-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ly2dmGkmQNHOfQl3tPZ5E9AP8L1YOizXFu+mXjuR9C6ntGDDVYs8mvu5sG+NLrxv /E4MaLAt6BnmjN1/+PhpLQ== 0000950135-99-001733.txt : 19990402 0000950135-99-001733.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950135-99-001733 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRIMARK CORP CENTRAL INDEX KEY: 0000356064 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 382383282 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-08260 FILM NUMBER: 99581188 BUSINESS ADDRESS: STREET 1: 1000 WINTER ST STE 4300N CITY: WALTHAM STATE: MA ZIP: 02451 BUSINESS PHONE: 6174666611 MAIL ADDRESS: STREET 1: 1000 WINTER ST STREET 2: STE 4300 NORTH CITY: WALTHAM STATE: MA ZIP: 02451 10-K405 1 PRIMARK CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 1-8260 PRIMARK CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) MICHIGAN 38-2383282 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 1000 WINTER STREET, SUITE 4300N, WALTHAM, MA 02451-1241 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
781-466-6611 (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common stock, without par value New York Stock Exchange Pacific Exchange Inc.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes X 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 X No __. The aggregate market of the registrant's common stock held by non-affiliates as of February 16, 1999 was $483,791,568, based on the closing price on that day (New York Stock Exchange -- Composite Transactions). The number of shares outstanding of the registrant's common stock without par value on February 16, 1999 was 21,034,416. DOCUMENTS INCORPORATED BY REFERENCE Portions of Primark's 1998 Annual Report are incorporated by reference in Part I, Item 1, and Part II, Items 5,6,7 and 8. Portions of Primark's 1999 Proxy Statement for its 1999 Annual Meeting of Shareholders, which will be filed within 120 days of December 31, 1998, are incorporated by reference in Part III, Items 10, 11, 12 and 13. 2 TABLE OF CONTENTS
PAGE ---- Cover Page.................................................. i Index....................................................... ii PART I Item 1. Business.................................................... 1 Item 2. Properties.................................................. 14 Item 3. Legal Proceedings........................................... 14 Item 4. Submission of Matters to a Vote of Security Holders......... 14 PART II Item 5. Market for Registrant's Common Equity and Related 14 Stockholder Matters......................................... Item 6. Selected Financial Data..................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition 15 and Results of Operations................................... Item 7a. Market Risk Disclosures..................................... 15 Item 8. Financial Statements and Supplementary Data................. 16 Item 9. Changes in and Disagreements with Accountants on Accounting 16 and Financial Disclosure.................................... PART III Item 10. Directors and Executive Officers of the Registrant.......... 16 Item 11. Executive Compensation...................................... 17 Item 12. Security Ownership of Certain Beneficial Owners and 17 Management.................................................. Item 13. Certain Relationships and Related Transactions.............. 17 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on 17 Form 8-K.................................................... Signatures.................................................. 21
ii 3 PART I ITEM 1. BUSINESS GENERAL Primark is a leading global information service provider of comprehensive financial, economic and market research information to investment, legal, accounting, banking, corporate and government customers. We develop and market "value-added" database and information products that cover established and emerging markets worldwide. Our proprietary analytical software applications provide for the analysis and presentation of financial, economic and market research information. We serve customers in the U.S., Europe and the Pacific Rim and compile, analyze, integrate, package and distribute current and historical data, news and commentary on financial securities, companies and markets worldwide. We own and maintain large-scale databases, which are accessed through our on-line distribution systems, the Internet and third-party distributors. Our databases are authoritative sources of data and analytics used by more than 5,000 organizations worldwide, including 75 of the top 100 banks, 82 of the top 100 investment managers, 28 of the top 50 insurance companies and 450 of the top 1,000 U.S. companies. We believe our customers value our products because of their high quality data as well as our understanding of niche markets, our ability to develop products to serve these markets and our superior customer service and support. Our business operations are integrated into three customer-focused divisions. Each division concentrates on specialized product sets, which address the needs of specific customer market groups. Our three operating divisions are: - Primark Financial Information Division. Primark Financial Information Division develops "enterprise-wide" products and services for major financial institutions on a global basis. It also has responsibility for all transactional products, both historical and real-time, as well as products supporting large-scale investment accounting functions, the individual investor and the referential needs of very large financial market customers. This division also manages the corporate network, PrimarkNet, which serves as the major external delivery channel to our customers on a global basis, as well as serving as an internal channel connecting all three Primark divisions. This division's product offerings serve most of our customer types and the division is a major service provider to the "sell-side" portion of the financial markets. - Primark Financial Analytics Division. Primark Financial Analytics Division concentrates on developing and marketing a wide variety of analytical products for money managers, fund sponsors and other investors. These products combine our databases, advanced software, analytical techniques and forecasts for all phases of the investment process. This division's product offerings concentrate on customers in the "buy-side" portion of the financial markets. - Primark Decision Information Division. Primark Decision Information Division develops, markets, and delivers information content products that are primarily focused in areas other than the financial marketplace, and also provides products and services for decision support to financial customers. We have established the Primark Data Company ("PDC") to support the data needs of our operating divisions. PDC is an essential element in the overall Primark strategy because of the necessity for high quality information provided on an efficient basis. PDC is responsible for collecting, verifying and organizing our equity pricing, indices, company account, ownership and economic data sets throughout the three divisions of Primark. With major operations in the United States, the United Kingdom, Ireland, India, and the Philippines, PDC provides global data knowledge and support to the our three divisions. Key factors in Primark's success are recognizable quality and international market acceptance of our branded products sold by the various business units within the divisions. Primark's business units and related brands by division include: 4 PRIMARK FINANCIAL INFORMATION DIVISION - Datastream. Datastream, acquired in 1992, is one of the world's leading providers of global historical and fundamental real-time securities data and news covering more than 45,000 stocks from 59 countries, over 97,000 corporate and government bonds from 32 countries and more than 1,800 major indices. - ICV. ICV, acquired in 1996, is a leading provider in the U.K. of on-line equity trading products. In 1998, ICV had a market share of approximately 70% of on-line U.K. equities trading. ICV was the number one rated vendor to U.K. brokers by the 1996, 1997 and 1998 Kimsey Surveys. - Primark Investment Management Services. Primark Investment Management Services, acquired as part of Datastream in 1992, is a leading provider of computer-based accounting and other investment fund services, including portfolio valuation and performance measurement services, to money managers in the U.K. and, to a lesser extent, in continental Europe. - Disclosure/Worldscope. Disclosure, acquired in 1995, and Worldscope, with 50% equity interest acquired in 1995 and an additional 30% interest acquired in 1996, are two of the leading providers of "as reported" and abstracted financial information. These businesses have databases that include more than five million SEC filings by more than 16,000 U.S. companies dating back to 1968, as well as foreign company filings from more than 13,000 companies in 45 countries. - A-T Financial Information. On December 29, 1998, Primark executed a definitive agreement to acquire 100% of the outstanding common stock of A-T Financial Information, Inc. (A-T). The acquisition was completed on February 5, 1999. Founded in 1987, A-T is a provider of Windows- compatible financial market data and software to money managers, traders, banks and other institutional investors. A-T has launched an Internet site for individual investors, which is marketed as "A-T Attitude." The A-T suite of products represents leading real-time data and information capabilities and will be integrated with the full range of Primark's financial information products. - Extel. On February 22, 1999, Primark acquired the company fundamental data business and the Extel brand name ("Extel") from The Financial Times Group. Extel is a widely recognized brand name in the European and Asian markets and provides summarized financial statements for rapid corporate analysis, historical company accounts, image-based data, textual corporate profiles and company news to the investment industry worldwide. The Extel company fundamental data business will be integrated into the operation of the Primark Financial Information Division. PRIMARK FINANCIAL ANALYTICS DIVISION - I/B/E/S. I/B/E/S, acquired in 1995, is a leading provider of global earnings expectations, historical data on earnings surprises and research reports obtained from more than 800 brokerage firms and 7,000 research analysts on more than 17,000 companies worldwide. - Baseline. Baseline, acquired in 1997, offers a leading stock and portfolio analysis and selection system designed specifically for institutional portfolio managers. - Vestek. Vestek, acquired in 1994, is an international provider of portfolio information, analytics and consulting support to investment professionals. PRIMARK DECISION INFORMATION DIVISION - WEFA. WEFA, acquired in 1997, is an international provider of economic research, analysis and forecasts. - Primark Decision Economics. Primark Decision Economics, an unconsolidated company started in 1996 in which Primark has an equity interest of 20%, disseminates timely, value-added economic forecasts, analyses and commentaries covering the world's major economies and markets. 2 5 - The Yankee Group. Yankee Group, acquired in 1996, is an international market research and consulting firm focusing on the communications and computing industries. In the most recent survey by Information Week Magazine, the Yankee Group was rated number one in credibility. Primark had net operating revenues of $277.1 million, $397.9 million and $434.5 million for the twelve months ended December 31, 1996, December 31, 1997 and December 31, 1998, respectively. Our principal sources of revenue are from customer subscriptions, royalty revenues from third party distributors and fees for consulting services. More than 80% of the Company's revenues are derived from subscription or royalty contracts. A majority of these contracts are paid in advance either quarterly or annually. For the twelve months ended December 31, 1998, approximately 82% of Primark's revenues were from subscriptions, 4% from royalties and 14% from other sources. BUSINESS AND OPERATING STRATEGY Primark's business and operating strategy is designed to generate strong revenue growth and increased profitability by selling existing products, by integrating key products and operations, by launching and acquiring new products and by capitalizing on our international brands and comprehensive high quality data. The key elements of this strategy include: Expanding customer relationships and cross-selling. We believe that our customers have an increasing need for financial and economic information from a select group of integrated providers of such information. By cross-selling our variety of well-known brands, we believe that we are well positioned to serve this need. In addition to cross-selling, we believe that we will be able to expand relationships with existing customers by using our core products and services as platforms for launching new integrated database and analytic products drawn from multiple sources within Primark. Management also intends to further integrate our databases with our software products to encourage service expansion. Due to the low incremental cost of providing additional products and services to existing customers, we expect these measures to result in increased revenues and improved profit margins. Introducing new products, databases and service enhancements. We believe we can leverage our existing customer base, databases and technology to introduce new products and services. For example, Primark recently introduced I/B/E/S Active Express, an on-line platform for delivery of I/B/E/S information, as well as other databases; Piranha, a product enabling customers to manipulate and integrate data from multiple databases on the customer's desktop; and World Market Monitor, a daily, weekly, monthly or bi-annual economic report tailored to the needs of individual customers. We believe our ability to add new products will continue to provide us with a competitive advantage. Leveraging introduction of the euro. In 1998, approximately 50% of Primark's revenues were derived from European customers and we believe we are well positioned to continue to take advantage of the euro introduced on January 1, 1999. The euro is expected to lead to new European securities, increased cross-border investing and the liberalization of the European pension and retirement savings industry. We anticipate that all of these trends may also dramatically increase the demand for our products and services from our existing customers and attract new customers. Primark currently possesses a leading position in U.K. equities trading and provides one of the most comprehensive databases of European company filings available electronically. Management intends to capitalize on these trends by introducing new databases capturing European trading and company data, as well as software products and news services to serve the information needs of customers worldwide. Capitalizing on, and improving distribution through, new channels and new partnerships. We currently rely on a variety of distribution channels including proprietary software, on-line and satellite feed delivery, as well as third party distributors, paper-based services, CD-ROM and the Internet to distribute our products. We believe we can further capitalize on these distribution channels to introduce new products and services to both existing and new customers. Primark currently has contracts with America Online, E-Trade, Microsoft Investor, Quicken and Quote.Com, among others, to provide database products to on-line customers and will seek to expand these relationships further. 3 6 Leveraging technology. We will continue to use advanced information technology to increase the efficiency, speed and flexibility of our data gathering, database construction and customer delivery efforts. For example, we plan to integrate our database platforms in order to optimize our product capabilities. We have begun to use new technology that we believe will facilitate the integration of multiple databases maintained in diverse computer systems for use by our analytics packages. This will allow us to leverage existing brands and databases to provide new products to new and existing customers. For example, through the use of advanced information technology, Primark has transformed Disclosure from a primarily paper-based business to one that now derives approximately 45% of its revenues from electronic delivery to the desktop. Also, we expect to continue to use new technology to leverage our brand name products and believe these efforts will increase revenues and improve margins. Providing superior customer service. Providing superior customer support and service is a key aspect of Primark's business philosophy and has contributed to a high customer retention rate. In 1998, this rate was approximately 85% for subscription products. Primark's sales and marketing staff, as well as our technical experts and consultants, work closely with clients, often on-site, to maximize the value of Primark products and services and to develop custom applications tailored to clients' information and software needs. We believe our superior customer service and support will continue to provide us with increased opportunities for additional product and service revenues. Capitalizing on integration of operating units. Primark has grown primarily through acquisitions over the last six years. In order to capitalize on the advantages expected to result from the integration of these acquired businesses, on June 30, 1998 we reorganized our twelve operating units into three divisions, to focus on common customer groups. We believe that the restructuring will enable us to reap benefits from combined marketing, sales and administrative operations, eliminate redundant production and delivery platforms, provide broader access to our customer base and deliver current and new product offerings faster and more efficiently. BUSINESS AND PRODUCTS OVERVIEW Primark supplies information to investment and commercial banks, investment firms, corporations, government organizations, professional service firms and individual consumers. The organizations in the financial community generally can be divided into two groups, although there are hybrids and exceptions. One group consists of "buy-side" firms, which invest individual consumer assets or institutional pension funds. The second group consists of "sell-side" firms, which perform investment research, brokerage and trading functions, often combined with corporate finance services. Within the "buy-side," investment managers can be classified according to their particular style of investing -- large cap, small cap, emerging markets, value, growth, indices, etc. While the actual method by which they make investment decisions may vary according to their investment style, the overall investment process is essentially similar across all firms. It can be broken down into five major categories. Asset Security Portfolio Security Fund Deployment & Criteria Research & Selection Construction & Tracking Trading Accounting
Primark is involved in all aspects of the investment decision-making process. Primark Financial Analytics Division focuses extensively on the "buy-side" sector; however, depending on the functional activity, Primark may also have either of its other operating divisions supply information and analytical services to that function. For example: ASSET DEPLOYMENT CRITERIA. The allocation of resources across different asset categories -- equity versus fixed income, international versus domestic, industry selection. Our operations that serve these activities are through Vestek and I/B/E/S products (Primark Financial Analytical Division) and WEFA and Primark Decision Economics products (Primark Decision Information Division). 4 7 SECURITY RESEARCH AND SELECTION. The evaluation of individual investment securities. Depending on the investment approach used -- technical, fundamental or quantitative -- the information needs will be different, as will the analytical tools. Our operations that serve these activities are Datastream, Disclosure, Worldscope, Extel and ICV products (Primark Financial Information Division) and Baseline, I/B/E/S and Vestek products (Primark Financial Analytics Division). PORTFOLIO CONSTRUCTION AND TRACKING. The process of creating a portfolio of individually selected securities that collectively possesses the appropriate risk and return characteristics. Primark Financial Analytics Division serves these activities through the Vestek and Baseline products. SECURITY TRADING. The actual buying and selling of individual securities. Timing, costs and other technical factors play important roles in the efficient execution of a tracking strategy. Primark Financial Information Division's ICV and A-T products serve these activities. FUND ACCOUNTING. The accounting for the investment management process on an intra-day, daily, weekly, monthly and annual basis. This includes accounting for portfolio valuation, transactions, tax, regulatory and client reports and performance measurement. Our operations that serve these activities are the Datastream and Primark Investment Management Services products through Primark Financial Information Division and the Vestek product through Primark Financial Analytics Division. The "sell-side" firms are involved in many aspects of the investment cycle. Each of these aspects is generating stronger demand for more and better financial and economic information. All of Primark's divisions offer products essential to these firms, with Primark Financial Information Division representing the largest share of those offerings. Some of the functions performed by the "sell-side" include: BROKERAGE. This involves the generation and fulfillment of buy and sell orders for specific securities from money managers, trust departments, insurance companies and individuals. Information from Primark Financial Information Division, through ICV, A-T, Datastream and Disclosure, as well as I/B/ E/S and WEFA information, through Primark Financial Analytics Division and Primark Decision Information Division, respectively, are useful in this process. RESEARCH. Analysts study corporate securities and other investment instruments to estimate the likely returns from these investments and arrive at buy and sell recommendations. Primark Financial Information Division's Datastream, Disclosure, Extel and Worldscope, together with I/B/E/S and WEFA (Primark Financial Analytics Division and Primark Decision Information Division, respectively) provide useful data and tools to the investment research analyst, as well as distribution systems for the results of their work. TRADING. The actual process of identifying buyers and sellers of securities and executing orders, whether for customers or the firm's own account, make up the bulk of activities in trading. Such orders are usually accomplished through exchanges for most equities, options and futures, while bonds and foreign currencies are more often traded directly or through other brokers. Primark Financial Information Division's ICV products directly support the trading process in London with quotes and news. However, traders have become interested in value-added data as trading strategies have become more sophisticated. To meet this need, we have various products that combine quotes and news from ICV or A-T with fundamental information, analyses and forecasts from our other business units. Similarly A-T's products fulfill the same role in North America. CORPORATE FINANCE. The traditional investment banking functions involving the underwriting of securities, determining capital structure and merger and acquisition activity are very information intensive. All three divisions, through the products of Datastream, Disclosure, Extel, Worldscope, I/B/ E/S and WEFA, provide extensive support to investment bankers. In addition to the financial community, our customers include corporations and governmental organizations. CORPORATIONS. To aid in the increasing competition in the global marketplace, corporations require greater financial and economic information on countries, markets and competitors. Our operations that 5 8 serve those needs are Primark Financial Information Division's Disclosure and Worldscope, Primark Financial Analytics Division's I/B/E/S and Primark Decision Information Division's WEFA, Primark Decision Economics and Yankee Group products. GOVERNMENTAL ORGANIZATIONS. As issues related to commerce, trade and international finance gain prominence in governmental decision-making, along with fiscal and monetary policy, governmental organizations require greater amounts of financial and economic data. Our operations that serve these needs are Primark Financial Information Division's Disclosure, Primark Financial Analytics Division's I/ B/E/S, Primark Decision Information Division's WEFA, Primark Decision Economics and Yankee Group products. The decision to organize Primark under the current divisional structure was made in June of 1998, and is an important step in fully integrating operational functions within Primark to meet customer needs efficiently and to allow for further market penetration with existing and new product offerings. PRIMARK FINANCIAL INFORMATION DIVISION The Primark Financial Information Division recorded $306.4 million of revenues for the 1998 fiscal year. This represented 70.5% of Primark's total revenues. Primark Financial Information Division generated $216.0 million of revenues outside of North America with $122.8 million of those revenues coming from Datastream products, $55.2 million from ICV, $27.4 million from Primark Information Management Services and the remaining $10.7 from Disclosure. The $90.3 million generated in North America represented $63.0 million from Disclosure, $10.6 million from Worldscope and $16.7 million from Datastream sales. Datastream. Datastream provides global historical economic and financial information to customers worldwide and, together with Primark Investment Management Services products, is a leading provider of computer-based accounting and other investment fund services in the United Kingdom. The core of Datastream's products is its centralized data system. This system maintains a series of linked databases of extensive international economic and financial data collected from wire services, official publications of national agencies, stock options and futures exchanges, other information vendors, and brokers, dealers, banks and issuers. Customers have online access to Datastream's databases through personal computers, networks or workstations. Datastream's products and services enable customers to perform extensive investment research and analysis, investment administration and portfolio valuations on securities in all major markets, and to produce graphics, statistics, time series analysis and perform other analytical functions. Datastream's products and services fall into two principal categories -- investment research and fund management services. Investment research services accounted for approximately 82% of Datastream's total revenues for the fiscal year ended December 31, 1998 and 85% for each of the fiscal years ended December 31, 1997 and 1996. These services consist of a set of software programs to manipulate, analyze and present financial and economic information obtained from Datastream's databases. The software is designed to facilitate the customers' access to data from any of Datastream's databases and to manipulate this data through a variety of pre-programmed and user-defined ways to produce graphs, tables and reports and to perform analyses. Fund management services accounted for approximately 18%, of Datastream's total revenues for the fiscal year ended December 31, 1998, and 15% for each of the fiscal years ended December 31, 1997 and 1996. Fund management services, available through Primark Information Management Services, provide investment accounting, portfolio valuation and performance measurement activities. A critical component of Datastream's business is the data itself. Datastream's principal supply requirements are for raw financial data, which through the Primark Data Company are acquired from numerous data suppliers worldwide or developed internally. Once acquired, and edited, the data sets are stored in Datastream's databases for access and manipulation through Datastream's applications and value-added software programs. Data suppliers generally retain ownership of the raw data, but allow Datastream and its customers the use of such data. Datastream places great importance on the quality of its data and has 6 9 developed a program to continuously review its data sources to ensure quality, control and continuity. Wherever possible, Datastream develops multiple sources of data to provide backup and cross checking. Data relating to equities include pricing information for earnings and dividends on approximately 45,000 stocks from 59 countries, including all major markets and many emerging markets. This data includes historical earnings and dividend data, as well as forecast data supplied by market specialists. Data relating to bonds include maturity and yield on approximately 97,000 corporate and government bonds from 32 countries, all Eurobonds and related indices. Data relating to futures and options includes current prices, previously traded prices, trading volume and intra-day high and low values from the international options and futures exchanges, including LIFFE (London), MONEP and MATIF (Paris), SOFFEX (Switzerland), EOE (Amsterdam), DTB (Germany), Chicago and Philadelphia. Datastream has included databases from I/B/E/S, Disclosure, Worldscope and WEFA as an integral part of its investment research services and will integrate information from Extel. Consequently, it helps these Primark companies gain additional customers, as well as customers new to Datastream. Datastream has also installed the full Disclosure index on its online system and offers index searches and electronic ordering of hard copy documents to Datastream users. Vestek is also developing investment management software products that have been marketed and supported by Datastream's European sales and service personnel. This responsibility for the European sales and service of Vestek products has now been shifted to I/B/E/S' European operations as part of the initiatives to integrate operations within Primark Financial Analytics Division. ICV. ICV provides real-time, on-line prices, news and research on the U.K. equities market as well as systems for order entry and trade reporting. Our software combines real-time prices with news and other data in a unique format, which we believe has become the standard presentation for U.K. equity data. ICV has incorporated Datastream's historical information as an add on to its major product, TOPIC, and is continuing to integrate both Primark company fundamental data and third party data into its major products. The core of ICV products is its central systems that take real-time data from several exchanges and combine the prices with news. The information is then broadcast to a customer base of nearly 9,000 terminals using the datacast bandwidth on terrestrial television, leased telecommunication circuits or via satellite. The data is broadcast to customers' systems, the signal is decoded, stored on a local database and presented on user screens utilizing software designed and maintained by ICV. Timeliness and reliability are important aspects of ICV's service. ICV's central systems are designed to provide state-of-the-art timeliness by handling incoming data within a few milliseconds through a program code that resides in memory. Reliability is provided through several back-up sites. Our investment in trading systems has allowed for the set up of a U.K.-wide interactive network that can be used to link customers' offices and provide a future conduit to any new data sources ICV may acquire or develop in the future. ICV's two principal products are TOPIC and Market-Eye. TOPIC services accounted for 60%, 53%, and 47% of ICV's total revenue for the fiscal years ended December 31, 1998, 1997 and 1996, respectively. TOPIC services provide real-time data on prices and comparative quotes from market makers combined with historical data and broker research. During 1997, the London Stock Exchange moved to an electronic order driven market. In connection with this change, ICV was able to meet its customers' requirements for an interactive trade execution and reporting system through extensions to its TOPIC product. The TOPIC services are used by traders and fund managers, stockbrokers, U.K. clearing banks and major publicly traded corporations. Market-Eye services accounted for 10%, 12%, and 11% of ICV's revenue for the fiscal years ended December 31, 1998, 1997 and 1996, respectively. Market-Eye is predominantly used by small brokers, financial planners and private investors and is accessible via the Internet. The data include prices and news and may be combined with analytical and charting packages supplied by third parties. ICV has leveraged its existing technology through alliances with other information companies, providing access to new markets. During 1996, ICV entered into an agreement with Merrill Lynch to leverage its technology with Merrill Lynch's expertise in live trading systems. Also during 1996, Primark and ICV entered into an agreement with Dow Jones & Company, Inc. and its subsidiary Dow Jones Markets to develop an 7 10 international equity trading information product by combining ICV's technology, Datastream and other Primark subsidiaries' historical databases, the global news capability of Dow Jones and the data capability of Dow Jones Markets. The product was named the Primark/Dow Jones Equities Service. On May 29, 1998, Dow Jones & Company Inc. announced that it had closed the sale of its wholly owned subsidiary Dow Jones Markets to Bridge Information Systems, Inc. Although both Dow Jones & Company and Dow Jones Markets are separately contractually obligated to provide news and financial information for the Primark/Dow Jones Equities Service product, we did not begin to sell that product in mid-1998 as originally planned. This suspension of sales occurred even though development work on the Primark/Dow Jones Equities Service and client testing was completed with positive reactions. Since Bridge is both a competitor and also a supplier, we wanted to ascertain whether the change in the ownership of Dow Jones Markets would adversely affect the performance of the Primark/Dow Jones Equities Service in any way before placing the Primark/Dow Jones Equities Service in operational use at client sites. On September 9, 1998, Dow Jones Markets advised ICV that it would change the datafeed for the Primark/Dow Jones Equities Service from the original "Marketfeed" supplied by Dow Jones Markets to a datafeed provided by Bridge. In our opinion, considerable cost and time would be required to reprogram the Primark/Dow Jones Equities Service to use this new Bridge feed and the resulting product would not work as well. We are renegotiating and expect to provide the market with a successor product that is wholly owned and controlled by Primark, but including news from Dow Jones and Company, Inc. and possibly certain data from Bridge Information Systems, Inc. Disclosure. Disclosure is a leading provider of "as reported" and abstracted financial information throughout the world, distributing information on more than 16,000 U.S. companies and 13,000 foreign companies, derived from a variety of government and third-party sources. Disclosure's proprietary content is provided on a subscription and per use basis through electronic media such as online services and compact laser discs, as well as through printed products. Disclosure's customers include investment and commercial banks, money managers, corporations, law, accounting and consulting firms, libraries and universities. Disclosure's financial information products and services are based upon a wide spectrum of SEC documents such as Forms 10-K and 10-Q, proxy statements, registration statements and material event reports, and increasingly non-SEC documents such as foreign company financial filings, news, economic data, pricing information and U.S. and foreign annual reports. The information included in Disclosure's products is obtained through contractual relationships with the SEC and major stock exchanges, from other Primark companies and through commercial acquisition of the information. Once acquired, Disclosure indexes, tags, abstracts and formats the information to allow for ease in navigation, searches and analysis. Primark considers Disclosure's electronic media business, comprised of Global Access, Worldscope, compact discs and revenues from third party distributors of its value-added database products, as representing Disclosure's next generation of product offerings. These products now represent approximately 45% of Disclosure's overall revenues, up from less than 20% in the beginning of 1996. Disclosure's image-based services are delivered through the Global Access and Laser D products as well as through Research Centers located in major cities. Global Access is a web-based front end that offers: on-line and real-time access to Disclosure's proprietary electronic index of public company documents; on-line delivery of Disclosure's value-added EDGAR database; access to over ten years of data on 29,000 companies in the Worldscope and SEC databases; institutional and corporate ownership data; and links to third-party content such as I/B/E/S, WEFA and industry news. Global Access provides real-time broadcast alert functionality as well as desktop full text and field searching and screening of company and industry information with direct downloading to spreadsheets and word processors. Laser D is a multi-disc CD-ROM document database that provides a desktop library of information to high volume document users who require immediate access to documents filed with the SEC, banking agencies and U.S. and foreign stock exchanges. The Research Centers are staffed by research specialists who assist customers in locating requested information and produce alert services for customers who want early identification of specified documents. Approximately 84%, 82%, and 81% of Disclosure's total revenues were derived from document services for the twelve months ended December 31, 1998, 1997 and 1996, respectively. 8 11 Disclosure also provides products that access value added databases that can be machine read and manipulated by end users. Disclosure's Global Researcher and Compact D products provide the capability to perform sophisticated searching of financial and text information on more than 29,000 companies. These products also provide reporting and graphing functionality. Proprietary Disclosure databases include: EdgarPlus (SEC filings with value-added navigational and style tags); the Securities Exchange Act database, with more than 11,000 U.S. company profiles and financial statement abstracts dating back more than 10 years; and other databases on institutional corporate insider transactions. These proprietary databases are offered directly by Disclosure and also by third-party vendors, which target both the commercial and consumer markets, enhancing Disclosure's product through their hardware, software and market focus. Such vendors include America Online Inc.: Bridge Information Systems, Inc., FactSet Research Corp., Lexis-Nexis, UMI Inc. and West Publishing Co. Approximately 16%, 18%, and 19% of Disclosure's total revenues were derived from database services for the years ended December 31, 1998, 1997 and 1996, respectively. Worldscope. Worldscope contains a collection of descriptive profiles and standardized financial statements on more than 20,000 companies in 45 countries and has been fully integrated into Disclosure's product line. The Worldscope database is standardized to a common definition of generally accepted accounting principles across all major countries, indexed and organized for cross-border screening and searching. In addition to its global database, Worldscope offers an emerging market database. Worldscope products are delivered via third-party distributors, CD-ROM and online platforms. In October 1996, Primark acquired an additional 30% ownership in Worldscope, giving Primark an 80% controlling interest. Primark is presently in negotiations to acquire the remaining 20% interest in Worldscope. PRIMARK FINANCIAL ANALYTICS DIVISION The Primark Financial Analytics Division generated $75.7 million of revenues for the 1998 fiscal year. This represented 17% of Primark's total revenues. Within Primark Financial Analytics Division, I/B/E/S accounted for $40.4 million, Baseline $24.9 million and Vestek $10.5 million of revenues. I/B/E/S. I/B/E/S is a leading source of global earnings expectational information for investors, financial institutions and portfolio managers worldwide. I/B/E/S collects and processes earnings per share estimates provided by more than 7,000 individual securities analysts, representing approximately 800 firms, on more than 17,000 companies globally. The estimates and related data are delivered through third party distributors and I/B/E/S Express, a proprietary software delivery system. Many I/B/E/S products permit the customer to perform analytical functions and are enhanced by reports and graphics. I/B/E/S has expanded its product line by launching I/B/E/S Trapeze, a real-time, electronic brokerage research distribution system. This state-of-the-art technology delivers brokerage reports to managers' desks in New York, London and other financial centers within a few moments, complete with color graphics, audio and video capabilities. Baseline. Baseline provides portfolio managers at investment companies, banks, investment consulting firms and other institutional investors with online valuation graphics that portray critical financial information on more than 7,000 U.S. companies. The Baseline product consists of data and software that manipulates, analyzes and graphically presents company financial information to end users through personal computers, typically linked by computer networks. Baseline's principal supply requirements are for raw financial data which is acquired from numerous data suppliers including other Primark companies. Once acquired, the data is verified, manipulated and stored in Baseline's database for manipulation through Baseline's applications and daily transmission to customers. Baseline places great importance on the quality of its data and has developed a program to review its data sources continuously to guarantee quality control and continuity. Wherever possible, Baseline develops multiple sources of data to provide backup and cross checking. Vestek. Vestek develops, markets and supports investment information services and application software used to manage, analyze and optimize institutional portfolios of equity, fixed income and other financial 9 12 instruments. Vestek also provides consulting services for investment managers and plan sponsors. Through its international sales force, Vestek currently serves more than 250 clients in nine countries. PRIMARK DECISION INFORMATION DIVISION The Primark Decision Information Division generated $52.5 million of revenues for the 1998 fiscal year, representing 12% of Primark's total revenues. Within Primark Decision Information Division, WEFA accounted for $29.0 million, and the Yankee Group $23.4 million. Revenues from Primark Decision Economics are not included in the Primark Division Information Division totals as Primark Decision Economics is not a majority owned operation and is accounted for on the equity method. WEFA. Founded by Nobel Laureate Economist Lawrence R. Klein, who remains active in the business, WEFA is a leading provider of international value-added economic information, software and consulting services to companies, governments, universities and financial institutions. WEFA provides analysis and forecasts for 60 industries across 60 countries through its Global Industrial Outlook Service, its electronic database and a semi-annual publication. WEFA recently introduced the World Market Monitor, a desktop application for tracking and analyzing global economic conditions. Targeted to financial institutions and corporations, the product provides users with economic, demographic and financial information on 175 countries. Primark Decision Economics. In August 1996, Primark invested in a joint venture with noted economist Dr. Allen Sinai. This joint venture is called Primark Decision Economics, Inc. and Dr. Sinai has been its Chief Executive Officer and Chief Global Economist from the outset. The purpose of this venture is to disseminate timely value-added economic forecasts, analysis and commentaries covering the world's major economies and markets, and to support real-time and longer-term decision-making by financial institutions, corporations and governments engaged in trading, investing and planning. The Yankee Group. The Yankee Group consists of a global team of highly skilled technology and market experts who focuses on identifying current trends and future directions in the communications and computer industries for business and consumer markets. The Yankee Group markets these insights by providing strategic planning, technology forecasting, consulting and market research to clients worldwide, including vendors and users of major computer and communications systems and services. The Yankee Group's products and services fall into three principal categories -- planning services, custom consulting engagements, and seminars and conferences. Planning services accounted for 66% of total revenues for each of the years ended December 31, 1998 and 1997 and 71% for the year ended December 31, 1996. An annually renewable planning service subscription provides a customer with consultation time with a research analyst, quarterly audio conferences, access to the Yankee Group's published research reports and white papers in both electronic and paper formats and discounts on seminars. The Yankee Group currently offers 22 planning service packages covering a broad variety of topics in communications and computing. Custom consulting engagements, seminars and conferences, and reports accounted for 34% of total revenues for each of the years ended December 31, 1998 and 1997 and 29% for the year ended December 31, 1996. Custom consulting engagements often result as an extension of planning services when an inquiry or a study is more extensive than that offered through a planning service subscription. Custom consulting contracts are also entered into with external parties when the company considers the study to be of strategic importance. The Yankee Group holds an average of 15 to 20 seminars or conferences a year, often in collaboration with industry publication houses. CUSTOMERS No single customer of the information business accounts for more than 2% of our Company's consolidated revenues. 10 13 Primark Financial Information Division Datastream/ICV's customers include approximately 5,000 financial organizations in 52 countries, including investment bankers, brokers, investors, fund managers, insurance companies and market makers that use financial and economic information. Other users include publishers of financial journals and daily newspapers, business schools and universities. Datastream/ICV's customers typically subscribe through annual contracts. Of Datastream/ICV's revenues, 62% were derived from the UK, 22% were from Europe, 10% from Asia and 6% from North America. These contracts are automatically renewed unless notice of cancellation is given two to three months before the annual renewal date. In 1998, the renewal rate was 93%. Disclosure's and Worldscope's customer base includes the majority of U.S. investment banks, money managers, corporations, law and accounting firms, together with other institutions and individuals performing financial research. Disclosure also distributes its information through over 50 third party vendors. Subscription services accounted for 69%, 62%, and 53% of Disclosure/Worldscope's revenues for the fiscal years ended December 31, 1998, 1997 and 1996, respectively. In 1998, Disclosure/Worldscope experienced a renewal rate for its subscription services of 90%. Primark Financial Analytics Division I/B/E/S directly serves more than 2,250 customers worldwide and thousands more through its distribution networks. I/B/E/S' customers are represented by financial institutions and portfolio managers worldwide, with particular interest by the quantitative analysts who access and download information directly into analytic models. I/B/E/S products are also sold to end users, such as management consultants and traditional investment analysts who utilize I/B/E/S for general research. Approximately 84% of I/B/E/S' 1998 revenues were derived through annual subscription contracts of which 10% were through soft dollar arrangements. In 1998, I/B/E/S experienced a renewal rate for its subscription services of 92%. Baseline serves over 6,000 portfolio managers in nearly 600 organizations, including investment companies, banks, investment consulting firms, and other institutional investors located throughout the U.S. and Canada who typically subscribe through bi-annual and annual contracts. These contracts are automatically renewed unless notice of cancellation is given before the renewal date. In 1998, Baseline experienced a renewal rate for its subscription services in excess of 95%. Vestek's clients include major banks, plan sponsors, consultants, insurers and investment managers. The majority of Vestek's revenues are derived from online subscription services. In 1998, Vestek experienced a renewal rate for its subscription services of 92%. Primark Decision Information Division WEFA has approximately 1,600 customers operating in corporations, financial services, governments, utilities and other businesses. WEFA performs consulting and planning services to analyze the potential impact of various economic alternatives faced by its customers. In 1998, WEFA experienced a renewal rate for its subscription services of 86%. The Yankee Group's customers consist primarily of suppliers and users of computer and communication technology. Yankee's customer base includes major consulting firms, telecommunications companies, computer hardware manufacturers, software companies, research analysts and the information technology departments of major corporations. MARKETING The products and services of Primark's information companies are marketed worldwide. Increasingly, the individual Primark companies are offering each other's data through their own delivery platforms. 11 14 Primark Financial Information Division Datastream is located in London, England and has sales personnel which support the full spectrum of Primark Financial Information Division product offerings through offices located in Australia, Belgium, Canada, England, France, Germany, Hong Kong, Italy, Japan, Luxembourg, the Netherlands, Singapore, South Korea, Spain Sweden, Switzerland, Thailand and the United States. ICV is located in London, England and has sales and support offices throughout the U.K. The products of Primark Financial Information Division include data from I/B/E/S and WEFA. Disclosure and Worldscope market and distribute their products predominately in the U.S. Disclosure extends its sales and marketing reach with Research Centers and through the combined Primark Financial Information Division sales force. Disclosure has incorporated I/B/E/S and WEFA data in its Global Access platform. Since the creation of Primark Financial Information Division, the sales and customer support operations of all Primark Financial Information Division units have been integrated with separate managers for the overall range of activities for North America and for the rest of the world. Primark Financial Analytics Division I/B/E/S, headquartered in New York City, with offices in London, Hong Kong and Tokyo, delivers its products directly to customers via state-of-the-art electronic delivery media. I/B/E/S Active Express is a PC-based proprietary software, database management and communications package. The I/B/E/S Active Express platform separately provides portions of the data from Disclosure, WEFA and Vestek. I/B/E/S also offers its products through a network of more than 30 electronic third-party distributors including Bloomberg L.P., Bridge Information Systems, Inc., Datastream/ICV, FactSet Research Corp., FAME, Onesource, Reuters Group PLC, S & P Compustat and Vestek. These third-party distributors offer I/B/E/S a mechanism to reach new markets and link I/B/E/S data to other databases and applications software. Baseline's product is targeted primarily toward portfolio managers of domestic equities and carries portions of both I/B/E/S' and Disclosure's data as part of its product offering. Baseline delivers its product directly to customers via an online advanced electronic delivery platform. Baseline markets its product through its own domestic sales force. Headquartered in San Francisco, Vestek's products are marketed through its sales force located in New York, Los Angeles and Japan. Vestek's European sales operations are integrated within I/B/E/S, covering all of Europe from I/B/E/S' London office. Vestek includes data from I/B/E/S, Worldscope and Datastream in portions of its product line. Primark Decision Information Division WEFA markets its products through its international sales force. With headquarters in Philadelphia, WEFA has offices in several U.S. cities and in the U.K., Germany, France, South Africa and Mexico. WEFA also employs analysts in other countries. WEFA delivers its data online through I/B/E/S, Disclosure and Datastream/ICV, as well as through its own electronic distribution platform. WEFA believes its historical association with the Wharton School of Business and with Nobel Laureate Lawrence R. Klein gives it a distinct advantage in the marketplace. The Yankee Group markets its services internationally primarily through its own sales force. We consider its historic record of accurately forecasting the general direction of communication and computing technology, together with its focus on customer support, as its greatest competitive advantages. The Yankee Group's industry analysts are the company's critical resource. These individuals have significant expertise in their areas of concentration, gained through industry experience, constant study of the technology market and ongoing dialogue with vendors and consumers in the industry. The Yankee Group headquarters are in Boston, with offices in other U.S. cities, London and Tokyo. 12 15 COMPETITION The global information industry is highly competitive. There are many large and successful companies in the information services industry that supply financial, economic and market research data that compete with products and services provided by Primark's information businesses. Principal competitive factors include the quality, reliability and comprehensiveness of the analytical services and data provided, flexibility in tailoring services to client needs, experience, innovation, the capability of technical and client service personnel, data processing and decision support software, reputation, price and geographic coverage. We distinguish our products through our broad international coverage, wide range of databases, accuracy of data, proprietary software applications, reputation, experience and quality of customer support provided. Our ability to remain competitive in the information market will depend largely upon our ability to maintain and develop new products and access new markets in a cost efficient manner, as well as the integration of all our information products and services. TECHNOLOGY DEVELOPMENT An essential element in our strategy has been to offer proprietary value-added content through state-of-the-art delivery systems that incorporate the latest improvements in information technology. Over the past several years, through selected acquisitions and internal development, the information technology organizations of our financial, economic and market research businesses have been strengthened, operations and reliability have been improved, software development and maintenance procedures have been upgraded and major steps have been taken toward euro and Y2K compliance. We believe that our information technology resources provide us with enhanced capabilities. In addition, we intend to take additional steps to further integrate these information technology functions. One of the most promising areas for immediate integration is in building the Primark Telecommunications Network, a worldwide network for Primark that integrates all telecommunications requirements in a common architecture, providing greater capacity and a higher level of service at lower costs. We anticipate that the Primark Telecommunications Network will also facilitate the delivery of new products to our entire customer base. The Primark Telecommunications Network will provide facilities such as high-speed image transmission, bulk data downloading and voice/data transmission on the same lines. Elements of the Primark Telecommunications Network will also allow for the internal data exchange needed to share data effectively for the creation of new products. We have developed a database and software capability called the Primark Information Optimizer. The Primark Information Optimizer is essentially creating a unified and integrated database for all of Primark, while each of its components remain as independent databases compatible with existing legacy products. The Primark Information Optimizer will enable the rapid development of new products and allow each Primark company to readily deliver all relevant Primark data to our customers. We plan to use the capabilities of the Primark Information Optimizer in a data and software product that can be offered to financial clients for their internal use in retrieving and standardizing information in multiple formats and stored in multiple databases. TRADEMARKS Primark's information companies hold numerous trademarks worldwide that are subject to continuous renewal. These trademarks are significant to our business, and are registered in all of our major markets to ensure recognition among our many global trading customers. EMPLOYEES At December 31, 1998, Primark and its subsidiaries employed approximately 2,900 people. We believe our relationship with our employees is excellent. 13 16 ITEM 2. PROPERTIES We currently occupy our principal executive offices, comprised of approximately 17,848 square feet, in Waltham, Massachusetts under lease agreements that expire in July 2001 with provision for two five-year renewal options. Baseline occupies 23,000 square feet of space at its New York headquarters. Baseline's lease for its New York headquarters expires in 1999. Baseline has signed a lease for 59,000 square feet at New York's World Trade Center which expires in 2015. Baseline also has an office in Philadelphia. Datastream's two principal office facilities are located in London, England. Comprised of an aggregate of 100,995 square feet, these facilities are occupied under lease agreements that expire in 2005 and 2018. Through its affiliates, Datastream also occupies, under short-term leases, an aggregate total of approximately 55,000 square feet of office space, principally located in Australia, Belgium, Canada, England, France, Germany, Hong Kong, Italy, Japan, Luxembourg, the Netherlands, Singapore, South Korea, Spain, Sweden, Switzerland, Thailand and the United States. Disclosure's headquarters, comprised of approximately 99,640 square feet, are located in Bethesda, Maryland. The property is occupied under lease agreements that expire in 2006. Disclosure's regional offices occupy approximately 63,900 square feet of office space under various lease terms. These offices are located in California, the District of Columbia, Georgia, Illinois, Massachusetts, New York and Texas. I/B/E/S occupies 39,800 square feet of space at its New York City headquarters under a lease agreement that expires in 2007. Additional office space totaling 10,950 square feet is located in England, Hong Kong and Japan. ICV's facilities occupy approximately 36,000 square feet of space that expires in 2003, and are located primarily in England. Vestek occupies approximately 13,555 square feet of space at its San Francisco headquarters under a lease agreement that expires in 1999 with provision for one five-year renewal option. WEFA occupies 45,550 square feet of space at its Pennsylvania headquarters under a lease agreement that expires in 2005. Additional office space of approximately 29,700 square feet is leased in Canada, Europe and South Africa. The Yankee Group occupies approximately 23,600 square feet of space at its Boston headquarters under a lease agreement that expires in 2003 and has international offices located in London and Tokyo. ITEM 3. LEGAL PROCEEDINGS Our management believes that the outcome of all pending legal proceedings will not, individually, or in the aggregate, have a material adverse effect on our business, results of operations or financial condition. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the last quarter of 1998. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed and traded on the New York Stock Exchange and the Pacific Exchange Inc. Other information set forth in the section entitled "Supplementary Information -- Quarterly Data" on page 43 of the Company's 1998 Annual Report is incorporated by reference herein. Since 1988, the Company has not paid cash dividends on common stock to its shareholders in order to reinvest available cash in the Company's operations. Information regarding restrictions on the Company's 14 17 ability to pay cash dividends on its common stock is incorporated by reference herein from Note 6 to the Consolidated Financial Statements entitled "Short-Term and Long Term Debt" on page 27 of the Company's 1998 Annual Report. ITEM 6. SELECTED FINANCIAL DATA The information set forth in the section entitled "Selected Financial Information -- Five Year Data" on page 42 of the Company's 1998 Annual Report is incorporated by reference herein. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The information set forth in the section entitled "Management's Discussion and Analysis of Results of Operations and Financial Condition" on pages 37 through 41 of the Company's 1998 Annual Report is incorporated by reference herein. ITEM 7A. MARKET RISK DISCLOSURES Foreign exchange Market Risk A significant portion of Primark's revenues is denominated in currencies other than the U.S. Dollar. The majority of Primark's revenues are generated from subscription arrangements of up to two years in duration. Additionally, a significant percentage of Primark's operating costs is denominated in foreign currencies. Foreign currency denominated expenses contains a different mix from foreign revenues. The primary market risk that Primark faces is the risk of the U.S. Dollar strengthening versus the Euro, Swiss Franc, Swedish Krona and Japanese Yen. Derivatives related to the foreign exchange market risk category are utilized to reduce the exposure of the Company's operating income to excessive foreign currency fluctuations. Certain principles underlying Primark's foreign exchange risk management strategy include: - - Derivative contracts should be assigned to an identified cash flow exposure and the notional amount of such derivative will not exceed the amount of the underlying exposure. - - Levels of foreign exchange hedging will not exceed 90% for exposures with a horizon within the next 12 months and 75% for the following 12 months. - - Options can only be written as part of a matched combination strategy or collar with no net premium received. Primark Corporation has adopted value at risk ("VAR") analysis as a management tool to quantify the potential impact of exchange rate volatility on future operating income. VAR is a measure of the potential loss on a portfolio within a specified time horizon, at a specified confidence interval. The Company defines loss as the reduction in the value of operating income denominated in U.S. Dollars. The VAR calculation parameters and assumptions are as follows: - - Daily volatility and correlation data. - - Portfolio data is the four-quarter estimated operating income foreign currency exposures of each Primark subsidiary. - - Horizon is one fiscal quarter (65 business days) - - Home currency is U.S. Dollar - - Confidence Interval is 95% - - VAR Method is Monte Carlo using historical correlation and volatility data sets - - Periodicity of VAR calculation is quarterly. Based on the VAR model, Primark estimates there is a 5% chance that the forecast for operating income for the coming four quarters will deteriorate due to foreign currency movements over the next calendar quarter by more than $2.43 million before hedging and $2.32 million after taking into account the Company's hedging portfolio. Hedging instruments included in the VAR calculation include all foreign currency forward and option contracts held at December 31, 1998. 15 18 Interest Rate Market Risk -- Not for Trading The Company has an undrawn revolver of $225 million, which carries an interest rate that varies with LIBOR. In December 1998, the Company issued $150 million, 9 1/4% subordinated debt due December of 2008. An increase in interest rates would increase the cost to borrow funds under the revolver. An increase in interest rates would cause the market value of an investment in the Company's fixed debt to decrease which would benefit the shareholders of the Company. The Company does not enter into interest rate derivatives for trading purposes. Derivatives contracts entered into relate to specific financial liabilities or assets with either fixed or floating interest rates attached. The objective of the Company's interest rate risk management program is to optimize and regulate the mix of fixed and floating rate assets and liabilities recorded on the Company's balance sheet with consideration given to management's plans for future investments, divestitures and financing. To manage its interest rate exposures, the Company typically utilizes rate agreements, swaps and options. At December 31, 1998, the Company was not a party to any outstanding interest rate derivative agreements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and the related notes thereto and the Report of Independent Auditors, as contained on pages 18 through 36 of the Company's 1998 Annual Report, and the "Supplementary Financial Information - -Quarterly Data," as contained on page 43 of the Company's 1998 Annual Report, are incorporated by reference herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information set forth in the section entitled "Election of Directors" in the Company's 1999 Proxy Statement for its May 1999 Annual Meeting of Shareholders is incorporated by reference herein. Information with respect to the executive officers of the Company as of February 16, 1999 is set forth below. The Company's Board of Directors elect officers generally for one-year terms expiring at the next organizational meeting to be held in May, 26 1999. The term for Mr. Kasputys is governed by his employment agreement. Under this agreement, Mr. Kasputys is employed as the Chairman, President and Chief Executive Officer of Primark through December 31, 2001. Joseph E. Kasputys, age 62, has served as Chairman, President and Chief Executive Officer of Primark since May 1988. From June 1987 until May 1988, he served as President and Chief Operating Officer of Primark. Prior to joining Primark in June 1987, he was Executive Vice President of The McGraw-Hill Companies, Inc., a publishing and information services company. Prior to joining McGraw-Hill in 1985, he was President and Chief Executive Officer of Data Resources, Inc., an economic forecasting and consulting firm. Mr. Kasputys has been a Primark director since 1987. He is a member of the Nominating Committee of the Board. Mr. Kasputys is also a director of Lifeline Systems, Inc., a company that develops and manufactures personal response products and provides related monitoring and other services and New Era of Networks, Inc., a company that develops, markets and supports application integration software and provides application services. Stephen H. Curran, age 51, has served as Senior Vice President and Chief Financial Officer of Primark since 1988. In 1997 he was elected Executive Vice President and Chief Financial Officer. Michael R. Kargula, age 51, has served as Senior Vice President, General Counsel and Secretary of Primark since 1988. In 1997 he was elected Executive Vice President, General Counsel and Secretary. Steven L. Schneider, age 41, has served as President and Chief Executive Officer of the Primark Financial Information Division since July, 1998. From July, 1995 through June 1998, Mr Schneider served as President 16 19 and Chief Executive Officer of Disclosure Incorporated and from February, 1992 to July, 1995 he served as Vice President of Investor Relations for the Company. William J. Swift III, age 46, has served as Vice President and Tax Counsel of Primark since 1988. In 1998 he was elected Senior Vice President and Tax Counsel. Paul Sandford, age 37, has served in various treasury and accounting functions of Primark since 1986. Effective April 1, 1999, he was elected to serve as Vice President and Treasurer. Linda Luke Lee, age 42, has served as a member of Primark's legal staff in various senior level capacities since 1985. Effective April 1, 1999, she was elected to serve as Vice President, Associate General Counsel and Assistant Secretary. ITEM 11. EXECUTIVE COMPENSATION The information set forth in the sections entitled: "Executive Compensation," "Directors' Compensation," "Compensation Committee Interlocks and Insider Participation," "Compensation Committee Report," "Employment Agreements and Other Arrangements," in the Company's 1999 Proxy Statement for its May 1999 Annual Meeting of Shareholders is incorporated by reference herein. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information set forth in the sections entitled "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Company's 1999 Proxy Statement for its May 1999 Annual Meeting of Shareholders is incorporated by reference herein. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information set forth in the sections entitled "Executive Compensation," "Directors' Compensation," "Compensation Committee Interlocks and Insider Participation" and "Employment Agreements and Other Arrangements" of the Company's 1999 Proxy Statement for its May 1999 Annual Meeting of Shareholders is incorporated by reference herein. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) LIST OF DOCUMENTS FILED AS PART OF FORM 10-K 1. The following Financial Statements are contained in Primark's 1998 Annual Report filed as Exhibit 13.1 to this report: - Consolidated Statements of Income for each of the three years in the period ended December 31, 1998. - Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 1998. - Consolidated Statements of Financial Position as of December 31, 1998 and 1997. - Consolidated Statements of Common Shareholders' Equity for each of the three years in the period ended December 31, 1998. - Consolidated Statement of Comprehensive Income for each of the three years in the period ended December 31, 1998. - Notes to the Consolidated Financial Statements. - Independent Auditors' Report. - Management's Discussion and Analysis of Results of Operations and Financial Condition. - Supplementary Financial Information-Quarterly Data. 17 20 The following financial statement schedule is filed as part of this report and is located on page: Schedule II Valuation and Qualifying Accounts on page 30. Independent Auditors' Report on Financial Statement Schedule on page 31. The Exhibits filed as part of this Annual Report on Form 10-K are listed in the Index to Exhibits on pages 24 to 27, and are incorporated by reference herein. (b) REPORTS ON FORM 8-K On March 3, 1998, the Company filed a report on Form 8-K under Item 2 related to the acquisition of the EXTEL name and its company fundamental data business. EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession 2.1 Stock Purchase Agreement between the Company and Howard Anderson dated as of August 9, 1996 (Exhibit 2.1 to the Company's August 15, 1996 Form 8-K). 2.2 Stock Purchase and Sale Agreement dated as of September 30, 1996, between the Company and American Natural Resources Company (Exhibit 2.3 to the Company's September 30, 1996 Form 10-Q). 2.3 Amended and Restated Partnership Agreement for Worldscope/ Disclosure International Partners; Irish Partnership Interest Purchase and Sale Agreement; and Partnership Interest Purchase and Sale Agreement; dated as of October 15, 1996 (Exhibit 2.5 to the Company's 1996 Form 10-K). 2.4 Stock Purchase Agreement by and among Primark Corporation, Primark Information Services U.K. Limited and Litton Industries, Inc. and Litton U.K. Limited dated as of December 8, 1997 (Exhibit 2.1 to the Company's Form 8-K filed December 10, 1997). 2.5 Information Technology Services Agreement by and among Primark Corporation, TASC, Inc. and Litton Industries, Inc. (Exhibit 2.2 to the Company's Form 8-K filed December 10, 1997). 2.6 Stock Purchase Agreement between Primark Corporation and Aviation Sales Maintenance, Repair & Overhaul Company, a division of Aviation Sales Company dated as of August 10, 1998. (Exhibit 99.1 to the Company's Form 8-K filed October 6, 1998). Articles of Incorporation and By-Laws 3.1 Restated Articles of Incorporation of the Company (Exhibit 3.1 to the Company's Registration Statement No. 333-71183). 3.2 By-Laws of the Company, as amended (Exhibit 3.1 to the Company's September 30, 1990 Form 10-Q). Instruments defining the rights of security holders, including indentures. Instruments Defining the Rights of Security Holders, Including Indentures 4.1 Rights Agreement dated May 29, 1997 between Primark Corporation and Bank Boston, N.A., as Rights Agent, which includes, Exhibit A, the Rights Certificate and as Exhibit B, the Summary of Rights to Purchase Common Stock (Exhibit 4.1 to the Company's Form 8-A dated June 19, 1997). 4.2 Indenture dated as of December 21, 1998 between the Company and State Street Bank and Trust, as Trustee for the 9 1/4 % Senior Subordinated Notes due 2008. (Exhibit 4.2 to the Company's Form S-4 dated March 12, 1999). 4.3 Registration Rights Agreement dated January 7, 1997 between the Company and Joseph E. Kasputys (Exhibit 4.1 to the Company's 1996 Form 10-K).
18 21
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 4.4 Offer to exchange 9 1/4% Senior Subordinated Notes due 2008 for 9 1/4% Senior Subordinated Exchange Notes due 2008 dated March 19, 1999 (Registration Statement No. 333-71183). Material Contracts 10.1 Primark Corporation 1992 Stock Option Plan dated March 2, 1992 (Exhibit 10.26 to the Company's 1991 From 10-K); Amendment dated September 28, 1995 (Exhibit 10.22 to the Company's 1995 Form 10-K) 10.2 Primark Corporation Stock Option Plan for Non-Employee Directors as amended, dated January 12, 1988 (Exhibit 10.57 to the Company's 1987 Form 10-K); Amendment dated February 21, 1992 (Exhibit 10.24 to the Company's 1991 Form 10-K); Amendment dated September 28, 1992 (Exhibit 28.3 to the Company's September 30, 1992 Form 10-Q); Amendment dated September 22, 1995 (Exhibit 10.2 to the Company's 1996 Form 10-K). 10.3 Primark Corporation Executive Share Option Scheme (Exhibit 10.26 to the Company's 1992 Form 10-K); Amendment dated September 28, 1995 (Exhibit 10.24 to the Company's 1995 Form 10-K). 10.4 Primark Corporation Savings and Stock Ownership Plan as amended and restated, effective January 1, 1997; (filed as Exhibit 4.4 to the Company's Registration Statement on Form S-8 dated December 10, 1996). 10.5 Primark Corporation 1992 Employee Stock Purchase Plan dated March 2, 1992 (Exhibit 10.27 to the Company's 1991 Form 10-K); Amended and Restated Stock Purchase Plan and related Prospectus as filed under the Securities Act of 1933 (Exhibit 10.27 to the Company's 1993 Form 10-K); Amendment dated October 4, 1995 (Exhibit 10.26 to the Company's 1995 Form 10-K). 10.6 Form of promissory note to be issued to the Company by executive officers in connection with the Company's 1988 Management Incentive Plan (Exhibit 10.1 to the Company's March 31, 1989 Form 10-Q). 10.7 Promissory notes dated September 30, 1988 issued to the Company by executive officers (Exhibit 10.1 to the Company's September 30, 1988 Form 10-Q). 10.8 Employment and Option agreements between the Company and Joseph E. Kasputys dated January 7, 1997 (Exhibit 10.11 to the Company's 1996 Form 10-K). 10.9 Supplemental Death Benefit and Retirement Income Plan Agreement as amended and restated, dated March 25 1986 (Exhibit 19.1 to the Company's March 31, 1985 Form 10-Q); Certified Copy of Resolution amending the Supplemental Death Benefit and Retirement Income Plan Agreement (Exhibit 10.17 to the Company's 1991 Form 10-K; Amendment dated September 28, 1992 (Exhibit 29.4 to the Company's September 30, 1992 Form 10-Q). 10.10 Supplemental Medical Reimbursement Insurance Plan (Exhibit 10.15 to the Company's 1996 Form 10-K). 10.11 Form of Change of Control Compensation Agreement entered into between the Company and selected executive officers (Exhibit 10.60 to the Company's 1996 Form 10-K). 10.12 Refinancing Agreements (Revolving Credit Agreement, Term Loan Agreement, Pledge Agreement, Collateral Agency Agreement, and Note Backup Agreement) dated as of February 7, 1997, by and among Primark Corporation, Lenders Parties, Mellon Bank, N.A. and other related documents (Exhibit 10.17 to the Company's 1996 Form 10-K); Amendment dated May 1, 1997 (Exhibit 10.1 to the Company's June 30, 1997 Form 10-Q); Amendment dated June 30, 1997 (Exhibit 10.2 to the Company's June 30, 1997 Form 10-Q); Amendment dated December 1, 1997 (Exhibit 10.16 to the Company's 1997 Form 10-K); Amendment dated March 6, 1998 (Exhibit 10.16 to the Company's 1997 Form 10-K); Amendment dated May 8, 1998; Amendment dated June 15, 1998 (incorporated by reference to the Company's Schedule 13E-4 dated June 26, 1998); Amendment dated September 10, 1998; Amendment dated December 10, 1998 (Exhibit 10.13 to the Company's Registration Statement No. 333-71183). 10.13 Form of variable rate unsecured loan notes dated October 24, 1996 between the Company and the former shareholders of ICV, Ltd. (Exhibit 10.18 to the Company's 1996 Form 10-K).
19 22
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT - ------- ----------------------- 10.14 Credit Agreement date October 23, 1996, by and among the Company, Lenders Parties and Mellon Bank, N.A. (Exhibit 10.1 to the Company's Form 8-K dated November 13, 1996); Amendment dated October 23, 1996 (Exhibit 10.20 to the Company's 1996 Form 10-K); Amendment dated December 18, 1996 (Exhibit 10.21 to the Company's 1996 Form 10-K); Amendment dated January 9, 1997 (Exhibit 10.19 to the Company's 1996 Form 10-K); as amended by the Note Backup Agreement dated February 7, 1997 (Exhibit 10.17 to the Company's 1996 Form 10-K). Annual Report to Security Holders 13.1* Primark Corporation 1998 Annual Report (which is not deemed to be 'filed' except to the extent that portions thereof are expressly incorporated by reference in this Annual Report on Form10-K) filed herewith. Subsidiaries of Registrant 21.1* Subsidiaries of Primark Corporation. Consents of Experts and Counsel 23.1* Independent Auditors' Consent. 24.1* Powers of Attorney (Included herein from Signature Page). 27.1* Financial Data Schedule for the year ended December 31, 1998.
- --------------- * Indicates document filed herewith. For the Company's documents incorporated by reference, references are to File No. 1-8260. 20 23 SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 29th day of March, 1999. PRIMARK CORPORATION By: /s/ STEPHEN H. CURRAN ------------------------------------ STEPHEN H. CURRAN EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER The undersigned directors and officers of Primark Corporation, a Michigan corporation, do hereby severally constitute and appoint Joseph E. Kasputys, Stephen H. Curran and Michael R. Kargula, and each of them, his or her true and lawful attorneys-in-fact and agents, each with full power and authority (acting alone and without the others) to execute in the name and on behalf of the undersigned as such Director or Officer, an Annual Report on Form 10-K, for the year ended December 31, 1998, under the Securities and Exchange Act of 1934, of said Corporation, and all amendments to such Annual Report on Form 10-K; hereby granting to such attorneys and agents, and each of them full power of substitution and revocation in the premises; and hereby ratifying and confirming all that such attorneys and agents, or any of them may do or cause to be done by virtue of these presents. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the date indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ JOSEPH E. KASPUTYS Chairman, President and Chief January 11, 1999 - --------------------------------------------------- Executive Officer (Principal JOSEPH E. KASPUTYS Executive Officer) /s/ STEPHEN H. CURRAN Executive Vice President and Chief January 13, 1999 - --------------------------------------------------- Financial Officer STEPHEN H. CURRAN /s/ KEVIN J. BRADLEY Director January 12, 1999 - --------------------------------------------------- KEVIN J. BRADLEY /s/ JOHN C. HOLT Director January 12, 1999 - --------------------------------------------------- JOHN C. HOLT /s/ STEVEN LAZARUS Director January 10, 1999 - --------------------------------------------------- STEVEN LAZARUS /s/ PATRICIA MCGINNIS Director January 12, 1999 - --------------------------------------------------- PATRICIA MCGINNIS /s/ JONATHAN NEWCOMB Director January 12, 1999 - --------------------------------------------------- JONATHAN NEWCOMB /s/ CONSTANCE K. WEAVER Director January 12, 1999 - --------------------------------------------------- CONSTANCE K. WEAVER /s/ STEPHEN H. CURRAN - --------------------------------------------------- STEPHEN H. CURRAN ATTORNEY-IN-FACT
21 24 SCHEDULE II PRIMARK CORPORATION AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS OF CONTINUING OPERATIONS
BALANCE AT ADDITIONS DEDUCTIONS BALANCE AT BEGINNING OF CHARGED TO FROM END OF PERIOD INCOME RESERVES(1) PERIOD ------------ ---------- ----------- ---------- (IN THOUSANDS) Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts: Year ended December 31, 1996............. 1,730 943 (439) 2,234 Year ended December 31, 1997............. 2,234 843 (321) 2,756 Year ended December 31, 1998............. 2,756 1,979 (974) 3,761
- --------------- (1) Accounts written off. 22 25 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of Primark Corporation We have audited the consolidated financial statements of Primark Corporation and subsidiaries as of December 31, 1998 and 1997 and for each of the three years in the period ended December 31, 1998, and have issued our report thereon dated February 16, 1999, which is incorporated by reference in this Annual Report on Form 10-K. Our audits also included the financial statement schedule listed in Item 14(a)1 of this Annual Report on Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP Boston, Massachusetts February 16, 1999 23 EX-13.1 2 1998 ANNUAL REPORT 1 EXHIBIT 13 18|Primark Annual Report CONSOLIDATED STATEMENTS OF INCOME
In Thousands Except Per Share Amounts For Years Ended December 31 1998 1997 1996 - ----------------------------------------------------------------- --------- --------- --------- OPERATING REVENUES $ 434,540 $ 397,875 $ 277,063 - ----------------------------------------------------------------- --------- --------- --------- OPERATING EXPENSES Cost of services 174,825 157,327 104,479 Selling, general and administrative 165,884 151,309 111,463 Depreciation 17,221 17,371 12,318 Amortization of goodwill 15,625 15,805 10,616 Amortization of other intangible assets 15,969 17,029 10,348 Restructuring charge (Note 4) 67,970 6,800 -- - ----------------------------------------------------------------- --------- --------- --------- Total operating expenses 457,494 365,641 249,224 - ----------------------------------------------------------------- --------- --------- --------- OPERATING INCOME (LOSS) (22,954) 32,234 27,839 - ----------------------------------------------------------------- --------- --------- --------- OTHER INCOME AND (DEDUCTIONS) Interest expense (9,491) (15,986) (12,468) Foreign currency gain 263 1,831 1,836 Other 1,391 (784) 2,741 - ----------------------------------------------------------------- --------- --------- --------- Total other income and (deductions) (7,837) (14,939) (7,891) - ----------------------------------------------------------------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (30,791) 17,295 19,948 INCOME TAX EXPENSE 2,579 12,441 7,432 - ----------------------------------------------------------------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS (33,370) 4,854 12,516 - ----------------------------------------------------------------- --------- --------- --------- DISCONTINUED OPERATIONS Discontinued operations, net of income tax expense of $5,614, $12,510 and $14,005, respectively 7,927 16,816 16,192 Gain on disposal of discontinued operations, net of income tax expense of $108,376 and $5,407, respectively 187,286 -- 8,400 - ----------------------------------------------------------------- --------- --------- --------- Total Discontinued Operations (Note 3) 195,213 16,816 24,592 - ----------------------------------------------------------------- --------- --------- --------- INCOME BEFORE EXTRAORDINARY LOSS 161,843 21,670 37,108 EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT (NOTE 6), net of income tax benefit of $3,614 in 1998 and $1,379 in 1997 (5,121) (1,955) -- - ----------------------------------------------------------------- --------- --------- --------- NET INCOME 156,722 19,715 37,108 DIVIDENDS ON PREFERRED STOCK -- -- (359) - ----------------------------------------------------------------- --------- --------- --------- NET INCOME APPLICABLE TO COMMON STOCK $ 156,722 $ 19,715 $ 36,749 ================================================================= ========= ========= ========= BASIC EARNINGS (LOSS) PER COMMON SHARE (NOTE 8) Income (loss) from continuing operations $ (1.37) $ 0.18 $ 0.49 Discontinued operations 8.03 0.64 0.99 Extraordinary loss (0.21) (0.07) -- - ----------------------------------------------------------------- --------- --------- --------- Net income $ 6.45 $ 0.75 $ 1.48 ================================================================= ========= ========= ========= EARNINGS (LOSS) PER COMMON SHARE - ASSUMING DILUTION (NOTE 8) Income (loss) from continuing operations $ (1.37) $ 0.17 $ 0.46 Discontinued operations 8.03 0.61 0.92 Extraordinary loss (0.21) (0.07) -- - ----------------------------------------------------------------- --------- --------- --------- Net income $ 6.45 $ 0.71 $ 1.38 ================================================================= ========= ========= =========
2 The accompanying notes to the consolidated financial statements are an integral part of these statements. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 3 19|Primark Annual Report CONSOLIDATED STATEMENTS OF CASH FLOWS
In Thousands For Years Ended December 31 1998 1997 1996 - -------------------------------------------------------------------------------- --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 156,722 $ 19,715 $ 37,108 Adjustments to reconcile net income to net cash flows from operating activities: Discontinued operations (7,927) (16,816) (16,192) Gain on sale of subsidiary (187,286) -- (8,400) Restructuring charge - intangible assets 60,673 -- -- Extraordinary loss on early extinguishment of debt 8,735 3,334 -- Cash provided by (contributed to) discontinued operations (6,306) 23,380 13,915 Depreciation and amortization 48,815 50,205 33,282 Other charges and credits - net (28,166) (12,471) 12,442 Changes in operating working capital, excluding the effect of acquisitions: (Increase) in billed, unbilled and other receivables - net (17,462) (5,366) (27,531) Decrease in other current assets and liabilities 26,478 3,717 3,823 Decrease in accounts payable (817) (2,896) (1,954) Increase in accrued payroll and benefits 6,719 2,515 3,310 Increase (decrease) in income and other taxes payable - net 3,397 (5,506) 5,056 Increase (decrease) in deferred income 9,127 (1,787) 10,848 - -------------------------------------------------------------------------------- --------- --------- --------- Net change in operating working capital 27,442 (9,323) (6,448) - -------------------------------------------------------------------------------- --------- --------- --------- Net cash provided from operating activities 72,702 58,024 65,707 - -------------------------------------------------------------------------------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of short-term notes payable 919,171 225,304 2,598 Repayment of short-term notes payable (946,773) (197,702) (2,598) Issuance of long-term debt 150,000 100,000 -- Repayment of long-term debt (332,504) (5,000) -- Common stock repurchased and retired (197,263) (56,238) -- Common stock issuance 12,131 12,235 8,264 Debt issue costs and other (2,112) (3,853) (711) Call premium (4,900) -- (2,804) - -------------------------------------------------------------------------------- --------- --------- --------- Net cash provided from financing activities (402,250) 74,746 4,749 - -------------------------------------------------------------------------------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (22,812) (23,965) (19,412) Capitalized software (17,587) (19,971) (16,916) Purchase of subsidiaries - net of acquired cash (19,225) (88,089) (71,084) Proceeds from disposal of discontinued operations 502,000 -- 14,300 Tax paid on disposal of discontinued operations (62,000) -- -- Other - net 171 (4,514) (8,503) Cash provided by (contributed to) discontinued operations (12,395) (7,965) (4,374) - -------------------------------------------------------------------------------- --------- --------- --------- Net cash used for investing activities 368,152 (144,504) (105,989) - -------------------------------------------------------------------------------- --------- --------- --------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 246 (762) 927 - -------------------------------------------------------------------------------- --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 38,850 (12,496) (34,606) CASH AND CASH EQUIVALENTS, JANUARY 1 12,780 25,276 59,882 - -------------------------------------------------------------------------------- --------- --------- --------- CASH AND CASH EQUIVALENTS, DECEMBER 31 $ 51,630 $ 12,780 $ 25,276 ================================================================================ ========= ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION - CASH PAID FOR: Income taxes, including amounts paid for discontinued operations $ 95,431 $ 12,834 $ 12,863 Interest $ 12,638 $ 25,512 $ 20,664 ================================================================================ ========= ========= =========
The accompanying notes to the consolidated financial statements are an integral part of these statements .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 4 20|Primark Annual Report CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
In Thousands At December 31 1998 1997 - ------------------------------------------------------------------------------------------ ----------- ----------- ASSETS CURRENT ASSETS Cash and cash equivalents, at cost (which approximates market value) $ 51,630 $ 12,780 Billed receivables less allowance for doubtful accounts of $3,762 and $2,756, respectively 88,770 70,084 Unbilled and other receivables 13,203 9,546 Federal and state income tax benefit -- 21,304 Other current assets 15,806 24,036 Net assets of discontinued operations 8,900 197,330 - ------------------------------------------------------------------------------------------ ----------- ----------- Total current assets 178,309 335,080 - ------------------------------------------------------------------------------------------ ----------- ----------- INTANGIBLE AND OTHER ASSETS Goodwill, less accumulated amortization of $81,048 and $41,834,respectively 526,624 556,737 Capitalized data and other intangible assets, less accumulated amortization of $29,670 and $20,710, respectively 38,703 47,512 Capitalized software, less accumulated amortization of $18,578 and $20,162, respectively 37,765 48,645 Other 9,797 8,980 - ------------------------------------------------------------------------------------------ ----------- ----------- Total intangible and other assets 612,889 661,874 - ------------------------------------------------------------------------------------------ ----------- ----------- PROPERTY, PLANT AND EQUIPMENT, AT COST Computer equipment 79,837 63,773 Leasehold improvements 19,267 17,647 Other 10,901 9,186 - ------------------------------------------------------------------------------------------ ----------- ----------- 110,005 90,606 Less - Accumulated depreciation (58,649) (43,751) - ------------------------------------------------------------------------------------------ ----------- ----------- Net property, plant and equipment 51,356 46,855 - ------------------------------------------------------------------------------------------ ----------- ----------- Total assets $ 842,554 $ 1,043,809 ========================================================================================== =========== =========== LIABILITIES AND COMMON SHAREHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ -- $ 27,602 ICV Purchase Notes 6,750 -- Accounts payable 12,059 14,125 Accrued employee payroll and benefits 31,924 24,585 Taxes payable 41,318 10,717 Deferred income 80,004 69,931 Current portion of long-term debt, including capital lease obligations 640 11,301 Other accrued expenses 53,441 43,814 - ------------------------------------------------------------------------------------------ ----------- ----------- Total current liabilities 226,136 202,075 - ------------------------------------------------------------------------------------------ ----------- ----------- LONG-TERM DEBT AND OTHER LIABILITIES Long-term debt, including capital lease obligations 151,489 331,260 Deferred income taxes 9,599 21,133 Other 15,152 18,370 - ------------------------------------------------------------------------------------------ ----------- ----------- Total long-term debt and other liabilities 176,240 370,763 - ------------------------------------------------------------------------------------------ ----------- ----------- Total liabilities 402,376 572,838 - ------------------------------------------------------------------------------------------ ----------- ----------- COMMITMENTS AND CONTINGENCIES (NOTE 13) - ------------------------------------------------------------------------------------------ ----------- ----------- COMMON SHAREHOLDERS' EQUITY Common stock and additional paid-in-capital 90,239 275,370 Retained earnings 355,380 198,658 Accumulated other comprehensive income (5,441) (3,057) - ------------------------------------------------------------------------------------------ ----------- ----------- Total common shareholders' equity 440,178 470,971 - ------------------------------------------------------------------------------------------ ----------- ----------- Total liabilities and common shareholders' equity $ 842,554 $ 1,043,809 ========================================================================================== =========== ===========
The accompanying notes to the consolidated financial statements are an integral part of these statements. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 5 21|Primark Annual Report CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY
In Thousands For Years Ended December 31 1998 1997 1996 - ---------------------------------------------------------------- --------- --------- --------- COMMON STOCK, without par value - authorized 100,000,000 shares, issued 21,251,455; 26,800,399 and 27,067,951 shares, respectively, at $0.02 stated value Balance - beginning of year $ 536 $ 541 $ 489 Issued for employee stock purchase and option plans 11 36 2 Retirement of common stock (122) (41) -- Purchase of subsidiary -- -- 44 Conversion of preferred stock to common -- -- 6 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year 425 536 541 - ---------------------------------------------------------------- --------- --------- --------- ADDITIONAL PAID-IN CAPITAL Balance - beginning of year 274,834 296,005 226,005 Tax benefit relating to stock option plans 2,837 22,827 3,218 Issued for employee stock purchase and option plans 9,284 12,198 1,557 Retirement of common stock (197,141) (56,196) -- Purchase of subsidiary -- -- 59,906 Conversion of preferred stock to common - net of costs -- -- 4,738 Gain on treasury shares -- -- 581 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year 89,814 274,834 296,005 - ---------------------------------------------------------------- --------- --------- --------- RETAINED EARNINGS Balance - beginning of year 198,658 178,943 141,846 Net income 156,722 19,715 37,108 Dividends on preferred stock -- -- (359) Change in year-end of subsidiaries -- -- 348 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year 355,380 198,658 178,943 - ---------------------------------------------------------------- --------- --------- --------- TREASURY STOCK Balance - beginning of year -- -- (14,814) Conversion of preferred stock to common -- -- 10,878 Reissued for stock purchase and option plans -- -- 3,936 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year -- -- -- - ---------------------------------------------------------------- --------- --------- --------- UNEARNED COMPENSATION Balance - beginning of year -- -- (709) Amortization of unearned compensation -- -- 709 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year -- -- -- - ---------------------------------------------------------------- --------- --------- --------- CUMULATIVE FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance - beginning of year (3,057) 341 1,245 Translation adjustment 1,658 (5,221) (1,378) Income tax benefit (expense) on adjustment (576) 1,823 474 - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year (1,975) (3,057) 341 - ---------------------------------------------------------------- --------- --------- --------- ADDITIONAL MINIMUM PENSION LIABILITY Balance - beginning of year -- -- -- Additional minimum pension liability (3,466) -- -- - ---------------------------------------------------------------- --------- --------- --------- Balance - end of year (3,466) -- -- - ---------------------------------------------------------------- --------- --------- --------- TOTAL COMMON SHAREHOLDERS' EQUITY $ 440,178 $ 470,971 $ 475,830 ================================================================ ========= ========= =========
The accompanying notes to the consolidated financial statements are an integral part of these statements. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 6 22|Primark Annual Report CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
In Thousands For Years Ended December 31 1998 1997 1996 - ---------------------------------------- --------- --------- --------- Net income $ 156,722 $ 19,715 $ 36,749 Cumulative translation adjustment $ 1,082 $ (3,398) $ (904) Additional minimum pension liability $ (3,466) $ -- $ -- - ---------------------------------------- --------- --------- --------- COMPREHENSIVE INCOME $ 154,338 $ 16,317 $ 35,845 ======================================== ========= ========= =========
The accompanying notes to the consolidated financial statements are an integral part of these statements. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. BUSINESS The Company is a global information services company with businesses strategically focused in supplying financial, economic and market research information to financial and corporate markets. B. PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Primark Corporation and its majority-owned subsidiaries (the "Company"). All significant intercompany transactions and balances have been eliminated. Investments in companies of less than 50 percent are accounted for using the equity method. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior years' statements to conform to the 1998 presentation. C. FOREIGN CURRENCY TRANSLATION The functional currency for most of the Company's foreign operations is the applicable local currency. Foreign currency accounts are translated into US dollars using current exchange rates in effect at the balance sheet date for assets and liabilities, and weighted average monthly exchange rates during the period for revenues and expenses. Adjustments resulting from translating foreign functional currency financial statements into US dollars are reported as accumulated other comprehensive income (loss). Gains and losses resulting from transactions and certain balance sheet accounts denominated in currencies other than the applicable functional currency are included in income. The net effect of changes in cash are separately identified in the consolidated statements of cash flows. D. DERIVATIVE FINANCIAL INSTRUMENTS The Company enters into currency exchange and interest rate swap agreements to minimize interest rate and foreign exchange risk. Gains and losses related to qualifying accounting hedges of firm commitments are deferred and recognized in income when the hedged transaction occurs. Gains and losses from financial instruments that do not qualify for hedge accounting are marked to market and recognized as a gain or loss in the current period. The Company does not hold or issue derivative financial instruments for trading purposes. E. REVENUE RECOGNITION Revenue derived from subscription contracts is generally billed in advance of services provided. Amounts billed in advance are recorded as deferred income and recognized ratably over the periods in which services are performed. Revenue derived from consulting services is recognized based upon time and out-of-pocket expense or by percentage of completion, depending on the contract terms. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 7 23|Primark Annual Report NOTES CONTINUED F. CASH AND CASH EQUIVALENTS Cash and cash equivalents represent cash and short-term, highly liquid investments with original maturities of three months or less. G. GOODWILL Goodwill represents the excess of the purchase price over the fair value of net identifiable assets acquired and is amortized on a straight line basis over estimated useful lives from 5 to 40 years. The Company regularly evaluates the net carrying value of all long-lived assets, including intangibles and goodwill, for recoverability based upon the undiscounted future cash flows associated with these assets. H. CAPITALIZED SOFTWARE Effective January 1, 1998, the Company adopted the provisions of the AICPA SOP No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." Adoption of this pronouncement did not have a material effect on the reported results of operations or financial position. Costs related to the conceptual formulation and design of software developed for internal use are expensed as incurred. Costs to support or service software are expensed as incurred. I. CAPITALIZED DATA AND OTHER INTANGIBLES Costs incurred to maintain the Company's database assets are expensed as incurred. Costs associated with the purchase of historical data not currently part of the Company's database assets, as well as the cost of developing the history for new database content, are capitalized. Other intangible assets and liabilities consist of non-compete covenants, trademarks and unfavorable lease commitments. Data and other intangibles are amortized on a straight line basis over periods ranging from 3 to 20 years. J. PROPERTY AND EQUIPMENT Computer equipment and other property are recorded at cost and depreciated on a straight line basis over their estimated useful lives, ranging from 3 to 10 years. Leasehold improvements are amortized over the shorter of the remaining life of the lease or the estimated useful life of the improvement. K. INCOME TAXES Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. Deferred tax balances are adjusted to reflect changes in tax rates expected to be in effect during the periods in which the temporary differences reverse. As temporary differences reverse, the related deferrals are recorded to income. L. ACCOUNTING FOR STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The impact of recording stock-based compensation under a method prescribed by FASB No. 123 is disclosed in Note 10. M. REPORTING COMPREHENSIVE INCOME Effective January 1, 1998, the Company adopted the provisions of FASB SFAS No. 130, "Reporting Comprehensive Income." This standard requires companies to report and display comprehensive income and its components in a full set of general-purpose financial statements. A consolidated statement of comprehensive income has been prepared to reflect the implementation of this statement. N. DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION Effective January 1, 1998, the Company adopted the provisions of FASB SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The standard requires the reporting of certain information about operating segments including the basis for the presentation, geographic information and segment profit or loss. The disclosures relating to this SFAS are included in Note 12. O. DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS Effective January 1, 1998, the Company adopted the provisions of FASB SFAS No. 132, "Employers Disclosures about Pensions and other Post-Retirement Benefits." This statement standardizes the disclosure requirements for pensions and other post-retirement benefits. The disclosures relating to this SFAS are included in Note 10. P. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. The standard requires that all companies record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company will adopt this statement during fiscal 1999 and is currently assessing the impact the statement will have on the financial statements. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 8 24|Primark Annual Report NOTES CONTINUED 2. ACQUISITIONS During the three years ending December 31, 1998, the Company made the acquisitions set forth below, each of which has been accounted for as a purchase. Accordingly, the purchase price has been allocated to the identifiable net assets acquired. The excess of the purchase price over the net identifiable assets acquired has been allocated to goodwill and is amortized on a straight line basis. Future adjustments to the total purchase price allocation, if any, are not expected to materially affect the Company's financial statements. The consolidated financial statements include the operating results of each business from the date of acquisition. A. FISCAL 1998 During 1998, the Company acquired four companies for an aggregate purchase price of approximately $8,800,000. Goodwill associated with these acquisitions of approximately $3,450,000 is being amortized over five years. The companies acquired supplement and enhance existing product offerings and capabilities. Due to the relative size of the acquisitions made in 1998, no pro forma information is required for 1998. B. FISCAL 1997
Summary of Acquisition Costs (000s) WEFA Baseline - ---------------------------------------- -------- -------- Cash $ 45,000 $ 40,963 Acquisition Fees 204 233 - ---------------------------------------- -------- -------- Total Consideration $ 45,204 $ 41,196 Acquired Cash (308) (2) - ---------------------------------------- -------- -------- Consideration Paid $ 44,896 $ 41,194 - ---------------------------------------- -------- -------- Excess of Purchase Price over Fair Value $ 44,979 $ 39,431 ======================================== ======== ========
WEFA On February 7, 1997, the Company acquired all of the outstanding stock of WEFA Holdings, Inc. ("WEFA") for $45,000,000 in cash. Headquartered in Pennsylvania, WEFA is an international provider of value added economic information and consulting services to Fortune 500 companies, governments, universities and financial institutions. Baseline On January 6, 1997, the Company purchased all of the outstanding stock of Baseline Financial Services, Inc. ("Baseline") for $40,963,000 in cash. Baseline provides institutional investors with visual valuation graphics of financial market information. C. FISCAL 1996
Summary of Acquisition Costs The Yankee (000s) ICV Worldscope Group DAFSA - ---------------------------------------- --------- ---------- ---------- ------- Cash $ 40,316 $ 5,000 $ 48,442 $ 9,000 Stock Issued 59,950 -- -- -- Note Issued 8,250 -- -- -- Receivable Forgiven -- 3,889 -- -- Acquisition Fees 3,765 237 119 199 - ---------------------------------------- --------- ------- -------- ------- Total Consideration $ 112,281 $ 9,126 $ 48,561 $ 9,199 Acquired Cash (16,309) (353) (1,600) -- Purchase Price Adjustment -- -- -- (1,316) - ---------------------------------------- --------- ------- -------- ------- Consideration Paid $ 95,972 $ 8,773 $ 46,961 $ 7,883 - ---------------------------------------- --------- ------- -------- ------- Excess of Purchase Price over Fair Value $ 112,348 $ 3,926 $ 45,025 $ 7,229 ======================================== ========= ======= ======== =======
ICV On October 24, 1996, the Company acquired all the outstanding stock of ICV Limited. The purchase price, excluding fees, consisted of $24,007,000 in net cash, 2,200,000 shares of Primark common stock at a $27.25 market value and $8,250,000 in six year notes (the "ICV Notes"), issued by the Company to the sellers (Note 6). ICV supplies a variety of real-time data and news products to equity traders and investors in London and throughout the United Kingdom. In accordance with the terms of the purchase agreement, the Company registered the 2,200,000 shares of its common stock in 1998. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 9 25|Primark Annual Report NOTES CONTINUED Worldscope On October 15, 1996, the Company acquired an additional 30% ownership interest in Worldscope for $5,000,000 in cash, giving Primark a controlling ownership interest of 80%. Prior to the transaction, Worldscope was a 50% partnership accounted for under the equity method. In connection with the transaction, Primark and the previous 50% owner each forgave working capital advances equal to $3,889,000. The sellers of the 30% interest in Worldscope have a non-expiring option to sell their remaining 20% ownership to Primark, in increments of 5% or 15%. The price of a 5% increment would be at 5 times the most recent 12 months of revenue multiplied by the 5% ownership. The price of a 15% increment would be at 4 times revenue multiplied by the 15% ownership. As of October 15, 2006, Primark will have the right to purchase an additional 15% of Worldscope. The Yankee Group On August 9, 1996, the Company acquired all the outstanding stock of Yankee Group Research, Inc. (the "Yankee Group"), pursuant to the terms of a stock purchase agreement by and between the Company and the shareholders of the Yankee Group. The purchase price included cash payments of $48,442,000 ($10,442,000 was paid in October of 1998) and a future contingent payment between $0 and $3,500,000 to the former Yankee shareholders based upon future operating results. Future contingent payments, if any, are due in the year 2000 and will be recorded to goodwill when incurred. The Yankee Group provides market research on telecommunications and computer systems. DAFSA On June 18, 1996, Datastream International (France) SA acquired all of the outstanding stock of Groupe DAFSA ("DAFSA"), for $7,883,000 in cash, net of purchase price adjustments. DAFSA supplies studies of major sectors of the French economy such as banking and aerospace to investors. All goodwill associated with the DAFSA acquisition has been written off as part of the restructuring charge taken on June 30, 1998. 3. DISCONTINUED OPERATIONS AND DISPOSITIONS A. DISCONTINUED OPERATIONS The accompanying consolidated financial statements reflect the operating results of three discontinued operations separately from the Company's continuing operations for all periods presented. Consolidated interest expense has been allocated to discontinued operations based upon their ratio of net assets to total consolidated net assets. Net assets of discontinued operations represent the net book value of the Company's investment and consist principally of working capital, fixed assets and other non-current assets and liabilities.
Discontinued Operations (000s) 1998 1997 1996 - ------------------------------ --------- --------- --------- Income/(loss): TASC $ 3,735 $ 17,086 $ 13,028 TIMCO 4,192 (270) 2,411 PSLC -- -- 753 - ------------------------------ --------- --------- --------- Total $ 7,927 $ 16,816 $ 16,192 - ------------------------------ --------- --------- --------- Gain on disposal: TASC $ 171,115 $ -- $ -- TIMCO 16,171 -- -- PSLC -- -- 8,400 - ------------------------------ --------- --------- --------- Total $ 187,286 $ -- $ 8,400 - ------------------------------ --------- --------- --------- Net assets: TASC $ 8,900 $ 155,376 $ 152,505 TIMCO -- 41,954 39,930 - ------------------------------ --------- --------- --------- Total $ 8,900 $ 197,330 $ 192,435 ============================== ========= ========= =========
.....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 10 26|Primark Annual Report NOTES CONTINUED TASC On April 1, 1998, the Company completed the sale of TASC and its affiliated weather information companies to Litton Industries for $432,000,000 in cash plus an equity adjustment of $8,900,000. The equity adjustment was originally estimated at $11,500,000. This amount was disputed by Litton Industries and subsequently settled in the fourth quarter for $8,900,000. The Company recorded a gain on the sale of $171,115,000 which includes the $8,900,000 closing adjustment, transaction costs of $6,137,000, taxes of $99,856,000 and the net book value of TASC's assets. The cash, net of all transaction costs and taxes, received by the Company from the foregoing sale was approximately $334,907,000; $8,900,000 of which was received in January of 1999. TIMCO On September 22, 1998, the Company completed the sale of all of the outstanding common stock of its heavy aircraft maintenance unit, the Triad International Maintenance Corporation ("TIMCO"), to Aviation Sales Maintenance, Repair & Overhaul Company ("AVS"), a division of Aviation Sales Company. The transaction was executed in accordance with a Stock Purchase Agreement dated August 10, 1998 for a cash purchase price of $70,000,000 and resulted in a gain of $16,171,000. Pursuant to the Stock Purchase Agreement, a working capital adjustment of $1,300,000 was based upon TIMCO's closing balance sheet as of September 22, 1998, and was received in November, 1998. PSLC On September 30, 1996, the Company sold all of the outstanding stock of Primark Storage Leasing Corporation ("PSLC") for $14,300,000 in cash. The disposal of PSLC resulted in an after tax gain of approximately $8,400,000 and eliminated $28,700,000 of non-recourse debt from the Company's balance sheet. The purchaser has agreed to indemnify the Company from and against all expenses and liabilities that Primark may incur with respect to any adverse environmental condition relating to PSLC's natural gas storage fields. 4. RESTRUCTURING AND INTEGRATION CHARGES A. REORGANIZATION Effective June 1, 1998, the Company was reorganized in order to focus solely on its information services businesses. In connection with this reorganization, the Company recorded in June $68,700,000 in operating expenses for direct and other reorganization related costs. In addition, an extraordinary loss of $8,735,000 ($5,121,000 after tax) was recorded in connection with the early extinguishment of debt. The restructuring charge included the write-off of intangible assets for (i) $25,000,000 of previously capitalized software related to the planned integration of several product offerings on common software platforms, (ii) $1,500,000 of data that has been determined to be duplicative and will not be used as a result of the software platform integration, (iii) write-off of $23,900,000 of goodwill associated with software and data, which was established as part of purchase accounting, (iv) write-off of $7,200,000 of goodwill related to DAFSA, and (v) write-off of $3,100,000 of a trademark no longer used in the restructured organization. The level of impairment as well as the fair value of liabilities accrued has been determined based upon the discounted value of estimated future cash flows. An additional $8,027,000 of the charge relates primarily to the integration of domestic and international sales offices and efficiencies gained from technological advancements that will result in the phased reduction of approximately 61 employees. In December of 1998, $707,000 of restructuring accruals was reversed into income for a lease which was bought out by a third party at terms more favorable than what was originally estimated. As of December 31, 1998, the Company has 52 employees still to be terminated under the restructuring program. These employees work in management, sales and administrative support. Details of the unutilized restructuring and integration costs as of December 31, 1998 are as follows:
1998 Utilized Dec. 31, 1998 (000s) Provision to Date Accrual - ------------------------ --------- -------- ------------- Abandonment of leased facilities, including leasehold improvements $5,156 $ 883 $4,273 Salaries and termination benefits 2,871 1,890 981 - ------------------------ ------ ------ ------ Total $8,027 $2,773 $5,254 ======================== ====== ====== ======
The restructuring accrual is recorded in other current liabilities. The liability for leasehold improvements and employee severance costs will be utilized by June 30 of 1999. The liability associated with abandoned lease space will be amortized over the life of the lease starting on the date of abandonment. B. DISCLOSURE During the first quarter of 1997, the Company recorded a $1,800,000 charge at Disclosure to take advantage of new information technology, reorganization of Disclosure's document business and other actions aimed at reducing costs and enhancing efficiency. The restructuring provision included estimated costs for employee severance and other benefits of $981,200, asset write-downs of $713,600 and idle facility related costs of $105,200. As part of the restructuring, 114 employees were terminated. The spending for these accrued restructuring costs was completed in June 1997. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 11 27|Primark Annual Report NOTES CONTINUED C. DAFSA During the second quarter of 1997, the Company recorded a restructuring charge of $5,000,000 related to the integration and downsizing of operations at DAFSA. Due to DAFSA's unprofitable condition, tax benefits associated with losses incurred during 1997, including the restructuring charge, were not recognized. When the Company acquired DAFSA in June of 1996, approximately $1,500,000 of integration costs were recorded in determining the purchase accounting. The subsequent restructuring charge is the result of a plan to further integrate DAFSA's personnel, space and products with those of the Company's other subsidiaries. The $6,500,000 total restructuring provision was completed in early 1997 and included approximately $1,700,000 of costs for exiting a line of business; the future rent cost of abandoned space of $1,000,000; employee severance and other benefits of $1,400,000; asset write-downs of $1,200,000; and legal, professional and other related costs of $1,200,000. The accrual for abandoned space will be utilized over the remaining life of the lease. 5. Leases The Company leases a variety of assets principally under non-cancelable operating lease agreements, including office facilities, real property, and computer and office equipment. These leases expire at various dates through 2014. Total rent expense for all operating leases was $16,658,000, $15,105,000 and $11,563,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Future minimum lease commitments (000s) Capital Operating - --------------------------------------- ------- --------- 1999 $1,508 $ 16,327 2000 517 16,563 2001 242 15,878 2002 -- 14,180 2003 -- 13,438 Thereafter -- 37,509 - --------------------------------------- ------ -------- Total minimum lease payments 2,267 $113,895 ======== Amounts representing interest and other (138) - --------------------------------------- ------ Present value of net minimum payments 2,129 Current portion (640) - --------------------------------------- ------ Long-term obligations $1,489 ======================================= ======
6. Short-Term and Long Term Debt On December 16, 1998, the Company issued $150,000,000 of 9.25% Senior Subordinated Notes (the "Subordinated Notes") due 2008. The Subordinated Notes are carried at their principal amount due at maturity. Interest only is due on the Subordinated Notes and is payable semi- annually on June 15 and December 15. The Subordinated Notes are unsecured obligations of the Company, contain no mandatory sinking fund or redemption requirements, and are redeemable in whole or in part at the option of the Company at redemption prices ranging from 104.625% to 100.00% in 2003 and thereafter, plus accrued interest. In addition, prior to December 15, 2001, the Company may redeem up to 35% of the principal amount of the Subordinated Notes with the net cash proceeds of one or more sales by the Company of its capital stock at a redemption price of 109.250% plus accrued interest. This redemption may occur provided that at least 65% of the aggregate principal amount of the Subordinated Notes originally issued remains outstanding after each such redemption. The Subordinated Notes are subject to various restrictive covenants. The Company is restricted from paying cash dividends on its common stock, repurchasing its common stock or making certain other payments which in the aggregate exceed the sum of: (i) $25,000,000; (ii) 50% of the Company's consolidated net income (cumulative from October 1, 1998); (iii)100% of the net proceeds received from sales of the Company's common stock for cash; plus (iv) 100% of the net reduction in investments resulting from payments of interest, dividends or repayments of debt to the Company, or from the net cash proceeds from the sale of any such investments. The Company used a portion of the net proceeds: (i) to repay outstanding borrowings under the Credit Facility, (ii) to repurchase stock and (iii) for other general corporate purposes. The Company incurred costs of $4,400,000 in conjunction with the arrangement, which will be amortized over the term of the debt. On April 1, 1998, the Company amended the terms of its revolving credit facility and term loan agreement. Under the terms of the revised agreement, which became effective April 1, 1998, the Company used the proceeds from the sale of TASC to (i) prepay all amounts outstanding on the Company's $112,000,000 senior callable bonds, including a 4.375% premium aggregating $4,900,000, (ii) prepay $220,000,000 of the Company's outstanding term loan together with accrued interest thereon, and (iii) prepay approximately $500,000 of the Company's other indebtedness. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 12 28|Primark Annual Report NOTES CONTINUED As a result of the prepayment of debt and amended terms of the revolving credit facility, the Company wrote off the associated deferred financing costs of $3,835,000. This cost, plus the call premium of $4,900,000 resulted in an extraordinary loss of $8,735,000 or $5,121,000 on an after tax basis for the year ended December 31, 1998. In conjunction with the above, the Company replaced its outstanding $75,000,000 credit facility with a $225,000,000 revolving credit facility (the "Credit Facility") which expires in 2002. Interest on the borrowings under the new revolving credit facility is payable at rates ranging from 0.375% to 1.00% above the current prevailing LIBOR rate of interest. On February 7, 1997, the Company entered into a refinancing agreement to replace funds expended for acquisitions, resulting in an extraordinary after tax loss of $1,955,000. On October 24, 1996, the Company entered into five loan agreements totaling $8,250,000 in connection with the purchase of ICV (Note 2c). The ICV Purchase Notes are currently callable by the owners and will be paid by Primark no later than October 24, 2002. Interest on the ICV Purchase Notes is payable quarterly at the current prevailing LIBOR rate. In November 1997 and April 1998, the Company paid $500,000 and $1,000,000 respectively, of the ICV Purchase Notes. Standby letters of credit totaling $8,382,000 were issued to provide credit enhancement for the payment of the Notes.The standby letters of credit are secured by a Note Backup Agreement dated February 7, 1997, both of which expire on November 8, 2002. Under the Note Backup Agreement, Primark is required to reimburse the bank on demand in the case of a draw under any letter of credit. Prior to an amendment to the Note Backup Agreement in 1998, Primark was required to reimburse the bank on October 16, 2000. Letter of Credit fees are based upon performance pricing and are payable quarterly at rates ranging from 0.625% to 1.25% per annum on the average daily unused portion of the facility. A. SHORT-TERM DEBT
Short-term bank borrowings (000s) 1998 1997 1996 - ----------------------------------- -------- ------- ------- Outstanding borrowings at December 31 $ -- $27,602 $ -- Available for borrowings at December 31 $225,000 $47,398 $74,650 Weighted average effective interest rate on average bank borrowings 6.62% 7.74% 8.3% Aggregate borrowings: Maximum outstanding $143,716 $32,695 $ 1,871 Average outstanding $ 53,300 $ 5,115 $ 17 ICV Notes $ 6,750 $ -- $ -- =================================== ======== ======= =======
The Credit Facility expires in 2002 and bears interest on outstanding borrowings based upon performance pricing which results in rates ranging from 0.375% to 1.00% above the current prevailing LIBOR rate. B. LONG-TERM DEBT The Company's outstanding long-term debt, including capital lease obligations, is shown below.
Long-term debt December 31 (000s) 1998 1997 - -------------------------------------------- --------- --------- Primark 9.25% Senior Notes due 2008 $ 150,000 $ -- Primark 8.75% Senior Notes -- 111,455 Primark bank Term Loan -- 220,000 ICV Purchase Notes due 2002 -- 7,750 Capital lease obligations 2,129 3,356 - -------------------------------------------- --------- --------- Total debt and capital lease obligations 152,129 342,561 Less current maturities (640) (11,301) - -------------------------------------------- --------- --------- Long-term debt and capital lease obligations $ 151,489 $ 331,260 ============================================ ========= =========
7. FINANCIAL INSTRUMENTS A. FOREIGN EXCHANGE RISK MANAGEMENT The Company enters into forward exchange and currency option contracts to reduce the exposure of foreign currency fluctuations associated with certain firm commitments and anticipated cash flows. The Company's principal strategy is to protect the net cash flow from foreign customers' contracts. As these contracts are typically under two years in length, most of the derivative financial instruments are similarly two years or less in duration. The Company principally enters into contracts to deliver foreign currencies for US dollars at agreed-upon exchange rates. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 13 29|Primark Annual Report NOTES CONTINUED Other contracts include the purchase of British pounds and Irish punts for US dollars. Counterparties to these agreements are major international financial institutions. The tables below illustrate the US dollar equivalent of foreign exchange contracts at December 31, 1998 and 1997 along with unrecorded gross unrealized gains and losses.
December 31 (000s) 1998 - --------------------------- ---------------------------------- Gross Gross Unrealized Unrealized Notional Gains Losses Amount Deferred Deferred - --------------------------- -------- ---------- ---------- FORWARD EXCHANGE CONTRACTS: Japanese Yen $ 3,363 $ -- $ (291) US Dollars/Irish Punt (112) -- -- Swedish Krona 724 6_ Other 88 21 (11) $ 4,063 $ 27 $ (302) - --------------------------- ------- ------- ------- Option Contracts Purchased: Swedish Krona $ 1,591 $ -- $ (3) $ 1,591 $ -- $ (3) =========================== ======= ======= =======
December 31 (000s) 1997 - ---------------------------- ------------------------------------ Gross Gross Unrealized Unrealized Notional Gains Losses Amount Deferred Deferred - ---------------------------- -------- ---------- ---------- Forward Exchange Contracts: Japanese Yen $ 2,684 $ 57 $(19) US Dollars/UK Pound Sterling 5,087 -- -- US Dollars/Irish Punt 5,895 -- -- Deutsche Mark 518 -- -- Swiss Franc 1,061 15 -- French Franc 172 3 -- Swedish Krona 3,588 54 (21) Other 3,264 254 (9) - ---------------------------- ------- ---- ---- $22,269 $383 $(49) ============================ ======= ==== ==== Option Contracts Purchased: Japanese Yen $ 2,903 $193 $ -- US Dollars/UK Pound Sterling 10,665 56 (63) Deutsche Mark 5,562 22 (16) Swiss Franc 1,563 14 -- Other 2,048 105 (2) - ---------------------------- ------- ---- ---- $22,741 $390 $(81) ============================ ======= ==== ==== Option Contracts Sold: Japanese Yen $ 1,495 $ 3 $ -- US Dollars/UK Pound Sterling 3,520 -- (28) Deutsche Mark 2,781 12 -- Swiss Franc 735 1 -- - ---------------------------- ------- ---- ---- $ 8,531 $ 16 $(28) ============================ ======= ==== ====
B. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying and estimated fair values of certain of the Company's financial instruments are shown below.
Carrying Value Estimated Fair Value December 31 (000s) 1998 1997 1998 1997 - ------------------- ----------------------- ------------------------ Forwards $ 192 $ 753 $ (83) $ 1,087 Options $ 14 $ 195 $ 11 $ 492 Interest rate swaps $ -- $ -- $ -- $ (23) 8.75% Senior Notes $ -- $ 111,455 $ -- $ 115,220 9.25% Senior Notes $ 150,000 $ -- $ 150,000 $ -- =================== ========= ========= ========= =========
Estimated fair values of these financial instruments were based upon quotations obtained from investment and commercial bankers using comparable securities. The fair values of currency forward contracts and currency options were estimated based on quoted market prices of contracts with similar terms. Other financial instruments have been excluded as their carrying value approximates their market value. 8. Earnings Per Share Basic EPS is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if options to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock. Options to purchase 785,000 and 227,000 shares of common stock were outstanding for the years ended 1997 and 1996, respectively, but were excluded in the computation of diluted EPS because the options' exercise price was greater than the average market price of common shares. The conversion of preferred stock outstanding during the first quarter of 1996 was excluded from the computation of diluted EPS as its effect was anti-dilutive. Because 1998 reflected a loss from continuing operations, .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 14 30|Primark Annual Report NOTES CONTINUED all 2,088,045 options outstanding were excluded. The 1998 options include 1,169,103 which had exercise prices below market. A reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations is shown below. SFAS No. 128, "Earnings Per Share," provides that if there is a loss from continuing operations, a company should not include options and other potential common shares in the denominator of a dilutive per share computation, even if including those potential common shares in other dilutive per share computations may be dilutive to their comparable basic per share amounts. Therefore, in 1998, Earnings Per Share excludes the dilutive effect of options.
(000s except per share) Income Shares Earnings December 31, 1998 (Numerator) (Denominator) per Share - ------------------------------- ----------- ------------- --------- BASIC EPS: Income available to common shareholders from continuing operations $(33,370) 24,302 $(1.37) EFFECT OF DILUTIVE OPTIONS -- -- -- -------- ------ ------ DILUTED EPS: Income available to common shareholders from continuing operations $(33,370) 24,302 $(1.37) December 31, 1997 - ------------------------------- --------- ------ ------ BASIC EPS: Income available to common shareholders from continuing operations $ 4,854 26,348 $ 0.18 EFFECT OF DILUTIVE OPTIONS -- 1,596 -- -------- ------ ------ DILUTED EPS: Income available to common shareholders from continuing operations $ 4,854 27,944 $ 0.17 December 31, 1996 - ------------------------------- --------- ------ ------ BASIC EPS: Income from continuing operations $ 12,516 -- -- Less: preferred stock dividends (359) -- -- -------- ------ ------ Income available to common shareholders from continuing operations $ 12,157 24,813 $ 0.49 EFFECT OF DILUTIVE OPTIONS -- 1,758 -- -------- ------ ------ DILUTED EPS: Income available to common shareholders from continuing operations $ 12,157 26,571 $ 0.46 =============================== ======== ====== ======
9. SHAREHOLDERS' EQUITY A. COMMON STOCK On May 20, 1998, the Company announced a "Dutch Auction" self-tender offer, which expired on June 17, 1998. The Company purchased 4,540,000 shares at $34 per share under this arrangement. Total cost of these shares was $154,987,000, including legal and accounting fees. In addition, on July 3, 1998, the Company implemented an open market purchase program to buy up to 2,000,000 shares of its common stock from time to time, depending on market conditions. During 1998, the Company purchased a total of 6,108,500 shares at a total cost of $197,263,000, representing approximately 22.8% of its total outstanding common stock. The Company issued approximately 560,000 shares of common stock during 1998, in connection with its stock option and employee stock purchase plan. The Board of Directors has approved an expansion of the open market purchase program by an additional 2,000,000 shares. As of December 31, 1998, the Company had authority to buy back up to 2,431,500 shares of its common stock. However, the Company is limited to approximately $52,700,000 of additional repurchases under its existing bank covenants. On May 28, 1997, the shareholders of the Company approved a resolution that amended the Company's Articles of Incorporation to increase the number of authorized shares of common stock from 65,000,000 to 100,000,000. In December of 1997, the Company received 722,000 shares of its common stock to satisfy the exercise price of stock options and payment of withholding taxes due on option exercises totaling $29,604,000. The Company drew on its revolving credit facility to satisfy the withholding tax payment. In connection with these option exercises, Primark received a tax deduction related to the option exercises which resulted in a $25,000,000 refund and reduction in taxes paid. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 15 31|Primark Annual Report NOTES CONTINUED In April 1997, the Company's Board of Directors authorized the repurchase of up to 2,200,000 shares of the Company's common stock from time to time through open market and/or privately negotiated transactions. During the second quarter of 1997, the Company repurchased 1,349,000 shares of its outstanding common stock in the open market at a total cost of $26,633,000. Additional purchases under this authorization have been superceded by the 1998 Board of Directors Stock Purchase authorizations. On October 24, 1996, the Company issued 2,200,000 shares of its common stock as part of the purchase price for ICV Limited (Note 2c). On May 2, 1996, the Company received notification to convert the total outstanding shares of Primark Series A, 8.5% Cumulative Convertible Preferred Stock into shares of Primark common stock. The 674,943 preferred shares plus accrued and unpaid dividends were converted into 1,164,276 shares of Primark common stock based upon the stated conversion rate of $14.49. The preferred shares were held entirely by the Profit Sharing and Stock Ownership Plan of TASC, a discontinued subsidiary (Note 3). B. RIGHTS AGREEMENT The Company's Rights Agreement (the "Rights Agreement") is designed to deter coercive or unfair takeover tactics, and to prevent a buyer from gaining control of the Company without offering a fair price to all of its shareholders. The Rights Agreement generally becomes effective when a potential acquirer beneficially owns 15% or more of the outstanding shares of Primark's common stock. Each Right represents the right to purchase one share of Common Stock of the Company at a price per share of $138.00, subject to adjustment. The Rights, which do not have voting privileges, are redeemable under certain circumstances at $0.01 per Right and will expire on January 25, 2008, unless previously redeemed. At December 31, 1998, common stock reserved for issuance under the Rights Agreement was 21,251,455 shares. 10. RETIREMENT AND BENEFIT PLANS A. EMPLOYEE SAVINGS AND STOCK OWNERSHIP PLAN The Primark Corporation Savings and Stock Ownership Plan was amended and revised effective January 1, 1997 ("ESSOP") to provide for 401(K) contributions, employer matching contributions and certain other changes. Under the 401(K) provisions of the ESSOP, the Company matches 50% of an employee's contribution up to a maximum of 3% of each participant's compensation. Participating employees' future benefits are based on their vested portion of contributions, plus their pro rata share of subsequent fund investment gains or losses. Under the 401(K) provisions, the Company contributed $1,427,000 in 1998 and $1,629,000 during 1997. The Company made no contributions during 1996. B. FOREIGN PLANS Substantially all employees in foreign countries who are not US citizens are covered by various retirement benefit arrangements, some of which are considered to be defined benefit pension plans for accounting purposes. Benefits are based primarily on years of service and employees' salaries near retirement. In general, plans are funded based upon legal requirements, tax considerations, local practices and investment opportunities. Plan assets are generally held in restricted trusts or foundations that are segregated from the assets of the plan sponsor and consist primarily of common stock and fixed income securities. The changes in benefit obligations and plan assets are shown below.
December 31 (000s) 1998 1997 - ---------------------------------------------- -------- -------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $ 20,508 $ 16,274 Service cost 1,589 1,345 Interest cost 1,589 1,362 Net actuarial loss (gain) 5,839 1,926 Benefits paid (569) (399) - ---------------------------------------------- -------- -------- Benefits obligation at end of year $ 28,956 $ 20,508 - ---------------------------------------------- -------- -------- CHANGE IN PLAN ASSETS Fair value of fund assets at beginning of year $ 19,661 $ 15,361 Actual return on fund assets 3,463 3,072 Employer contribution 1,322 1,627 Benefits paid (569) (399) - ---------------------------------------------- -------- -------- Fair value of fund assets at end of year $ 23,877 $ 19,661 - ---------------------------------------------- -------- -------- Funded Status $ (5,079) $ (847) Unrecognized net actuarial loss 7,555 3,770 Unrecognized prior service cost 100 133 Unrecognized transition (asset)/obligation (1,489) (1,744) - ---------------------------------------------- -------- -------- Net amount recognized $ 1,087 $ 1,312 - ---------------------------------------------- -------- -------- Amounts recognized in the statement of financial position consist of: Accrued benefit liability $ (2,479) -- Intangible asset 100 -- Additional minimum pension liability 3,466 -- - ---------------------------------------------- -------- -------- Net amount recognized $ 1,087 -- ============================================== ======== ========
.....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 16 32|Primark Annual Report NOTES CONTINUED The following assumptions were used in accounting for foreign defined benefit plans.
December 31 1998 1997 1996 - ----------------------------- ---- ---- ---- Discount rate 6.1% 7.8% 8.5% Rate of increase in future compensation 4.0% 5.0% 5.0% Rate of return on plan assets 7.8% 9.3% 10.0%
The components of net periodic benefit cost for foreign defined benefit plans are shown below. December 31 (000s) 1998 1997 1996 - ------------------------- ------- ------- ------- Service cost $ 1,589 $ 1,345 $ 1,184 Interest cost 1,589 1,362 1,184 Expected return on plan assets (1,706) (1,627) (1,421) Amortization of the transition amount (251) (249) (254) Amortization of prior service cost 33 33 34 Amortization of gain/loss 318 133 152 - ------------------------- ------- ------- ------- Net periodic benefit cost $ 1,572 $ 997 $ 879 ========================= ======= ======= ======= C. EMPLOYEE STOCK PURCHASE AND STOCK OPTION PLANS Established in 1992, the Primark Corporation Employee Stock Purchase Plan is available for all employees of Primark and certain subsidiaries. Under this plan, employees may purchase through periodic payroll deductions up to a maximum of 3,000,000 shares of the Company's common stock at 85% of the lower of the average market price of such shares either at the beginning or end of each six month offering period. The Primark Corporation Stock Option Plan for Non-Employee Directors provides for the granting of options to purchase shares of common stock to each director who is not an employee. The Primark Corporation 1992 Stock Option Plan provides for the granting of options to purchase common stock to officers and certain key employees of Primark and its subsidiaries. This plan limits the number of shares subject to option that may be granted to any participant in any year to 100,000 shares. Stock options available for grant in any one year under Primark Corporation's 1992 Stock Option Plan may not exceed 1.5% of the Company's outstanding common stock as of January 1 each year, plus any excess of available stock options not granted from previous years. At December 31, 1998, options available for grant in 1999 included 363,149 of stock options under Primark Corporation's 1992 Stock Option Plan. Generally, options outstanding under the Company's stock option plans are: (i) granted at prices equal to the fair market value of the stock on the date of grant, (ii) vest within a three year period, and (iii) expire ten years subsequent to award. Changes in the number of options granted under the Company's various stock option plans are shown below.
1998 1997 1996 --------------------- --------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price - --------------- --------- -------- --------- -------- --------- -------- Outstanding at January 1 4,116,406 $20.72 4,375,865 $12.51 4,213,718 $10.07 Granted at market value 598,375 34.39 1,056,875 24.89 464,932 34.38 Granted above market value -- -- 500,000 33.34 -- -- Exercised (476,671) 15.52 (1,692,663) 5.68 (251,068) 10.00 Canceled (147,040) 30.22 (123,671) 23.36 (51,717) 23.09 - --------------- --------- ------ --------- ------ --------- ------ Outstanding at December 31 4,091,070 $22.97 4,116,406 $20.71 4,375,865 $12.51 - --------------- --------- ------ --------- ------ --------- ------ Available for future grant at December 31 538,297 657,361 687,560 =============== ========= ====== ========= ====== ========= ======
The following table sets forth information regarding options outstanding at December 31, 1998.
Options Outstanding Options Exercisable - ---------------------------------------------------------------------------- Number Weighted Weighted Number Weighted Outstanding Average Average Exercisable Average Range of at Remaining Exercise at Exercise Exercise Prices 12/31/98 Life Price 12/31/98 Price - --------------- ----------- --------- -------- ----------- -------- $ 7.63-$12.88 749,580 3.30 $11.26 749,580 $11.26 $13.50-$14.00 869,920 5.38 $13.69 869,920 $13.69 $14.63-$24.25 747,800 7.96 $23.38 147,314 $20.21 $25.00-$33.25 1,115,570 8.46 $29.09 294,619 $25.98 $36.38-$42.50 608,200 7.95 $38.94 297,050 $40.70 ------------- --------- ---- ------ --------- ------ $ 7.63-$42.50 4,091,070 6.69 $22.97 2,358,483 $18.26 ============= ========= ==== ====== ========= ======
The value of options on their grant date, including the valuation of the option feature implicit in the Company's stock purchase plan, was measured using the Black-Scholes option-pricing model. The value of options on their grant date and key assumptions used to apply this model are shown below.
December 31 1998 1997 1996 - ---------------------- ------------- ------------- ------------- Grant date fair value $15.59 $12.21 $13.49 Range of risk-free interest rates 4.63% to 5.85% 5.51% to 6.82% 5.03% to 6.79% Range of expected life of option grants 3 to 9 years 3 to 9 years 4 to 9 years Expected volatility of underlying stock 37.8% 37.5% 30.9% ====================== ============= ============= =============
It should be noted that the option-pricing model used was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of up to ten years. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 17 33|Primark Annual Report NOTES CONTINUED The Company uses the intrinsic value method to measure compensation expense associated with grants of stock options to employees. Had compensation cost been determined, based upon the option pricing model at the grant date for awards under these plans, reported net income and earnings per share would have been as follows.
December 31 (000s except per share) 1998 1997 1996 - ----------------------------------- -------- ------- ------- Net income $149,269 $12,351 $33,428 Basic EPS $ 6.14 $ 0.47 $ 1.35 EPS Assuming Dilution $ 6.14 $ 0.44 $ 1.26 - ----------------------------------- -------- ------- ------- Net income applicable to common stock $149,269 $12,351 $33,069 Basic EPS $ 6.14 $ 0.47 $ 1.33 EPS Assuming Dilution $ 6.14 $ 0.44 $ 1.24 =================================== ======== ======= =======
11. Income Taxes
December 31 (000s) 1998 1997 1996 - ------------------------------ -------- -------- -------- FEDERAL AND OTHER INCOME TAXES CONSISTED OF: Current provision $ 6,756 $ 6,728 $ 8,311 Deferred provision (benefit) - net (4,177) 5,713 (879) - ------------------------------ -------- -------- -------- Total federal and other income tax expense $ 2,579 $ 12,441 $ 7,432 - ------------------------------ -------- -------- -------- RECONCILIATION BETWEEN STATUTORY AND ACTUAL INCOME TAXES: Income (Loss) from continuing operations (33,370) $ 4,854 $ 12,516 Income tax expense 2,579 12,441 7,432 - ------------------------------ -------- -------- -------- Book pre-tax income (Loss) $(30,791) $ 17,295 $ 19,948 - ------------------------------ -------- -------- -------- Statutory federal income taxes at a rate of 35% (10,777) 6,053 $ 6,982 ADJUSTMENTS TO FEDERAL INCOME TAXES: Amortization of goodwill 4,635 4,737 3,390 Write-off of goodwill 8,341 -- -- Adjustment of federal income taxes from prior years (2,087) (1,375) (1,121) Losses of foreign subsidiaries without current benefit 2,041 2,493 55 State income taxes - net (308) 545 (176) Effect of foreign tax rates 537 (198) (335) Other - net 197 186 (1,363) - ------------------------------ -------- -------- -------- Total federal and other income tax expense $ 2,579 $ 12,441 $ 7,432 ============================== ======== ======== ========
The 1998 adjustment to federal income taxes is primarily due to a true-up of prior year tax expense. The tax effects of significant temporary differences that gave rise to deferred income tax assets and liabilities are shown below.
December 31 (000s) 1998 1997 - -------------------------------- -------- -------- Deferred tax assets: State taxes $ 8,053 $ 9,645 Post-retirement benefits 1,547 1,509 Fixed assets 564 1,212 Unfavorable lease reserve 1,808 961 Net operating loss carry forward 4,560 7,545 Bad debts 769 486 Other 5,575 7,839 - -------------------------------- -------- -------- Total deferred tax assets 22,876 29,197 Valuation allowance (4,560) (7,199) - -------------------------------- -------- -------- Net deferred tax assets 18,316 21,998 - -------------------------------- -------- -------- Deferred tax liabilities: Intangibles (20,289) (20,379) Fixed assets (2,376) (866) Other (5,551) (11,868) - -------------------------------- -------- -------- Total deferred tax (liability) (28,216) (33,113) - -------------------------------- -------- -------- Net deferred tax (liability) $ (9,900) $(11,115) ================================ ======== ======== Net current asset (liability) $ (301) $ 10,018 Net long-term (liability) (9,599) (21,133) - -------------------------------- -------- -------- Net deferred tax (liability) $ (9,900) $(11,115) ================================ ======== ========
The Company has numerous carry forward losses in various jurisdictions that expire in the years 1999 through 2003. The Company has provided a valuation allowance of $4,560,000 and $7,199,000 in 1998 and 1997, respectively, against these losses. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 18 34|Primark Annual Report NOTES CONTINUED 12. Segment and Geographic Information Based upon the different requirements of Primark's customer base, Primark Corporation has organized itself into three operating divisions as follows: PRIMARK FINANCIAL INFORMATION DIVISION. Primark Financial Information Division ("PFID") develops "enterprise-wide" products and services for major financial institutions on a global basis. It also has responsibility for all transactional products, both historical and real-time, as well as products supporting large-scale investment accounting functions, the individual investor and the referential needs of very large financial market customers. This division also manages the corporate network, PrimarkNet, which serves as the major delivery channel to Primark customers on a global basis and across all three divisions. PFID's product offerings serve most of Primark's customer types and is a major service provider to the "sell-side" portion of the financial market. PRIMARK FINANCIAL ANALYTICS DIVISION. Primark Financial Analytics Division ("P FAD") concentrates on developing and marketing a wide variety of analytical products for money managers, fund sponsors and other investors. These products combine the Company's databases, advanced software, analytical techniques and forecasts for all phases of the investment process. PFAD's product offerings concentrate on customers in the "buy-side" portion of the financial market. PRIMARK DECISION INFORMATION DIVISION. Primark Decision Information Division ( "PDID") acquires, develops and operates information content businesses that are primarily focused in areas other than the financial marketplace. PDID also provides products and services for decision support to financial customers. The Primark Corporate Division (CORP) supports the three operating divisions with tax, accounting and legal services. The accounting policies of each division conform to those described in the summary of significant accounting policies. Primark evaluates the performance of each operating division on the basis of total revenues, earnings before interest, taxes, depreciation, and amortization (EBITDA), and funds used for the purchase of fixed assets, including capitalized data and software. No single customer accounted for more than 2% of Primark's consolidated revenues in 1998.
COMPARATIVE DIVISION ANALYSIS December 31, (000s) 1998 1997 1996 - ------------------------------------------------------------------------ Revenue: PFID $306,369 $ 293,217 $238,684 PFAD 75,715 60,165 30,621 PDID 52,456 44,493 7,758 CORP -- -- -- - ------------------------------------------------------------------------ Total $434,540 $ 397,875 $277,063 - ------------------------------------------------------------------------ EBITDA: PFID $ 67,086 $ 74,757 $ 58,383 (excl. restructuring) PFAD 21,771 16,287 6,027 PDID 11,894 4,786 1,784 CORP (6,921) (6,591) (5,073) - ------------------------------------------------------------------------ Total $ 93,831 $ 89,239 $ 61,121 - ------------------------------------------------------------------------ Restructuring: PFID $ 47,406 $ 3,350 $ -- PFAD 225 -- -- PDID 17,778 3,450 -- CORP 2,561 -- -- - ------------------------------------------------------------------------ Total $ 67,970 $ 6,800 $ -- - ------------------------------------------------------------------------ Capital Expenditures PFID $ 33,097 $ 35,588 $ 32,457 and Software: PFAD 4,508 6,684 2,871 PDID 1,641 684 61 CORP 1,153 980 939 - ------------------------------------------------------------------------ Total $ 40,399 $ 43,936 $ 36,328 - ------------------------------------------------------------------------ Total Assets: PFID $610,738 $ 607,107 $636,039 PFAD 80,402 94,236 37,613 PDID 104,582 113,903 40,427 CORP 46,832 228,563 206,722 - ------------------------------------------------------------------------ Total $842,554 $1,043,809 $920,801 ========================================================================
EBITDA represents operating income plus depreciation and amortization expense and should not be considered in isolation from, or as a substitute for, operating income, net income or cash flows from operating activities computed in accordance with generally accepted accounting principles. While not computed in accordance with generally accepted accounting principles, EBITDA is a widely used measure of a company's performance in its industry because it assists in comparing performance on a consistent basis without regard to depreciation and amortization, which may vary significantly depending on accounting methods (particularly where acquisitions are involved). Management of the Company believes that EBITDA is a meaningful measure, given its widespread industry acceptance as a basis for financial analysis. Further, certain of the Company's debt agreements include financial covenants that are based upon EBITDA, as defined above. Due to the variety of methods that may be used by companies and analysts to calculate EBITDA, the EBITDA measures presented herein may not be comparable to that presented by other companies. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 19 35|Primark Annual Report NOTES CONCLUDED The Company's operations by geographic region are presented in the following table. Most of Primark's international sales originate through its affiliates, which are located throughout Europe, Asia and the United States. GEOGRAPHIC REGIONS
(000s) 1998 1997 1996 - ----------------------- --------- ----------- --------- DOMESTIC Operating Revenues $ 189,680 $ 173,150 $ 119,728 Operating Income (Loss) Non-affiliate $ (24,705) $ 20,107 $ 17,167 Affiliate (2) $ (6,082) $ (7,005) $ (6,374) Identifiable Assets $ 403,403 $ 393,572 $ 297,193 - ----------------------- --------- ----------- --------- UNITED KINGDOM Operating Revenues Non-affiliate $ 146,062 $ 131,889 $ 76,979 Affiliate (2) $ 42,740 $ 39,894 $ 38,711 Operating Income (Loss) Non-affiliate $ (26,155) $ (18,933) $ (17,568) Affiliate (2) $ 42,740 $ 39,894 $ 38,711 Identifiable Assets $ 346,711 $ 363,611 $ 353,098 - ----------------------- --------- ----------- --------- OTHER INTERNATIONAL Operating Revenues $ 98,798 $ 92,836 $ 80,356 Operating Income (Loss) Non-affiliate $ 36,961 $ 36,812 $ 34,970 Affiliate (2) $ (36,658) $ (32,889) $ (32,337) Identifiable Assets $ 45,609 $ 58,063 $ 63,788 - ----------------------- --------- ----------- --------- CORPORATE & OTHER Operating Revenues Affiliate $ (42,740) $ (39,894) $ (38,711) Operating Income/(Loss) $ (9,055) $ (5,752) $ (6,730) Identifiable Assets $ 46,831 $ 228,563 $ 206,722 - ----------------------- --------- ----------- --------- CONSOLIDATED Operating Revenues $ 434,540 $ 397,875 $ 277,063 Operating Income (Loss) (1) (3) $ (22,954) $ 32,234 $ 27,839 Identifiable Assets $ 842,554 $ 1,043,809 $ 920,801 ======================= ========= =========== =========
(1) Corporate and other includes corporate accounts, eliminations and reclassifications, as well as the net assets of discontinued operations. (2) Affiliate transfers represent service fees received by Datastream's United Kingdom operation from its international affiliates. (3) Includes restructuring charges of $68.0 million in 1998 and $6.8 million in 1997 (Note 4). 13. Commitments and Contingencies The Company and its subsidiaries are involved in other administrative proceedings and matters concerning issues arising in the ordinary course of business. Management cannot predict the final disposition of such issues, but believes that adequate provision has been made for the probable losses and that the ultimate resolution of these proceedings will not have a material adverse effect on the Company's financial condition, results of operations or financial liquidity. 14. Subsequent Events On December 29, 1998, the Company executed a definitive agreement (the "Agreement") to acquire 100% of the outstanding common stock of A-T Financial Information, Inc. ("A-T") for a total purchase price of $35,000,000. The acquisition was completed on February 5, 1999. Founded in 1987, A-T is a provider of Windows-compatible financial market data and software to money managers, traders, banks and other institutional investors. A-T has launched an Internet site for individual investors, which is marketed as "A-T Attitude." (Unaudited) On February 22, 1999, the Company announced it had acquired the Company Fundamental Data business and the Extel brand name ("Extel") from The Financial Times Group, part of Pearson plc, for approximately $32 million in cash, subject to certain post closing adjustments. Extel is a widely recognized brand name in the European and Asian markets and provides summarized financial statements for rapid corporate analysis, historical company accounts, image-based data, textual corporate profiles and company news to the investment industry worldwide. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 20 36|Primark Annual Report REPORT OF MANAGEMENT Management of Primark Corporation and its subsidiaries (the "Company") is responsible for the preparation and integrity of the accompanying consolidated financial statements and other financial information contained in this Annual Report. Management believes that all such information has been prepared in conformity with generally accepted accounting principles, and necessarily includes certain amounts that are based on management's judgments and estimates. The consolidated financial statements have been audited by Deloitte & Touche LLP, the Company's independent Certified Public Accountants. Their audit was made in accordance with generally accepted auditing standards, as indicated in their report, and included a review of the Company's system of internal accounting controls and test of transactions to the extent they considered necessary to carry out their responsibilities. In management's opinion, the Company's system of internal accounting controls, coupled with an ongoing program of internal audits to review such controls, provide reasonable assurance that the Company's assets are safeguarded from material loss and the transactions are executed and recorded in accordance with established procedures. The system is supported by formal policies and procedures, including an active Code of Conduct program intended to ensure key employees adhere to the highest standards of personal and professional integrity. The concept of reasonable assurance is based on the recognition that the cost of maintaining a system of internal accounting controls should not exceed the related benefits to be derived. The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with management, internal auditors and Deloitte & Touche LLP to review planned audit scope and results and to discuss other matters affecting the adequacy of internal accounting controls and the quality of financial reporting. Deloitte & Touche LLP has full and free access to the Audit Committee and meets with the committee without management representatives present. /s/ ------------------------------------------------- Stephen H. Curran Executive Vice President and Chief Financial Officer February 16, 1999 INDEPENDENT AUDITOR'S REPORT To the Board of Directors of Primark Corporation: We have audited the accompanying consolidated statements of financial position of Primark Corporation and its subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, cash flows and common shareholders' equity and comprehensive income for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Primark Corporation and its subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. /s/ ------------------ Deloitte & Touche LLP Boston, Massachusetts February 16, 1999 .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 21 37|Primark Annual Report MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: Primark reported net income of $156.7 million ($6.45 per share) for the twelve months ended December 31, 1998. This performance compares favorably to the $19.7 million ($0.71 per share) and the $36.7 million ($1.38 per share) reported for the years 1997 and 1996, respectively. In accordance with SFAS No. 128, the per share calculation for the twelve months ended December 31, 1998 excludes the impact of dilutive securities due to the loss from continuing operations resulting from restructuring charges. Earnings per share calculations for the 1997 and 1996 periods include the effects of dilutive securities. Primark reported a loss from continuing operations of $33.4 million ($1.37 per share) in 1998 compared to income of $4.9 million ($0.17 per share) in 1997 and $12.5 million ($0.46 per share) in 1996. The three-year period includes six significant acquisitions and two reorganizations needed to establish adequate product offerings dedicated to the Company's targeted customer market. The results for the year 1998 were materially affected by a series of major strategic moves designed to focus Primark in the financial, economic and market research information business as an efficient competitor with value-added products and services. During 1998, 1) two operations, TASC and TIMCO, were sold for an after tax gain of $187.3 million, 2) $332.5 million of senior debt was repaid and $150 million of senior subordinated debt issued, 3) 6.1 million shares of common stock were repurchased in a series of transactions, and 4) the Company was reconfigured into three divisions from a base of twelve separate operating units, resulting in a restructuring charge of $68.0 million. The Company had lower margins in the second half of 1998 due to the volatility experienced in the financial markets in the summer of that year. With a significant number of Primark's customers directly affected by the resulting uncertainty, orders for the Company's new product releases as well as new sales of some of the existing products were slower than anticipated in the third and fourth quarters of 1998. While Primark has a significant corporate and government customer base, the financial community provides the largest single source of new revenues of all customer types. During the third and fourth quarters of 1998, many of Primark's customers incurred material write-offs and enacted large layoffs. Cuts and delays in purchases of all types, including the Company's products, were common. Because over 80% of the Company's sales are derived from annual subscription contracts, revenues have grown by 9.2% when compared to 1997 despite unfavorable market conditions. However, significant infrastructure for sales, support and development was built up during 1998 to effect the roll-out of several new products, including Global Access Piranha and the Primark/Dow Jones Equities Service. Given customer cost controls, sales of new products were less than anticipated. Also, the Primark/Dow Jones Equities Service has not been introduced in the market due to the need for contractual adjustments following the sale of a portion of Dow Jones' business which was to supply Primark with certain data. These factors, coupled with expenses related to the overall corporate integration efforts, resulted in lower than anticipated margins for the last half of 1998. The Company achieved an earnings before interest, taxes, depreciation and amortization (EBITDA) margin of 21.6% and an operating income margin of 10.4%, excluding restructuring charges, for the year 1998. While these margins are consistent with prior years, they are lower than the Company had expected. The sales of TASC and TIMCO were anticipated during 1997. As a result, each business was reclassified as a discontinued operation during 1997. TASC, a systems engineering and weather business with sales mainly to government clients, was sold on April 1, 1998 and TIMCO, a heavy aircraft maintenance company, was sold on September 22, 1998. TASC was sold for $432.0 million plus an equity adjustment of $8.9 million, which resulted in an after tax gain of $171.1 million. TIMCO was sold for $70.0 million plus a working capital adjustment of $1.3 million, resulting in an after tax gain of $16.2 million. Additionally, during 1996 the Company sold PSLC, an underground natural gas leasing operation, for $43.0 million, resulting in an after tax gain of $8.4 million. The proceeds from all sales were used to repay debt and repurchase common stock. The application of sale proceeds from TASC and TIMCO to outstanding debt lowered interest cost to $9.5 million in 1998, considerably less than the $16.0 million and $12.5 million recorded in 1997 and 1996, respectively. With the sale of TASC during the second quarter of 1998, the Company needed to restructure its remaining twelve separate operating units to become more efficient and meet market requirements. Effective June 1, 1998, the Company was reorganized to strategically focus solely on its information services businesses. In connection with this reorganization, the Company recorded pre-tax charges of $76.7 million, .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 22 38|Primark Annual Report MANAGEMENT'S DISCUSSION CONTINUED of which $8.7 million ($5.2 million net of tax) was recorded as an extraordinary loss on early extinguishment of debt and $68.0 million was recorded as a restructuring charge to operations. The associated tax benefit of the extraordinary item and the restructuring charge was $3.6 million and $13.7 million, respectively. The effect of the $68.0 million restructuring charge was to reduce 1998 earnings per share by $2.15 per share. The restructuring primarily involved a reduction in the number of software platforms used to produce and deliver the Company's products. Most of the software abandoned, while functional and useful in the previous corporate structure, did not fit in the consolidated strategy necessary to improve organizational efficiency and integrate products to address market requirements. The restructuring charge in 1998 includes, 1) $25.0 million of software designated to be abandoned or integrated into the remaining infrastructure, 2) $1.5 million of data deemed to be duplicative, 3) $23.9 million of goodwill related to the software and data written off, 4) $7.2 million of goodwill related to DAFSA, and 5) $3.1 million associated with a trademark no longer used in the new organization. An additional $7.3 million of the restructuring charge relates to the integration of sales offices made possible by new technology. This action will result in costs associated with terminating office leases and the reduction of 61 employees. During 1997, the Company restructured its DAFSA operation located in France and consolidated its Disclosure office configuration in the United States, recording $6.8 million of restructuring charges. Because of the inability to receive tax relief for the French write-off, the after tax cost of the 1997 restructuring was $6.2 million or $0.22 per share. Subsequent to the year ended December 31, 1998, the Company announced the acquisition of A-T Financial Information, Inc. for a cash purchase price of $35.0 million. A-T Financial had revenues of $13 million in 1998, principally from delivering analytical workstations to the financial community. Primark intends to use A-T Financial's base product to develop improved equities services by introducing technology currently used in the Company's Financial Information Division operation and adding content from Primark businesses to the A-T core product line. A-T's capabilities will also contribute to a more focused Internet strategy and better Internet products for the entire company. Because of the opportunities the Company foresees in its new product pipeline, Primark has decided to accept lower margins for a few quarters during new product roll-outs in exchange for the opportunity to have increased future sales. During this time, the Company will also be incurring costs necessary to complete the integration program. By the second quarter of 1999, the Company expects that the Piranha roll-out and other new products, including a successor to the Primark/Dow Jones Equities Service, as well as the cost efficiencies from the integration program will begin to produce margin improvement. SUMMARY OF OPERATING RESULTS Primark reported 1998 revenues of $434.5 million, a 9.2% increase over the $397.9 million recorded in 1997. The 1997 revenues increased 43.6% over 1996, due primarily to the acquisitions of Baseline and WEFA in the first quarter of 1997, as well as the acquisitions of ICV, the Yankee Group, DAFSA and the controlling interest in Worldscope during the second half of 1996. The 1998 revenue increase was supported by 25.8% growth in the Financial Analytics Division, 17.9% growth in the Decision Information Division and 4.5% growth in the Financial Information Division. Excluding restructuring charges, the Company reported EBITDA of $93.8 million in 1998 compared to $89.2 million in 1997 and $61.1 million in 1996. As a percentage of revenue, the 1998 EBITDA margin of 21.6% compares to the 1997 and 1996 margins of 22.4% and 22.1%, respectively. The 1997 EBITDA improvement principally reflects the acquisitions made during 1996 and 1997. The 1997 EBITDA was negatively affected by $2.6 million of operating losses at DAFSA, Primark's French based operation. DAFSA did not have a material impact on the 1998 operating results. Primark reported operating income, excluding restructuring charges of $45.0 million in 1998, $39.0 million in 1997 and $27.8 million in 1996. PRIMARK FINANCIAL INFORMATION DIVISION The Financial Information Division reported 1998 revenues of $306.4 million compared to $293.2 million in 1997 and $238.7 million in 1996. The 1997 growth rate of 22.8 % is principally a result of the second and third quarter 1996 acquisitions of ICV and 30% of Worldscope, respectively. The 1998 growth rate of 4.5% for the division reflects 10.8% growth from the division's foreign operations offset by a 7.9% decline in US operations. The foreign operations .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 23 39|Primark Annual Report MANAGEMENT'S DISCUSSION CONTINUED represented $216.1 million of the division's 1998 revenue, with Datastream/ICV as the most significant business unit. Within this sector, ICV real time products grew 15.4%, PIMS back-office accounting products grew 17.5% and the Datastream research and data products grew 7.7%. Research products had strong European sales with 16.0% growth but did experience a 3.6% decline in sales to the Pacific Basin. The Pacific Basin represents only 5% of Primark's total revenues. The double-digit revenue growth of the foreign operations was offset by declines in domestic revenues that are principally represented by Disclosure's traditional products. Disclosure's electronic products had strong growth of 16.5% but was offset by the declining traditional product line, which fell 18.7% in 1998. The traditional product line contains Disclosure's paper-based sales of fundamental data, which has been declining for several years and is in fact being replaced by Disclosure's electronic product lines. Overall growth in domestic operations is expected once the decline in paper sales levels off, which in turn is expected during 1999. The Division reported 1998 EBITDA of $67.1 million compared to $74.8 million in 1997 and $58.4 million in 1996. The EBITDA margins of this Division were 21.9% in 1998, 25.5% in 1997 and 24.5% in 1996. The change in margin from 1996 to 1997 reflects the acquisition of ICV. The 1998 margin reflects the higher cost base needed to develop and support the Disclosure Piranha and Primark/Dow Jones Equities Service product introductions, which have been delayed until the first half of 1999. The Division reported 1998 operating income of $29.9 million compared to $37.5 million in 1997 and $30.6 million in 1996. This lower 1998 operating income reflects the higher cost base needed for new product introductions and the decline in Disclosure's traditional product line revenues. PRIMARK FINANCIAL ANALYTICS DIVISION The Financial Analytics Division reported revenues of $75.7 million in 1998 compared to $60.2 million in 1997 and $30.6 million in 1996. The revenue growth in 1997 reflects the acquisition of Baseline. The Division's 1998 growth rate of 25.7% was achieved in part by I/B/E/S product-line growth of 23.2% and Baseline growth of 36.6%. Both businesses are selling into strong and growing markets and have exhibited similar growth patterns for several years. The Financial Analytics Division reported EBITDA of $21.8 million in 1998, $16.3 million in 1997 and $6.0 million in 1996. Revenue growth and efficiencies have contributed to margin improvement between 1998 and 1997. In 1998, the EBITDA margin was 28.8% compared to 27.1% in 1997. The division reported 1998 operating income of $15.7 million compared to $9.9 million in 1997 and $3.0 million in 1996. PRIMARK DECISION INFORMATION DIVISION The Decision Information Division reported revenues of $52.5 million in 1998 compared to $44.5 million in 1997 and $7.8 million in 1996. The revenue growth in 1997 reflects the acquisition of Yankee Group in 1996 and WEFA in 1997. The 1998 growth rate of 17.9% reflects the Yankee Group product line growth of 23.1% and WEFA growth of 14.0%. The Decision Information Division reported EBITDA of $11.9 million in 1998, $4.8 million in 1997 and $1.8 million in 1996. The 1998 EBITDA margin of 22.7% is an improvement over the 1997 margin of 10.8%, principally due to increasing revenue over a constant cost base at Yankee Group. The Division reported 1998 operating income of $7.5 million compared to $0.3 million in 1997 and $1.1 million in 1996. CAPITAL RESOURCES & LIQUIDITY Primark ended 1998 with $51.6 million in cash and cash equivalents compared to $12.8 million in 1997 and $25.3 million in 1996. The $38.9 million increase in 1998 cash and cash equivalents represents $72.7 million from operating activities and $368.2 million from investing activities, offset by $402.3 million from financing activities. The year 1998 reflects cash received from the sale of TASC and TIMCO and the issuance of the 9 1/4 Subordinated Senior Notes, offset by the repayment of debt and repurchase of common stock. Cash and cash equivalents decreased $12.5 million between 1997 and 1996, principally as a result of the purchases of Baseline and WEFA. Operating activities provided increased cash due to improved operations and contributions from working capital, which added $27.4 million to cash and cash equivalents. Working capital used cash of $9.3 million and $6.4 million in 1997 and 1996, respectively. Most of the cash provided from working capital was the result of the Company receiving $21.3 million of net tax benefits created primarily by the exercise of stock .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 24 40|Primark Annual Report MANAGEMENT'S DISCUSSION CONTINUED options of certain employees. The remaining differences in working capital reflect the timing of year-end billings to customers, principally at Datastream. Financing activities for the year 1998 used $402.3 million and were affected by the following four transactions: a) use of the proceeds from the sale of TASC and TIMCO to pay down debt, b) amounts borrowed under the Company's line of credit for shares repurchased under the "Dutch Auction" self tender offer and share repurchase program, c) common stock issuance pursuant to the Company's option plans and d) subordinated notes issued to repay bank debt and acquire A-T Financial. The Company used the proceeds from the sale of TASC to (i) prepay all amounts outstanding on the Company's $112 million senior callable bonds, including a 4.375% premium aggregating $4.9 million together with the accrued interest thereon, (ii) prepay $220 million of the Company's outstanding term loan together with accrued interest thereon, and (iii) prepay $0.5 million of the Company's other indebtedness. In conjunction with the sale of TASC, the Company replaced its outstanding $75 million credit facility with a $225 million revolving credit facility which expires in 2002. Interest on the borrowings under the new revolving credit facility is payable at rates ranging from 0.375% to 1.00% above the prevailing LIBOR rate of interest. The Company used the new revolving credit facility to repurchase shares and repaid the credit facility with proceeds from the sale of TIMCO. On May 20, 1998, the Company announced a "Dutch Auction" self-tender offer, which expired on June 17, 1998. The Company purchased 4,540,000 shares at $34 per share under this arrangement. Total cost of these shares was $154.9 million, including legal and accounting fees. On July 3, 1998, the Company implemented an open market purchase program which was subsequently expanded in the third quarter of 1998 to buy up to 4,000,000 shares of its common stock from time to time, depending on market conditions. As of December 31, 1998, 1,568,500 shares had been repurchased on the open market at a total cost of $42.3 million. As of January 4, 1999, the Company had purchased an additional 287,546 shares at a total cost of $7.6 million. For the year, the Company purchased a total of 6.1 million shares at a total cost of $197.3 million, representing approximately 22.8% of its total outstanding common stock. On December 16, 1998, the Company issued $150.0 million 9.25% Senior Subordinated Notes due 2008. The Company incurred $4.4 million of costs in conjunction with this issue, which will be amortized over the life of the issue. The proceeds from the debt offering were used to repay outstanding borrowings under the credit facility. Subsequent to year-end, the remaining funds from this issue were used for the $35.0 million acquisition of A-T Financial. On December 31, 1998 the Company had a debt to total capitalization ratio of 26.5% compared to 44.0% in 1997 and 34.3% in 1996. Financing activities in 1997 reflect $56.2 million of share repurchases and $100.0 million of additional debt issued under the bank credit facilities. Financing activities in 1996 were not significant. Investing activities for 1998 provided $368.2 million compared to cash used in 1997 and 1996 of $144.5 million and $106.0 million, respectively. During 1998 the Company received $502.0 million of proceeds from the sale of TASC and TIMCO. Subsequent to December 31, 1998, the Company received an additional $8.9 million related to final purchase adjustments on the sale of TASC. During 1998, the Company also spent $8.8 million to purchase four small acquisitions and $10.8 million to complete the purchase of the Yankee Group. The Yankee Group purchase contained a contingent pay-out provision based on performance. Investing activities for 1997 contains the funds expended for the purchase of Baseline and WEFA, while 1996 reflects funds used to purchase ICV, DAFSA and Worldscope, as well as the proceeds from the sale of PSLC. The Company spent $22.8 million on capital equipment during 1998 compared to $24.0 million in 1997 and $19.4 million in 1996. The Financial Information Division accounted for $16.3 million of the 1998 purchases with $10.4 million going towards the purchase of computer equipment to support the new product lines and to expand support of the current customer base. Primark spent $17.6 million on capitalized software during 1998 compared to $20.0 million in 1997 and $16.9 million in 1996. In 1998, $16.7 million of the software requirements were at the Financial Information Division to support new products and to expand operations to meet customer demands. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," effective for fiscal years beginning after June 15, 1999. The standard requires that all companies record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The Company will adopt this statement during fiscal 1999 and is currently assessing the impact it will have on the financial statements. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 25 41|Primark Annual Report MANAGEMENT'S DISCUSSION CONCLUDED YEAR 2000 READINESS DISCLOSURE The Year 2000 (Y2K) issue relates to a complex set of potential problems arising from the ways in which computer software and hardware handle dates. Many older systems use a two-digit date format that may create ambiguities once the new century begins. The Company has been actively addressing all known Y2K issues since 1995, with the goal of providing continuous and reliable service to the Company's customers and a seamless transition to the new millennium. The Company's Y2K plan focuses on each of the Company's internal systems, products and third parties with which the Company has a significant business relationship. In addition to the databases and software that the Company provides to its customers, the Company is reviewing, fixing, and testing all aspects of its internal operations - from hardware systems, software, and desktop PC programs to physical security systems. This effort involves key data suppliers, hardware manufacturers, telecommunications companies and electric utilities. The Company is also prepared to assist its users with Y2K issues relating to their internal systems that directly interface with the Company's systems. All Primark companies are working together to achieve compliance by sharing information and resources. The Company believes that all material systems will be compliant by September of 1999. All Primark companies dealing with Y2K issues must address the effect this issue will have on their significant business relationships, including suppliers and customers. The Company is undertaking steps to work with third party vendors to understand their ability to continue to provide services and products. The Company has notified all customers with older products which are not Y2K compliant that the Company will no longer support these products. The Company has offered assistance to upgrade such customers to compliant versions. All other Company products are Y2K compliant. The Company is undertaking a rigorous verification of suppliers. Primark companies incorporate data derived from many different suppliers. A major component of the Y2K project is reviewing every one of the suppliers to ensure compliance on their part. Where there is any doubt that a supplier will not be taking reasonable actions to ensure compliance, the Company will seek alternatives within a suitable time frame. The Company incurred $1.5 million in 1997 and $3.4 million in 1998 related to the Y2K procedures and estimates costs of $5.0 million for the year ended December 31,1999. The Company expects to resolve every significant Y2K problem and have the solutions thoroughly tested by September 30, 1999. The Company expects its Y2K efforts will be successful. However, the Company's products and services, as well as the tools that Primark uses to conduct its Y2K evaluation, are dependent on technological components, equipment and software that were developed by third parties and that may not be Y2K compliant. Failure of such third party components, equipment or software to operate properly with regard to the Y2K could interrupt ongoing operations or require the Company to incur unanticipated expenses to remedy any problems, which could have a material adverse effect on the Company's business and operating results. CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS In addition to the historical information presented here, this report includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Re form Act of 1995. Although Primark believes the expectations contained in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove correct. This information may involve risks and uncertainties that could cause the actual results of Primark to differ materially from the forward-looking statements. Factors which could cause or contribute to such differences include, but are not limited to, (i) the risks associated with operating on a global basis, including fluctuations in the value of foreign currencies relative to the US dollar, and the ability to successfully hedge such risks, (ii) the extent to which Primark seeks growth through acquisitions, and the ability to identify and consummate acquisitions on satisfactory terms, (iii) uncertainty regarding the development and market acceptance of new products, (iv) loss of market share through competition, (v) deterioration in economic conditions, particularly in the financial services industry, and (vi) Primark's inability to complete the implementation of its Y2K plans on a timely basis. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 26 42|Primark Annual Report SELECTED FINANCIAL INFORMATION - FIVE YEAR DATA (000s) Except Per Share Amounts 1998 1997 1996 1995 1994 - --------------------------------------------------------- -------- ---------- -------- -------- -------- FINANCIAL AND OPERATING DATA (1) Operating revenues $434,540 $ 397,875 $277,063 $184,779 $111,621 Operating income (loss) $(22,954) $ 32,234 $ 27,839 $ 20,886 $ 6,225 Income (loss) from continuing operations $(33,370) $ 4,854 $ 12,516 $ 5,381 $ 1,705 Net income applicable to common stock (2) $156,722 $ 19,715 $ 36,749 $ 16,882 $ 12,316 Basic Earnings per share: From continuing operations $ (1.37) $ 0.18 $ 0.49 $ 0.21 $ 0.01 Total earnings per share (2) $ 6.45 $ 0.75 $ 1.48 $ 0.88 $ 0.66 Earnings per share assuming dilution: From continuing operations $ (1.37) $ 0.17 $ 0.46 $ 0.19 $ 0.01 Total earnings per share (2) $ 6.45 $ 0.71 $ 1.38 $ 0.82 $ 0.62 Total assets $842,554 $1,043,809 $920,801 $718,184 $427,950 Total debt, including capital lease obligations $158,879 $ 370,163 $248,340 $239,476 $115,573 Redeemable preferred stock $ -- $ -- $ -- $ 16,874 $ 16,874 Common shareholders' equity (4) $440,178 $ 470,971 $475,830 $354,062 $224,689 EBITDA (3) $ 25,861 $ 82,439 $ 61,121 $ 46,795 $ 24,727 Debt to total capitalization 26.5% 44.0% 34.3% 39.2% 32.4% Capital expenditures $ 22,812 $ 23,965 $ 19,412 $ 9,803 $ 10,765 Capitalized software $ 17,587 $ 19,971 $ 16,916 $ 5,704 $ 4,372 Cash flows from operations $ 72,702 $ 58,024 $ 65,707 $ 49,305 $ 40,268 Total employees 2,300 2,328 2,025 1,588 769 - --------------------------------------------------------- -------- ---------- -------- -------- -------- COMMON STOCK DATA (4) Actual shares outstanding 21,251 26,800 27,068 23,317 18,520 Weighted average common shares outstanding 24,302 26,348 24,813 19,150 18,510 Weighted average common and equivalent shares outstanding 24,302 27,944 26,571 20,681 19,953 Book value per share $ 20.71 $ 17.57 $ 17.58 $ 15.18 $ 12.13 Market price per share on NYSE Composite: High $43 5/8 $ 41 5/8 $ 40 $ 30 1/4 $ 15 Low $22 9/16 $ 18 1/8 $ 21 3/8 $ 12 3/4 $ 11 Close $27 1/8 $ 40 11/16 $ 24 3/4 $ 30 $ 13 1/8
================================================================================ (1) - The financial data for the Company has been restated to exclude discontinued operations (Note 3) and includes all acquired companies from their respective dates of acquisition. (2) - Includes the following: a) results of discontinued operations, along with a $187.3 million and a $8.4 million after tax gain on the sale of discontinued operations in 1998 and 1996, respectively; b) an after tax extraordinary loss for the early extinguishment of debt of $1.5 million, $2.0 million and $534 thousand for 1998, 1997 and 1996, respectively; c) dividends on the Company's outstanding preferred stock through its conversion to common in 1996. (3) - EBITDA represents operating income plus depreciation and amortization expense and should not be considered in isolation from, or as a substitute for, operating income, net income or cash flows from operating activities computed in accordance with generally accepted accounting principles. While not computed in accordance with generally accepted accounting principles, EBITDA is a widely used measure of a company's performance in its industry because it assists in comparing performance on a consistent basis without regard to depreciation and amortization, which may vary significantly depending on accounting methods (particularly where acquisitions are involved). Management of the Company believes that EBITDA is a meaningful measure given the widespread industry acceptance as a basis for financial analysis. Further, certain of the Company's debt agreements include financial covenants that are based upon EBITDA, as defined above. Due to the variety of methods that may be used by companies and analysts to calculate EBITDA, the EBITDA measures presented herein may not be comparable to that presented by other companies. (4) - During 1998 and 1997, the Company retired 6,108,500 and 2,071,483 shares of its common stock, respectively. In May 1996, 1,164,276 shares of common stock were issued for the conversion of preferred. In December 1995, the Company issued 4,356,200 shares of common stock. .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 27 43|Primark Annual Report SUPPLEMENTARY FINANCIAL INFORMATION - QUARTERLY DATA The quarterly data includes the operations of acquired businesses from their respective dates of acquisition (Note 2). Quarterly earnings per share may not total for the year as quarterly computations are based on weighted average common and common equivalent shares outstanding during each quarter. The following quarterly common stock prices set forth the intraday high and low market prices per share on the NYSE Composite Tape. As of the close of business on February 28, 1999, there were 7,302 holders of record of the Company's common stock.
(000s) Except Per Share Amounts First Second Third Fourth - -------------------------------------------------------------- --------- --------- --------- --------- 1998 - -------------------------------------------------------------- --------- --------- --------- --------- Operating revenues, as reported $ 104,411 $ 108,874 $ 108,534 $ 112,721 - -------------------------------------------------------------- --------- --------- --------- --------- Operating income (1) $ 11,317 $ (57,170) $ 12,091 $ 10,808 - -------------------------------------------------------------- --------- --------- --------- --------- Income before extraordinary item (1) (3) $ 8,520 $ 126,462 $ 21,935 $ 4,926 - -------------------------------------------------------------- --------- --------- --------- --------- Net income applicable to common stock (1) (2) (3) $ 8,520 $ 121,341 $ 21,935 $ 4,926 - -------------------------------------------------------------- --------- --------- --------- --------- Basic earnings per share before extraordinary item (1) (3) $ 0.32 $ 4.49 $ 0.99 $ 0.23 - -------------------------------------------------------------- --------- --------- --------- --------- Earnings per share before extraordinary item N diluted (1) (3) $ 0.30 $ -- $ 0.96 $ 0.22 - -------------------------------------------------------------- --------- --------- --------- --------- Market price per share: High $ 43 5/8 $ 43 5/8 $31 11/16 $ 30 1/8 Low $ 38 $ 31 3/16 $23 5/8 $ 23 9/16 - -------------------------------------------------------------- --------- --------- --------- --------- 1997 - -------------------------------------------------------------- --------- --------- --------- --------- Operating revenues, as reported $ 94,681 $ 100,932 $ 99,113 $ 103,149 - -------------------------------------------------------------- --------- --------- --------- --------- Operating income (1) $ 3,797 $ 2,433 $ 11,838 $ 14,166 - -------------------------------------------------------------- --------- --------- --------- --------- Income before extraordinary item (1) (3) $ 4,115 $ 1,034 $ 7,603 $ 8,918 - -------------------------------------------------------------- --------- --------- --------- --------- Net income applicable to common stock (1) (2) (3) $ 2,160 $ 1,034 $ 7,603 $ 8,918 - -------------------------------------------------------------- --------- --------- --------- --------- Basic earnings per share before extraordinary item (1) (3) $ 0.15 $ 0.04 $ 0.29 $ 0.34 - -------------------------------------------------------------- --------- --------- --------- --------- Earnings per share before extraordinary item N diluted (1) (3) $ 0.14 $ 0.04 $ 0.28 $ 0.32 - -------------------------------------------------------------- --------- --------- --------- --------- Market price per share: High $ 28 1/4 $ 26 5/8 $30 11/16 $ 42 Low $ 23 3/8 $ 17 3/8 $25 3/16 $ 26 1/2 - -------------------------------------------------------------- --------- --------- --------- ---------
(1) Includes for the second and fourth quarter of 1998 restructuring charges of $68.7 million and $(0.7) million, respectively. Includes for the first and second quarter of 1997 restructuring charges of $1.8 million and $5.0 million, respectively (Note 4). (2) Includes for the 1998 second quarter an after tax extraordinary loss of $5.1 million and for the 1997 first quarter an after tax extraordinary loss of $2.0 million, both of which resulted from the extinguishment of debt (Note 6). (3) Includes in the second and third quarter of 1998 a $171.1 million and $16.2 million gain, respectively, on the sale of discontinued operations (Note 3). .....................PRIMARK CORPORATION AND SUBSIDIARIES....................... 28 44|Primark Annual Report SHAREHOLDER INFORMATION 1999 Annual Meeting The Annual Meeting of Shareholders will be held at the Burlington Marriott Hotel, 1 Mall Road, Burlington, Massachusetts on Wednesday, May 26, 1999 at 11 :00am. Information with respect to this meeting, the proxy statement and proxy will be mailed on or about April 9, 1999. Stock Listed New York and Pacific Stock Exchanges Trading Symbol: PMK Corporate Information/Investor Inquiries The following information is available without charge to shareholders and other interested parties: * Annual Report * Annual Report on Form 10-K filed with the Securities and Exchange Commission (exhibits filed as part of this report are available upon payment of a specified fee) * Quarterly Reports to Shareholders * Quarterly Reports on Form 10-Q filed with the Securities and Exchange Commission To request these publications or if you have any questions about Primark, you are invited to contact: Primark Investor Relations 1000 Winter Street, Suite 4300N Waltham, MA 02451-1241 (781) 466-6611 (800) 755-1032 E-mail: investor-relations@primark.com Shareholder Services All inquiries regarding the following items should be directed to the Stock Transfer Agent. * Change of address * Lost stock certificates * Duplicate mailings * Transfer of stock to another person * Other administrative concerns Stock Transfer Agent and Registrar BankBoston c/o EquiServe P.O. Box 8040 Boston, MA 02266-8040 (781) 575-3120 (800) 730-6001 http://www.equiserve.com Independent Accountants Deloitte & Touche LLP 125 Summer Street Boston, MA 02110-1617 (617) 261-8000 The Annual Report This report is submitted for the general information of the shareholders of Primark Corporation and is not intended to be used in connection with any sale or purchase of securities. EX-21.1 3 SUBSIDIARIES OF PRIMARK CORP. 1 EXHIBIT 21.1 SUBSIDIARIES OF PRIMARK CORPORATION PRIMARK CORPORATION OWN ALL OF THE ISSUED AND OUTSTANDING COMMON STOCK OF PRIMARK HOLDING CORPORATION, AND PRIMARK FINANCIAL TECHNOLOGIES, INC., WHICH ARE ALL DELWARE CORPORATIONS. PRIMARK CORPORATION ALSO HOLDS A 20% INTEREST IN PRIMARK DECISION ECONOMICS, INC., A MASSACHUSETTS CORPORATION. Primark Holding Corporation owns all of the issued and outstanding common stock of: - Baseline Financial Services, Inc.; a New York Corporation. - Primark Information Service (U.K.) Limited (U.K.) which owns all the common stock of: - Datastream Group (U.K.) which owns Datastream (U.K.); - Datastream Pension Trustees Limited (U.K.); - Primark Investment Management Services Limited (U.K.); - Datastream International Limited (U.K.) which owns all the common stock of Primark Netherlands B.V. (the Netherlands) and has a branch in Malaysia. - I/B/E/S (U.K.) Limited -Disclosure Limited (U.K.); -ICV Limited (U.K) - Primark Switzerland Ltd. (Switzerland) - Datastream International GmbH (Germany) - Primark Hong Kong Limited - Datastream International Inc. (Delaware) - Datastream International (Japan) K.K. (Japan) - Primark Australia Pty. Limited (Australia) - Datastream International (D.C.), Inc. (Delaware) - Datastream International (Canada) Ltd. (Canada) - Primark Italy S.r.L. (Italy) - Datastream International (Sweden) Aktiebolag (Sweden) - Datastream International (South Africa) Proprietary Limited (South Africa) - Primark Korea Limited (Korea) - Primark (Thailand) Limited (Thailand) - Primark Singapore Pte., Ltd. (Singapore) - Vestek Systems, Inc., a California corporation - Disclosure Incorporated (Delaware) which owns all the issued and outstanding stock of: - Disclosure International, Inc. (Delaware) which owns 80% interest in: - Worldscope/Disclosure LLC which owns all of the issued and outstanding stock of Worldscope/ Disclosure India Pvt. Ltd.; and -Worldscope/ Disclosure International Partners (Ireland) - I/B/E/S International, Inc. (Delaware)which owns all the issued and outstanding stock of: - I/BE/S Inc. (Delaware) - I/B/E/S Japan K.K. (Japan) - Datastream International (France) SA (France) which owns all the issued and outstanding stock of Groupe DAFSA S.A. and a 4.4% interest in Globe On-Line. Groupe DAFSA owns DAFSA Edition SNC and a 33% interest in Panroma. 2 - WEFA, Inc. (Delaware) which owns all of the issued and outstanding common stock of Primark Southern Africa (Pty) Ltd. (S. Africa). - WEFA GmbH (Germany) which owns all of the issued and outstanding common stock of WEFA - CEIS GmbH (Germany). - WEFA S.A. (France) - Primark Belgium SA (Belgium) - WEFA Canada, Inc. (Canada) - WEFA (Holdings) Limited, (England), which owns WEFA Limited (England), which in turns owns Staniland Hall Associates Limited (England) - WEFA Inc. also owns a 45% interest in Ciemex, Inc. (Delaware), which owns Ciemex WEFA, Inc. (Delaware) - Primark Data Company (Delaware) - Primark Information Service Spain S.A. (Spain) - Primark Luxembourg SA (Luxembourg) 99% interest held by PHC; remaining 1% held by Primark Corporation - Primark Poland S.P. 20.0 EX-23.1 4 INDEPENDENT AUDITOR'S CONSENT 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 2-77751, 2-92579, 33-6009, 33-23876, 33-49132, 33-49134, 333-17567, 333-17563, 333-17561, 333-24677, 333-50923, 333-50925 on Form S-8, in Registration Statement No. 333-71183 on Form S-4 and Registration Statement No. 333-43299 on Form S-3 of Primark Corporation and subsidiaries of our report dated February 16, 1999, incorporated by reference in this Annual Report on Form 10-K of Primark Corporation and subsidiaries for the year ended December 31, 1998. Boston, Massachusetts March 29, 1999 EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PRIMARK CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998 INCLUDED IN THE FORM 10-K AS EXHIBIT 13.1 AND THE 1998 ANNUAL REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 1 51,630 0 101,973 3,762 0 178,309 110,005 58,649 842,554 226,136 151,489 0 0 425 439,753 842,554 0 434,540 0 174,825 282,669 0 9,491 (30,791) 2,579 (33,370) 195,213 (5,121) 0 156,722 6.45 6.45
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