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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
AMENDMENT TO APPLICATION OR REPORT
FILED PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
PRIMARK CORPORATION
(Exact name of registrant as specified in its charter)
1-8260
(Commission File Number)
AMENDMENT NO.3
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Current Report on Form 8-K, dated
July 3, 1995, as set forth on the pages attached hereto:
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRIMARK CORPORATION
(Registrant)
Date: November 28, l995 By: /s/STEPHEN H. CURRAN
-----------------------------
Stephen H. Curran
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
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2
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
List of documents filed as part of this report:
(a) Financial Statements of Business Acquired:
Audited combined balance sheets of Disclosure Inc. and affiliates
("Disclosure") as of December 31, 1994, 1993, 1992 and 1991 and the
related combined statements of operations, retained earnings and cash
flows for each of the four years then ended, together with the Reports
of Independent Accountants.
Unaudited combined balance sheet of Disclosure as of June 30, 1995
and the related combined statements of operations and cash flows for
the periods ending June 30, 1995 and 1994, prior to consummation of the
acquisition.
(b) Pro Forma Financial Information:
Unaudited pro forma consolidated statements of income of Primark (the
"Company") and its subsidiaries for the six months ended June 30,
1995, and for the year ended December 31, 1994.
(c) Exhibits:
Exhibit
Number Description of Document
------- -----------------------
23.1 Consent of Independent Public Accountants
99.1 Unaudited consolidated statement of financial position of
the Company and its subsidiaries as of June 30, 1995, and
Notes 1 and 2 of the Notes to the Consolidated Financial
Statements, as contained in the Company's Form 10-Q for the
quarter ended June 30, 1995. (Filed as exhibit 99-1 to
Amendment No.1 on Form 8-K/A of the Company's current
report on Form 8-K dated July 3, 1995.)
3
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995 and 1994
4
Disclosure, Inc. and Affiliated Companies
Combined Financial Statements
Six Months Ended June 30, 1995 and 1994
INDEX
Page
----
Combined Balance Sheet 1
Combined Statements of Operations 2
Combined Statements of Cash Flows 3
Notes to Combined Financial Statements 4
5
Disclosure, Inc. and Affiliated Companies
Combined Balance Sheet
June 30, 1995
(In thousands of dollars)
1995
--------
ASSETS
Current assets:
Cash and cash equivalents $ 1,605
Trade receivables, net of allowance for doubtful
accounts of $1,993 21,648
Other current assets 4,375
--------
Total current assets 27,628
Property, equipment, leasehold improvements
and capitalized software, net 20,445
Intangible assets, net 46,334
Investments in and advances to joint venture 3,094
Other assets 4,621
--------
$102,122
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 14,690
Deferred revenues 18,213
Capitalized lease obligations - current portion 354
Other 400
--------
Total current liabilities 33,657
Deferred revenues 4,363
Capitalized lease obligations - long-term 584
Due to VNU 11,205
Due to VNU-BIS-deferred tax liability 3,530
Other long-term liabilities 600
--------
53,939
--------
Stockholders' equity:
Common stock 17
Preferred stock -
Additional paid-in capital 39,419
Cumulative foreign currency translation adjustment 79
Retained earnings 8,668
--------
Total stockholders' equity 48,183
--------
$102,122
========
See accompanying notes.
-1-
6
Disclosure, Inc. and Affiliated Companies
Combined Statements of Operations
Six Months Ended June 30, 1995 and 1994
(In thousands of dollars)
1995 1994
------ ------
Revenues:
Documents $34,535 $32,309
Database and other 7,610 6,310
Earnings estimates revenues, net of clearance fees 9,211 -
------- -------
Net revenues 51,356 38,619
------- -------
Operating expenses:
Cost of services 26,118 21,667
Selling, general and administrative (Note 1) 13,900 7,972
Depreciation 2,329 2,119
Amortization of goodwill and other intangible assets 3,307 1,098
------- -------
Total operating expenses 45,654 32,856
------- -------
Operating income 5,702 5,763
Other income (deductions):
Interest income 339 59
Interest expense (788) (164)
Joint venture loss (79) (382)
------- -------
Income before income tax expense 5,174 5,276
Income tax expense 2,319 2,585
------- -------
Net income $ 2,855 $ 2,691
======= =======
See accompanying notes.
-2-
7
Disclosure, Inc. and Affiliated Companies
Combined Statements of Cash Flows
Six Months Ended June 30, 1995 and 1994
(In thousands of dollars)
1995 1994
-------- --------
Cash flows from operating activities:
Net income $ 2,855 $ 2,691
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 5,636 3,217
Undistributed loss of affiliate 79 382
Changes in operating assets and liabilities:
Decrease (increase) in:
Trade receivables 14,947 4,160
Other current assets (1,302) 885
Other assets (3,508) 23
Increase (decrease) in:
Accounts payable and accrued liabilities 2,859 1,048
Deferred revenues (8,096) (3,802)
-------- --------
Net cash provided by operating activities 13,470 8,604
-------- --------
Cash flows from investing activities:
Payment for purchase of IBES, net of cash acquired - (19,418)
Payment for purchase of SEC On-line, net of cash acquired - (4,500)
Purchase of property and equipment (1,964) (2,408)
Capitalized software (1,110) (1,599)
Advances to joint venture (248) (307)
Other (154) -
-------- --------
Net cash (used in) investing activities (3,476) (28,232)
-------- --------
Cash flows from financing activities:
Principal payments on capital lease obligations (353) (86)
(Decrease) increase in amount due to VNU - net (10,177) 24,545
Dividends paid to VNU (844) -
Purchase of preferred stock (2,506) -
-------- --------
Net cash (used in) provided by financing activities (13,880) 24,459
-------- --------
Effect of exchange rate changes on cash 13 232
-------- --------
Net (decrease) increase in cash and cash equivalents (3,873) 5,063
Cash and cash equivalents - beginning of period 5,478 1,198
-------- --------
Cash and cash equivalents - end of period $ 1,605 $ 6,261
======== ========
See accompanying notes.
-3-
8
Disclosure, Inc. and Affiliated Companies
Notes to Combined Financial Statements
Six Months Ended June 30, 1995 and 1994
NOTE 1 - CHANGE IN OWNERSHIP
- ----------------------------
On June 29, 1995, Disclosure, Inc., ("Disclosure") was acquired by Primark
Corporation ("Primark") for $200 million in cash. The transaction, accounted
for under the purchase method of accounting, included Disclosure's wholly-owned
subsidiaries and affiliated companies Disclosure (UK), Limited and I/B/E/S
(UK), Limited (collectively referred to as the "Company"). The accompanying
financial statements are prior to the consummation of the acquisition and
consequently, have not been adjusted to "push-down" Primark's cost of acquiring
the Company. Further, the assets and liabilities have not been restated to
their fair values.
As a result of the change in ownership, the Company paid bonuses and severance
payments to certain executives totaling $819,000.
NOTE 2 - ACQUISITIONS AND CAPITAL TRANSACTIONS
- ----------------------------------------------
On June 30, 1994, Disclosure acquired 100% of the common stock of I/B/E/S, Inc.
and I/B/E/S (UK), Limited. In a series of related transactions:
- Disclosure transferred its ownership interest in I/B/E/S, Inc. to
I/B/E/S International, Inc. (a newly-formed wholly-owned subsidiary of
Disclosure),
- I/B/E/S, Inc. and I/B/E/S International, Inc. entered into an
Assumption and Assignment Agreement, whereby non-broker-dealer
operations, contracts and net assets were transferred to I/B/E/S
International, Inc. and
- Disclosure sold the stock of I/B/E/S (UK), Limited to VNU (UK),
Holdings, Ltd.
On January 31, 1994, Disclosure acquired 100% of the assets of SEC On-line,
Inc., a provider of historical full text financial information.
NOTE 3 - GENERAL
- ----------------
There have been no significant changes in the Company's principal accounting
policies that were set forth in the Company's 1994 audited combined financial
statements.
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 period, prior to giving effect of the
acquisition of the Company by Primark.
The revenues, expenses and net income for the interim periods should not be
construed as representative of revenues, expenses and net income for all or any
part of the balance of the current year or succeeding periods.
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9
DISCLOSURE, INC.
AND AFFILIATED COMPANIES
COMBINED FINANCIAL STATEMENTS
and
SUPPLEMENTARY INFORMATION
YEARS ENDED DECEMBER 31, 1994 AND 1993
with
INDEPENDENT AUDITOR'S REPORTS
10
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED FINANCIAL STATEMENTS
Years Ended December 31, 1994 and 1993
INDEX
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Page
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Independent Auditor's Report 1
Combined Balance Sheets 2
Combined Statements of Operations and Retained Earnings 3
Combined Statements of Cash Flows 4-5
Notes to Combined Financial Statements 6-17
Supplementary Information:
Independent Auditor's Report on Supplementary Information 18
Pro Forma Statement of Operating Income for
the Year Ended December 31, 1994 19
11
LESLIE SUFRIN AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
325 FIFTH AVENUE
NEW YORK, N.Y. 10016
LESLIE SUFRIN, C.P.A.
THOMAS A. MASTRELLI, C.P.A. (212) 696-4800
CHARLES TROPIANO, C.P.A. TELECOPIER (212) 481-1638
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Disclosure, Inc.
We have audited the accompanying combined balance sheets of Disclosure, Inc.,
its wholly-owned subsidiaries and its affiliated companies, Disclosure (UK),
Limited and I/B/E/S (UK), Limited, (collectively referred to as the "Company")
as of December 31, 1994 and 1993 and the related combined statements of
operations and retained earnings, and cash flows for the years then ended. These
combined financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these combined
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company as of December 31, 1994 and 1993 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Disclosure, Inc., Disclosure (UK), Limited and I/B/E/S (UK), Limited are
ultimate subsidiaries of nv Verenigd Bezit VNU. As summarized in the notes to
the combined financial statements, there are certain transactions between
the Company, its fifty percent owned joint venture and members of the nv
Verenigd Bezit VNU worldwide group which are determined on agreed upon bases.
As described in Note 2 to the combined financial statements, the Company applied
its policy of not capitalizing costs associated with database production to
its fifty percent owned joint venture at January 1, 1993 resulting in a
cumulative effect from change in accounting principle of approximately
$1,100,000, net of income taxes of approximately $700,000.
/s/ Leslie Sufrin and Company, P.C.
February 3, 1995
12
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
1994 1993
---- ----
ASSETS
------
Current assets:
Cash and cash equivalents (Note 8) $ 5,478 $ 1,198
Trade receivables, net of allowances for doubtful
accounts of $1,978 in 1994 and $938 in 1993 36,595 19,186
Other current assets 3,073 3,817
------- -------
Total current assets 45,146 24,201
Property, equipment, leasehold improvements
and capitalized software, net 21,439 15,010
Intangible assets, net 48,378 26,394
Investments in and advances to joint venture 2,925 2,736
Other assets 1,113 1,179
-------- -------
$119,001 $69,520
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $12,307 $ 7,758
Deferred revenues 27,065 15,647
Capitalized lease obligations - current portion 591 557
Other 354 -
-------- -------
Total current liabilities 40,317 23,962
Deferred revenues 3,607 227
Capitalized lease obligations - long-term 700 1,291
Due to VNU 21,382 620
Due to VNU - deferred tax liability 3,530 1,661
Other 800 -
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock 17 2
Preferred stock 2,436 2,301
Additional paid-in capital 39,489 39,539
Cumulative foreign currency translation adjustment 66 (196)
Retained earnings 6,657 113
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Total stockholders' equity 48,665 41,759
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$119,001 $69,520
======== =======
See accompanying notes.
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13
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
1994 1993
---- ----
Revenues:
Documents $64,342 $53,687
Database and other 13,042 9,130
Earnings estimates revenues, net of clearance fees 8,588 -
------- -------
Net revenues 85,972 62,817
------- -------
Operating expenses:
Cost of services 46,823 36,944
Selling, general and administrative 17,791 11,967
Depreciation and amortization 5,930 5,038
Amortization of intangibles 2,293 1,677
------- -------
Total operating expenses 72,837 55,626
------- -------
Operating income 13,135 7,191
------- -------
Other (expense) income:
Interest expense (940) (163)
Interest income 174 70
Equity in (loss) of joint venture (575) (1,095)
------- -------
(1,341) (1,188)
------- -------
Income before provision for income taxes and
cumulative effect of change in accounting policy 11,794 6,003
Provision for income taxes (5,250) (2,824)
------- -------
Net income before cumulative effect of change
in accounting policy 6,544 3,179
Cumulative effect of change in accounting policy
(net of income tax benefit of $717) - (1,095)
------- -------
Net income 6,544 2,084
Retained earnings - beginning of year 113 (1,511)
Dividends paid - Disclosure (UK), Limited - (460)
------- -------
Retained earnings - end of year $ 6,657 $ 113
======= =======
See accompanying notes.
-3-
14
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
1994 1993
---- ----
Cash flows from operating activities:
Net income $ 6,544 $ 2,084
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,223 6,715
Deferred taxes 1,869 477
Change in accounting policy - 1,095
Equity in loss of joint venture 575 1,095
Change in cumulative foreign currency
translation adjustment 262 (117)
Decrease (increase) in:
Trade receivables (11,586) (2,302)
Other current assets 1,562 (1,148)
Other assets 66 (32)
Increase (decrease) in:
Accounts payable, accrued and acquisition liabilities 2,357 2,330
Deferred revenues 7,126 2,929
-------- -------
Net cash provided by operating activities 16,998 13,126
-------- -------
Cash flows from investing activities:
Payments related to acquisitions, net of assets
acquired (25,438) (1,093)
Proceeds from sale of investment (net of
distribution of $9,050) (Note 3) -
(Advances to) repayments from joint venture (764) 422
Loan to Disclosure Minority Shareholder - (1,000)
Purchase of property and equipment (4,063) (4,476)
Capitalization of software (2,758) (2,764)
-------- -------
Net cash (used in) investing activities (33,023) (8,911)
-------- -------
Cash flows from financing activities:
Payments of capitalized lease obligation (557) (395)
Distributions paid - (460)
Increase (decrease) in due to VNU, net 20,862 (3,047)
------- ------
Net cash provided by (used in) financing activities 20,305 (3,902)
-------- -------
Net increase in cash and cash equivalents 4,280 313
Cash and cash equivalents -- beginning of year 1,198 885
-------- -------
Cash and cash equivalents - end of year $ 5,478 $ 1,198
======== =======
Cash paid during the year for:
Interest $ 902 $ 113
======== =======
Income taxes $ 3,234 $ 2,182
======== =======
See accompanying notes.
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15
DISCLOSURE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994 AND 1993
(IN THOUSANDS OF DOLLARS)
(CONTINUED)
1994 1993
---- ----
Supplemental schedule of non-cash
investing and financing activities:
- - Capitalized lease obligation incurred in connection with
upgrade of certain computer equipment $ - $ 949
==== =======
- - Acquisition of Learned Information (Note 3):
Fair value (less cash paid of $92) - 8,958
Common and preferred shares issued to
Disclosure minority shareholder - (8,925)
Note issued - (33)
---- -------
$ - $ -
==== =======
- - Accretion of dividends on preferred shares $135 $ 43
==== =======
- - Sale of I/B/E/S (UK), Limited to VNU (UK)
Holdings, Ltd. $100 $ -
==== =======
See accompanying notes.
-5-
16
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 1 - DESCRIPTION OF COMPANY, BASIS OF PRESENTATION AND PRINCIPLES OF
- ------------------------------------------------------------------------
COMBINATION
- -----------
The combined financial statements include Disclosure, Inc. ("Disclosure") and
its wholly-owned subsidiaries along with affiliated companies Disclosure (UK),
Limited and I/B/E/S (UK) Limited (collectively referred to as the "Company").
The Company provides financial information principally with respect to global
publicly traded companies through printed and electronic documents and
databases.
Disclosure is a ninety percent (90%) owned subsidiary of VNU Marketing
Information Services, Inc. ("VNU-MIS"), formerly VNU Business Information
Services, an ultimate subsidiary of nv Verenigd Bezit VNU ("VNU Bezit").
Disclosure (UK), Limited and I/B/E/S (UK), Limited are eighty percent (80%) and
one hundred percent (100%), respectively, owned by VNU (UK) Holdings, Ltd. The
remaining ten percent (10%) of Disclosure and twenty percent (20%) of
Disclosure (UK), Limited are held by or on behalf of an individual (the
"Disclosure Minority Shareholder") who is also an officer of the Company (see
Notes 3 and 8). The Company's fifty percent owned joint ventures are reflected
on the equity method of accounting (see Note 6). All significant intercompany
accounts and transactions have been eliminated. There are certain transactions
between the Company and its affiliates (collectively referred to as "VNU")
which are determined on agreed upon bases between the parties (see Notes 3, 6,
8 through 12).
On June 30, 1994, Disclosure acquired 100% of the common stock of I/B/E/S, Inc.
and I/B/E/S (UK), Limited (see Note 3). The combined statements of operations
and cash flows for the year ended December 31, 1994 include the operations of
I/B/E/S Inc. and its related entities from July 1, 1994 to December 31, 1994.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Cash and cash equivalents
- -------------------------
The Company considers all bank accounts and other investments that can be
liquidated on demand or with a maturity of three months or less to be cash
equivalents.
Concentration of credit risk
- ----------------------------
Financial instruments that potentially subject the Company to concentration of
credit risk consist primarily of cash investments and receivables. The Company
places its cash and temporary cash investments with quality financial
institutions. At various times throughout the year, the Company's bank
accounts' balances exceeded the balance insured by the Federal Deposit
Insurance Corporation ("FDIC"). Furthermore, the Company maintains cash
balances in money market accounts and foreign bank accounts, both of which are
not insured by the FDIC.
Concentrations of credit risk with respect to trade receivables are generally
diversified due to the large number of entities comprising the Company's
customer base and their dispersion
-6-
17
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
across the financial services' sector and geographic regions. Accordingly, the
Company believes that its trade receivable credit risk exposure is limited and
appropriately provided for.
Trade receivables
- -----------------
Trade receivables, both billed and unbilled, are stated net of a provision for
doubtful accounts. The Company records receivables for the entire amount of the
contracts it has received prior to year end, including contracts for
subscriptions which commence subsequent to the end of the year. Revenue from
subscription contracts which commence subsequent to the end of the year are
included in deferred revenues.
Property, equipment, leasehold improvements and capitalized software
- --------------------------------------------------------------------
The Company records property, equipment and leasehold improvements, at cost.
This asset category also includes certain capitalized equipment leases. Direct
development costs associated with internally developed software to be sold and
production software (subject to certain approval and cost benefit criteria)
exceeding $100,000 are capitalized. Acquired software greater than $25,000 are
also capitalized. Amounts capitalized are evaluated annually as to
recoverability with any permanent impairment in value being charged to results
of operations in the year determinable.
Repairs and maintenance are expensed as incurred. All costs associated with the
creation and maintenance of various Company databases and with the maintenance
of various software systems are expensed as incurred.
Depreciation and amortization are determined based upon principally straight
line methods over the respective assets' estimated useful lives. Annual
depreciation and amortization percentages for the most significant asset
categories are as follows:
Machinery and computer equipment 10 - 33%
Office furniture and equipment 10 - 20%
Capitalized software 20 - 33%
Leasehold improvements are amortized over the term of the leases or the useful
life of the improvement, whichever is shorter.
Intangible assets
- -----------------
The excess of cost, including deferred acquisition costs, over the underlying
value of tangible net assets of businesses acquired has been accounted for as
intangible assets to be amortized over their respective estimated useful lives,
ranging from five to forty years. The net book value of such intangible assets
are evaluated annually as to realizability.
-7-
18
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Intangible assets (continued)
- -----------------------------
In a series of transactions from 1981 to 1987, Disclosure became a wholly-owned
subsidiary of VNU. The purchase accounting adjustments associated with such
transactions have been "pushed down" to Disclosure.
Cumulative foreign currency translation adjustment
- --------------------------------------------------
Assets and liabilities of Disclosure (UK), Limited, I/B/E/S (UK), Limited and
I/B/E/S Japan, K.K. (a subsidiary of I/B/E/S International, Inc.) are
translated at current exchange rates at the balance sheet dates, while revenues
and expenses are translated at average exchange rates during the respective
year, with the resultant difference accounted for in the cumulative foreign
currency translation adjustment account in the stockholders' equity section of
the balance sheet.
Revenue recognition
- -------------------
Revenues from documents (generated principally on a demand or a subscription
basis), earnings estimates and on-line database products are generally
recognized when title and/or delivery passes to the customer or ratably as the
product or service is provided. All other database product revenues are
recognized on accelerated methods, whereby a significant portion of the revenue
is recognized upon the signing of a contract (and/or delivery of the product),
deferring that portion of revenue which will be matched against the minimal
future service costs to be incurred. Revenues generated from customers which
utilize a soft-dollar payment mechanism are reflected net of related clearance
fees (see Note 13).
Income taxes
- ------------
Disclosure files a consolidated U.S. Federal and certain combined state income
tax returns with VNU and files separate income tax returns for certain other
states. Disclosure (UK), Limited and I/B/E/S (UK), Limited file separate income
tax returns with Inland Revenue in the United Kingdom, and are members of a
group with VNU (UK) Holdings, Ltd. for Group Relief purposes (which provides
the benefits of a consolidated tax return in the U.S.). The Company utilizes an
asset and liability approach for financial accounting and reporting for income
taxes. Disclosure's current tax provision for Federal and State income taxes
has been determined in accordance with a tax sharing agreement with VNU,
whereby the Company is charged by VNU an amount equal to the tax the Company
would have had to pay had it filed separate income tax returns (without regard
to net operating loss carryforwards incurred prior to January 1, 1993).
Disclosure's portion of the Company's tax provision included deferred income
taxes as if Disclosure filed a separate return for U.S. Federal and state
income taxes.
The Company reports, for financial statement purposes, certain items of income
and expense in periods which differ from when such items are reported for
income tax purposes. The principal differences relate to (1) the utilization of
consolidated net operating loss
-8-
19
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------------------------------
Income taxes (continued)
- ------------------------
carryforwards, (2) the timing of certain financial statement reserves or
accruals recorded by the Company, which, for income tax purposes, are not
deductible until realized or paid, and (3) the timing of depreciation and
amortization which are recognized, for financial statement purposes, over
different periods than such are recognized for income tax purposes. The related
deferred tax effects are reflected in the combined financial statements
included in the caption "Due to VNU - deferred tax liability". In addition, the
amortization of goodwill and certain intangible assets are not deductible for
income tax purposes until such assets are ultimately sold or abandoned.
Change in accounting policy
- ---------------------------
Effective January 1, 1993, the Company applied its policy of not capitalizing
costs associated with database production to its fifty percent-owned joint
venture, resulting in a reduction in the carrying value of its investment in
joint venture by approximately $1,100,000, net of income taxes of $700,000 (see
Note 6).
NOTE 3 - ACQUISITIONS AND CAPITAL TRANSACTIONS
- ----------------------------------------------
On June 30, 1994, Disclosure acquired 100% of the common stock of I/B/E/S, Inc.
and I/B/E/S (UK), Limited. In a series of related transactions:
- Disclosure transferred its ownership interest in I/B/E/S, Inc. to I/B/E/S
International, Inc. (a newly-formed wholly-owned subsidiary of
Disclosure),
- I/B/E/S, Inc. and I/B/E/S International, Inc. entered into an
Assumption and Assignment Agreement, whereby non broker dealer
operations, contracts and net assets were transferred to I/B/E/S
International, Inc. and
- Disclosure sold the stock of I/B/E/S (UK), Limited to VNU (UK),
Holdings, Ltd.
On January 31, 1994, Disclosure acquired 100% of the assets of SEC On-line,
Inc., a provider of historical full text financial information.
On September 6, 1993, Disclosure acquired 100% of the stock of Learned
Information ("LI") and Learned Information Europe ("LIE") from the Disclosure
Minority Shareholder for 10% of the common stock of Disclosure, 2,625 shares of
Disclosure preferred stock with a redemption value ($860 per share) of
$2,257,500, and $33,000. The fair value of this transaction, including costs of
acquisition, approximated $9,050,000. On December 21, 1993 Disclosure sold the
stock of LI and LIE to VNU International, B.V. for $9,050,000 with the proceeds
distributed to VNU, as provided for in the Owners' Agreement between the
shareholders.
-9-
20
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 4 - PROPERTY, EQUIPMENT, LEASEHOLD IMPROVEMENTS AND CAPITALIZED SOFTWARE
- -----------------------------------------------------------------------------
Property, equipment, leasehold improvements and capitalized software consisted
of the following (in thousands of dollars):
1994 1993
---- ----
Machinery and computer equipment $ 35,280 $ 31,080
Office furniture and equipment 2,984 2,494
Leasehold improvements 6,159 5,120
Capitalized software (a) 10,921 4,294
-------- --------
55,344 42,988
Less: accumulated amortization - capitalized software (1,224) (129)
accumulated depreciation - all other (32,681) (27,849)
-------- --------
$ 21,439 $ 15,010
======== ========
<FN>
(a) Includes, at December 31, 1994, approximately $3.8 million of capitalized software acquired as part of
the acquisition of I/B/E/S, Inc. (see Note 3).
NOTE 5 - INTANGIBLE ASSETS
- --------------------------
Intangible assets related to acquisitions consisted of the following (in
thousands of dollars):
1994 1993
---- ----
Goodwill $51,649 $27,697
Covenant not to compete 2,865 2,865
Subscription lists 3,500 3,500
Libraries and related assets 75 75
Deferred acquisition and transition costs 953 657
------- -------
59,042 34,794
Less: Accumulated amortization (10,664) (8,400)
------- -------
$48,378 $26,394
======= =======
NOTE 6 - INVESTMENT IN AND ADVANCES TO JOINT VENTURE
- ----------------------------------------------------
Disclosure owns a 50% partnership interest in a joint venture,
Worldscope/Disclosure Partners ("W/D"), formed to produce and market certain
international global and regional abstracted database products. W/D receives
certain database production services from the Worldscope/Disclosure
International Partners ("W/DI"), which is 50% owned by VNU (UK) Holdings, Ltd.
Such services have been reflected at cost in the accompanying presentation and
in accounting for the Company's equity in W/D's and W/DI's combined operations.
-10-
21
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 6 - INVESTMENT IN AND ADVANCES TO JOINT VENTURE (CONTINUED)
- ----------------------------------------------------------------
Disclosure and the other 50% partner of W/D and W/D I have jointly and
severally guaranteed W/D's borrowings (see below) under a line of credit
facility. Summarized financial information (adjusted for the effects of
Disclosure not capitalizing database costs and, in 1993, for certain
adjustments related to 1992 estimates) as of and for the years ended December
31, 1994 and 1993 is as follows (in thousands of dollars):
1994 1993
---- ----
Balance Sheet Components
------------------------
Current assets $ 1,763 $ 1,132
Fixed assets, net 293 242
Accounts payable, accrued liabilities
and deferred revenue 1,054 1,064
Borrowing under line of credit 1,500 1,395
Due to Disclosure, Inc. 3,606 2,842
Due to W/D partner 3,576 2,809
1994 1993
---- ----
Statement of Operations
-----------------------
Revenues $ 4,244 $ 3,080
Operating expenses 5,198 5,052
------- -------
Net (loss) before amortization of goodwill,
taxes and interest expense (954) (1,972)
Amortization of goodwill (180) (180)
Interest, taxes, and other (15) (37)
------- -------
Net (loss) $(1,149) $(2,189)
------- -------
Disclosure's 50% share of net (loss) $ (575) $(1,095)
======= =======
In addition, Disclosure is reimbursed for certain direct incremental costs it
incurs on behalf of W/D. Such costs were charged from the following operating
expense categories in the accompanying Combined Statements of Operations (in
thousands of dollars):
1994 1993
---- ----
Production $100 $ 53
Selling, marketing and customer support 624 797
General and administrative 40 7
---- ----
$764 $857
==== ====
Disclosure (UK), Limited also sells W/D products to its customer base,
generating revenues of approximately $700,000 and $430,000 for the years ended
December 31, 1994 and 1993, respectively. In connection with such revenues,
Disclosure (UK), Limited reflected royalty expense to W/D of approximately
$480,000 and $310,000 for the years ended December 31, 1994 and 1993,
respectively.
-11-
22
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 7 - CAPITALIZED LEASE OBLIGATIONS
- --------------------------------------
Certain computer equipment is leased under three to five year, noncancellable
leases which meet the criteria of a capital lease and, accordingly, have been
recorded as such. The following is a schedule of future minimum lease payments
under such capital leases, together with the net present value (at interest
rate ranging from 6.5% to 10.0%) of minimum lease payments as of December 31,
(in thousands of dollars):
1994 1993
---- ----
Total minimum lease payments $1,416 $2,109
Less: amount representing interest (125) (261)
------ ------
Present value of net minimum lease payments 1,291 1,848
Less: current maturities (591) (557)
------ ------
$ 700 $1,291
====== ======
NOTE 8 - DUE TO VNU
- -------------------
Amounts due to VNU relate to normal course borrowings (repayments) of
operating cash flows, loans for acquisitions, capital projects, charges from
tax sharing agreements (see Note 11) and certain administrative services (see
Note 10). Amounts due to VNU consisted of the following at December 31, (in
thousands of dollars):
1994 1993
---- ----
Non Interest Bearing Loans:
Advances, net of repayments,
prior to December 31, 1993 $ 620 $ 620
Advances (net of repayments) subsequent
to December 31, 1993 2,874 -
------- ------
3,494 620
Due (from) VNU from sale I/B/E/S (UK), Limited (100) -
------- ------
3,394 620
Interest Bearing Loans 17,988 -
------- ------
Total loans $21,382 $ 620
======= ======
Deferred income tax liability $ 3,530 $1,661
======= ======
In accordance with the terms of an Owners' Agreement between the shareholders
of Disclosure, VNU agreed to provide Disclosure with certain non interest
bearing loans (the "Non Interest Bearing Loans") and certain interest bearing
loans (the "Interest Bearing Loans"). The Non Interest Bearing Loans are
designated to fund certain approved Disclosure developmental projects (the
"Development Projects") up to a maximum of $15 million. The Non Interest
Bearing Loans are to be repaid solely from proceeds from the Development
Projects and only to the extent of post December 31, 1993 Development Projects'
loans based on a formula tied to the annual depreciation and amortization of
such Development
-12-
23
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 8 - DUE TO VNU (CONTINUED)
- -------------------------------
Projects. Loans for Development Projects of approximately $6.7 million through
December 31, 1993 have been reduced by the amount due from VNU to Disclosure at
December 31, 1993 in the combined balance sheet.
Interest Bearing Loans include loans, principally to finance acquisitions,
intercompany charges for income taxes, interest and certain administrative
services net of repayments and/or interest bearing advances from Disclosure to
VNU. Interest is calculated at the Prime Rate, as defined in the Owners'
Agreement, (8.5% at December 31, 1994). The Owners' Agreement, among other
things, limits VNU's requirement to provide the Company with interest bearing
loans to fifty percent (50%) of the combined net worth of the Company, LI and
LIE (the "Disclosure Group"). In addition, to the extent shareholders have
received distributions from the Disclosure Group, such shareholders are
required to make interest bearing loans to the Disclosure Group should the need
for such funds arise. While the intercompany charges for taxes, interest and
certain administrative services are generally payable currently, there is no
specific repayment schedule for interest bearing loans. To date, interest
bearing loans have been repaid to the extent of excess cash payments made by
Disclosure to VNU.
The Owners' Agreement also required VNU to cause the Company's current assets
to exceed current liabilities at December 31, 1993. Adjustments to working
capital permitted under this Agreement are not reflected in the accompanying
combined financial statements.
For financial statement purposes, all amounts due VNU have been reflected as a
non current liability even though it has been Disclosure's practice and intent
to utilize its and the Company's excess cash to repay Interest Bearing Loans
due VNU as soon as practicable.
NOTE 9 - STOCKHOLDERS' EQUITY
- -----------------------------
Common stock includes the following at December 31, 1994 and 1993:
Shares
--------------------------------------
Issued Outstanding Authorized
------ ----------- ----------
Disclosure, Inc. 1,000 1,000 1,000
Disclosure (UK), Limited 1,000 1,000 1,000
I/B/E/S (UK), Limited 10,000 10,000 100,000
The Owners' Agreement provides for the grant and exercise of certain put and
call options whereby the Disclosure Minority Shareholder would receive future
payments for his shares of Disclosure, Inc. and Disclosure (UK), Limited based
upon the Company's future operating income, as defined, compared to its 1992
operating income, as defined.
-13-
24
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 9 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
Disclosure's preferred stock (2,625 shares issued and outstanding, 2,900 shares
authorized with no voting rights) is redeemable (at $860 per share) at the
option of the Disclosure Minority Shareholder and Disclosure anytime after June
30, 1994 and accrues dividends at the rate of $51.60 per share on the initial
redemption value of the preferred stock.
NOTE 10 - OTHER RELATED PARTY TRANSACTIONS
- ------------------------------------------
VNU provides the Company with certain financing, accounting, insurance, legal
and administrative services, which are determined on an arms length bases
between the parties.
Disclosure also holds a $1,000,000 note receivable (with interest at a rate of
6% per annum) from the Disclosure Minority Shareholder due December 31, 1998.
The note and related accrued interest is collateralized by a Deed of Trust on
certain residential real estate. There are certain factors which can cause the
note to become immediately due and payable, including the sale of the
residential real estate, the sale or redemption of Disclosure's preferred stock
and the termination of employment of the Disclosure Minority Shareholder. At
December 31, 1994 and 1993, the balance of the note and related accrued
interest was $1,080,000 and $1,020,000, respectively. In addition, the
Disclosure Minority Shareholder entered into an employment agreement with
Disclosure dated September 7, 1993 with a term through December 31, 1998. The
employment agreement can be terminated prior to December 31, 1998 by VNU or,
under certain circumstances, by the Disclosure Minority Shareholder.
NOTE 11 - INCOME TAXES
- ----------------------
The provision (benefit) for income taxes is comprised of the following for the
years ending:
December 31,
-----------------------
1994 1993
---- ----
(In thousands)
Current
Federal $2,356 $1,669
State and local 693 493
Foreign (UK) 332 185
------ ------
3,381 2,347
Deferred
Federal 1,470 375
State and local 399 102
------ ------
$5,250 $2,824
====== ======
-14-
25
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 11 - INCOME TAXES (CONTINUED)
- ----------------------------------
The reconciliation between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before provision for
income taxes is as follows:
1994 1993
---- ----
(In thousands)
Federal statutory income taxes $3,669 $1,862
State income taxes, net of
Federal tax effect of $310
and $157, respectively 602 306
Foreign income taxes 332 185
Other (permanent differences) 647 471
------ ------
$5,250 $2,824
====== ======
Income (loss) before provision for income taxes consisted of the following:
1994 1993
---- ----
(In thousands)
Domestic $10,791 $5,475
Foreign (UK) 1,003 528
------- ------
$11,794 $6,003
======= ======
NOTE 12 - RETIREMENT PLANS
- --------------------------
Disclosure is part of a 401(k) Retirement Savings Plan (the "Plan") with
VNU-MIS which provides certain deferred compensation benefits to eligible
Disclosure's employees. The Plan provides for discretionary contributions to be
made by VNU-MIS for Disclosure for which Employer Matching Contributions of
approximately $281,000 and $275,000 were made for the years ended December 31,
1994 and 1993.
I/B/E/S International, Inc. provides a 401(k) plan for all full-time employees
with at least one year of service. I/B/E/S International, Inc. matches 50% of
employee contributions up to a maximum of 6% of their annual salary. I/B/E/S
International, Inc. contributions to the plan approximated $45,000 for the six
months ended December 31, 1994.
-15-
26
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
NOTE 13 - COMMITMENTS AND CONTINGENCIES
- ---------------------------------------
The Company has entered into various leasehold, employment and other
commitments, which expire as follows (in thousands of dollars):
December 31, Total Leasehold Employment Other
------------ ----- --------- ---------- -----
1995 $ 6,090 $ 4,440 $1,170 $ 480
1996 5,636 4,160 996 480
1997 4,758 3,550 728 480
1998 3,610 3,360 250 -
1999 3,400 3,400 - -
Thereafter 14,170 14,170 - -
------- ------- ------ ------
$37,664 $33,080 $3,144 $1,440
======= ======= ====== ======
Rent expense was approximately $4,152,000 and $3,830,000 for the years ended
December 31, 1994 and 1993, respectively.
The Company's leasehold commitments are net of sublease income. VNU owns a 20%
partnership interest in the Company's Bethesda office facility, with rent
expense of approximately $2,070,000 for both the years ending December 31, 1994
and 1993. In addition, certain employment agreements with key Company
executives include provisions for additional compensation, based on defined
formulas.
I/B/E/S, Inc. is a registered broker-dealer in securities under the Securities
Exchange Act of 1934, and a registered investment adviser under the Investment
Advisers Act of 1940. The Company is subject to the Securities and Exchange
Commission's Uniform Net Capital Rule (Rule 15c3-1), which requires the
maintenance of minimum net capital and requires that the ratio of aggregate
indebtedness to net capital, both as defined, shall not exceed 15 to 1. The
Rule also provides that equity capital may not be withdrawn or cash equivalents
paid if the resulting net capital ratio would exceed 10 to 1. At December 31,
1994, I/B/E/S, Inc. had net capital, as defined, of $193,330 which was $114,870
in excess of its minimum required. I/B/E/S, Inc.'s net capital ratio as of
December 31, 1994 was 6.09 to 1.
I/B/E/S, Inc. is registered as a broker-dealer entity for the purpose of
facilitating a soft-dollar payment mechanism for customers who wish to pay for
products via trading commissions consistent with the soft-dollar arrangements
permitted by Section 28(e) of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), and applicable rules and releases promulgated
under the Exchange Act. As a non-clearing broker in securities,
-16-
27
DISCLOSURE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
Note 13 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- ---------------------------------------------------
I/B/E/S, Inc. is engaged in brokerage services to a diverse group of
institutional investors. I/B/E/S, Inc.'s exposure to credit risk associated
with the nonperformance of these customers in fulfilling their commitments for
directed commissions pursuant to securities transactions can be directly
impacted by volatile trading markets. I/B/E/S, Inc.'s customer activities
involve the execution and settlement of various customer securities
transactions through its principal correspondent clearing brokers,
Correspondent Services Corporation, an affiliate of Paine Webber Incorporated,
and S.G. Warburg.
Disclosure Information Services, Inc. ("DISI"), a subsidiary of Disclosure,
Inc., is committed under a renewed subcontract with the Securities and Exchange
Commission ("SEC") through September 30, 1995, whereby DISI is to provide
documents to the SEC and operate public reference rooms, among other things.
- 17-
28
LESLIE SUFRIN AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
325 FIFTH AVENUE
NEW YORK, N.Y. 10016
LESLIE SUFRIN, C.P.A.
THOMAS A. MASTRELLI, C.P.A. (212) 696-4800
CHARLES TROPIANO, C.P.A. TELECOPIER (212) 481-1638
INDEPENDENT AUDITOR'S REPORT
----------------------------
ON SUPPLEMENTARY INFORMATION
----------------------------
To the Board of Directors
Disclosure, Inc.
Our report on our audit of the basic combined financial statements of
Disclosure, Inc. and Affiliated Companies (the "Company") for 1994 appears
on page 1. That audit was made for the purpose of forming an opinion on the
basic combined financial statements taken as a whole. The pro-forma statement of
operating income for the year ended December 31, 1994 for the Company is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the combined basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
combined basic financial statements taken as whole.
Disclosure, Inc., Disclosure (UK), Limited, and I/B/E/S (UK, Limited are
ultimate subsidiaries of nv Verenigd Bezit VNU. As summarized in the notes to
the basic combined financial statements, there are certain transactions between
the Company, its fifty percent owned joint venture and subsidiaries of nv
Verenigd Bezit VNU which are determined on agreed upon bases.
/s/ Leslie Sufrin and Company, P.C.
February 3, 1995
29
DISCLOSURE, INC.
AND AFFILIATED COMPANIES
SUPPLEMENTARY FINANCIAL INFORMATION
PRO-FORMA STATEMENT OF OPERATING INCOME
FOR THE YEAR ENDING DECEMBER 31, 1994
(IN THOUSANDS OF DOLLARS)
Pro-forma adjustments (1)
--------------------------
Pro-forma IBES Fifty percent Audited
1994 1/1-6/30/94 Worldscope 1994
--------- ----------- ------------- -------
Revenues:
Documents $64,342 $ - $ - $64,342
Databases and other 15,164 - 2,122 13,042
Earnings estimates revenues, net 16,643 8,055 - 8,588
------- ------ ------ -------
Net revenues 96,149 8,055 2,122 85,972
------- ------ ------ -------
Operating expenses:
Cost of services 51,638 2,605 2,210 46,823
Selling, general and administrative 22,531 4,404 336 17,791
Depreciation and amortization 6,728 745 53 5,930
Amortization of intangibles 2,293 - - 2,293
------- ------ ------ -------
Total operating expenses 83,190 7,754 2,599 72,837
------- ------ ------ -------
Operating income (loss) $12,959 $ 301 $ (477) $13,135
======= ====== ====== =======
<FN>
(1) Pro-forma adjustments represent (1) the operating activities of the I/B/E/S group of companies for the six months
ended June 30, 1994 and (2) fifty percent of the revenues and operating expenses (without regard to database
capitalization) of the Worldscope joint ventures for the year ended December 31, 1994.
-19-
30
DISCLOSURE, INC.
AND AFFILIATED COMPANY
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992 AND 1991
WITH
INDEPENDENT AUDITOR'S REPORT
31
DISCLOSURE, INC. AND AFFILIATED COMPANY
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1992 AND 1991
INDEX
-----
Page
----
Independent Auditor's Report 1-2
Combined Balance Sheets 3
Combined Statements of Operations and Retained Earnings 4
Combined Statements of Cash Flows 5-6
Notes to Combined Financial Statements 7-16
32
LESLIE SUFRIN AND COMPANY, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
325 FIFTH AVENUE
NEW YORK. N.Y. 10016
LESLIE SUFRIN, C.P.A.
THOMAS A. MASTRELLI, C.P.A. (212) 696-4800
CHARLES TROPIANO, C.P.A. TELECOPIER (212) 481-1638
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors Disclosure, Inc.
We have audited the accompanying combined balance sheets of Disclosure, Inc.,
its wholly-owned subsidiaries and its affiliated company, Disclosure
London, Limited, (collectively referred to as the "Company") as of December 31,
1992 and 1991 and the related combined statements of operations and retained
earnings and cash flows for the years then ended. These combined financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the combined financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the combined financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
combined financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the
Company as of December 31, 1992 and 1991 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Disclosure, Inc. and Disclosure London, Limited are ultimate subsidiaries of
nv Verenigd Bezit VNU. There are significant transactions between the Company
and subsidiaries of nv Verenigd Bezit VNU which are determined on an agreed upon
basis.
As indicated in Note 2, effective January 1, 1991, the Company adopted
"push-down" accounting, whereby purchase accounting adjustments associated with
its acquisition by VNU are reflected on the books of the Company. Such
adjustments result in an increase in goodwill, additional paid-in capital and
accumulated amortization of approximately $20,030,000, $20,030,000 and
$1,670,000, respectively, at January 1, 1991.
33
LESLIE SUFRIN AND COMPANY, P.C.
To the Board of Directors
Disclosure, Inc.
Page two
As indicated in Note 2, effective January 1, 1991, the Company adopted FAS No.
109, "Accounting for Income Taxes" which required, among other things, that the
Company provide for deferred income taxes when determining its tax provision on
a separate return basis. The cumulative effect of adopting FAS No. 109
approximated $2,507,000 at January 1, 1991.
As indicated in Notes 4 and 5, the Company's ability to fully recover
approximately $5.8 million of its intangible assets related to its Federal
Documents Retrieval division and its approximate $6.1 million investment in and
advances to its joint venture at December 31, 1992 is, in large part, dependent
upon the division's and the joint venture's ability to attain and maintain
positive cash flow from operations. The ultimate outcome of these uncertainties
cannot presently be determined. Accordingly, the combined financial statements
do not include any adjustments that might result from the outcome of these
uncertainties.
/s/ Leslie Sufrin and Company, P.C.
January 29, 1993, except for Note 12,
which date is September 6, 1993
34
DISCLOSURE, INC. AND AFFILIATED COMPANY
COMBINED BALANCE SHEETS
DECEMBER 31, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
1992 1991
---- ----
ASSETS (Restated)
------
Current assets:
Cash $ 885 $ 688
Trade receivables, net of allowance for doubtful
accounts of $1,259 in 1992 and $731 in 1991 16,884 16,057
Other current assets 2,669 977
------- -------
Total current assets 20,438 17,722
Property, equipment, leasehold improvements
and capitalized software, net (Note 3) 11,781 12,714
Intangible assets, net (Note 4) 28,149 32,219
Investments in and advances to joint venture (Note 5) 6,065 4,467
Other assets 147 282
------- -------
$66,580 $67,404
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 5,661 $ 5,339
Deferred revenues 12,945 12,086
Capitalized lease obligations - current portion (Note 6) 402 334
Other 1,001 1,960
------- -------
Total current liabilities 20,009 19,719
Capitalized lease obligations - long-term (Note 6) 624 1,215
Due to VNU, VNU-BIS and its affiliates (Notes 7 and 8) 3,667 903
Due to VNU-BIS - deferred tax liability (Note 8) 1,901 2,598
Commitments (Note 11)
Stockholders' equity (Note 7):
Common stock 2 2
Additional paid-in capital 41,967 41,967
Retained earnings (1,511) 973
Cumulative foreign currency translation adjustment (79) 27
------- -------
Total stockholders' equity 40,379 42,969
------- -------
$66,580 $67,404
======= =======
See accompanying notes.
- 3 -
35
DISCLOSURE, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
AND RETAINED EARNINGS
Years Ended December 31, 1992 and 1991
(IN THOUSANDS OF DOLLARS)
1992 1991
---- ----
(Restated)
Revenues:
Documents $46,411 $41,758
Database and other 7,922 7,615
--------- ---------
Net revenues 54,333 49,373
--------- ---------
Operating expenses:
Cost of services 31,285 29,300
Selling, general and administrative 14,485 13,856
Depreciation and amortization 5,586 4,556
Amortization of goodwill and other intangibles 4,870 1,468
--------- ---------
Total operating expenses 56,226 49,180
--------- ---------
Operating income (loss) (1,893) 193
--------- ---------
Other income (deductions):
Interest expense (208) (386)
Interest income 56 80
Equity in (loss) of joint venture (Note 5) (661) (572)
--------- ---------
(813) (878)
--------- ---------
(Loss) before provision for income taxes and cumulative
effect of changes in accounting policy (2,706) (685)
Income tax (expense) benefit (Note 9) 384 (241)
--------- ---------
Net (loss) before cumulative effect of changes
in accounting policy (2,322) (926)
--------- ---------
Cumulative effect of changes in accounting policy (Note 2) - (4,177)
--------- ---------
Net (loss) (2,322) (5,103)
--------- ---------
Retained earnings - beginning of year, as previously reported 1,439 6,542
Dividends accrued - Disclosure London, Limited (Note 7) (466) (208)
--------- ---------
Retained earnings - beginning of year, as restated 973 6,334
Dividends accrued - Disclosure London, Limited (Note 7) (162) (258)
--------- ---------
Retained earnings - end of year $(1,511) $ 973
========= =========
See accompanying notes.
-4-
36
DISCLOSURE, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
1992 1991
---- ----
(Restated)
Cash flows from operating activities:
Net (loss) $(2,322) $(5,103)
Adjustments to reconcile net (loss) to net cash
provided by (used in) operating activities:
Cumulative effect of changes in accounting policy - 4,177
Depreciation and amortization 7,281 6,024
Deferred taxes (697) 91
Write-off of intangibles related to CIFAR 3,175 -
Reserve for 1993 Act database 900 -
Imputed interest on accrued acquisition obligation 74 143
Equity in loss of joint venture 661 572
Change in cumulative foreign currency
translation adjustment (106) (20)
Decrease (increase) in:
Accounts receivable (827) (2,331)
Other current assets (1,692) 80
Other assets 135 77
Increase (decrease) in:
Accounts payable and accrued liabilities 322 265
Deferred revenues 859 1,894
--------- ---------
Net cash provided by operating activities 7,763 5,869
--------- ---------
Cash flows from investing activities:
Acquisition of Bechtel Software, Inc. - (4,304)
Advances to joint venture (2,259) (1,039)
Payment related to CIFAR goodwill (175) -
Purchase of property and equipment (6,178) (4,016)
--------- ---------
Net cash (used in) investing activities (8,612) (9,359)
--------- ---------
Cash flows from financing activities:
Payment of accrued acquisition costs (1,033) (1,315)
(Repayments) of capitalized lease obligations (523) (180)
Due to VNU, VNU-BIS and its affiliates 2,602 (2,221)
Capital contributions - 7,001
--------- ---------
Net cash provided by financing activities 1,046 3,285
--------- ---------
Net increase (decrease) in cash and cash equivalents 197 (205)
Cash and cash equivalents - beginning of year 688 893
--------- ---------
Cash and cash equivalents - end of year $ 885 $ 688
========= =========
Cash paid during the year for:
Interest $ 270 $ 128
========= =========
Income taxes $ 372 $ 21
========= =========
See accompanying notes.
-5-
37
DISCLOSURE, INC. AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
(CONTINUED)
1992 1991
---- ----
Supplemental schedule of non-cash (Restated)
investing and financing activities:
- Capitalized lease obligation incurred in connection with
acquisition of certain computer equipment $ - $ 1,729
====== =======
- Acquisition of Bechtel Software, Inc. (Note 4):
Cash acquired - 1,422
Fair value of tangible assets acquired - 2,449
Accounts payable, accrued liabilities and
deferred revenue assumed (2,050)
Intangible assets acquired (including deferred
acquisition and transition costs) - 5,688
------ -------
7,509
Cash paid (at closing and for deferred acquisition
and transition costs) - (5,726)
------ -------
Obligation due to sellers $ - $ 1,783
====== =======
- Dividend declared - Disclosure London, Limited $ 162 $ 258
====== =======
See accompanying notes.
-6-
38
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 1 - Description of Company, basis of presentation and principles of
- ------------------------------------------------------------------------
consolidation
- -------------
Disclosure, Inc., its wholly-owned subsidiaries and Disclosure London, Limited
(collectively referred to as the "Company") are ultimate subsidiaries of nv
Verenigd Bezit VNU ("VNU"). The Company is engaged in the business of
developing, producing and selling various products derived from regulatory
filings of publicly traded companies and similar documents worldwide, including
full-text copies of such documents and abstracted database products derived
from such documents.
The combined financial statements include the accounts of Disclosure, Inc. and
its subsidiaries in which it owns more than a fifty percent interest.
Disclosure, Inc.'s fifty percent owned joint venture is reflected on the
equity method of accounting. Disclosure London, Limited is eighty percent owned
by VNU International (a subsidiary of VNU) and twenty percent owned by an
unrelated third party. All significant intercompany accounts and transactions
have been eliminated. There are significant transactions between the Company,
VNU, VNU-BIS and its affiliates which are determined on agreed upon bases
between the parties (See Note 8).
Note 2 - Summary of significant accounting policies
- ----------------------------------------------------
Cash and cash equivalents
- -------------------------
The Company considers all bank accounts and other investments that can be
liquidated on demand or with a maturity of three months or less to be cash
equivalents.
Accounts and unbilled receivables
- ---------------------------------
Accounts and unbilled receivables are stated net of a provision for doubtful
accounts.
Property and equipment
- ----------------------
The Company records property and equipment, including computer equipment under
capital leases, at cost. Developed software and certain abstract databases with
annual budgeted costs exceeding $100,000 are capitalized to the extent
budgeted. Acquired software and databases greater than $25,000 are also
capitalized. Amounts capitalized are evaluated annually as to recovery with any
permanent impairment in value being charged to results of operations in the
year determinable. In addition, capitalized software databases which do not
attain related revenue levels, as defined, are required to partially or fully
restrict the level of subsequent years' capitalized expenditures. This asset
category also includes certain capitalized equipment leases. Certain production
costs associated with the 34 Act database (including document acquisition and
preparation, Laser Disclosure production, and 1934 Act database production)
have been expensed as incurred.
-7-
39
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 2 - Summary of significant accounting policies (continued)
- ---------------------------------------------------------------
Depreciation and amortization are determined based upon principally straight
line methods over the respective assets' estimated useful lives. Annual
depreciation/amortization percentages for the most significant asset categories
are as follows:
Machinery and equipment 10 - 33%
Office furniture and equipment 10 - 20%
Vehicles 25 - 33%
Software 33%
Databases 20%
Leasehold improvements are amortized over the life of the leases or the useful
life of the improvement, whichever is shorter. The machinery and equipment
category also includes certain capitalized equipment leases.
Intangible assets
- -----------------
In a series of transactions from 1981 to 1987, Disclosure, Inc. became a
wholly-owned subsidiary of VNU Business Information Services, Inc. ("VNU-BIS
"), an ultimate subsidiary of VNU. The purchase accounting adjustments
associated with its acquisition are reflected on the books of VNU-BIS and have
been "pushed down" to Disclosure, Inc. effective January 1, 1991.
Effective January 1, 1991, the Company adopted "push-down" accounting whereby
purchase accounting adjustments associated with its initial acquisition by VNU
are reflected on the books of the Company. Such adjustments result in an
increase in goodwill, additional paid-in capital and accumulated amortization
of approximately $20,030,000, $20,030,000 and $1,670,000, respectively, at
January 1, 1991.
The excess of cost, including deferred acquisition costs, over the underlying
value of tangible net assets of businesses acquired has been accounted for as
intangible assets to be amortized over their respective estimated useful lives,
ranging from five to forty years. The net book value of such intangible assets
are evaluated annually as to realizability.
Cumulative foreign currency translation adjustment
- --------------------------------------------------
Assets and liabilities of Disclosure London, Limited are translated at current
exchange rates at the balance sheet dates, while revenues and expenses are
translated at weighted average exchange rates during the respective year, with
the resultant difference accounted for in the cumulative foreign currency
translation adjustment account in the stockholders' equity section of the
balance sheet.
-8-
40
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 2 - Summary of significant accounting policies (continued)
- ---------------------------------------------------------------
Revenue recognition
- -------------------
Document revenues (generated principally on a demand or a subscription basis)
and on-line database product revenues are generally recognized when title and/or
delivery passes to the customer or ratably as the product or service is
provided or developed. All other database product revenues are recognized on
accelerated methods, whereby a significant portion of the revenue is recognized
upon the signing of a contract (and/or delivery of the product), deferring that
portion of revenue which will be matched against the minimal future service
costs to be incurred.
Income taxes
- ------------
Effective January 1, 1991, the Company adopted FAS No. 109, "Accounting for
Income Taxes". This standard requires the use of the asset and liability
approach for financial accounting and reporting for income taxes and also
requires that the Company provide for deferred income taxes when determining its
tax provision on a separate return basis. The cumulative effect of adopting FAS
No. 109 approximated $2,507,000 at January 1, 1991.
Disclosure, Inc. files consolidated Federal and certain combined state income
tax returns with VNU-BIS. Disclosure, Inc. files separate income tax returns for
certain other states. Disclosure London, Limited files a return with Inland
Revenue in the United Kingdom. While U.S. entities are included in the
consolidated Federal and certain combined state tax returns with VNU-BIS, such
entities have been treated as if they were separate entities for financial tax
reporting purposes. The provision for current taxes represent taxes on
Disclosure, Inc.'s and its subsidiaries' income required in certain states,
municipalities and Disclosure London, Limited's income in the United Kingdom.
The Company reports, for financial statement purposes, certain items of income
and expense in periods which differ from when such items are reported for income
tax purposes. The principal differences relate to (1) the utilization of
consolidated net operating loss carryforwards, (2) the timing of certain
financial statement reserves or accruals recorded by the Company, which, for
income tax purposes, are not deductible until realized or paid, and (3) the
timing of depreciation and amortization which are recognized, for financial
statement purposes, over different periods than such are recognized for income
tax purposes. The related deferred tax effects have been included in the caption
"Due to VNU-BIS - deferred tax liability". In addition, the amortization of
goodwill and certain intangible assets are not deductible for income tax
purposes until such assets are ultimately sold or abandoned.
Reclassifications
- -----------------
Certain amounts included in the 1991 combined financial statements have been
reclassified to conform with the 1992 presentation.
-9-
41
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 3 - Property and equipment
- -------------------------------
Property and equipment consisted of the following (in thousands of dollars):
1992 1991
---- ----
Machinery and computer equipment $ 25,653 $22,283
Furniture and fixtures 2,264 2,073
Software and databases 2,994 1,516
Leasehold improvements and condominium 4,923 4,609
-------- -------
35,834 30,481
Less: accumulated depreciation (24,053) (17,767)
-------- --------
$ 11,781 $ 12,714
======== ========
Note 4 - Intangible assets
- --------------------------
Intangible assets related to acquisitions consisted of the following (in
thousands of dollars):
1992 1991
---- ----
Goodwill $27,697 $30,072
Covenant not to compete 3,500 3,500
Subscription lists 2,865 2,865
Libraries and related assets 950 950
Deferred acquisition and transition costs 688 688
------- -------
35,700 38,075
Less: Accumulated amortization (7,551) (5,856)
------- -------
$28,149 $32,219
======= =======
In January 1991, the Company acquired 100% of the stock of Bechtel Software,
Inc. ("Bechtel"). The Company's aggregate purchase price for Bechtel's business
and net assets (including approximately $1.8 million in tangible net assets)
was approximately $7.5 million; (i) $5 million paid in January 1991, (ii)
approximately $1.8 million (the present value of $2 million due upon renewals
of a Bechtel subcontract) and (iii) the balance related to deferred acquisition
and transition costs.
Intangible assets ($2,550,000) and database costs ($625,000) related to the
Company's CIFAR acquisition were deemed to be permanently impaired in 1992 and,
accordingly, were written off. The write-off was included in the 1992 Statement
of Operations and Retained Earnings in the caption "Amortization of
Intangibles".
- 10 -
42
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 4 - Intangible assets (continued)
- --------------------------------------
The Company's ability to fully recover its $5.8 million net book value of
intangibles related to the Federal Document Retrieval ("FDR") acquisition
(included above) is dependent upon the FDR division's ability to ultimately
maintain positive cash flow from operations. No adjustment which might result
from the outcome of this uncertainty has been recorded in the accompanying
combined financial statements.
Note 5 - Investment in and advances to joint venture
- ----------------------------------------------------
In November 1990, Disclosure, Inc. invested $4,000,000 for a 50% partnership
interest in a joint venture, Worldscope/Disclosure Partners ("W/D"), formed to
produce and market certain international global and regional abstracted
database products. During 1992 and 1991, Disclosure, Inc. provided services to
W/D, which were charged from the following operating expense categories in the
accompanying Combined Statements of Operations and Retained Earnings (in
thousands of dollars):
1992 1991
Data acquisition, processing and distribution $103 $ 59
Selling and customer support 139 65
Marketing 264 138
General and administrative 86 33
---- ----
$592 $295
==== ====
In addition, Disclosure, Inc. provided approximately $1,667,000 and $744,000 of
additional net financing to W/D in 1992 and 1991, respectively. Summarized
financial information for W/D as of and for the years ended December 31, 1992
and 1991 is as follows (in thousands of dollars):
1992 1991
---- ----
Balance Sheet
-------------
Current assets $ 819 $ 509
Capitalized database and software, net 4,493 2,382
Database licensing agreement, net 1,800 2,400
Other assets 3 4
------- -------
Total assets $ 7,115 $ 5,295
======= =======
Accounts payable, accrued liabilities and deferred revenue $ 464 $ 321
Due to Disclosure, Inc. 3,299 1,039
Due to W/D partner 1,966 1,215
Partners' capital 1,386 2,720
------- -------
$ 7,115 $ 5,295
======= =======
-11-
43
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 5 - Investment in and advances to joint venture (continued)
- ----------------------------------------------------------------
1992 1991
---- ----
(In thousands)
Statement of Operations
-----------------------
Revenues $ 2,164 $ 1,779
Operating expenses 4,997 4,705
------- -------
(Loss) before database and software capitalization, related
amortization and amortization of database
licensing agreement (2,833) (2,926)
Database and software capitalization 2,891 2,593
Amortization of capitalized database and software (1,380) (212)
Amortization of database licensing agreement - (600)
------- -------
Net (loss) $(1,322) $(1,145)
======= =======
Disclosure's 50 % share of net (loss) $ (661) $ (572)
======= =======
The Company's ability to fully recover its approximate $6.1 million dollar
investment in and advances to W/D is dependent upon W/D's ability to ultimately
attain and maintain positive cash flow from operations. In February 1993, W/D
obtained a $1.5 million line of credit from a bank (which was guaranteed by
VNU), a portion of the proceeds of which was to be used to repay a portion of
Disclosure, Inc.'s advances. No adjustment which might result from this
uncertainty has been recorded in the accompanying combined financial
statements.
Note 6 - Capitalized lease obligation
- -------------------------------------
Certain computer equipment is leased under a five-year, noncancellable lease
which meets the criteria of a capital lease and, accordingly, has been recorded
as such. The following is a schedule of future minimum lease payments under the
capital lease, together with the net present value (at an interest rate of
8.75%) of minimum lease payments as of December 31, 1992 and 1991 (in thousands
of dollars):
1992 1991
---- ----
Total minimum lease payments $1,204 $1,851
Less: amount represent interest (178) (302)
------ ------
Present value of net minimum lease payments 1,026 1,549
Less: current maturities (402) (334)
------ ------
$ 624 $1,215
====== ======
- 12 -
44
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 7 - Stockholders' equity
- -----------------------------
Common stock includes the following at December 31, 1992 and 1991:
Shares
--------------------------------------
Issued Outstanding Authorized
------ ----------- ----------
Disclosure, Inc. 500 500 1,000
Disclosure London, Limited 1,000 1,000 1,000
Disclosure London, Limited accrued dividends in 1990, 1991 and 1992. These
dividend accruals for 1991 and 1990 (aggregating approximately $466,000) were
not previously reflected in the financial statements. Therefore, the 1991
financial statements have been restated to reflect the accrual of dividends.
Note 8 - Due to VNU, VNU-BIS and certain affiliates
- ---------------------------------------------------
Due to VNU, VNU-BIS and its affiliates consists of the following at
December 31,:
1992 1991
---- ----
(In thousands)
Due to VNU, VNU-BIS and its affiliates (a) $3,667 $ 903
Due to VNU-BIS - deferred tax liability (b) 1,901 2,598
------ -----
$5,568 $3,501
====== ======
<FN>
(a) The Company's activity with VNU-BIS and affiliates includes certain
financing, accounting, strategic planning and administrative
functions, which are determined on agreed upon bases between the
parties. Furthermore, the Disclosure, Inc. participates in certain
employee benefit programs administered by VNU-BIS.
(b) While U.S. entities are included in the consolidated Federal and
certain combined state tax returns with VNU-BIS, such entities have
been treated as if they were separate entities for financial tax
reporting purposes. The related deferred tax liabilities have been
included above.
- 13 -
45
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 9 - Income Taxes
- ---------------------
The provision (benefit) for income taxes is comprised of the following for the
years ending:
December 31,
1992 1991
---- ----
(In thousands)
Current
Federal $ - $ -
State and local 190 -
Foreign (UK) 123 150
------ -----
313 150
Deferred
Federal $ (638) $ 83
State and local (59) 8
------ -----
$ (384) $ 241
====== =====
The reconciliation between total income tax expense and the amount computed by
applying the statutory Federal income tax rate to income before provision for
income taxes is as follows:
1992 1991
---- ----
(In thousands)
Federal statutory income taxes $(1,047) $(360)
State income taxes, net of
Federal tax effect of $ (88)
and $ (31), respectively (172) (59)
Foreign tax provision 123 150
Other (permanent differences) 712 510
------- -----
$ (384) $ 241
======= =====
Income (loss) before provision for income taxes consisted of the following:
1992 1991
---- ----
(In thousands)
Domestic $(3,079) $(1,060)
Foreign (UK) 373 375
------- -------
$(2,706) $ (685)
======= =======
Note 10 - Retirement plans
- --------------------------
Disclosure, Inc. is part of a 401(k) Retirement Savings Plan (the "Plan") with
VNU-BIS which provides certain deferred compensation benefits to eligible
Disclosure, Inc. employees. The Plan provides for discretionary contributions
to be made by VNU-BIS for Disclosure, Inc. for which only Employer Matching
Contributions of approximately $194,000 and $162,000 were made for the years
ended December 31, 1992 and 1991.
- 14 -
46
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 11 - Commitments
- ---------------------
The Company has entered into various leasehold and employment commitments,
which expire as follows (in thousands of dollars):
Leasehold
-----------------------------------
Disclosure
December 31, Total Bethesda Limited Other Employment Other
------------ ----- -------- ------- ----- ---------- -----
1993 $ 3,906 $ 1,978 $192 $1,334 $290 $112
1994 3,023 1,957 192 534 290 -
1995 2,622 1,893 192 537 - -
1996 2,609 1,893 192 524 - -
1997 2,423 1,893 192 338 - -
Thereafter 17,635 16,153 1,482 - -
------- ------- ---- ------ ---- ----
$32,218 $25,767 $960 $4,749 $580 $112
======= ======= ==== ====== ==== ====
The Company's leasehold commitments are net of sublease income. The Bethesda
office space is owned by a Partnership in which a wholly-owned subsidiary of
VNU-BIS holds a 20% interest.
The Disclosure London, Limited Shareholder Agreement has certain put/call
provisions whereby VNU International could be required to purchase the minority
shares at a "Share Price", as defined. These provisions become operational for
50% and 100% of the minority shares on December 31, 1994 and 1995,
respectively.
In addition, Disclosure, Inc. is committed [under a renewed subcontract with
the Securities and Exchange Commission ("SEC")] through September 30, 1993,
whereby Disclosure Information Services, Inc. (a wholly owned subsidiary of
Disclosure, Inc.) is to provide documents to the SEC and operate public
reference rooms, among other things.
Note 12 - Subsequent event
- --------------------------
On September 6, 1993, an officer of Disclosure, Inc. (who is also an officer
and shareholder of Disclosure London, Limited) and VNU entered into an agreement
which, among other things, entitles such officer to future payments based upon
the Company's future operating income, as defined, compared to its 1992
operating income, as defined. The following table reconciles the
- 15 -
47
DISCLOSURE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1992 AND 1991
Note 12 - Subsequent event (continued)
- --------------------------------------
Company's 1992 operating income, reflected in the accompanying combined
financial statements, to the Company's 1992 operating income specified in this
agreement (in thousands of dollars):
1992 operating income - per the Company's combined
financial statements (before amortization of
intangible assets and certain parent allocations) $6,562
Adjustments recorded at Company level within
VNU-BIS's 1992 consolidation:
- Bad debt expense $(500)
- Certain executives' long-term incentive and
severance accruals (220) (720)
----- ------
1992 operating income - as reflected in VNU-BIS's 1992
consolidated results 5,842
1992 "normalization" adjustments:
- 1991 bad debt expense recorded by VNU-BIS in 1991,
recorded by Disclosure in 1992 $ 500
- Portion of revenue and cost reimbursements recorded
in 1992 from SEC contract which relate to 1991 (333)
- Opening net book value of 1933 Act database as of
December 31, 1991; database written off in 1992 413
- 1992 Disclosure London, Limited 20% minority
interest cost (75) 505
----- ------
1992 "normalized" operating income $6,347
======
- 16 -
48
PRIMARK CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information presented herein
gives effect to the Company's acquisition of Disclosure and its affiliates (the
"Transaction"). The Unaudited Pro Forma Consolidated Statements of Income for
the six months ended June 30, 1995 and for the year ended December 31, 1994
assume that the Transaction occurred on January 1, 1994. Accordingly, the pro
forma financial information for the 1995 and 1994 periods are based upon the
historical financial statements of Primark and Disclosure for the six months
ended June 30, 1995 and for the twelve months ended December 31, 1994,
respectively. Certain reclassifications have been made to the historical income
statements of Disclosure to conform with the historical income statement
presentation of Primark Corporation.
The Unaudited Pro Forma Consolidated Statements of Income include the accounts
of Disclosure and give effect to events that are directly attributable to the
Transaction and expected to have a continuing impact on the Company.
Explanations for these adjustments are included in the Notes to the Unaudited
Pro Forma Consolidated Financial Statements.
It should be noted that the Unaudited Pro Forma Consolidated Statement of
Income for the year ended December 31, 1994 only reflects six months of the
historical operating results of I/B/E/S, Inc. and Vestek, Inc. whose operations
were acquired in June 1994. Combined, these acquisitions represent less than
ten percent of consolidated operating income. With the exception of this
matter, the Company knows of no specific matters that would cause the unaudited
pro forma consolidated financial information included herein not to be
indicative of future operations. However, such pro forma operating results have
been prepared for comparative purposes only and do not necessarily represent
actual operating results that may occur in the future or that would have
occurred had the Transaction been consummated on the above-mentioned assumed
date.
The Company's Unaudited Consolidated Statement of Financial Position as of June
30, 1995 and Notes 1 and 2 of the Notes to the Consolidated Financial
Statements, as contained in the Company's Form 10-Q for the second quarter
ended June 30, 1995, reflect the Transaction and are incorporated by reference
herein. The Company's Unaudited Pro Forma Consolidated Financial Information
should be read in conjunction with the historical financial statements of
Primark and Disclosure.
49
PRIMARK CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
SIX MONTHS ENDED JUNE 30, 1995
----------------------------------------------------
PRIMARK PRO
CONSOLIDATED DISCLOSURE ADJUSTMENTS FORMA
------------ ---------- ----------- ------
(Thousands Except Per Share Amounts)
OPERATING REVENUES $278,902 $51,356 $ (80) [1] $330,178
-------- ------- ------- --------
OPERATING EXPENSES
Cost of services 187,241 26,118 213,359
Selling, general and administrative 51,747 13,900 (819) [2] 64,828
Depreciation 6,137 2,329 8,466
Amortization of goodwill and other
intangible assets 8,847 3,307 2,686 [3] 13,834
(1,006) [4]
-------- ------- ------- --------
Total operating expenses 253,972 45,654 861 300,487
-------- ------- ------- --------
Operating income 24,930 5,702 (941) 29,691
-------- ------- ------- --------
OTHER INCOME AND (DEDUCTIONS)
Investment income 646 339 (625) [5] 80
(280) [4]
Interest expense (6,955) (788) (5,710) [6a] (12,742)
711 [4]
Foreign currency transaction loss - net (2,107) - (2,107)
Other (312) (79) 26 [6b] (365)
-------- ------- ------- --------
Total other income and (deductions) (8,728) (528) (5,878) (15,134)
-------- ------- ------- --------
INCOME BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 16,202 5,174 (6,819) 14,557
INCOME TAX EXPENSE (BENEFIT) 7,172 2,319 (1,952) [7] 7,539
-------- ------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEM 9,030 2,855 (4,867) 7,018
DIVIDENDS ON PREFERRED STOCK (717) - (717)
-------- ------- ------- --------
INCOME BEFORE EXTRAORDINARY ITEM APPLICABLE
TO COMMON STOCK $8,313 $ 2,855 $(4,867) $6,301
======== ======= ======= ========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE -------- --------
BEFORE EXTRAORDINARY ITEM $ 0.42 $ 0.32
======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 19,822 19,822
======== ========
The notes to the unaudited pro forma consolidated financial statements are
an integral part of this statement.
OPERATING DATA AND OTHER SELECTED RATIOS
Gross margin 32.9% 49.1% 35.4%
EBITDA* $39,914 $ 11,338 $51,991
EBITDA* margin (EBITDA* as percentage of sales) 14.3% 22.1% 15.7%
Capital expenditures and capitalized software $10,447 $ 3,074 $13,521
Ratio of EBITDA* to interest expense 5.7 x 4.1 x
<FN>
* EBITDA represents operating income plus depreciation and amortization expense. Due to the high non-cash amortization
expense recorded to net income, the Company presents EBITDA to provide the shareholder a measure of cash flows within
operations. EBITDA represents supplemental information only and is not to be construed as an alternative to operating
income or to cash flows from operating activities as defined by GAAP.
50
PRIMARK CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
TWELVE MONTHS ENDED DECEMBER 31, 1994
-------------------------------------------------------
PRIMARK PRO
CONSOLIDATED DISCLOSURE ADJUSTMENTS FORMA
------------ ---------- ----------- ------
(Thousands Except Per Share Amounts)
OPERATING REVENUES $477,026 $85,972 $ (398)[1] $562,600
-------- ------- ------ --------
OPERATING EXPENSES
Cost of services 309,158 46,823 355,981
Selling general and administrative 102,295 17,791 120,086
Depreciation 12,091 4,835 16,926
Amortization of goodwill and other
intangible assets 15,446 3,388 5,704 [3] 22,783
(1,755)[4]
-------- ------- ------ --------
Total operating expenses 438,990 72,837 3,949 515,776
-------- ------- ------ --------
Operating income 38,036 13,135 (4,347) 46,824
-------- ------- ------ --------
OTHER INCOME AND (DEDUCTIONS)
Investment income 722 174 (722)[5] 76
(98)[4]
Interest expense (14,246) (940) (14,114)[6a] (28,458)
842 [4]
Foreign currency transaction loss - net (1,329) - (1,329)
Other 334 (575) 113 [6b] (128)
-------- ------- ------ --------
Total other income and (deductions) (14,519) (1,341) (13,979) (29,839)
-------- ------- ------ --------
INCOME BEFORE INCOME TAXES 23,517 11,794 (18,326) 16,985
INCOME TAX EXPENSE (BENEFIT) 9,767 5,250 (5,088)[7] 9,929
-------- ------- ------ --------
INCOME FROM OPERATIONS 13,750 6,544 (13,238) 7,056
DIVIDENDS ON PREFERRED STOCK (1,434) - (1,434)
-------- -------- -------- --------
INCOME APPLICABLE TO COMMON STOCK $ 12,316 $ 6,544 ($13,238) $ 5,622
======== ======== ======== ========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE $ 0.62 $ 0.28
======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 19,909 19,909
======== ========
The notes to the unaudited pro forma consolidated financial statements are
an integral part of this statement.
OPERATING DATA AND OTHER SELECTED RATIOS
Gross margin 35.2% 45.5% 36.7%
EBITDA* $65,573 $21,358 $86,533
EBITDA* margin (EBITDA* as percentage of sales) 13.7% 24.8% 15.4%
Capital expenditures and capitalized software $26,988 $ 6,821 $33,809
Ratio of EBITDA* to interest expense 4.6 x 3.0 x
<FN>
* EBITDA represents operating income plus depreciation and amortization expense. Due to the high non-cash amortization
expense recorded to net income, the Company presents EBITDA to provide the shareholder a measure of cash flows within
operations. EBITDA represents supplemental inforntation only and is not to be construed as an alternative to operating
income or to cashflows from operating activities as defined by GAAP.
51
PRIMARK CORPORATION AND SUBSIDIARIES NOTES TO THE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
1. CONFORMANCE OF ACCOUNTING POLICY
In connection with the Transaction, Disclosure has changed its
accounting policy with respect to revenue recognition of certain
subscription sales to conform with the policies of Primark Corporation
and provide consistency with its other subsidiaries. The Unaudited Pro
Forma Consolidated Statements of Income (the "Pro Forma Income
Statements") give effect to the revenues which would have been
deferred under the revenue recognition policies of Primark
Corporation.
2. NON-RECURRING ADJUSTMENTS
The Pro Forma Income Statements presented exclude the effects of
certain non-recurring charges directly attributable to the
Transaction. For purposes of presenting income from operations before
non-recurring charges, the after-tax extraordinary loss on the early
extinguishment of debt of $534,000 was excluded from the Pro Forma
Income Statement for the six months ended June 30, 1995. Additionally,
the Pro Forma Income Statements for the six months ended June 30, 1995
have been adjusted to exclude $819,000 of non-recurring bonus and
severance charges incurred by Disclosure which were contingent upon
its acquisition by Primark.
3. AMORTIZATION OF INTANGIBLE ASSETS AND DEBT ISSUE COSTS
The Transaction was accounted for as a purchase. Accordingly, the
Transaction purchase price of $200,000,000 along with approximately
$6,029,000 of related acquisition fees, was allocated to Disclosure's
tangible and intangible net assets acquired based upon their estimated
fair values. Allocations made to certain intangible net assets
acquired consisted of the following (in thousands of dollars):
COST LIFE
-----------------------
Non-compete covenants $2,417 2 to 3.5 years
Database 2,600 5 years
Unfavorable lease commitment (3,738) 8.5 years
------
$1,279
======
These intangible net assets, along with related net deferred tax
assets of approximately $293,000 are being amortized to income on a
straight-line basis over their estimated useful lives (recognition of
deferred income tax assets is reflected in income tax expense (Note
7)). Additionally, the Company allocated $10,323,000 to net tangible
assets and liabilities. The excess of the Transaction purchase price
over the estimated fair value of total net assets
52
PRIMARK CORPORATION AND SUBSIDIARIES NOTES TO
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
acquired was allocated to goodwill. Of the total $188,105,000
allocated to goodwill, $16,360,000 was attributed to I/B/E/S and is
being amortized to income on a straight-line basis over 25 years. The
remaining portion will be amortized on a straight-line basis over 40
years.
Approximately $4,737,000 of the total $6,029,000 acquisition fees
represent debt issue costs incurred in connection with obtaining the
external financing for the Transaction (Note 6a). These costs were
capitalized and are being amortized to income over the related debt
terms.
The Pro Forma Income Statements give effect to the periodic
amortization of all intangible assets and debt issue costs that would
have resulted during the periods presented.
4. TRANSACTIONS WITH VNU
The Pro Forma Income Statements give effect to the exclusion of
Disclosure's net interest income and expense relative to transactions
with its previous parent company, VNU International Inc. ("VNU") which
would not have occurred had the Company owned Disclosure for the pro
forma periods presented. Also reflected is the exclusion of goodwill
amortization related to Disclosure's previous acquisitions.
5. INVESTMENT INCOME
Of the $200,000,000 cash consideration paid, along with approximately
$6,029,000 of cash that was paid for debt issue costs and other
acquisition fees associated with the Transaction, $15,000,000 was
funded with the Company's existing cash balances. Accordingly, had the
Transaction occurred on January 1, 1994, the Company would have earned
lower investment income on reduced cash balances due to the
Transaction funding. The Company's consolidated cash balances would
also have been reduced by the payment of principal, interest and bank
fees on the external financing.
The Pro Forma Income Statements give effect to the lower investment
income that would have been earned during the periods presented. Such
calculations were based upon the actual weighted average investment
yields earned during those periods.
53
PRIMARK CORPORATION AND SUBSIDIARIES NOTES TO THE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
6. TRANSACTION FINANCING
a. INTEREST COSTS
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 (the "Term Loan") and a Revolving
Credit Facility (the "Credit Facility") entered into June 29, 1995.
The remaining $15,000,000 of bank financing was obtained pursuant to a
Loan Agreement (the "Loan") dated June 29, 1995 between the Company's
wholly-owned subsidiary TASC, Inc. ("TASC") and Mellon Bank, N.A.
The Credit Facility replaced the Company's prior $75,000,000 credit
agreement due to expire in 1996. The new Credit Facility expires on
October 15, 2000. Interest on outstanding borrowings is payable at a
rate of 1.75% above the current prevailing LIBOR rate of interest. For
purposes of this presentation, the outstanding balance on the Credit
Facility is presumed to have been reduced by the net cash sweeps which
would have been received from Disclosure. Beginning in 1997, the
Company is eligible for performance pricing adjustments, based upon
meeting certain financial tests, which would reduce the applicable
interest rate margins.
The Company's Term Loan is due June 30, 2002. Principal payments are
due semi-annually commencing on December 31, 1997. For purposes of this
presentation, it is assumed that no principal prepayments were made.
Interest on outstanding borrowings under the Term Loan is payable at a
rate of 2.0% above the current prevailing LIBOR rate of interest.
TASC's Loan is due June 28, 1996. For purposes of this presentation,
it is assumed that semi-annual payments commenced on June 30, 1994.
Interest on outstanding borrowings under the Loan is payable at a rate
of 1.75% above the current prevailing LIBOR rate of interest.
The Pro Forma Income Statements give effect to the periodic interest
charges on the external financing that would have been incurred during
the periods presented.
54
PRIMARK CORPORATION AND SUBSIDIARIES NOTES TO THE
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
b. BANK FEES
Commitment fees on the Company's $75,000,000 revolving line of credit
are payable quarterly at a rate of 0.375% per annum on the average
daily unused portion of the facility. For purposes of this
presentation, the unused commitment is based upon the anticipated
balance outstanding at the end of each quarter (See note 6a). A
$100,000 per annum agent's fee is also payable semi-annually in
advance. The Pro Forma Income Statements give effect to these periodic
expenses that would have been incurred during the periods presented.
7. INCOME TAXES
The Pro Forma Income Statements have been adjusted to reflect the
combined amount that would have been accrued for income taxes had the
Transaction occurred on January 1, 1994.
55
EXHIBIT INDEX
Exhibit
Number Description of Document
------ -----------------------
23.1 Consent of Independent Public Accountants
99.1 Unaudited consolidated statement of financial position of
the Company and its subsidiaries as of June 30, 1995, and
Notes 1 and 2 of the Notes to the Consolidated Financial
Statements, as contained in the Company's Form 10-Q for
the quarter ended June 30, 1995. (Filed as exhibit 99-1
to Amendment No.1 on Form 8-K/A of the Company's current
report on Form 8-K dated July 3, 1995.)