility ) to replace its $75,000,000
credit agreement due to expire in 1996. The new Credit Facility
expires on October 15, 2000. Interest on outstanding borrowings under
the Credit Facility is payable at a rate of 1.75% above the current
prevailing LIBOR rate of interest or, at the Company's option, at
0.50% above the higher of the current prevailing Federal Funds rate
plus 0.50% or the prime rate of interest. Commitment fees are payable
quarterly at a rate of 0.375% per annum on the average daily unused
portion of the facility. Beginning in 1997, the Company is eligible for
performance pricing adjustments, based upon meeting certain financial
tests, which would reduce the applicable interest rates. The Credit
Facility contains various restrictive covenants which, among other
things, require the Company to maintain certain minimum levels of
consolidated net worth and specific consolidated liquidity and
long-term solvency ratios. The Credit Facility is secured by a pledge
of the outstanding common stock of certain of the Company's
subsidiaries.
Pursuant to the terms of the June 29, 1995 Credit Facility, the
Company's prior Credit Agreement, which was due to expire on October
18, 1996, was terminated. The early extinguishment of such
indebtedness generated an extraordinary after-tax loss of $534,000 for
the quarter ended June 30, 1995. This loss reflects the write-off of
unamortized debt issue costs associated with the Company's retired
credit agreement.
d. INTEREST RATE SWAP AGREEMENT
On August 1, 1995 the Company entered into an interest rate swap
agreement with a major bank, having a notional principal amount of
$18,300,000. The swap agreement effectively changed the interest rate
of a portion of Primark's long term debt from a floating rate to a 6.1%
fixed rate. This swap agreement expires in December of 1999. Though
the Company is exposed to credit and market risk in the event of future
non-performance by the bank, management does not anticipate that such
event will occur.
4. CONTINGENCIES
On August 16, 1994, a jury in a civil case in the Federal District
Court in Boston, Massachusetts returned an unfavorable verdict against
the Company's wholly-owned subsidiary, TASC, for approximately $3.1
million plus accrued interest. The lawsuit was brought by a former
TASC employee and involved a claim for compensation for intellectual
property transferred to TASC and claims relating to such employee's
termination of employment. The events underlying this lawsuit occurred
prior to the Company's acquisition of TASC in August of 1991. In July
1995, TASC paid $3.3 million in full settlement of this lawsuit. The
Company had previously reserved for the settlement.
On June 24, 1994, a jury in a civil case in the Massachusetts Superior
Court (the Court ) returned an unfavorable verdict against the two
founders of TASC, and against TASC itself. The suit was brought by a
former employee regarding a TASC stock transaction which took place in
1976, prior to the Company's acquisition of TASC in 1991. On June
28, 1994, the Court ordered that judgment be entered on the verdict
requiring the two founders (but not TASC itself) to disgorge
$19,800,000. Such amount accrues post judgement interest at a
statutroy rate. As an alternative course of action, the plaintiff may
pursue the two founders and TASC, jointly and severally for $48,600.
Based on the
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adjudication, the Company has denied requests of the two founders for
indemnification. Certain post-verdict motions (including a motion for
judgment notwithstanding the verdict, and in the alternative, a motion
for a new trial) are pending. While the outcome of these motions
cannot be predicted with certainty, the Company believes it will not be
required to pay any portion of this judgment.
On April 8, 1994, the Department of Defense Office of the Assistant
Inspector General for Auditing (the IG) issued a final report
relative to its audit of contracting practices of the Ballistic
Missile Defense Organization (the BMDO), which included a
comprehensive review of one of TASC's contracts with the BMDO. The
report included a recommendation for monetary recovery from TASC. The
Company has presented its interpretation of cost allocation and
contract administration rules and regulations related to these issues
to the IG. The Company believes it has adequate reserves for the
resolution of this matter.
The Company has received notifications from the Michigan Department of
Natural Resources of environmental contamination in the vicinity of
natural gas storage fields in Michigan which the Company leases to an
interstate pipeline company. The Company conducts no operations of its
own on these properties. While the ultimate resolution of these matters
cannot be predicted at this time, the Company believes that its
existing reserves of approximately $250,000 are adequate for the
resolution of such matters.
The Company and its subsidiaries are involved in certain other
administrative proceedings and matters concerning issues arising in
the ordinary course of business. Management cannot predict the final
disposition of such issues, but believes that adequate provision has
been made for the probable losses and the ultimate resolution of these
proceedings will not have a material adverse effect on the
accompanying consolidated financial statements.
5. GENERAL
There have been no significant changes in the Company's principal
accounting policies that were set forth in the Company's 1994 Annual
Report and Form 10-K. Certain reclassifications have been made to the
prior year's statements to conform with the 1995 presentation.
The unaudited information furnished herein, in the opinion of
management, reflects all adjustments necessary for a fair statement of
the results of operations during the interim periods.
The revenues, expenses, net income and earnings per share for the
interim periods should not be construed as representative of
revenues, expenses, net income and earnings per share for all or any
part of the balance of the current year or succeeding periods.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1995, Primark reported net
income applicable to common stock of $4.3 million ($0.21 per share) and
$12.1 million ($0.60 per share). These results reflect increases of 48.4% and
36.1% over the respective 1994 periods.
Primark completed the purchase of Disclosure, IBES and a 50% ownership in
Worldscope on June 29, 1995. The acquisition was accounted for as a purchase,
and as such, the operating results of the acquired companies are included in
Primark's consolidated results from June 29, 1995. While Disclosure and IBES
positively impacted net income for the three and nine month periods, most of
the increase was the result of improvements in operating income and higher
revenue growth in all of Primark's information and transportation businesses.
Revenues increased 39.4% and 27.0%, for the three and nine months when compared
to the respective 1994 periods. Excluding the revenues of Disclosure and IBES,
Primark recorded increases of 18.0% and 19.7% for the three and nine months
ended September 30, 1995 over the comparable 1994 periods. For the three months
ended September 1995, Primark's operating income margin was 9.6% compared to
8.6% for the same 1994 period. The improvement reflects the addition of the
recently acquired higher margin businesses into the mix. Net income for the
1995 third quarter was favorably impacted by a $0.9 million reduction in
currency losses over the 1994 third quarter. The nine month comparisons were
also favorably impacted by the sale of Wellmark in May of 1994 and the
elimination of associated losses. The operating improvements in the third
quarter were offset by increased amortization and interest expense related to
the acquisition. Amortization expense increased $3.0 million and $4.2 million
for the three and nine month periods, respectively, compared to the 1994
periods. Interest costs also increased $3.5 million and $3.2 million for the
quarter and year to date periods, respectively, when compared to last year.
The year to date period reflects a net extraordinary loss of $534 thousand
($0.03 per share) related to the write off of deferred bank costs associated
with Primark's revolving credit facility, which was refinanced as part of the
debt incurred to finance the acquisition. Net income before the extraordinary
loss was reported at $13.7 million or $0.63 per share for the 1995 nine month
period.
OPERATING RESULTS BY SEGMENT (IN MILLIONS)
- ------------------------------------------
Three Months Ended
September 30,
1995 1994 Change
--------------------------------------------
OPERATING REVENUES
Information Services $ 146.7 $ 106.6 $ 40.1
Transportation Services $ 20.3 $ 12.5 $ 7.8
Financial Services $ 1.7 $ 1.9 $ (0.2)
OPERATING INCOME
Information Services $ 15.1 $ 9.7 $ 5.4
Transportation Services $ 1.6 $ 1.0 $ 0.6
Financial Services $ 1.0 $ 1.1 $ (0.1)
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Nine Months Ended
September 30,
1995 1994 Change
--------------------------------------------
Operating Revenues
Information Services $ 382.8 $ 310.3 $ 72.5
Transportation Services $ 59.6 $ 36.2 $ 23.4
Financial Services $ 5.2 $ 5.9 $ (0.7)
Operating Income
Information Services $ 37.1 $ 26.5 $ 10.6
Transportation Services $ 5.4 $ 2.6 $ 2.8
Financial Services $ 3.0 $ 3.4 $ (0.4)
The acquisition of Disclosure and IBES significantly increased the size and
contribution of Primark's information services segment, which reported increased
revenues and operating income of $40.1 million and $5.4 million, respectively,
for the three months ended September 30, 1995. The acquisition accounted for
$25.9 million of the increase in information service revenues for the current
quarter. The year to date revenues and operating income of the information
services segment reflect the results of IBES and Disclosure from June 29, 1995
and continued strong sales from Primark's other businesses. With the
acquisition, Primark has now focused its information service segment in two
distinct but related markets within the information services industry; financial
information and applied information technology. The Company's financial
information businesses include Datastream, Disclosure, IBES and Vestek and
accounted for $59.3 million of the three month revenues. Worldscope is
accounted for by the equity method and therefore is not included in the
Company's revenues.
Within the financial information market, all of Primark's businesses showed
significant revenue growth over the respective 1994 periods. As a result of the
acquisitions of Vestek in June 1994 and Disclosure and IBES in June of 1995,
only Datastream is comparably represented in both the three and nine month
periods. Datastream's three and nine month revenues increased 13.2% and 19.4%
over the comparable 1994 periods. Because of the relatively weak dollar against
foreign source billings, revenues for the three and nine month periods reflect a
$1.8 million and $6.8 million favorable impact of currencies. Excluding the
effect of currency, Datastream increased year to date revenues 10.8% over nine
months ended September 30, 1994. Datastream's research product represents 80%
of sales and has increased its revenues 15.5% over the comparable 1994 year to
date period. Datastream's new fund management product has continued it trend of
slow sales due to delays in new customer system introductions. Excluding
currencies, all geographic regions serviced by Datastream reflect year to date
growth over 1994, with the United Kingdom up 3.2%, Continental Europe up
15.9%, the Pacific basin up 17.3% and North America up 34.0%.
Primark's applied information technology business is represented by TASC and its
subsidiary, WSI. For the three and nine months ended September 30, 1995, TASC's
total revenues grew 12.8% and 12.1% respectively, when compared to the same
periods of 1994. This growth was accomplished despite the loss of $4.0 million
and $12.3 million in BMDO revenues during both respective 1995 periods. TASC's
other government business, except for BMDO, grew 18.4% for the quarter and
18.0% year to date. As of September 30, 1995, TASC's backlog increased 53% to
$485 million over the June 30, 1995 backlog of $316 million. Consistent with
the results of the first two quarters of 1995, TASC's commercial revenues
continued to grow over 20% when compared to last year.
The Company's transportation segment also experienced significant growth in
revenue of $7.8 million (61.7%) and $23.4 million (64.7%) during the 1995 three
and nine month periods, respectively, when compared to the same periods of last
year. Most of this growth is a direct result of expanding TIMCO's hangar
capacity in the fourth quarter of 1994. Because of the strong demand for
TIMCO's maintenance capabilities, Primark has initiated additional hangar
expansion set to be completed and available for operation at the end of the
fourth quarter of 1995.
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The Company's financial service billings are based on plant net of
depreciation, creating decreasing revenues and operating income over time.
CAPITAL RESOURCES AND LIQUIDITY
During the nine months ended September 30, 1995, cash and cash equivalents
decreased $8.3 million. The most significant cause for the decline in cash
equivalents was the June 29, 1995 purchase of Disclosure and IBES. The cost of
this purchase consisted of a cash payment of $200.0 million for the stock of
Disclosure as well as $6.1 million of acquisition costs and related fees. To
fund the acquisition, Primark borrowed $185.0 million of senior bank debt and
utilized $20.3 million of cash on hand at the closing date.
Cash flows from operating activities provided $27.9 million of cash during the
nine months ended September 30, 1995. The 1995 operating cash flows represent a
decrease of $15.4 million over 1994 nine months period. Significant income
growth from operations was offset by working capital uses and interest costs.
Working capital uses of $5.4 million reflect increased accounts receivables,
resulting from increased revenues. Exclusive of the Disclosure acquisition,
billed and unbilled receivables increased $14.5 million. The increase in
receivables was partially offset by currently accrued liabilities.
Financing activities provided most of the cash necessary to fund the acquisition
of Disclosure and IBES. In connection with the funding of the acquisition,
Primark and one of its subsidiaries entered into three separate credit
agreements providing a total of $215.0 million of available credit capacity, of
which $185.0 million was used to complete the transaction. The first facility
represents a $125.0 million seven year amortizing senior term loan, maturing in
June, 2002. Principal installment payments are due semi-annually commencing in
December, 1997. The applicable interest rate is variable and calculated as
either 200 basis points over LIBOR or 75 basis points over a base prime rate at
Primark's option. Secondly, Primark restructured its $75.0 million revolving
credit agreement extending its availability through October, 2000. The interest
rate on the revolving credit facility remains at the prior level of 175 basis
points over LIBOR or 50 basis points over prime. Primark drew $45.0 million of
the available revolving credit to fund the acquisition. Finally, Primark's
subsidiary, TASC entered into a $15.0 million one year term loan maturing in
June of 1996, with an interest rate of 175 basis points over LIBOR or 50 basis
points over prime. Both the Primark term loan and the revolving credit facility
have performance pricing options. None of the facilities have penalties for
prepayment. Primark has paid down $5.0 million of the revolving credit
facility, leaving a balance of $40.0 million as of September 30, 1995.
The effect of incurring the acquisition debt increased Primark's debt to
capitalization ratio from 38.4% at December 31, 1994 to 55.7% as of September
30, 1995. To eliminate some of the risk associated with the variable rate
debt, on August 1, 1995 Primark entered into an $18.3 million four year
amortizing swap agreement which had the effect of fixing the LIBOR rate at
6.1%. This agreement expires in December of 1999. The Company will continue to
monitor interest rate movements and hedge the remaining variable debt as
appropriate.
Shortly after Primark announced the acquisition and associated senior debt used
to fund the purchase, Standard & Poor's, as well as Moody's Investor Services,
placed Primark on credit watch. Subsequently, Standard and Poor's announced
that it lowered its rating of Primark's $112.0 million 8 3/4% senior unsecured
public issue to double B minus. Standard & Poor's also noted that it affirmed
Primark's overall corporate rating of double B and removed both ratings from
credit watch. Prior to this action by Standard and Poor's, both ratings had
been double B. Standard & Poor's noted that the action was necessary due to the
new level of secured credit issued in conjunction with the acquisition of
Disclosure and IBES. Moody's Investor Service has not yet made its
determination of the effect the acquisition and the new credit facilities will
have on the Company's ratings.
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Investing activities used $217.6 million of cash during the nine months ended
September 30, 1995, compared to uses of $12.6 million during the 1994 period.
Most of the increase reflects the purchase of Disclosure and IBES for
$200.0 million in cash plus acquisition costs and fees. Capital expenditures
used $14.9 million through the first nine months of 1995, which represents an
increase of $3.5 million over nine months ended September 1994. Most of the
increase in capital expenditures for the three and nine month periods was
related to the newly acquired companies and for construction of TIMCO's third
hangar. The TIMCO hangar is expected to cost $4.4 million and is anticipated to
be completed during the fourth quarter of 1995.
The availability under the revolving credit facility coupled with continued
strong cash flows from Primark's existing and acquired operations, allows the
Company to be confident that it has the liquidity necessary to take advantage
of internal and external investing opportunities.
Subsequent to the end of the third quarter, on November 1, 1995 Primark
announced its intention to issue 3.5 million shares of common stock in a public
offering scheduled to close during the fourth quarter of 1995. The proceeds
will be used to pay off the $15 million TASC term loan, the remaining balance
of the revolving credit loan, both incurred to finance the acquisition of
Disclosure, and for general corporate purposes. The fourth quarter cash
requirements typically are Primark's highest demand throughout the year and as
such, will consume a significant portion of the offering proceeds. The undrawn
$75.0 million of revolving credit will continue to be available and enhance
Primark's liquidity. The issuance of common stock to repay debt will
significantly improve Primark's leverage ratios.
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PART II - OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports On Form 8-K
The Company filed Amendment No. 1 dated September 11, 1995 and
Amendment No. 2 dated October 26, 1995 under Item 7 to its Current
Report on Form 8-K dated July 3, 1995 regarding the acquisition of
Disclosure.
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
Date: November 13, 1995
By: /s/ Stephen H. Curran
-----------------------------
Stephen H. Curran
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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