1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
COMMISSION FILE NUMBER 1-8260
PRIMARK CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2383282
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 WINTER STREET, SUITE 4300N, WALTHAM, MA 02154
(Address of principal executive offices) (Zip Code)
617-466-6611
(Registrant's telephone number, including area code)
NO CHANGES
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Number of shares outstanding of each of the registrant's classes of common
stock, as of July 31, 1997:
Common Stock, without par value: 25,921,382
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2
PRIMARK CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1997
PAGE
NUMBER
------
COVER............................................................................... i
INDEX............................................................................... ii
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.................................................. 1
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition................................................... 8
PART II - OTHER INFORMATION
Item 2. Changes in Securities................................................. 12
Item 4. Results of Votes of Security Holders.................................. 12
Item 6. Exhibits and Reports on Form 8-K...................................... 13
SIGNATURE........................................................................... 14
ii
3
PART I - FINANCIAL INFORMATION
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates market value).... $ 13,641 $ 25,385
Billed receivables less allowance for doubtful accounts of $3,887,000
and $3,412,000, respectively........................................... 149,235 127,557
Unbilled and other receivables.......................................... 49,690 34,720
Other current assets.................................................... 18,211 13,890
Net assets of discontinued operations................................... 40,335 39,930
---------- --------
271,112 241,482
---------- --------
DEFERRED CHARGES AND OTHER ASSETS
Goodwill, less accumulated amortization of $50,248,000 and $41,135,000,
respectively........................................................... 654,179 588,315
Capitalized data and other intangible assets, less accumulated
amortization of $17,487,000 and $13,935,000, respectively.............. 50,520 42,241
Capitalized software, less accumulated amortization of $15,828,000 and
$11,280,000, respectively.............................................. 41,499 35,004
Other................................................................... 8,736 11,124
---------- --------
754,934 676,684
---------- --------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer equipment...................................................... 84,003 75,574
Leasehold improvements.................................................. 22,014 19,344
Other................................................................... 15,109 10,980
---------- --------
121,126 105,898
Less-accumulated depreciation........................................... (62,444) (52,481)
---------- --------
58,682 53,417
---------- --------
$1,084,728 $971,583
========== ========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable........................................................... $ 7,241 $ --
Accounts Payable........................................................ 29,655 29,380
Accrued employee payroll and benefits................................... 36,476 35,070
Federal income, property and other taxes payable........................ 17,546 19,613
Deferred income......................................................... 99,578 77,364
Current portion of long-term debt, including capital lease
obligations............................................................ 6,610 6,518
Other................................................................... 52,253 48,844
---------- --------
249,359 216,789
---------- --------
LONG-TERM DEBT AND OTHER CURRENT LIABILITIES
Long-term debt, including capital lease obligations..................... 341,053 241,822
Deferred income taxes................................................... 17,372 15,480
Other................................................................... 22,643 21,010
---------- --------
381,068 278,312
---------- --------
Total liabilities.................................................. 630,427 495,101
MINORITY INTEREST........................................................... 907 265
CONTINGENCIES (NOTE 8)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital............................. 273,073 296,546
Retained earnings....................................................... 182,137 178,943
---------- --------
455,210 475,489
Less-Cumulative foreign currency translation adjustment................. 1,816 (728)
---------- --------
Total common shareholders' equity.................................. 453,394 476,217
---------- --------
$1,084,728 $971,583
========== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
1
4
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
OPERATING REVENUES........................................ $209,713 $158,901 $406,907 $310,179
OPERATING EXPENSES
Cost of services...................................... 116,036 83,600 226,656 164,275
Selling, general and administrative................... 63,517 50,790 121,427 98,685
Depreciation.......................................... 5,683 4,213 11,366 8,065
Amortization of goodwill.............................. 4,694 3,100 9,246 6,087
Amortization of other intangible assets............... 4,197 2,496 7,928 5,141
Restructuring charge.................................. 5,000 -- 6,800 --
-------- -------- -------- --------
Total operating expenses......................... 199,127 144,199 383,423 282,253
-------- -------- -------- --------
Operating income................................. 10,586 14,702 23,484 27,926
-------- -------- -------- --------
OTHER INCOME AND (DEDUCTIONS)
Investment income..................................... 933 1,231 1,840 2,592
Interest expense...................................... (6,816) (4,727) (12,933) (9,662)
Foreign currency gain (loss).......................... 1,363 827 2,336 1,043
Other................................................. (452) 66 844 69
-------- -------- -------- --------
Total other income and (deductions).............. (4,972) (2,603) (7,913) (5,958)
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES..... 5,614 12,099 15,571 21,968
INCOME TAX EXPENSE........................................ 4,283 5,336 9,942 10,094
-------- -------- -------- --------
INCOME FROM CONTINUING OPERATIONS......................... 1,331 6,763 5,629 11,874
-------- -------- -------- --------
DISCONTINUED OPERATIONS
Discontinued operations, net of income tax
(benefit)/expense of ($208,000), $553,000,
($332,000) and $1,407,000 respectively.............. (297) 754 (480) 2,043
-------- -------- -------- --------
Total Discontinued Operations......................... (297) 754 (480) 2,043
-------- -------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS.......................... 1,034 7,517 5,149 13,917
EXTRAORDINARY ITEM-LOSS ON EARLY EXTINGUISHMENT OF DEBT,
NET OF INCOME TAX BENEFIT OF $1,379,000................. -- -- (1,955) --
-------- -------- -------- --------
NET INCOME................................................ 1,034 7,517 3,194 13,917
Dividends on Preferred Stock.............................. -- -- -- (359)
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON STOCK................. $ 1,034 $ 7,517 $ 3,194 $ 13,558
======== ======== ======== ========
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Income from continuing operations..................... $ 0.05 $ 0.26 $ 0.20 $ 0.45
Discontinued operations............................... (0.01) 0.03 (0.02) 0.08
-------- -------- -------- --------
Income before extraordinary item...................... 0.04 0.29 0.18 0.53
Extraordinary item.................................... -- -- (0.06) --
-------- -------- -------- --------
Total earnings per share......................... $ 0.04 $ 0.29 $ 0.12 $ 0.53
======== ======== ======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING............................................. 27,045 26,252 27,696 25,807
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS)
Balance -- Beginning of period............................ $181,103 $148,235 $178,943 $141,846
Add -- Net income..................................... 1,034 7,517 3,194 13,917
-- Change in year-end of subsidiaries............. -- -- -- 348
Deduct -- Dividends on preferred stock................... -- -- -- (359)
-------- -------- -------- --------
Balance -- End of period.................................. $182,137 $155,752 $182,137 $155,752
======== ======== ======== ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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5
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
----------------------
1997 1996
--------- --------
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income....................................................... $ 3,194 $ 13,917
Adjustments to reconcile net income to net cash flows from
operating activities:
Discontinued operations.......................................... 480 (2,043)
Change in year-end of subsidiary................................. -- 2,518
Extraordinary loss on early extinguishment of debt............... 1,955 --
Gain on sale of investment....................................... (2,026) --
Depreciation and amortization.................................... 28,540 19,293
Foreign currency transaction (gain) loss -- net.................. (1,716) (1,043)
Other............................................................ 1,444 116
Changes in assets and liabilities which provided (used) cash,
exclusive of changes shown separately........................... (13,252) (8,312)
--------- --------
Net cash provided from operating activities................. 18,619 24,446
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable............................. 114,040 708
Repayment of short-term notes payable............................ (106,799) (708)
Issuance of long-term debt....................................... 100,000 --
Common stock repurchased......................................... (26,633) --
Debt issue costs................................................. (2,831) --
Common stock issuance and other.................................. 2,031 4,582
--------- --------
Net cash provided from financing activities................. 79,808 4,582
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures............................................. (16,551) (9,673)
Capitalized software............................................. (9,615) (4,674)
Purchase of subsidiaries -- net of acquired cash................. (86,090) (9,000)
Proceeds from sale of investment................................. 3,494 --
Cash from (contributed to) discontinued operations............... (885) (7,727)
Other -- net..................................................... 222 (2,765)
--------- --------
Net cash used for investing activities...................... (109,425) (33,839)
--------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............................... (746) (279)
NET DECREASE IN CASH AND CASH EQUIVALENTS............................. (11,744) (5,090)
CASH AND CASH EQUIVALENTS, JANUARY 1.................................. 25,385 59,990
--------- --------
CASH AND CASH EQUIVALENTS, JUNE 30.................................... $ 13,641 $ 54,900
========= ========
CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH,
EXCLUSIVE OF CHANGES SHOWN SEPARATELY
Billed, unbilled and other receivables -- net.................... $ (26,701) $(10,883)
Accounts payable................................................. 87 (6,439)
Federal income, property and other taxes payable -- net.......... (1,115) 4,175
Other current assets and liabilities............................. 11,527 6,009
Other noncurrent assets and liabilities.......................... 2,950 (1,174)
--------- --------
$ (13,252) $ (8,312)
========= ========
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACQUISITIONS
During 1997, the Company made the acquisitions as described below, each of
which has been accounted for as a purchase. Accordingly, the purchase prices
have been allocated to the identifiable net assets acquired based upon
preliminary estimates of their fair market values as of the acquisition date.
The excess of purchase price over the estimated fair value of total net assets
acquired was allocated to goodwill. Future adjustments to the total purchase
price allocation, if any, are not expected to materially affect the Company's
financial statements. The consolidated financial statements include the
operating results of each business from the date of acquisition.
BASELINE WEFA
-------- -------
(IN THOUSANDS)
Cash................................................... $ 40,963 $45,000
Acquisition Fees....................................... 233 204
------- -------
Total Consideration............................... 41,196 45,204
Acquired Cash.......................................... (2) (308)
------- -------
Net Consideration................................. $ 41,194 $44,896
------- -------
Excess of Purchase Price over Fair Value............... $ 39,363 $43,463
------- -------
a. BASELINE
On January 6, 1997, the Company purchased all of the outstanding stock of
Baseline pursuant to the terms of a Stock Purchase Agreement dated November 24,
1996, between the Company, Bowne & Co., Inc., and Robert G. Patterson for $41.0
million in cash. The excess of purchase price over the fair value of net assets
acquired of approximately $39.4 million will be amortized over 30 years.
Headquartered in New York City, Baseline provides institutional investors with
visual valuation graphics which portray financial market information to
institutional accounts throughout the U.S., Canada and the United Kingdom.
b. WEFA
On February 7, 1997, the Company acquired all of the outstanding stock of
WEFA Holdings, Inc. ("WEFA") for $45.0 million in cash. The excess of purchase
price over the fair value of net assets acquired of approximately $43.5 million
will be amortized over 40 years. Headquartered in Pennsylvania, WEFA is an
international provider of value added economic information, software and
consulting services to Fortune 1000 companies, governments, universities, and
financial institutions.
2. DISCONTINUED OPERATIONS
In June 1997, the Company adopted a formal plan to sell its non-core
transportation services segment consisting of Triad International Maintenance
Corporation ("TIMCO"). The operations of TIMCO have been accounted for as
discontinued. Accordingly, the accompanying consolidated financial statements
reflect TIMCO's operating results and net assets separately from the Company's
continuing operations for all periods presented. Net assets of discontinued
operations represent the realizable value of the Company's investment in TIMCO,
and consist principally of working capital, fixed assets and other noncurrent
assets and liabilities. The Company anticipates that the sale of TIMCO will be
completed within one year at amounts which will at least approximate its net
book value. TIMCO reported revenues of $106.3 million for the year ended
December 31, 1996. Discontinued operations for the three and six month periods
ended June 30, 1996 include $0.3 million and $0.5 million, respectively, related
to the sale of the Company's Primark Storage Leasing Corporation segment in
1996.
3. REFINANCING
Concurrent with the purchase of WEFA, on February 7, 1997, the Company
entered into a $300 million refinancing arrangement to replace some of the funds
expended for recent acquisitions and enhance liquidity
4
7
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
for future opportunities. The new arrangement, comprised of a $75 million
revolving credit facility and a $225 million term loan expiring in June 2004,
replaced an outstanding $75 million revolving credit facility and a $125 million
term loan. Interest on the outstanding borrowings under the new credit facility
and term loan are payable at rates ranging from 0.625% to 1.00% and 0.625% to
1.25%, respectively, above the current prevailing LIBOR rate of interest.
The Company incurred costs of $2.8 million in conjunction with the
arrangement which will be amortized over the term of the debt. The write-off of
unamortized debt issue costs related to the original financing generated an
extraordinary after-tax loss of $2.0 million in the first quarter of 1997.
4. SALE OF INVESTMENT
On January 7, 1997, the Company completed the sale of its investment in the
Weather Network pursuant to the terms of a Sale Agreement dated December 5, 1996
for 2.1 million pounds sterling ($3.5 million). The $2.5 million pretax gain on
the sale has been included in other income.
5. RESTRUCTURING AND INTEGRATION CHARGES
a. DISCLOSURE
During the first quarter of 1997, the Company recorded a $1.8 million
pretax charge, or $0.04 per share, at Disclosure to take advantage of new
information technology, reorganization of Disclosure's document business and
other actions aimed at reducing costs and enhancing efficiency. The
restructuring provision includes estimated costs for employee severance and
other benefits of $981.2 thousand, asset write-downs of $713.6 thousand and idle
facility related costs of $105.2 thousand. Cash flow expenditures, net of tax
recovery, were funded by the Company's cash flows from operating activities. As
of June 30, 1997, the spending for these accrued restructuring costs had been
completed. The restructuring plan is anticipated to result in annual savings of
approximately $4.0 million.
b. DAFSA
During the second quarter of 1997, the Company recorded a restructuring
charge of $5.0 million related to the integration and downsizing of operations
at DAFSA. Due to the unprofitable condition of DAFSA, no tax benefits associated
with losses incurred during 1997, including the restructuring charge, have been
recorded. Consequently, the restructuring charge resulted in a reduction of
$0.18 to the Company's year to date earnings per share.
When the Company acquired DAFSA in June of 1996, approximately $1.5 million
of integration costs were considered in determining the purchase accounting. The
subsequent restructuring charge is the result of a plan to further integrate
DAFSA's personnel, space and product with those of the Company's other
subsidiaries. The $6.5 million total restructuring provision includes estimated
costs for exiting a line of business of $1.7 million, employee severance and
other benefits of $1.4 million, asset write-downs of $2.2 million and legal,
professional and other related costs of $1.2 million. Cash flow expenditures,
net of tax recovery, will be funded by the Company's cash flows from operating
activities. As of June 30, 1997, $2.9 million of restructuring costs have been
incurred, of which $1.1 million was related to exiting a line of business, $0.5
million was related to employee severance and other benefits, $0.6 million was
related to asset write-downs and $0.7 million was related to legal, professional
and other related costs. The restructuring plan, when fully implemented, is
expected to significantly improve DAFSA's operating margins. The spending is
expected to be essentially completed by the end of 1997.
5
8
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SHAREHOLDERS' EQUITY
A. COMMON STOCK REPURCHASE AND RETIREMENT
On April 25, the Board of Directors authorized the repurchase of an
additional 1.2 million shares of the Company's Common Stock, bringing the total
authorized for repurchase to 2.2 million shares. During the second quarter, the
Company repurchased 1,349,000 shares of its outstanding common stock in the open
market at a total cost of $26.6 million. On May 13, 1997 and June 5, 1997, the
Company cancelled 1,145,300 and 203,700 shares, respectively.
B. INCREASE IN AUTHORIZED SHARES
On May 28, 1997, the shareholders of the Company approved a resolution
which amended the Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 65,000,000 to 100,000,000.
C. RIGHTS AGREEMENT
On May 28, 1997, the Board of Directors executed a new Rights Agreement
(the "Rights Agreement") to extend the benefits of the Rights Agreement (the
"Prior Rights Agreement") adopted by the Company in 1988.
The Board of Directors authorized and declared a dividend distribution of
one Right for each share of the Company's Common Stock outstanding upon the
earlier of (i) the close of business on January 25, 1998 or (ii) the date on
which the 1988 rights are redeemed (the "Record Date"). The Board of Directors
also authorized the issuance of one Right for each share of Common Stock of the
Company issued between the Record Date and the Distribution Date as defined in
the Rights Agreement. Each Right represents the right to purchase, if and when
the Right becomes exercisable, one share of Common Stock of the Company at a
price per share of $138.00. The description and terms of the Rights are set
forth in a Rights Agreement between the Company and the Rights Agent.
D. EMPLOYEE STOCK PURCHASE AND STOCK OPTION PLAN
On May 28, 1997, the shareholders of the Company approved a resolution to
increase the shares of Company Common Stock issuable under the Primark
Corporation Employee Stock Purchase Plan from 1,000,000 to 3,000,000. The
shareholders also approved a resolution to amend the Primark Corporation 1992
Stock Option Plan to limit the number of shares subject to option that may be
granted to any participant in any year to 100,000 shares.
7. NEWLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share." This new standard requires dual presentation of basic and diluted
earnings per share ("EPS") on the face of the statement of income and requires a
reconciliation of the numerators and denominators of basic and diluted EPS
calculations. This statement will be effective for the Company's 1997 fiscal
year. Had SFAS 128 been effective for the 1997 and 1996 periods presented,
earnings per share from continuing operations on a pro forma basis would have
been as follows:
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30 JUNE 30
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Basic EPS................................... $0.05 $0.28 $0.21 $0.50
Dilutive EPS................................ $0.05 $0.26 $0.20 $0.46
6
9
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which will be applicable for the Company in fiscal 1998. Management
has not yet assessed the impact of implementation.
8. CONTINGENCIES
On June 24, 1994, a jury in a civil case in the Massachusetts Superior
Court (the "Court") returned an unfavorable verdict against the two founders of
TASC, and against TASC itself. The suit was brought by a former employee
regarding a TASC stock transaction which took place in 1976, prior to the
Company's acquisition of TASC in 1991. On June 28, 1994, the Court ordered that
judgment be entered on the verdict requiring the two founders (but not TASC
itself) to disgorge $19,800,000. Such amount accrues post-judgment interest at a
statutory rate. As an alternative course of action, the plaintiff may pursue the
two founders and TASC, jointly and severally for $48,600. Based on the
adjudication, the Company has denied requests of the two founders for
indemnification. Certain post-verdict motions (including a motion for judgment
notwithstanding the verdict, and in the alternative, a motion for a new trial)
are pending. While the outcome of these motions cannot be predicted with
certainty, the Company believes it will not be required to pay any portion of
this judgment.
The Company and its subsidiaries are involved in certain other
administrative proceedings and matters concerning issues arising in the ordinary
course of business. Management cannot predict the final disposition of such
issues, but believes that adequate provision has been made for the probable
losses and the ultimate resolution of these proceedings will not have a material
adverse effect on the accompanying consolidated financial statements.
9. GENERAL
There have been no significant changes in the Company's principal
accounting policies that were set forth in the Company's 1996 Annual Report and
Form 10-K. Certain reclassifications have been made to the prior year's
statements to conform with the 1997 presentation.
The unaudited information furnished herein, in the opinion of management,
reflects all adjustments necessary for a fair statement of the results of
operations during the interim periods.
The revenues, expenses, net income and earnings per share for the interim
periods should not be construed as representative of revenues, expenses, net
income and earnings per share for all or any part of the balance of the current
year or succeeding periods.
7
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Primark reported net income of $1.0 million ($0.04 per share) and $3.2
million ($0.12 per share) for the three and six months ended June 30, 1997
respectively. Net income for the three and six months ended June 30, 1996 was
$7.5 million ($0.29 per share) and $13.6 million ($0.53 per share). The 1997 net
income includes the effect of a $2.0 million (after tax) extraordinary loss
($0.06 per share) recorded in the first quarter of 1997 for the write off of
debt issue costs associated with prior bank debt which was successfully
refinanced.
Primark has adopted a formal plan to dispose of its transportation business
(TIMCO) within a twelve month period. Accordingly, the operating results and net
assets of TIMCO have been reclassified from continuing operations and recorded
as a discontinued operation net of taxes. During the three and six months ended
June 30, 1997, TIMCO generated net losses respectively of $0.3 million and $0.5
million. Discontinued operations for the three and six month periods of 1996
include the net income of TIMCO of $0.5 million and $1.5 million, respectively,
as well as net income of $0.3 million and $0.5 million, respectively, for the
discontinued operations of Primark Storage Leasing Corporation, sold in
September of 1996.
Income from continuing operations was $1.3 million ($0.05 per share) and
$5.6 million ($0.20 per share) for the three and six months ended June 30, 1997,
respectively, compared to $6.8 million ($0.26 per share) and $11.9 million
($0.45 per share) for the three and six months ended June 30, 1996,
respectively. Three significant factors impacted the reported income from
continuing operations: (1) performance at DAFSA; (2) product transition and
restructuring at Disclosure; and (3) commercial debt refinancing.
The 1997 second quarter includes a restructuring charge of $5.0 million
($0.18 per share) for the DAFSA operation. Year-to-date, including the
restructuring charge, DAFSA has generated operating losses of $7.9 million. Due
to the unprofitable condition of DAFSA, no tax benefits associated with the
restructuring charge or other operating losses have been recorded, resulting in
a higher effective tax rate than the comparable 1996 periods. Excluding the
results of DAFSA, year to date income from continuing operations would have been
$13.5 million, an increase of 13.9% over the same period of last year. The 1997
year-to-date income from continuing operations also includes a $1.8 million
restructuring charge ($0.04 per share) related to Disclosure which was recorded
in the first quarter of this year. Management believes both businesses have been
restructured for improved profitability.
Currency movements negatively impacted the 1997 second quarter and year to
date results. Offsetting the negative impact of currency on revenues and
operating income was a gain on currency transactions of $1.4 million and $2.3
million for the three and six month periods ended June 30, 1997, respectively.
The bulk of these gains were due to the Company's hedging program.
Interest expense increased $2.1 and $3.3 million over the three and six
month periods ended June 30, 1996, respectively. The increase was primarily
attributable to increased borrowings on the February 1997 refinancing which
provided an additional $100 million in long term debt. These borrowings were
used primarily to fund the acquisitions of Baseline and WEFA and to repurchase
the Company's common stock.
During the first quarter of 1997, The Weather Network partnership was sold
for $3.5 million, resulting in a non-operating gain, net of tax, of $2.0
million.
8
11
OPERATING RESULTS BY SEGMENT (IN MILLIONS)*
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1996 CHANGE 1997 1996 CHANGE
------ ----- ------ ------ ------ ------
OPERATING REVENUES:
Information Services
Financial Information Services...... $ 96.2 $63.8 $32.4 $187.0 $124.2 $62.8
Applied Technology.................. $113.6 $95.1 $18.5 $219.9 $186.0 $33.9
OPERATING INCOME:
Information Services
Financial Information Services...... $ 5.2 $ 9.3 $(4.1) $ 11.1 $ 16.6 $(5.5)
Applied Technology.................. $ 8.2 $ 8.1 $ 0.1 $ 16.8 $ 15.3 $ 1.5
- ---------------
* Excludes corporate expenditures and intercompany profit eliminations.
FINANCIAL INFORMATION
The financial information businesses reported revenue increases of more
than 50.0% over both the three and six month periods of 1996. Stated on a pro
forma basis to include the 1996 results of acquired companies (ICV, DAFSA,
Worldscope, Baseline, and WEFA) the financial information market grew revenues
9.5% year over year. The 1997 year to date operating income decreased 33.1% due
to the amortization of intangible assets associated with the ICV, DAFSA,
Worldscope, and Baseline acquisitions and the poor operating results of DAFSA.
Excluding DAFSA, the 1997 year to date operating income for financial
information companies was $19.0 million.
DAFSA
DAFSA's restructuring plan was implemented by the end of the second
quarter. The majority of targeted employees have been dismissed and customer
contract penalties, severance costs, legal and other fees associated with the
restructuring have been either paid or accrued. The DAFSA accounts business has
been transfered to Disclosure. Management believes that DAFSA has been
restructured for improved profitability.
Datastream/ICV
The Datastream and ICV operations experienced solid growth during the
second quarter with combined revenues of $48.7 million and $97.3 million for the
three and six month periods, an increase of 10.5% and 11.9%, on a pro forma
basis, over the respective 1996 periods. For the six months ended June 30, 1997,
Datastream grew revenues 10.6% and ICV, on a pro-forma basis, grew revenues
16.0% over the same 1996 periods. Excluding the negative effect of currency,
Datastream's revenues grew 14.0% led by growth in the pacific basin of 21.1% and
continental Europe of 18.0%. The PIMS product line showed exceptional growth in
revenues of 15.9%, which is encouraging after minimal growth in 1995 and 1996.
Profitability for Datastream/ICV was negatively affected by the additional
programming expense needed to prepare the computer operations for the year 2000.
Primark estimates that ICV and Datastream will spend $1.5 million on this
project in 1997. The year-to-date margins were also negatively impacted by $2.8
million for currency movements due to the large cost base in the United Kingdom
and recent movements of the dollar against the pound. However, Primark's hedging
program offset most of the adverse impacts of currency movements, resulting in
currency having a minimal impact on net income for the year to date results.
On August 8, 1997, Primark finalized the agreement with Dow Jones & Company
to create a joint product offering named the "Primark/Dow Jones Equities
Service". Dow Jones will contribute global equity news, real time equities
quotes from all major stock exchanges, and selected fixed income and foreign
currency information from Dow Jones Telerate. In addition to supplying the
historical data, Primark is responsible for product development, marketing,
sales, customer service and information technology.
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Disclosure/Worldscope
These company accounts businesses produced $23.8 million and $46.0 million
of revenue for the three and six month periods ended June 30, 1997,
respectively. When including the 1996 operations of Worldscope on a pro forma
basis, the revenues of Disclosure/Worldscope have remained flat. However, new
product offerings introduced or significantly enhanced within the last two years
generated $14.5 million in revenues through June 30, 1997, which on a pro-forma
basis, grew over 30% compared to the same period last year. The Worldscope
product line grew revenues, on a pro forma basis, 48.4% for the six months ended
June 1997. As previously discussed, during the first quarter of this year
Disclosure restructured its traditional product operations, taking advantage of
earlier investments in back-office efficiencies. These cost reductions have
allowed Disclosure and Worldscope to maintain competitive operating margins.
Financial Analytic Products
Baseline and WEFA, both acquired in the first quarter of 1997, together
with I/B/E/S and Vestek, generated on a pro forma basis combined revenues of
$22.0 million and $43.4 million for the three and six months ended June 30,
1997, growing 21.8% and 23.0%, respectively. I/B/E/S grew revenues 41.3% and
37.4% for the three and six months ended June 30, 1997 compared to the same
periods last year. On a pro-forma basis, Baseline grew revenues 31.7% and 32.4%
for the three and six months ended June 30, 1997 compared to the same periods
last year. Included in operating income for the current quarter and year-to-date
periods are expenditures of $1.0 million, related to the new Trapeze product
offering that is expected to be aggressively rolled-out in 1998.
APPLIED TECHNOLOGY
The applied technology market is comprised of TASC, WSI and Yankee.
Revenues of the applied technology market grew more than 18.0% over both the
three and six month periods of 1996. When the results of Yankee are included for
the 1996 periods, this sector grew revenues 14.8% and 13.6% over the three and
six month periods of the prior year. TASC's 1997 year to date government
business grew revenues 13.8%, while its commercial group grew revenues 19.9%.
The weather operation, WSI, experienced a flat quarter compared to the same
period last year due to delays in new product roll-outs. Year to date operating
margins of the applied technology companies decreased from 1996 due to non cash
acquisition costs associated with the Yankee purchase and increased staffing for
new product development at Yankee and product roll-outs at WSI.
CAPITAL RESOURCES & LIQUIDITY:
During the six months ended June 30, 1997, cash and cash equivalents
decreased $11.7 million. Operating activities generated $18.6 million, the
issuance of long term debt provided $97.2 million net of debt issue costs, $7.2
million was provided under the Company's bank revolver, and the sale of the
Weather Network generated $3.5 million. Uses of cash included $86.1 million to
purchase Baseline and WEFA, $26.6 million to repurchase and cancel stock and
$26.2 million to fund capital expenditures.
Operating activities provided cash of $18.6 million during the first half
of 1997 a $5.8 million decrease compared to 1996. The decrease is due to
increased operating costs during 1997, including $6.8 million of restructuring
costs at DAFSA and Disclosure.
Cash flows from financing activities provided $79.8 million for the first
half of 1997, a $75.2 million increase over the same period in 1996. The
increase is primarily the result of the February 7, 1997 $300 million bank
refinancing arrangement which provided an additional $100 million in long term
debt. The new arrangement, is comprised of a $75 million revolving credit
facility and a $225 million term loan expiring in June 2004. The new financing
replaced an outstanding $75 million revolving credit facility and a $125 million
term loan. The Company incurred costs of $2.8 million in conjunction with the
arrangement which will be amortized over the term of the debt. The additional
capacity increased Primark's debt to total capital ratio from 34.3% at December
31, 1996 to 43.9% at June 30, 1997. Partially offsetting this increase was the
second quarter repurchase of 1.3 million shares of the Company's common stock
for $26.6 million. These shares were cancelled during the second quarter. As a
result of the stock repurchase, Primark's $75 million revolving credit facility
was utilized with $7.2 million outstanding at quarter end.
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Investing activities used $109.4 million during the first half of 1997, an
increase of $75.6 million over the same period in 1996. The majority of
investing uses were for the purchases of Baseline for $41.2 million and WEFA for
$44.9 million. Capital expenditures for property plant and equipment, other
intangibles, and capitalized software amounted to $26.2 million during the first
half of 1997, an increase of $11.8 million over the same period in 1996. Newly
acquired businesses accounted for $5.5 million of the increase. Other
expenditures contributing to the change included $2.4 million of leasehold
improvements for new facilities at I/B/E/S and ICV, and $2.9 million in
capitalized software expenditures for upgrading and revising Disclosure's
product line and production operation. Partially offsetting these uses were
proceeds from the Company's sale of its investment in the Weather Network which
provided $3.5 million of cash.
With the improved performance created by the new acquisitions in the
aggregate, even after considering DAFSA, and the Company's new bank credit
facility, Primark believes that it has adequate liquidity to operate its
existing businesses and pursue investment opportunities as they arise.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", which will be effective during fourth quarter 1997. SFAS No. 128 will
require the Company in its fourth quarter and its annual report to restate all
previously reported earnings per share information to conform with the new
pronouncement's requirements.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income"
and SFAS No. 131 "Disclosures about Segments of an Enterprise and Related
Information" which will be applicable for the Company in fiscal 1998. Management
has not yet assessed the impact of implementation.
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PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On May 28, 1997, the Board of Directors executed a new Rights Agreement
(the "Rights Agreement") to extend the benefits of the Rights Agreement (the
"Prior Rights Agreement") adopted by the Company in 1988.
The Board of Directors authorized and declared a dividend distribution of
one Right for each share of the Company's Common Stock outstanding upon the
earlier of (i) the close of business on January 25, 1998 or (ii) the date on
which the 1988 rights are redeemed (the "Record Date"). The Board of Directors
also authorized the issuance of one Right for each share of Common Stock of the
Company issued between the Record Date and the Distribution Date as defined in
the Rights Agreement. Each Right represents the right to purchase, if and when
the Right becomes exercisable, one share of Common Stock of the Company at a
price per share of $138.00. The description and terms of the Rights are set
forth in a Rights Agreement between the Company and the Rights Agent.
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on May 28, 1997 for
the purpose of electing a board of directors, approving a new employment and
related agreements, approving an amendment to the 1992 Stock Option Plan,
approving an increase in the shares of Company Common Stock reserved for
issuance under the 1992 Stock Purchase Plan, and approving the appointment of
independent auditors. Proxies for the meeting were solicited pursuant to Section
14 (a) of the Securities Exchange Act of 1924. There was no solicitation in
opposition to management's solicitations.
All of management's nominees for directors listed in the proxy statement
were elected with the following vote:
SHARES VOTED SHARES
"FOR" % "WITHHELD" %
------------- ---- ---------- ---
Kevin J. Bradley......................................... 23,969,069 97.8% 535,367 2.2%
John C. Holt............................................. 23,896,930 97.5% 607,506 2.5%
Joseph E. Kasputys....................................... 23,975,752 97.8% 528,684 2.2%
Steven Lazarus........................................... 23,965,480 97.8% 538,956 2.2%
Patricia McGinnis........................................ 23,977,941 97.9% 526,495 2.1%
Jonathan Newcomb......................................... 23,989,829 97.9% 514,607 2.1%
Constance K. Weaver...................................... 23,986,301 97.9% 518,135 2.1%
The amendment to the Company's Articles of Incorporation to increase the
authorized shares of Common Stock from 65,000,000 to 100,000,000 was approved by
the following vote:
SHARES SHARES
VOTED VOTED SHARES SHARES
"FOR" % "AGAINST" % "ABSTAINING" % NOT VOTED %
---------- ---- --------- ---- ------------ --- ---------- ----
22,603,279 92.2% 1,769,563 7.2% 131,594 0.5% 0 0.0%
The employment and related agreements with Mr. Joseph E. Kasputys was
approved by the following vote:
SHARES SHARES
VOTED VOTED SHARES SHARES
"FOR" % "AGAINST" % "ABSTAINING" % NOT VOTED %
---------- ---- --------- ---- ------------ --- ---------- ----
14,418,944 58.8% 3,890,264 15.9% 262,970 1.1% 5,932,258 24.2%
The amendment to the 1992 Stock Option Plan to limit the number of shares
subject to option that may be granted to any participant in any year was
approved by the following vote:
SHARES SHARES
VOTED VOTED SHARES SHARES
"FOR" % "AGAINST" % "ABSTAINING" % NOT VOTED %
---------- ---- --------- ---- ------------ --- ---------- ----
23,719,742 96.8% 627,800 2.6% 156,894 0.6% 0 0.0%
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The increase in the shares of Company Common Stock issuable under the 1992
Employee Stock Purchase Plan from 1,000,000 to 3,000,000 was approved by the
following vote:
SHARES SHARES
VOTED VOTED SHARES SHARES
"FOR" % "AGAINST" % "ABSTAINING" % NOT VOTED %
---------- ---- --------- ---- ------------ --- ---------- ----
16,603,603 67.8% 1,809,361 7.4% 159,214 0.6% 5,932,258 24.2%
The appointment of Deloitte and Touche LLP as independent auditors for the
year ending December 31, 1997 was approved by the following vote:
SHARES SHARES
VOTED VOTED SHARES SHARES
"FOR" % "AGAINST" % "ABSTAINING" % NOT VOTED %
---------- ---- --------- ---- ------------ --- ---------- ----
24,055,205 98.2% 218,389 0.9% 230,842 0.9% 0 0.0%
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------------------------------------------------------------------------- ----
3.1* Amendment to the Company's Articles of Incorporation dated May 28, 1997. 15
4.1 Rights Agreement dated May 29, 1997 between Primark Corporation and Bank
Boston, N.A., as Rights Agent, which includes, as Exhibit A, the Rights
Certificate and as Exhibit B, the Summary of Rights to Purchase Common Stock
(Exhibit 4.1 to the Company's Form 8-A dated June 19, 1997). 17
10.1* Amendment to the Refinancing Agreements dated May 1, 1997.
10.2* Amendment to the Refinancing Agreements dated June 30, 1997. 21
27* Financial Data Schedule
- ---------------
* Indicates document filed herewith.
For the Company's documents incorporated by reference, references are to
File No. 1-8260.
(b) The Company filed three reports on Form 8-K dated June 18, 1997, July 11,
1997 and July 29, 1997. The June 18, 1997 report under Item 5 described the
terms of the Rights Agreement adopted by the Board of Directors. Both July
reports were filed under Item 9 "Sales of Equity Securities Pursuant to
Regulation S".
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRIMARK CORPORATION
By: /s/ STEPHEN H. CURRAN
--------------------------------------------
STEPHEN H. CURRAN
Executive Vice President and
Chief Financial Officer
Date: August 13, 1997 (Principal Financial Officer)
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