20-F/A 1 tv522035_20fa.htm 20-F/A

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F/A

(Mark One)

 

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

 

OR

 

¨ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ___________

 

OR

 

xSHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Date of event requiring this shell company report: May 13, 2019

  

Commission file number: 001-38911

 

Clarivate Analytics Plc

 

 

 

(Exact Name of Registrant as Specified in Its Charter)

 

Not Applicable

(Translation of Registrant’s Name Into English)

 

Jersey, Channel Islands

(Jurisdiction of Incorporation or Organization)

 

4th Floor, St. Paul’s Gate, 22-24 New Street

St. Helier, Jersey JE1 4TR

 

 

 

(Address of Principal Executive Offices)

 

Mr. Stephen Hartman

General Counsel and Global Head of Corporate Development

Friars House

160 Blackfriars Road

London, SE1 8EZ, UK

Telephone: +44 207 433 4000

Fax: +44 207 433 4001

 

 

 

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbols   Name of Each Exchange on which Registered
Ordinary Shares   CCC   New York Stock Exchange
Ordinary Shares Underlying Warrants   CCC WS   New York Stock Exchange American

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

 

None

(Title of Class)

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

None

(Title of Class)

 

On May 13, 2019 the issuer had 305,249,999 ordinary shares outstanding.

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  Yes ¨ No ¨

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ¨ No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ¨ Accelerated Filer   ¨ Non-Accelerated Filer x
    Emerging Growth Company x

  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. x

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board   ¨ Other ¨

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. o Item 17 o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No o

 

 

 

 

 

 

EXPLANATORY NOTE

 

This Amendment No. 1 to the Shell Company Report on Form 20-F of Clarivate Analytics Plc (the “Form 20-F/A”) which was filed with the Securities and Exchange Commission on May 17, 2019 (the “Form 20-F”), is being filed solely for the purpose of adding Exhibit 101 to Item 19 “Exhibits” and to furnish the Interactive Data File (as defined in Rule 11 of Regulation S-T) as Exhibit 101 in accordance with Rule 405 of Regulation S-T. Exhibit 101, which contains interactive data files in eXtensible Business Reporting Language, was previously omitted from the Form 20-F in accordance with the 30-day grace period for initial interactive data submission under Rule 405(a)(2)(ii) of Regulation S-T.

 

Except as described above, this Form 20-F/A does not, and does not purport to, amend, modify, update or restate any information set forth in the Form 20-F or reflect any events that occurred subsequent to the filing of the Form 20-F on May 17, 2019.

 

 

 

 

TABLE OF CONTENTS

 

    Page
     
PART I 5
   
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 5
     
A. Directors and Senior Management 5
B. Advisers 5
C. Auditors 5
     
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE 5
     
A. Offer Statistics 5
B. Method and Expected Timetable 5
     
ITEM 3. KEY INFORMATION 5
     
A. Selected Financial Data 5
B. Capitalization and Indebtedness 5
C. Reasons for the Offer and Use of Proceeds 5
D. Risk Factors 5
     
ITEM 4. INFORMATION ON THE COMPANY 5
     
A. History and Development of the Company 5
B. Business Overview 6
C. Organizational Structure 6
D. Property, Plants and Equipment 7
     
ITEM 4A. UNRESOLVED STAFF COMMENTS 7
     
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS 7
     
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 7
     
A. Directors and Senior Management 7
B. Compensation 7

 

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C. Board Practices 7
D. Employees 7
E. Share Ownership 7
     
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 7
     
A. Major Shareholders 7
B. Related Party Transactions 8
C. Interests of Experts and Counsel 8
     
ITEM 8. FINANCIAL INFORMATION 8
     
A. Consolidated Statements and Other Financial Information 8
B. Significant Changes 8
     
ITEM 9. THE OFFER AND LISTING 8
     
A. Offer and Listing Details 8
B. Plan of Distribution 8
C. Markets 8
D. Selling Shareholders 8
E. Dilution 9
F. Expenses of the Issue 9

 

ITEM 10. ADDITIONAL INFORMATION 9
     
A. Share Capital 9
B. Memorandum and Articles of Association 9
C. Material Contracts 11
D. Exchange Controls 11
E. Taxation 11
F. Dividends and Paying Agents 12
G. Statement by Experts 12
H. Documents on Display 12
I. Subsidiary Information 12
     
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12
     
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 12
     
PART II 12
   
PART III 12
   
ITEM 17. FINANCIAL STATEMENTS 12
     
ITEM 18. FINANCIAL STATEMENTS 12
     
ITEM 19. EXHIBITS 12

 

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INTRODUCTORY NOTES

 

Use of Certain Defined Terms

 

Except as otherwise indicated by the context and for the purpose of this report only, references in this report to:

 

·“Clarivate” are to Clarivate Analytics Plc, a public limited company incorporated under the laws of Jersey, Channel Islands; and

 

·“Transactions” are to the Mergers and other transactions contemplated by the Agreement and plan of Merger, dated as of January 14, 2019 (as amended by Amendment No. 1 to the Agreement and plan of Merger, dated February 26, 2019, and Amendment No. 2 to the Agreement and plan of Merger, dated March 29, 2019, the “Merger Agreement”), by and among Churchill, Clarivate, CCC Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Clarivate (“Delaware Merger Sub”), Camelot Merger Sub (Jersey) Limited, a private limited company organized under the laws of Jersey, Channel Islands and wholly owned subsidiary of Clarivate (“Jersey Merger Sub”), and Camelot Holdings (Jersey) limited, a private limited company organized under the laws of Jersey, Channel Islands (the “Company”), which, among other things, provides for (i) Jersey Merger Sub to be merged with and into the Company with the Company being the surviving company in the merger (the “Jersey Merger”) and (ii) Delaware Merger Sub to be merged with and into Churchill with Churchill being the surviving corporation in the merger (the “Delaware Merger”, and together with the Jersey Merger the “Mergers”).

 

Forward-Looking Information

 

This report includes statements that express Clarivate’s opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements can generally be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “expects,” “seeks,” “projects,” “intends,” “plans,” “may,” “will” or “should” or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout this report and include statements regarding our intentions, beliefs or current expectations concerning, among other things, the Transactions, the benefits and synergies of the Transactions, including anticipated cost savings, results of operations, financial condition, liquidity, prospects, growth, strategies and the markets in which the Company operates. Such forward-looking statements are based on available current market material and management’s expectations, beliefs and forecasts concerning future events impacting Clarivate. You are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, as well as assumptions, which, if they were to ever materialize or prove incorrect, could cause the results of Clarivate to differ materially from those expressed or implied by such forward-looking statements. Potential risks and uncertainties include those generally set forth under Item 3 “Key information—D. Risk Factors” and elsewhere in this report.

 

Readers are urged to carefully review and consider the various disclosures made by us in this report and our other filings with the SEC. These reports attempt to advise interested parties of the risks and factors that may affect our business, financial condition and results of operations and prospects. The forward-looking statements made in this report speak only as of the date hereof and we disclaim any obligation, except as required by law, to provide updates, revisions or amendments to any forward-looking statements to reflect changes in our expectations or future events.

 

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PART I

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

A. Directors and Senior Management

 

Clarivate’s directors and executive officers immediately following the consummation of the Transactions are described in Clarivate’s Registration Statement on Form F-4, as amended (Registration No. 333-229889) (the “F-4”) under the heading “Information About Executive Officers, Directors and Nominees” beginning on page 117, which is incorporated herein by reference.

 

B. Advisors

 

Ogier (44 Esplanade, St Helier, Jersey, JE4 9WG) acts as Jersey, Channel Islands counsel to Clarivate. Latham & Watkins LLP (555 11th Street NW, Suite 1000, Washington, D.C., USA, 20004) acts as United States counsel to Clarivate.

 

C. Auditors

 

From Clarivate’s inception through the consummation of the Transactions, PricewaterhouseCoopers LLP, an independent registered public accounting firm (2001 Market Street #1800, Philadelphia, PA 19103), has acted as the Company’s independent registered public accounting firm.

 

ITEM 2.OFFER STATISTICS AND EXPECTED TIMETABLE

 

A. Offer Statistics

 

Not applicable.

 

B. Method and Expected Timetable

 

Not applicable.

 

ITEM 3.KEY INFORMATION

 

A. Selected Financial Data

 

Information regarding Clarivate’s selected financial data is described in Clarivate’s F-4 under the heading “Selected Historical Financial Information” beginning on page 160, which is incorporated herein by reference.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

D. Risk Factors

 

The risks associated with our business are described in Clarivate’s F-4 under the heading “Risk Factors” beginning on page 32, which is incorporated herein by reference.

 

ITEM 4.INFORMATION ON THE COMPANY

 

A. History and Development of the Company

 

The history and development of Clarivate are described in Clarivate’s F-4 under the headings:

 

·Summary of the Material Terms of the Transaction” beginning on page 5;
·The Business Combination Proposal” beginning on page 74;

 

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·Business of Clarivate—Our History” on page 138; and
·Description of Clarivate’s Securities” beginning on page 199.

 

These descriptions are incorporated herein by reference.

 

The U.S. Securities and Exchange Commission (“SEC”) maintains a website that contains reports, proxy and information statements, and other information regarding issuers (including Clarivate) that file electronically with the SEC at http://www.sec.gov. Clarivate also maintains a public website at http://www.clarivate.com.

 

B. Business Overview

 

The business of Clarivate is described in Clarivate’s F-4 under the heading “Business of Clarivate” beginning on page 137, which is incorporated herein by reference.

 

C. Organizational Structure

 

The chart below presents Clarivate’s simplified corporate structure as of the date of this report.

 

 

 6 

 

 

D. Property, Plants and Equipment

 

Information regarding Clarivate’s property, plants and equipment is described in Clarivate’s F-4 under the heading “Business of Clarivate—Properties” on page 147, which is incorporated herein by reference.

  

ITEM 4A.UNRESOLVED STAFF COMMENTS

 

Not required.

 

ITEM 5.OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

Reference is made to the disclosure contained in Clarivate’s F-4 under the heading “Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations” beginning on page 162 and that information is incorporated herein by reference.

 

ITEM 6.DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

 

Clarivate’s directors and executive officers immediately following the consummation of the Transactions are described in Clarivate’s F-4 under the heading “Information About Executive Officers, Directors and Nominees” beginning on page 117, which is incorporated herein by reference.

 

B. Compensation

 

The compensation of Clarivate’s executive officers and directors is described in Clarivate’s F-4 under the heading “Director and Executive Compensation” beginning on page 125, which is incorporated herein by reference.

 

C. Board Practices

 

Clarivate’s board practices immediately following the consummation of the Transactions are described in Clarivate’s F-4 under the heading “Information About Executive Officers, Directors and Nominees” beginning on page 117, which is incorporated herein by reference.

 

D. Employees

 

As of December 31, 2018, Clarivate had approximately 4,450 full-time and 130 part-time employees. The information in Clarivate’s F-4 under the heading “Business of Clarivate—Employees” on page 146 is incorporated herein by reference.

 

E. Share Ownership

 

Information regarding share ownership of Clarivate’s executive officers and directors is described in Clarivate’s F-4 under the heading “Beneficial Ownership of Securities” beginning on page 188, which is incorporated herein by reference. Information regarding arrangements for involving Clarivate employees in the capital of Clarivate is described in Clarivate’s F-4 under the heading “Director and Executive Officer Compensation—Employee Share Plans” beginning on page 125, which is incorporated herein by reference.

 

ITEM 7.MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

 

Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”

 

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B. Related Party Transactions

 

Related party transactions are described in Clarivate’s F-4 under the heading “Certain Relationships and Related Person Transactions” beginning on page 194, which is incorporated herein by reference.

 

C. Interests of Experts and Counsel

 

Not applicable.

 

ITEM 8.FINANCIAL INFORMATION

 

A. Consolidated Statements and Other Financial Information

 

Financial Statements

 

Consolidated financial statements have been filed as part of this report. See Item 18 “Financial Statements.”

 

Legal Proceedings 

 

Legal or arbitration proceedings are described in Clarivate’s F-4 under the heading “Business of Clarivate—Legal Proceedings” on page 147 is incorporated herein by reference.

 

Dividend Policy

 

Clarivate’s policy on dividend distributions is described in Clarivate’s F-4 under the heading “Price Range of Securities and Dividends—Dividend Policy” on page 217 is incorporated herein by reference.

 

B. Significant Changes

 

Not applicable.

 

ITEM 9.THE OFFER AND LISTING

 

A. Offer and Listing Details

 

Offer and listing details of Clarivate’s securities are described in Clarivate’s F-4 under the headings:

 

·The Business Combination Proposal—Stock Symbols” beginning on page 79;
·Description of Clarivate’s Securities” beginning on page 199; and
·Price Range of Securities and Dividends” beginning on page 216.

 

These descriptions are incorporated herein by reference.

 

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

See disclosures above under “—A. Offer and Listing Details.”

 

D. Selling Shareholders

 

Not applicable.

 

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E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

ITEM 10.ADDITIONAL INFORMATION

 

A. Share Capital

 

Clarivate’s share capital is described in Clarivate’s F-4 under the headings:

 

·Description of Clarivate’s Securities—Shares” beginning on page 199; and
·Description of Clarivate’s Securities—Description of Warrants” beginning on page 201.

 

These descriptions are incorporated herein by reference.

 

B. Memorandum of Association and Articles of Association

 

The following represents a summary of certain key provisions of Clarivate’s memorandum of association and articles of association. The summary does not purport to be a summary of all of the provisions of Clarivate’s memorandum of association or articles of association. For more complete information you should read Clarivate’s amended and restated memorandum of association and articles of association which are listed as an exhibit to this report.

 

Clarivate was incorporated under the laws of Jersey, Channel Islands as a public limited company on January 7, 2019. Neither Clarivate’s memorandum of association nor the articles of association (the “Articles”) stipulate any particular objects or purposes of Clarivate and no objects or purposes are required to be stated by the Companies (Jersey) Law 1991 (the “Companies Law”).

 

Securities Registrar

 

Continental Stock Transfer & Trust Company is the transfer and registrar for the shares, with branch registers of transfers at 1 State Street 30th Floor, New York, New York 10004.

 

Director’s Power to Vote on a Proposal, Arrangement or Contract in which the Director is Materially Interested

 

An interested director must disclose to Clarivate the nature and extent of any interest in a transaction with Clarivate, or one of its subsidiaries, which to a material extent conflicts or may conflict with its interests and of which the director is aware. Failure to disclose an interest entitles Clarivate or a shareholder to apply to the court for an order setting aside the transaction concerned and directing that the director account to Clarivate for any profit. A transaction is not voidable and a director is not accountable notwithstanding a failure to disclose an interest if the transaction is confirmed by special resolution and the nature and extent of the director’s interest in the transaction are disclosed in reasonable detail in the notice calling the meeting at which the resolution is passed.

 

Although it may still order that a director account for any profit, a court will not set aside a transaction unless it is satisfied that the interests of third parties who have acted in good faith would not thereby be unfairly prejudiced and the transaction was not reasonable and fair in Clarivate's interests at the time it was entered into.

 

Subject to the Articles and the Companies Law, a director may vote in respect of any contract or proposed contract or arrangement notwithstanding that he may be interested therein and if he does so his vote shall be counted and he may be counted in the quorum at any meeting of the directors at which any such contract or proposed contract or arrangement shall come before the meeting for consideration.

 

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Directors’ Power, in the Absence of an Independent Quorum, to Vote Compensation to Themselves or Any Members of Their Body

 

The compensation of the directors is decided by the directors unless the board of directors specifically requests approval of the compensation from the shareholders. If the issuance of compensation to the directors is decided by the directors, a quorum is the majority of the directors in office. The Articles do not require that the compensation of any director be approved by disinterested directors.

 

Clarivate has a compensation committee which is currently composed of four independent directors and one non-independent director. The compensation committee makes recommendations to the board with respect to compensation.

 

Borrowing Powers Exercisable by the Directors and How Such Borrowing Powers May Be Varied

 

Subject to the Companies Law and any resolutions made in a general meeting, the board may exercise all Clarivate's powers to borrow money, to guarantee, to indemnify and to mortgage or charge all or any part of Clarivate's undertaking, property and assets (present and future).

 

Retirement and Non-Retirement of Directors Under an Age Limit Requirement

 

There are no such provisions applicable to Clarivate under the Articles or the Companies Law.

 

Number of Shares Required for a Director’s Qualification

 

Under the Articles, the directors are not required to hold any shares as qualification for service on the board.

 

Rights, Preferences and Restrictions Attaching to Each Class of Shares

 

No preference shares are currently issued and outstanding. Preference shares may be issued from time to time in one or more series composed of such number of shares with such voting powers (full or limited or without voting powers), designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as may be determined by the board of directors of Clarivate.

 

The holders of ordinary shares of Clarivate are entitled to such dividends as may be declared by the board of directors of Clarivate, subject to the Companies Law and the Articles. Dividends and other distributions on issued and outstanding ordinary shares may be paid out of the funds of Clarivate lawfully available for such purpose, subject to any preference of any outstanding preferred shares of Clarivate. Dividends and other distributions will be distributed among the holders of ordinary shares of Clarivate on a pro rata basis.

 

Each ordinary share of Clarivate entitles the holder to one vote on all matters upon which the ordinary shares of Clarivate are entitled to vote. Voting at any shareholders’ meeting is by way of poll.

 

The holders of ordinary shares of Clarivate are also entitled to the distribution of the residual assets of Clarivate in the event of a liquidation, dissolution or winding up of Clarivate.

 

Clarivate's ordinary shares do not have pre-emptive rights to purchase additional shares.

 

Action Necessary to Change the Rights of Holders of the Stock, Indicating Where the Conditions Are More Significant Than Is Required by Law

 

The rights attached to any class of shares of Clarivate (unless otherwise provided by the terms of issue of that class), such as voting, dividends and the like, may be varied only with the sanction of a special resolution passed at a general meeting or by the written consent of the holders of two-thirds of the shares of that class or with the sanction of a resolution passed by a majority of not less than two-thirds of the votes cast at a separate meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class shall not (unless otherwise provided by the terms of issue of that class) be deemed to be varied by the creation or issue of further shares ranking in priority to or pari passu with such previously existing shares.

 

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Meetings of Shareholders

 

The Articles require Clarivate to call an annual general meeting of shareholders within 18 months after holding the last preceding annual general meeting and permits Clarivate to call any other meeting of shareholders at any time. Clarivate is required to send a notice of meeting to registered shareholders not less than 14 clear days and not more than 60 days prior to the date of any annual or other general meeting of shareholders. The Articles provide that a quorum of shareholders in person or represented by proxy holding or representing by proxy not less than a simple majority of all voting share capital of Clarivate at the meeting is required to transact business at a general meeting, provided that the minimum quorum for any meeting shall be two shareholders entitled to vote. Shareholders, and their duly appointed proxies and corporate representatives, as well as Clarivate’s directors and auditors, are entitled to be admitted to Clarivate’s annual and other general meetings of shareholders.

 

Limitations on the Right to Own Securities

 

There are no limitations on the rights to own securities in Clarivate.

 

Limitations on Restructuring

 

There is no provision in the Articles that would have the effect of placing any limitations on any corporate restructuring in addition to what would otherwise be required by applicable law.

 

Disclosure of Share Ownership

 

There are no such provisions applicable to Clarivate under the Articles or the Companies Law.

 

C. Material Contracts

 

Information concerning Clarivate’s material contracts governing the business of Clarivate is included elsewhere in this report or in the information incorporated by reference herein.

 

D. Exchange Controls

 

Jersey Exchange Controls

 

There are no governmental laws, decrees or regulations existing in Jersey, Channel Islands, which restrict the export or import of capital, or the remittance of dividends, interest or other payments to non-resident holders of Clarivate's securities, nor does Jersey, Channel Islands have foreign exchange currency controls.

 

E. Taxation

 

The material United States federal income tax consequences of the Transactions are described in Clarivate’s F-4 under the headings:

 

·The Business Combination Proposal—Material United States Federal Income Tax Consequences of the Business Combination to Churchill Security Holders” beginning on page 93;
·The Business Combination Proposal—U.S. Federal Income Tax Considerations of the Delaware Merger to U.S. Holders” beginning on page 94;
·The Business Combination Proposal—U.S. Federal Income Tax Considerations of the Delaware Merger to Non-U.S. Holders” on page 98; and
·The Business Combination Proposal—U.S. Federal Income Tax Consequences of the Ownership and Disposition of Clarivate Ordinary Shares and Warrants” beginning on page 99.

 

These descriptions are incorporated herein by reference.

 

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F. Dividends and Paying Agents

 

Information regarding Clarivate’s policy on dividends is described in Clarivate’s F-4 under the heading “Price Range of Securities and Dividends” beginning on page 216, which is incorporated herein by reference. Clarivate has not identified a paying agent.

 

G. Statement by Experts

 

Not applicable.

 

H. Documents on Display

 

Clarivate has filed this report on Form 20-F with the SEC under the Exchange Act. Statements made in this report as to the contents of any document referred to are not necessarily complete. With respect to each such document filed as an exhibit to this report, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference.

 

Clarivate is subject to the informational requirements of the Exchange Act as a foreign private issuer and file reports and other information with the SEC. Reports and other information filed by Clarivate with the SEC, including this report, may be obtained from the SEC’s Internet site at http://www.sec.gov. The SEC’s telephone number is 1-800-SEC-0330.

 

As a foreign private issuer, Clarivate is exempt from the rules under the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements, and officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.

 

I. Subsidiary Information

 

Not applicable.

 

ITEM 11.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Quantitative and qualitative disclosures about Clarivate’s market risk are described in Clarivate’s F-4 under the heading “Quantitative and Qualitative Disclosures About Market Risk” beginning on page 186, which are incorporated herein by reference.

 

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A description of the rights of Clarivate’s securities other than equity securities is included Clarivate’s F-4 under the heading “Description of Clarivate’s Securities” beginning on page 199, which is incorporated herein by reference.

 

PART II

 

Not Required.

PART III

 

ITEM 17.FINANCIAL STATEMENTS

 

Not applicable.

 

ITEM 18.FINANCIAL STATEMENTS

 

The financial statements are filed as part of this report beginning on page F-1.

 

ITEM 19.EXHIBITS

 

The list of exhibits in the Exhibit Index to this report is incorporated herein by reference.

 

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SIGNATURE

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and that it has duly caused and authorized the undersigned to sign this report on its behalf.

 

 Date: June 17, 2019 CLARIVATE ANALYTICS PLC
   
  /s/ Richard Hanks
 

Richard Hanks

  Chief Financial Officer

 

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INDEX TO FINANCIAL STATEMENTS

 

CAMELOT HOLDINGS (JERSEY) LIMITED

 

 

 

  Page
Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017  
Report  of Independent Registered Public Accounting  Firm F-2
Consolidated Balance Sheets as of December 31, 2018 and 2017 F-3
Consolidated Statements  of Operations for the years ended December 31, 2018 and 2017 F-4
Consolidated Statements  of Comprehensive  Income (Loss) for the years ended December 31, 2018 and 2017 F-5
Consolidated Statements  of Changes in Equity for the years ended December 31, 2018 and 2017 F-6
Consolidated Statements  of Cash Flows for the years ended December 31, 2018 and 2017 F-7
Notes to the Consolidated Financial  Statements F-8
 
Interim Condensed Consolidated Financial Statements (Unaudited) for the Three Months Ended March 31, 2019 and 2018  
Interim Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 F-49
Interim Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 F-50
Interim Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2019 and 2018 F-51
Interim Condensed Consolidated Statements of Changes in Equity for the three months ended March 31, 2019 and 2018 F-52
Interim Condensed Consolidated Statements of Cash Flows or the three months ended March 31, 2019 and 2018 F-53
Notes to Interim Condensed Consolidated Financial Statements F-55
   
Unaudited Pro Forma Condensed Combined Financial Statements for the Year Ended December 31, 2018  
Unaudited Pro Forma Condensed Combined Financial Statements F-69
Unaudited Pro Forma Condensed Combined Balance Sheet F-72
Unaudited Pro Forma Condensed Combined Statement of Operations F-74
Notes to Unaudited Pro Forma Condensed Combined Financial Information F-75

 

 

F-1 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

Camelot Holdings (Jersey) Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Camelot Holdings (Jersey) Limited and its subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, comprehensive income (loss), changes in equity and cash flows for the years then ended, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/PricewaterhouseCoopers LLP  
Philadelphia, Pennsylvania  
February 26, 2019  

 

We have served as the Company’s or it predecessor’s auditor since 2016.

 

F-2 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share and per share data)

 

   As of December 31, 
   2018   2017 
Assets          
Current  assets:          
Cash and cash equivalents  $25,575   $53,186 
Restricted cash   9    24,362 
Accounts receivable, less allowance for doubtful  accounts of $14,076 and $8,495 at December 31, 2018 and December 31, 2017, respectively   331,295    317,808 
Prepaid expenses   31,021    28,395 
Other current assets   20,712    20,157 
Total current assets   408,612    443,908 
Computer hardware and other property, net   20,641    23,010 
Identifiable intangible assets, net   1,958,520    2,160,087 
Goodwill   1,282,919    1,311,253 
Other non-current assets   26,556    60,029 
Deferred income taxes   12,426    6,824 
Total Assets  $3,709,674   $4,005,111 
           
Liabilities and Shareholders’ Equity          
Current  liabilities:          
Accounts payable  $38,418   $60,758 
Accrued expenses and other current liabilities   153,849    193,710 
Current portion of deferred revenues   391,102    361,260 
Short-term debt, including current portion of long-term debt   60,345    45,345 
Total current liabilities   643,714    661,073 
Long-term debt   1,930,177    1,967,735 
Non-current portion of deferred revenues   17,112    15,796 
Other non-current liabilities   24,838    22,609 
Deferred income taxes   43,226    51,792 
Total liabilities   2,659,067    2,719,005 
           
Commitments and Contingencies (Note 19)          
Shareholders’ equity:          
Share capital, $0.01 par value; 2,000,000 shares authorized at December 31, 2018 and December 31, 2017; 1,646,223 and 1,644,720 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively   16    16 
Additional paid-in capital   1,677,494    1,662,205 
Accumulated other comprehensive income   5,358    13,984 
Accumulated deficit   (632,261)   (390,099)
Total shareholders’ equity   1,050,607    1,286,106 
Total Liabilities and Shareholders’ Equity  $3,709,674   $4,005,111 

 

The accompanying notes are an integral part of these financial statements.

 

F-3 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands)

 

   Years Ended December 31, 
   2018   2017 
Revenues, net  $968,468   $917,634 
Operating  costs and expenses:          
Cost of revenues, excluding depreciation and amortization   (396,499)   (394,215)
Selling, general and administrative costs, excluding depreciation and amortization   (369,377)   (343,143)
Share-based compensation expense   (13,715)   (17,663)
Depreciation   (9,422)   (6,997)
Amortization   (227,803)   (221,466)
Transaction expenses   (2,457)   (2,245)
Transition, integration and other   (61,282)   (78,695)
Other operating income (expense), net   6,379    (237)
Total operating expenses   (1,074,176)   (1,064,661)
Loss from operations   (105,708)   (147,027)
Interest expense, net   (130,805)   (138,196)
Loss before income tax   (236,513)   (285,223)
Benefit (provision) for income taxes   (5,649)   21,293 
Net loss  $(242,162)  $(263,930)
           
Per share:          
Basic  $(147.14)  $(160.83)
Diluted  $(147.14)  $(160.83)
           
Weighted-average shares outstanding:          
Basic   1,645,818    1,641,095 
Diluted   1,645,818    1,641,095 

 

The accompanying notes are an integral part of these financial statements.

 

F-4 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

 

   Years Ended December 31, 
   2018   2017 
Net loss  $(242,162)  $(263,930)
Other comprehensive income (loss):          
Interest rate swaps, net of $0 tax in all periods   2,537    1,107 
Defined benefit pension plans, net of tax (benefit) provision of ($91) and $430, respectively   (17)   881 
Foreign currency translation adjustments   (11,146)   15,466 
Total other comprehensive income (loss)   (8,626)   17,454 
Comprehensive loss  $(250,788)  $(246,476)

 

The accompanying notes are an integral part of these financial statements.

 

F-5 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Dollars in thousands except share data)

 

               Accumulated         
      Additional   Other       Total 
   Share Capital   Paid-In   Comprehensive   Accumulated   Shareholders’ 
   Shares   Amount   Capital   Income (Loss)   Deficit   Equity 
Balance at December 31, 2016   1,635,000   $16   $1,634,984   $(3,470)  $(126,169)  $1,505,361 
Issuance of common stock, net.   9,720        9,558            9,558 
Share-based compensation           17,663            17,663 
Comprehensive  Income (loss)               17,454    (263,930)   (246,476)
Balance at December 31, 2017   1,644,720    16    1,662,205    13,984    (390,099)   1,286,106 
Issuance of common stock, net.   1,503        1,574            1,574 
Share-based compensation           13,715            13,715 
Comprehensive loss               (8,626)   (242,162)   (250,788)
Balance at December 31, 2018   1,646,223   $16   $1,677,494   $5,358   $(632,261)  $1,050,607 

 

The accompanying notes are an integral part of these financial statements

 

F-6 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   Years Ended December 31, 
   2018   2017 
Cash Flows From Operating  Activities          
Net loss  $(242,162)  $(263,930)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   237,225    228,463 
Bad debt expense   6,507    6,505 
Deferred income tax benefit   (14,103)   (36,272)
Share-based compensation   13,715    17,663 
Gain on sale of IPM Product Line   (39,104)    
Deferred finance charges   9,182    23,510 
Tax indemnity write-off   33,819     
Other operating activities   (3,979)   2,548 
Changes in operating  assets and liabilities:          
Accounts receivable   (50,906)   43,109 
Prepaid expenses   (2,936)   (4,052)
Other assets   578    10,799 
Accounts payable   (18,091)   (39,660)
Accrued expenses and other current liabilities   9,842    (6,038)
Deferred revenues   33,539    18,751 
Other liabilities   774    5,271 
Net cash (used in) provided by operating activities   (26,100)   6,667 
Cash Flows From Investing Activities          
Capital expenditures   (45,410)   (37,804)
Acquisitions, net of cash acquired   (23,539)   (7,401)
Proceeds from sale of Product Line, net of restricted cash   80,883     
Proceeds from sale of equity method investment       5,000 
Net cash (used in) provided by investing activities   11,934    (40,205)
Cash Flows used in Financing  Activities          
Borrowings of debt   45,000    30,000 
Repayment of principal on long-term debt   (46,709)   (15,423)
Repayment of revolving credit facility   (30,000)    
Payment of debt issuance costs       (817)
Contingent purchase price payment   (2,470)    
Issuance of common stock, net   1,574    9,058 
Net cash (used in) provided by financing activities   (32,605)   22,818 
Effects of exchange rates   (5,193)   3,248 
Net changes in cash and cash equivalents, and restricted cash   (51,964)   (7,472)
           
Beginning of period:          
Cash and cash equivalents   53,186    77,136 
Restricted cash   24,362    7,884 
Total cash and cash equivalents, and restricted cash, beginning of period   77,548    85,020 
Cash and cash equivalents, and restricted cash, end of period   25,584    77,548 
Cash and cash equivalents   25,575    53,186 
Restricted cash   9    24,362 
Total cash and cash equivalents, and restricted cash, end of period  $25,584   $77,548 
           
Supplemental Cash Flow Information          
Cash paid for interest  $121,916   $115,236 
Cash paid for income tax  $13,210   $14,722 
Capital expenditures included in accounts payable  $5,166   $2,473 

 

The accompanying notes are an integral part of these financial statements

 

F-7 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 1:    Background and Nature of Operations

 

Camelot Holdings (Jersey) Limited and its subsidiaries (“Jersey,” “us,” “we,” “our,” or the “Company”) was formed on August 4, 2016 as a private limited liability company organized under the laws of the Island of Jersey. Its registered office is located at 4th Floor, St Paul’s Gate, 22-24 New Street, St Helier, Jersey JE1 4TR.

 

On July 10, 2016, Camelot UK Bidco Limited, a private limited liability company incorporated under the laws of England and Wales, and a direct wholly owned subsidiary of Camelot UK Holdco Limited, a direct wholly owned subsidiary (“UK Holdco”), collectively referred to as (“Bidco”), entered into a separation agreement to acquire (i) certain assets and liabilities related to the Intellectual Property & Science business (“IP&S”) business from Thomson Reuters Corporation (“Former Parent”) and (ii) all of the equity interests and substantially all of the assets and liabilities of certain entities engaged in the IP&S business together with their subsidiaries (“2016 Transaction”). The 2016 Transaction total consideration was $3,566,599, net of cash acquired. Jersey is owned by affiliates of Onex Corporation and private investment funds managed by Baring Private Equity Asia GP VI, L.P (“Baring”) and certain co-investors and is controlled by Onex Corporation.

 

The Company is a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enables users across government and academic institutions, life science companies and research and development (“R&D”) intensive corporations to discover, protect and commercialize their innovations.

 

Our Science Group consists of our Web of Science and Life Science Product Lines. Both product lines provide curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research intensive corporations, life science organizations and universities world-wide. Our Intellectual Property Group consists of our Derwent, CompuMark and MarkMonitor Product Lines. These Product lines help manage customer’s end-to-end portfolio of intellectual property from patents to trademarks to corporate website domains.

 

Prior Period Expense Reclassifications

 

In conjunction with the implementation of a new enterprise resource planning system during the quarter ended September 30, 2018, the Company performed an assessment of its Cost of revenues (COR) and Selling, general & administrative expenses (SG&A). As a result of this assessment, certain errors in classification between COR and SG&A were identified, impacting prior periods. Similarly, the Company reclassified certain costs between COR and SG&A. Accordingly, the Company has performed a reclassification of certain prior period amounts to conform to the present period presentation. The Company has concluded that the reclassifications were not material individually or in aggregate to previously issued financial statements.

 

The following table details the impact of the reclassifications on the Consolidated Statements of Operations for 2017.

 

   Year Ended December 31, 2017 
   As Previously       As 
   Reported   Adjustment   Reclassified* 
Consolidated Statements of Operations               
Cost of revenues, excluding depreciation and amortization  $(422,213)  $27,949   $(394,264)
Selling, general and administrative costs, excluding depreciation and  amortization  $(318,887)  $(27,949)  $(346,836)

 

 
*The “As reclassified” balance is prior to newly adopted accounting standards discussed in Note 3 — Summary of Significant Accounting Policies.

 

F-8 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

We have also reclassified prior period Accounts payable to Accrued expenses and other current liabilities in our Consolidated Balance Sheets to conform to the current period presentation. These items had no impact in our Consolidated Statement of Operations or Consolidated Statement of Cash Flows.

 

Note 2:   Basis of Presentation

 

The accompanying consolidated financial statements for the years ended December 31, 2018 and 2017, respectively, were prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements of the Company include the accounts of all of its subsidiaries. Subsidiaries are entities over which the Company has control, where control is defined as the power to govern financial and operating policies. Generally, the Company has a shareholding of more than 50% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases. The U.S. dollar is Jersey’s reporting currency. As such, the financial statements are reported on a U.S. dollar basis.

 

Note 3:   Summary of Significant Accounting Policies

 

Business combinations

 

The Company determines whether substantially all the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets. If this threshold is met, the set is not a business. If it is not met, the Company then evaluates whether the set meets the requirement that a business include, at a minimum, an input and as substantive process that together significantly contribute to the ability to create outputs.

 

Business combinations are accounted for using the acquisition method at the acquisition date, which is when control is obtained. The consideration transferred is generally measured at fair value, as are the identifiable assets acquired and liabilities assumed. During the one-year period following the acquisition date, if an adjustment is identified based on new information about facts and circumstances that existed as of the acquisition date, the Company will record measurement-period adjustments related to the acquisitions in the period in which the adjustment is identified.

 

Goodwill is measured at the acquisition date as the fair value of the consideration transferred (including, if applicable, the fair value of any previously held equity interest and any non-controlling interests) less the net recognized amount (which is generally the fair value) of the identifiable assets acquired and liabilities assumed.

 

Transaction costs, other than those associated with the issuance of debt or equity securities incurred in connection with a business combination, are expensed as incurred and included in Transaction expenses in the Consolidated Statements of Operations.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts and operations of the Company, and its subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

 

F-9 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The most important of these relate to share-based compensation expenses, revenues recognition, the allowance for doubtful accounts, internally developed computer software, valuation of goodwill and other identifiable intangible assets, determination of the projected benefit obligations of the defined benefit plans, income taxes, fair value of stock options, derivatives and financial instruments, contingent earn-out, and the tax related valuation allowances. On an ongoing basis, management evaluates these estimates, assumptions and judgments, in reference to historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

 

Cash and Cash Equivalents

 

Cash and cash equivalents is comprised of cash on hand and short-term deposits with an original maturity at the date of purchase of three months or less.

 

Restricted Cash

 

As of December 31, 2017, the Company’s restricted cash primarily related to funds the Company has received from customers in advance of paying patent renewals on behalf of those customers. This activity was specific to the IPM Product Line, which was sold on October 1, 2018 (See Note 5: Divested Operations, for further details), and was $0 at December 31, 2018.

 

Accounts Receivable

 

Accounts receivable are presented net of the allowance for doubtful accounts and any discounts. Accounts receivable are recorded at the invoiced amount and do not bear interest. Collections of accounts receivable are included in cash provided by operating activities in the Consolidated Statements of Cash Flows. The Company maintains an allowance for doubtful accounts for estimated losses and assesses its adequacy each reporting period by evaluating factors such as the length of time receivables are past due, historical collection experience, and the economic and competitive environment. The expense related to doubtful accounts is included within Selling, general and administrative costs, excluding depreciation and amortization in the Consolidated Statements of Operations. Account balances are written off against the allowance when the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers.

 

Concentration of Credit Risk

 

Accounts receivable are the primary financial instrument that potentially subjects the Company to significant concentrations of credit risk. Account receivable represents arrangements in which services were transferred to a customer before the customer pays consideration or before payment is due. Contracts with payment in arrears are recognized as receivables after the Company considers whether a significant financing component exists. The Company does not require collateral or other securities to support customer receivables. Management performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit extended when deemed appropriate. Credit losses have been immaterial and reasonable within management’s expectations. No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6% of revenues for the year ended December 31, 2018.

 

The Company maintains its cash and cash equivalent balances with high-quality financial institutions and consequently, the Company believes that such funds are subject to minimal credit risk.

 

Prepaid Assets

 

Prepaid assets represent amounts that the Company has paid in advance of receiving benefits or services. Prepaid assets include amounts for system and service contracts, sales commissions, deposits, prepaid royalties and insurance and are recognized as an expense over the general contractual period that the Company expects to benefit from the underlying asset or service.

 

F-10 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Computer Hardware and Other Property

 

Generally, computer hardware and other property are recorded at cost and are depreciated over the respective estimated useful lives. Upon the 2016 Transaction, computer hardware and other property were revalued and recorded at net book value, which approximated fair value at the 2016 Transaction.

 

Depreciation is computed using the straight-line method. Repair and maintenance costs are expensed as incurred. The cost and related accumulated depreciation of sold or retired assets are removed from the accounts and any gain or loss is included within loss from operations in the Consolidated Statements of Operations.

 

The estimated useful lives are as follows:

 

Computer hardware 3 years
Furniture, fixtures and equipment 5 – 7 years
Leasehold improvements Lesser of lease term or estimated useful life

 

Computer Software

 

Development costs related to internally generated software are capitalized once a project has progressed beyond a conceptual, preliminary stage to that of the application development stage. Costs of significant improvements on existing software for internal use, both internally developed and purchased, are also capitalized. Costs related to the preliminary project stage, data conversion and post implementation/ operation stage of an internal use software development project are expensed as incurred.

 

Capitalized costs are amortized over five years, which is the estimated useful life of the related software. Purchased software is amortized over three years, which is the estimated useful life of the related software. The capitalized amounts, net of accumulated amortization, are included in Identifiable intangible assets, net in the Consolidated Balance Sheets. The cost and related accumulated amortization of sold or retired assets are removed from the accounts and any gain or loss is included in operating expense.

 

Computer software is evaluated for impairment whenever circumstances indicate the carrying amount may not be recoverable. The test for impairment compares the carrying amounts with the sum of undiscounted cash flows related to the asset. If the carrying value is greater than the undiscounted cash flows of the asset, the asset is written down to its estimated fair value.

 

Identif iable Intangible Assets, net

 

Upon acquisition, identifiable intangible assets are recorded at fair value and are carried at cost less accumulated amortization or accumulated impairment for indefinite-lived intangible assets. Useful lives are reviewed at the end of each reporting period and adjusted if appropriate. Fully amortized assets are retained in cost and accumulated amortization accounts until such assets are derecognized.

 

Customer Relationships — Customer relationships primarily consist of customer contracts and customer relationships arising from such contracts.

 

Databases and Content — Databases and content primarily consists of repositories of the Company’s specific financial and customer information, and intellectual content.

 

Trade Names — Trade names consist of purchased brand names that the Company continues to use.

 

F-11 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Where applicable, intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

 

Customer  relationships 2 – 14 years
Databases and content 13 – 20 years
Trade names Indefinite

 

Impairment of Long-lived Assets

 

Residual values and useful lives are reviewed at the end of each reporting period and adjusted if appropriate. The Company evaluates its long-lived assets, including computer hardware and other property, computer software, and finite-lived intangible assets for impairment whenever circumstances indicate that their carrying amounts may not be recoverable. Recoverability of these assets is measured by comparison of the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate over its remaining life. An asset is assessed for impairment at the lowest level that the asset generates cash inflows that are largely independent of cash inflows from other assets. If the asset is considered to be impaired, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Management determined that no impairment existed for any of the periods presented.

 

Goodwill and Indef inite-Lived Intangible Assets

 

The Company evaluates its goodwill for impairment at the reporting unit level, defined as an operating segment or one level below an operating segment, annually as of October 1 or more frequently if impairment indicators arise in accordance with ASC Topic 350. The Company identified one reporting unit for the year ended December 31, 2017 and five reporting units due to a change in the Company’s reporting structure for the year ended December 31, 2018.

 

The Company evaluates the recoverability of goodwill using a two-step impairment test approach at the reporting unit level. In the first step, the Company assesses various qualitative factors to determine whether the fair value of a reporting unit may be less than its carrying amount. If a determination is made that, based on the qualitative factors, an impairment does not exist, the Company is not required to perform further testing. If the aforementioned qualitative assessment results in the Company concluding that it is more likely than not that the fair value of a reporting unit may be less than its carrying amount, the fair value of the reporting unit will be determined and compared to its carrying value including goodwill.

 

In determining the fair value of a reporting unit, the Company estimates the fair value of a reporting unit using the fair value derived from the income approach, which is a change from the previous year which used a market approach. The market approach estimates fair value based on market multiples of revenues and earnings derived from comparable publicly-traded companies with similar operating and investment characteristics as the reporting unit; whereas, the income approach uses a discounted cash flow (“DCF”) model. The DCF model determines the fair value of our reporting units based on projected future discounted cash flows, which in turn were based on our views of uncertain variables such as growth rates, anticipated future economic conditions, and the appropriate discount rates relative to risk and estimates of residual values.

 

If the fair value of the reporting unit exceeds the carrying value of the net assets assigned to that unit, goodwill is not impaired and the Company is not required to perform further testing. If the fair value of the reporting unit is less than the carrying value, the Company will recognize the difference as an impairment charge. Management concluded that no goodwill impairment existed for any of the periods presented.

 

The Company also has indefinite-lived intangible assets related to trade names. Indefinite-lived intangible assets are subject to impairment testing annually or whenever events or changes in circumstances indicate that their carrying value may not be recoverable. For purposes of impairment testing, the fair value of trade names is determined using an income approach, specifically the relief from royalties method. Management concluded that no indefinite-lived intangible impairment existed for any of the periods presented.

 

F-12 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Other Current and Non-Current Assets and Liabilities

 

The Company defines current assets and liabilities as those from which it will benefit from or which it has an obligation for within one year that do not otherwise classify as assets or liabilities separately reported on the Consolidated Balance Sheets. Other non-current assets and liabilities are expected to benefit the Company or cause its obligation beyond one year. The Company classifies the current portion of long-term assets and liabilities as current assets or liabilities.

 

Leases

 

Leases are classified as either operating or capital, based on the substance of the transaction at inception of the lease. Classification is re-assessed if the terms of the lease are changed.

 

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments under an operating lease (net of any incentives received from the lessor) are recognized in the Consolidated Statements of Operations on a straight-line basis over the period of the lease. The Company does not currently have any capital leases.

 

Accounts Payable and Accruals

 

Accounts payable and accruals are obligations to pay for goods or services that have been acquired in the ordinary course of business. Accounts payable and accruals are recognized initially at their settlement value, and are classified as current liabilities if payment is due within one year or less.

 

Debt

 

Debt is recognized initially at par value, net of any applicable discounts or financing costs. Debt is subsequently stated at amortized cost with any difference between the proceeds (net of transactions costs) and the redemption value recognized in the Consolidated Statements of Operations over the term of the debt using the effective interest method. Interest on indebtedness is expensed as incurred.

 

Debt is classified as a current liability when due within 12 months after the end of the reporting period.

 

Derivative Financial Instruments

 

Foreign Exchange Derivative Contracts

 

Prior to the sale of IPM, the Company used derivative financial instruments to manage foreign currency exchange rate risk in IPM. The Company’s derivative financial instruments consist of foreign currency forward contracts (“forward contracts”). Derivative financial instruments were neither held nor issued by the Company for trading purposes.

 

Interest Rate Swaps

 

The Company has interest rate swaps with counterparties to reduce its exposure to variability in cash flows relating to interest payments on a portion of its outstanding first lien senior secured term loan facility in an aggregate principal amount of $1,550,000 (“Term Loan Facility”). The Company applies hedge accounting and has designated these instruments as cash flow hedges of the risk associated with floating interest rates on designated future quarterly interest payments. Management assumes the hedge is highly effective and therefore changes in the value of the hedging instrument are recorded in Accumulated other comprehensive income in the Consolidated Balance Sheets. Any ineffectiveness is recorded in earnings. Amounts in Accumulated other comprehensive income (loss) are reclassified into earnings in the same period during which the hedged transactions affect earnings, or upon termination of the hedging relationship.

 

F-13 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Fair Value of Financial Instruments

 

In determining fair value, the use of various valuation methodologies, including market, income and cost approaches is permissible. The Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability. The accounting guidance for fair value measurements establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value based on the reliability of inputs. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s interest rate swap derivative instruments are classified as Level 2. Earn-out liabilities and defined benefit plan assets are classified as Level 3.

 

Contingent Considerations

 

The Company records liabilities for the estimated cost of such contingencies when expenditures are probable and reasonably estimable. A significant amount of judgment is required to estimate and quantify the potential liability in these matters. We engage outside experts as deemed necessary or appropriate to assist in the calculation of the liability, however management is responsible for evaluating the estimate. As information becomes available regarding changes in circumstances for ongoing contingent considerations, our potential liability is reassessed and adjusted as necessary. See Note 19 — Commitments and Contingencies for further information on contingencies.

 

Pension and Other Post-Retirement Benefits

 

The Company may be required to sponsor pension benefit plans, for certain international markets, which are unfunded and are not significant for the Company. The net periodic pension expense is actuarially determined on an annual basis by independent actuaries using the projected unit credit method. The determination of benefit expense requires assumptions such as the discount rate, which is used to measure service cost, benefit plan obligations and the interest expense on the plan obligations. Other significant assumptions include expected mortality, the expected rate of increase with respect to future compensation and pension. Because the determination of the cost and obligations associated with employee future benefits requires the use of various assumptions, there is measurement uncertainty inherent in the actuarial valuation process. Actual results will differ from results which are estimated based on assumptions.

 

The liability recognized in the Consolidated Balance Sheet is the present value of the defined benefit obligation at the end of the reporting period. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. The defined benefit obligation is included in Other non-current liabilities in the Consolidated Balance Sheets. All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation are recognized immediately in accumulated deficit and included in the consolidated statement of comprehensive income (loss). See Note 11 — Pension and Other Post Retirement Benefits for balances and further details including an estimate of the impact on the consolidated financial statements from changes in the most critical assumptions.

 

F-14 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Employer contributions to defined contribution plans are expensed as incurred, which is as the related employee service is rendered.

 

Certain prior year amounts have been reclassified to conform to current year presentation.

 

Taxation

 

The Company recognizes income taxes under the asset and liability method. Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect our best assessment of estimated current and future taxes to be paid. Significant judgments and estimates are required in determining the consolidated income tax expense for financial statement purposes. Deferred income taxes arise from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, which will result in taxable or deductible amounts in the future. In assessing the realizability of deferred tax assets, we consider future taxable income by tax jurisdiction and tax planning strategies. The Company records a valuation allowance to reduce our deferred tax assets to equal an amount that is more likely than not to be realized.

 

Changes in tax laws and tax rates could also affect recorded deferred tax assets and liabilities in the future. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions across our global operations. Accounting Standards Codification (ASC) Topic 740, Income Taxes, states that a benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes, on the basis of the technical merits. The Company first records unrecognized tax benefits as liabilities in accordance with ASC 740 and then adjusts these liabilities when our judgment changes as a result of the evaluation of new information not previously available at the time of establishing the liability. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available.

 

Interest accrued related to unrecognized tax benefits and income tax related penalties are included in the provision for income taxes.

 

Deferred tax is provided on taxable temporary differences arising on investments in foreign subsidiaries, except where we intend, and are able, to reinvest such amounts on a permanent basis.

 

Revenue Recognition

 

The Company derives revenue by selling information on a subscription and single transaction basis as well as from performing professional services. The Company recognizes revenues when control of these services are transferred to the customer for an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services. The Company determines revenue recognition utilizing the following five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenues when, or as, the Company transfers control of the product or service for each performance obligation. Revenues are recognized net of discounts and rebates, as well as value added and other sales taxes. Cash received or receivable in advance of the delivery of the services or publications is included in deferred revenues. The Company disaggregates revenue based on revenue recognition pattern. Subscription based revenues are recognized over time whereas our transactional revenues are recognized at a point in time. The Company believes subscription and transaction is reflective of how the Company manages the business. The revenues recognition policies for the Company’s revenue streams are discussed below.

 

F-15 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Subscription Revenues

 

Subscription-based revenues are recurring revenues that are earned under annual, evergreen or multi-year contracts pursuant to which we license the right to use our products to our customers. Revenues from the sale of subscription data and analytics solutions are typically invoiced annually in advance and recognized ratably over the year as revenues are earned. Subscription revenues are typically generated either on (i) an enterprise basis, meaning that the organization has a license for the particular product or service offering and then anyone within the organization can use it at no additional cost, (ii) a seat basis, meaning each individual that uses the particular product or service offering has to have his or her own license, or (iii) a unit basis, meaning that incremental revenues are generated on an existing subscription each time the product is used (e.g., a trademark or brand is searched or assessed).

 

Transactional Revenues

 

Transactional revenues are revenues that are earned under contracts for specific deliverables that are typically quoted on a product, data set or project basis and often derived from repeat customers, including customers that also generate subscription based revenues. Revenues from the sale of transactional products and services are invoiced according to the terms of the contract, typically in arrears. Transactional content sales are usually delivered to the customer instantly or in a short period of time, at which time revenues are recognized. In the case of professional services, these contracts vary in length from several months to years for multi-year projects and customers and typically invoices based on the achievement of milestones. Transactional revenues are typically generated on a unit basis, although for certain product and service offerings transactional revenues are generated on a seat basis. Transactional revenues may involve sales to the same customer on multiple occasions but with different products or services comprising the order.

 

Performance Obligations

 

Content Subscription: Content subscription performance obligations are most prevalent in the Web of Science, Derwent, and Cortellis product lines. Content subscriptions are subscriptions that can only be accessed through the Company’s on-line platform for a specified period of time through downloads or access codes. In addition to the primary content subscription, these types of performance obligations can often include other performance obligations, such as training subscriptions, access to historical content, maintenance and other optional content. While revenues for these performance obligations are primarily recognized over the length of the contract (subscription revenues) there are instances where revenues could be recognized upon delivery (transactional revenue). Historical content and some optional content can be purchased via a perpetual license, which would be recognized upon delivery. Fees are typically paid annually at the beginning of each term.

 

Domain Registration Services: This performance obligation relates to the MarkMonitor Product Line. This is a service to register domain names with the applicable registries, with the Company being responsible for monitoring the domain name expiration and paying the registry before expiration. In addition, the Company has an ongoing responsibility to ensure the domain name is maintained at the registry. Customers typically sign a 1 – 2 year contract, identifying specific domain names to be registered and tracked. Revenue is recognized over the term of the contract and fees are typically invoiced annually at the beginning of each contract term.

 

Search Services: This performance obligation relates to the CompuMark Product Line. It is a comprehensive search report across multiple databases for a proposed trademark. The report is compiled by Clarivate’s analysts and sent to customers. Revenues are recognized upon delivery of the report. Fees are typically paid upon delivery.

 

Trademark Watch: This performance obligation relates to the CompuMark Product Line. Trademark watch service is an annual subscription that allows customers to protect their trademarks from infringement by providing timely notification of newly filed or published trademarks. Revenues are recognized over the term of the contract, with fees paid annually at the beginning of each contract term.

 

F-16 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Patent Management: This performance obligation related to the IPM Product Line. The Company paid patent registration fees for customers in multiple countries to ensure their patents do not expire. Transaction fee Revenues were recognized at the time payment is made on the client’s behalf to the applicable patent office. Fees were paid annually at the beginning of each term.

 

Variable Consideration

 

In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as retroactive discounts provided to the customers, indexed or volume based discounts, and revenues between contract expiration and renewal. Variable consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenues recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current, and forecasted) that is reasonably available to the Company.

 

Significant Judgments

 

Significant judgments and estimates are necessary for the allocation of the proceeds received from an arrangement to the multiple performance obligations and the appropriate timing of revenues recognition. Our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. Determining a standalone selling price that may not be directly observable amongst all the products and performance obligations requires judgment. Specifically, many Web of Science Product Line contracts include multiple product offerings, which may have both subscription and transactional revenues. Judgment is also required to determine whether the software license is considered distinct and accounted for separately, or not distinct and accounted for together with the subscription service and recognized over time for other products. The Company allocates value to primary content subscriptions or licenses and accompanying performance obligations, such as training subscriptions, access to historical content, maintenance and other optional content. When multiple performance obligations exist in a single contract, the transaction price is allocated to each performance obligation based on the standalone selling price of each performance obligation. The Company utilizes its standard price lists to determine the standalone selling price based on the product and country.

 

The Company allocates the transaction price to each performance obligation based on the best estimate of the standalone selling price of each distinct good or service in the contract. The transaction price in the contract is allocated at contract inception to the distinct good or service underlying each performance obligation in proportion to the standalone selling price. The standalone selling prices are based on the Company’s normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location. Discounts applied to the contract will be allocated based on the same proportion of standalone selling prices.

 

Cost to Obtain a Contract

 

Commission costs represent costs to obtain a contract and are considered contract assets. The Company pays commissions to the sales managers and support teams for earning new customers and renewing contracts with existing customers. These commission costs are capitalized within Prepaid expenses and other non-current assets on the Consolidated Balance Sheet. The costs are amortized to Selling, general and administrative expenses within the Consolidated Statements of Operations. The amortization period is between one and five years based on the estimated length of the customer relationship.

 

F-17 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Deferred Revenues

 

The timing of revenue recognition may differ from the timing of invoicing to customers. We record deferred revenues when revenues are recognized subsequent to invoicing. For multi-year agreements, we generally invoice customers annually at the beginning of each annual coverage period and recognize revenues over the term of the coverage period.

 

Cost of Revenues, Excluding Depreciation and Amortization

 

Cost of revenues consists of costs related to the production and servicing of the Company’s offerings. These costs primarily relate to information technology, production and maintenance of content and personnel costs relating to professional services and customer service.

 

Selling, General and Administrative, Excluding Depreciation and Amortization

 

Selling, general and administrative includes compensation for support and administrative functions in addition to rent, office expenses, professional fees and other miscellaneous expenses. In addition, it includes selling and marketing costs associated with acquiring new customers or selling new products or product renewals to existing customers. Such costs primarily relate to wages and commissions for sales and marketing personnel.

 

Depreciation

 

Depreciation expense relates to the Company’s fixed assets including furniture & fixtures, hardware, and leasehold improvements. These assets are depreciated over their expected useful lives, and in the case of leasehold improvements over the shorter of their useful life or the life of the related lease.

 

Amortization

 

Amortization expense relates to the Company’s finite-lived intangible assets including databases and content, customer relationships, and computer software. These assets are being amortized over periods of 2 to 20 years.

 

Share-Based Compensation

 

Share-based compensation expense includes cost associated with stock options granted to certain members of key management. The fair value of stock options is estimated at the date of grant using the Black-Scholes option pricing model, which requires management to make certain assumptions of future expectations based on historical and current data. The assumptions include the expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. The expected term represents the amount of time that options granted are expected to be outstanding, based on forecasted exercise behavior. The risk-free rate is based on the rate at grant date of zero-coupon U.S. treasury notes with a term comparable to the expected term of the option. Expected volatility is estimated based on the historical volatility of comparable public entities’ stock price from the same industry. The Company’s dividend yield is based on forecasted expected payments, which are expected to be zero for current plan. The Company recognizes compensation expense over the vesting period of the award on a straight-line basis. The Company elects to recognize forfeitures as they occur.

 

Transaction Expenses

 

Transaction expenses are incurred by the Company to complete business transactions, including acquisitions and disposals, and typically include advisory, legal and other professional and consulting costs.

 

F-18 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Transition, Integration and Other

 

Transition, integration and other related expenses provide for the costs of transitioning certain activities performed by the Former Parent to the Company to enable operation on a stand-alone basis. Transition full time employee expense represents labor costs of full time employees who are currently working on migration projects and being expensed. Their traditional role is application development, which was capitalized.

 

Other operating income (expense), net

 

Other operating income (expense), net includes a tax indemnification write down related to the 2016 Transaction for the year ended December 31, 2018. See Note 19: Commitments and Contingencies (Tax Indemnity) for further details. The gain on sale of the divested IPM Product Line and related assets is also included in the year ended December 31, 2018. See Note 5: Divested Operations for further details.

 

Interest Expense

 

Interest expense consists of interest expense related to our borrowings under the Term Loan Facility and the Notes as well as the amortization of debt issuance costs and interest related to certain derivative instruments.

 

Foreign Currency Translation

 

The operations of each of the Company’s entities are measured using the currency of the primary economic environment in which the subsidiary operates (“functional currency”). Nonfunctional currency monetary balances are re-measured into the functional currency of the operation with any related gain or loss recorded in Selling, general and administrative costs, excluding depreciation and amortization in the accompanying Consolidated Statements of Operations. Assets and liabilities of operations outside the U.S., for which the functional currency is the local currency, are translated into U.S. dollars using period-end exchange rates. Revenues and expenses are translated at the average exchange rate in effect during each fiscal month during the year. The effects of foreign currency translation adjustments are included as a component of Accumulated other comprehensive income (loss) in the accompanying Consolidated Balance Sheets.

 

Comprehensive Income (Loss)

 

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from net income, transactions and other events or circumstances from non-owner sources.

 

Advertising and Promotion Costs

 

Advertising and promotion costs are expensed as of the first date that the advertisements take place. Advertising expense was approximately $12,150 and $14,416 for the years ended December 31, 2018 and 2017.

 

Legal Costs

 

Legal costs are expensed as incurred.

 

Debt Issuance Costs

 

Fees incurred to issue debt are generally deferred and amortized as a component of interest expense over the estimated term of the related debt using the effective interest rate method.

 

F-19 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Earnings Per Share

 

The calculation of earnings per share is based on the weighted average number of common shares or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included in the calculation of diluted earnings per share. Potentially dilutive securities include outstanding stock options. Employee equity share options and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding are calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of benefits that would be recorded in additional paid-in capital when the award becomes deductible for tax purposes are assumed to be used to repurchase shares.

 

Newly Adopted Accounting Standards

 

In May 2014, the FASB issued new guidance related to revenues from contracts with customers which supersedes previous revenue recognition requirements. This new guidance affects any entity that enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. Areas of revenue recognition that are affected include, but are not limited to, transfer of control, variable consideration, allocation of transfer pricing, licenses, time value of money, contract costs and disclosures. We elected to adopt the standard using the full retrospective method effective January 1, 2018, which required us to revise each prior reporting period presented.

 

The Company implemented new policies, processes, and systems to enable both the preparation of financial information and internal controls over financial reporting in connection with its adoption of ASC 606. The most significant impact of the standard relates to our accounting for prepaid commissions as part of our cost of subscription contracts. Specifically, commissions paid for new customer sales are now being deferred over a five year life to match the new customer’s expected life and use of the Company’s own capitalized costs for related software technology. This five-year life is considered to cross products and capture the average value a customer benefits from purchasing the Company’s data and products. Additional impacts of the standard related to changes in the method of identifying performance obligations within our EndNote product of the Web of Science Product Line.

 

Adoption of the standard using the full retrospective method required us to restate certain previously reported results. Adoption of the standard related to revenue recognition impacted our previously reported results as follows:

 

    Year Ended December 31, 2017 
   As Previously   New Revenue
Standard
     
    Reported*   Adjustment   As Adjusted 
Statement of Operation               
Revenues, net  $919,749    (2,115)  $917,634 
Cost of revenues, excluding depreciation and amortization   (394,264)   49    (394,215)
Selling, general and administrative costs, excluding depreciation and amortization   (346,836)   3,693    (343,143)
Total operating expenses   (1,068,403)   3,742    (1,064,661)
Loss from operations   (148,654)   1,627    (147,027)
Loss before income tax   (286,850)   1,627    (285,223)
Net Loss  $(265,557)  $1,627   $(263,930)

 

F-20 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

   December 31, 2017 
   As Previously   New Revenues
Standard
     
   Reported   Adjustment   As Adjusted 
Balance Sheet               
Prepaid expenses  $29,465   $(1,070)  $28,395 
Total current assets   444,978    (1,070)   443,908 
Other non-current assets   54,569    5,460    60,029 
Total assets   4,000,721    4,390    4,005,111 
Current portion of deferred revenues   356,002    5,258    361,260 
Total current liabilities   655,815    5,258    661,073 
Total liabilities   2,713,747    5,258    2,719,005 
Accumulated deficit   (389,231)   (868)   (390,099)
Total Shareholders’ Equity   1,286,974    (868)   1,286,106 
Total Liabilities and Shareholders’ Equity  $4,000,721   $4,390   $4,005,111 

 

*Reflects additional reclassifications of certain expenses to align the presentation with how the Company currently manages these expenses. Refer to Note 1 — Background and Nature of Operations for further details.

 

In August 2016, the FASB issued new guidance, ASU 2016-15, related to the statement of cash flows which addresses eight specific cash flow classification issues to reduce diversity in practice. This guidance is effective for the Company for annual reporting periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2017. The guidance should be applied on a retrospective basis. The Company adopted the standard beginning on January 1, 2018. The adoption has no material impact on the consolidated financial statements.

 

In October 2016, the FASB issued new guidance, ASU 2016-16, for intra-entity transfers of assets other than inventory. This standard requires that an entity should recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. Consequently, the amendments in this standard eliminate the exception for an intra-entity transfer of an asset other than inventory. This guidance is effective for annual reporting periods beginning after December 15, 2017, and interim reporting periods within annual reporting periods beginning after December 15, 2017. The Company adopted the standard effective January 1, 2018. The adoption has no material impact on the consolidated financial statements.

 

In January 2017, the FASB issued new guidance, ASU 2017-01, which clarifies the requirements needed for assets and activities to meet the definition of a business which affects multiple areas of accounting including acquisitions, disposals, goodwill and consolidations. This guidance is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2017. The Company adopted the standard beginning on January 1, 2018. The adoption has no material impact on the consolidated financial statements.

 

In February 2017, the FASB issued new guidance, ASU 2017-05, which clarifies the accounting for derecognition (e.g. sales) of nonfinancial assets in contracts with non-customers and defines what is considered an in substance nonfinancial asset. The new standard is effective at the same time of adoption of ASU 2014-09. The Company adopted the standard effective January 1, 2018. The standard did not have a material impact on the consolidated financial statements.

 

F-21 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

In March 2017, the FASB issued new guidance, ASU 2017-07, which changes how the net periodic benefit cost of defined benefit and other post retirement benefit plans is presented in the statements of operations. Under the new guidance, the service cost would be presented as a component of operating expenses in the same line item or items as employee compensation costs, and the other components of net periodic benefit cost would be presented outside of operating income. Further, the only component that would be eligible for capitalization into assets such as inventory would be service cost. The guidance is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2017. The guidance is required to be applied on a retrospective basis, with the exception that the guidance regarding capitalization of service cost is to be applied on a prospective basis. The Company elected to adopt the standard effective January 1, 2018. The standard did not have a material impact on the consolidated financial statements.

 

In August 2017, the FASB issued guidance, ASU 2017-12, which provides targeted improvements to the accounting for hedging activities to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company early adopted effective January 1, 2018 with a modified retrospective transition method. The standard did not have a material impact on the consolidated financial statements.

 

In February 2018, the FASB issued guidance, ASU 2018-02, which allows companies to reclassify the tax effects stranded in Accumulated Other Comprehensive Income resulting from The Tax Cuts and Jobs Act to retained earnings. The guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized. Early adoption is permitted, including adoption in any interim period. The Company elected to adopt the standard effective December 31, 2018. The standard did not have a material impact on the consolidated financial statements.

 

Recently Issued Accounting Standards

 

In February 2016, the FASB issued new guidance, ASU 2016-02, related to leases in which lessees will be required to recognize assets and liabilities on the balance sheet for leases having a term of more than 12 months. Recognition of these lease assets and lease liabilities represents a change from previous GAAP, which did not require lease assets and lease liabilities to be recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures will be required to provide enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. The Company has elected to adopt the standard effective January 1, 2019.

 

The provisions of ASU 2016-02 are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The Company plans to elect the package of practical expedients included in this guidance, which allows it to not reassess whether any expired or existing contracts contain leases, the lease classification for any expired or existing leases, and the initial direct costs for existing leases. The Company does not plan to recognize short-term leases on its Consolidated Balance Sheet, and will recognize those lease payments in the Consolidated Statements of Operations on a straight-line basis over the lease term.

 

In July 2018, the FASB issued ASU 2018-11, Leases — Targeted Improvements, as an update to the previously-issued guidance. This update added a transition option which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting the financial statements in periods prior to adoption. The Company plans to elect this transition option.

 

F-22 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

At adoption, the Company expects to recognize a material increase in total assets and total liabilities resulting from the recognition of right-of-use assets and the related lease liabilities initially measured at the present value of its future operating lease payments. The Company continues to evaluate the impacts of adopting this guidance on its 2019 Consolidated Balance Sheet, Statement of Operations, Statement of Cash Flows, and is updating processes and internal controls to meet the new reporting and disclosure requirements in ASU 2016-02. The Company believes the most significant impact relates to its accounting for real estate leases. We do not anticipate significant impact from leases embedded in service contracts, significant changes to cash flows, or changes to our lease portfolio prior to adoption. The adoption of this standard will have no impact on the Company’s covenant compliance under its current debt agreements.

 

In June 2016, the FASB issued new guidance, ASU 2016-13, related to measurement of credit losses on financial instruments which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. This new guidance replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. The guidance is effective for annual reporting periods beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In January 2017, the FASB issued new guidance, ASU 2017-04, which simplifies testing goodwill for impairment by eliminating Step 2 from the goodwill impairment test as described in previously issued guidance. The guidance is effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In June 2018, the FASB issued guidance, ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In July 2018, the FASB issued guidance, ASU 2018-09, Codification Improvements, which clarifies guidance that may have been incorrectly or inconsistently applied by certain entities. The guidance is effective for all entities for fiscal years beginning after December 15, 2018. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In August 2018, the FASB issued guidance, ASU 2018-13, which modifies the disclosure requirements on fair value measurements. The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In August 2018, the FASB issued guidance, ASU 2018-14, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is effective for all entities for fiscal years beginning after December 15, 2020. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

In August 2018, the FASB issued guidance, ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internaluse software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this Update. The guidance is effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently in the process of evaluating the impact of the adoption of this standard on its consolidated financial statements.

 

There were no other new accounting standards that we expect to have a material impact to our financial position or results of operations upon adoption.

 

F-23 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 4:    Business Combinations

 

On October 25, 2018, Clarivate closed on the acquisition of TrademarkVision USA, LLC (“TrademarkVision”), an artificial intelligence technology start-up organization headquartered in Brisbane, Australia. The total purchase price for the acquisition consisted of $20,042 in closing date net cash consideration, subject to subsequent working capital adjustments, plus potential earn-out cash payments dependent upon achievement of certain milestones and financial performance metrics. The fair market value of the liability associated with the earn-out was $4,115 on the date of acquisition. Subsequent changes in the fair value will be included within the Consolidated Statement of Operations. Additionally, the excess value of the total purchase price over the estimated fair value of our identifiable assets and liabilities upon the closing of the acquisition of $19,205 was allocated to goodwill. The consolidated financial statements include the results of the acquisition subsequent to the closing date. TrademarkVision and its revolutionary image recognition software search tool for trademarks will join the trademark clearance and protection partner CompuMark.

 

In March 15, 2018, the Company acquired all of the outstanding stock of Kopernio (“Kopernio”), an artificial-intelligence technology startup, for $3,497. The Kopernio acquisition was accounted for using the acquisition method of accounting. As a result of the Kopernio acquisition and the application of purchase accounting, Kopernio’s identifiable assets and liabilities were adjusted to their estimated fair market values as of the closing date, which included a finite life intangible of $1,258 relating to computer software. Additionally, the excess value of the total purchase price over the estimated fair value of our identifiable assets and liabilities upon the closing of the acquisition of $2,322 was allocated to goodwill. The consolidated financial statements include the results of the acquisition subsequent to the closing date.

 

On June 1, 2017, the Company acquired all assets, liabilities and equity interests of Publons Limited and its wholly -owned subsidiary (“Publons”). Total net cash consideration for the acquisition was $7,401, plus potential future cash payments of up to $9,500 contingent upon Publons achieving certain milestones or financial and non-financial performance targets through 2020, including platform users and reviews. The fair market value of the liability associated with the earn-out was $5,900 on the date of acquisition. Subsequent changes in the fair value will be included within the Consolidated Statement of Operations. Publons is a researcher-facing peer-review data and recognition platform. The acquisition of Publons, its platform and data, is believed to increase the value of multiple existing Company products, while supporting researchers in the process. The consolidated financial statements include the results of the acquisitions subsequent to the closing date.

 

F-24 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The fair value of identifiable assets acquired and liabilities assumed for all acquisitions at closing during 2018 and 2017, respectively, which were adjusted for qualifying measurement period adjustments, net of cash acquired, and contingent consideration liabilities incurred in relation to the acquisitions are summarized below:

 

   2018   2017 
Other current assets  $706   $51 
Finite-lived intangible assets   7,928    3,600 
Indefinite-lived intangible assets       70 
Goodwill   21,527    9,767 
Other non-current assets   38    14 
Total assets   30,199    13,502 
Current liabilities   491    182 
Non-current liabilities   2,054    19 
Total liabilities   2,545    201 
Net assets acquired  $27,654   $13,301 

 

None of the goodwill associated with any of the business combinations above will be deductible for income tax purposes. Pro forma information is not presented for these acquisitions as the aggregate operations of the acquisitions were not significant to the overall operations of the Company.

 

Note 5:    Divested Operations

 

Effective October 1, 2018, all assets, liabilities and equity interest of the IP Management (IPM) Product Line and related assets were sold to CPA Global for a total purchase price of $100,130. Proceeds received were inclusive of amounts subject to working capital adjustments of $6,135, which are recorded in Accrued expenses and other current liabilities on the Consolidated Balance Sheet. Net proceeds received excluded Cash and cash equivalents and Restricted cash of $25,382. The results of the IPM Product Line and related assets are included in the Consolidated Statement of Operations through September 30, 2018. As a result of the sale, the Company recorded a net gain on sale of $36,072, inclusive of incurred transaction costs of $3,032 in connection with the divestiture. The gain on sale is included in Other operating income (expense), net within the Consolidated Statement of Operations. As a result of the sale, the Company wrote off Goodwill in the amount of $49,349.

 

The Company used $31,378 of the proceeds to pay down the Term Loan Facility on October 31, 2018. See Note 12: Debt, for further details.

 

The divestiture of the IPM Product Line and related assets does not represent a strategic shift that is expected to have a major effect on the Company’s operations or financial results, as defined by ASC 205-20, Discontinued Operations; as a result, the divestiture does not meet the criteria to be classified as discontinued operations.

 

F-25 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 6:    Computer Hardware and Other Property, Net

 

Computer hardware  and other property  consisted of the following:

 

   December 31, 
  2018   2017 
Computer hardware  $18,130   $11,238 
Leasehold improvements   13,298    13,885 
Furniture, fixtures and equipment   6,816    6,768 
Total computer hardware and other property   38,244    31,891 
Accumulated depreciation   (17,603)   (8,881)
Total computer hardware and other property, net  $20,641   $23,010 

 

Depreciation amounted to $9,422 for the year ended December 31, 2018. Depreciation amounted to $6,997 for the year ended December 31, 2017.

 

Note 7:    Identifiable Intangible Assets, net

 

The Company’s identifiable intangible assets consist of the following:

 

   December 31, 2018   December 31, 2017 
   Gross  

Accumulated

Amortization

   Net   Gross  

Accumulated

Amortization

   Net 
Finite-lived intangible assets                              
Customer  relationships  $291,503   $(164,611)  $126,892   $299,886   $(95,606)  $204,280 
Databases and content   1,725,878    (233,733)   1,492,145    1,733,304    (130,271)   1,603,033 
Computer software   268,704    (97,570)   171,134    235,420    (52,696)   182,724 
Finite-lived intangible assets   2,286,085    (495,914)   1,790,171    2,268,610    (278,573)   1,990,037 
                               
Indefinite-lived intangible assets                              
Trade names   168,349        168,349    170,050        170,050 
Total intangible assets  $2,454,434   $(495,914)  $1,958,520   $2,438,660   $(278,573)  $2,160,087 

 

The Company performed the indefinite-lived impairment test as of October 1, 2018. As part of this analysis, the Company determined that its trade name, with a carrying value of $168,349, and $170,050 as of December 31, 2018 and 2017, respectively, was not impaired and will continue to be reported as indefinite-lived intangible assets.

 

The weighted-average amortization period for each class of finite-lived intangible assets and for total finite-lived intangible assets, which range between two and 20 years, is as follows:

  

   Remaining
Weighted-Average
Amortization Period
(in years)
 
Customer relationships   10.6 
Databases and content   14.9 
Computer software   4.9 
Total   13.9 

 

F-26 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Amortization amounted to $227,803 for the year ended December 31, 2018. Amortization amounted to $221,466 for the year ended December 31, 2017.

 

Estimated amortization for each of the five succeeding years as of December 31, 2018 is as follows:

 

2019  $176,545 
2020   158,807 
2021   149,326 
2022   117,865 
2023   113,545 
Thereafter   1,036,411 
Subtotal finite-lived intangible assets   1,752,499 
Internally developed software projects in process   37,672 
Total finite-lived intangible assets   1,790,171 
Intangibles with indefinite lives   168,349 
Total intangible assets  $1,958,520 

 

Note 8:    Goodwill

 

The change in the carrying amount of goodwill is shown below:

 

Balance as of December 31, 2016  $1,305,571 
Acquisition   9,767 
Measurement period adjustments   (4,175)
Impact of foreign currency fluctuations and other   90 
Balance as of December 31, 2017  $1,311,253 
Acquisition   21,527 
Disposals   (49,349)
Impact of foreign currency fluctuations and other   (512)
Balance as of December 31, 2018  $1,282,919 

 

The Company performed the goodwill impairment test as of October 1, 2018 and 2017. Additionally, the Company reviewed goodwill for indicators of impairment at December 31, 2018 and 2017.

 

Goodwill represents the purchase price in excess of the fair value of the net assets acquired in a business combination. If the carrying value of a reporting unit exceeds the implied fair value of that reporting unit, an impairment charge to goodwill is recognized for the excess. The Company’s reporting units are one level below the operating segment, as determined in accordance with ASC 350. For the years ended December 31, 2017 and 2018, the Company had one reporting unit and five reporting units, respectively. The number of reporting units increased during 2018 due to a change in the Company’s reporting structure resulting in five reporting units.

 

The Company estimates the fair value of its reporting units using the income approach, which is a change from the previous year, which used a market approach. Under the income approach, the fair value of a reporting unit is calculated based on the present value of estimated cash flows. No indicators of impairment existed as a result of the Company’s assessments. However, based on the results of the 2018 annual impairment analysis performed, the Company has determined that the Derwent Product Line, previously known as the Intellectual Property & Standard (“IP&S”), reporting unit is at risk of a future goodwill impairment. The total goodwill associated with this reporting unit was approximately $130,381 as of December 31, 2018. Based on the latest annual impairment test, the estimated fair value of the Derwent Product Line reporting unit is approximately 2% above its carrying value.

 

F-27 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

In connection with the 2016 Transaction, during the third quarter of 2017, the Company recorded measurement period adjustments due to additional analysis of facts and circumstances that existed after closing, which increased computer hardware and other property by $3,925, decreased accounts receivable by $614, decreased other current liabilities by $360, and decreased other non-current liabilities by $504. These adjustments resulted in an decrease to goodwill of $4,175. None of these measurement period adjustments had a material impact on the Company’s results of operations. Effective October 1, 2018, the Company divested the IPM Product Line, which included $49,349 of goodwill. See Note 5: Divested Operations for further details.

 

Note 9:    Derivative Instruments

 

Prior to the sale of the IPM Product Line and related assets, the Company entered into forward contracts in order to mitigate exposure from changes in foreign currency exchange rates related to certain foreign denominated payables. We utilized derivative instruments to help us manage these risks. The maximum term of the forward contracts was six months with the majority of forward contracts having a term of one month. The Company recorded these forward contracts in either Accounts receivable or Accrued expenses and other current liabilities at fair value in the Consolidated Balance Sheets and recognized changes in the fair value of these forward contracts through earnings, as these instruments had not been designated as hedges.

 

The IPM Product Line and related assets, which was divested on October 1, 2018, had forward contracts with notional values of $36,639 at December 31, 2017. Losses/(gains) on the forward contracts amounted to $240 and $(1,479) for the years ended December 31, 2018 and 2017, respectively, and were recorded in Revenues, net in the Consolidated Statements of Operations. The cash flows from forward contracts were reported as operating activities in the Consolidated Statements of Cash Flows. The fair value of the forward contracts was $83 at December 31, 2017. The fair value of the forward contracts was recorded in Other current assets in the Consolidated Balance Sheets.

 

Effective March 31, 2017, the Company entered into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $300,000 of its outstanding Term Loan arrangements. Additionally, effective February 28, 2018, the Company entered into another interest rate swap relating to interest payments on $50,000 of its outstanding Term Loan arrangements. These hedging instruments mature on March 31, 2021. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments. This interest rate swap was effective as of December 31, 2018 and 2017. The fair value of the interest rate swaps is recorded in Other long-term assets according to the duration of related cash flows. The total fair value of interest rate swap asset was $3,644 and $1,107 at December 31, 2018 and 2017, respectively.

 

Note 10:    Fair Value Measurements

 

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 — Quoted prices in active markets for identical assets or liabilities.

 

F-28 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Level 2 — Observable inputs other than quoted prices include in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 — Unobservable inputs that are support by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Below is a summary of the valuation techniques used in determining fair value:

 

Derivatives — Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. See Note 9 — Derivative Instruments for additional information.

 

Contingent consideration — The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenues, net new business and operating forecasts and the probability of achieving the specific targets. See Note 4 — Business Combinations for additional information.

 

The following inputs and assumptions were used to value the foreign exchange contract derivative liabilities outstanding during the years ended December 31, 2018 and 2017:

  

   December 31, 
   2018   2017 
Discount Rate   N/A    1.26 – 1.5% 

 

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. Additionally, the Company has a long-term indemnification asset from the Former Parent, the amount of which is equal to certain tax liabilities incurred prior to the 2016 Transaction. The carrying amount approximates fair value because settlement is expected to be based on the underlying tax amount. The carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs and original issue discount, approximates fair value due to the short-term nature of the interest rate bench mark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of the Company’s debt was $1,950,318 and $2,093,827 at December 31, 2018 and 2017, respectively. The fair value is considered Level 2 under the fair value hierarchy.

 

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

 

The Company has determined that its forward contracts, included in Other current assets, along with the interest rate swaps, included in Accrued expenses and other current liabilities and Other non-current liabilities according to the duration of related cash flows, reside within Level 2 of the fair value hierarchy.

 

The earn-out liability is recorded in Accrued expenses and other current liabilities and Other non-current liabilities and is classified as Level 3 in the fair value hierarchy. Additionally, the earn-out relates to the TrademarkVision and the Publons acquisitions that occurred in 2018 and 2017, respectively. The amount payable is contingent upon the achievement of certain company specific milestones and performance metrics over a 1-year and 3-year period, respectively, including number of cumulative users, cumulative reviews and annual revenues. In accordance with ASC 805, we estimated the fair value of the earn-out using a Monte Carlo simulation. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. Significant changes in the key assumptions and inputs could result in a significant change in the fair value measurement of the earn-out. As of December 31, 2018, there were no significant changes in the range of outcomes for the earn out.

 

F-29 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

There were no transfers of assets or liabilities between levels during the years ended December 31, 2018 and 2017.

 

The following inputs and assumptions were used to value the earn-out liability as of December 31, 2018:

 

TrademarkVision    
Risk free rate    2.77%
Discount  rate   8.09%
Expected life (in years)   1.54 
      
Publons     
Risk free rate      2.34 – 2.63%
Discount  rate       9.23 – 9.72 %
Expected life (in years)        1.04 – 3.04 

 

The following inputs and assumptions were used to value the earn-out liability as of December 31, 2017:

 

Publons     
Risk free rate   1.17 – 1.62%
Discount  rate   11.44 – 11.90 %
Expected life (in years)     1.12 – 4.12 

 

The following table presents the changes in the earn-out, the only Level 3 item, for the years ended December 31, 2018 and 2017.

 

Balance as of December 31, 2016  $ 
Earn-out liability  5,900 
Balance at December 31, 2017   5,900 
Business combinations   4,115 
Payment of Earn-out liability(1)   (2,470)
Revaluations included in earnings   (470)
Balance as of December 31, 2018  $7,075 

 

 

 

(1)See Note 19: Commitments and Contingencies for further details.

 

F-30 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The following table provides a summary of the Company’s assets and liabilities that were recognized at fair value on a recurring basis as at December 31, 2018 and 2017:

 

   December 31, 2018 
   Level 1   Level 2   Level 3  

Total Fair

Value

 
                 
Assets                    
Interest rate swap asset  $   $3,644   $   $3,644 
        3,644        3,644 
Liabilities                    
Earn-out           7,075    7,075 
Total  $   $   $7,075   $7,075 

 

   December 31, 2017 
   Level 1   Level 2   Level 3   Total Fair
Value
 
                 
Assets                    
Forward contracts  asset  $   $83   $   $83 
Interest rate swap asset       1,107        1,107 
        1,190        1,190 
Liabilities                    
Earn-out Liability           5,900    5,900 
Total  $   $   $5,900   $5,900 

 

Non-Financial Assets Valued on a Non-Recurring Basis

 

The Company’s long-lived assets, including goodwill and finite-lived intangible assets subject to amortization, are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment. There have been no impairments of the Company’s long-lived assets during any of the periods presented.

 

Finite-lived Intangible Assets — If a triggering event occurs, the Company determines the estimated fair value of finite-lived intangible assets by determining the present value of the expected cash flows.

 

Indefinite-lived Intangible Asset — If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.

 

Note 11:    Pension and Other Post-Retirement Benefits

 

Retirement Benef its

 

Defined contribution plans

 

Employees participate in various defined contribution savings plans that provide for Company-matching contributions. Costs for future employee benefits are accrued over the periods in which employees earn the benefits. Total expense related to defined contribution plans was $13,170 for the year ended December 31, 2018 and $12,488 for the year ended December 31, 2017, which approximates the cash outlays related to the plans.

 

F-31 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Defined benefit plans

 

A limited number of employees participate in noncontributory defined benefit pension plans that are maintained in certain international markets. The plans are managed and funded to provide pension benefits to covered employees in accordance with local regulations and practices. The Company’s obligations related to the defined benefit pension plans is in Accrued expenses and other current liabilities and Other non-current liabilities.

 

The following table presents the changes in projected benefit obligations, the plan assets, and the funded status of the defined benefit pension plans:

 

   December 31, 
   2018   2017 
Obligation and funded status:           
Change in benefit obligation          
Projected benefit obligation at beginning of year  $14,258   $13,621 
Service costs   888    442 
Interest cost   283    168 
Plan participant contributions   109     
Actuarial (gain)/losses   29    (640)
Divestiture   (138)    
Benefit payments   (274)   (123)
Expenses paid from assets   (35)    
Effect of foreign currency translation   (634)   790 
Projected benefit obligation at end of year  $14,486   $14,258 
           
Change in plan assets          
Fair value of plan assets at beginning of year  $5,062   $5,062 
Actual return on plan assets   95     
Plan participant contributions   109     
Employer contributions   460    123 
Benefit payments   (274)   (123)
Expenses paid from assets   (35)    
Effect of foreign currency translation   (233)    
Fair value of plan assets at end of year   5,184    5,062 
Unfunded status  $(9,302)  $(9,196)

  

The following table summarizes the amounts recognized in the consolidated balance sheets related to the defined benefit pension plans:

 

   December 31, 
   2018   2017 
Current liabilities  $(443)  $(342)
Non current liabilities  $(8,859)  $(8,854)
AOCI  $(1,054)  $(1,252)

 

F-32 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The following table provides information for those pension plans with an accumulated benefit obligation in excess of plan assets and projected benefit obligations in excess of plan assets:

 

   December 31, 
   2018   2017 
Plans with accumulated benefit obligation  in excess of plan assets:        
Accumulated benefit obligation  $13,605   $13,499 
Fair value of plan assets  $5,184   $5,062 
Plans with projected benefit obligation  in excess of plan assets:          
Projected benefit obligation  $14,486   $14,258 
Fair value of plan assets  $5,184   $5,062 

 

The components of net periodic benefit cost changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows:

 

   December 31, 
   2018   2017 
Service cost  $888   $442 
Interest cost   283    168 
Expected return on plan assets   (150)    
Amortization of actuarial gains   (78)   (4)
Net period benefit cost  $943   $606 

 

The following table presents the weighted-average assumptions used to determine the net periodic benefit cost as of:

 

   December 31, 
   2018   2017 
Discount rate   2.31%   2.38%
Expected return on plan assets   3.00%   %
Rate of compensation increase   3.76%   4.56%
Social Security increase rate   2.50%   2.50%
Pension increase rate   1.80%   2.00%

 

The following table presents the weighted-average assumptions used to determine the benefit obligations as of:

 

   December 31, 
   2018   2017 
Discount rate   2.26%   2.31%
Rate of compensation increase   3.68%   3.76%
Social Security increase rate   2.50%   2.50%
Pension increase rate   1.80%   1.80%

 

The Company determines the assumptions used to measure plan liabilities as of the December 31 measurement date.

F-33 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

  

The discount rate represents the interest rate used to determine the present value of the future cash flows currently expected to be required to settle the Company’s defined benefit pension plan obligations. The discount rates are derived using weighted average yield curves on corporate bonds. The cash flows from the Company’s expected benefit obligation payments are then matched to the yield curve to derive the discount rates. At December 31, 2018, the discount rates ranged from 0.40% to 7.10% for the Company’s pension plan and postretirement benefit plan. At December 31, 2017, the discount rates ranged from 0.45% to 7.10% for the Company’s pension plan and postretirement benefit plan.

 

Plan Assets

 

The general investment objective for our plan assets is to obtain a rate of investment return consistent with the level of risk being taken and to earn performance rates of return as required by local regulations for our defined benefit plans. For such plans, the strategy is to invest primarily 100% in insurance contracts. Plan assets held in insurance contracts do not have target asset allocation ranges. The expected long-term return on plan assets is estimated based off of historical and expected returns. As of December 31, 2018, the expected weighted-average long-term rate of return on plan assets was 3%.

 

The fair value of our plan assets and the respective level in the far value hierarchy by asset category is as follows:

 

   December 31, 2018   December 31, 2017 
   Level 1   Level 2   Level 3   Total
Assets
   Level 1   Level 2   Level 3   Total
Assets
 
Fair value measurement  of pension plan assets:                                                         
Insurance contract  $        5,184   $5,184   $        5,062   $5,062 

 

The fair value of the insurance contracts is an estimate of the amount that would be received in an orderly sale to a market participant at the measurement date. The amount the plan would receive from the contract holder if the contracts were terminated is the primary input and is unobservable. The insurance contracts are therefore classified as Level 3 investments.

 

The following table provides the estimated pension benefit payments that are payable from the plans to participants as of December 31, 2018 for the following years:

 

2019  $488 
2020   610 
2021   489 
2022   643 
2023   781 
2024 to 2027   4,923 
Total  $7,934 

 

Based on the current status of our defined benefit obligations, we expect to make payments in the amount of $274 to fund these plans in 2019. However, this estimate may change based on future regulatory changes.

 

F-34 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 12:    Debt

 

The following is a summary of the Company’s debt:

 

      December 31, 2018   December 31, 2017 
Type  Maturity  Effective
Interest
Rate
  

Carrying
Value 

  

Effective
Interest
Rate 

  

Carrying
Value

 
Senior Unsecured Notes  2024   7.875%  $500,000    7.875%  $500,000 
Term Loan Facility   2023   5.729%   1,483,993    4.700%   1,530,700 
The Revolving Credit Facility   2021   5.754%   5,000    %    
The Revolving Credit Facility  2021   5.729%   40,000    4.751%   30,000 
Total debt outstanding           2,028,993         2,060,700 
Debt issuance costs           (34,838)        (43,086)
Term Loan Facility, discount           (3,633)        (4,534)
Short-term debt, including current portion  of long-term debt           (60,345)        (45,345)
Long-term  debt, net of current portion  and debt issuance costs          $1,930,177        $1,967,735 

 

The loans were priced at market terms and collectively have a weighted average interest rate and term of 6.259% and 5.473% for the year ended December 31, 2018 and 2017, respectively.

 

Senior Unsecured Notes

 

On October 3, 2016, in connection with the 2016 Transaction, Camelot Finance S.A., a wholly-owned subsidiary of the Company, issued senior unsecured notes (“Notes”) in an aggregate principal amount of $500,000. The Notes bear interest at a rate of 7.875% per annum, payable semi-annually to holders of record in April and October and mature in October 2024. The first interest payment was made April 2017. The Notes include customary covenants, including covenants that restrict, subject to certain exceptions, Bidco’s, and certain of its subsidiaries’, ability to incur indebtedness, issue certain types of stock, incur liens, make certain investments, dispose of assets, make certain types of restricted payments, consolidate or merge with certain entities or enter into certain related party transactions.

 

The Notes are subject to redemption as a result of certain changes in tax laws or treaties of (or their interpretation by) a relevant taxing jurisdiction at 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, and upon certain changes in control at 101% of the principal amount, plus accrued and unpaid interest to the date of purchase. Additionally, at the Company’s election the Notes may be redeemed (i) prior to October 15, 2019 at a redemption price equal to 100% of the aggregate principal amount of Notes being redeemed plus a “make-whole” premium, plus accrued and unpaid interest to the date of redemption or (ii) on October 15 of each of the years referenced below based on the call premiums listed below, plus accrued and unpaid interest to the date of redemption.

 

Period  Redemption Price
(as a percentage of principal)
 
2019   103.938%
2020   101.969%
2021 and thereafter    100.000%

 

F-35 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

  

Senior Secured Credit Facility

 

The Company’s credit agreement, dated as of October 3, 2016 (“Credit Agreement”), initially consisted of a $1,550,000 Term Loan Facility and a $175,000 first lien senior secured revolving credit facility in an aggregate principal amount of $175,000, with a letter of credit sub limit of $25,000 (“Revolving Credit Facility”). The Revolving Credit Facility carries an interest rate at LIBOR plus 3.25% per annum or Prime plus a margin of 2.25% per annum, as applicable depending on the borrowing, and matures on October 3, 2021. The Revolving Credit Facility interest rate margins will decrease upon the achievement of certain first lien net leverage ratios (as the term is used in the Credit Agreement). The Term Loan Facility consisted of a $651,000 borrowing by Camelot Finance LP, a subsidiary of Onex Corporation, and an $899,000 borrowing by Camelot Cayman LP, a subsidiary of Onex Corporation (collectively “Tower Borrowers”). The proceeds of the loans to Tower Borrowers were, in turn, loaned to the Company in loans with identical principal amounts and substantially similar repayment terms. In addition to the interest rates above the Company pays 0.1% interest to the Tower Borrowers. Camelot Finance LP was dissolved on December 31, 2017, at which time Credit Suisse AG, Cayman Islands Branch, acting as the administrative agent for the respective portion of the Term Loan Facility, became the direct lender to the Company. The Term Loan Facility matures on October 3, 2023. Principal repayments under the Term Loan Facility are due quarterly in an amount equal to 0.25% of the aggregate outstanding principal amount borrowed under the Term Loan Facility on October 3, 2016 and on the maturity date, in an amount equal to the aggregate outstanding principal amount on such date, together in each case, with accrued and unpaid interest. In connection with the Term Loan Facility, the Company incurred $64,888 of debt issuance costs.

 

On April 6, 2017, and November 16, 2017, the Borrowers and the other loan parties entered into Amendments (the “Amendments”) to the Credit Agreement in order to (i) reduce the margins under the existing senior secured U.S. dollar-denominated Term Loan Facility to LIBOR plus 3.50%, and 3.25%, respectively, per annum (with a 1.00% LIBOR floor) or Prime plus 2.25% per annum, as applicable, and (ii) reset the prepayment premium of 101% on certain prepayments and amendments of the Term Loan Facility in connection with re-pricing events (“Amended Term Loan Facility”). In addition, the Company pays 0.1% interest to the Tower Borrowers. Effective December 31, 2017, the Company no longer pays interest to Camelot Finance LP. The Amended Term Loan Facility was $1,534,539. As a result of the Amendments, debt issuance costs and debt discounts of $13,892, which had been capitalized in connection with the original Term Loan Facility issued on October 3, 2016, were written off to Interest expense, net in the Consolidated Statements of Operations as extinguishment charges for the year ended December 31, 2017. The Amendments also provided for a 0.25% step-down in margin once UK Holdco achieves a B2 corporate family rating from Moody’s. Except as noted above, all other terms of the Amended Term Loan Facility are substantially similar to terms of the Company’s existing Term Loan Facility.

 

Upon sale of the IPM Product Line and related assets, the Company made an excess cash payment of $31,378 toward the Company’s Term Loan Facility in accordance with the Credit Facility.

 

The Revolving Credit Facility provides for revolving loans, same-day borrowings and letters of credit pursuant to commitments in an aggregate principal amount of $175,000 with a letter of credit sublimit of $25,000. Proceeds of loans made under the Revolving Credit Facility may be borrowed, repaid and reborrowed prior to the maturity of the Revolving Credit Facility. Our ability to draw under the Revolving Credit Facility or issue letters of credit thereunder will be conditioned upon, among other things, delivery of required notices, accuracy of the representations and warranties contained in the Credit Agreement and the absence of any default or event of default under the Credit Agreement.

 

With respect to the Amendments, the Company may be subject to certain negative covenants, including either a fixed charge coverage ratio, total first lien net leverage ratio, or total net leverage ratio if certain conditions are met. These conditions were not met and the Company was not required to perform these covenants as of December 31, 2018.

F-36 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The obligations of the borrowers under the Credit Agreement are guaranteed by UK Holdco and certain of its restricted subsidiaries and are collateralized by substantially all of UK Holdco’s and certain of its restricted subsidiaries’ assets (with customary exceptions described in the Credit Agreement). UK Holdco and its restricted subsidiaries are subject to certain covenants including restrictions on UK Holdco’s ability to pay dividends, incur indebtedness, grant a lien over its assets, merge or consolidate, make investments, or make payments to affiliates.

 

As of December 31, 2018, letters of credit totaling $2,002 were collateralized by the Revolving Credit Facility. Notwithstanding the Revolving Credit Facility, as of December 31, 2018 the Company had an unsecured corporate guarantee outstanding for $9,639 and cash collateralized letters of credit totaling $38, all of which were not collateralized by the Revolving Credit Facility. The Company borrowed $45,000 and $30,000 against the Revolving Credit Facility as of December 31, 2018 and 2017, respectively, to support current operations. The Company’s cash from operations is expected to meet repayment needs for the next twelve months.

 

Amounts due under all of the outstanding borrowings as of December 31, 2018 for the next five years are as follows:

 

2019  $60,345 
2020   15,345 
2021   15,345 
2022   15,345 
2023   1,422,613 
Thereafter   500,000 
Total maturities   2,028,993 
Less: capitalized debt issuance costs and original issue discount   (38,471)
Total debt outstanding as of December 31, 2018  $1,990,522 

 

Note 13:    Revenue

 

Disaggregated Revenues

 

The tables below show the Company’s disaggregated revenues for the periods presented:

 

   Years Ended December 31, 
   2018   2017 
Subscription revenues  $794,097   $785,717 
Transaction revenues   177,523    181,590 
Total revenues, gross   971,620    967,307 
Deferred revenues adjustment(1)   (3,152)   (49,673)
Total Revenues, net  $968,468   $917,634 

 

 

 

(1)This accounting adjustment relates to the 2016 Transaction, which included a revaluation of deferred revenues to account for the difference in value between the customer advances retained by the Company upon the consummation of the 2016 Transaction and our outstanding performance obligations related to those advances.

 

F-37 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Cost to Obtain a Contract

 

The Company has prepaid sales commissions included in both Prepaid expenses and Other non-current assets on the balance sheets. The amount of prepaid sales commissions included in Prepaid expenses was $10,407 and $8,285 as of December 31, 2018 and 2017, respectively. The amount of prepaid sales commissions included in Other non-current assets was $9,493 and $5,457 as of December 31, 2018 and 2017, respectively. Amortization expense of the commission balances amounted to $9,995 and $4,335 for the years ended December 31, 2018 and 2017, respectively. The Company has not recorded any impairments against these prepaid sales commissions.

 

Contract Balances

 

   Accounts
receivables
   Current portion
of deferred
revenues
   Non-current
portion of
deferred revenues
 
Opening (1/1/2018)   $317,808   $361,260   $15,796 
Closing (12/31/2018)   331,295    391,102    17,112 
Increase/(decrease)  $(13,487)  $(29,842)  $(1,316)
                
Opening (1/1/2017)   $361,586   $333,944   $18,602 
Closing (12/31/2017)   317,808    361,260    15,796 
Increase/(decrease)  $43,778   $(27,316)  $2,806 

 

The amount of revenues recognized in the period that were included in the opening deferred revenues current and long-term balances were $361,260. This revenue consists primarily of subscription revenue.

 

Transaction Price Allocated to the Remaining Performance Obligation

 

As of December 31, 2018, approximately $68,394 of revenue is expected to be recognized in the future from remaining performance obligations, excluding contracts with durations of one year or less. The Company expects to recognize revenue on approximately 63% of these performance obligations over the next 12 months. Of the remaining 37%, 21% is expected to be recognized within the following year, with the final 16% expected to be recognized within years 3 to 9.

 

Note 14:    Shareholders’ Equity

 

Shareholders’ Equity

 

In March 2017, the Company formed the Management Incentive Plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees receive a corresponding number of options to acquire additional ordinary shares subject to five year vesting. See “Note 15 — Employment and Compensation Arrangements” for additional detail related to the options. The Company has received net subscriptions for 1,503 and 9,220 shares during the years ended December 31, 2018 and 2017, respectively. Additionally, the Company granted 500 ordinary shares in exchange for services provided during the year ended December 31, 2017. At December 31, 2018, the number of shares issued and outstanding under the Management Incentive Plan was 11,223.

 

F-38 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 15:    Employment and Compensation Arrangements

 

Employee Incentive Plans

 

The Company’s 2016 Equity Incentive Plan provides for certain employees of the Company to be eligible to participate in equity ownership in the Company. Equity awards may be issued in the form of options to purchase shares of the Company which are exercisable upon the occurrence of conditions specified within individual award agreements. Equity awards may also be issued in the form of restricted shares with dividend rights subject to vesting terms and conditions specified in individual award agreements. Additionally, the Company may make available share purchase rights under the terms of the 2016 Equity Incentive Plan. Total share-based compensation expense included in the Consolidated Statements of Operations amounted to $13,715 and $17,663 for the years ended December 31, 2018 and 2017, respectively. The total associated tax benefits recognized amounted to $2,740 and $3,192 for the years ended December 31, 2018 and 2017, respectively.

 

The Company’s Management Incentive Plan provides for certain employees of the Company to be eligible to purchase shares of the Company. See Note 14 — Shareholders’ Equity for additional information. Along with each subscription, employees may receive a corresponding number of options to acquire additional ordinary shares subject to five year vesting.

 

The Company issues shares for stock options from authorized shares. At December 31, 2018, the Company was authorized to grant up to 250,000 stock options under its existing stock incentive plans. As of December 31, 2018 and 2017, 64,399 and 79,307, respectively, stock options have not been granted.

 

As of December 31, 2018 and 2017, there was $19,637 and $29,633, respectively, of total unrecognized compensation cost, related to outstanding stock options, which is expected to be recognized through 2023 with a remaining weighted-average service period of 5.0 years.

 

The Company’s stock option activity is summarized below:

 

   Number
of
Options
   Weighted Average
Exercise Price per
Share
   Weighted Average
Remaining
Contractual Life
   Aggregate
Intrinsic
Value
 
Outstanding as of December 31, 2017   170,693   $1,572    9.3   $2,262 
Granted   31,178    1,678    9.7     
Forfeited  and expired   (16,270)   1,601         
Outstanding as of December 31, 2018   185,601   $1,587    8.5   $13,293 
Vested and exercisable at December 31, 2018    50,364   $1,568    8.3   $3,880 

 

The aggregate intrinsic value in the table above represents the difference between the Company’s most recent valuation and the exercise price of each in-the-money option on the last day of the period presented.

 

No stock options were exercised in the years ended December 31, 2018 or 2017. The weighted-average fair value of options granted per share was $244 and $253 as of December 31, 2018 and 2017, respectively.

 

F-39 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

  

The Company accounts for awards issued under the Equity Incentive Plan as additional contributions to equity. Share-based compensation includes expense associated with stock option grants which is estimated based on the grant date fair value of the award issued. Share-based compensation expense related to stock options is recognized over the vesting period of the award, which is generally five years, on a graded-scale basis. The Company uses the Black-Scholes option pricing model to estimate the fair value of options granted. The Black-Scholes model takes into account the fair value of an ordinary share and the contractual and expected term of the stock option, expected volatility, dividend yield, and risk-free interest rate. The fair value of our ordinary shares is determined utilizing an external third party pricing specialist. The contractual term of the option ranges from the 1 year to 10 years. While the Company does not have any history for expected terms, employees do not have any specific benefit to exercise the options before the terms are met as the shares are not freely tradable, and as such an expected term near the high end of the contractual range is deemed most appropriate. Expected volatility is the average volatility over the expected terms of comparable public entities from the same industry historical data. The risk-free interest rate is based on a treasury rate with a remaining term similar to the contractual term of the option. The Company is recently formed and at this time does not expect to distribute any dividends. The Company recognizes forfeitures as they occur and does not expect to have material forfeitures. The assumptions used to value the Company’s options granted during the period presented and their expected lives were as follows:

 

   December 31, 
   2018   2017 
Weighted-average expected dividend yield        
Expected volatility    21.00 – 23.05%   24.84 – 27.90%
Weighted-average expected volatility   21.86%   27.50%
Weighted-average risk-free interest rate   3.02%   2.53%
Expected life (in years)    8.5    9.0 

 

Note 16:    Income Taxes

 

Income tax (benefit)/expense on income/(loss) analyzed by jurisdiction is as follows:

 

   Years Ended December 31, 
   2018   2017 
Current        
U.K.   $1,014   $(142)
U.S. Federal   6,395    5,202 
U.S. State   2,146    833 
Other   11,061    8,552 
Total current   20,616    14,445 
           
Deferred          
U.K.    85    (427)
U.S. Federal   (5,465)   (10,648)
U.S. State   (227)   (142)
Other   (9,360)   (24,521)
Total deferred(1)   (14,967)   (35,738)
Total provision (benefit) for income taxes  $5,649   $(21,293)

 

 

 

(1)Due to rate reductions in the U.S. and Belgium enacted in the 4th quarter of 2017.

  

The components of pre-tax loss are as follows:

 

   Years Ended December 31, 
   2018   2017 
U.K  $(222,043)  $(211,944)
U.S   (11,880)   (58,054)
Other loss   (2,590)   (15,225)
Pre-tax loss  $(236,513)  $(285,223)

 

F-40 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

A reconciliation of the statutory U.K. income tax rate to the Company’s effective tax rate is as follows:

 

   Years Ended December 31, 
   2018   2017 
Loss before tax:   $(236,513)  $(285,223)
Income tax, at the statutory rate   (44,937)   (54,905)
Statutory rate(1)   19.0%   19.3%
Effect of different tax rates    (1.2)%   3.3%
Tax rate modifications(2)   %   5.7%
Valuation Allowances   (18.0)%   (20.8)%
Permanent differences   (0.7)%   0.3%
Withholding tax   (0.2)%   (0.3)%
Tax indemnity   (2.7)%   %
Sale of Subsidiary    2.2%   %
Other   (0.8)%   %
Effective rate    (2.4)%   7.5%

  

 

 

(1)The Company performs a reconciliation of the income tax provisions based on its domicile and statutory rate. Reconciliations are based on the U.K. statutory corporate tax rate.

 

(2)Due to rate reductions in the U.S. and Belgium enacted in the 4th quarter of 2017.

 

The tax effects of the significant components of temporary differences giving rise to the Company’s deferred income tax assets and liabilities are as follows:

 

   December 31, 
   2018   2017 
Accounts receivable  $916   $1,310 
Goodwill       1,217 
Fixed assets, net       1,670 
Accrued expenses   3,735    3,417 
Deferred revenues   3,570    915 
Other assets   9,655    4,700 
Unrealized gain/loss   74    528 
Debt issuance costs   1,199     
Operating losses and tax attributes   135,219    94,571 
Total deferred tax assets   154,368    108,328 
Valuation allowances   (133,856)   (92,812)
Net deferred tax assets   20,512    15,516 
Other identifiable intangible assets, net   (43,247)   (57,082)
Other liabilities    (7,785)   (3,286)
Goodwill   (42)    
Fixed Assets, net   (238)    
Debt issuance costs       (116)
Total deferred tax liabilities   (51,312)   (60,484)
Net deferred tax liabilities   $(30,800)  $(44,968)

 

F-41 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

In the Consolidated Balance Sheets, deferred tax assets and liabilities are shown net if they are in the same jurisdiction. The components of the net deferred tax liabilities as reported on the Consolidated Balance Sheets are as follows:

  

   December 31, 
   2018   2017 
Deferred tax asset  $12,426   $6,824 
Deferred tax liability   (43,226)   (51,792)
Net deferred tax liability  $(30,800)  $(44,968)

 

The Tax Cuts and Jobs Act (the Act) was enacted in the US on December 22, 2017. Of most relevance to the Company, the Act reduced the US federal corporate income tax rate to 21% from 35%, established a Base Erosion Anti-Abuse Tax (“BEAT”) regime and changed the provisions limiting current interest deductions and use of NOL carryforwards. Certain new provisions are effective for the Company beginning December 1, 2018 and did not have a material impact to the 2018 financial statements.

 

SAB 118 measurement period

 

We applied the guidance in SAB 118 when accounting for the enactment-date effects of the Act in 2017 and throughout 2018. At December 31, 2017, we had not completed our accounting for all of the enactment-date income tax effects of the Act under ASC 740, Income Taxes, for the remeasurement of deferred tax assets and liabilities and recorded a provisional tax benefit amount of $2,237 under SAB 118. At December 31, 2018, we have now completed our accounting for all of the enactment-date income tax effects of the Act. As further discussed above, during 2018, we did not recognize any adjustments to the provisional amounts recorded at December 31, 2017.

 

Deferred tax assets and liabilities

 

As of December 31, 2017, we remeasured certain deferred tax assets and liabilities based on the rates at which they were expected to reverse in the future (which was generally 21% for the US and 25% for Belgium), by recording a tax benefit amount of $2,237 (provisional) related to the US and $14,290 related to Belgium. Upon further analysis and refinement of our calculations during the 12 months ended December 31, 2018, it was determined that no adjustment to these amounts was necessary.

 

The Company is required to assess the realization of its deferred tax assets and the need for a valuation allowance. The assessment requires judgment on the part of management with respect to benefits that could be realized from future taxable income. The valuation allowance is $133,856 and $92,812 at December 31, 2018 and 2017, respectively against certain deferred tax assets, as it more likely than not that such amounts will not be fully realized. During the years ended December 31, 2018 and 2017, the valuation allowance increased by $41,044 and $44,633, respectively, primarily due to operating losses in certain jurisdictions and an increase in deferred tax assets with a full valuation allowance. The increases were partially offset by the release of valuation allowances in jurisdictions with current year operating income.

 

At December 31, 2018, the Company had U.K. tax loss carryforwards of $352,632, Japan tax loss carryforwards of $58,901, U.S. federal tax loss carryforwards of $104,122, tax loss carryforwards in other foreign jurisdictions of $18,495, and U.S. state tax loss carryforwards of $67,823. The majority of the unrecognized deductible tax losses relate to UK, US, and Japan. The carryforward period for the Japan tax losses is nine years, and the expiration period begins 2025. The carryforward period for the UK tax losses is indefinite. The carryforward period for US federal tax losses is twenty years for losses generated in tax years ended prior to December 31, 2017. The expiration period for these losses begins in 2036. For US losses generated in tax years beginning after January 1, 2018, the carryforward period is indefinite. The carryforward period for US state losses varies, and the expiration period is between 2018 and 2036.

 

F-42 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The Company has not provided income taxes and withholding taxes on the undistributed earnings of foreign subsidiaries as of December 31, 2018 because the Company intends to permanently reinvest such earnings. As of December 31, 2018, the cumulative amount of earnings upon which income taxes and withholding taxes have not been provided is approximately $7,748. Determination of the amount of unrecognized deferred tax liability related to these earnings is not practicable.

 

Uncertain Tax Positions

 

Unrecognized tax benefits represent the difference between the tax benefits that we are able to recognize for financial reporting purposes and the tax benefits that we have recognized or expect to recognize in filed tax returns. The total amount of net unrecognized tax benefits that, if recognized, would impact the Company’s effective tax rate were $1,450 and $91 as of December 31, 2018 and 2017, respectively.

 

The Company recognizes accrued interest and penalties associated with uncertain tax positions as part of the tax provision. As of December 31, 2018, the interest and penalties are $449 and as of December 31, 2017, the interest and penalties are $5. It is reasonably possible that the amount of unrecognized tax benefits will change during the next 12 months by a range of $0 to $252.

 

The Company files income tax returns in the United States and various non-U.S. jurisdictions. As of December 31, 2018, the Company’s open tax years subject to examination were 2014 through 2018.

 

The following table summarizes the Company’s unrecognized tax benefits, excluding interest and penalties:

 

   December 31, 
   2018   2017 
Balance at the Beginning of the year    $91   $211 
Increases for tax positions taken in prior years   1,339     
Increases for tax positions taken in the current year    72     
Decreases due to statute expirations    (52)   (120)
Balance at the End of the year  $1,450   $91 

 

Note 17:    Earnings per Share

 

Potential common shares of 185,601 and 170,693 related to options under the employee incentive plan were excluded from diluted EPS for the years ended December 31, 2018 and 2017, respectively, as the Company had a net loss for the years ended December 31, 2018 and 2017. See “Note 15 — Employment and Compensation Arrangements.”

 

The basic and diluted EPS computations for our common stock are calculated as follows (in thousands, except per share amounts):

 

   Years Ended December 31, 
   2018   2017 
Basic/Diluted EPS          
Net loss  $(242,162)  $(263,930)
Preferred stock dividends         
Income available to common stockholders  $(242,162)  $(263,930)
Weighted-average number of common shares outstanding   1,645,818    1,641,095 
Basic EPS  $(147.14)  $(160.83)
Diluted EPS  $(147.14)  $(160.83)

 

F-43 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 18:    Product and Geographic Sales Information

 

The Company’s chief operating decision maker (“CODM”) assesses Company-wide performance and allocates resources based on consolidated financial information. As such, the company has one operating and reportable segment. The CODM evaluates performance based on profitability.

 

No single customer accounted for more than 1% of revenues and our ten largest customers represented only 6% and 7% of revenues for the years ended December 31, 2018 and 2017, respectively.

 

Revenues by geography

 

The following table summarizes revenues from external customers by geography, which is based on the location of the customer:

 

   Years Ended December 31, 
  2018   2017 
Revenues:        
North America   $450,356   $455,791 
Europe    242,415    243,245 
APAC   209,118    201,234 
Emerging Markets    69,731    67,037 
Deferred revenues adjustment   (3,152)   (49,673)
Total  $968,468   $917,634 

 

Assets by geography

 

Assets are allocated based on operations and physical location. The following table summarizes non-current assets other than financial instruments and deferred tax assets by geography:

 

   December 31, 
  2018   2017 
Assets:        
North America   $1,036,192   $1,163,704 
Europe    2,145,073    2,294,998 
APAC   79,487    68,034 
Emerging Markets    24,241    26,533 
Total  $3,284,993   $3,553,269 

 

Revenue by product group

 

The following table summarizes revenue by product group (in thousands):

 

   Years Ended December 31, 
   2018   2017 
Web of Science Product Line  $361,957   $352,995 
Cortellis Product Line   169,225    169,299 
Science Group   531,182    522,294 
Derwent Product Line   176,016    172,897 
MarkMonitor Product Line   122,947    120,408 

 

F-44 

 

  

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

   Years Ended December 31, 
   2018   2017 
CompuMark Product Line    121,025    119,854 
Intellectual Property Group   419,988    413,159 
IP Management Product Line   20,450    31,854 
Deferred revenues adjustment   (3,152)   (49,673)
Total  $968,468   $917,634 

 

Note 19:    Commitments and Contingencies

 

The Company does not have any recorded or unrecorded guarantees of the indebtedness of others.

 

Contingencies

 

Lawsuits and Legal Claims

 

The Company is engaged in various legal proceedings, claims, audits and investigations that have arisen in the ordinary course of business. These matters include, but are not limited to, antitrust/competition claims, intellectual property infringement claims, employment matters and commercial matters. The outcome of all of the matters against the Company is subject to future resolution, including the uncertainties of litigation. Based on information currently known to the Company and after consultation with outside legal counsel, management believes that the ultimate resolution of any such matters, individually or in the aggregate, will not have a material impact on the Company’s financial condition taken as a whole.

 

Contingent Liabilities

 

In conjunction with the acquisition of Publons, the Company agreed to pay former shareholders up to an additional $9,500 through 2020. Amounts payable are contingent upon Publons’ achievement of certain milestones and performance metrics. The Company paid $2,470 of the contingent purchase price in the year ended December 31, 2018, as a result of Publons achieving the first tier of milestones and performance metrics. The Company had an outstanding liability for $2,960 and $5,900 related to the estimated fair value of this contingent consideration as of December 31, 2018 and 2017, respectively. The outstanding balance consisted of $1,600 and $2,250 included in Accrued expenses and other current liabilities, and $1,360 and $3,650 included in Other non-current liabilities in the Consolidated Balance Sheets as of December 31, 2018 and 2017 respectively.

 

In conjunction with the acquisition of Kopernio, the Company agreed to pay former shareholders up to an additional $3,500 through 2021. Amounts payable are contingent upon Kopernio’s achievement of certain milestones and performance metrics and will be recognized over the concurrent service period.

 

In conjunction with the acquisition of TrademarkVision, the Company agreed to pay former shareholders a potential earn-out dependent upon achievement of certain milestones and financial performance metrics through 2020. Amounts payable are contingent upon TrademarkVision’s achievement of certain milestones and performance metrics. As of December 31, 2018, the Company had an outstanding liability for $4,115 related to the estimated fair value of this contingent consideration, of which $4,115 was included in Other non-current liabilities in the Consolidated Balance Sheets.

 

Tax Indemnity

 

In connection with the 2016 Transaction, the Company recorded certain tax indemnification assets pursuant to the terms of the separation and indemnified liabilities identified therein. As a result of counterparty dispute related to certain of the indemnification claims, the Company wrote off $33,819 accumulated foreign currency impacts. Management continues to interpret the contractual obligation due from Former Parent and its controlled entities (“Thomson Reuters”) as due in full. The asset write down was recorded within Other operating income (expense), net within the Consolidated Statement of Operations. Although the claim has uncertainty of collectability, the Company will continue to vigorously defend its claim for the full value of the indemnity, including the filing of formal legal claims as necessary.

 

F-45 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Commitments

 

Leases

 

The Company enters into operating leases in the ordinary course of business, primarily for real property and equipment. Payments for these leases are contractual obligations as scheduled per each agreement. Total rental expense under operating leases amounted to $25,527 for the year ended December 31, 2018. The total rental expense under operating leases amounted to $17,255 for the year ended December 31, 2017.

 

The future aggregate minimum lease payments as of December 31, 2018 under all non-cancelable operating leases for the years noted are as follows:

 

 

Year ended December 31,    
2019  $22,140 
2020   19,531 
2021   17,240 
2022   15,333 
2023   14,944 
Thereafter   40,367 
Total operating  lease commitments  $129,555 

 

In connection with certain leases, the Company guarantees the restoration of the leased property to a specified condition after completion of the lease period. As of December 31, 2018 and 2017, the liability of $4,100 and $4,200, respectively, associated with these restorations is recorded within other liabilities.

 

There were no material future minimum sublease payments to be received under non-cancelable subleases at December 31, 2018. There was no material sublease income as of December 31, 2018 and 2017, respectively.

 

Unconditional purchase obligations

 

Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions. The Company has various purchase obligations for materials, supplies, outsourcing and other services contracted in the ordinary course of business. These items are not recognized as liabilities in our consolidated financial statements but are required to be disclosed. The contractual terms of these purchase obligations extend through 2021. The Company paid $71,859 towards these purchase obligations during the year ended December 31, 2018.

 

F-46 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

The future unconditional purchase obligations as of December 31, 2018 are as follows:

 

Year ended December 31,    
2019  $34,321 
2020   24,370 
2021   8,151 
2022   13 
Total  $66,855 

 

Note 20:    Related Party and Former Parent Transactions

 

Onex Partners Advisor LP (“Onex”), an affiliate of the Company, is considered a related party. Concurrent with the 2016 Transaction, the Company entered into a Consulting Services Agreement with Onex, pursuant to which the Company is provided certain ongoing strategic and financing consulting services in exchange for a quarterly management fee. In connection with this agreement, the Company recognized $920 and $1,230 in operating expenses related to this agreement for the years ended December 31, 2018 and 2017, respectively. As noted in Note 12 — Debt, the Company pays 0.1% interest per annum to Onex for the Credit Agreement. For the years ended December 31, 2018 and 2017, the Company recognized interest expense, for Onex related interest, of $905 and $1,557, respectively. The Company had an outstanding liability of $450 and $162 to Onex as of December 31, 2018 and 2017, respectively.

 

Baring, an affiliate of the Company, is considered a related party. Concurrently with the 2016 Transaction, the Company entered into a Management Services Agreement with Baring, pursuant to which the Company is provided certain ongoing strategic and financing consulting services. In connection with this agreement, the Company recognized $669 and $854 in operating expenses related to this agreement for the years ended December 31, 2018 and 2017, respectively. The Company had an outstanding liability of $334 and $641 to Baring as of December 31, 2018 and 2017, respectively.

 

The fees to Onex and Baring were negotiated at a rate that management believes is appropriate and reasonable for the value of the services being provided, and is commensurate with the fee that would be charged by independent third parties for similar services.

 

In connection with the 2016 Transaction, Bidco and a subsidiary of the Former Parent entered into the Transition Service Agreement, which became effective on October 3, 2016, pursuant to which such subsidiary of the Former Parent will, or will cause its affiliates and/or third-party service providers to, provide Bidco, its affiliates and/or third-party service providers with certain technology, facilities management, human resources, sourcing, financial, accounting, data management, marketing and other services to support the operation of the IP&S business as an independent company. Such services are provided by such subsidiary of the Former Parent or its affiliates and/or third-party service providers for various time periods and at various costs based upon the terms set forth in the Transition Service Agreement.

 

In connection with the acquisition of Publons, the Company paid a $716 consulting fee for the year ended December 31, 2017, which is included in Transaction expenses, to a former member of its Board of Directors.

 

A controlled affiliate of Baring is a vendor of ours. Total payments to this vendor were $531 and $388 for the years ended December 31, 2018 and 2017, respectively. The Company had an outstanding liability of $120 and $199 as of December 31, 2018 and 2017, respectively.

 

One member of our key management is the Co-founder of a vendor of ours. Total payments to this vendor were $865 for the year ended December 31, 2018 and the Company had an outstanding liability of $332 as of December 31, 2018. This vendor was not a related party in 2017.

F-47 

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED 

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts in Thousands, Except Per Share Data, Option Price Amounts, Ratios or As Noted)

 

Note 21:    Subsequent Events

 

On January 14, 2019, the Company entered into a definitive agreement to merge with Churchill Capital Corporation (“Churchill”), a public investment vehicle listed on the New York Stock Exchange (Ticker: CCC). An amendment to this agreement was executed effective February 26, 2019. The Company’s existing shareholders will retain 100% of their equity, which converts to 73.8% ownership of the outstanding shares of the combined company at closing, assuming no redemptions by Churchill’s public stockholders. The remaining outstanding shares of the combined company will be held by the current stockholders and founders of Churchill. The transaction is expected to be completed during the second quarter of 2019, subject to approval by Churchill stockholders and other customary closing conditions. The combined company will be called Clarivate Analytics.

 

Prior to the consummation of the merger, Clarivate will enter into a tax receivable agreement with its current equity holders, which will provide for the sharing of tax benefits relating to certain pre-business combination tax attributes as those tax benefits are realized by Clarivate. Under the Tax Receivable Agreement, the aggregate reduction in income taxes payable will be computed by comparing the actual tax liability of Camelot Holdings (Jersey) Limited and its subsidiaries with the estimated tax liability of applicable entities had such entities not been able to utilize the Covered Tax Assets, taking into account several assumptions including, for example, that the relevant entities will pay U.S. state and local taxes at a rate of 7%, the tax assets existing at the time of the Company’s entry into the Tax Receivable Agreement are deemed to be utilized and give rise to a tax savings before certain other tax benefits, and certain asset or equity transfers by certain of the Company’s subsidiaries will be treated under the Tax Receivable Agreement as giving rise to tax benefits associated with the Covered Tax Assets implicated by such asset or equity transfers. Payments under the Tax Receivable Agreement will generally be made annually in cash, and the amounts payable will be subject to interest from the due date (without extensions) of the applicable tax filing that reflects a covered savings until the payment under the Tax Receivable Agreement is made. Tax Receivable Agreement payments are expected to commence in 2021 (with respect to taxable periods ending in 2019) and will be subject to deferral, at the Company’s election, for payment amounts in excess of $30 million for payments to be made in 2021 and 2022, but will not be subject to deferral thereafter. Amounts deferred under the preceding sentence will accrue interest until paid in accordance with the terms of the Tax Receivable Agreement. The Tax Receivable Agreement is subject to certain events of default that may give rise to an acceleration of the Company’s obligations under the Tax Receivable Agreement. The amount and timing of Tax Receivable Agreement payments, however, may vary based on a number of factors, including the amount, character and timing of our subsidiaries’ taxable income in the future, and any successful challenges to our tax positions. Consequently, we are unable to reliably estimate the timing or amount of payments expected to be made under the Tax Receivable Agreement.

 

Through January 31, 2019, management paid down $15,000 of the $45,000 outstanding Revolving Credit Facility balance as of December 31, 2018.

 

Management has evaluated the impact of events that have occurred subsequent to December 31, 2018 through February 26, 2019, which is the date the financial statements were available for issuance. Based on this evaluation, other than as recorded or disclosed within these consolidated financial statements and related notes, the Company has determined no other events were required to be recognized or disclosed.

 

F-48

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share data)

 

   March 31,
2019
   December 31,
2018
 
Assets          
Current assets:          
Cash and cash equivalents  $28,045   $25,575 
Restricted cash   9    9 
Accounts receivable, less allowance for doubtful accounts of $14,971 and $14,076 at March 31, 2019 and December 31, 2018, respectively   343,113    331,295 
Prepaid expenses   41,487    31,021 
Other current assets   19,745    20,712 
           
Total current assets   432,399    408,612 
Computer hardware and other property, net   19,328    20,641 
Other intangible assets, net   1,911,160    1,958,520 
Goodwill   1,283,275    1,282,919 
Other non-current assets   22,826    26,556 
Deferred income taxes   12,767    12,426 
Operating lease right-of-use assets   95,551     
Total Assets  $3,777,306   $3,709,674 
           
Liabilities and Shareholders’ Equity          
Current liabilities:          
Accounts payable  $43,729   $38,418 
Accrued expenses and other current liabilities   149,250    153,849 
Current portion of deferred revenues   461,928    391,102 
Current portion of operating lease liabilities   26,077     
Current portion of long-term debt   30,345    60,345 
           
Total current liabilities   711,329    643,714 
Long-term debt   1,928,440    1,930,177 
Non-current portion of deferred revenues   17,987    17,112 
Other non-current liabilities   18,102    24,838 
Deferred income taxes   38,937    43,226 
Operating lease liabilities   71,758     
Total liabilities   2,786,553    2,659,067 
Commitments and Contingencies (Note 14)          
Shareholders’ equity:          
Share capital, $0.01 par value; 2,000,000 shares authorized at March 31, 2019 and December 31, 2018; 1,646,223 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively   16    16 
Additional paid-in capital   1,680,670    1,677,494 
Accumulated other comprehensive income   1,588    5,358 
Accumulated deficit   (691,521)   (632,261)
Total shareholders’ equity   990,753    1,050,607 
Total Liabilities and Shareholders’ Equity  $3,777,306   $3,709,674 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

F-49

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Statements of Operations (Unaudited)

(In thousands)

 

   Three Months Ended March 31, 
   2019   2018 
Revenues, net  $234,025   $237,027 
           
Operating costs and expenses:          
Cost of revenues, excluding depreciation and amortization   (89,267)   (105,170)
Selling, general and administrative costs, excluding depreciation and amortization   (92,296)   (95,327)
Share-based compensation expense   (3,176)   (4,180)
Depreciation   (2,051)   (1,401)
Amortization   (56,106)   (57,131)
Transaction expenses   (10,270)   (593)
Transition, integration and other related expenses   (1,161)   (19,479)
Other operating income (expense), net   (5,617)   362 
Total operating expenses   (259,944)   (282,919)
Loss from operations   (25,919)   (45,892)
Interest expense   (33,101)   (30,799)
Loss before income tax   (59,020)   (76,691)
Provision for income taxes   (240)   (346)
Net loss  $(59,260)  $(77,037)
           
Per Share:          
Basic  $(36.00)  $(46.84)
Diluted  $(36.00)  $(46.84)
           
Weighted-average shares outstanding          
Basic   1,646,223    1,644,827 
Diluted   1,646,223    1,644,827 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

F-50

 

  

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

 

   Three Months Ended March 31, 
   2019   2018 
Net loss  $(59,260)  $(77,037)
Other comprehensive loss, net of tax:          
Interest rate swaps   (1,946)   3,498 
Foreign currency translation adjustments   (1,824)   3,038 
Total other comprehensive income (loss), net of tax   (3,770)   6,536 
Comprehensive loss  $(63,030)  $(70,501)

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

F-51

 

  

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Statement of Changes in Equity (Unaudited)

(In thousands, except share data)

 

   Share Capital  

Additional

Paid-In

  

Accumulated

Other

Comprehensive

   Accumulated  

Total

Shareholders’

 
   Shares   Amount   Capital   Income (Loss)   Deficit   Equity 
Balance at December 31, 2017   1,644,720   $16   $1,662,205   $13,984   $(390,099)  $1,286,106 
Issuance of common stock, net   971        1,014            1,014 
Share-based compensation           4,180            4,180 
Comprehensive income (loss)               6,536    (77,037)   (70,501)
Balance at March 31, 2018   1,645,691   $16   $1,667,399   $20,520   $(467,136)  $1,220,799 
                               
Balance at December 31, 2018   1,646,223   $16   $1,677,494   $5,358   $(632,261)  $1,050,607 
Share-based compensation           3,176            3,176 
Comprehensive loss               (3,770)   (59,260)   (63,030)
Balance at March 31, 2019   1,646,223   $16   $1,680,670   $1,588   $(691,521)  $990,753 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

F-52

 

  

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   Three Months Ended March 31, 
   2019   2018 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net loss  $(59,260)  $(77,037)
Adjustments to reconcile net loss to net cash provided by operating activities:          
Depreciation and amortization   58,157    58,532 
Bad debt expense   689    671 
Deferred income tax benefit   (3,946)   (3,295)
Share-based compensation   3,176    4,180 
Deferred finance charges   2,099    2,155 
Other operating activities   5,440    (1,173)
Changes in operating assets and liabilities:          
Accounts receivable   (13,362)   5,226 
Prepaid expenses   (9,813)   (6,574)
Other assets   (1,507)   (5,286)
Accounts payable   4,942    2,344 
Accrued expenses and other current liabilities   (9,049)   (10,947)
Deferred revenue   68,929    70,986 
Operating lease right of use assets   5,696     
Operating lease liabilities   (5,750)    
Other liabilities   (3,988)   (1,604)
           
Net cash provided by operating activities   42,453    38,178 
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Capital expenditures   (5,957)   (13,059)
Acquisition, net of cash acquired       (3,497)
           
Net cash used in investing activities   (5,957)   (16,556)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Repayment of principal on long-term debt   (3,836)   (3,834)
Repayment of Revolving Credit Facility   (30,000)   (30,000)
Issuance of common stock, net
       1,014 
           
Net cash used in financing activities   (33,836)   (32,820)
Effects of exchange rates   (190)   2,016 
           
Net increase (decrease) in cash and cash equivalents, and restricted cash   2,470    (9,182)
Beginning of period:          
Cash and cash equivalents   25,575    53,186 
Restricted cash   9    24,362 
Total cash and cash equivalents, and restricted cash, beginning of period   25,584    77,548 
Cash and cash equivalents, and restricted cash, end of period   28,054    68,366 
           
Cash and cash equivalents   28,045    50,430 
Restricted cash   9    17,936 
Total cash and cash equivalents, and restricted cash, end of period  $28,054   $68,366 

 

F-53

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Interim Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

   Three Months Ended March 31, 
   2019   2018 
SUPPLEMENTAL CASH FLOW INFORMATION          
Cash paid for interest  $21,023   $19,248 
Cash paid for income tax  $7,789   $5,408 
Capital expenditures included in accounts payable  $6,836   $2,473 

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

F-54

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Note 1: Background and Nature of Operations

 

Camelot Holdings (Jersey) Limited and its subsidiaries (“Jersey,” “us,” “we,” “our,” or the “Company”) was formed on August 4, 2016 as a private limited liability company organized under the laws of the Island of Jersey. Its registered office is located at 4th Floor, St Paul’s Gate, 22-24 New Street, St Helier, Jersey JE1 4TR.

 

On July 10, 2016, Camelot UK Bidco Limited, a private limited liability company incorporated under the laws of England and Wales, and a direct wholly owned subsidiary of Camelot UK Holdco Limited, a direct wholly owned subsidiary (“UK Holdco”), collectively referred to as (“Bidco”), entered into a separation agreement to acquire (i) certain assets and liabilities related to the Intellectual Property & Science business (“IP&S”) business from Thomson Reuters Corporation (“Former Parent”) and (ii) all of the equity interests and substantially all of the assets and liabilities of certain entities engaged in the IP&S business together with their subsidiaries (“2016 Transaction”). The 2016 Transaction total consideration was $3,566,599, net of cash acquired. Jersey is owned by affiliates of Onex Corporation and private investment funds managed by Baring Private Equity Asia GP VI, L.P (“Baring”) and certain co-investors and is controlled by Onex Corporation.

 

The Company is a provider of proprietary and comprehensive content, analytics, professional services and workflow solutions that enables users across government and academic institutions, life science companies and research and development (“R&D”) intensive corporations to discover, protect and commercialize their innovations.

 

Our Science Group consists of our Web of Science and Life Science Product Lines. Both product lines provide curated, high-value, structured information that is delivered and embedded into the workflows of our customers, which include research intensive corporations, life science organizations and universities world-wide. Our Intellectual Property Group consists of our Derwent, CompuMark and MarkMonitor Product Lines. These Product lines help manage customer’s end-to-end portfolio of intellectual property from patents to trademarks to corporate website domains.

 

Prior Period Expense Reclassifications

 

In conjunction with the implementation of a new enterprise resource planning system during the quarter ended September 30, 2018, the Company performed an assessment of its Cost of revenues ("COR") and Selling, general & administrative expenses ("SG&A"). As a result of this assessment, certain errors in classification between COR and SG&A were identified, impacting prior periods. In addition, the Company reclassified certain costs between COR and SG&A. Accordingly, the Company has performed a reclassification of certain prior period amounts to conform to the present period presentation. The Company has concluded that the reclassifications were not material individually or in aggregate to previously issued financial statements.

 

The following table details the impact of the reclassifications on the Interim Condensed Consolidated Statement of Operations for the three months March 31, 2018.

 

Consolidated Statement of Operation

Three Months Ended March 31, 2018  As Previously
Reported
   Adjustment   As Reclassified 
Cost of revenues, excluding depreciation and amortization  $(122,902)   17,732   $(105,170)
Selling, general and administrative costs, excluding depreciation and amortization  $(77,595)   (17,732)  $(95,327)

 

We have also reclassified prior period Accounts payable to Accrued expenses and other current liabilities in our Consolidated Balance Sheets to conform to the current period presentation. These items had no impact in our condensed consolidated statement of operations or condensed consolidated statement of cash flows.

 

F-55

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Note 2: Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements for the three months ended March 31, 2019 and 2018 were prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The condensed consolidated financial statements do not include all of the information or notes necessary for a complete presentation in accordance with GAAP. Accordingly, these condensed consolidated financial statements should be read in conjunction with the Company’s annual financial statements as of and for the year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 and 2018 are not necessarily indicative of the operating results for the full year.

 

In the opinion of management, the interim financial data includes all adjustments, consisting only of normal recurring adjustments, necessary to a fair statement of the results for the interim periods. The condensed consolidated financial statements of the Company include the accounts of all of its subsidiaries. Subsidiaries are entities over which the Company has control, where control is defined as the power to govern financial and operating policies. Generally, the Company has a shareholding of more than 50% of the voting rights in its subsidiaries. The effect of potential voting rights that are currently exercisable are considered when assessing whether control exists. Subsidiaries are fully consolidated from the date control is transferred to the Company, and are de-consolidated from the date control ceases. The U.S. dollar is Jersey’s reporting currency. As such, the financial statements are reported on a U.S. dollar basis.

 

Note 3: Summary of Significant Accounting Policies

 

Our significant accounting policies are those that we believe are important to the portrayal of our financial condition and results of operations, as well as those that involve significant judgments or estimates about matters that are inherently uncertain. There have been no material changes to the significant accounting policies discussed in Note 3 of our Annual Report, except as noted below.

 

Lease Accounting

 

We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets, other current liabilities, and operating lease liabilities on our interim condensed consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

We have lease agreements with lease and non-lease components, which are accounted as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

 

Newly Adopted Accounting Standards

 

In February 2016, the FASB issued new guidance, Accounting Standard Update (“ASU”) 2016-02, related to leases in which lessees are required to recognize assets and liabilities on the balance sheet for leases having a term of more than 12 months. Recognition of these lease assets and lease liabilities represents a change from previous GAAP, which did not require lease assets and lease liabilities to be recognized for operating leases. Qualitative disclosures along with specific quantitative disclosures will be required to provide enough information to supplement the amounts recorded in the financial statements so that users can understand more about the nature of an entity’s leasing activities. The Company adopted the standard on January 1, 2019.

 

The provisions of ASU 2016-02 are effective for the Company’s fiscal year beginning January 1, 2019, including interim periods within that fiscal year. The Company elected the package of practical expedients included in this guidance, which allows it to not reassess whether any expired or existing contracts contain leases, the lease classification for any expired or existing leases, and the initial direct costs for existing leases. The Company does not plan to recognize short-term leases on its Interim Condensed Consolidated Balance Sheet, and will recognize those lease payments in Selling, general and administrative costs, excluding depreciation and amortization on the Interim Condensed Consolidated Statements of Operations on a straight-line basis over the lease term.

 

In July 2018, the FASB issued ASU 2018-11, Leases - Targeted Improvements, as an update to the previously-issued guidance. This update added a transition option which allows for the recognition of a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption without recasting the financial statements in periods prior to adoption. The Company elected this transition option.

 

F-56

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

The standard had a material impact on our interim condensed consolidated balance sheet, but did not have an impact on our interim condensed consolidated statement of operations. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases.

 

In June 2018, the FASB issued guidance, ASU 2018-07, which simplifies the accounting for nonemployee share-based payment transactions. The guidance is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. This standard did not have a material impact on the Company’s interim condensed consolidated financial statements.

 

In July 2018, the FASB issued guidance, ASU 2018-09, Codification Improvements, which clarifies guidance that may have been incorrectly or inconsistently applied by certain entities. The guidance is effective for all entities for fiscal years beginning after December 15, 2018. This standard did not have a material impact on the Company’s interim condensed consolidated financial statements.

 

In August 2018, the FASB issued guidance, ASU 2018-13, which modifies the disclosure requirements on fair value measurements. The guidance is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. This standard did not have a material impact on the Company’s interim condensed consolidated financial statements.

 

Recently Issued Accounting Standards

 

Except as noted below, there have been no material changes from the recently issued accounting standards previously disclosed in the Annual Report. Please refer to Note 3 - "Summary of Significant Accounting Policies" section of the Annual Report for a discussion of the recently issued accounting standards that relate to the Company.

 

In March 2019, the FASB issued ASU 2019-01, Leases, as an update to the previously-issued guidance. This update added a transition option which excluded the interim disclosure requirements as defined in Accounting Standard Codification 250-10-50-3. The guidance is effective for all entities during the same period that ASU 2016-02 is adopted.

 

Note 4: Leases

 

As the lessee, we currently lease real estate space, automobiles, and certain equipment under non-cancelable operating lease agreements. Some of the leases include options to extend the leases for up to an additional 10 years. We do not include any of our renewal options in our lease terms for calculating our lease liability as the renewal options allow us to maintain operational flexibility, and we are not reasonably certain we will exercise these renewal options at this time.

 

We determine if an arrangement is a lease at inception. Operating leases are included in Operating lease right-of-use assets, Current portion of operating lease liabilities, and Operating lease liabilities on our interim condensed consolidated balance sheets.

 

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. As such, the Company used judgment to determine an appropriate incremental borrowing rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our variable lease payments consist of non-lease services related to the lease and lease payments that are based on annual changes to an index. Variable lease payments are excluded from the ROU assets and lease liabilities and are recognized in the period in which the obligation for those payments is incurred. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

We have lease agreements with lease and non-lease components, which are accounted as a single lease component. Additionally, for certain equipment leases, we apply a portfolio approach to effectively account for the operating lease ROU assets and liabilities.

 

F-57

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

As of March 31, 2019, we have additional operating leases, primarily for real estate, that have not yet commenced of $5,582. These operating leases will commence between fiscal year 2019 and fiscal year 2020 with lease terms of 1 year to 8 years.

 

   Three months
ended March 31,
 
   2019 
Lease cost     
Operating lease cost  $7,222 
Variable lease cost   657 
Total lease cost  $7,879 

 

   Three months
ended March 31,
 
   2019 
Other information     
Cash Paid for amounts included in measurement of lease liabilities     
Operating cash flows from operating leases  $7,234 
      
Weighted-average remaining lease term - operating leases   7 
Weighed-average discount rate - operating leases   5.7%

 

The future aggregate minimum lease payments as of March 31, 2019 under all non-cancelable operating leases for the years noted are as follows:

 

Year ended December 31,    
2019 (excluding the three months ended March 31, 2019)  $20,460 
2020   21,034 
2021   17,336 
2022   14,927 
2023   13,648 
Thereafter   36,313 
Total operating lease payments   123,718 
Less imputed interest  (25,883)
Total  $97,835 

 

In connection with certain leases, the Company guarantees the restoration of the leased property to a specified condition after completion of the lease period. As of March 31, 2019 and December 31, 2018, the liability of $4,097 and $4,100, respectively, associated with these restorations is recorded within other liabilities.

 

F-58

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Disclosures related to periods prior to adoption of Topic 842

 

As discussed above, the Company adopted Topic 842 effective January 1, 2019 using a modified retrospective approach. Under this transition method, the application date of the new standard shall begin in the reporting period in which we have adopted the standard. For comparability purposes, and as required, the following disclosure is provided for periods prior to adoption. The Company’s total future minimum annual rentals in effect at December 31, 2018 for noncancelable operating leases, which were accounted for under the previous leasing standard, Accounting Standards Codification 840, were as follows:

 

Year ended December 31,     
2019  $22,140 
2020   19,531 
2021   17,240 
2022   15,333 
2023   14,944 
Thereafter   40,367 
Total operating lease commitments  $129,555 

 

Note 5: Computer Hardware and Other Property, Net

 

Computer hardware and other property consisted of the following:

 

   March 31, 2019   December 31, 2018 
Computer hardware  $18,684   $18,130 
Leasehold improvements   13,254    13,298 
Furniture, fixtures and equipment   6,859    6,816 
Total computer hardware and other property   38,797    38,244 
Accumulated depreciation   (19,469)   (17,603)
Total computer hardware and other property, net  $19,328   $20,641 

 

Depreciation expense amounted to $2,051 and $1,401, for the three months ended March 31, 2019 and 2018, respectively.

 

Note 6: Other Intangible Assets and Goodwill

 

Other Intangible Assets

 

The following tables summarize the gross carrying amounts and accumulated amortization of the Company’s identifiable intangible assets by major class:

 

   March 31, 2019   December 31, 2018 
   Gross  

Accumulated

Amortization

   Net   Gross  

Accumulated

Amortization

   Net 
Finite-lived intangible assets                              
Customer relationships  $291,401   $(182,866)  $108,535   $291,503   $(164,611)  $126,892 
Databases and content   1,722,953    (259,349)   1,463,604    1,725,878    (233,733)   1,492,145 
Computer software   280,006    (109,316)   170,690    268,704    (97,570)   171,134 
Finite-lived intangible assets   2,294,360    (551,531)   1,742,829    2,286,085    (495,914)   1,790,171 
Indefinite-lived intangible assets                              
Trade names   168,331        168,331    168,349        168,349 
Total intangible assets  $2,462,691   $(551,531)  $1,911,160   $2,454,434   $(495,914)  $1,958,520 

 

F-59

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Amortization expense amounted to $56,106 and $57,131 for the three months ended March 31, 2019, and 2018, respectively.

 

Goodwill

 

The following table summarizes changes in the carrying amount of goodwill for the period ended March 31, 2019:

 

   Total 
Balance as of December 31, 2018  $1,282,919 
Changes due to foreign currency fluctuations   356 
Balance as of March 31, 2019  $1,283,275 

 

Note 7: Derivative Instruments

 

The IPM Product Line and related assets, which was divested on October 1, 2018, had forward contracts with notional values of $0 at March 31, 2019 and December 31, 2018, respectively. Gains or (losses) on the forward contracts amounted to $0 and $(59) for the three months ended March 31, 2019 and 2018, respectively. These amounts were recorded in Revenues, net in the interim condensed consolidated statements of operations. The cash flows from forward contracts are reported as operating activities in the Interim condensed consolidated statements of cash flows. The fair value of the forward contracts recorded in Accrued expenses and other current liabilities was $0 as at March 31, 2019 and December 31, 2018, respectively.

 

Effective March 31, 2017, the Company enters into interest rate swap arrangements with counterparties to reduce its exposure to variability in cash flows relating to interest payments on $300,000 of its outstanding Term Loan arrangements. Additionally, effective February 28, 2018, the Company entered into another interest rate swap relating to interest payments on $50,000 of its outstanding Term Loan arrangements. These hedging instruments mature on March 31, 2021. The Company applies hedge accounting by designating the interest rate swaps as a hedge on applicable future quarterly interest payments. Changes in the value are recorded in Accumulated other comprehensive income (loss). The fair value of the interest rate swaps is recorded in Other non-current assets according to the duration of related cash flows. The total fair value of interest rate swap asset was $1,698 and $3,644 at March 31, 2019 and December 31, 2018, respectively.

 

See Note 8 - "Fair Value Measurements" for additional information on derivative instruments.

 

Note 8: Fair Value Measurements

 

The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

Level 2 - Observable inputs other than quoted prices include in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3 - Unobservable inputs that are support by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

 

Below is a summary of the valuation techniques used in determining fair value:

 

Derivatives - Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities or using market inputs with mid-market pricing as a practical expedient for bid-ask spread. See Note 7 - "Derivative Instruments" for additional information.

F-60

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Contingent consideration - The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Key assumptions used to estimate the fair value of contingent consideration include revenues, net new business and operating forecasts and the probability of achieving the specific targets.

 

The carrying value of cash and cash equivalents, restricted cash, accounts receivable, accounts payable, and other accruals readily convertible into cash approximate fair value because of the short-term nature of the instruments. Additionally, the Company has a long-term indemnification asset from the Former Parent, the amount of which is equal to certain tax liabilities incurred prior to the Acquisition. The carrying amount approximates fair value because settlement is expected to be based on the underlying tax amount.

 

Assets and Liabilities Recorded at Fair Value on a Recurring Basis

 

The Company has determined that its forward contracts, included in Accrued expenses and other current liabilities, and interest rate swaps, included in Accumulated other comprehensive (loss) income and Other current assets and Other non-current assets according to the duration of related interest payments, reside within Level 2 of the fair value hierarchy.

 

The earn-out liability is recorded in Accrued expenses and other current liabilities and Other non-current liabilities and is classified as Level 3 in the fair value hierarchy. Additionally, the earn-out relates to the TrademarkVision and the Publons acquisitions that occurred in 2018 and 2017, respectively. The amount payable is contingent upon the achievement of certain company specific milestones and performance metrics over a 1-year and 3-year period, respectively, including number of cumulative users, cumulative reviews and annual revenues. In accordance with ASC 805, we estimated the fair value of the earn-out using a Monte Carlo simulation. This fair value measurement is based on significant inputs not observable in the market and thus represents a Level 3 measurement as defined in ASC 820. Significant changes in the key assumptions and inputs could result in a significant change in the fair value measurement of the earn-out. As of March 31, 2019, there were no significant changes in the range of outcomes for the earn out. There were no transfers of assets or liabilities between levels during the periods ended March 31, 2019 and December 31, 2018.

  

F-61

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

The following table provides a summary of the Company's assets and liabilities that were recognized at fair value on a recurring basis as at March 31, 2019 and December 31, 2018:

 

   Level 1   Level 2   Level 3   Total Fair
Value
 
March 31, 2019                    
Assets                    
Interest rate swap asset       1,698        1,698 
   $   $1,698   $   $1,698 
Liabilities                    
Earn-out liability           7,075    7,075 
  Total  $   $   $7,075   $7,075 
                 
   Level 1   Level 2   Level 3   Total Fair
Value
 
December 31, 2018                    
Assets                    
Interest rate swap asset       3,644        3,644 
   $   $3,644   $   $3,644 
Liabilities                    
Earn-out liability           7,075    7,075 
Total  $   $   $7,075   $7,075 

 

Non-Financial Assets Valued on a Non-Recurring Basis

 

The Company’s long-lived assets, including goodwill and finite-lived intangible assets subject to amortization, are measured at fair value on a non-recurring basis. These assets are measured at cost but are written-down to fair value, if necessary, as a result of impairment. There have been no impairments of the Company’s long-lived assets during any of the periods presented. Finite-lived Intangible Assets - If a triggering event occurs, the Company determines the estimated fair value of finite-lived intangible assets by determining the present value of the expected cash flows. Indefinite-lived Intangible Asset - If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.

F-62

 

  

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Note 9: Debt

 

The following is a summary of the Company’s debt:

 

      March 31, 2019   December 31, 2018 
                    
Type  Maturity 

Interest

Rate

  

Carrying

Value

  

Interest

Rate

  

Carrying

Value

 
Senior Unsecured Notes  2024   7.875%  $500,000    7.875%  $500,000 
Term Loan Facility  2023   5.746%   1,480,154    5.729%   1,483,993 
The Revolving Credit Facility  2021   %       5.754%   5,000 
The Revolving Credit Facility  2021   5.743%   15,000    5.729%   40,000 
Total debt outstanding           1,995,154         2,028,993 
Deferred financing charges           (32,938)        (34,838)
Term Loan Facility, discount           (3,431)        (3,633)
Current Portion of Long-Term Debt           (30,345)        (60,345)
Long-term debt, net of current portion and deferred financing charges          $1,928,440        $1,930,177 

  

During the three months ended March 31, 2019, the Company paid down $30,000 drawn on the Revolving Credit Facility at December 31, 2018.

 

With respect to the Credit Agreement, the Company may be subject to certain negative covenants, including compliance with, total first lien net leverage ratio, if certain conditions are met.  These conditions were not met and the Company was not required to test compliance with these covenants as of March 31, 2019.

 

The obligations of the Borrowers under the Credit Agreement are guaranteed by UK Holdco and certain of its restricted subsidiaries and are secured by substantially all of UK Holdco's and certain of its restricted subsidiaries’ assets (with customary exceptions described in the Credit Agreement). UK Holdco and its restricted subsidiaries are subject to certain covenants including restrictions on UK Holdco’s ability to pay dividends, incur indebtedness, grant a lien over its assets, merge or consolidate, make investments, or make payments to affiliates.

 

As of March 31, 2019, letters of credit totaling $1,979 were collateralized by the Revolving Credit Facility. Notwithstanding the Revolving Credit Facility, as of March 31, 2019, the Company had an unsecured corporate guarantee outstanding for $9,639 and cash collateralized letters of credit totaling $38, all of which were not collateralized by the Revolving Credit Facility. The Company’s cash from operations is expected to meet repayment needs on outstanding borrowings as of March 31, 2019 for the next twelve months.

 

The carrying value of the Company’s variable interest rate debt, excluding unamortized debt issuance costs, approximates fair value due to the short-term nature of the interest rate bench mark rates. The fair value of the fixed rate debt is estimated based on market observable data for debt with similar prepayment features. The fair value of the Company’s debt was $2,017,259 and $1,950,318 at March 31, 2019 and December 31, 2018, respectively. The debt is considered a Level 2 liability under the fair value hierarchy.

 

Note 10: Shareholders’ Equity

 

In March 2017, the Company formed the Management Incentive Plan under which certain employees of the Company may be eligible to purchase shares of the Company. In exchange for each share purchase subscription, the purchaser is entitled to a fully vested right to an ordinary share. Additionally, along with a subscription, employees receive a corresponding number of options to acquire additional ordinary shares subject to five year vesting. See Note 15 – “Employee Incentive Plans” for additional detail related to the options. The Company did not receive any subscriptions during the three months ended March 31, 2019 and received net subscriptions for 971 shares during the three months ended March 31, 2018.

 

F-63

 

 

CAMELOT HOLDINGS (JERSEY) LIMITED

Notes to Interim Condensed Consolidated Financial Statements (Unaudited)

 

(Amounts in thousands, except per share data, option price amounts, ratios, or as noted)

 

Note 11: Pension and Other Post-Retirement Benefits

 

The components of net periodic benefit cost changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows:

 

   Three months ended March 31 
   2019   2018 
Service cost  $221   $222 
Interest cost   78    70 
Expected return on plan assets   (40)   (37)
Amortization of actuarial gains   (18)   (19)
Net periodic benefit cost  $241   $236 

 

Interest cost and expected return on plan assets are recorded in Interest expense on the accompanying Interim condensed consolidated statements of operation.

 

Note 12: Revenue Recognition

 

The tables below show the Company's disaggregated revenues for the periods presented:

 

   Three months ended March 31, 
   2019   2018 
Subscription revenue   192,492    195,583 
Transaction revenue   41,697    42,911 
Total revenue, gross   234,189    238,494 
Deferred revenue adjustment (1)   (164)   (1,467)
Total Revenues, net   234,025