EXHIBIT 13.1
THE DIALOG CORPORATION
ANNUAL REPORT AND ACCOUNTS 1998
CONTENTS
Introduction 3
Information Services Division 4
Web Solutions Division 6
eCommerce Division 8
The Chairmans Statement 10
The Chief Executives Review 14
Managements Discussion and Analysis 16
The Board of Directors 24
Accounts 28
The global market has begun to demand the type of automated indexing we
have been employing for over a decade and we are now able to deliver this
technology at the desktop. Our software, which has made our Information
Services unique, is now being recognised for its potential application to
knowledge management.
We have begun to exploit the value of our proprietary technologies,
specifically InfoSort and Muscat. In addition to winning high-profile
public sector projects, we are exploring further opportunities to license
our software on a global basis.
Our technologies have also provided the opportunity to enter the
business-to-business eCommerce market. By the end of 1998, we were
providing off-the-shelf and customised eCommerce services to meet the
demands of small, medium and large organisations.
As these activities have grown, we have been examining the best way to
structure The Dialog Corporation to ensure that we retain the focus on our
traditional business, while at the same time fully capitalising on the
enormous potential of our proprietary Internet technologies and eCommerce
innovations.
To fully leverage our efforts, we have created a three-divisional
structure. With dedicated management teams and tightly controlled budgets
for each division, we can ensure that a greater focus is brought to bear on
all aspects of our business. This structure will also allow for greater
visibility and clarity for our shareholders in terms of the progress of and
prospects for our business.
We are extremely excited by the ongoing development of innovative products
that continue to differentiate The Dialog Corporation in high-growth
markets and are committed to servicing our clients as their information and
eCommerce needs evolve into the next millennium.
INFORMATION SERVICES DIVISION
The Information Services Division (ISD) is the worlds largest provider of
online information services. ISD comprises three market leaders: Dialog,
Profound and DataStar, and serves over 20,000 corporate customers in 120
countries. Customers are provided with instantaneous access to over nine
terabytes, or six billion pages, of critical information via standard
telecommunications systems or the Internet, all supported by our worldwide
Knowledge Centres. Professionals in business, science, engineering, finance
and law turn to ISD every day to get the critical information they need to
make the right decisions.
To provide even easier access to our massive databases, ISD has released
several new products that help end-users develop and execute searches.
Dialog Select provides a structured environment for customers to search for
information in specific vertical markets. Dialog Web, while providing all
the capabilities of the main Dialog system to conduct sophisticated search
strategies, also supports end-users through advanced, menu-driven guided
searches. DataStar Web is Europes leading information service, with access
to over 350 databases of worldwide business and technical information, and
has been successfully integrated onto the corporate intranets of some of
our top European clients.
While making it easier to directly access the power of Dialogs databases,
ISD has not overlooked the key role information professionals play in
introducing end-users to our systems. The latest ISD product, Dialog
Intranet Toolkit launched in the first quarter of 1999 allows information
professionals to create multiple Web sites on their own intranet. These
sites provide access to Dialog via pre-defined search templates, so that
end-users throughout their organisation can simply point-and-click to get
the information they need.
LiveIntranet, launched by ISD in December 1998, allows companies to
automatically index and categorise both internal and external knowledge to
the same standard. Coding company information and external news and
research to the same terms means that all data is easily organised and
retrieved by corporate end-users.
LiveIntranet enables companies to meet information needs at an end-user,
departmental or project group level, in different offices or even
countries. Different departments across the business can design the format
of their own information, access home pages and define the structure they
want for searching and accessing information.
ISD is the heart of The Dialog Corporation. We continue to invest in new
vertical market products, add new information sources that our customers
need and develop new ways to access the mission-critical information we
provide to professionals all over the world.
[see print version for graphic image]
Source: Simba Information Inc.: Web/Online Services 1998
2002: Marketing Analysis & Forecast
WEB SOLUTIONS DIVISION
Today there is more information available than ever before. However, too
much information can be as dangerous as too little, because it makes it
difficult to find what you are looking for quickly. As the worlds leading
online information provider, The Dialog Corporation has developed a number
of technologies to help customers address the challenges of information
overload.
The Web Solutions and Internet Software Division markets and delivers the
technology inherent in our knowledge management solutions. These
technologies include Muscat's intelligent search and retrieval technologies
as well as InfoSort, the Company's proprietary indexing system.
Muscat Ltd (www.muscat.com) is a subsidiary of The Dialog Corporation
located in Cambridge, UK. Muscats flagship product is a sophisticated
search engine that uses a probabilistic strategy that goes beyond simply
matching words; it matches ideas. Muscat analyses search terms to identify
'concepts of interest'. It then applies the concepts it has discerned to all
the information sources that can be accessed - intranet databases, Web sites,
external information sources - and suggests new 'concepts' to help users find
important related information. Any search tool can yield results; Muscat
also adds insight. Muscats impressive customer list includes NASA, Sun
Microsystems, Reuters, Ernst & Young, The British Library, McGraw Hill and
Barclays Bank.
Finding the right information is only the first step being able to find it
again is just as important. Many organisations cannot fully leverage their
information assets - their knowledge - because it has become almost
unmanageable. Having spent millions of dollars to acquire and create
information, they cannot take full advantage of their investment because it
is locked away in different databases, on different systems, and in
different types of files. For all intents and purposes, much of the
information is lost.
InfoSort is software that electronically reads and categorises large
databases of information so they can be quickly and easily accessed. The
InfoSort technology creates multi-dimensional 'virtual links' between
articles, files, reports, emails, letters and other documents so searches
can be executed across the full spectrum of information sources that embody
an organisation's 'knowledge.'
Typical searches of large databases yield thousands of matches because most
search strategies are based on matching a specific word to words within
target documents or abstracts. InfoSort makes it possible to search by
subject - as opposed to matching single words - by pre-indexing documents based
on analysis of their content. Literally thousands of documents that first
result from a search can be reduced to the most important with the click of
a mouse - customers can reach the most pertinent information with speed and
precision. InfoSort can be deployed on a corporate intranet, making it
possible for customers to index new documents as they are created or
acquired, using terminology unique to their organisation.
The answer to too much information is InfoSort.
[see print version for graphic image]
Source: Zona Research, Inc.: Internet and Intranet:
Markets, Opportunities and Trends, October 1998
eCOMMERCE DIVISION
Forrester Research, Inc. estimates that the intercompany eCommerce market
will grow from $43.1 billion in 1998 to $1.3 trillion by 2003. Without a
doubt it will be one of the highest growth industries over the next ten
years and Dialog has staked out a strong position in this market with the
introduction of OfficeShopper (www.officeshopper.com).
For The Dialog Corporation, the opportunity is a natural extension of our
increasing presence in both the corporate intranet market and on the
Internet, where we deliver software and information services to the world's
leading companies. Our talent in aggregating an information database has
allowed us to build systems that add the same value to aggregating a
database of products or services.
OfficeShopper enables corporate customers to order office supplies online
as well as the functionality to track purchases and control costs, exploit
discounts with suppliers, and ensure they get the most competitive price
available by previewing products and prices from many vendors.
As announced in March 1999, Dialog was awarded the contract to develop and
operate the Enterprise Zone by the Department of Trade and Industry in the
UK. Enterprise Zone (EZ) is an Internet portal to business information for
small to medium sized companies, with over 160,000 users. Dialogs eCommerce
Division has added an exclusive eCommerce capability to EZ called
LinkShopper, that allows the EZ community to benefit from competitive
prices and negotiated discounts.
In addition to providing electronic shopping capabilities directly, the
Division also markets the underlying technology of OfficeShopper to
organisations that wish to deploy their own eCommerce applications, and
supports customers with an end-to-end eCommerce solution that includes
creation, installation and management of customised systems.
The eCommerce Division also leverages Dialog's network backbone, developed
for the Information Services Division, which can provide the necessary
security for transactions between eCommerce customers and suppliers.
eCommerce is an ideal complement to our online information services and
represents an unrivalled business opportunity. The Company is a leading
provider of services over the Internet, and through the application of our
proprietary searching and indexing technologies, The Dialog Corporation is
uniquely placed to advance the trend in the burgeoning eCommerce market.
[see print version for graphic image]
Source: Forrester Research, Inc.: Resizing Online Business
Trade Copyright 1999, Forrester Research Inc.
THE CHAIRMAN'S STATEMENT
1998 was a challenging but productive year for The Dialog Corporation. The
revenues of Knight-Ridder Information Inc. (KRII) have taken longer to turn
around than we had originally anticipated. This situation was compounded by
the necessary pricing changes we introduced during the year.
Nevertheless, we have addressed the fundamental structural issues created
by M.A.I.D's acquisition of KRII and an enormous amount has been achieved in
the integration of the two businesses. We recognise that the combined
Company is not as far along in the process of building revenues and profits
as we had hoped for at the time of the acquisition. We have recently made
important additions to key management, released a number of promising new
products and enhanced our field sales operations with new staff. We are
confident that these and other initiatives will accelerate the process of
revenue and profit growth.
Our efforts in 1998 have created a profitable and cash generative company,
which offers an excellent platform from which to develop in the future.
We have recently restructured Dialog into three divisions in order to
retain the focus on our core Information Services business, while at the
same time fully capitalising on the enormous potential of our proprietary
Internet technologies and eCommerce innovations. Overall, we expect the
real benefits of the work we have done to date to show through in our
results in the second half of 1999 and beyond.
OPERATIONAL REVIEW
Our objective since the merger of M.A.I.D plc and KRII in November 1997 has
been to combine the formers advanced technologies and user-friendly
products with the latters unparalleled content to deliver a wide range of
information solutions across our extensive global customer base. We have
made considerable progress during 1998 in the achievement of this
objective. The revenues of KRII had been declining prior to the
acquisition. Although it has taken longer than originally anticipated,
management believes that the results of the Companys efforts to address the
decline are now being demonstrated and this has been further enhanced by
the introduction of a suite of Internet-based products introduced in
September 1998.
In order to launch these Web-based products, as identified at the time of
the acquisition, the traditional pricing structure that had been in place
for 25 years needed to be significantly overhauled. Management had
identified that 24% of revenue, representing in excess of $50 million, was
based on connect time charges. This revenue was vulnerable due to the fact
that the technology upon which the Internet operates does not allow for
comparable time-based charging. Introducing this radical change in pricing
proved to be more problematic than anticipated and resulted in the Company
discounting services by approximately 10% before it was fully adopted. This
discount affects the majority of Dialog revenues and is the reason that
usage of our services appears to be in continued decline. Since September
1998, however, the average for daily usage volumes has increased.
Alongside these pricing changes, we also introduced the option for
customers to switch from pay-as-you-go to flat-fee packages. This option
has proved popular, particularly with the larger global customers, and
flat-fee contracts now represent over 30% of our revenues at an average
premium of 10% year on year. By the year-end, the pricing changes had been
adopted and accepted by the customer base, new products were launched and
the Company had achieved an operating margin of 15%. Additionally operating
profit increased by 392% to (pound)25.6 million for the full year as
compared to (pound)5.2 million for pro-forma 1997.
On 17 May 1999, the Company announced that it had secured an additional $25
million facility from The Chase Manhattan Bank that has enabled the release
of some of the funds previously earmarked for debt repayments to be
invested in the high growth market opportunities of Information Services,
Web Solutions and eCommerce. The additional facility increases the size of
the Senior Credit Facility by $11.5 million.
In addition to focusing considerable efforts on driving revenues for the
core business, management continues to explore a number of strategic
initiatives and is actively engaged in discussions which, subject to their
outcome, will result in a substantial reduction of the Group debt. These
strategic initiatives will enable the Company to accelerate debt repayments
and allow cash flow to further propel some of the high-growth opportunities
in which the Company has significant technologies, competencies and the
market position to exploit.
FULL-YEAR RESULTS
1998 represents the first full year of operations following the acquisition
of KRII on 14 November 1997. Group sales of 170.8 million compare to
reported sales of (pound)46.1 million in 1997.
The integration of KRII and M.A.I.D involved a reduction in workforce of
some 24% and the termination of 16 out of a total 57 office leases, the
cost of which was largely provided for as a restructuring cost in 1997. By
reducing the scale of duplicated functions and by aligning the KRII
business model with that of M.A.I.D, management achieved a (pound)28
million, or 33%, reduction in the 1997 half-year annualised operating cost
base of the combined entity. This exceeded management's expectations by
(pound)7 million.
After net interest expense of (pound)17.2 million, Dialog achieved a profit
before tax (excluding restructuring costs and other exceptional items) of
(pound)8.4 million for 1998, which is below the expectations we had at the
outset of the merger. It is significantly better, however, than the two
businesses were able to achieve as separate companies in 1997.
The acquisition of KRII required a significant fund-raising exercise which
was achieved through a mixture of equity, and $272.5 million of debt.
During the year the Company serviced debt interest of $25.3 million and
repaid senior debt in the amount of $15.9 million, to end the year with
total indebtedness of $256.6 million.
The Company complied with its debt covenants during 1998 and expects to
meet its covenants for the current year and beyond.
EARNINGS PER SHARE
The Company achieved an EPS of 4.8 pence before restructuring costs and
other exceptional items, compared to a loss of 6.2 pence per share for
1997.
RESTRUCTURING COSTS AND OTHER EXCEPTIONAL ITEMS
The restructuring charge booked in 1998 of (pound)2.6 million relates to
the move of our US headquarters from Mountain View, California to Cary,
North Carolina (pound)1.8 million and other restructuring items of (pound)2.5
million mainly related to the termination of property leases (pound)1.6 million.
These costs have been offset by a write-back of (pound)1.2 million relating
to data centre convergence costs and (pound)0.5 million relating to the
removal of the KRII name.
The Board has been closely monitoring its investment in Fourth Network
Inc., which had expected to achieve an IPO or alternative significant
fund-raising. As this has not occurred to date, the Board determined that
it would be prudent to write down 50% of its investment, creating an
exceptional charge of (pound)2.3 million. The Board continues to monitor
closely the carrying value of its investment in Fourth Network Inc. In
1998, the Company disposed of its non-core investments in Easynet Group plc
and NewsEdge Corporation, realising gross proceeds of (pound)7.1 million
and an exceptional gain of (pound)2.1 million.
Q4 TRADING
Results for the fourth quarter were broadly in line with managements
expectations. Dialog usage revenues did increase month on month with the
exception of December, which, as anticipated, was impacted by the seasonal
holidays. Gross margins improved as a result of sales in the Web Solutions
Division which has higher associated gross margins, together with the
greater weighting of Profound resubscriptions that fall due for renewal in
the fourth quarter. Operating costs increased as new products were released
and additional sales staff employed.
NEW PRODUCTS
In response to the technological advances in our industry, including the
emergence of the Internet as a key delivery mechanism, particularly for the
fast growing end-user market, we have focused on developing new products to
lead the way in this dynamic marketplace. As a first step in this process,
a number of our traditional products were redeveloped so that they could be
accessed via the Internet, in particular DialogClassic. We also repackaged
access to our vast databases in the form of a suite of industry-specific
solutions known as DialogSelect.
We have recently introduced three significant new products - LiveIntranet,
Intranet Toolkit and OfficeShopper - which break new ground in our industry
and which offer exciting potential in the future.
We will continue to invest in the development of new products over the
coming year, and are confident that we can maintain our technological and
market leadership position in this dynamic and fast-changing marketplace.
However, these new products will inevitably take time to generate material
sales for the Company.
GROUP REALIGNMENT
In February, we announced that Dialog was to be restructured into three
operating divisions: Information Services, Web Solutions and Internet
Software, and eCommerce. This was done to ensure that we retain the focus
on our core Information Services business, while at the same time fully
capitalising on the enormous potential of our proprietary Internet
technologies and eCommerce innovations.
INFORMATION SERVICES DIVISION
This division focuses on the development and expansion of the existing
online information business to information professionals and end-users. The
main product lines include Dialog, DataStar, Profound and CD-ROM. With 9
terabytes of information in some 900 databases serving over 20,000
corporate customers around the world, the Information Services Division
offers the worlds largest professional and commercial online service.
The Information Services Division reported 1998 turnover of (pound)165
million, representing 97% of Group turnover. Cost of sales consists
primarily of royalties paid by the Company to content publishers. Other
principal costs include computer processing and telecommunications costs.
The 1998 gross margin of 56.5% for this division is broadly representative
of this division going forward.
WEB SOLUTIONS AND INTERNET SOFTWARE DIVISION
The Web Solutions and Internet Software Division leverages InfoSort,
Dialogs proprietary indexing software, and Muscats intelligent search
engine technologies, for corporate knowledge management solutions.
InfoSort, used by our Information Services Division and developed over the
past 14 years, has recently achieved a breakthrough and can now
automatically categorise electronic data. This innovation addresses the
markets growing demand for automatic indexing of digital material to
overcome the issue of information overload. We believe that the licensing
of InfoSort software offers considerable revenue potential for this
division. Indeed, discussions are currently taking place in this regard.
During 1998 we were successful in winning and implementing special projects
through this licensing of technology with both the UK Governments
Department of Trade and Industry and the British Broadcasting Corporation.
Other customers for the division include Reuters, The British Library,
Ernst & Young, Virgin Net, McGraw Hill and Barclays Bank.
The Web Solutions and Internet Software Division reported 1998 turnover of
(pound)4.0 million, representing 2.4% of Group turnover. Sales in this
division consist of licence fees and royalties, and have minimal associated
direct costs. The 1998 gross margin of approximately 70% is broadly
representative for this division going forward, depending on the sales mix.
eCOMMERCE DIVISION
In July 1998, Dialog announced its entry into the electronic commerce
market with the launch of the consumer shopping service PlanetRetail.
Whilst the consumer market is not the focus for Dialogs eCommerce
activities, the site was intended as a demonstration of Dialogs
capabilities in this area.
The strategic focus of this division is on business-to-business
applications and to this end, in November, Dialog acquired 100% of Write
Works Ltd, a company which had developed the UK's first online purchasing
and management control system for businesses. Our strategy for 1999 and
beyond involves the rollout of OfficeShopper to the business community
worldwide, leveraging Dialogs substantial global customer base and
licensing the procurement software on which OfficeShopper is based to other
organisations wanting to develop their own eCommerce activities.
In March 1999, the eCommerce Division was awarded the contract to operate
the Enterprise Zone, an Internet portal for Small Medium-sized Enterprises
(SMEs) by the UK Governments Department of Trade and Industry in
conjunction with Business Links. Enterprise Zone now includes LinkShopper,
a customised version of Dialogs OfficeShopper service.
Revenues for our eCommerce Division from 19 November 1998 until the end of
the year amounted to (pound)77,000, which compare to Write Works pro-forma
revenues of (pound)735,000 for the full year. The gross margin in 1998
(including Write Works) represented 22%, which sets the benchmark
expectation for our eCommerce Divisions future performance.
MANAGEMENT
This year we have considerably strengthened the senior management team,
most notably through the appointment of Patrick Sommers to the new position
of Chief Operating Officer and, more recently, Richard Swank as a
non-executive Director.
FTSE RECLASSIFICATION
With effect from 1 April 1999, Dialog is to be reclassified by FTSE
International as an Internet company, and will form a part of the new
Software & Computer Services sector on the London Stock Exchange.
Dialog has demonstrated a strong and increasing stream of Internet revenues
generated worldwide and in 1998 we generated in excess of (pound)60 million
of revenues from our Internet businesses. This new classification will be a
more accurate reflection of the Companys functions, both in the UK market
and in the US where Dialog is listed on NASDAQ.
CURRENT TRADING AND OUTLOOK
Total revenues in the first quarter of 1999 are up against the fourth
quarter of 1998. Revenue growth in the first half of 1999 will primarily be
driven by growth in the Information Services Division, which today accounts
for over 95% of Group revenues.
Unlike the quarterly revenue trends of 1998, management expects the
combination of the anticipated growth in daily usage from the Information
Services Division and the growth from our eCommerce and Web Solutions
Divisions to generate successive increased quarterly revenues regardless of
the seasonal impact to usage-based sales that will inevitably arise.
The Board is confident that the actions that we have taken during 1998 will
grow shareholder value, although we anticipate that the real benefits will
start to show through in our financial results from the second half of 1999
and beyond.
The Board is determined to make 1999 a year of progress for The Dialog
Corporation and its shareholders, building upon the foundations laid by the
actions taken during 1998.
Michael Mander
Chairman
THE CHIEF EXECUTIVE'S REVIEW
1998 was the year that your Directors merged two loss-making companies into
one that is highly profitable. There is no question that 1998 was a
challenging year but, equally, it was extremely productive.
The year began after we had downsized the Company by 24%, merged offices
around the world and commenced a plan to converge our global technology
infrastructure. By the end of the year, the operating cost savings achieved
through these and other control measures resulted in annualised savings of
$47 million ((pound)28 million).
Early in 1998, an extensive global road show commenced, so that a large
proportion of customers could be met and informed about the Company's
strategy and plans for the evolution of Dialog's products and services.
Senior management visited 22 cities in the United States, 15 cities in
Europe and 8 in Asia. In total, we were able to meet with 45% of the
revenue-generating customer base in the United States, 60% of the
revenue-generating customer base in Europe and 50% of the
revenue-generating customer base in South East Asia.
As a result of these meetings with our customers, it became apparent that
the role of the traditional Dialog user - the information professional - was
changing. Corporate librarians, some of whom had been using Dialog for
decades, were facing new challenges in having to serve an ever-expanding
number of end-users, all with very different information needs.
Many of these same customers who had been using Dialog as a dial-up product
wanted to migrate to faster Internet-based delivery mechanisms. We were
aware that 24% (representing over $50 million) of KRII's revenues were based
on a model of hourly connect rates, a structure totally unsuitable for
services delivered via the Internet. We implemented a pricing model which
more fully reflects the value of our information services and is compatible
with Internet-based delivery.
There was some initial reluctance to the new pricing from our customer
base. While we greatly value our customers and their business, we knew that
this change was necessary for the future of the Company. We further
adjusted the pricing until we knew that our customers were satisfied. We
acknowledge their loyalty and their invaluable feedback during this period.
With the pricing modifications completed, the Company launched a suite of
Internet-based products, including completely new versions of DialogWeb,
DataStar Web, DialogSelect and Web-based access to DialogClassic. Making
the vast Dialog databases accessible via the Internet was one of our main
objectives and we are committed to remaining innovative and meeting the
challenges in the rapidly changing information industry. By the end of
1998, our Internet-based revenues exceeded $100 million.
In September, we commenced the move of our US headquarters to Cary, North
Carolina, centralising a number of The Company's marketing, finance,
customer service and administration functions in one location and further
reducing forward operating expenses.
The Company's Mountain View and Palo Alto offices in the heart of Silicon
Valley continue to house Dialogs US technology team of approximately 200
people.
In addition to the activities outlined above, we have identified several
strategic opportunities in high-growth market sectors. To this end, The
Dialog Corporation announced on 2 February 1999 that it had realigned
operations in order to provide a greater focus and reporting transparency
to its increasing range of Web-based activities. As a consequence of this
move, Dialog is being restructured to comprise three divisions: an
Information Services Division, a Web Solutions and Internet Software
Division, and a division focusing on eCommerce for the corporate market.
So, as we enter 1999, we have laid the foundations for solid growth into
the future, having:
o Reduced costs making a profitable entity out of two loss-making
companies
o Moved services to the Internet the online access method of today and
tomorrow
o Merged two very different cultures into a dynamic and innovative
market leader
o Introduced two additional market initiatives - eCommerce and Web
Solutions - to further drive growth.
Looking back, a huge amount has been achieved in the last 12 months and I
would like to recognise the staff from all departments who have
demonstrated exemplary hard work and tremendous commitment. Their efforts
have made this year a success by any measure.
With the foundations laid in 1998, and 1999 starting off with growth in all
of our divisions, I am now more confident than ever of the bright future
ahead for the Company.
Dan Wagner
Chief Executive
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following review of operating results, liquidity and capital resources
has been prepared in accordance with both the recommendations of the UK
Accounting Standards Board in their statement entitled 'Operating and
Financial Review,' and recognising the US custom for a Managements
Discussion and Analysis of Financial Condition and Results of Operations.
The Company maintains its accounting records and reports its results in
pounds sterling in accordance with UK generally accepted accounting
principles ('GAAP'). There are significant differences between UK GAAP and US
GAAP (see note 29 of Notes to the Financial Statements) and, unless
otherwise indicated, all financial results and analyses in this section
refer to the Companys UK GAAP financial statements and results.
SUMMARY
1998 represents the first full year of operations following the acquisition
of Knight-Ridder Information Inc. (KRII) on 14 November 1997.
Group sales of (pound)170.8 million compare to reported sales of
(pound)46.1 million in 1997. Prior to the acquisition, KRII had been
loss-making and the old M.A.I.D business had achieved a profit of
(pound)382,000 for the year ended 31 December 1997. The acquisition of KRII
and subsequent merger of business operations allowed for considerable cost
savings. As a result, the Company achieved profit before tax (excluding
restructuring and other exceptional costs) of (pound)8.4 million for 1998
compared to a loss before tax (excluding restructuring and other
exceptional costs) of (pound)5.9 million in 1997. After restructuring and
other exceptional costs, a pre-tax profit of (pound)5.6 million was
achieved.
The acquisition of KRII required a significant fund-raising exercise to pay
for the acquisition at a price, including a working capital adjustment, of
$434 ((pound)261) million, as well as funding the additional costs
necessary to restructure the enlarged business. The funds were raised
through a mixture of equity, and debt in the amount of $272.5 million.
During 1998 the Company serviced debt interest of $25.3 ((pound)15.3)
million and repaid senior debt in the amount of $15.9 ((pound)9.6) million.
The Company ended the year with total indebtedness of $256.6 ((pound)154.2
million).
TURNOVER
Group turnover of (pound)170.8 million represents the first full year of
operations following the acquisition of KRII and compares to reported sales
of (pound)46.1 million in 1997. The revenues of KRII had been in steady
decline since 1996 and the rate of decline increased throughout 1997 as the
acquisition process came to its conclusion on 14 November 1997. As a
consequence, Dialog commenced the year with a lower revenue base than the
pro-forma combined average for 1997. Compared with the pro-forma revenues
of M.A.I.D and KRII combined for 1997 of (pound)183.5 million, Dialog
revenues for 1998 show a 6.9% decline.
On 2 February 1999 the Company announced the creation of three new
operating divisions: the Information Services Division; the Web Solutions
and Internet Software Division; and the eCommerce Division. For 1998 their
respective revenues amounted to 96.8%, 2.4% and 0%. In addition, the
Company recognised non-recurring guaranteed minimum royalties of (pound)1.4
million (0.8%).
INFORMATION SERVICES DIVISION (ISD)
This division characterises the development and expansion of the existing
online information business to information professionals and end-users. The
main product lines include Dialog, DataStar, Profound and CD-ROM which
represent 71%, 14%, 10% and 5% respectively of total divisional sales for
1998.
Management's objective for the year was to halt the historic KRII declining
revenue trends and return them to growth. Following extensive customer
hosting sessions in the opening months of 1998, the Company experienced a
positive trend in both usage volumes and ISD revenues in the first quarter.
Through the acquisition process it had been identified that 24% of Dialog
revenues, or approximately $50 million, were based upon an hourly connect
pricing model. Given the Company's intention to release Internet-based
interfaces to the Dialog content, this would have accelerated the decline
in this element of revenues, as the Internet is a far quicker and more
efficient way for customers to gain access.
Therefore, in the second quarter, a series of price modifications were
announced to our customers. These were met with scepticism and concern from
both customers and the trade press. As a company which values its customers
and the loyalty they have demonstrated over the years, additional
modifications were announced and made effective from 1 September. These
modifications had the effect of providing the average Dialog customer with
an estimated 10% price discount, which also had the consequential effect of
lowering the Dialog revenue base from which to build. Since September 1998,
however, the average for daily usage volumes has increased.
Our efforts to turn around the declining DataStar revenues were ineffective
until we formally announced in June 1998 our commitment to building the
DataStar brand, headquartered in Berne, Switzerland. From that point,
DataStar has performed well, albeit from a lower revenue base.
Profound, which includes its subscription element and higher margins, was
not actively promoted during 1998, as the newly integrated sales teams
focused more closely on solidifying the larger Dialog revenue base and
converting customers to annual fixed price commitments.
CD-ROM revenues are recognised rateably over the annual life of the
contracts sold. As a result of our merger activities, the CD-ROM division
moved its headquarter functions from California to Oxford during the fourth
quarter of 1998. This did have a disruptive effect in the short term that
will impact the reported revenues for 1999. The move, which was
successfully completed by the year-end, provides a lower cost base and a
firm foundation for the future success of our CD-ROM operations.
WEB SOLUTIONS AND INTERNET SOFTWARE DIVISION (WSD)
This division was established to license InfoSort and Muscat search
technologies for corporate knowledge management solutions.
During 1998 the Company was successful in winning and implementing special
projects including both the Department of Trade and Industry (DTI) and the
British Broadcasting Corporation (BBC), and recognised (pound)2.5 million in
revenues for the sale of technology and subsequent implementation at the
customer site. Building on existing proprietary technology and expertise
gained during 1998, the WSD intends to build upon the growing demand for
knowledge management solutions that bring together internal and external
information into a simple searchable solution.
In August 1997, the Company acquired a 70% stake in Muscat, which in 1998
achieved third party sales of 1.2 million for search engine licences and
royalties from customers including Reuters, PA News Media, Interactive
Collector, DHL and the United Nations.
In addition, it is anticipated that WSD will generate revenues from the
development of a powerful Web search service for businesses using the
Internet to utilise Dialog's professional search capabilities when
interrogating the Web.
eCOMMERCE DIVISION
In July 1998, Dialog announced its plans to target the electronic commerce
(eCommerce) market with a strategic focus on business-to-business
applications that leverage the Company's alliance and customer base.
The Company subsequently acquired 100% of the Oxford-based Write Works Ltd
in November 1998, which had developed the UKs first online purchasing and
management control system for businesses. With an existing client base of
over 100 corporations including TK Maxx, ISS, EMI Music and Action Aid,
Write Works monthly sales tripled between January and September 1998. At
the date of acquisition, its procurement systems accounted for annualised
sales in excess of (pound)750,000. Dialog's 1998 eCommerce revenues of
(pound)77,000 were derived entirely from the activity of the Write Works
Internet procurement service during the last six weeks of the year. This
service was rebranded as OfficeShopper immediately following the
acquisition.
Our strategy for 1999 and beyond involves the rollout of OfficeShopper.com
to the business community worldwide, leveraging the substantial Dialog
customer base and licensing the underlying eCommerce technology to enable
businesses to create their own eCommerce solutions.
GEOGRAPHICAL ANALYSIS OF TURNOVER
As a result of the acquisition of KRII, the Company is the largest online
general reference service in the US, the largest archival service in
Europe, and provides the largest English language service in Japan (source:
Simba Information, Inc.).
Revenues from overseas operations outside the United Kingdom increased by
311% from (pound)32.1 million in 1997 to (pound)131.8 million in 1998,
which compares to a 151% year on year increase in 1997. Overseas revenues
now represent 77% of total revenues, compared with 70% in 1997 and 60% in
1996.
The increase in revenues from overseas operations is mainly attributable to
North America, where revenues increased by 376% year on year. This resulted
from the impact of the acquisition of KRII.
The Company's reported revenues are subject to material changes in exchange
rates. The principal foreign currencies to which operations are currently
exposed are the US dollar and the Swiss franc. The average rates of
exchange for US dollars to pounds sterling, as used by the Company in the
preparation of its Consolidated Financial Statements, was US$: (pound)1.573 in
1996, US$: (pound)1.640 in 1997 and US$: (pound)1.658 in 1998.
COST OF SALES
Cost of sales increased by 316% from (pound)17.2 million in 1997 to
(pound)71.6 million in 1998 and represented 37% and 42% of total turnover
respectively.
Due to the relative weighting of revenues to ISD, cost of sales consists
primarily of royalties paid by the Company to content publishers, whose
information is downloaded by a user through the Company's services. Also
relating to the Information Services Division are telecommunications
charges and computer processing costs, and, to a lesser degree, annual
fixed fees paid to some content providers irrespective of the level of
usage of that providers information.
The significant increase in cost of sales from (pound)17.2 million to
(pound)71.3 million for ISD reflects the Companys recognition of our first
full years revenue from the merged operations of M.A.I.D and KRII, which
for 1997 included the KRII usage revenues for the last six weeks of the
year only. Due to the relative weighting of the KRII revenues, which are
predominantly usage-based, compared to the revenues of M.A.I.D, which
included a large subscription element with negligible associated costs, the
gross margin achieved in 1998 of 56.9% is more representative of the ISD
margin anticipated by management.
Cost of sales for the newly formed WSD is anticipated to be lower as
technology-based sales, which consist of licence fees and royalties, have
minimal associated direct costs. For 1998 the Company achieved revenues of
(pound)4.0 million, with negligible cost of sales. There were no comparable
revenues for 1997.
In 1998 Write Works Ltd cost of sales represented 81% of sales, which sets
the benchmark expectation for our eCommerce Divisions future activities.
OPERATING COSTS (EXCLUDING AMORTISATION)
The integration of KRII and M.A.I.D involved a reduction in workforce of
some 24% and the termination of 16 out of a total 57 office leases, the
cost of which was fully provided for as a restructuring cost in 1997. By
reducing the scale of duplicated functions and by aligning the KRII
business model with that of M.A.I.D, management achieved a (pound)28
million, or 33%, reduction in the 1997 half year annualised operating cost
base of the combined entity. This exceeded managements expectations by
(pound)7 million.
DISTRIBUTION COSTS
Distribution costs consist of salaries and commissions paid to sales staff
and account managers, travel and entertainment and similar expenses
incurred by sales personnel, and marketing expenses, including
advertisements, marketing literature and trade shows.
As a result of the acquisition, total distribution costs (before
restructuring costs) for the year were (pound)21.6 million compared to
(pound)15.7 million for 1997, which represent 12.7% and 34.1% of revenues
respectively. The significant reduction in distribution costs as a
percentage of revenues was achieved by successfully eliminating duplicate
functions and improving efficiencies of the combined sales operations of
the enlarged Group. Following the release of new products in the second
half of 1998, additional sales and sales support staff were added, which
will have the effect of increasing distribution costs in 1999. The Company
had approximately 450 sales personnel at the year-end and is currently
represented in 39 countries.
ADMINISTRATION EXPENSES
As a result of the acquisition, total administration expenses (before
restructuring costs) for the year were (pound)44.2 million compared to
(pound)13.4 million for 1997, which represent 25.9% and 29.1% of revenues
respectively.
Administration expenses consist of all facilities costs (including the
Company's main offices in London, California, North Carolina and Berne,
Switzerland, which house the Company's management, sales, administrative and
editorial staff, and the Company's data centres); remuneration for all
employees other than persons directly involved in selling or account
management; and operating expenses for the Company's data centres (other
than telecommunications and processing charges included in cost of sales as
described above).
The reduction in staff levels and facilities has led to savings in
administration expenses when compared to the pro-forma combined Group
results for the prior year.
AMORTISATION OF PRODUCT DEVELOPMENT COSTS
The amortisation of capitalised product development costs for the Company
amounted to (pound)7.8 million, compared to (pound)3.6 million amortised in
1997. The amortisation charge reflects the first full year of amortisation
of the combined entity and benefits from the rationalisation derived from
merging two companies which previously had been developing products and
technological implementations for the same market.
The Company continues to review on a regular basis the carrying value of
capitalised development costs to ensure their appropriateness. During 1998
the Company made significant technological advances in developing and
releasing new Internet-based interfaces to the Dialog and DataStar content.
The majority of product development costs are amortised over 36 months with
effect from the date of commercial release, in accordance with our stated
accounting policy.
The amortisation charge for 1998 includes amortisation of costs associated
with previously capitalised development projects relating to Profound,
Profound for the Internet, DialogWeb, World Reporter and various completed
Dialog databases, together with DialogSelect with effect from the second
half of the year. Development costs associated with the KRII business gave
rise to an additional amortisation charge of (pound)344,000 for the six week
period ended 31 December 1997.
Included within amortisation for the year is (pound)1.7 million, relating to
amortised database development costs in respect of the activities of
Responsive Database Services (RDS).
OPERATING PROFIT
The operating profit (before restructuring costs and other exceptional
items) of (pound)25.6 million compares to a loss of (pound)3.8 million in
1997. On revenues of (pound)170.8 million, this represents an operating
margin of 15%, which compares to an operating margin of 3% based upon the
combined achievements of (pound)5.2 million achieved in 1997 by both
M.A.I.D and KRII merged on a pro-forma basis.
RESTRUCTURING COSTS AND OTHER EXCEPTIONAL ITEMS
The exceptional restructuring charge booked in 1998 of (pound)2.6 million
relates to the move of our US headquarters from Mountain View, California
to Cary, North Carolina ((pound)1.8 million), anticipated additional costs
arising from the termination of property leases ((pound)1.6 million) and
various other restructuring charges ((pound)0.9 million), relating
primarily to the integration of the sales force and one-off customer
hostings. These costs have been offset by a write back of 1.2 million
relating to data centre convergence costs and (pound)0.5 million relating
to the removal of the Knight-Ridder Information name. The move to Cary,
North Carolina will allow the Company to benefit from lower operating costs
in the North Carolina Research Triangle and was successfully completed by
the year-end.
The exceptional restructuring costs for 1997 consist of a non-cash
write-off of capitalised development costs in the sum of (pound)8.0
million, together with (pound)10.6 million in respect of costs and
provisions relating to the one time expense associated with the KRII and
M.A.I.D merger activities. These activities were completed in the year
under review, and gave rise to a cash outflow of (pound)6.9 million in the
current year.
In 1997 the Company recognised an exceptional gain totalling (pound)4.0
million relating to the transfer of its 'Internet in Hotel' technology and
associated distribution contracts to Fourth Network Inc., in exchange for
an equity stake in the company. During 1998, the Board has been closely
monitoring its investment in Fourth Network Inc., which had expected to
achieve an IPO or alternative significant fund-raising. As this has not
occurred to date, the Board determined that it would be prudent to write
down 50% of its investment creating an exceptional charge of (pound)2.3
million and cease recognition of future minimum guaranteed revenues arising
from the distribution contracts transferred. During the first
three-quarters of 1998, the Company recognised total royalties of
(pound)1.4 million compared to (pound)1.8 million in 1997.
In 1998, the Company disposed of its non-core investments in Easynet Group
plc and NewsEdge Corporation, realising gross proceeds of (pound)7.1
million and an exceptional gain of (pound)2.1 million. The proceeds were
used to accelerate the Company's repayment of debt.
INTEREST RECEIVABLE AND INTEREST PAYABLE
Net interest payable of (pound)17.2 million compares to (pound)2.2 million
for 1997. The debt interest serviced during 1997 included (pound)2.4
million of interest payable in respect of the debt financing for the
acquisition of KRII for the last six weeks of the year.
The acquisition of KRII required a significant fund-raising exercise, which
included $272.5 ((pound)163.8) million of debt. The debt raised consisted
of a $92.5 ((pound)55.6) million senior secured facility upon which
interest is calculated at the rate of 2.25 percentage points over US Libor
which was 5.09% as at 31 December 1998. The balance of $180.0
((pound)108.2) million relates to the subordinated loan notes, which are
registered on the London Stock Exchange and carry a fixed interest rate of
11%.
The Company has obligations, in addition to interest charges, to repay
$21.9 ((pound)13.2) million of senior debt in equal instalments in May and
November of 1999.
Included within the net interest expense of (pound)17.2 million is
(pound)0.9 million of amortised bank debt fees that will continue to recur
over the life of our loan arrangements. Bank and related fees amounting to
(pound)6.9 million were paid in connection with the debt raised to acquire
KRII, and the unamortised value is netted off against the carrying value of
our loan indebtedness in accordance with FRS4.
TAXATION
The Companys tax charge for 1998 relates entirely to the tax arising on the
profitable performance of its foreign sales subsidiaries. No tax arises in
the UK or US as a result of past tax losses and tax losses carried forward
are approximately 15 million in the UK, (pound)8.7 ($14.5) million in the
US and (pound)1.6 (CHF 3.7) million in Switzerland.
As a result of the acquisition of KRII, the Company wrote off (pound)204
million of goodwill in 1997 to reserves in accordance with UK GAAP. This
differs from the tax treatment in the US that allows such goodwill to be
written off over a 15 year period. As the acquisition was made through The
Dialog Corporation Inc., a wholly owned US subsidiary, it is anticipated
that the Company will benefit from such tax amortisation over the next 15
years, as it is envisaged that the Company's US operations will be
profitable in future years.
EARNINGS PER SHARE
The Company achieved an EPS of 4.8 pence before restructuring costs and
other exceptional items, compared to a loss of 6.2 pence per share for
1997.
After accounting for restructuring costs and other exceptional items, the
Company achieved an EPS of 2.9 pence, compared to a loss of 20.5 pence per
share for 1997.
The dilutive impact of the Company's outstanding options did not have a
material effect on the reported EPS.
LIQUIDY AND CAPITAL RESOURCES
The acquisition of KRII in November 1997 for a price, including a working
capital adjustment of $434 ((pound)261) million, required a significant
fund-raising exercise. In addition, further funds were required to
restructure the enlarged business.
The funds were raised through the issuance of 54.5 million shares for gross
proceeds of (pound)120 million, and dollar denominated debt in the amount
of $272.5 million, equivalent to (pound)160.8 million at the time. During
1998 the Company serviced debt interest of (pound)15.3 million, as well as
selling certain quoted investments and repaying senior debt in the amount
of (pound)9.6 million. The Company ended the year with total gross
indebtedness of $257 ((pound)154) million.
The Company's operating activities generated net cash of (pound)34.2 million
during the year ended 31 December 1998, compared to (pound)3.2 million in
1997. The cash generated in 1998 from operating activities is shown net of
(pound)6.9 million of costs relating to the one-off restructuring charges
arising from the merger activity of KRII and M.A.I.D.
The Company incurred net capital expenditure of (pound)18.8 million during
the year, compared to (pound)4.6 million during the year ended 31 December
1997. The net capital expenditure of (pound)18.8 million is lower than the
pro-forma capital spend of both KRII and M.A.I.D combined, both of which
were independently spending money on developing products and technological
implementations for the same market.
The Company's capital expenditure requirements are primarily for product
development, computer equipment for the Company's data centres and other
operations, related software, leasehold improvements and office equipment.
For 1999, the Company estimates that its total capital expenditure
requirements will approximate to the levels expended in 1998 of (pound)13.5
million on product development and (pound)5.5 million on fixed asset
additions.
Under UK GAAP, for the presentation of cash flow statements, cash is
defined as cash in hand and deposits repayable on demand. Deposits are
repayable on demand if they can be withdrawn at any time without notice and
without penalty or if a maturity or period of notice of not more than 24
hours or one working day has been agreed. Movements on deposits that are
not repayable on demand are disclosed in the main body of the cash flow
statement.
During the year ended 31 December 1998, net receipts from the sale of cash
deposits with an original maturity of less than one year amounted to
(pound)620,000, which compares to (pound)5.4 million for 1997.
During the year, the Company made certain revisions to the fair value of
the assets and liabilities assumed upon the acquisition of KRII. The cash
impact of these fair value adjustments amounted to an outflow of cash of
(pound)2,284,000 and consisted primarily of additional funding of the
non-core businesses through to the date of disposal together with payments
made under certain onerous contracts.
In October, Dialog exercised its option to purchase Responsive Database
Services, Inc. (RDS) for cash of $2.85 ((pound)1.7) million. RDSs
electronic information resources are used by business professionals and in
public, academic and special libraries. Dialog has historically provided
all financing for RDS and, accordingly, has consolidated its results within
the Group financial statements. Goodwill of $2.85 ((pound)1.7) million
arising as a result of this transaction was capitalised and is being
amortised to the profit and loss account.
In November, Dialog acquired the entire share capital of Write Works Ltd
for a total maximum consideration of (pound)6.0 million. Write Works Ltd,
located in Oxford, has developed the UK's first online purchasing and
management control system for businesses. The consideration was satisfied
through an initial payment of (pound)1.0 million in cash and approximately
(pound)1.2 million in shares issued by Dialog (at a price of (pound)1.66
per share). Further consideration of up to a maximum of (pound)3.8 million
in cash and shares (cash of (pound)2.8 million and shares of (pound)1.0
million) will be paid on the achievement of Write Works' earnings targets
over the next two years. Goodwill of (pound)6.0 million arising as a result
of this transaction was capitalised and is being amortised to the profit
and loss account.
In addition, the Company is committed (i) to pay its proportionate share of
the development costs for World Reporter, along with Dow Jones Information
Publishing, Inc. and FT Business Enterprises Limited through to 2001
(approximately (pound)3.9 million at 31 December 1998), and (ii) under the
terms of a joint venture agreement with Frost & Sullivan, to provide
monthly funding of $200,000 until June 1999.
The Company had cash at bank and in hand on 31 December 1998 of (pound)4.5
million, compared to (pound)13.7 million on 31 December 1997. In addition, the
Company has a revolving bank facility of $25.0 ((pound)15.0) million available,
which was undrawn at 31 December 1998. The Company has subsequently drawn
down $19.0 ((pound)11.4) million since 31 December 1998.
On 17 May 1999, the Company announced that it had secured an additional $25
million facility from The Chase Manhattan Bank that has enabled the release
of some of the funds previously earmarked for debt repayments to be
invested in the high growth market opportunities of Information Services,
Web Solutions and eCommerce. The additional facility increases the size of
the Senior Credit Facility by $11.5 million.
The Company has obligations, in addition to interest charges, to repay
$21.9 ((pound)13.2) million of senior debt in equal instalments in May and
November 1999. In addition to focusing considerable efforts on driving
revenues for the core business, management continues to explore a number of
strategic initiatives and is actively engaged in discussions which, subject
to their outcome, will result in a substantial reduction of the Group debt.
The Company has complied with its debt covenants during 1998 and expects to
meet its covenants for the current year and beyond.
ASSETS HELD FOR RESALE
On 2 February 1999, the Company announced the disposal of CARL library
systems and the UnCover document delivery business for gross proceeds of
$2.25 ((pound)1.4) million. Both CARL and UnCover were acquired as part of
the acquisition of KRII and were not core to the Dialog product offering.
The disposal proceeds included an interest-bearing vendor loan note of
$1.25 million due in two years. After accounting for associated disposal
costs, the balance of (pound)992,000 is shown as 'assets held for resale'
within current assets. Management originally anticipated achieving a higher
sale price for these businesses and therefore recognised a higher estimated
value as at December 1997. The differences between the estimated and actual
disposal price has been reflected as an adjustment to fair value, with the
difference arising treated as goodwill and written off directly to
reserves. The operating results for these non-core businesses for the
period beginning 14 November 1997 have been excluded from the Group's
consolidated profit and loss account.
INVESTMENTS
These include strategic investments in non-quoted companies including:
Frost & Sullivan ((pound)4.8 million), a leading market research company;
Teltech Resources ((pound)3.0 million), a redistributor of Dialog content;
Fourth Network Inc. ((pound)2.3 million), which provides hotel room
Internet access; and Frost & Sullivan Electronic Distribution LLC, a joint
venture ((pound)2.2 million). The Board has written down the investment in
Fourth Network Inc. by 50% from its previous carrying value of (pound)4.6
million.
Included on the balance sheet for 1997 were investments in Easynet Group
plc ((pound)2.1 million) and NewsEdge Corporation (2.9 million), which were
both sold in May 1998 for (pound)7.1 million, thereby realising a gain of
(pound)2.1 million. The proceeds were used to repay debt.
YEAR 2000
The Dialog Corporation is engaged in a multi-faceted programme to address
Year 2000 compliance issues so that our customers will enjoy uninterrupted
access to the Company's collection of online information.
The programme has identified three categories of risk: computer systems
that are supported in-house; systems and equipment not supported in-house,
including equipment with embedded microprocessors; and business partners of
the Company, including the risk that problems encountered by our business
partners adversely affect the operations of our business.
In order to determine the scale of the Year 2000 problem, we have completed
an analysis of our business processes and the systems used to support these
processes. Our overall objective for Year 2000 compliance is to ensure that
there is no disruption to these processes and that the interpretation and
use of date information throughout our products and services will function
properly with the date change. In particular, we will implement software
changes so that customers will be able to search date fields in all our
databases with either two or four digits. A key goal is to achieve
compliance by September 1999 with the minimum of disruption to our
customers and business partners.
The total cost of achieving Year 2000 compliance can only be broadly
estimated at this particular point in time, especially as compliance is
largely to be achieved through the use of existing internal resources.
However, it is estimated that the total cost to the Group is likely to be
(pound)3 million, approximately (pound)1 million of which has already been
incurred.
We know that information about our plans in this area is of great interest
to both our investors and users. To this end, we are providing regular
updates on the progress of our Year 2000 activities on our Web site.
EURO
The Company sees the introduction of the European single currency in
January 1999 as a strong business opportunity. We have drawn up one common
Euro price list for Profound for use in all countries affected by the
introduction of the Euro and, with effect from 1 February 1999, all
customers in these countries are now billed in Euros. Customers using the
Dialog and DataStar services, although billed in US Dollars and Swiss
Francs, have also been given the option to settle their bills in Euros.
During the initial transitional period, customers will, of course, be free
to settle in their local currency.
The costs associated with the above changes are not significant.
SUMMARY
The Group's financial position changed dramatically during 1997 with the
acquisition of KRII and the associated debt taken on to fund the
transaction. As a result of the acquisition, the Company is now a market
leader for the provision of professional online information, with
significant revenues being generated through the Internet. The enlarged
Group's operating cost structure has been materially rationalised during
1998 and the subdivision of our three operating divisions should ensure
that their performance is both measurable and optimal.
US investors are encouraged to read the Report on Form 20-F, in particular
the 'Factors Affecting Operations'.
THE BOARD OF DIRECTORS
A winning combination of knowledge, experience, innovation and maturity.
[see print version for graphic image]
EXECUTIVE DIRECTORS
Left to right: David Mattey, Ciaran Morton,
Patrick Sommers, Jason Moll,
Stephen Maller, Daniel Wagner
[photo]
MICHAEL MANDER
Non-Executive Chairman
Age 63
Michael Mander joined the Board in 1987 and was appointed Chairman in 1988.
He is Vice President of the Institute of Directors and the Periodical
Publishers Association, and Chairman of Book Data. A Fellow of the
Chartered Institute of Marketing, the Royal Society of Arts and the
Communication Advertising and Marketing Education Foundation, Michael held
various directorships within the International Thomson Organisation and
Times Newspapers during his publishing career. He is currently a Director
of Close Brothers Corporate Finance, Tempus plc, BLCMP (Library Services)
and Southnews plc.
[photo]
DANIEL WAGNER
Chief Executive
Age 35
Daniel Wagner founded the Company in 1985, and has been the driving force
behind its growth and development. This has included listings on both the
London Stock Exchange and the NASDAQ, the Company's policy of forging
strategic alliances, and the merger of Knight-Ridder Information and
M.A.I.D plc. Daniel is increasingly in demand as an expert speaker on the
design and supply of online information at international conferences and
key industry events, and has won various awards for entrepreneurial
achievement. He previously worked for WCRS plc, a leading UK advertising
agency.
[photo]
PATRICK SOMMERS
Chief Operating Officer
Age 51
Patrick Sommers joined The Dialog Corporation as Chief Operating Officer,
and the Board, in October 1998. He joined Dun & Bradstreet in 1969 and
worked in the international division and in the corporate centre until his
appointment in 1986 as President of D&B Information Resources Inc. In 1990
he was appointed as President of GTE Industry Services, an outsourcing
company. In 1992 he joined Ceridian Employer Services, as President,
Ceridian Corporation (formerly known as Control Data). Most recently he has
been Chairman and Chief Executive of Medicus Systems Corporation, and over
the past three years has been responsible for the successful restructuring
and subsequent sale of this NASDAQ listed healthcare technology software
company.
[photo]
DAVID MATTEY
Chief Financial Officer
Age 36
David Mattey joined the Company as Financial Controller in 1991 and was
appointed Finance Director in December 1992. David has been credited as
being the youngest Finance Director to bring a company to market on both
sides of the Atlantic. He was also responsible for securing the financing
necessary for M.A.I.D's acquisition of Knight-Ridder Information. David was
previously a tax consultant with the accountancy firm BDO Stoy Hayward and
the Finance Director of a specialist design house. He is also a Director of
Easynet Group plc, a leading European Internet service provider.
[photo]
STEPHEN MALLER
Chief Technology Officer
Age 40
Stephen Maller was appointed a Director in January 1996, having joined the
Company as Head of Information Technology in 1991. Prior to that he was IT
Manager for Pergamon Infoline, a commercial UK online company which hosted
the Company's original database. Previous roles included weapons research at
Marconi Space and Defence and work on videotext systems at Aregon
International.
[photo]
JASON MOLL
President--The Americas
Age 34
Jason Moll was appointed to the Board in September 1997, having joined the
Company in 1991. Moving to America in 1993, he was responsible for the US
launch of Profound. Jason managed the rapid expansion of the Company's North
American operations and is currently in charge of the US region. He was
appointed President of the Americas in February 1999.
[photo]
CIARAN MORTON
President Europe, Middle East,
Africa and Asia Pacific
Age 35
Ciaran Morton was appointed to the Board in September 1997, having joined
the Company in 1990. Initially Ciaran ran the UK sales and service
functions, and was also responsible for the establishment of offices in
Denmark and Ireland. In 1994, Ciaran moved to Hong Kong to set up and run
the Companys Asia Pacific operations. He returned to the UK in April 1997
and was appointed President of Europe, Middle East, Africa and Asia Pacific
in February 1999.
[photo]
ALLEN THOMAS
Deputy Chairman
Non-Executive Director
Age 59
Allen Thomas joined the Board as a non-executive Director in September
1997. A qualified solicitor, Allen is Chairman of Ockham Holdings plc and a
Director of Penna Holdings plc. From 1972 to 1992 he was a partner in Paul,
Weiss, Rifkind, Wharton & Garrison, a leading New York law firm, where he
was the founding managing partner of the Hong Kong office and acted as
General Counsel to Municipal Assistance Corporation in the refinancing of
New York City. Additionally he was a non-executive Director of Mitsubishi
Bank & Trust Company of New York. Upon his retirement from Paul, Weiss in
1992, he became Vice President and General Counsel at General Atlantic
Group.
[photo]
IAN BARTON
Non-Executive Director
Age 53
Ian Barton joined the Board as a non-executive Director in 1986. He was
Managing Director of Octagon Investment Management and has held several
senior posts in a number of information and computer organisations,
including the Post Office Telecommunications Headquarters Long Range
Intelligence Division, and CADCentre Ltd. Ian currently holds non-executive
directorships with the high-technology companies Robot (UK) Ltd, Pelco (UK)
Ltd and Distributed Information Processing Ltd, and with Central Europe
Trust Company Ltd, a consultancy and fund management company specialising
in Central and Eastern Europe.
[photo]
MARMADUKE HUSSEY
Non-Executive Director
Age 75
Lord Hussey of North Bradley joined the Board as a non-executive Director
in May 1996. His distinguished media career began in 1949 with Associated
Newspapers, where he became a Director in 1964. In 1967 he was appointed
Managing Director of Harmsworth Publications, and joined the Thomson
Organisation as Chief Executive of Times Newpapers in 1971. Lord Hussey was
a Director of Times Newspapers Ltd and Colonial Mutual Ltd from 1982 to
1986 and served as the Chairman of the Board of Governors of the BBC from
1986 to March 1996. He was a Director of William Collins Limited from 1985
to 1989 and Chairman of the Royal Marsden Hospital from 1985 to 1998. He is
a Director of Ruffer Investment Management and sits on the Management
Committee of the King's Fund.
[photo]
RICHARD SWANK
Non-Executive Director
Age 68
Mr Swank joined the Company in November 1997 as an advisor on integration
strategy following the purchase of Knight-Ridder Information Inc. Since
that date, he has acted as non-executive Chairman of Dialog's North American
businesses. He was appointed a non-executive Director of The Dialog
Corporation plc in March 1999. From April 1989 to December 1994, Mr Swank
was Chairman and Chief Executive Officer of Advanstar Communications Inc.
He had responsibilility for a successful financial restructuring and
implementation of a revised corporate strategy. Prior to joining Advanstar,
Mr Swank was Executive Vice President of Dun & Bradstreet Corporation and
President of its subsidiary, the Rueben H. Donnelly Corporation.
[photo]
DR ROGER SUMMIT
Chairman Emeritus of The Dialog Corporation
Age 68
Roger Summit joined The Dialog Corporation as Chairman Emeritus in December
1997, having previously served as President and Chief Executive Officer of
Dialog Information Services, Inc. until his retirement in 1991. At the
Lockheed Corporation in 1962, Roger was designer and project manager of the
worlds first online information retrieval system - DIALOG. He has received
numerous awards and held positions in professional associations and on
advisory boards. Roger has published many papers and journal articles, and
serves on the Boards of several companies and non-profit organisations.
ACCOUNTS
CONTENTS
Corporate Governance and Internal Financial Control 29
Report of the Directors 2
Statement of Directors Responsibilities 34
Auditors Report 35
Consolidated Profit and Loss Account 36
Consolidated Balance Sheet 37
Company Balance Sheet 38
Consolidated Cash Flow Statement 39
Notes to the Financial Statements 40
Accounting Glossary 81
Financial Diary for 1999 82
Five Year Financial Summary 83
Notice of the Annual General Meeting 84
Where to Find Us 87
Dialog Annual Report and Accounts 1998
PAGES 29-88
- -----------------------------------------------------
PAGES 29-35
CORPORATE GOVERNANCE AND INTERNAL FINANCIAL CONTROL
The Board's policy is to manage the affairs of the Company in accordance
with the Principles of Good Governance and Code of Best Practice as derived
from the Final Report of the Committee on Corporate Governance ('the
Combined Code'). The ways in which the Company applies those principles is
contained in the relevant sections of the Annual Report. Unless otherwise
stated below or in the Remuneration Committee report, the Company complied
during the year with all the provisions of section 1 of the Combined Code.
COMPLIANCE WITH THE COMBINED CODE
THE BOARD
The Board normally meets 12 times a year to make and review major business
decisions and monitor current trading against approved budgets. Matters
specifically reserved for the Board are set out in a formal schedule. Once
a year the Board meets in conference to consider long-term strategy and
industrial developments affecting the Company.
There is an agreed procedure for Directors to take independent professional
advice, if necessary, at the Company's expense. They also have access to
the advice and services of the Company Secretary, whose appointment is in
accordance with the Combined Code.
CHAIRMAN AND CHIEF EXECUTIVE
The roles of Chairman and Chief Executive Officer are separate. The
Chairman is primarily responsible for the working of the Board, for the
balance of its membership (subject to Board and shareholders' approval),
and for ensuring that all Directors are enabled to play their full part in
its activities. The Chief Executive Officer's task is to manage the
business and to implement the policies and strategies adopted by the Board.
Allen Thomas, a non-executive Director, has been appointed as the Deputy
Chairman and acts as the nominated senior independent Director.
BOARD BALANCE
There are five non-executive Directors on the Board who are independent
of management and free from any business or other relationship with the
Company, other than owning shares or as disclosed in note 7. Their
biographies are set out on pages 25 - 27.
SUPPLY OF INFORMATION
The Board is provided with comprehensive reports on the Company's affairs
in order that informed decisions can be reached in a timely manner.
Periodical reports are supplemented with more detailed information on all
important issues and regular contact is maintained with the non-executive
Directors between Board meetings.
APPOINTMENTS TO THE BOARD
There is a Nomination Committee consisting of the five non-executive
Directors which is chaired by Michael Mander. The Committee is responsible
for overseeing the selection process for executive and non-executive
Directors and for making recommendations to the Board on all new
appointments.
RE-ELECTION
Under the Company's articles of association, one third of the Directors are
required to stand for re-election at each Annual General Meeting. All
Directors are subject to election by shareholders at the earliest
opportunity following their appointment to the Board. Biographical details
of all Directors, including those who present themselves for election or
re-election at this year's Annual General Meeting, are set out on pages 25
- - 27.
DIRECTORS' REMUNERATION
The remuneration policy for the executive Directors is devised and
monitored by the Remuneration Committee comprising of the five
non-executive Directors and chaired by Marmaduke Hussey. The Committee's
report is set out on pages 30 - 31.
RELATIONS WITH SHAREHOLDERS AND AGM
The Company maintains a close relationship with its principal investors and
encourages all shareholders to participate in the Annual General Meeting,
whether in person or by proxy. The investor relations department acts as
the main contact point for shareholders.
ACCOUNTABILITY AND AUDIT
The responsibilities of the Directors and auditors are set out on page 35.
GOING CONCERN
The Directors consider that the Company has adequate resources to continue
in operational existence for the foreseeable future and that it is
therefore appropriate to adopt the going concern basis in preparing the
financial statements. In arriving at this decision, the Directors have
reviewed the Company's budget for 1999 and plan for 2000. This review
included consideration of the cash flow implications of these plans,
including proposed expenditure on tangible and intangible fixed assets.
These cash flow implications were then compared with the Company's cash
resources and existing bank facilities.
INTERNAL FINANCIAL CONTROL
The Board is reviewing the Group's internal control system in the light of
the Combined Code provision D.2.1. and will report on this review in the
next Annual Report after guidance from the 'Turnbull' Committee has been
issued. In the meantime, as permitted by the London Stock Exchange, the
Board will report on their review of internal financial control.
The Directors have overall responsibility for the Group's system of
internal financial control, which aims to safeguard Group assets, and to
ensure that proper accounting records are maintained and that the financial
information used within the business and for publication is reliable.
Although no system of internal control can provide absolute assurance
against material misstatement or loss, the Directors have reviewed the
effectiveness of the Group's controls and are satisfied that they provide
reasonable assurance that problems are identified on a timely basis and
dealt with appropriately.
The Company does not have an internal audit function at present, although
the Board will keep this matter under review.
AUDIT COMMITTEE AND AUDITORS
The Audit Committee is formally constituted. It is chaired by Ian Barton
and comprises four non-executive Directors, excluding Richard Swank. The
Audit Committee meets with the Finance Director in order to review the
effectiveness of the system of internal financial control, and discusses
with the auditors the control matters identified during the course of their
audit work. It also reviews the annual accounts and the interim and
preliminary announcements prior to submission to the Board, compliance with
accounting standards and the scope and extent of the external audit
programme. The Chairman of the Audit Committee reports to the Board on
matters discussed at the Audit Committee meeting. The Audit Committee is
responsible for selecting the firm of accountants to be recommended to
shareholders for appointment as independent auditors each year, and
reviewing the overall financial relationship between the Company and its
auditors.
REMUNERATION COMMITTEE REPORT
The members of the Remuneration Committee are:
Marmaduke Hussey (Chairman of the Committee)
Michael Mander
Ian Barton
Allen Thomas
Richard Swank
Details of each Director's remuneration package, together with their share
options and interests in Ordinary shares of the Company, are set out in
note 7 to the Financial Statements.
POLICY STATEMENT
The Remuneration Committee ('the Committee') seeks to provide remuneration
packages in form and amount that will attract, retain, motivate and reward
executive Directors of the quality required to manage the business of the
Group. The Committee seeks to avoid paying more than the market rate for
this purpose. In establishing the level of remuneration for each Director,
the Committee has careful regard to the packages offered by comparable
companies and has access to external remuneration consultants which enables
wide-ranging comparisons to be made.
SALARIES AND PERFORMANCE-RELATED REMUNERATION
The salaries of the executive Directors are reviewed annually. As part of
the review process, the Committee considers individual performance and
experience, the size and nature of the role, the Company's performance and
salaries offered for similar positions elsewhere. Wherever appropriate, the
Committee seeks to align the interests of executives with those of
shareholders through performance-related remuneration. Bonuses are based on
successful performance and are only paid on achievement of carefully
considered targets. All bonuses are capped. Bonus payments and any gains
under share option schemes are not pensionable.
BENEFITS
Executive Directors are eligible for a range of taxable benefits which
include provision of a company car or car allowance (taken in the form of
additional salary) and payment of related operating expenses including fuel
for business use. Additional benefits include contributory pension
arrangements, membership of private medical insurance schemes,
reimbursement, up to specified limits, of the annual subscription to an
appropriate professional body and of business-related home telephone
charges. Other senior executives, depending on grade, are also eligible for
certain of the above benefits.
NOTICE PERIODS
Each of the executive Directors is employed on a rolling contract with a
notice period of one year with the exception of Patrick Sommers, the Chief
Operating Officer, who has a service agreement of three years from his date
of appointment. In the event that the Company terminates the agreement
without cause after the initial six month period, Mr Sommers would be
eligible to receive a severance payment equal to the greater of base salary
for the remainder of the term or 12 months' base salary.
The Remuneration Committee considers that notice periods of one year are
reasonable and proper and in the interests of the Company and its executive
Directors, having regard to prevailing domestic market conditions and
current practice amongst public companies. The Committee accepts and
endorses the principle of mitigation of damages on termination of a
contract.
The employment terms of Mr Sommers are in line with current US market
practice and, in the opinion of the Committee, represent terms necessary to
attract an executive of suitable calibre for the role in question.
The executive Directors' service agreements contain certain provisions
which become effective in the event that any person or persons acting in
concert acquires or acquire a Controlling Interest (as defined within Part
1 of Schedule 13 of the Companies Act 1985) in the Company. These
provisions include the payment of salary equivalent to the contractual
notice period as well as payment in lieu of a bonus of 75% of salary in the
event of termination of employment within 12 months following a change of
control of the Company.
SHARE-RELATED SCHEMES
The Company operates a number of share-related schemes for employees,
details of which are set out on pages 63 - 70. In awarding share options to
executive Directors, the Remuneration Committee has regard to guidelines
published by investor protection committees, the provisions of the Combined
Code and the individual performance of participants, as well as the
particular circumstances of the Company. Grants under the executive schemes
are generally made on an annual basis at the prevailing market share price
and are subject to a vesting period of three years. Grants under the 1997
US stock option plan are subject to incremental vesting after an initial
one year period in order to reflect prevailing market practice amongst
comparable companies in the US. Due to similar considerations, the
Remuneration Committee took the view that it was not appropriate to apply
performance conditions on the grant of options during the year. However,
this issue is kept under continuous review.
REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS
The remuneration of non-executive Directors consists of fees for their
services in connection with Board and Board Committee meetings. Fee levels
are determined by the executive Directors with regard to remuneration
surveys and levels offered by comparable companies and, in the case of the
Chairman's fees, in consultation with the other non-executive Directors.
The non-executive Directors do not have service contracts, nor do they
participate in Group bonus schemes.
REPORT OF THE DIRECTORS
The Directors present their report together with the audited financial
statements for the year ended 31 December 1998.
PRINCIPAL ACTIVITY
The principal activity of the Company and its subsidiaries is the provision
of Internet-based information, technology and eCommerce solutions to the
corporate market.
REVIEW OF THE BUSINESS
A review of the business is set out in the Chairman's Statement and Chief
Executive's Review as well as the Management's Discussion and Analysis of
Financial Condition and Results of Operations.
SUBSEQUENT EVENTS
Events subsequent to the end of the 1998 financial year are detailed in
note 30 to the financial statements.
RESULTS AND DIVIDENDS
The profit and loss account set out on page 36 shows the results for the
year. The Directors do not recommend the payment of a dividend (1997:
(pound)nil). The retained profit of (pound)4.4 million has been transferred
to reserves.
FIXED ASSETS
The changes in fixed assets are shown in notes 10 - 13 to the financial
statements.
SHARE CAPITAL
Movements in the share capital and share premium account are shown in notes
18 and 19 to the financial statements.
DIRECTORS AND THEIR INTERESTS
The Directors who served during the year were as follows:
M Mander
D Wagner
P Sommers (appointed 8 October 1998)
D Mattey
J Molle
S Maller
C Morton
A Thomas
I Barton
M Hussey
D Smith (resigned 2 February 1999)
G Burrows (appointed 8 October 1998 and resigned on 2 February 1999)
M Shipley (resigned 30 June 1998)
J Galt (resigned 26 June 1998)
The Directors' interests in the Ordinary share capital and options over
shares of the Company are disclosed in note 7 to the financial statements.
The Company purchased Directors' and officers' liability insurance for the
year ended 31 December 1998 which has been renewed for the current
financial year.
On 15 March 1999, Richard Swank was appointed to the Board as a
non-executive Director of the Company.
SUBSTANTIAL SHAREHOLDINGS
As at 21 May 1999, notification had been received of the following
interests, excluding the interests of Directors of the Company as at 31
December 1998, exceeding 3% of the Company's Ordinary share capital:
Ordinary shares of % of issued share capital
1p each at 21 May 1999*
Prudential Corporation 9,652,175 6.37
* Based upon the total issued share capital of 151,571,363 at 21 May 1999.
The movement in the total issued share capital from 151,467,107 at 31
December 1998 to 151,571,363 at 21 May 1999 resulted from the issue of
shares under the 401(k) plan for US employees.
EMPLOYEE COMMUNICATION AND INVOLVEMENT
It is a Group policy to communicate regularly and frequently with all
employees on matters of concern to enable them to take a wider interest in
the affairs of their employing company and the Group. This is done in a
variety of ways including bulletins and briefing sessions. A significant
number of employees are either shareholders in the Company or hold options
through the share option schemes. This provides them with the opportunity
to participate directly in the success of the business.
EMPLOYMENT POLICIES
The Group is committed to the principle of equal opportunity in employment,
regardless of a person's race, creed, colour, nationality, sex, marital
status, or disability. Employment policies are fair, equitable, and
consistent with the skills and abilities of our employees and the needs of
our business. These policies ensure that everyone is accorded equal
opportunity for recruitment, training and promotion. Where an employee
becomes disabled whilst employed by a Group company, every effort is made
to allow that person to continue in employment.
CREDITOR PAYMENT TERMS
It is the Group's normal procedure to agree terms of transactions,
including payment terms, with suppliers in advance. Payment terms vary,
reflecting local practice throughout the world. It is the Group's policy
that payment is made on time, provided that suppliers perform in accordance
with the agreed terms. As at 31 December 1998, trade creditors of the
Company represented 59 days equivalent of aggregate amounts invoiced by
suppliers during the year.
CHARITABLE AND POLITICAL DONATIONS
During the year ended 31 December 1998, the Group made corporate donations
for charitable purposes totalling (pound)28,915 (1997: (pound)500). No
political donations were made during the year (1997: (pound)nil).
AUDITORS
Following the merger of Price Waterhouse with Coopers & Lybrand from 1 July
1998, Price Waterhouse resigned as auditors of the Company on 29 July 1998
in favour of the new firm, PricewaterhouseCoopers and the Directors
appointed PricewaterhouseCoopers to fill the casual vacancy created by the
resignation. A resolution to reappoint PricewaterhouseCoopers as auditors
of the Company and to authorise the Directors to determine their
remuneration will be proposed at the Annual General Meeting. Special notice
of this resolution has been given in accordance with Sections 379 and
388(3) of the Companies Act 1985.
ANNUAL GENERAL MEETING
Notice of the Annual General Meeting to be held on 1 July 1999 is set out
on pages 84 - 86.
Resolutions 1 - 6 to be proposed at the meeting deal with ordinary
business. Resolutions 7 - 10 deal with special business as explained
overleaf and in further detail in the notes to the Notice of the Annual
General Meeting.
Resolution 7 proposes the reappointment of PricewaterhouseCoopers as
auditors of the Company (having previously been appointed by the Board to
fill the casual vacancy arising by reason of the resignation of Price
Waterhouse following the merger of Price Waterhouse and Coopers & Lybrand
and the subsequent creation of the new firm, PricewaterhouseCoopers) and
authorises the Directors to determine their remuneration.
Resolution 8 authorises the Directors to allot the unissued Ordinary share
capital of the Company for the period expiring on the date of the next
Annual General Meeting of the Company or 31 August 2000 if earlier. This
authority, which complies with the guidelines of the Association of British
Insurers, would replace similar authorities granted to the Directors at
previous general meetings.
Resolution 9 authorises the Directors to allot a limited number of shares
for cash other than on a pre-emptive basis and replaces the existing
authority to that effect expiring at the meeting. The proposed authority
expires on the date of the next Annual General Meeting or 31 August 2000 if
earlier, and permits the Directors to issue shares of up to an aggregate
nominal amount of (pound)75,733 (representing 5% of the issued Ordinary
share capital at 31 December 1998) other than in respect of rights issues
or other pre-emptive offers, or pursuant to any scrip dividend offer or
issues under the terms of the Company's share option schemes.
Resolution 10 authorises the Company to grant share options under the terms
of the 1994 Executive Share Option Scheme and the 1994 Unapproved Executive
Share Option Scheme to eligible employees within 42 days of the
announcement of quarterly financial results in addition to the periods
following the announcement of the annual and half-yearly results.
By order of the Board
J Ball
Company Secretary
28 May 1999
STATEMENT OF DIRECTORS' RESPONSIBILITIES
Company law requires the Directors to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of
the Company and of the Group for that period. In preparing the financial
statements, the Directors are required to:
o select suitable accounting policies and then apply them consistently;
o make judgements and estimates that are reasonable and prudent;
o state whether applicable accounting standards have been followed,
subject to any material departures disclosed and explained in the
financial statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the financial statements comply
with the Companies Act 1985. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
AUDITORS' REPORT TO THE SHAREHOLDERS OF THE DIALOG CORPORATION PLC
We have audited the financial statements on pages 36 - 80 which have been
prepared under the historical cost convention, the accounting policies set
out on pages 40 - 42 and the summary of differences between UK and US
generally accepted accounting principles set out on pages 75 - 79.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
The Directors are responsible for preparing the Annual Report, including,
as described on page 34, the financial statements. Our responsibilities, as
independent auditors, are established by statute, the Auditing Practices
Board, the Listing Rules of the London Stock Exchange and our profession's
ethical guidance.
We report to you our opinion as to whether the financial statements give a
true and fair view and are properly prepared in accordance with the
Companies Act 1985. We also report to you if, in our opinion, the
Directors' report is not consistent with the financial statements, if the
Company has not kept proper accounting records, if we have not received all
the information and explanations we require for our audit, or if
information specified by law or the Listing Rules regarding Directors'
remuneration and transactions is not disclosed.
We read the other information contained in the Annual Report and consider
the implications for our report if we become aware of any apparent
misstatements or material inconsistencies with the financial statements.
We review whether the statement on pages 29 - 31 reflects the Company's
compliance with those provisions of the Combined Code specified for our
review by the London Stock Exchange, and we report if it does not. We are
not required to form an opinion on the effectiveness of the Company's or
the Group's corporate governance procedures or its internal controls.
BASIS OF AUDIT OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board of the United Kingdom, which are substantially
similar to generally accepted auditing standards in the United States. An
audit includes examination, on a test basis, of evidence relevant to the
amounts and disclosures in the financial statements. It also includes an
assessment of the significant estimates and judgements made by the
Directors in the preparation of the financial statements, and of whether
the accounting policies are appropriate to the Company's circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or
other irregularity or error. In forming our opinion we also evaluated the
overall adequacy of the presentation of information in the financial
statements.
UNITED KINGDOM OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and the Group at 31 December 1998 and of
the profit and cash flows of the Group for the year then ended and have
been properly prepared in accordance with the Companies Act 1985.
UNITED STATES OPINION
In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Group at 31 December 1998, 1997 and
1996 and the results of its operations and cash flows for each of the three
years in the period ended 31 December 1998, all expressed in Pounds
Sterling in conformity with accounting principles generally accepted in the
United Kingdom.
Accounting principles generally accepted in the United Kingdom vary in
certain significant respects from accounting principles generally accepted
in the United States. The application of the latter would have affected the
determination of consolidated net income for each of the three years in the
period ended 31 December 1998 and consolidated shareholders' equity, all
expressed in Pounds Sterling at 31 December 1998 and 1997 as shown in the
summary of differences between UK and US generally accepted accounting
principles set out on pages 75 - 79.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London
28 May 1999
===========================================
PAGE 36
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1998
Total Restructuring Total Total Restructuring Total
continuing costs and continuing continuing costs and continuing
business other business business other business
before re- exceptional after re- before re- exceptional after re-
structuring items structuring structuring items structuring
costs (note 5) costs costs (note 5) costs
--------------------------------------- ---------------------------------------
1998 1997 1996
--------------------------------------- ---------------------------------------
Notes (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- ---------------------------------------------------------------------------------------------------------------------------------
TURNOVER 2 170,762 - 170,762 46,082 - 46,082 21,443
Cost of sales (71,618) - (71,618) (17,166) - (17,166) (7,237)
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 99,144 - 99,144 28,916 - 28,916 14,206
Distribution costs (21,605) 45 (21,560) (15,700) (1,313) (17,013) (9,933)
Administrative expenses (44,170) (2,628) (46,798) (13,415) (9,247) (22,662) (9,975)
Amortisation/write-off
of development costs (7,760) - (7,760) (3,558) (7,990) (11,548) (2,170)
Amounts written
off investments - (2,300) (2,300) - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT/(LOSS) 2,4 25,609 (4,883) 20,726 (3,757) (18,550) (22,307) (7,872)
Gain on sale of fixed
asset investments 5 - 2,069 2,069 - 4,035 4,035 -
Interest receivable 205 - 205 338 - 338 1,027
Interest payable and
similar charges 6 (17,436) - (17,436) (2,498) - (2,498) (189)
- ---------------------------------------------------------------------------------------------------------------------------------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES BEFORE TAXATION 8,378 (2,814) 5,564 (5,917) (14,515) (20,432) (7,034)
Taxation on profit/(loss)
on ordinary activities 8 (769) - (769) (323) - (323) (164)
- ---------------------------------------------------------------------------------------------------------------------------------
PROFIT/(LOSS) ON ORDINARY
ACTIVITIES AFTER TAXATION 7,609 (2,814) 4,795 (6,240) (14,515) (20,755) (7,198)
Minority equity interests 23 (356) - (356) 11 - 11 (28)
- ---------------------------------------------------------------------------------------------------------------------------------
RETAINED PROFIT/(DEFICIT) 21 7,253 (2,814) 4,439 (6,229) (14,515) (20,744) (7,226)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share
(pence) 9 4.8 2.9 (6.2) (20.5) (7.8)
Fully diluted
earnings/(loss) per
share (pence) 9 4.8 2.9 (6.1) (20.4) (7.7)
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------------------------------------------
Gain/(loss) for the financial year 4,439 (20,744) (7,226)
Consolidated translation differences on foreign currency net investments 680 (3,099) (477)
- ------------------------------------------------------------------------------------------------------------------------
Total recognised gains and losses for the financial year 5,119 (23,843) (7,703)
- ------------------------------------------------------------------------------------------------------------------------
The profit and loss accounts shown above have been prepared on a historical
cost basis.
The notes on pages 40 - 80 form part of these financial statements.
============================================
PAGE 37
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 1998
1998 1997
Notes (pound)000 (pound)000
- --------------------------------------------------------------------------------------------
FIXED ASSETS
Intangible assets 10 23,154 21,624
Goodwill 11 7,676 -
Tangible assets 12 17,870 19,354
Investments 13 12,354 18,374
- --------------------------------------------------------------------------------------------
61,054 59,352
- --------------------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 221 232
Debtors: amounts due within one year 14 42,781 43,205
Debtors: amounts due after one year 14 - 615
Assets held for resale 30 992 7,384
Cash and bank deposits 4,494 13,722
- --------------------------------------------------------------------------------------------
48,488 65,158
CREDITORS (amounts falling due within one year) 15 (58,845) (45,201)
- --------------------------------------------------------------------------------------------
NET CURRENT (LIABILITIES)/ASSETS (10,357) 19,957
TOTAL ASSETS LESS CURRENT LIABILITIES 50,697 79,309
CREDITORS (amounts falling due after more than one year) 16 (139,741) (162,681)
Provisions for liabilities and charges 17 (4,697) (7,583)
- --------------------------------------------------------------------------------------------
NET LIABILITIES (93,741) (90,955)
- --------------------------------------------------------------------------------------------
CAPITAL AND RESERVES - EQUITY
Called up share capital 18 1,514 1,502
Share premium account 19 152,128 150,341
Shares to be issued 20 967 -
Profit and loss account 21 (249,427) (243,524)
- --------------------------------------------------------------------------------------------
Equity shareholders' funds 22 (94,818) (91,681)
Minority equity interest 23 1,077 726
- --------------------------------------------------------------------------------------------
Total shareholders' funds (93,741) (90,955)
- --------------------------------------------------------------------------------------------
The financial statements were approved by the Board of Directors on 28 May
1999 and signed on its behalf by:
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 40 - 80 form part of these financial statements.
============================================
PAGE 38
COMPANY BALANCE SHEET
AS AT 31 DECEMBER 1998
1998 1997
Notes (pound)000 (pound)000
- --------------------------------------------------------------------------------------------
FIXED ASSETS
Intangible assets 10 4,650 4,157
Tangible assets 12 2,842 2,030
Investments 13 284,836 282,286
- --------------------------------------------------------------------------------------------
292,328 288,473
- --------------------------------------------------------------------------------------------
CURRENT ASSETS
Stocks 27 28
Debtors 14 40,734 29,139
Cash at bank and in hand - 184
- --------------------------------------------------------------------------------------------
40,761 29,351
CREDITORS (amounts falling due within one year) 15 (55,435) (16,575)
- --------------------------------------------------------------------------------------------
NET CURRENT (LIABILITIES)/ASSETS (14,674) 12,776
- --------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 277,654 301,249
CREDITORS (amounts falling due after more than one year) 16 (136,709) (155,806)
- --------------------------------------------------------------------------------------------
NET ASSETS 140,945 145,443
- --------------------------------------------------------------------------------------------
CAPITAL AND RESERVES - EQUITY
Called up share capital 18 1,514 1,502
Share premium account 19 152,128 150,341
Shares to be issued 20 967 -
Profit and loss account 21 (13,664) (6,400)
- --------------------------------------------------------------------------------------------
Total shareholders' funds 22 140,945 145,443
- --------------------------------------------------------------------------------------------
The financial statements were approved by the Board of Directors on 28 May
1999 and signed on its behalf by:
D Wagner D Mattey
Chief Executive Chief Financial Officer
The notes on pages 40 - 80 form part of these financial statements.
============================================
PAGE 39
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 1998
1998 1997 1996
Notes (pound)000 (pound)000 (pound)000
- -------------------------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES 25 34,151 3,175 (5,841)
- -------------------------------------------------------------------------------------------------------------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Dividends paid to minority shareholders in subsidiary
undertakings - (41) -
Interest received 205 353 885
Interest paid on bank loans and overdrafts (15,251) (585) (3)
Interest paid on finance leases (46) (119) (198)
- -------------------------------------------------------------------------------------------------------------
(15,092) (392) 684
- -------------------------------------------------------------------------------------------------------------
TAXATION PAID (349) (158) (20)
- -------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURE
Payments to develop intangible assets (11,762) (2,747) (3,237)
Payments to acquire tangible fixed assets (7,223) (1,987) (3,554)
Receipts from sale of tangible fixed assets 211 178 18
- -------------------------------------------------------------------------------------------------------------
(18,774) (4,556) (6,773)
- -------------------------------------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings 11 (965) (262,623) (50)
Cash impact of revisions to fair values (2,284) - -
Payment to acquire minority interests in a subsidiary
undertaking 11 (1,720) - -
Net cash acquired with subsidiary undertakings (33) 11,907 -
Purchase of share in joint venture (1,086) (610) -
Expenses in connection with purchase of subsidiary
undertakings (471) (3,857) -
Proceeds of sale of investments 5 7,123 - -
Payments made in connection with sale of technology - (562) -
- -------------------------------------------------------------------------------------------------------------
564 (255,745) (50)
- -------------------------------------------------------------------------------------------------------------
CASH INFLOW/(OUTFLOW) BEFORE THE USE OF LIQUID
RESOURCES AND FINANCING 500 (257,676) (12,000)
- -------------------------------------------------------------------------------------------------------------
MANAGEMENT OF LIQUID RESOURCES
Cash withdrawn from deposit 26 620 - -
Net receipts from sale of investments
with original maturity date of less than one year - 5,380 15,646
- -------------------------------------------------------------------------------------------------------------
FINANCING
Net proceeds on issue of Ordinary share capital 458 111,302 -
Net proceeds on issue of Senior Credit Facility - 52,836 -
Net proceeds on issue of Senior Subordinated Notes - 102,844 -
Debt due within one year:
- - Repayment of loans (9,551) - -
Expenses on issue of Ordinary share capital - (755) (1,068)
Expenses on raising of Senior Credit Facility and
Senior Subordinated Notes (29) (1,608) -
Repayment of capital element of finance leases (549) (1,491) (1,012)
- -------------------------------------------------------------------------------------------------------------
(9,671) 263,128 (2,080)
- -------------------------------------------------------------------------------------------------------------
(DECREASE)/INCREASE IN CASH (8,551) 10,832 1,566
- -------------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
(DEBT)/FUNDS
(Decrease)/increase in cash in the period (8,551) 10,832 1,566
Cash used to decrease lease financing 549 1,491 1,012
Cash acquired from issue of debt (net of expenses) 29 (154,072) -
Cash used to repay loans 9,551 - -
Decrease in liquid resources and cash deposits
with original maturity dates of more than one year (620) (5,380) (15,646)
- -------------------------------------------------------------------------------------------------------------
Change in net (debt)/funds from cash flows 958 (147,129) (13,068)
Other non-cash changes (946) (119) -
New finance leases - (122) (464)
Effect of foreign exchange rate changes 1,695 (4,422) 85
- -------------------------------------------------------------------------------------------------------------
Movement in net (debt)/funds in period 1,707 (151,792) (13,447)
Net (debt)/funds at beginning of period (145,904) 5,888 19,335
- -------------------------------------------------------------------------------------------------------------
Net (debt)/funds at end of period 27 (144,197) (145,904) 5,888
- -------------------------------------------------------------------------------------------------------------
The notes on pages 40 - 80 form part of these financial statements.
======================================
PAGE 40
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
The financial statements have been prepared under the historical cost
convention and in accordance with accounting standards applicable in the
United Kingdom. There are significant differences between generally
accepted accounting principles (GAAP) in the United Kingdom (UK) and the
United States (US). A summary of these differences together with the
reconciliation of net profit/(loss) and shareholders' equity from UK GAAP
to US GAAP is provided in note 29 to these financial statements. Certain
additional disclosures have been made to aid US readers of the financial
statements. The following principal accounting policies have been applied:
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
GROUP ACCOUNTS
The consolidated financial statements incorporate the financial statements
of the Company and its subsidiaries. All intercompany transactions and
balances have been eliminated. The accounts include the results of
subsidiaries acquired during the year from the relevant date of acquisition
other than those subsidiaries acquired with a view to resale.
GOODWILL
Prior to 1 January 1998, goodwill arising as the difference between the
cost of acquisition of a subsidiary and the fair value of its net assets at
the date of acquisition was written off to reserves in the year of
acquisition. Goodwill arising on acquisitions since 1 January 1998 is
capitalised and subsequently written off over its estimated useful life,
which currently ranges from 10 - 20 years. Where necessary, adjustments to
provisional fair values of net assets acquired are adjusted to goodwill in
the first full year following the acquisition.
TURNOVER AND REVENUE RECOGNITION
Turnover represents database subscription sales, online and usage charges
and design and implementation fees at invoiced amounts, exclusive of value
added and other sales taxes. Subscription revenues are recognised when
contractually due and invoiced. The costs of fulfilling obligations under
the terms of the subscription contract are accrued at the time the income
is recognised. Online and usage charges are recognised as the service is
provided.
Most subscriptions are due and invoiced either annually or semi-annually in
advance and recognised in full at the commencement of the subscription
term. Some of the Group's US operations bill monthly under its "modular
pricing" scheme, whereby subscriptions for access to the Group's service
are raised on a monthly basis and are accounted for accordingly.
Annual CD-ROM usage fees are deferred and amortised over the life of the
contract.
FIXED ASSETS
Fixed assets are stated at cost. Depreciation is provided to write off the
cost, less estimated residual value, of all tangible fixed assets over
their expected useful lives and is calculated at the following rates:
Equipment including personal computers - 33% straight line
Leasehold improvements - 20% straight line
Motor vehicles - 25% straight line
Mainframe computers - 20% straight line
Fixtures and fittings - 20% straight line
Leasehold improvements relate to the cost of refurbishment of the Group's
short leasehold properties.
STOCKS
Stocks, which comprise consumable items, are stated at the lower of cost
and net realisable value.
===============================
PAGE 41
NOTES TO THE FINANCIAL STATEMENTS (continued)
1 ACCOUNTING POLICIES (continued)
FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded at the exchange
rate prevailing at the date of the transaction. Transactions to be settled
at a contract rate are recorded at that rate. Any gains or losses from the
translation of transactions denominated in foreign currencies are included
in the results of the operation. Assets and liabilities denominated in
foreign currencies are translated at the exchange rate ruling at the
year-end. Profit and losses of overseas companies are translated at average
rates of exchange for the period. Exchange differences arising out of the
translation of accounts of foreign subsidiaries, net of associated
borrowings, are taken to reserves.
FINANCIAL INSTRUMENTS
Changes in the value of forward foreign exchange contracts are recognised
in the results in the same period as changes in the values of the assets
and liabilities they are intended to hedge. Any interest receipts arising
from the interest rate cap would be matched to those arising from the
underlying debt position.
INTANGIBLE FIXED ASSETS
Intangible fixed assets comprise both system and product development costs.
System development comprises costs associated with the Group's host
computer systems and databases, and includes software licence fees and
installation costs. These costs are amortised on a straight line basis over
five years in line with the depreciation policy for the computer hardware
used to host The Dialog Corporation's services.
Product development consists of the pre-launch costs associated with the
development of new products. These include the costs of consultancy,
programmers' salaries and related overheads including depreciation and
lease interest on computer hardware wholly used for product development.
These costs are amortised on a straight line basis over three years
commencing in the first month of revenue generation from the developed
product.
Product development costs are reviewed regularly for impairment and
additional depreciation is charged, if necessary, to reduce the net amount
carried forward on a product by product basis to net revenues expected to
be generated from that product.
INDEXING COSTS
The cost of indexing information on the databases is deferred and amortised
on a straight line basis over two years.
FIXED ASSET INVESTMENTS
Investments in subsidiaries and other fixed asset investments are stated in
the balance sheet at cost. Provision is made in full for diminution in
value if considered permanent.
DEFERRED TAXATION
Provision is made for timing differences between the treatment of certain
items for taxation and accounting purposes, to the extent that it is
probable that a liability or asset will crystallise.
LEASED ASSETS
Where assets are financed by leasing agreements that give rights
approximating to ownership ('finance leases'), the assets are treated as if
they had been purchased outright. The amount capitalised is the present
value of the minimum lease payments payable over the term of the lease. The
corresponding leasing commitments are shown as amounts payable to the
lessor. Depreciation on the relevant assets is charged to the profit and
loss account except for that proportion relating to assets wholly used for
product development.
Lease payments are analysed between capital and interest using the
actuarial method. The interest is charged to the profit and loss account
except for that proportion relating to assets wholly used for product
development. The capital part reduces the amounts payable to the lessor.
All other leases are treated as operating leases. Their annual rentals are
charged to the profit and loss account on a straight line basis over the
lease term except where the costs are capitalised as development costs.
===========================
PAGE 42
NOTES TO THE FINANCIAL STATEMENTS (continued)
1 ACCOUNTING POLICIES (continued)
PENSION COSTS
The Group operates defined contribution pension schemes in the UK, US and
Switzerland. The amount of contributions payable to the pension schemes are
charged to the profit and loss account as incurred.
FINANCE COSTS
Borrowings are stated net of the associated costs of raising the finance.
Such finance costs are charged to the profit and loss account over the term
of the related borrowing, increasing the outstanding borrowing to the
amount of the debt at the maturity date.
CONTENT PROVIDER AGREEMENTS
Certain of the Group's information provider agreements contain provisions
for either fixed fees or minimum royalty payments irrespective of the usage
revenues generated by the Group. The Group recognises these fixed fees or
minimum royalty payments on a pro-rata basis in accordance with the terms
of the contracts. The Group periodically reviews the projected revenues
related to these arrangements and makes provision if fixed fees or minimum
royalty commitments are not expected to be recovered from the related
revenues.
CONCENTRATION OF CREDIT RISK
The Group's policy is to place its cash, cash equivalents and investments
with high-quality financial institutions in order to limit the amount of
credit exposure. The Group performs ongoing evaluations of its customers'
financial condition and maintains reserves for potential credit losses, and
such losses, in the aggregate, have not exceeded management expectations.
Financial instruments which expose the Group to credit risk are cash
equivalents, investments and trade accounts receivable, which generally are
not collateralised.
2 SEGMENTAL ANALYSIS
On 2 February 1999, the Company announced the creation of three new
operating divisions: the Information Services Division which provides an
indexed online delivery system sourced principally in the United Kingdom
and North America; the Web Solutions and Internet Software Division which
licenses the Group's search technologies for corporate knowledge management
solutions; and the eCommerce Division. Although these new divisions are not
reportable segments, the analysis of Group turnover has been revised
accordingly.
1998 includes a full year's results of Knight-Ridder Information, Inc.
(KRII) as opposed to the previous year which only shows the results of KRII
from the date of acquisition, being 14 November 1997.
The composition of turnover is analysed as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -------------------------------------------------------------------------
Information Services:
- - Usage sales 136,992 28,040 9,366
- - Subscription sales 10,561 14,092 11,462
- - CD-ROM sales 8,737 1,134 -
- - Other sales 9,021 590 585
- -------------------------------------------------------------------------
165,311 43,856 21,413
Web Solutions and Internet Software 4,010 397 30
eCommerce 77 - -
Other 1,364 1,829 -
- -------------------------------------------------------------------------
170,762 46,082 21,443
- -------------------------------------------------------------------------
The 'other' category relates to royalties earned from the provision of
hotel Internet access.
==================================
PAGE 43
NOTES TO THE FINANCIAL STATEMENTS (continued)
2 SEGMENTAL ANALYSIS (continued)
The composition of turnover by source is analysed as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------
United Kingdom 17,243 29,013 21,443
North America 129,478 14,367 -
Continental Europe 17,231 2,244 -
Rest of the world 6,810 458 -
- -----------------------------------------------------------------------
170,762 46,082 21,443
- -----------------------------------------------------------------------
The composition of turnover by destination is analysed as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------
United Kingdom 38,934 14,026 8,665
North America 96,952 20,377 6,991
Continental Europe 13,819 7,365 3,943
Rest of the world 21,057 4,314 1,844
- -----------------------------------------------------------------------
170,762 46,082 21,443
- -----------------------------------------------------------------------
The composition of operating profit/(loss) is analysed as follows:
Total Total
continuing Restructuring Total continuing Restructuring Total
business costs and continuing business costs and continuing
before other business after before other business after
restructuring exceptional restructuring restructuring exceptional restructuring
costs items costs costs items costs
-------------------------------------------- --------------------------------------------
1998 1997 1996
-------------------------------------------- --------------------------------------------
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------------------------------------
United Kingdom 8,498 (2,689) 5,809 (5,599) (5,983) (11,582) (4,850)
North America 15,444 (2,781) 12,663 (375) (10,107) (10,482) (3,900)
Continental Europe 921 587 1,508 2,288 (2,429) (141) 826
Rest of the world 746 - 746 (71) (31) (102) 52
- --------------------------------------------------------------------------------------------------------------------------------
25,609 (4,883) 20,726 (3,757) (18,550) (22,307) (7,872)
- --------------------------------------------------------------------------------------------------------------------------------
The operating profit/(loss) for the United Kingdom for the periods under
review includes the central costs associated with the Group's worldwide
head office functions.
======================================
PAGE 44
NOTES TO THE FINANCIAL STATEMENTS (continued)
2 SEGMENTAL ANALYSIS (continued)
The composition of net assets and total assets by location is presented on
a basis consistent with the segmental analysis of operating profit/(loss).
The assets in any location are not necessarily matched with the turnover in
that location. The net assets and total assets for the United Kingdom for
the periods under review include those associated with the Group's
worldwide head office functions.
The composition of net (liabilities)/assets is analysed as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------
United Kingdom 13,003 20,387 15,153
North America 37,720 38,403 2,909
Continental Europe 2,481 3,293 1,395
Rest of the world 1,514 5,807 623
- ------------------------------------------------------------------------
Net operating assets 54,718 67,890 20,080
Unallocated net (liabilities)/assets (148,459) (158,845) 6,000
- ------------------------------------------------------------------------
(93,741) (90,955) 26,080
- ------------------------------------------------------------------------
Unallocated net (liabilities)/assets comprise borrowings and cash deposits.
The composition of total assets is analysed as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------
United Kingdom 28,382 28,287 21,280
North America 66,546 78,325 3,770
Continental Europe 7,771 10,376 1,937
Rest of the world 6,843 7,522 718
- ------------------------------------------------------------------------
Net operating assets 109,542 124,510 27,705
Unallocated assets - - 6,000
- ------------------------------------------------------------------------
109,542 124,510 33,705
- ------------------------------------------------------------------------
Unallocated assets comprise cash deposits.
3 STAFF NUMBER AND COSTS
Staff costs (including Directors) consist of:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------
Wages and salaries 32,529 14,336 10,603
Social security costs 2,997 1,440 1,204
Other pension costs 910 51 -
- ------------------------------------------------------------------------
36,436 15,827 11,807
- ------------------------------------------------------------------------
Included above are staff costs of (pound)9,260,000 (1997: (pound)1,413,000;
1996: (pound)1,871,000) which represent costs of product and systems
development and have been treated in accordance with the accounting policy
for intangible fixed assets as set out in note 1 to these financial
statements.
PENSION ARRANGEMENTS
The Group operates defined contribution pension schemes in the UK, the US
and Switzerland. The pension cost charge represents contributions payable
by the Group to the funds and amounted to (pound)910,000 (1997:
(pound)51,000; 1996: (pound)nil).
The assets of all the schemes are held by independent custodians and kept
entirely separate from the assets of the Group.
=================================
PAGE 45
NOTES TO THE FINANCIAL STATEMENTS (continued)
3 STAFF NUMBER AND COSTS (continued)
The average number of full-time employees during the year was:
1998 1997 1996
- ------------------------------------------------------------------------
United Kingdon 275 217 228
North America 573 289 147
Continental Europe 99 43 26
Rest of the world 78 43 10
- ------------------------------------------------------------------------
1,025 592 411
- ------------------------------------------------------------------------
4 OPERATING PROFIT/(LOSS)
This is arrived at after charging/(crediting):
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------
Hire of plant and machinery - operating leases - 560 38
Hire of other assets - operating leases 5,160 1,272 1,048
Depreciation:
- - on owned assets 7,069 4,378 1,323
- - on leased assets 893 516 484
Amortisation/write-off
- - of development costs 7,699 11,548 2,170
- - of goodwill 61 - -
Auditors' remuneration:
- - PricewaterhouseCoopers 229 197 75
- - other 28 78 -
(Gain)/loss on foreign currency translations (290) (60) 26
Loss/(profit) on disposal of fixed assets 17 (15) (2)
Net costs arising on reorganisation of Group's
agency arrangements - 267 -
Write-off of fixed asset investment
(see notes 5 and 13) 2,300 - -
- ------------------------------------------------------------------------------------
The auditors' remuneration includes amounts in respect of the parent
company for the year ended 31 December 1998 of (pound)100,000
(1997: (pound)100,000; 1996: (pound)41,000).
Additional fees paid to PricewaterhouseCoopers (formerly Price Waterhouse)
for non-audit services amounted to (pound)8,000 in 1998 (1997:
(pound)1,433,000; 1996: (pound)nil). The fees paid in 1997 were in respect
of the Company's acquisition of KRII in November 1997 and the associated
financing.
Of the exceptional item of (pound)267,000, which was charged against
operating profit in 1997, (pound)383,000 related to the cost of purchasing
the Company's South African agency, offset by a gain of (pound)116,000 on
the assignment of the Group's former Japanese agency to Fujitsu.
The (loss)/profit for the year attributable to shareholders, dealt with in
the accounts of The Dialog Corporation plc, is:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------
(9,016) 4,120 (7,197)
- -----------------------------------------------------------------------
As permitted by Section 230 of the Companies Act 1985, the profit and loss
account of the company is not presented.
==========================
PAGE 46
NOTES TO THE FINANCIAL STATEMENTS (continued)
5 RESTRUCTURING COSTS AND OTHER EXCEPTIONAL ITEMS
Exceptional restructuring costs of (pound)2.6 million have been charged as
a result of the continuing integration of KRII. These costs consist of
(pound)1.8 million relating to the relocation of the US headquarters,
(pound)1.6 million relating to the termination of property leases and
(pound)0.9 million of various other restructuring charges, relating
primarily to the integration of the sales force and one-off customer
hostings. These costs have been offset by a write-back of (pound)1.2
million relating to data centre convergence costs and (pound)0.5 million
relating to the removal of the Knight-Ridder Information name.
An exceptional write-down of (pound)2.3 million has been charged to the
profit and loss account relating to the Company's investment in Fourth
Network Communications, Inc. (4th Network). The write-down, equivalent to
50% of the carrying value of the Company's investment, arose following the
postponement of an initial public offering, originally scheduled for 1998,
and the failure of 4th Network to raise significant alternative funds. The
Company continues to monitor closely the carrying value of its investment
in 4th Network.
On 6 May 1998, the Group disposed of its investment in NewsEdge
Corporation, an online service provider, for net proceeds of (pound)3.9
million. This resulted in a book profit on the disposal of (pound)1.0
million.
On 13 May 1998, the Company disposed of its investment in Easynet Group
plc, an Internet and telecommunications company, for net proceeds, after
associated expenses, of (pound)3.2 million. This resulted in a book profit
on the disposal of (pound)1.1 million.
On 24 February 1997, the Company sold its hotel Internet access technology
(and existing hotel contracts) to 4th Network and became their agent in
Europe. In consideration the Company received 500,000 shares in 4th Network
with an aggregate value of (pound)4,597,000. The costs associated with the
transfer were (pound)562,000. There was no effect on the Group's tax charge
as a result of this exceptional gain.
During the year ended 31 December 1997, exceptional restructuring costs of
(pound)18.6 million were charged as a result of the integration of KRII.
Distribution costs of (pound)1.3 million related to the removal of the
Knight-Ridder Information name and logo from all printed materials,
products and signage. Administrative expenses of (pound)9.3 million
consisted of (pound)5.3 million relating to data centre integration costs,
(pound)2.2 million relating to the termination of property leases,
(pound)1.5 million relating to severance costs and (pound)0.3 million
relating to various other restructuring charges. Amortisation of (pound)8.0
million related to the write-off of previously capitalised product
development costs where these products were no longer being pursued by the
enlarged Group.
6 INTEREST PAYABLE AND SIMILAR CHARGES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ----------------------------------------------------------------------------
Bank loans and overdrafts:
- - on Senior Subordinated Notes 12,013 1,701 -
- - on Senior Credit Facility 4,399 659 -
- - amortisation of debt fees 946 - -
- - on bank overdrafts 33 26 3
- ----------------------------------------------------------------------------
17,391 2,386 3
Finance leases 45 118 198
- ----------------------------------------------------------------------------
17,436 2,504 201
Less: Lease finance costs capitalised - (6) (12)
- ----------------------------------------------------------------------------
17,436 2,498 189
- ----------------------------------------------------------------------------
===========================
PAGE 47
NOTES TO THE FINANCIAL STATEMENTS (continued)
7 DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------
Aggregate emoluments 1,326 773 650
Amounts paid to third parties 51 38 38
Amounts paid to former Directors 50 167 57
Contributions to money purchase pension schemes 12 - -
- ------------------------------------------------------------------------------------
1,439 978 745
- ------------------------------------------------------------------------------------
Details of the full cost of each Director's remuneration package for the
year ended 31 December 1998 are as follows:
Pension 1998 1997 1996
Fees Salary Benefits contributions Bonus Total Total Total
(pound) (pound) (pound) (pound) (pound) (pound) (pound) (pound)
- -------------------------------------------------------------------------------------------------------------------------
M Mander (Chairman) 51,250 - - - - 51,250 37,500 37,500
D Wagner - 165,250 2,828 - - 168,078 199,510 138,916
P Sommers (from 8 October 1998) - 39,677 - - - 39,677 - -
D Mattey - 141,586 2,794 - - 144,380 167,062 115,880
J Molle - 125,200 - 3,314 - 128,514 39,788 -
S Maller - 98,625 216 - - 98,841 82,236 68,413
C Morton - 114,000 10,880 - - 124,880 37,853 -
A Thomas 20,000 - - - - 20,000 3,750 -
I Barton 20,000 - - - - 20,000 15,000 15,000
M Hussey 20,000 - - - - 20,000 15,000 10,000
D Smith* - 125,000 14,801 3,600 - 143,401 161,858 78,209
J Galt (to 26 June 1998) - 129,613 - 3,010 110,853 243,476 35,920 -
M Shipley (to 30 June 1998) - 91,606 - 2,131 62,130 155,867 15,324 -
G Burrows (from 8 October 1998)* - 30,894 - - - 30,894 - -
- -------------------------------------------------------------------------------------------------------------------------
111,250 1,061,451 31,519 12,055 172,983 1,389,258 810,801 463,918
- -------------------------------------------------------------------------------------------------------------------------
* Derek Smith and Graham Burrows resigned on 2 February 1999.
Fees for non-executive Directors were set by the executive Directors
following consultation with the Company's advisors.
Benefits include P11D benefits (non-cash compensation) for the UK
Directors, as detailed in the Remuneration Committee Report.
Each of the executive Directors have service agreements with the Company
for continuing employment unless and until terminated by either party by
giving not less than twelve months' notice, except Patrick Sommers who was
appointed in 1998 with an initial three year service agreement with notice
reduced to twelve months in the third year of the agreement.
The amounts disclosed as fees paid to the Chairman were paid to Close
Brothers Corporate Finance Ltd, his primary employer.
Thomas Teichman, who resigned as an executive Director on 24 May 1996, was
paid (pound)50,000 during the year under a consultancy agreement which
terminated on 31 December 1998. His fees were paid to NewMedia Investors
Ltd.
============================
PAGE 48
NOTES TO THE FINANCIAL STATEMENTS (continued)
7 DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES (continued)
The Directors who have served during the year and their interests in the
Ordinary share capital and options on shares of the Company were:
INTERESTS IN ORDINARY SHARES
1 January 98* Acquired Disposals 31 December 1998+
- -----------------------------------------------------------------------------
M Mander 900,327 - - 900,327
D Wagner 17,034,780 400,000 - 17,434,780
P Sommers 8,000 - - 8,000
D Mattey 2,335,200 - - 2,335,200
J Molle 135,116 - - 135,116
S Maller 25,441 - - 25,441
C Morton 222,001 - (20,000) 202,001
A Thomas 100,000 - - 100,000
I Barton 479,139 - - 479,139
M Hussey 242,610 - - 242,610
D Smith 550,000 - - 550,000
J Galt - - - -
M Shipley - 2,000 - 2,000
G Burrows - - - -
- -----------------------------------------------------------------------------
Total 22,032,614 402,000 (20,000) 22,414,614
- -----------------------------------------------------------------------------
* or date of appointment if later
+ or date of resignation if earlier
Patrick Sommers holds 2,000 American Depositary Shares (ADSs) and the
Ordinary share equivalent is shown above.
On 14 January 1998, Marck Shipley purchased 2,000 Ordinary shares.
On 6 August 1998, Daniel Wagner acquired a beneficial interest in a further
400,000 Ordinary shares.
On 28 September 1998, Ciaran Morton disposed of 20,000 Ordinary shares.
With respect to those Directors in office at 31 December 1998, all of their
interests in the Ordinary shares of the Company are beneficial.
There have been no movements in the interests of the Directors in the
Ordinary share capital of the Company since 31 December 1998 through to the
date of the Annual Report.
===========================
PAGE 49
NOTES TO THE FINANCIAL STATEMENTS (continued)
7 DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES (continued)
Options over Ordinary shares
At At Date from
1 January Granted 31 December Exercise which Expiry
Scheme 1998* 1998+ price exercisable date
- ---------------------------------------------------------------------------------------------------------------
D Wagner Executive Scheme 163,636 - 163,636 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 - 19,602 88p 01/05/99 31/10/99
Unapproved Scheme - 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme - 130,000 130,000 150p 08/10/01 08/10/05
P Sommers US Stock Option Plan** - 200,000 200,000 150p 08/10/99 08/10/08
D Mattey Executive Scheme 122,727 - 122,727 110p 24/03/97 24/03/04
Sharesave Scheme 19,602 - 19,602 88p 01/05/99 31/10/99
Unapproved Scheme - 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme - 120,000 120,000 150p 08/10/01 08/10/05
J Molle Unapproved Scheme 54,545 - 54,545 110p 24/03/97 24/03/01
Unapproved Scheme 17,500 - 17,500 248p 04/10/98 04/10/02
Unapproved Scheme 30,000 - 30,000 188.5p 14/03/00 14/03/04
US Stock Option Plan** - 30,000 30,000 173p 30/04/99 30/04/08
US Stock Option Plan** - 120,000 120,000 150p 08/10/99 08/10/08
Employee Stock Purchase Plan*** - 2,196 2,196 130p 31/03/99 31/03/99
S Maller Executive Scheme 62,727 - 62,727 110p 24/03/97 24/03/04
Executive Scheme 20,000 - 20,000 80p 25/04/98 25/04/05
Executive Scheme 17,500 - 17,500 248p 04/10/98 04/10/05
Sharesave Scheme 7,040 - 7,040 49p 01/12/99 31/05/00
Sharesave Scheme 2,156 - 2,156 64p 01/06/00 30/11/00
Sharesave Scheme 308 - 308 224p 01/12/00 31/05/01
Sharesave Scheme 766 - 766 180p 01/06/01 30/11/01
Sharesave Scheme - 569 569 137p 01/07/01 31/12/01
Unapproved Scheme 30,000 - 30,000 188.5p 14/03/00 14/03/04
Unapproved Scheme - 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme - 120,000 120,000 150p 08/10/01 08/10/05
C Morton Executive Scheme 61,364 - 61,364 110p 24/03/97 24/03/04
Unapproved Scheme 17,500 - 17,500 248p 04/10/98 04/10/02
Sharesave Scheme 35,204 - 35,204 49p 01/12/99 31/05/00
Unapproved Scheme 30,000 - 30,000 188.5p 14/03/00 14/03/04
Unapproved Scheme - 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme - 120,000 120,000 150p 08/10/01 08/10/05
D Smith Executive Scheme 15,900 - 15,900 188.5p 14/03/00 14/03/07
Unapproved Scheme 84,100 - 84,100 188.5p 14/03/00 14/03/04
Sharesave Scheme - 7,116 7,116 137p 01/07/01 31/12/01
Unapproved Scheme - 30,000 30,000 173p 30/04/01 30/04/05
Unapproved Scheme - 120,000 120,000 150p 08/10/01 08/10/05
M Shipley US Stock Option Plan** 100,000 - 100,000 220p 14/11/98 14/11/07
US Stock Option Plan** - 30,000 30,000 151p 04/06/99 04/06/08
Employee Stock Purchase Plan*** - 2,312 2,312 130p 31/03/99 31/03/99
G Burrows US Stock Option Plan** 50,000 - 50,000 170p 08/09/99 08/09/08
US Stock Option Plan** - 70,000 70,000 150p 08/10/99 08/10/08
Employee Stock Purchase Plan*** - 3,812 3,812 158p 30/09/00 30/09/00
J Galt US Stock Option Plan** 100,000 - 100,000 220p 14/11/98 14/11/07
- ---------------------------------------------------------------------------------------------------------------
Total 1,062,177 1,226,005 2,288,182
- ---------------------------------------------------------------------------------------------------------------
* or date of appointment if later
+ or date of retirement if earlier
** under the terms of the US Stock Option Plan, options are granted in the
form of ADSs at an exercise price expressed in US Dollars. Options
granted under the US Stock Option Plan become exercisable in cumulative
increments as determined by the Remuneration Committee of the Board of
Directors. For the purpose of uniformity, all options detailed above
are expressed in Ordinary shares and in Pounds Sterling.
*** under the terms of the Employee Stock Purchase Plan, rights are granted
for eligible US employees to acquire beneficial ownership of Ordinary
shares of the Company by purchasing ADSs. The purchase price may not be
less than the lower of 85% of the fair market value of the ADSs on the
offering date or 85% of the fair market value of the ADSs on the
purchase date. The purchase price is accumulated by payroll deductions
over the course of the offering. There are two offerings a year. For
the purpose of uniformity, all rights to purchase ADSs under the
Employee Stock Purchase Plan detailed above are expressed in Ordinary
shares and in Pounds Sterling.
============================
PAGE 50
NOTES TO THE FINANCIAL STATEMENTS (continued)
7 DIRECTORS' EMOLUMENTS AND INTERESTS IN ORDINARY SHARES
(continued)
During April 1999, options were granted to the following Directors:
Date from
Date of Exercise which Expiry
Scheme grant Number price exercisable date
- --------------------------------------------------------------------------------------------
D Wagner Sharesave Scheme 28/04/99 17,045 99p 01/07/04 31/12/04
D Mattey Sharesave Scheme 28/04/99 17,045 99p 01/07/04 31/12/04
S Maller Sharesave Scheme 28/04/99 1,174 99p 01/07/02 31/12/02
- --------------------------------------------------------------------------------------------
The market price of the Company's Ordinary shares on 30 December 1998, the
last trading day in 1998, was 58.0p per share and the range during 1998 was
47.0p to 236.5p per share. Further details of the Company's share option
schemes are set out in note 18 to these financial statements.
None of the Directors has notified the Company of an interest in any other
shares, transactions or arrangements which require disclosure.
8 TAXATION ON PROFIT/(LOSS) ON ORDINARY ACTIVITIES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ---------------------------------------------------------------------------------------
UK corporation tax at 31% (1997: 31.5%; 1996: 33%) - - -
Overseas tax 776 332 102
Deferred tax (credit)/charge (7) (9) 62
- ---------------------------------------------------------------------------------------
Tax charge 769 323 164
- ---------------------------------------------------------------------------------------
The taxation on profit/(loss) on ordinary activities may be reconciled as
follows to the UK statutory rate:
1998 1997 1996
% % %
- ---------------------------------------------------------------------------
UK statutory rate of tax 31 (31) (33)
Disallowed expenditures 14 - 1
Tax deduction in respect of goodwill
written off to reserves (80) - -
Unrecognised tax losses 49 32 34
- ---------------------------------------------------------------------------
Effective rate of tax provided 14 1 2
- ---------------------------------------------------------------------------
==========================
PAGE 51
Notes to the Financial Statements (continued)
9 EARNINGS/(LOSS) PER SHARE
Total Total Total Total
continuing continuing continuing continuing
business before business after business before business after
restructuring restructuring restructuring restructuring
costs costs costs costs
------------------------------- -------------------------------
1998 1997 1996
------------------------------- ------------------------------- ------------
Attributable profit/(loss) ((pound)) 7,253,000 4,439,000 (6,229,000) (20,744,000) (7,226,000)
Weighted average number of
Ordinary shares in issue 150,579,177 150,579,177 101,077,187 101,077,187 92,363,959
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per share (pence) 4.8 2.9 (6.2) (20.5) (7.8)
- ----------------------------------------------------------------------------------------------------------------------------------
Attributable profit/(loss) as above ((pound)) 7,253,000 4,439,000 (6,229,000) (20,744,000) (7,226,000)
Weighted average number of Ordinary
shares in issue as above 150,579,177 150,579,177 101,077,187 101,077,187 92,363,959
Add: shares issuable on conversion of options 384,655 384,655 735,716 735,716 1,759,889
Add: shares issuable on acquisition of subsidiary 1,667,241 1,667,241 - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Adjusted average number of Ordinary shares 152,631,073 152,631,073 101,812,903 101,812,903 94,123,848
- ----------------------------------------------------------------------------------------------------------------------------------
Fully diluted earnings/(loss) per share (pence) 4.8 2.9 (6.1) (20.4) (7.7)
- ----------------------------------------------------------------------------------------------------------------------------------
In view of the significant impact of restructuring costs and other
exceptional items on earnings per share calculated in accordance with
FRS14, additional earnings per share figures have been provided.
======================================
PAGE 52
NOTES TO THE FINANCIAL STATEMENTS (continued)
10 INTANGIBLE FIXED ASSETS
Group Company
(pound)000 (pound)000
- --------------------------------------------------------------------------
COST
At 31 December 1996 11,653 10,707
On acquisition of subsidiary undertakings 20,308 -
Amounts written off (3,312) (2,737)
Exchange adjustments 591 -
Additions 3,964 3,329
- --------------------------------------------------------------------------
At 31 December 1997 33,204 11,299
Transfer from subsidiary undertakings - 1,153
Revisions to fair values and other adjustments (2,377) -
Exchange adjustments (231) -
Additions 11,762 2,396
- --------------------------------------------------------------------------
At 31 December 1998 42,358 14,848
- --------------------------------------------------------------------------
AMORTISATION
At 31 December 1996 3,342 2,799
Exchange adjustments 2 -
Amounts written off (599) (599)
Provision for year 8,835 4,942
- --------------------------------------------------------------------------
At 31 December 1997 11,580 7,142
Transfer from subsidiary undertakings - 779
Exchange adjustments (75) -
Provision for year 7,699 2,277
- --------------------------------------------------------------------------
At 31 December 1998 19,204 10,198
- --------------------------------------------------------------------------
Net book amount
At 31 December 1998 23,154 4,650
- --------------------------------------------------------------------------
At 31 December 1997 21,624 4,157
- --------------------------------------------------------------------------
The net book amounts are analysed as follows:
1998 1998
Group Company
(pound)000 (pound)000
- -----------------------------------------------------------------------
Systems development 5,370 237
Product development 17,784 4,413
- -----------------------------------------------------------------------
23,154 4,650
- -----------------------------------------------------------------------
1997 1997
Group Company
(pound)000 (pound)000
- -----------------------------------------------------------------------
Systems development 279 -
Product development 21,345 4,157
- -----------------------------------------------------------------------
21,624 4,157
- -----------------------------------------------------------------------
Additions to intangible fixed assets in 1998 for the Group principally
comprised product development costs related to Dialog Web, Dialog Select
and Open System Alerts. The product development costs include salaries and
related overhead costs of (pound)10,210,000 (1997: (pound)1,798,000),
consultancy costs, including attributable overheads, of (pound)526,000
(1997: (pound)211,000) and hardware and software costs of (pound)896,000
(1997: (pound)1,955,000) (including depreciation of (pound)nil (1997:
(pound)1,200,000)). Additions to systems development costs in 1998 related
to various database projects.
======================================
PAGE 53
NOTES TO THE FINANCIAL STATEMENTS (continued)
11 GOODWILL
Group
(pound)000
- -----------------------------------------
Cost
At 31 December 1997 -
Additions 7,743
Exchange adjustments (6)
- -----------------------------------------
At 31 December 1998 7,737
- -----------------------------------------
Amortisation
At 31 December 1997 -
Provision for year 61
- -----------------------------------------
At 31 December 1998 61
- -----------------------------------------
Net book amount
At 31 December 1998 7,676
- -----------------------------------------
At 31 December 1997 -
- -----------------------------------------
RESPONSIVE DATABASE SERVICES, INC.
On 6 October 1998, the Group exercised its option to acquire all of the
share capital of Responsive Database Services, Inc. ('RDS') for total cash
consideration of $2.85 million ((pound)1.72 million). The Group has
historically provided all financing for RDS and, accordingly, has
consolidated its results within the Group financial statements. No fair
value adjustments were required. The total consideration paid has been
treated as goodwill arising on the acquisition of a minority interest.
WRITE WORKS
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ('Write Works') for a maximum consideration of (pound)6.0
million to be paid over two years. The consideration has been satisfied
through an initial payment of (pound)1.0 million in cash and approximately
(pound)1.2 million by the issue of 694,025 new Ordinary shares at a price
of (pound)1.66 per share. A further consideration of up to a maximum of
(pound)3.8 million in cash and shares (cash of (pound)2.8 million and
shares with a market value of (pound)1.0 million at the dates the deferred
consideration is payable) will be paid on the achievement of certain
earnings targets over the next two years.
==================================
PAGE 54
NOTES TO THE FINANCIAL STATEMENTS (continued)
11 GOODWILL (continued)
The following table sets out the effect of the acquisition of Write Works
on the consolidated balance sheet :
Fair values
at the date of
acquisition
(pound)000
- --------------------------------------------------------------
Share of net liabilities acquired:
Tangible fixed assets 18
Current assets 127
Creditors (153)
- --------------------------------------------------------------
Net liabilities acquired (8)
- --------------------------------------------------------------
Consideration:
Issue of new Ordinary shares 1,150
Cash paid 965
Expenses 100
New Ordinary shares to be issued (see note 20) 967
Cash to be paid 2,833
- --------------------------------------------------------------
6,015
- --------------------------------------------------------------
Goodwill on acquisition of Write Works 6,023
Goodwill on acquisition of RDS 1,720
- --------------------------------------------------------------
Total goodwill 7,743
- --------------------------------------------------------------
No fair value adjustments were required.
Write Works' results from the start of its financial year (1 January 1998)
through to the date of acquisition and its audited results for the period
from 20 January 1997 (date of incorporation) to 31 December 1997 are as
follows:
(Unaudited) 20 January 1997
1 January to (date of incorporation)
19 November 1998 to 31 December 1997
(pound)000 (pound)000
- ----------------------------------------------------------------------
Turnover 658 144
Cost of sales (503) (121)
- ----------------------------------------------------------------------
Gross profit 155 23
Net operating expenses (196) (73)
- ----------------------------------------------------------------------
Retained loss (41) (50)
- ----------------------------------------------------------------------
There were no recognised gains or losses other than the loss for the period
presented.
======================
PAGE 55
NOTES TO THE FINANCIAL STATEMENTS (continued)
12 TANGIBLE FIXED ASSETS
Group Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------------------------------------
Cost
At 31 December 1996 732 10,423 968 656 12,779
On acquisition of subsidiary undertakings 1,114 12,376 1,917 - 15,407
Exchange adjustments 34 403 73 (5) 505
Additions 301 2,086 138 207 2,732
Disposals - (33) (1) (263) (297)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 2,181 25,255 3,095 595 31,126
Exchange adjustments (12) (97) (28) 3 (134)
Additions 408 5,969 150 14 6,541
Revisions to fair values - (43) - - (43)
Disposals (99) (83) (449) (82) (713)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1998 2,478 31,001 2,768 530 36,777
- ------------------------------------------------------------------------------------------------------------------
Depreciation
At 31 December 1996 168 5,018 410 192 5,788
Exchange adjustments - 12 16 (4) 24
Provided for the year 1,216 4,058 654 166 6,094
Disposals - (10) - (124) (134)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 1,384 9,078 1,080 230 11,772
Exchange adjustments (10) (55) (12) 2 (75)
Provided for the year 436 6,855 532 139 7,962
Revisions to fair values - (267) - - (267)
Disposals (33) (190) (209) (53) (485)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1998 1,777 15,421 1,391 318 18,907
- ------------------------------------------------------------------------------------------------------------------
Net book amount
At 31 December 1998 701 15,580 1,377 212 17,870
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 797 16,177 2,015 365 19,354
- ------------------------------------------------------------------------------------------------------------------
The net book amounts of assets held under finance leases at 31 December
1998 were (pound)857,000 (1997: (pound)1,710,000).
Equipment included assets under finance leases of (pound)5,378,000 and
(pound)5,338,000 at 31 December 1998 and 1997 respectively.
Accumulated depreciation relating to equipment under finance leases
totalled (pound)4,521,000 and (pound)3,628,000 at 31 December 1998
and 1997 respectively. Depreciation of equipment under finance leases is
included in the depreciation expense, unless capitalised
in accordance with the Group's system and product development cost policy
(note 1).
==============================
PAGE 56
NOTES TO THE FINANCIAL STATEMENTS (continued)
12 TANGIBLE FIXED ASSETS (continued)
Group Leasehold Fixtures & Motor
improvements Equipment fittings vehicles Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------------------------------------
Cost
At 31 December 1996 580 2,092 463 568 3,703
Additions 269 546 37 197 1,049
Disposals - (5) - (208) (213)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 849 2,633 500 557 4,539
Transfer from subsidiary undertakings - 6,979 29 - 7,008
Additions 174 653 11 - 838
Disposals - (25) (4) (82) (111)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1998 1,023 10,240 536 475 12,274
- ------------------------------------------------------------------------------------------------------------------
Depreciation
At 31 December 1996 138 1,032 221 168 1,559
Provided for the year 166 665 84 143 1,058
Disposals - (2) - (106) (108)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 304 1,695 305 205 2,509
Transfer from subsidiary undertakings - 4,638 20 - 4,658
Provided for the year 183 1,914 93 129 2,319
Disposals - (1) - (53) (54)
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1998 487 8,246 418 281 9,432
- ------------------------------------------------------------------------------------------------------------------
Net book amount
At 31 December 1998 536 1,994 118 194 2,842
- ------------------------------------------------------------------------------------------------------------------
At 31 December 1997 545 938 195 352 2,030
- ------------------------------------------------------------------------------------------------------------------
The net book amounts of assets held under finance leases at 31 December
1998 were (pound)nil (1997: (pound)nil).
==============================
PAGE 57
Notes to the Financial Statements (continued)
13 FIXED ASSET INVESTMENTS
Group
Investments
(pound)000
- ----------------------------------------------------------
At 31 December 1996 2,135
Additions 5,329
On acquisition of subsidiary undertakings 10,910
- ----------------------------------------------------------
At 31 December 1997 18,374
Amounts written off (note 5) (2,300)
Additions 1,446
Disposals (5,053)
Exchange movements (113)
- ----------------------------------------------------------
At 31 December 1998 12,354
- ----------------------------------------------------------
The amounts written off during the year ended 31 December 1998 related to
the investment in 4th Network (note 5).
The additions during the year ended 31 December 1998 related to the
continued monthly funding of Frost & Sullivan Electronic Distribution LLC,
a 50:50 joint venture with Frost & Sullivan which is registered in the US.
At 31 December 1998, the investment had a book value of (pound)2,178,000.
The Company is committed to provide monthly funding of $200,000 per month
for a further period of six months.
On 6 May 1998, the Group disposed of its investment in NewsEdge
Corporation, an online service provider, for net proceeds, after associated
expenses, of (pound)3.9 million. This resulted in a book profit on the
disposal of (pound)1.0 million.
On 13 May 1998, the Company disposed of its investment in Easynet Group
plc, an Internet and telecommunications company, for net proceeds, after
associated expenses, of (pound)3.2 million. This resulted in a book profit
on the disposal of (pound)1.1 million.
Company
Long term
loans from
Investments Group companies Total
(pound)000 (pound)000 (pound)000
- -------------------------------------------------------------------------------------
At 31 December 1996 2,222 - 2,222
Additions 59,340 220,724 280,064
- -------------------------------------------------------------------------------------
At 31 December 1997 61,562 220,724 282,286
Amounts written off (note 5) (2,300) - (2,300)
Additions 6,015 1,325 7,340
Disposals (2,135) - (2,135)
Disposals to subsidiary undertakings (355) - (355)
- -------------------------------------------------------------------------------------
At 31 December 1998 62,787 222,049 284,836
- -------------------------------------------------------------------------------------
The amounts written off during the year ended 31 December 1998 related to
the investment in 4th Network (note 5).
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ('Write Works') for a maximum of (pound)6.0 million to be
paid over two years (note 11).
The disposals during the year ended 31 December 1998 related to the sale of
the investment in Easynet Group plc.
==============================
PAGE 58
NOTES TO THE FINANCIAL STATEMENTS (continued)
13 FIXED ASSET INVESTMENTS (continued)
The following were principal subsidiary undertakings as at 31 December 1998
and have all been included in the consolidated accounts except where
indicated. Each subsidiary principally does business in the country of its
incorporation/registration and all equity is in the form of Ordinary shares
or their equivalent. Companies that are indented are not directly held by
The Dialog Corporation plc.
Country of
incorporation/ Proportion of Nature of
Company name registration equity held business
- ----------------------------------------------------------------------------------------------------
The Dialog Corporation Asia Pacific Limited Hong Kong 100% 1
InfoDynamics Limited England 100% 2
Dialog MultiMedia Limited England 100% 2
Dotcom Investments BV Netherlands 100% 3
The Dialog Corporation BV Netherlands 100% 1
The Dialog Corporation SA Belgium 100% 1
The Dialog Corporation (Ireland) Limited Ireland 100% 1
Virtual Business Information Limited England 100% 4
Muscat Limited England 70% 5
Muscat Europe BV Netherlands 70% 5
Dialog Holdings Limited England 100% 3
Dialog Information Services S.A.R.L France 100% 1
The Dialog Corporation A/S Denmark 100% 1
M.A.I.D Sweden AB Sweden 100% 1
The Dialog Corporation (Sweden) AB Sweden 100% 1
The Dialog Corporation GmbH Switzerland 100% 1
Dialog Information Services Ltd England 100% 1
The Dialog Corporation Srl Italy 100% 1
The Dialog Corporation GmbH Germany 100% 1
The Dialog Corporation 98 Sociedad Limitada Spain 100% 1
Write Works Limited England 100% 6
The Dialog Corporation* USA 100% 1
CARL Corporation** USA 100% 7
CARL Systems Data Retrieval Inc.** USA 100% 7
The UnCover Company** USA 100% 8
Responsive Database Services, Inc. USA 100% 9
Responsive Database Services Ltd England 100% 9
Infomart/DIALOG Limited Canada 50% 1
Dialog Servicios de Informacion S.A. de C.V. Mexico 100% 1
The Dialog Corporation S.A. de C.V. Mexico 100% 1
Dialog Nova KK Japan 100% 10
KMK DigiTex Company Ltd Japan 52% 10
Dialog Information Services Asia Limited Hong Kong 100% 1
* Incorporated in the State of Delaware.
** These subsidiary undertakings were acquired with KRII as businesses held
for resale. Their operating results have been excluded from the Group's
consolidated profit and loss account.
Key
1 Provision of an indexed online business information service
2 Provision of a database system
3 Holding company
4 Preparation of publishing information
5 Provision of indexing and search technology
6 Provision of eCommerce procurement systems
7 Provision of library systems
8 Sales of reference systems
9 Development and provision of business information
10 Document delivery services
==============================
PAGE 59
NOTES TO THE FINANCIAL STATEMENTS (continued)
14 DEBTORS
Group Company
---------------------- ----------------------
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------
Amounts due within one year
Trade debtors 32,131 34,441 3,039 3,043
Other debtors 1,334 2,033 1,093 863
Prepayments and accrued income 9,316 6,731 3,807 2,046
Amounts owed by subsidiary undertakings - - 32,795 23,187
- -----------------------------------------------------------------------------------------
42,781 43,205 40,734 29,139
Amounts due after one year
Other debtors - 615 - -
- -----------------------------------------------------------------------------------------
42,781 43,820 40,734 29,139
- -----------------------------------------------------------------------------------------
Trade debtors for the Group are stated net of the allowance for doubtful
trade debtor balances, which amounted to (pound)2,974,000 and
(pound)1,872,000 at 31 December 1998 and 1997 respectively.
Included within 'Other debtors' are the deferred indexing costs for both
the Group and Company, which are deferred and amortised on a straight line
basis over two years. The deferred indexing costs for both the Group and
Company amounted to (pound)541,000 and (pound)853,000 at 31 December 1998
and 1997 respectively.
15 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
Group Company
---------------------- ----------------------
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- ---------------------------------------------------------------------------------------------------------------
Bank overdrafts - - 161 -
Senior Credit Facility (see note 16) 13,158 3,039 13,158 3,039
Deferred consideration - purchase of subsidiary (see note 20) 1,437 - 1,437 -
Trade creditors 8,987 14,430 2,447 1,187
Obligations under finance leases 222 491 210 -
Other creditors 4,274 5,318 3,873 3,028
Taxation and social security 1,030 1,396 416 282
Corporation tax 258 161 - -
Accruals and deferred income 29,479 20,366 4,651 1,997
Amounts owed to subsidiary undertakings - - 29,082 7,042
- ---------------------------------------------------------------------------------------------------------------
58,845 45,201 55,435 16,575
- ---------------------------------------------------------------------------------------------------------------
Included within 'Other creditors' for both Group and Company are subscriber
service cost provisions, which amounted to (pound)542,000 and
(pound)662,000 at 31 December 1998 and 1997 respectively.
Accruals and deferred income for the Group, which individually represent in
excess of 5% of current liabilities, consist of the following:
1998 1997
(pound)000 (pound)000
- -----------------------------------------------------------------------
Information provider accruals 10,867 7,934
Deferred revenue 4,495 7,035
Other accrued expenses 14,117 5,397
- -----------------------------------------------------------------------
29,479 20,366
- -----------------------------------------------------------------------
==============================
PAGE 60
NOTES TO THE FINANCIAL STATEMENTS (continued)
16 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Group Company
---------------------- ----------------------
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- ---------------------------------------------------------------------------------------------------------------
$180 million 11% Senior Subordinated Notes due 2007 104,433 105,205 104,433 105,205
Senior Credit Facility 30,868 50,601 30,868 50,601
Accruals 2,256 6,585 - -
Other creditors 776 - - -
Deferred consideration - purchase of subsidiary (see note 20) 1,396 - 1,396 -
Obligations under finance leases 12 290 12 -
- ---------------------------------------------------------------------------------------------------------------
139,741 162,681 136,709 155,806
- ---------------------------------------------------------------------------------------------------------------
The Senior Subordinated Notes are for a term of 10 years and interest is
fixed at 11% throughout the term.
The Senior Credit Facility is repayable over five years and interest is
fixed every three to six months at a rate of 2.25 percentage points over US
Dollar LIBOR. The Company has entered into an interest rate cap agreement
that limits the exposure of 75% of the balance of the Senior Credit
Facility to a maximum US Dollar LIBOR rate of 6.50%.
Repayments on the Senior Subordinated Notes and Senior Credit Facility fall
due as follows:
Group Company
---------------------- ----------------------
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------
Within 1 year 13,158 3,039 13,158 3,039
Within 1 - 2 years 13,158 15,193 13,158 15,193
Within 2 - 5 years 19,736 37,985 19,736 37,985
After 5 years 108,186 109,396 108,186 109,396
- ------------------------------------------------------------------------------
154,238 165,613 154,238 165,613
Less: Unamortised finance costs (5,779) (6,768) (5,779) (6,768)
- ------------------------------------------------------------------------------
148,459 158,845 148,459 158,845
- ------------------------------------------------------------------------------
The Company's obligations with respect to the Senior Credit Facility and
finance leases are secured on the assets of the Company
and certain of its subsidiaries. The Senior Subordinated Notes are
unsecured.
Obligations under finance leases are due as follows:
Group Company
---------------------- ----------------------
1998 1997 1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- -------------------------------------------------------------------
Within 1 year 222 491 210 -
Within1 - 2 years 12 278 12 -
Within 2 - 5 years - 12 - -
- -------------------------------------------------------------------
234 781 222 -
- -------------------------------------------------------------------
==============================
PAGE 61
NOTES TO THE FINANCIAL STATEMENTS (continued)
17 PROVISION FOR LIABILITIES AND CHARGES
Restructuring costs
-----------------------------------------------------------------------------------
Group Removal of Post-
Knight- Termina- acquisition
Data Ridder tion of funding of Relocation
Deferred centre Informa- property non-core of US head-
taxation Severance integration tion name leases businesses Legal quarters Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- ----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1996 142 - - - - - - - 142
On acquisition of
subsidiary
undertaking - - - - - 761 - - 761
Transfer from/(to)
profit and loss
account (9) 1,934 4,473 1,313 917 - - - 8,628
Amounts paid - (1,934) - - - - - - (1,934)
Exchange adjustments (14) - - - - - - - (14)
- ----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1997 119 - 4,473 1,313 917 761 - - 7,583
Reclassification
from creditors - - - - - - 547 - 547
Transfer from/(to)
profit and
loss account (7) - (1,197) (524) 1,589 - - 1,758 1,619
Amounts paid - - (3,254) (418) (1,667) (1,483) (513) (947) (8,282)
Revisions to fair
values - - - - 378 728 2,172 - 3,278
Exchange adjustments 16 - (22) (10) (10) (6) (13) (3) (48)
- ----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 128 - - 361 1,207 - 2,193 808 4,697
- ----------------------------------------------------------------------------------------------------------------------------------
Deferred taxation
1998 1997
------------------------- --------------------------
Potential Provided in Potential Provided in
liability accounts liability accounts
(pound)000 (pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Intangible fixed asset related 1,530 - 2,389 -
Other timing differences 128 128 119 119
- --------------------------------------------------------------------------------------------------
1,658 128 2,508 119
- --------------------------------------------------------------------------------------------------
At 31 December 1998, the Group had (pound)25,300,000 of tax losses carried
forward (1997: (pound)17,699,000), giving rise to an unprovided
potential deferred tax asset of (pound)9,090,000 (1997: (pound)5,575,000).
Company
Deferred taxation
1998 1997
------------------------- ---------------------------
Potential Provided in Potential Provided in
liability accounts liability accounts
(pound)000 (pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Intangible fixed asset related 1,441 - 2,283 -
Other timing differences - - - -
- --------------------------------------------------------------------------------------------------
1,441 - 2,283 -
- --------------------------------------------------------------------------------------------------
At 31 December 1998, the Company had (pound)15,054,000 of tax losses carried
forward (1997: (pound)12,829,000), giving rise to an unprovided
potential deferred tax asset of (pound)4,667,000 (1997: (pound)4,041,000).
==============================
PAGE 62
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL
1998 1997
----------------------- ------------------------
Number (pound)000 Number (pound)000
- ---------------------------------------------------------------------------------------------
Authorised:
Ordinary shares of 1p each 199,827,000 1,998 199,827,000 1,998
- ---------------------------------------------------------------------------------------------
Allotted, called up and fully paid:
Ordinary shares of 1p each 151,467,107 1,514 150,191,853 1,502
- ---------------------------------------------------------------------------------------------
During the three years ended 31 December 1998, the following movements
occurred in the Ordinary shares of the Company:
Shares Shares
Date Number (pound)000 Notes
- ----------------------------------------------------------------------------------------------------------------------
31 December 1995 91,716,810 917
27 March 1996 Acquisition of shares in Easynet Group plc 833,935 8 (i)
21 October 1996 Exercise of share options 47,250 1 (ii)
- ----------------------------------------------------------------------------------------------------------------------
31 December 1996 92,597,995 926
Between 17 January 1997
and 24 November 1997 Exercise of share options 674,367 7 (iii)
13 August 1997 Acquisition of shares in Muscat Ltd 2,105,855 21 (iv)
14 November 1997 UK Placing 54,500,000 545 (v)
23 December 1997 Acquisition of remaining shares in M.A.I.D Denmark A/S 313,636 3 (vi)
- ----------------------------------------------------------------------------------------------------------------------
31 December 1997 150,191,853 1,502
Between 8 February 1998
and 21 August 1998 Exercise of share options 440,837 4 (vii)
Between 11 May 1998
and 17 December 1998 Allotment of shares under the 401(k) Plan 140,392 1 (viii)
18 November 1998 Acquisition of Write Works Ltd 694,025 7 (ix)
- ----------------------------------------------------------------------------------------------------------------------
31 December 1998 151,467,107 1,514
- ----------------------------------------------------------------------------------------------------------------------
(i) On 27 March 1996 the Company acquired 2,132,501 shares in Easynet
Group plc ('Easynet'), one of the UK's leading Internet service
providers, at a price of (pound)1.00 per ordinary share. The
consideration for the acquisition of the shares in Easynet was
satisfied by the issue of 833,935 new Ordinary shares of par value 1p
in the Company which represents an effective price of (pound)2.56 for
each new Ordinary share.
(ii) Exercise of share options
As a consequence of the Company's US headquarters being relocated
from New York to Cary, North Carolina, certain staff were made
redundant and, in accordance with the Company's share option scheme
rules, exercised their share options in 1996. The options were
exercised at prices of (pound)0.81 and (pound)2.48 per share for a
total consideration of (pound)46,000.
(iii) Exercise of share options
At various dates throughout 1997, in accordance with the Company's
share option schemes, a number of full-time employees exercised their
share options. The options were exercised at prices between
(pound)0.64 and (pound)1.80 per share for a total consideration of
(pound)698,000.
==============================
PAGE 63
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
(iv) On 14 August 1997, the Company announced that it had acquired 8,863
shares of the authorised and issued share capital of Muscat Ltd
('Muscat'), a leading UK information retrieval technology vendor. As
a result, the Company now owns approximately 70% of the share capital
in Muscat.
The total consideration for the acquisition of the shares
in Muscat was (pound)5,557,101. This was satisfied by a
(pound)1,282,215 cash payment and the balance of (pound)4,274,886 by
the issue on 13 August 1997 of 2,105,855 new Ordinary shares
(equivalent to an issue price of (pound)2.03 per share).
(v) Under the terms of an agreement dated 1 October 1997, the Company
agreed to acquire all of the share capital of KRII, an online
supplier of business intelligence, for approximately (pound)261
($434) million. The acquisition closed on 14 November 1997 and was
partly financed by a placement of 54.5 million new Ordinary shares at
(pound)2.20 per share.
(vi) On 23 December 1997, the Company announced that it had acquired the
remaining 23% minority interest in its Danish subsidiary from Lars
Thejl and Morten Nicholaisen, Directors of M.A.I.D Denmark A/S. As a
result, the Company now owns 100% of M.A.I.D Denmark A/S
(subsequently renamed Dialog Information Services A/S).
The (pound)443,795 consideration was satisfied by the issue of
313,636 new Ordinary shares at (pound)1.415 per share.
(vii) Exercise of share options
At various dates throughout 1998, in accordance with the Company's
share option schemes, a number of eligible employees exercised their
share options. The options were exercised at prices between
(pound)0.49 and (pound)1.10 per share for a total consideration of
(pound)457,729.
(viii) The Company operates a defined contribution pension scheme in the US
(the 401(k) Investment Savings Plan). At various dates throughout
1998, the Company matched employee contributions to this Plan,
partially with the allotment of new Ordinary shares valued at market
price at the time of issue and subsequently converted into ADSs. A
total of 140,392 Ordinary shares were issued during the year at
prices between (pound)0.56 and (pound)1.84 per share for a combined
market value of (pound)179,936.
(ix) On 19 November 1998, the Company announced that it had acquired 100%
of the share capital of Write Works Ltd. The consideration for the
acquisition was an initial payment of (pound)1 million in cash and
approximately (pound)1.2 million by the issue of 694,025 Dialog
shares, representing a value of (pound)1.66 per share. A further
consideration of up to a maximum of (pound)2.8 million in cash and
(pound)1 million in shares will be paid on the achievement of Write
Works' targets over the next two years.
At 31 December 1998, options have been granted over the Company's Ordinary
shares as follows:
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
- --------------------------------------------------------------------------------------
Executive Scheme 776,317 1.10 24 March 1997 24 March 2004
Executive Scheme 20,000 0.80 25 April 1998 25 April 2005
Executive Scheme 190,500 2.48 4 October 1998 4 October 2005
Executive Scheme 22,000 2.48 19 December 1996 4 October 1999
Executive Scheme 9,000 2.48 30 September 1997 4 October 1999
Executive Scheme 9,000 2.48 2 December 1997 4 October 1999
Executive Scheme 118,880 1.89 14 March 2000 14 March 2007
Executive Scheme 13,600 2.20 14 November 2000 14 November 2007
Executive Scheme 291,900 1.58 9 April 2001 9 April 2008
Executive Scheme 17,647 1.70 8 September 2001 8 September 2008
- --------------------------------------------------------------------------------------
Total 1,468,844
- --------------------------------------------------------------------------------------
==============================
PAGE 64
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
- --------------------------------------------------------------------------------------
Unapproved Scheme 128,863 1.10 24 March 1997 24 March 2001
Unapproved Scheme 117,500 2.48 4 October 1998 4 October 2002
Unapproved Scheme 9,000 2.48 30 November 1997 4 October 1999
Unapproved Scheme 4,500 2.48 7 July 1997 4 October 1999
Unapproved Scheme 9,000 2.48 10 January 1997 4 October 1999
Unapproved Scheme 20,000 2.20 30 November 1997 22 December 1999
Unapproved Scheme 21,834 2.29 2 January 1999 2 January 2003
Unapproved Scheme 15,000 1.75 28 February 1999 28 February 2003
Unapproved Scheme 105,000 2.87 16 August 1999 16 August 2003
Unapproved Scheme 15,000 2.87 7 July 1997 16 August 2000
Unapproved Scheme 468,620 1.89 14 March 2000 14 March 2004
Unapproved Scheme 25,000 1.89 2 December 1997 14 March 2001
Unapproved Scheme 10,000 1.89 30 September 1997 14 March 2001
Unapproved Scheme 7,500 2.00 26 March 2000 26 March 2004
Unapproved Scheme 1,400 2.20 14 November 2000 14 November 2004
Unapproved Scheme 412,600 1.58 9 April 2001 9 April 2005
Unapproved Scheme 150,000 1.73 30 April 2001 30 April 2005
Unapproved Scheme 30,353 1.70 8 September 2001 8 September 2005
Unapproved Scheme 820,000 1.50 8 October 2001 8 October 2005
- --------------------------------------------------------------------------------------
Total 2,371,170
- --------------------------------------------------------------------------------------
Exercisable Earliest Latest
Ordinary price exercisable exercisable
Scheme shares (pound) date date
- --------------------------------------------------------------------------------------
Sharesave Scheme 43,124 0.88 1 May 1999 31 October 1999
Sharesave Scheme 246,424 0.49 1 December 1999 31 May 2000
Sharesave Scheme 99,183 0.64 1 June 2000 30 November 2000
Sharesave Scheme 2,464 2.24 1 December 2000 31 May 2001
Sharesave Scheme 42,928 1.80 1 June 2001 30 November 2001
Sharesave Scheme 10,307 1.74 1 May 2002 31 October 2002
Sharesave Scheme 112,143 1.37 1 July 2001 31 December 2001
Sharesave Scheme 94,276 1.37 1 July 2003 31 December 2003
- --------------------------------------------------------------------------------------
Total 650,849
- --------------------------------------------------------------------------------------
At 31 December 1998, options have been granted over the Company's American
Depositary Shares* as follows:
American Exercisable Earliest Latest
Depositary price exercisable exercisable
Scheme shares $ date date
- ---------------------------------------------------------------------------------------------------------
Employee Stock Purchase Plan 47,317 8.65 31 March 1999 31 March 1999
Employee Stock Purchase Plan 9,486 10.49 10 October 2000 10 October 2000
US Option Plan 190,625 11.00 9 April 1999 ** 9 April 2008
US Option Plan 7,500 11.88 30 April 1999 ** 30 April 2008
US Option Plan 42,250 11.81 8 September 1999 ** 8 September 2008
US Option Plan 127,500 9.90 8 October 1999 ** 8 October 2008
Individual US arrangement 6,250 10.63 12 December 1997 *** 12 December 2007
Individual US arrangement 6,711 14.90 14 November 1998 14 November 2004
Individual US arrangement 4,232 11.81 8 September 1999 8 September 2005
- ---------------------------------------------------------------------------------------------------------
Total 441,871
- ---------------------------------------------------------------------------------------------------------
* One American Depositary Share is equivalent to four Ordinary shares.
** Options become exercisable in stages. After the first year up to one
quarter of the total number of options may be exercised. After every
subsequent month for the next three years an additional 1/48 of the
total number of options may be exercised.
*** Options become exercisable in cumulative monthly increments during the
12 month period following the date of grant.
- ---------------------------------------------------------------------------------------------------------
Total options granted over Ordinary share equivalents 6,258,347
- ---------------------------------------------------------------------------------------------------------
==============================
PAGE 65
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
1994 EXECUTIVE SHARE OPTION SCHEME (THE 'EXECUTIVE SCHEME')
In March 1994, the Company adopted the 1994 Executive Share Option Scheme
('the Executive Scheme'). Formal approval of the Executive Scheme was given
by the Inland Revenue in March 1994. Under the terms of the Executive
Scheme, options to acquire Ordinary shares may be granted at the discretion
of the Remuneration Committee of the Board of Directors to any employee,
including full-time employee Directors. The exercise price is determined at
the date of grant of an option and shall not be less than the higher of the
par value of an Ordinary share and the closing market price of an Ordinary
share on the day preceding the date of grant. Options under the Executive
Scheme generally become exercisable on the third anniversary of the date of
grant and lapse on the tenth anniversary of the date of grant. The number
of options grantable under the Executive Scheme and the aggregate exercise
price of options grantable to any individual is now limited to
(pound)30,000 following the passing of the Finance Act 1996. Transactions
under the Executive Scheme for the three years ended 31 December 1998 were
as follows:
Options outstanding
Exercise Weighted
Number price average
(000s) (pound) (pound)
- --------------------------------------------------------------------------
At 31 December 1995 2,037 0.80 - 2.48 1.41
Granted 20 2.87 - 3.41 3.13
Cancelled (24) 2.48 2.48
- --------------------------------------------------------------------------
At 31 December 1996 2,033 0.80 - 3.41 1.42
Granted 176 1.89 - 2.20 1.93
Cancelled (311) 0.80 - 3.41 2.12
Exercised (424) 0.81 - 1.10 1.00
- --------------------------------------------------------------------------
At 31 December 1997 1,474 0.80 - 3.41 1.45
Granted 334 1.58 - 1.70 1.59
Cancelled (139) 1.10 - 2.87 1.89
Exercised (200) 1.10 1.10
- --------------------------------------------------------------------------
At 31 December 1998 1,469 0.80 - 2.48 1.49
- --------------------------------------------------------------------------
Exercisable at 31 December 1996 306 0.81 - 2.48 1.05
Exercisable at 31 December 1997 1,047 1.10 - 2.48 1.15
Exercisable at 31 December 1998 1,027 0.80 - 2.48 1.40
- --------------------------------------------------------------------------
===============================
PAGE 66
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
1994 UNAPPROVED EXECUTIVE SHARE OPTION SCHEME (THE 'UNAPPROVED SCHEME')
In March 1994, the Company adopted the 1994 Unapproved Executive Share
Option Scheme (the 'Unapproved Scheme'). Under the terms of the Unapproved
Scheme, options to subscribe for Ordinary shares may be granted at the
discretion of the Remuneration Committee of the Board of Directors to any
employee, including full-time employee Directors. The exercise price is
determined at the date of grant of an option and shall not be less than the
higher of the par value of an Ordinary share and the closing market price
of an Ordinary share on the day preceding the date of grant. Options under
the Unapproved Scheme generally become exercisable on the third anniversary
of the date of grant and lapse on the seventh anniversary of the date of
grant. The number of shares over which options may be granted under the
Unapproved Scheme is consistent with institutional investor guidelines in
respect of overall limits applicable to employee share schemes. The number
grantable to any individual is also in line with such limits. Transactions
under the Unapproved Scheme for the three years ended 31 December 1998 were
as follows:
Options outstanding
Exercise Weighted
Number price average
(000s) (pound) (pound)
- ---------------------------------------------------------------------------
At 31 December 1995 985 0.81 - 2.48 1.45
Granted 216 1.75 - 2.87 2.73
Cancelled (163) 0.81 - 2.48 1.58
Exercised (47) 0.81 - 2.48 0.97
- ---------------------------------------------------------------------------
At 31 December 1996 991 1.10 - 2.87 1.74
Granted 741 1.89 - 2.20 1.93
Cancelled (150) 1.89 - 2.87 2.26
Exercised (242) 1.10 1.10
- ---------------------------------------------------------------------------
At 31 December 1997 1,340 1.10 - 2.87 1.90
Granted 1,436 1.50 - 1.73 1.55
Cancelled (209) 1.58 - 2.87 2.13
Exercised (196) 1.10 1.10
- ---------------------------------------------------------------------------
At 31 December 1998 2,371 1.10 - 2.87 1.73
- ---------------------------------------------------------------------------
Exercisable at 31 December 1996 136 1.10 1.10
Exercisable at 31 December 1997 418 1.10 - 2.87 1.36
Exercisable at 31 December 1998 339 1.10 - 2.87 1.89
- ---------------------------------------------------------------------------
===============================
PAGE 67
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
1994 SAVINGS RELATED SHARE OPTION SCHEME (THE 'SHARESAVE SCHEME')
In March 1994, the Company adopted the 1994 Savings Related Share Option
Scheme (the 'Sharesave Scheme') which was subsequently approved by the
Inland Revenue. Under the rules of the scheme, participation is offered to
all UK employees, including full-time employee Directors. All options are
linked to a contractual savings scheme. Participants may save between
(pound)5 and (pound)250 per month over a three or five year period at the
end of which they are granted a tax-free bonus. Participants may withdraw
from the savings contract at any time (although their option will then
lapse) and are not obliged to exercise their options at the date of
maturity. The exercise price is determined at the date of grant of an
option and shall not be less than the higher of the par value of an
Ordinary share and 85% (formerly 80% up until December 1995) of the market
value of an Ordinary share at the date of invitation. Options under the
scheme become exercisable on the bonus date and remain exercisable for a
period of six months. The number of shares over which options may be
granted under the Sharesave Scheme are consistent with institutional
investor guidelines in respect of overall limits applicable to employee
share schemes. The number grantable to any individual is also in line with
such limits. Transactions under the Sharesave Scheme for the three years
ended 31 December 1998 were as follows:
Options outstanding
Exercise Weighted
Number price average
(000s) (pound) (pound)
- ---------------------------------------------------------------------------
At 31 December 1995 790 0.49 - 2.24 0.69
Granted 146 1.80 1.80
Cancelled (112) 0.64 - 2.24 1.64
- ---------------------------------------------------------------------------
At 31 December 1996 824 0.49 - 2.24 0.76
Granted 85 1.74 1.74
Cancelled (272) 0.49 - 2.24 0.79
Exercised (8) 0.64 - 1.80 0.70
- ---------------------------------------------------------------------------
At 31 December 1997 629 0.49 - 2.24 0.88
Granted 224 1.37 1.37
Cancelled (157) 0.49 - 1.80 1.49
Exercised (45) 0.49 - 0.64 0.49
- ---------------------------------------------------------------------------
At 31 December 1998 651 0.49 - 2.24 0.93
- ---------------------------------------------------------------------------
Exercisable at 31 December 1996 8 0.64 - 1.80 0.70
Exercisable at 31 December 1997 74 0.49 - 1.80 0.56
Exercisable at 31 December 1998 - - -
- ---------------------------------------------------------------------------
===============================
PAGE 68
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
1997 US STOCK OPTION PLAN (THE 'US OPTION PLAN')
In November 1997, the Company adopted the 1997 US Stock Option Plan (the
'US Option Plan') which provides for the grant of both incentive and
non-statutory stock options over the Company's American Depositary Shares
(ADSs). Incentive stock options granted under the US Option Plan are
intended to qualify as incentive stock options within the meaning of
Section 422 of the Internal Revenue code of 1986, as amended (the 'Code').
Non-statutory stock options granted under the US Option Plan are intended
not to qualify as incentive stock options under the Code. Under the terms
of the US Option Plan, options to acquire ADSs may be granted by the
Remuneration Committee of the Board of Directors to any US resident
employee, including employee Directors.
The exercise price of incentive stock and non-statutory stock options under
the US Option Plan may not be less than the fair market value of the ADSs
subject to the option on the date of the option grant, and in some cases,
may not be less than 110% of such fair market value. Options granted under
the US Option Plan may become exercisable ('vest') in cumulative increments
as determined by the Remuneration Committee of the Board of Directors and
lapse no later than the tenth anniversary of the date of grant.
The number of shares over which options may be granted under the US Option
Plan is consistent with the institutional investor guidelines in respect of
overall limits applicable to employee share schemes. The number grantable
to any individual is also in line with such limits. Transactions under the
US Option Plan up to 31 December 1998 were as follows:
Options outstanding
Number of Exercise Weighted
ADSs price average
(000s) $ $
- -----------------------------------------------------------------------------
At 31 December 1996 - - -
Granted 63 14.90 14.90
- -----------------------------------------------------------------------------
At 31 December 1997 63 14.90 14.90
Granted 427 9.88 - 11.88 10.75
Cancelled (122) 9.88 - 14.90 12.93
- -----------------------------------------------------------------------------
At 31 December 1998 368 9.90 - 11.88 10.73
- -----------------------------------------------------------------------------
Exercisable at 31 December 1996 - - -
Exercisable at 31 December 1997 - - -
Exercisable at 31 December 1998 - - -
- -----------------------------------------------------------------------------
===============================
PAGE 69
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
1998 US EMPLOYEE STOCK PURCHASE PLAN (THE 'PURCHASE PLAN')
In June 1998 the Company adopted the 1998 US Employee Stock Purchase Plan
(the 'Purchase Plan'), which provides for the grant of rights ('Rights') to
purchase ADSs in the Company. The Rights are intended to qualify as options
issued under 'employee stock purchase plans' as defined in Section 423(b)
of the United States Internal Revenue Code of 1986, as amended (the
'Code'). Participation in the Purchase Plan is offered to all US resident
employees, including full-time employee Directors. The initial offering
began on 17 June 1998 (the 'Offering Date') and will end on 31 March 1999
(the 'Purchase Date'). Thereafter, two year offerings will begin
approximately every six months following the announcement of the interim
and final results. All Rights under an offering are linked to accumulated
payroll deductions over the course of the offering, and participants may
withdraw from the plan at any time during an offering (although their
Rights will then lapse). The purchase price of the ADSs is not less than
the lesser of 85% of the fair market value of the ADSs on either the
Offering Date or the Purchase Date. The purchase price may include any UK
stamp duty reserve tax payable with respect to the issue of the ADSs.
Under US law an individual may not purchase more than $25,000 worth of ADSs
(as determined by the fair market value on the Offering Date). The number
of shares over which the Rights may be granted under the Purchase Plan is
consistent with institutional investor guidelines in respect of overall
limits applicable to employee share schemes. The number grantable to any
individual is also in line with such limits. Transactions under the
Purchase Plan up to 31 December 1998 are as follows:
Options outstanding
Number of Exercise Weighted
ADSs price average
(000s) $ $
- -----------------------------------------------------------------------------
At 31 December 1997 - - -
Granted 66 8.65 - 10.49 8.91
Cancelled (9) 8.65 8.65
- -----------------------------------------------------------------------------
At 31 December 1998 57 8.65 - 10.49 8.96
- -----------------------------------------------------------------------------
Exercisable at 31 December 1997 - - -
Exercisable at 31 December 1998 - - -
- -----------------------------------------------------------------------------
===============================
PAGE 70
NOTES TO THE FINANCIAL STATEMENTS (continued)
18 SHARE CAPITAL (continued)
INDIVIDUAL US ARRANGEMENTS
Options over American Depositary Shares were granted during the year at the
prevailing market value to certain individuals who are non-executive
Directors of The Dialog Corporation, the Company's North American
subsidiary. Transactions under these individual US schemes up to 31
December 1998 were as follows:
Options outstanding
Number of Exercise Weighted
ADSs price average
(000s) $ $
- ----------------------------------------------------------------------------
At 31 December 1996 - - -
Granted 13 10.63 - 14.90 12.84
- ----------------------------------------------------------------------------
At 31 December 1997 13 10.63 - 14.90 12.84
Granted 4 11.81 11.81
- ----------------------------------------------------------------------------
At 31 December 1998 17 10.63 - 14.90 12.59
- ----------------------------------------------------------------------------
Exercisable at 31 December 1996 - - -
Exercisable at 31 December 1997 1 10.63 10.63
Exercisable at 31 December 1998 13 10.63 - 14.90 12.84
- ----------------------------------------------------------------------------
19 SHARE PREMIUM
1998 1997 1996
(pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Balance at 1 January 150,341 35,672 33,517
Premium arising on shares issued on exercise of options 632 691 45
Premium arising on shares issued on placing/flotation
and acquisitions of fixed asset investments 1,155 124,038 2,127
Expenses of share issue - (10,060) (17)
- --------------------------------------------------------------------------------------------------
Balance at 31 December 152,128 150,341 35,672
- --------------------------------------------------------------------------------------------------
20 SHARES TO BE ISSUED
On 19 November 1998, the Company acquired all of the share capital of Write
Works Limited ('Write Works') for a maximum of (pound)6,015,000 to be paid
over two years (see note 11). The consideration has been satisfied through
an initial payment of (pound)965,000 and (pound)1,150,000 by the issue of
694,025 new Ordinary shares.
A further consideration of up to a maximum of (pound)3,800,000 in cash and
shares will be paid on the achievement of certain earnings targets over the
next two years.
(pound)000
- -------------------------------------------------------------------
Total future consideration 3,800
Cash payable within one year (see note 15) (1,437)
Cash payable after more than one year (see note 16) (1,396)
- -------------------------------------------------------------------
Shares to be issued 967
- -------------------------------------------------------------------
===============================
PAGE 71
NOTES TO THE FINANCIAL STATEMENTS (continued)
21 PROFIT AND LOSS ACCOUNT
Group 1998 1997 1996
(pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Balance at 1 January (243,524) (10,561) (2,775)
Profit/(loss) for the financial year 4,439 (20,744) (7,226)
Effect of exchange rate movements on net investment
in foreign subsidiaries net of associated borrowings (1,586) (2,015) (477)
Goodwill written off (11,022) (209,120) (83)
Effect of exchange rate movements on goodwill written off 2,266 (1,084) -
- --------------------------------------------------------------------------------------------------
Balance at 31 December (249,427) (243,524) (10,561)
- --------------------------------------------------------------------------------------------------
Cumulative goodwill written off at 31 December 1998 amounted to
(pound)219,361,000, comprising balances denominated in US Dollars of
$355,429,000 and balances denominated in Pounds Sterling of
(pound)5,737,000 (1997: (pound)210,605,000, comprising balances denominated
in US Dollars of $337,091,000 and balances denominated in Pounds Sterling
of (pound)5,737,000; 1996: (pound)401,000 all denominated in Pounds
Sterling).
Company 1998 1997 1996
(pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Balance at 1 January (6,400) (10,520) (3,323)
(Loss)/profit for the financial year (9,016) 4,120 (7,197)
Effect of exchange rate movements on net debt 1,752 - -
- --------------------------------------------------------------------------------------------------
Balance at 31 December (13,664) (6,400) (10,520)
- --------------------------------------------------------------------------------------------------
22 RECONCILIATION OF MOVEMENT IN ORDINARY SHAREHOLDERS' FUNDS
Group 1998 1997 1996
(pound)000 (pound)000 (pound)000
- -------------------------------------------------------------------------------------------------------
Profit/(loss) for the financial year 4,439 (20,744) (7,226)
Other recognised gains and losses relating to the year (net) 680 (3,099) (477)
New share capital subscribed for cash 637 120,586 46
New share capital subscribed on acquisition of subsidiaries
and other fixed asset investments 1,162 4,719 2,135
Expenses of share issue - (10,060) (17)
Shares to be issued 967 - -
Goodwill written off (11,022) (209,120) (83)
- -------------------------------------------------------------------------------------------------------
Net movement in Ordinary shareholders' funds (3,137) (117,718) (5,622)
- -------------------------------------------------------------------------------------------------------
Ordinary shareholders' funds at 1 January (91,681) 26,037 31,659
- -------------------------------------------------------------------------------------------------------
Ordinary shareholders' funds at 31 December (94,818) (91,681) 26,037
- -------------------------------------------------------------------------------------------------------
During the year ended 31 December 1998, the Company made certain revisions
to the fair value of assets and liabilities consolidated upon the
acquisition of KRII. These revisions consisted primarily of the following:
(pound)000
- -------------------------------------------------------------------------------------
Decrease in estimated sales proceeds of assets held for resale (6,392)
Write-off of capitalised product development costs (2,042)
Release of provision for guaranteed funding commitments 3,133
Provision for litigation (2,172)
Additional funding of non-core business through to date of disposal (728)
Provision for onerous contracts (902)
Write-off of obsolete fixed asset (481)
Adjustment to deferred consideration (382)
Other (1,056)
- -------------------------------------------------------------------------------------
(11,022)
- -------------------------------------------------------------------------------------
===============================
PAGE 72
NOTES TO THE FINANCIAL STATEMENTS (continued)
22 RECONCILIATION OF MOVEMENT IN ORDINARY SHAREHOLDERS' FUNDS (continued)
Company 1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------------------------
(Loss)/profit for the financial year (9,016) 4,120 (7,197)
New share capital subscribed for cash 637 120,586 46
New share capital subscribed on acquisition of subsidiaries
and other fixed asset investments 1,162 4,719 2,135
Expenses of share issue - (10,060) (17)
Effect of exchange rate movements on net debt 1,752 - -
Shares to be issued 967 - -
- ------------------------------------------------------------------------------------------------------
Net movement in Ordinary shareholders' funds (4,498) 119,365 (5,033)
- ------------------------------------------------------------------------------------------------------
Shareholders' funds at 1 January 145,443 26,078 31,111
- ------------------------------------------------------------------------------------------------------
Shareholders' funds at 31 December 140,945 145,443 26,078
- ------------------------------------------------------------------------------------------------------
23 MINORITY EQUITY INTERESTS
1998 1997
(pound)000 (pound)000
- ------------------------------------------------------------------------
Balance at 1 January 726 43
Profit/(loss) attributed to the minorities 356 (11)
Exchange adjustments (5) (32)
Arising from acquisitions during the year - 726
- ------------------------------------------------------------------------
Balance at 31 December 1,077 726
- ------------------------------------------------------------------------
===============================
PAGE 73
NOTES TO THE FINANCIAL STATEMENTS (continued)
24 COMMITMENTS UNDER OPERATING LEASES AND FINANCE LEASES
As at 31 December 1998, the Group had annual commitments under
non-cancellable operating leases as set out below:
1998 1997
--------------------- ---------------------
Land and Land and
buildings Other buildings Other
(pound)000 (pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------
Operating leases which expire:
Within 1 year 1,138 220 360 22
In 2 - 5 years 1,548 15 3,778 22
After 5 years 1,694 - 1,640 -
- ------------------------------------------------------------------------------
4,380 235 5,778 44
- ------------------------------------------------------------------------------
The Group leases offices and operating facilities and certain equipment
under a variety of operating and finance leases that expire at various
dates through to 2008. Future minimum lease payments under operating and
finance leases with initial or remaining non-cancellable terms of one or
more years are as follows as at 31 December 1998:
Operating Finance
leases leases
Year ending 31 December (pound)000 (pound)000
- -------------------------------------------------------------------
1999 4,615 230
2000 4,808 12
2001 4,767 -
2002 4,094 -
2003 3,976 -
2004 - 2008 6,932 -
- -------------------------------------------------------------------
Total minimum lease payments 29,192 242
Less: amount representing interest - (8)
- -------------------------------------------------------------------
Net minimum lease payments 29,192 234
- -------------------------------------------------------------------
Rent expense under operating leases was (pound)5,160,000 (see note 4),
(pound)1,246,000, (pound)1,048,000 for the years ended 31 December 1998,
1997 and 1996 respectively.
25 RECONCILIATION OF OPERATING PROFIT/(LOSS) TO NET CASH INFLOW/(OUTFLOW)
FROM OPERATING ACTIVITIES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------
Operating profit/(loss) 23,026 (22,307) (7,872)
Less: Restructuring costs (see note 5) 2,583 18,550 -
- -----------------------------------------------------------------------------------------------
Operating profit/(loss) before restructuring costs 25,609 (3,757) (7,872)
Depreciation charges 7,962 2,877 1,807
Amortisation of development costs 7,699 3,558 2,170
Amortisation of goodwill 61 - -
Loss/(profit) on sale of tangible fixed assets 17 (15) (2)
Decrease/(increase) in stocks 11 1 (8)
Increase in debtors (1,077) (1,651) (3,580)
(Decrease)/increase in creditors (13) 4,156 1,618
Exchange variances 786 (60) 26
Cash costs of restructuring (6,904) (1,934) -
- -----------------------------------------------------------------------------------------------
Net cash inflow/(outflow) from operating activities 34,151 3,175 (5,841)
- -----------------------------------------------------------------------------------------------
===============================
PAGE 74
NOTES TO THE FINANCIAL STATEMENTS (continued)
26 MANAGEMENT OF LIQUID RESOURCES
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------
Net withdrawals from/(payments into) short-term deposits
over three months not repayable on demand 620 6,000 (4,500)
Net (payments into)/withdrawals from short-term deposits
under three months not repayable on demand - (620) 20,146
- -----------------------------------------------------------------------------------------------
Net cash inflow from management of liquid resources 620 5,380 15,646
- -----------------------------------------------------------------------------------------------
Movements in all short-term deposits not repayable on demand are reported
under the heading of management of liquid resources.
27 ANALYSIS OF CHANGES IN NET (DEBT)/FUNDS
Cash and Debt due Debt due
Bank bank within one after one Finance
Cash deposits deposits year year lease Total
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------------------------------
At 1 January 1996 607 21,426 22,033 - - (2,698) 19,335
Cash flows 1,566 (15,646) (14,080) - - 1,012 (13,068)
Exchange movements (135) 220 85 - - - 85
Other non-cash changes - - - - - (464) (464)
- -----------------------------------------------------------------------------------------------------------------------
At 1 January 1997 2,038 6,000 8,038 - - (2,150) 5,888
Cash flows 10,832 (5,380) 5,452 (2,831) (151,241) 1,491 (147,129)
Exchange movements 232 - 232 (89) (4,565) - (4,422)
Other non-cash changes - - - (119) - (122) (241)
- -----------------------------------------------------------------------------------------------------------------------
At 1 January 1998 13,102 620 13,722 (3,039) (155,806) (781) (145,904)
Cash flows (8,551) (620) (9,171) 2,770 6,812 547 958
Exchange movements (57) - (57) 81 1,671 - 1,695
Other non-cash changes - - - (44) (902) - (946)
Other movements - - - (14,446) 14,446 - -
- -----------------------------------------------------------------------------------------------------------------------
At 31 December 1998 4,494 - 4,494 (14,678) (133,779) (234) (144,197)
- -----------------------------------------------------------------------------------------------------------------------
Bank deposits have a maturity period of more than 24 hours but are
repayable on demand subject, in some instances, to the payment of certain
expenses.
28 CAPITAL COMMITMENTS
Capital commitments as at 31 December 1998 were as follows:
1998 1997
(pound)000 (pound)000
- ---------------------------------------------------------------------
Authorised and contracted for 139 -
- ---------------------------------------------------------------------
Authorised but not contracted for 344 -
- ---------------------------------------------------------------------
===============================
PAGE 75
NOTES TO THE FINANCIAL STATEMENTS (continued)
29 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP)
ACCOUNTING PRINCIPLES
These consolidated financial statements have been prepared in accordance
with UK GAAP which differs in certain significant respects from US GAAP. A
description of the relevant accounting principles which differ materially
is given below.
TURNOVER
It is the Company's policy to recognise online subscriptions in full when
contractually due and invoiced and to provide in full for the cost of
related service obligations. Under US GAAP, online subscription revenues
are recognised rateably over the subscription term which is usually 12
months. No adjustment is required under US GAAP for the 'modular pricing'
subscriptions since these subscriptions are recognised rateably over the
subscription term.
INTANGIBLE FIXED ASSETS
It is the Company's policy to capitalise costs associated with the
development of the host computer system and product development and
amortise over a period of five and three years, respectively. Under US
GAAP, costs associated with the host computer are expensed as incurred, as
are product development costs incurred to establish technological
feasibility. Statement of Financial Accounting Standards No. 86 requires
that product development costs incurred subsequent to establishing
technological feasibility up until the product's general release are
capitalised; however in the Company's case the period between the
establishment of technical feasibility, as evidenced by a product design
and the completion and testing of a working model, and the product's
release is short and the associated costs insignificant. Consequently,
under US GAAP, no product development costs have been capitalised. Product
development costs capitalised under UK GAAP include interest (note 6) which
would not be capitalisable under US GAAP. These amounts are included in
this adjustment.
INDEXING COSTS
The Company's policy is to defer database indexing costs and amortise these
costs on a straight line basis over two years. Under US GAAP, database
indexing costs are expensed as incurred.
DEFERRED TAXATION
Under UK GAAP, deferred taxes are accounted for to the extent that it is
considered probable that a liability or asset will crystallise in the
foreseeable future. Under US GAAP, deferred taxes are accounted for on all
temporary differences and a valuation allowance is established to reduce
deferred tax assets to the amount which 'more likely than not' will be
realised in future tax returns. Deferred tax amounts also arise as a result
of the other US GAAP adjustments.
===============================
PAGE 76
NOTES TO THE FINANCIAL STATEMENTS (continued)
29 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (continued)
The UK deferred tax liability can be reconciled as follows to the US GAAP
net deferred tax asset:
1998 1997
(pound)000 (pound)000 (pound)000 (pound)000
- ----------------------------------------------------------------------------------------------------------------
UK liability (128) (119)
Liabilities not provided for under UK GAAP (1,530) (2,389)
- ----------------------------------------------------------------------------------------------------------------
Full potential deferred tax liability under UK GAAP (1,658) (2,508)
Unprovided deferred tax asset on tax losses 9,090 5,575
Tax effects of US GAAP adjustments:
Acquisition accounting 17,745 4,041
Revenue recognition 1,045 1,272
System and product development costs 8,804 6,812
Deferred indexing costs 168 269
Investment in available-for-sale securities - 215
- ----------------------------------------------------------------------------------------------------------------
Gross deferred tax asset in accordance with US GAAP 36,852 18,184
- ----------------------------------------------------------------------------------------------------------------
Total net deferred tax asset under US GAAP 35,194 15,676
Deferred tax asset valuation allowance (35,194) (15,676)
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax asset in accordance with US GAAP - -
- ----------------------------------------------------------------------------------------------------------------
Management believes that the available objective evidence creates
sufficient uncertainty regarding realisability of these items so that a
full valuation allowance has been recorded.
The US GAAP basis tax provision is comprised as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ---------------------------------------------------------------
Current:
UK corporation tax - - -
Non-UK tax 776 332 102
- ---------------------------------------------------------------
776 332 102
- ---------------------------------------------------------------
The US GAAP tax provision is reconciled to the benefit derived by applying
the UK statutory rate to the US GAAP loss before tax as follows:
1998 1997 1996
(pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------
US GAAP amounts at UK statutory
rate of 31% (1997: 31.5%, 1996: 33%) (10,223) (7,877) (3,544)
Disallowed expenditure 1,306 304 81
Revision of prior year losses - - (609)
Differential tax rates (3,277) - -
Change in valuation allowance 12,897 8,006 4,288
Other 73 (101) (114)
- ------------------------------------------------------------------------------
US GAAP tax provision 776 332 102
- ------------------------------------------------------------------------------
===========================
PAGE 77
NOTES TO THE FINANCIAL STATEMENTS (continued)
29 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (continued)
ACQUISITION ACCOUNTING
Under UK GAAP, the Company has written off purchased goodwill, defined as
the excess of the acquisition price over the fair value of the net assets
acquired, against reserves for all acquisitions made prior to 31 December
1997. For US GAAP purposes, the acquisition price is allocated to all
tangible and intangible assets acquired based on their fair value,
including in-process research and development. Amounts allocated to
in-process research and development are then immediately expensed.
Goodwill and other acquisition-related intangible assets are recognised on
the balance sheet and amortised by charges against income over its
estimated useful life, not to exceed 40 years.
Under UK GAAP, for all acquistions made since 1 January 1998, goodwill is
capitalised and subsequently written off over its estimated useful life,
which currently ranges from 10 to 20 years.
The Group has accounted for its acquisition of KRII in accordance with
FRS7, 'Fair values in acquisition accounting'. This standard sets out rules
for accounting for acquisitions in consolidated financial statements and
states that the fair value balance sheet of an acquired company cannot
include provisions for integration and reorganisation costs set up by the
acquiring company. Under US GAAP, certain integration and reorganisation
costs may be considered liabilities assumed and included in the allocation
of the acquisition cost.
EMPLOYEE COSTS
During 1993, certain share allocations were made to certain of the
Company's employees at par value which were below deemed market value.
Under UK GAAP these share issues were recorded at their par value, whereas
under US GAAP the difference between the par value and the deemed market
value is considered to be employee compensation and expensed in total in
the year.
In addition, prior to December 1995, options were granted under the
Company's Sharesave Scheme at a 20% discount (15% with effect from December
1995 onwards) from the fair market value of the stock at the date of grant.
Under UK GAAP, the share issues are recorded at their discounted price when
the options are exercised. Under US GAAP, the discount is considered to be
employee compensation and is expensed over the five year savings period of
the scheme.
Under US GAAP, the Company applies Accounting Principle Board Opinion No.
25 'Accounting for Stock Issued to Employees' and related interpretations
in accounting for its schemes. Had compensation expense for the Company's
share option schemes been determined based upon the fair value at the grant
date for awards under these schemes consistent with the methodology
prescribed under SFAS No. 123 'Accounting for Stock-Based Compensation',
the Company's US GAAP net loss and loss per share would have been increased
in 1998 by (pound)995,000 and 0.7p per share (1997: (pound)369,000 and 0.2p
per share; 1996: (pound)622,000 and 1.0p per share).
The fair value of the options granted during 1998 has been estimated using
the Black-Scholes option pricing model with the following assumptions:
dividend yield of 0% (1997 and 1996: 0%), volatility of 63% (1997: 59%;
1996: 72%), risk-free investment rate of 5.5% (1997: 6.5%; 1996: 6.2%),
assumed forfeiture rate of 0% (1997 and 1996: 0%) and an expected life of
six years (1997 and 1996: six years). The average value of the options
granted during 1998 is estimated as being 113 pence (1997: 119 pence; 1996:
170 pence) for each Ordinary share.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Under UK GAAP, fixed asset investments are held at cost unless there is
a permanent diminution in value whereupon provision is made for such
diminution through the profit and loss account. Under US GAAP, debt and
equity investments that meet the definition of 'available-for-sale
securities', as defined by Statement of Financial Accounting Standards No.
115 ("SFAS 115"), are held at their market value; unrealised holding gains
and losses are excluded from earnings and reported as a net amount as a
component of shareholders' equity until realised.
===========================
PAGE 78
NOTES TO THE FINANCIAL STATEMENTS (continued)
29 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (continued)
CONSOLIDATED STATEMENT OF CASH FLOWS
The consolidated statement of cash flows prepared in accordance with FRS 1
(revised) presents substantially the same information as that required
under US GAAP. Under US GAAP, however, there are certain differences from
UK GAAP with regard to the classification of items within the cash flow
statement and with regard to the definition of cash and cash equivalents.
Under UK GAAP, cash flows are presented separately for trading activities,
returns in investments and servicing of finance, taxation, capital
expenditure and financial investment, acquisition and disposals, equity
dividends paid, management of liquid resources and financing activities.
Under US GAAP, however, only three categories of cash flow activity are
reported, being operating activities, investing activities and financing
activities. Cash flows from taxation and returns on investments and
servicing of finance would be included under operating activities under US
GAAP.
Under US GAAP, cash and cash equivalents do not include overdrafts, but do
include investments repayable within three months of maturity when
acquired.
Set out below, for illustrative purposes, is a summary consolidated
statement of cash flows under US GAAP:
Year ended 31 December
-----------------------------------
1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------
Net cash provided by/(used in) operating activities 5,240 (122) (8,413)
Net cash used in investing activities (4,120) (256,054) (3,586)
Net cash (used in)/provided by financing activities (9,671) 263,128 (2,081)
- -----------------------------------------------------------------------------------------------
Net (decrease)/increase in cash and cash equivalents (8,551) 6,952 (14,080)
Cash and cash equivalents at beginning of period 13,722 6,538 20,533
Effect of foreign exchange rate changes (677) 232 85
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period 4,494 13,722 6,538
- -----------------------------------------------------------------------------------------------
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Group's financial
instruments at 31 December 1998 and 1997 are as follows:
Carrying Fair Carrying Fair
amount value amount value
1998 1998 1997 1997
(pound)000 (pound)000 (pound)000 (pound)000
- ------------------------------------------------------------------------------------------------
Publicly quoted fixed asset investments - - 5,043 4,362
Cash and bank deposits 4,494 4,494 13,722 13,722
Senior Credit Facility (46,052) (46,052) (56,217) (56,217)
Senior Subordinated Notes (108,186) (104,399) (109,396) (113,498)
Obligations under finance leases (234) (234) (781) (781)
Interest rate cap agreement 148 34 185 147
The amounts in the table are stated gross of unamortised finance costs.
The carrying amounts of publicly quoted fixed asset investments and Senior
Subordinated Notes were based on the quoted market prices for these
instruments.
The carrying amount of cash and bank deposits is a reasonable estimate of
fair value.
The Senior Credit Facility bears interest on a floating rate basis based on
the current value of US Dollar LIBOR. Therefore the fair value of this
instrument is considered to approximate its carrying amount.
In the opinion of the Directors, the market value of the finance lease
obligations approximates the carrying amount, having regard to the interest
rates available to the Group for similar borrowings at the balance sheet
date.
The fair value of the interest rate cap agreement has been estimated
upon the available market price for a similar instrument at 31 December
1998 and 1997.
===========================
PAGE 79
NOTES TO THE FINANCIAL STATEMENTS (continued)
29 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES (GAAP) (continued)
EXCEPTIONAL ITEMS
Under UK GAAP, certain exceptional items are shown separately on the face
of the profit and loss account after operating profit and before interest.
Under US GAAP, exceptional items should be included as a normal operating
item so that operating profit/(loss) includes these costs. The adjustments
to operating (loss)/profit under US GAAP can be reconciled as follows:
Year ended 31 December
------------------------------------------
1998 1997 1996
(pound)000 (pound)000 (pound)000
- --------------------------------------------------------------------------------------------------
Operating profit/(loss) in accordance with UK GAAP 20,726 (22,307) (7,872)
Reclassification of exceptional item 2,069 4,035 -
- --------------------------------------------------------------------------------------------------
Operating profit/(loss) in accordance with US GAAP 22,795 (18,272) (7,872)
- --------------------------------------------------------------------------------------------------
The adjustments to net loss and shareholders' equity under US GAAP can be
reconciled as follows:
Year ended 31 December
---------------------------------------------
Adjustments to net loss 1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------------
Retained profit/(deficit) in accordance with UK GAAP 4,439 (20,744) (7,226)
US GAAP adjustments:
Acquisition accounting (36,037) (14,606) -
Fair value adjustments - 3,029 -
System and product development costs:
- capitalised during the year (11,762) (3,964) (4,315)
- amortisation 8,308 11,548 2,170
Revenue recognition 667 (405) (956)
Deferred indexing costs 312 (151) (583)
Employee costs (28) (23) (20)
Income taxes (7) (9) 62
- -----------------------------------------------------------------------------------------------------
Net loss in accordance with US GAAP (34,108) (25,325) (10,868)
- -----------------------------------------------------------------------------------------------------
Net loss per share in accordance with US GAAP (pence) (22.65) (25.06) (11.77)
- -----------------------------------------------------------------------------------------------------
Adjustments to shareholders' equity 1998 1997 1996
(pound)000 (pound)000 (pound)000
- -----------------------------------------------------------------------------------------------------
Ordinary shareholders' funds in accordance with UK GAAP (94,818) (91,681) 26,037
US GAAP adjustments:
Acquisition accounting 194,242 221,540 -
Capitalised system and product development costs
net of amortisation (23,154) (21,624) (8,311)
Revenue recognition (3,370) (4,037) (3,632)
Deferred indexing costs (541) (853) (702)
Investment in available-for-sale securities - (681) (930)
Income taxes 120 119 142
- -----------------------------------------------------------------------------------------------------
Shareholders' equity in accordance with US GAAP 72,479 102,783 12,604
- -----------------------------------------------------------------------------------------------------
===========================
PAGE 80
NOTES TO THE FINANCIAL STATEMENTS (continued)
30 SUBSEQUENT EVENTS
On 2 February 1999, the Group announced the disposal of its assets held for
resale, the CARL Corporation and The UnCover Company, to Ward Shaw, the
senior member of the management team of both companies, for a consideration
of $2,250,000 ((pound)1,352,000). Of the consideration, $1 million is being
satisfied in cash, with the balance payable through a loan note, repayable
by January 2001. Costs associated with the disposal are estimated to be
$600,000 ((pound)360,000). The businesses have been carried in the 31
December 1998 balance sheet at their net estimated proceeds of $1,650,000
((pound)992,000). The difference between the net estimated proceeds at 31
December 1998 and 1997 of (pound)6,392,000 has been treated as an
adjustment to fair value and written off directly to reserves.
On 17 May 1999, the Company announced that it had secured an additional
facility from The Chase Manhattan Bank ('Chase') of $25 million. The
facility is repayable in October 2002 and carries interest at a rate of
3.25 percentage points over US Dollar LIBOR through to 1 October 1999 and
4.25 percentage points over US Dollar LIBOR thereafter. In connection with
this incremental financing, the Company has agreed to issue Chase with
warrants to purchase an initial 1.5 million new Ordinary shares
(representing approximately 1% of the current issued share capital of the
Company) exercisable between 17 May 1999 and 11 October 2002, together with
additional warrants to purchase up to a maximum of a further 1.5 million
new Ordinary shares between 1 August and 1 November 1999 if the term
facility is still outstanding on those dates, such warrants to be
exercisable up to 14 May 2004. The warrants are exercisable at a price of
120.5 pence per Dialog Ordinary share (the closing mid-market price on 13
May 1999).
31 CONTINGENT LIABILITIES
In October 1997, immediately prior to the Company's acquisition of KRII,
KRII was sued in a class action for copyright violation. The case is
currently proceeding in a United States federal court. At issue is the
article delivery service operated by one of KRII's subsidiaries. The
subsidiary would, upon permission from publishers, provide copies of single
articles from magazines and journals. The plaintiffs, who are authors,
contend that the publishers did not have the authority to grant permission
to the Company's subsidiary for such copying. The trial court has agreed
with the plaintiffs' interpretation of the Copyright Act that the law does
not grant publishers the authority to permit copying of single articles
absent other agreements with an author. This interpretation of the
Copyright Act is currently being reviewed by the United States Court of
Appeals for the Ninth Circuit. Further proceedings in the trial court have
been stayed while the appeal is pending. The Directors are confident that
the appeal will reverse the earlier decision of the trial court in favour
of the plaintiffs. Nevertheless, in the opinion of the Directors, adequate
provision has been made to cover the costs and damages that could accrue to
the Company in the eventuality of an adverse outcome.
The Company and its subsidiaries are also parties to legal proceedings that
are considered to be ordinary routine litigation incidental to their
business and not material to the Group's consolidated financial position.
===========================
PAGE 81
ACCOUNTING GLOSSARY
Terms used in Annual Report US equivalent or brief description
- --------------------------- ----------------------------------
Administration expenses General and administration expenses
Allotted Issued
Called up share capital Ordinary shares, issued and fully paid
Capital allowances Tax term equivalent to US tax
depreciation allowances
Cash at bank and in hand Cash
Class of business Industry segment
Creditors Accounts payable
Creditors: Amounts falling due
after more than one year Long-term liabilities
Creditors: Amounts falling due
within one year Current liabilities
Debtors Accounts receivable
(Deficit)/retained profit Net (loss)/income
Distribution costs Selling and marketing expenses
Destination (of revenue) The geographical area to which goods
or services are supplied
Finance lease Capital lease
Interest payable and other
similar charges Interest expense
Interest receivable Interest income
Operating (loss)/profit (Loss)/income from operations
Profit Income
Profit and loss account Income statement
Profit and loss reserve (under
"capital and reserves") Retained earnings
Share capital Ordinary shares, capital stock or
common stock issued and fully paid
Share premium account Additional paid-in capital or
paid-in surplus (not distributable)
Shares in issue Shares outstanding
Source (of revenue) The geographical area from which
goods or services are supplied to
a third party or another
geographical area
Stocks Inventories
Tangible fixed assets Property and equipment
Taxation on (loss)/profit on
ordinary activities (Provision)/benefit for income taxes
Turnover Revenues
===========================
PAGE 82
FINANCIAL DIARY FOR 1999
18 March Results for the year 1998 announced
28 May First quarter trading statement issued
7 June Annual Report posted to shareholders
1 July Annual General Meeting at The City Conference Centre,
The Institute of Marine Engineers' Memorial Building,
76 Mark Lane, London EC3R 7JN
Mid-August Results for the first six months of 1999 announced
Mid-November Third quarter trading statement issued
===========================
PAGE 83
FIVE YEAR FINANCIAL SUMMARY
Total Total Total Total
continuing Restruc- continuing continuing Restruc- continuing
business turing business business turing business
before costs and after before costs and after
restruc- other ex- restruc- restruc- other ex- restruc-
turing ceptional turing turing ceptional turing
costs items costs costs items costs
---------------------------------- ----------------------------------
1998 1997 1996 1995 1994
---------------------------------- ----------------------------------
(pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000 (pound)000
- ----------------------------------------------------------------------------------------------------------------------------------
TURNOVER 170,762 - 170,762 46,082 - 46,082 21,443 13,642 8,887
Cost of sales (71,618) - (71,618) (17,166) - (17,166) (7,237) (5,231) (3,628)
- ----------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 99,144 - 99,144 28,916 - 28,916 14,206 8,411 5,259
Distribution
costs (21,605) 45 (21,560) (15,700) (1,313) (17,013) (9,933) (6,063) (1,443)
Administrative
expenses (44,170) (2,628) (46,798) (13,415) (9,247) (22,662) (9,975) (5,742) (2,673)
Amortisation of
development
costs (7,760) - (7,760) (3,558) (7,990) (11,548) (2,170) (744) (133)
Amounts written
off investments - (2,300) (2,300) - - - - - -
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING PROFIT/(LOSS) 25,609 (4,883) 20,726 (3,757) (18,550) (22,307) (7,872) (4,138) 1,010
Gain on sale of fixed
asset investment - 2,069 2,069 - 4,035 4,035 - - -
Interest receivable 205 - 205 338 - 338 1,027 388 425
Interest payable and
similar charges (17,436) - (17,436) (2,498) - (2,498) (189) (295) (150)
- ----------------------------------------------------------------------------------------------------------------------------------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
BEFORE TAXATION 8,378 (2,814) 5,564 (5,917) (14,515) (20,432) (7,034) (4,045) 1,285
Taxation on profit/
(loss) on ordinary
activities (769) - (769) (323) - (323) (164) 416 (406)
- ----------------------------------------------------------------------------------------------------------------------------------
PROFIT/(LOSS) ON
ORDINARY ACTIVITIES
AFTER TAXATION 7,609 (2,814) 4,795 (6,240) (14,515) (20,755) (7,198) (3,629) 879
Minority equity
interests (356) - (356) 11 - 11 (28) (5) 3
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED PROFIT/(DEFICIT) 7,253 (2,814) 4,439 (6,229) (14,515) (20,744) (7,266) (3,634) 882
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings/(loss) per
share (pence) 4.8 2.9 (6.2) (20.5) (7.8) (4.4) 1.1
- ----------------------------------------------------------------------------------------------------------------------------------
===========================
PAGES 84-86:
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the Annual General Meeting of the Company will
be held at The City Conference Centre, The Institute of Marine Engineers'
Memorial Building, 76 Mark Lane, London EC3R 7JN, on 1 July 1999 at 10 a.m.
for the following purposes:
ORDINARY BUSINESS
1 To receive the Accounts for the year ended 31 December 1998, together
with the reports of the Directors and Auditors thereon.
2 To re-elect David Mattey as a Director (Mr Mattey being due to retire
in accordance with the Company's Articles of Association).
3 To re-elect Stephen Maller as a Director (Mr Maller being due to
retire in accordance with the Company's Articles of Association).
4 To re-elect Daniel Wagner as a Director (Mr Wagner being due to retire
in accordance with the Company's Articles of Association).
5 To elect Patrick Sommers who was appointed on 8 October 1998 as a
Director of the Company and is now proposed for election as a Director
in accordance with the Company's Articles of Association.
6 To elect Richard Swank who was appointed on 15 March 1999 as a
Director of the Company and is now proposed for election as a Director
in accordance with the Company's Articles of Association.
To consider and, if thought fit, to pass the following resolutions of which
numbers 7, 8 and 10 will be proposed as Ordinary Resolutions and number 9
will be proposed as a Special Resolution:
SPECIAL BUSINESS
7 That PricewaterhouseCoopers be reappointed as auditors of the Company
(having previously been appointed by the Board to fill the casual
vacancy arising by reason of the resignation of Price Waterhouse), to
hold office until the conclusion of the next General Meeting at which
accounts are laid before the Company and that their remuneration be
determined by the Directors.
8 That the Directors be and they are hereby generally and
unconditionally authorised for the purposes of Section 80 of the
Companies Act 1985 (the 'Act') to exercise all the powers of the
Company to allot relevant securities (within the meaning of Section
80(2) of the Act) up to an aggregate nominal amount of (pound)482,556,
such authority to expire at the conclusion of the Annual General
Meeting of the Company to be held in 2000, or, if earlier, on 31
August 2000, save that the Company may before such expiry make an
offer or agreement which would or might require relevant securities to
be allotted after such expiry and the Directors may allot relevant
securities in pursuance of such offer or agreement as if the authority
conferred hereby had not expired and this authority shall be in
substitution for and shall replace any existing authority pursuant to
the said Section 80 to the extent not utilised at the date this
Resolution is passed.
9 That subject to the passing of Resolution 8 set out in the Notice of
Annual General Meeting of the Company dated 28 May 1999, the Directors
be and they are hereby empowered to allot equity securities (as
defined in Section 94(2) of the Act) of the Company pursuant to the
authority conferred by Resolution 8 as if Section 89(1) of the Act did
not apply to any such allotment; provided that this power shall be
limited to the allotment of equity securities:
(a) in connection with a rights issue or other pre-emptive offer in favour
of holders of Ordinary shares of 1 penny each in the capital of the
Company ('Ordinary shares') where the equity securities offered are
proportionate (as nearly as practicable) to the respective number of
Ordinary shares held by such holders on the record date for such
allotment but subject to such exclusions or other arrangements as the
Directors may deem necessary or desirable to deal with fractional
entitlements, record dates, or legal or practical problems arising
under or as a result of the laws of any territory or requirements of
any regulatory body or any stock exchange in any territory or the
issue and/or transfer and/or holding of any securities in
uncertificated form; and/or
(b) pursuant to the acceptance of any scrip dividend offer; and/or
(c) pursuant to the terms of any share option scheme or plan or any plan
or option scheme in respect of American Depositary Shares for
employees and directors approved by the Company in general meeting;
and/or
(d) (otherwise than pursuant to (a) or (b) or (c) above) having in the
case of relevant shares (as defined for the purposes of Section 89 of
the Act), a nominal amount or, in the case of other equity securities,
giving the right to subscribe for or convert into relevant shares,
having a nominal amount not exceeding in aggregate (pound)75,733.
This power shall expire on the date of the Annual General Meeting of
the Company to be held in 2000 or, if earlier, on 31 August 2000, save
that the Company may before such expiry make an offer or agreement
which would or might require equity securities to be allotted after
such expiry and the Directors may allot equity securities in pursuance
of such offer or agreement as if the power conferred hereby had not
expired.
10 That the rules of the 1994 Executive Share Option Scheme and the 1994
Unapproved Executive Share Option Scheme, copies of which are produced
at the Meeting and initialled by the Chairman for the purpose of
identification, be and are hereby amended by the deletion of the
definition of 'Announcement Date' in Clause 1 and substituted by the
following definition:
'Announcement Date' - 'any date on which the annual, half yearly or
quarterly results of the Group are announced'.
By order of the Board
(signed) J Ball
Registered Office:
Company Secretary The Communications Building
28 May 1999 48 Leicester Square
London WC2H 7DB
NOTES
1 Pursuant to Regulation 34 of the Uncertificated Securities Regulations
1995, the Company hereby specifies that a person must be the registered
holder of Ordinary shares of the Company at 10 a.m. on 29 June 1999 in
order to be entitled to attend and vote at the meeting or adjourned
meeting in respect of those shares. Changes to entries on the register
of members after 10 a.m. on 29 June 1999 shall be disregarded in
determining the rights of any person to attend or vote at the meeting.
2 A member entitled to attend and vote may appoint a proxy or proxies,
who need not be a member of the Company, to attend (and on a poll to
vote) instead of him or her.
3 A proxy form accompanies this notice which, in order to be valid, must
be deposited together with any authority under which it is executed (or
a copy of the authority notarially certified or in some other way
approved by the Board) with Computershare Services PLC, PO Box 457,
Owen House, 8 Bankhead Crossway North, Edinburgh EH11 0XG not later
than 48 hours before the time appointed for the meeting. Completion of
a form of proxy will not preclude a member from attending and voting in
person at the meeting or any adjournment thereof.
4 In accordance with the Companies Act 1985 and with the requirements of
the London Stock Exchange, copies of the following documents will be
available for inspection at the Company's Registered Office during
normal business hours from the date of this notice until the date of
the Annual General Meeting and will also be available at the place of
the meeting for inspection for at least 15 minutes prior to and during
the meeting:
(i) The Register of Directors' Interests in the share capital and
debentures of the Company; and
(ii) Copies of service agreements under which Directors of the Company
are employed and terms of engagement for non-executive Directors;
and
(iii) Copies of the Rules of the 1994 Save As You Earn Share Option
Scheme, the 1994 Executive Share Option Scheme, the 1994
Unapproved Executive Share Option Scheme, the 1997 US Stock
Option Plan and the 1998 Employee Stock Purchase Plan.
5 Brief biographical details of all the Directors, including those who
present themselves for election or re-election, are set out on pages 25
- 27.
6 Following the merger of Price Waterhouse and Coopers & Lybrand from 1
July 1998, Price Waterhouse resigned as auditors in favour of the new
firm, PricewaterhouseCoopers and the Directors appointed
PricewaterhouseCoopers to fill the casual vacancy created by the
resignation.
7 The provisions of the Companies Act 1985 prohibit the Directors from
allotting shares without the authority of shareholders other than in
limited circumstances. Therefore, in accordance with the practice of
most listed companies, your Directors are seeking, pursuant to
Resolution 8 set out in the Notice of Annual General Meeting of the
Company, general authority to allot up to an aggregate nominal amount
of (pound)482,556 (representing, in accordance with ABI guidelines, a
sum equal to the unissued and unreserved Ordinary share capital of the
Company). Such authority would enable the Board to take advantage,
without delay, of opportunities that may occur to issue shares, either
for cash (subject as mentioned below) or as consideration for an
acquisition. The authority conferred by the Resolution, if passed, will
expire at the conclusion of the Annual General Meeting of the Company
to be held in 2000 or, if earlier, on 31 August 2000.
8 The Companies Act 1985 also provides that when equity securities are
being issued for cash, such securities must first be offered to
existing holders of equity securities unless the Board is given the
power to allot equity securities without regard to this requirement.
Therefore, again in accordance with the practice of most listed
companies, Resolution 9 set out in the Notice of Annual General Meeting
of the Company seeks to disapply these shareholder pre-emption rights
to overcome certain technical problems with regard to rights issues and
to empower the Board to make issues of equity securities for cash up to
a maximum nominal amount of (pound)75,733 (representing 5% of the
issued Ordinary share capital of the Company at 31 December 1998). The
resolution would also permit the issue of shares for cash on acceptance
of a scrip dividend offer and issues under the terms of the Company's
share and American Depositary Share option schemes and issues under the
Investment Savings Plan. The power conferred on your Directors by
Resolution 9, if passed, will expire at the conclusion of the Annual
General Meeting of the Company to be held in 2000 or, if earlier, on 31
August 2000.
Your Directors have no present intention of exercising the authority or
power described above, although Ordinary shares will be issued from
time to time on the exercise of options under the Company's employee
share schemes and under the terms of the Investment Savings Plan for US
employees.
9 Resolution 10 amends the terms of the 1994 Executive Share Option
Scheme and the 1994 Unapproved Executive Share Option Scheme in order
that share options may be granted to eligible employees within a 42 day
period following the announcement of the Company's quarterly results.
The effect of this resolution is to augment the current 42 day periods
following the annual and interim announcements during which grants may
be made in order to reflect the fact that the Company now reports its
financial results on a quarterly basis.
==============================
PAGES 87-88
WHERE TO FIND US
PRINCIPAL OFFICES
London Cary, North Carolina Hong Kong
The Communications Building 11000 Regency Parkway Suites 2003/2004
48 Leicester Square Suite 400 Lyndhurst Tower
London Cary NC 27511 1 Lyndhurst Terrace
WC2H 7DB USA Central
Hong Kong
Tel: +44 171 930 6900 Tel: +1 919 462 8600 Tel: +852 2 530 5778
Fax: +44 171 930 6006 Fax: +1 919 468 9890 Fax: +852 2 530 5885
INVESTOR RELATIONS
Sara Parker Kristian Talvitie John Olsen David Collins/Robert Rinderman
The Dialog Corporation plc The Dialog Corporation plc Hogarth Partnership Limited Jaffoni & Collins Incorporated
The Communications Building 711 Third Avenue - 9th Floor The Butlers Wharf Building 104 Fifth Avenue - 14th Floor
48 Leicester Square New York 36 Shad Thames New York
London New York 10017 London New York 10011
WC2H 7DB USA SE1 2YE USA
Tel: +44 171 930 6900 Tel: +1 212 381 1800 Tel: +44 171 357 9477 Tel: +1 212 835 8500
Fax: +44 171 930 6006 Fax: +1 212 381 1830 Fax: +44 171 357 8533 Fax: +1 212 835 8525
REGISTRAR/DEPOSITARY: FOR DUPLICATE MAILINGS AND ADDRESS CHANGES
Ordinary shares American Depositary Shares
ComputerShare Services PLC The Bank of New York
Owen House Investor Relations Department
8 Bankhead Crossway North P O Box 11258
Edinburgh Church Street Station
EH11 4BR New York NY 10286 - 1258
Scotland USA
Tel: +44 131 523 6666 Tel: +1 402 963 9394
Fax: +44 131 442 4924 or toll free for US residents only 1-888-BNY-ADRS
Fax: +1 212 815 4023
LISTINGS
London Stock Exchange NASDAQ
Ordinary shares American Depositary Shares
Symbol DLG Symbol DIAL (previously DIALY)
SHARE PRICE INFORMATION
Share price information about The Dialog Corporation plc is available
with the following references:
Ordinary shares: Reuters RIC Code DLG.L
ADSs traded on NASDAQ DIAL (previously DIALY)
Ordinary shares: London Stock Exchange SEDOL code 558-305
FORM 20-F
Filed with US Securities and Exchange Commission. Form 20-F corresponds to
the Form 10-K filed by US public companies. Available from the principal
offices of The Dialog Corporation plc in Cary or London, as above.
LOW-COST DEALING SERVICE
Hoare Govett Limited has established a low-cost dealing service which
enables investors to buy or sell certified holdings of the Company's shares
in a simple economic manner. Basic commission is 1% with a minimum charge
of (pound)10. Transactions are executed and settled by Pershing Securities
Limited. Forms can be obtained from the Company Secretary or Hoare Govett
Limited, 4 Broadgate, London EC2M 7LE (Tel: 0171 601 0101).
DIRECTORS AND ADVISORS
Michael Mander* Chairman
Daniel Wagner Chief Executive
Patrick Sommers Chief Operating Officer
David Mattey Chief Financial Officer
Stephen Maller Chief Technology Officer
Jason Molle President of the Americas
Ciaran Morton President, Europe, Middle East, Africa & Asia Pacific
Allen Thomas* Deputy Chairman
Ian Barton*
Marmaduke Hussey*
Richard Swank*
* Non-executive
COMPANY SECRETARY AND REGISTERED OFFICE
Jonathan Ball, The Communications Building, 48 Leicester Square,
London WC2H 7DB
AUDITORS
PricewaterhouseCoopers, 1 Embankment Place, London WC2N 6NN
PRINCIPAL BANKERS
Chase Manhattan Bank, 125 London Wall, London EC2Y 5AJ
The Royal Bank of Scotland plc, London Belgravia Branch, 24 Grosvenor Place,
London SW1X 7HP
UK MERCHANT BANKERS
Close Brothers Corporate Finance Limited, 12 Appold Street, London EC2A 2AW
N M Rothschild & Sons Limited, New Court, St. Swithin's Lane, London EC4P 4DU
STOCKBROKER
Hoare Govett Limited, 4 Broadgate, London EC2M 7LE
LEGAL ADVISORS
UK Theodore Goddard, 150 Aldersgate Street, London EC1A 4EJ
Mishcon de Reya, 21 Southampton Row, London WC1B 5HS
US Skadden, Arps, Slate, Meagher & Flom LLP, Four Embarcadero Center,
San Francisco, California 94111-4144
REGISTRARS
ComputerShare Services PLC, PO Box 435, Owen House, 8 Bankhead Crossway North,
Edinburgh EH11 4BR
REGISTERED NUMBER
1890236
HOME PAGE
http://www.dialog.com