<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 4, 1999 (May 21, 1999)
APPLIED GRAPHICS TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 0-28208 13-3864004
(State or other jurisdiction (Commission File Number) (I.R.S. Employer Identification No.)
of incorporation)
450 WEST 33RD STREET, NEW YORK, NY 10001
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 212-716-6600
<PAGE> 2
This Current Report on Form 8-K/A amends the Current Report on Form 8-K and the
Current Report on Form 8-K/A of Applied Graphics Technologies, Inc. (the
"Company" or "AGT") dated June 4, 1999, and July 13, 1999, respectively, for
purposes of providing the financial statements of Wace Group Plc ("Wace") and
the unaudited pro forma financial information relating to the acquisition of
Wace and the disposition of Wace's operations in France.
Item 5. Other Events
In connection with the acquisition of Wace, Derek Ashley, the Vice Chairman and
Chief Operating Officer of the Company, was appointed to the Board of Directors
of the Company on June 17, 1999.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
(i) 1998 audited financial statements of Wace.
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
The shareholders and Board of Directors
Wace Group PLC
We have audited the accompanying consolidated balance sheets of Wace Group PLC
and subsidiaries at December 31, 1998 and 1997 and the related consolidated
profit and loss accounts, cash flow statements, statements of total recognised
gains and losses and reconciliation of movements in equity shareholders' funds
for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the management of
Wace Group PLC. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom which standards are substantially equivalent to auditing
standards generally accepted in the United States of America. 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, the consolidated financial statements referred to above present
a true and fair view, in all material respects, of the consolidated financial
position of Wace Group PLC and subsidiaries at December 31, 1998 and 1997 and
their consolidated results of 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 in the United Kingdom.
Generally accepted accounting principles in the United Kingdom vary in certain
respects from generally accepted accounting principles in the United States of
America. Application of generally accepted accounting principles in the United
States of America would have affected the results of operations for each of the
two years ended December 31, 1998, and 1997 and shareholders' equity funds at
December 31, 1998 and 1997 to the extent summarised in note 29 to the
consolidated financial statements.
/s/ Arthur Andersen
Arthur Andersen
Chartered Accountants
London
England
August 4, 1999
<PAGE> 4
WACE GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
*restated *restated
YEAR ENDED 31 DECEMBER 1998 1997 1996
Total Total Total
Notes pound sterling000 pound sterling000 pound sterling000
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
TURNOVER
Continuing activities 122,738 121,623 148,468
Acquired activities 1,479 - -
- ---------------------------------------------------------------------------------------------------------------------------------
124,217 121,623 148,468
Discontinued activities 59,756 147,245 174,597
- ---------------------------------------------------------------------------------------------------------------------------------
1 183,973 268,868 323,065
Cost of sales 2 (130,843) (209,074) (223,876)
Impairment of fixed assets 3 (761) (7,078) -
- ---------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 52,369 52,716 99,189
Operating expenses 2 (59,967) (67,673) (89,199)
Impairment of goodwill 3 (7,178) (45,750) -
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS) / PROFIT 1 (14,776) (60,707) 9,990
Continuing activities (11,988) (59,933) 1,812
Acquired activities (22) - -
Discontinued activities (2,766) (774) 8,178
Losses on discontinuance of activities 4 (26,004) (10,527) (8,193)
Costs of fundamental restructuring - (2,074) -
Profit on disposal of freehold property - 2,700 -
- ---------------------------------------------------------------------------------------------------------------------------------
(LOSS) / PROFIT ON ORDINARY ACTIVITIES BEFORE
INTEREST AND TAXATION (40,780) (70,608) 1,797
Net finance costs 5 (918) (5,815) (3,837)
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION 6 (41,698) (76,423) (2,040)
Tax on loss on ordinary activities 9 208 340 (1,436)
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS FOR THE FINANCIAL YEAR (41,490) (76,083) (3,476)
Dividends - non-equity 10 (3,133) (3,134) (3,133)
Dividends - equity 10 - - (2,376)
- ---------------------------------------------------------------------------------------------------------------------------------
DEFICIT FOR THE YEAR (44,623) (79,217) (8,985)
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS PER SHARE (pence) 11 (56.4) (100.1) (8.4)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this Consolidated Profit and Loss
Account.
* see note 3
<PAGE> 5
<TABLE>
<CAPTION>
WACE GROUP PLC GROUP COMPANY
BALANCE SHEETS
AS AT 31 DECEMBER 1998 1997 1998 1997
Notes pound pound pound pound
sterling000 sterling000 sterling000 sterling000
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible asset - goodwill 12 2,094 - - -
Tangible assets 14 25,461 66,339 - -
Investments 15 75 - 151,857 181,477
- -----------------------------------------------------------------------------------------------------------------------------------
27,630 66,339 151,857 181,477
- -----------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Properties for resale 8,953 2,561 - -
Stock 16 3,682 13,846 - -
Debtors 17 31,610 58,655 86,896 44,007
Cash at bank and in hand 18 10,776 5,471 8,287 3,003
- -----------------------------------------------------------------------------------------------------------------------------------
55,021 80,533 95,183 47,010
- -----------------------------------------------------------------------------------------------------------------------------------
CREDITORS: amounts falling due within
one year
Creditors 19 (26,677) (57,637) (103,149) (44,826)
Debt 20 (658) (25,443) (515) (25,895)
- -----------------------------------------------------------------------------------------------------------------------------------
NET CURRENT ASSETS/(LIABILITIES) 27,686 (2,547) (8,481) (23,711)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS LESS CURRENT LIABILITIES 55,316 63,792 143,376 157,766
CREDITORS: amounts falling due after
more than one year
Creditors 19 (1,863) (992) (69,405) (71,487)
Debt 20 (1,764) (16,929) - (10,399)
PROVISIONS FOR LIABILITIES AND CHARGES 21 (4,071) (4,831) (213) (466)
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS 47,618 41,040 73,758 75,414
- -----------------------------------------------------------------------------------------------------------------------------------
CAPITAL AND RESERVES
Called up share capital 22 55,084 55,084 55,084 55,084
Share premium account 23 6,986 6,986 6,986 6,986
Revaluation reserve 23 205 1,281 - -
Merger reserve 23 56,098 4,849 3,275 3,275
Profit and loss account 23 (70,755) (27,160) 8,413 10,069
- -----------------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' FUNDS 47,618 41,040 73,758 75,414
- -----------------------------------------------------------------------------------------------------------------------------------
Equity shareholders' funds 8,366 1,788 34,506 36,162
Non-equity shareholders' funds 22 39,252 39,252 39,252 39,252
- -----------------------------------------------------------------------------------------------------------------------------------
47,618 41,040 73,758 75,414
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Balance Sheets.
These accounts were approved by order of the Board on 10 February 1999.
/s/ D Ashley /s/ S R Puckett
D ASHLEY S R PUCKETT
Group Chief Executive Group Finance Director
<PAGE> 6
<TABLE>
<CAPTION>
WACE GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT
*restated *restated
YEAR ENDED 31 DECEMBER 1998 1997 1996
notes pound pound pound
sterling000 sterling000 sterling000
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES
BEFORE EXCEPTIONAL ITEMS 24 276 18,402 36,322
EXCEPTIONAL ITEMS
Costs of discontinuance 4 (4,186) (990) (318)
Costs of fundamental restructuring (718) (1,156) -
- --------------------------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW FROM EXCEPTIONAL ITEMS (4,904) (2,146) (318)
NET CASH (OUTFLOW)/INFLOW FROM OPERATING ACTIVITIES (4,628) 16,256 36,004
- --------------------------------------------------------------------------------------------------------------------------
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received 650 318 231
Interest paid (1,735) (3,776) (3,745)
Costs of renegotiating facilities - (2,129) -
Non-equity dividends paid (3,133) (3,134) (3,133)
- --------------------------------------------------------------------------------------------------------------------------
(4,218) (8,721) (6,647)
- --------------------------------------------------------------------------------------------------------------------------
TAXATION
UK corporation tax paid (1,490) (1,448) (4,833)
Overseas tax paid (12) (1,074) (1,695)
Overseas tax recovered 2,278 1,849 -
- --------------------------------------------------------------------------------------------------------------------------
776 (673) (6,528)
- --------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (5,674) (22,767) (15,624)
Sale of Rathfarnham property - 6,232 -
Sale of other tangible fixed assets 390 6,724 2,355
Purchase of investments (75) - -
- --------------------------------------------------------------------------------------------------------------------------
(5,359) (9,811) (13,269)
- --------------------------------------------------------------------------------------------------------------------------
ACQUISITIONS AND DISPOSALS
Proceeds from disposals 4 54,553 9,347 -
Deferred consideration received 1,209 - -
Acquisition of Colour Imaging Group 13 (774) - -
Acquisition of Ferry Pickering Group Plc - - (19,124)
Acquisition of Rathfarnham Facility - - (5,938)
- --------------------------------------------------------------------------------------------------------------------------
54,988 9,347 (25,062)
- --------------------------------------------------------------------------------------------------------------------------
EQUITY DIVIDENDS PAID - (910) (4,629)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH INFLOW/(OUTFLOW) BEFORE FINANCING 41,559 5,488 (20,131)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING
Issue of ordinary shares net of costs - - 644
(Repayment) / drawdown of revolving credit facilities (17,256) (2,920) 14,443
Repayment of senior loan notes (16,251) - (6,686)
Other new borrowings - - 7,127
Repayment of other borrowings - (1,689) (828)
Capital element of finance lease payments (1,342) (769) (1,532)
- --------------------------------------------------------------------------------------------------------------------------
NET CASH (OUTFLOW) / INFLOW FROM FINANCING 25 (34,849) (5,378) 13,168
- --------------------------------------------------------------------------------------------------------------------------
INCREASE /(DECREASE) IN CASH AND CASH EQUIVALENTS 26 6,710 110 (6,963)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of this Consolidated Cash Flow
Statement.
* see note 3
<PAGE> 7
WACE GROUP PLC
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1998 1997 1996
pound pound pound
sterling000 sterling000 sterling000
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loss for the financial year (41,490) (76,083) (3,476)
Release of revaluation reserve - (168) (1,247)
Net exchange loss on translation (125) (452) (1,539)
Taxation on exchange 77 (249) 729
- ---------------------------------------------------------------------------------------------------------------------------
Total recognised losses for the year (41,538) (76,952) (5,533)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
YEAR ENDED 31 DECEMBER 1998 1997
pound pound
sterling000 sterling000
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss for the financial year (41,490) (76,083)
Dividends (3,133) (3,134)
Impairment of goodwill previously written off 7,178 45,750
Goodwill attributable to discontinued activities 44,071 11,927
Release of revaluation reserve - (168)
Net exchange loss on translation (125) (452)
Taxation on exchange 77 (249)
- ----------------------------------------------------------------------------------------------------
Net movement in shareholders' funds 6,578 (22,409)
- ----------------------------------------------------------------------------------------------------
Shareholders' funds at 1 January 41,040 63,449
- ----------------------------------------------------------------------------------------------------
Shareholders' funds at 31 December 47,618 41,040
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 8
WACE GROUP PLC
ACCOUNTING POLICIES
YEAR ENDED 31 DECEMBER
ACCOUNTING CONVENTION AND BASIS OF PREPARATION
The accounts have been prepared under the historical cost convention as modified
by the revaluation of certain freehold properties, in accordance with applicable
UK accounting standards and on the going concern basis.
BASIS OF CONSOLIDATION
The Group accounts consolidate the accounts of the Company and its subsidiaries
for the year ended 31 December 1998, and include, from the date of acquisition
or to the date of disposal, the results of activities acquired or disposed of
during the year.
GOODWILL
Positive purchased goodwill in the year ended 31 December 1998 arising on
acquisitions is capitalised as an asset on the balance sheet and amortised over
the shorter of its estimated life and 20 years. Purchased goodwill and goodwill
arising on consolidation arising in accounting periods ending before 31 December
1998 were written off directly to reserves in the year of acquisition. On
discontinuance of an activity any related goodwill, which had previously been
written off directly to reserves is shown as a charge in the profit and loss
account and is balanced by an equal credit to reserves. Such a write off has no
effect on shareholders' funds.
INVESTMENTS
Investments held as fixed assets are stated at cost less provision for permanent
diminution in value.
TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are stated at cost or, in the case of certain freehold
land and buildings at professional valuation together with the cost of
subsequent additions, net of depreciation and provisions for impairment.
Depreciation is provided at various rates, which are calculated to write off the
cost of the assets less estimated residual values in equal instalments over
their expected useful lives. Such depreciation is charged from the date upon
which the assets are acquired or are available for use.
The life used for each class of asset is set out below:
a) Freehold land - not depreciated.
b) Freehold buildings - 50 years.
c) Short leasehold land and buildings - the unexpired term of the lease.
d) Plant, equipment and vehicles - between 2 and 10 years.
LEASES
FINANCE
Assets acquired under finance leases and hire purchase contracts that transfer
the risks and rewards of ownership are capitalised and liabilities for future
instalments, under the terms of the contracts, are included in creditors.
Finance charges are expensed to the profit and loss account over the life of
each contract to produce a constant rate of charge on the outstanding balance.
OPERATING
Rentals on operating leases are charged to the profit and loss account on a
straight-line basis over the lease term.
STOCK AND PROPERTIES FOR RESALE
Stock, work in progress and properties for resale are valued at the lower of
cost and estimated net realisable value. Cost includes the direct costs of
purchase and production and an appropriate proportion of overheads.
<PAGE> 9
PENSIONS
DEFINED CONTRIBUTION SCHEMES
The pension costs charged against profit represent the contributions payable by
the Group for the year.
DEFINED BENEFIT SCHEMES
In the period up to 1 May 1998, the pension costs in respect of defined
contribution schemes are based on actuarial methods and assumptions designed to
ensure that regular pension cost represents a substantially level percentage of
the current and future pensionable payrolls. Post acquisition variations from
regular cost are spread over the remaining service lives of current employees in
the scheme. On 1 May 1998 all defined benefit schemes were disposed of as part
of the discontinuance of certain UK based specialist printing operations.
DEFERRED TAXATION
Deferred taxation is attributable to timing differences between results computed
for taxation purposes and results shown in the accounts. Provision is made where
it is probable that a liability will crystallise at the rates expected to be
effective in the future. No provision is made for any potential liability to
taxation which might arise on the disposal of fixed assets at the amount of the
valuations incorporated in the accounts unless there is an intention to dispose
of these assets.
TURNOVER
Turnover comprises sales of goods and services falling within the Group's
ordinary activities after deducting trade discounts and excluding sales taxes.
FOREIGN CURRENCIES
Investments in overseas subsidiaries denominated in foreign currencies are
translated at the rate ruling at the balance sheet date and exchange gains or
losses arising are taken to reserves.
Transactions denominated in foreign currencies are translated at the rate ruling
at the time of the transactions. Monetary assets and liabilities denominated in
foreign currencies are translated at the rate ruling at the balance sheet date.
Exchange gains and losses arising are dealt with in the profit and loss account
except for those arising on foreign currency borrowings used to hedge net
investments in overseas subsidiaries. These are taken to reserves to the extent
that they can be offset against the exchange differences arising on the net
investments. Where such exchange gains or losses are taxable the related tax
provision is also taken directly to reserves.
On consolidation, assets and liabilities of foreign subsidiaries are translated
into sterling at the rate ruling at the balance sheet date. Trading results and
cash flows are translated at the average rate for the period. Differences
arising on the retranslation of net investments and profits or losses in the
period are taken directly to reserves.
<PAGE> 10
NOTES TO THE ACCOUNTS
1. SEGMENTAL ANALYSES
Following the disposal of the majority of its printing operations, the Group now
has one main activity, which is providing digital graphic imaging services. The
Group maintains a central management function, the costs of which have
previously been apportioned across the results of the separate operations within
the Group. This central function is a separate cost centre and the control of
such costs is important to the Group's future strategy. Accordingly such costs
have been separately identified in 1998 and the comparatives restated on a
consistent basis. Inter-segmental trading is not significant. Discontinued
activities relate mainly to the printing operations which have been disposed of
as described more fully in notes 4 and 28.
<TABLE>
<CAPTION>
*restated *restated
TURNOVER 1998 1997 1996
TOTAL Total Total
pound pound pound
sterling000 sterling000 sterling000
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTINUING ACTIVITIES
United States of America 85,308 83,373 100,894
United Kingdom 24,879 22,731 27,357
France 12,551 15,519 20,217
- -----------------------------------------------------------------------------------------------------------
122,738 121,623 148,468
ACQUIRED ACTIVITIES
Australia 1,479 - -
- -----------------------------------------------------------------------------------------------------------
124,217 121,623 148,468
DISCONTINUED ACTIVITIES
United States of America 3,850 11,896 22,753
United Kingdom and Eire 55,119 131,171 145,182
Continental Europe 787 4,178 6,662
- -----------------------------------------------------------------------------------------------------------
183,973 268,868 323,065
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Turnover by destination is not materially different to turnover by origin.
<PAGE> 11
<TABLE>
<CAPTION>
*restated *restated
OPERATING (LOSS)/PROFIT 1998 1997 1996
TOTAL Total Total
pound pound pound
sterling000 sterling000 sterling000
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTINUING ACTIVITIES
United States of America 2,222 (5,785) 4,440
United Kingdom 1,427 1,034 4,081
France (4,829) (703) (31)
- ------------------------------------------------------------------------------------------------------------------
(1,180) (5,454) 8,490
ACQUIRED ACTIVITIES
Australia (22) - -
- ------------------------------------------------------------------------------------------------------------------
(1,202) (5,454) 8,490
CENTRAL COSTS
United Kingdom (2,869) (4,103) (6,678)
- ------------------------------------------------------------------------------------------------------------------
(4,071) (9,557) 1,812
DISCONTINUED ACTIVITIES
United States of America (778) (1,311) (80)
United Kingdom and Eire (1,795) 4,060 10,995
Continental Europe (193) 240 746
COSTS OF OPERATIONAL RESTRUCTURING -
DISCONTINUED ACTIVITIES
United Kingdom and Eire - (1,541) (3,483)
PROFIT ON DISPOSAL OF ST MATTHEWS HOUSE - 760 -
COSTS OF ABORTIVE DISPOSAL OF WACE USA - (530) -
- ------------------------------------------------------------------------------------------------------------------
OPERATING (LOSS)/PROFIT BEFORE IMPAIRMENTS (6,837) (7,879) 9,990
IMPAIRMENT OF GOODWILL - CONTINUING ACTIVITIES (7,178) (45,750) -
IMPAIRMENT OF FIXED ASSETS
United States of America - continuing activities - (1,399) -
United Kingdom and Eire - continuing activities - (3,457) -
United Kingdom and Eire - discontinued activities - (2,222)
France - continuing activities (761) - -
- ------------------------------------------------------------------------------------------------------------------
(14,776) (60,707) 9,990
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating loss before impairment in France of pound sterling 4,829,000 is
stated after an exceptional charge of pound sterling 1,826,000 relating to the
restructuring of this operation as announced in December 1998. The restructuring
has commenced but is not without risk, and accordingly the Board continues to
carefully monitor these businesses to ensure appropriate actions are taken to
minimise losses and liabilities arising from this operation.
On 29 June 1999 it was announced that the French subsidiaries of Wace Group PLC,
Seven France SA, Seven France Holdings SA, Seven France Services SARL and
Photogravure du Sud Parisien SAS filed, or were in the process of filing for
judicial liquidation. The net liabilities as included in the consolidated
balance sheet at 31 December 1998, amounted to pound sterling 3m.
<PAGE> 12
<TABLE>
<CAPTION>
NET ASSETS 1998 1997
TOTAL Total
CAPITAL EMPLOYED pound pound
sterling000 sterling000
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
CONTINUING ACTIVITIES
United States of America 23,891 29,107
United Kingdom 7,222 6,765
France (3,002) 2,423
- --------------------------------------------------------------------------------------------------
28,111 38,295
ACQUIRED ACTIVITIES
Australia 1,549 -
DISCONTINUED ACTIVITIES
United States of America - (137)
United Kingdom and Eire 1,964 38,639
- --------------------------------------------------------------------------------------------------
31,624 76,797
Properties for resale 8,953 2,561
Vacant premises provision (1,313) (1,417)
Net cash/(borrowings) 8,354 (36,901)
- --------------------------------------------------------------------------------------------------
47,618 41,040
- --------------------------------------------------------------------------------------------------
</TABLE>
2. COST OF SALES AND OPERATING EXPENSES
<TABLE>
<CAPTION>
*restated
1998 1997
CONTINUING DISCONTINUED TOTAL Continuing Discontinued Total
pound pound pound pound pound pound
sterling000 sterling000 sterling000 sterling000 sterling000 sterling000
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COST OF SALES
Impairment of fixed assets 761 - 761 4,856 2,222 7,078
Other 80,956 49,887 130,843 78,129 130,945 209,074
- ----------------------------------------------------------------------------------------------------------------------------------
81,717 49,887 131,604 82,985 133,167 216,152
- ----------------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative expenses 25,970 10,503 36,473 19,934 16,167 36,101
Distribution costs 21,472 2,022 23,494 19,379 12,193 31,572
- ----------------------------------------------------------------------------------------------------------------------------------
47,442 12,525 59,967 39,313 28,360 67,673
Impairment of goodwill 7,178 - 7,178 45,750 - 45,750
- ----------------------------------------------------------------------------------------------------------------------------------
54,620 12,525 67,145 85,063 28,360 113,423
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
*restated
1996
CONTINUING DISCONTINUED Total
pound pound pound
sterling000 sterling000 sterling000
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
COST OF SALES
Impairment of fixed assets - - -
Other 97,442 126,434 223,876
- ---------------------------------------------------------------------------------
97,442 126,434 223,876
- ---------------------------------------------------------------------------------
OPERATING EXPENSES
Administrative expenses 20,726 35,982 56,708
Distribution costs 26,970 5,521 32,491
- ---------------------------------------------------------------------------------
47,696 41,503 89,199
Impairment of goodwill - - -
- ---------------------------------------------------------------------------------
47,696 41,503 89,199
- ---------------------------------------------------------------------------------
</TABLE>
3. IMPAIRMENTS
In the light of the trading performance in France in 1998, the Board has
reviewed the carrying value of the tangible fixed assets employed in these
operations and the goodwill associated with these businesses previously written
off to reserves. As a result of this review, the tangible fixed assets have been
written down by pound sterling 761,000 and pound sterling 7,178,000 of goodwill
written off through the profit and loss account. The write-off of goodwill has
no effect on the Group's net assets.
<PAGE> 13
In 1997 the Board decided that properties occupied by the Group should be
carried at their existing use valuations as determined by independent valuers.
The adoption of this basis resulted in an impairment of pound sterling
7,078,000. In 1997, following the termination of discussions with potential
purchasers of Wace USA Inc. and its trading performance in 1997, the directors
considered that goodwill of pound sterling 45,750,000 associated with these
businesses had been permanently impaired. This write-off had no effect on the
Group's net assets.
In preparing the 1998 accounts, the directors have restated the 1997
comparatives to show fixed asset impairments within cost of sales and the
impairment of goodwill as a charge in arriving at operating loss. These
restatements which do not effect the disclosed loss before tax in 1997, have
been made to present items on a consistent basis with 1998 and to comply with
the requirements of the new Financial Reporting Standard 11 relating to the
impairment of assets.
4. LOSSES ON DISCONTINUANCE OF ACTIVITIES
As discussed in the Statement to Shareholders, during the year the Group
completed the disposal of the majority of its printing operations. The loss on
discontinuance of activities arises as follows:
(i) the disposal of certain UK based specialist printing operations on 1
May 1998 for an aggregate consideration of pound sterling 52.7m, which
gave rise to a surplus on disposal, after provisions and costs, of
pound sterling 26.9m. After reinstating and charging goodwill
previously written off to reserves of pound sterling 25.7m the disposal
gave rise to a profit of pound sterling 1.2m. These businesses
contributed turnover of pound sterling 24.3m and generated an operating
profit of pound sterling 1.6m in the current year's results.
(ii) the disposal of the Group's USA based Memphis screen printing operation
for an aggregate consideration of pound sterling 0.1m, which gave rise
to a loss on disposal after provisions and costs, of pound sterling
1.2m. This business contributed turnover of pound sterling 3.9m and
gave rise to an operating loss of pound sterling 0.8m in the current
year's results.
(iii) the disposal of the Group's UK packaging print plant based in Hinckley
Leicestershire for an aggregate consideration of pound sterling 7.8m
and the disposal of assets at Maybole in Ayrshire for pound sterling
0.4m, which gave rise to a deficit on disposal after provisions and
costs of pound sterling 6.9m. After reinstating and charging goodwill
previously written off to reserves of pound sterling 18.4m, the
disposal gave rise to a loss of pound sterling 25.3m. This business
contributed turnover of pound sterling 20.4m and gave rise to an
operating loss of pound sterling 3.2m in the current year's results.
(iv) other losses on discontinuance relate to underprovisions against assets
made in respect of the discontinuance of certain of the Group's
printing operations in 1997, net of cash proceeds of pound sterling
0.4m, and amount to pound sterling 0.7m.
Net operating cash outflow from these businesses was pound sterling 4.0m and
capital expenditure was pound sterling 1.2m in the period to date of
discontinuance. Other cash flows were not material.
The results of these operations are shown as discontinued operations in the
Profit and Loss Account and in the segmental analyses in note 1.
<PAGE> 14
<TABLE>
<CAPTION>
1998 1997 1996
THE FINANCIAL EFFECTS OF THE DECISIONS TO
DISCONTINUE THE ACTIVITIES WERE AS FOLLOWS: pound pound pound
sterling000 sterling000 sterling000
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash consideration 53,079 9,924 -
Deferred consideration 1,500 2,474 -
Net overdraft/(cash) disposed of 1,474 (577) -
Debt disposed of 5,325 2,140 -
- ------------------------------------------------------------------------------------------------------------------
Net proceeds 61,378 13,961 -
- ------------------------------------------------------------------------------------------------------------------
Net assets disposed of or written down 37,674 11,571 2,642
Vacant premises provision 264 - 400
Costs of discontinuance 5,373 990 727
- ------------------------------------------------------------------------------------------------------------------
43,311 12,561 3,769
- ------------------------------------------------------------------------------------------------------------------
Profit/(loss) on discontinuance before goodwill 18,067 1,400 (3,769)
Goodwill previously written off to reserves (44,071) (11,927) (4,424)
- ------------------------------------------------------------------------------------------------------------------
Losses on discontinuance before taxation (26,004) (10,527) (8,193)
Taxation 919 666 1,511
- ------------------------------------------------------------------------------------------------------------------
Losses on discontinuance after taxation (25,085) (9,861) (6,682)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
pound pound pound
sterling000 sterling000 sterling000
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET CASH INFLOWS IN RESPECT OF THE
DISCONTINUANCES COMPRISED:
Cash consideration 53,079 9,924 -
Net overdrafts/(cash) disposed of 1,474 (577) -
- ------------------------------------------------------------------------------------------------------------------
Cash proceeds of disposal 54,553 9,347 -
Cost of discontinuance (4,186) (990) (318)
- ------------------------------------------------------------------------------------------------------------------
50,367 8,357 (318)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
5. NET FINANCE COSTS
<TABLE>
<CAPTION>
1998 1997 1996
pound pound pound
sterling000 sterling000 sterling000
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST PAYABLE ON
Bank borrowings 1,074 3,124 3,558
Finance leases 355 521 277
Other borrowings 39 293 79
- ----------------------------------------------------------------------------------------------------------------------
1,468 3,938 3,914
AMORTISATION OF DEBT ISSUE COSTS 116 98 125
INTEREST RECEIVABLE (666) (350) (202)
- ----------------------------------------------------------------------------------------------------------------------
918 3,686 3,837
COSTS OF RENEGOTIATING FACILITIES - 2,129 -
- ----------------------------------------------------------------------------------------------------------------------
918 5,815 3,837
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
6. LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1998 1997 1996
pound pound pound
sterling000 sterling000 sterling000
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
THE LOSS IS STATED AFTER CHARGING/(CREDITING)
Auditors' remuneration for audit services 200 352 277
Loss/(profit) on disposal of fixed assets 234 (913) (180)
Operating lease rentals
Land and buildings 3,505 5,721 5,090
Plant and equipment 1,813 3,564 4,557
Depreciation and impairments
Owned assets 9,829 14,016 15,565
Assets held under finance leases 629 2,042 1,428
Impairment of fixed assets 761 7,078 -
Amortisation of goodwill 55 - -
</TABLE>
Amounts paid to Arthur Andersen and their associates by the Company and its
United Kingdom subsidiaries in respect of non-audit services were pound
sterling 355,000 (1997 - pound sterling 913,000, 1996 - pound sterling 150,000).
<PAGE> 16
7. EMPLOYEES
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AVERAGE NUMBER OF EMPLOYEES BY ACTIVITY
Production 1,918 2,824 3,206
Administrative and management 434 540 604
Distribution and sales 375 586 607
- -----------------------------------------------------------------------------------------------------------
2,727 3,950 4,417
- -----------------------------------------------------------------------------------------------------------
ACTUAL NUMBER OF EMPLOYEES AT PERIOD END
Production 1,327 2,577 2,987
Administrative and management 357 440 600
Distribution and sales 245 581 582
- -----------------------------------------------------------------------------------------------------------
1,929 3,598 4,169
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EMPLOYMENT COSTS pound pound pound
sterling000 sterling000 sterling000
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wages and salaries 79,138 110,044 116,924
Social security costs 8,852 10,473 12,336
Other pension costs 2,303 2,510 3,015
- -----------------------------------------------------------------------------------------------------------
90,293 123,027 132,275
- -----------------------------------------------------------------------------------------------------------
</TABLE>
PENSIONS
The continuing Group operates a number of individual small pension schemes, all
of which are defined contribution schemes. In all cases the assets of the scheme
are held separately from those of the Group in independently administered funds.
In addition there are unfunded obligations in respect of arrangements in France
and provision is made as set out in note 21.
In the period up to 1 May 1998, the pension costs in respect of defined
contribution schemes are based on actuarial methods and assumptions designed to
ensure that regular pension cost represents a substantially level percentage of
the current and future pensionable payrolls. Post acquisition variations from
regular cost are spread over the remaining service lives of current employees in
the scheme. On 1 May 1998 all defined benefit schemes were disposed of as part
of the discontinuance of certain UK based specialist printing operations.
<PAGE> 17
8. DIRECTORS
EMOLUMENTS
The individual remuneration of the directors was:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
FEES BASIC BONUS TAXABLE
AS DIRECTORS SALARY BENEFITS TOTAL TOTAL TOTAL
pound pound pound pound pound pound pound
sterling sterling sterling sterling sterling sterling sterling
000 000 000 000 000 000 000
<S> <C> <C> <C> <C> <C> <C> <C>
CHAIRMAN
P M Brown 84 - 16 5 105 64 -
EXECUTIVE
D Ashley - 185 57 11 253 167 144
S R Puckett - 185 57 12 254 193 173
NON-EXECUTIVE
H V Reid *24 - - - 24 23 15
L L Haddon 18 - - - 18 8 -
FORMER DIRECTORS
T C Grice (resigned 31 March 1998) - 82 - 3 85 345 321
J F B Hunter (retired 1 June 1998) 8 - - 1 9 18 15
F H ten Bos (retired 20 May 1997) - - - - - 32 50
R M Brudzinski (resigned 1 July 1997) - - - - - 90 86
H W Laughland (retired 14 May 1996) - - - - - - 6
K E Todd (resigned 24 June 1996) - - - - - - 101
- ---------------------------------------------------------------------------------------------------------------------------
134 452 130 32 748 940 911
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
In addition T C Grice received pound sterling 300,000 as compensation for loss
of office.
In addition R M Brudzinski received pound sterling 173,000 as compensation for
loss of office.
In addition K E Todd received pound sterling 209,000 as compensation for loss of
office.
The basic salary for each executive director includes a provision to allow
individuals to contribute to personal pension arrangements.
* Includes an additional payment for H V Reid's Chairmanship of the Remuneration
and Audit committees.
<PAGE> 18
<TABLE>
<CAPTION>
INTERESTS IN THE COMPANY (ALL BENEFICIAL)
SHARE CAPITAL Ordinary Shares Preference Shares
- -----------------------------------------------------------------------------------------------------------
31 DECEMBER 1 January 31 DECEMBER 1 January
1998 1998 1998 1998
<S> <C> <C> <C> <C>
CHAIRMAN
P M Brown 500,000 375,000 - -
EXECUTIVE
D Ashley 21,111 21,111 - -
S R Puckett 28,000 28,000 4,000 4,000
T C Grice (resigned 31 March 1998) *204,622 204,622 - -
NON-EXECUTIVE
J F B Hunter (retired 1 June 1998) *25,400 25,400 - -
H V Reid 40,000 40,000 - -
L L Haddon 150,000 50,000 - -
</TABLE>
<TABLE>
<CAPTION>
SHARE OPTIONS OPTIONS UNDER ORDINARY SHARE OPTION SCHEMES
- ---------------------------------------------------------------------------------------------------------------------------------
31 DECEMBER Granted 1 January Exercise From To
1998 during 1998 price
the year
<S> <C> <C> <C> <C> <C> <C>
CHAIRMAN
P M Brown - - - - - -
EXECUTIVE
D Ashley 50,000 - 50,000 171.00p 8 Sep 1996 7 Sep 2003
50,000 - 50,000 243.00p 23 Mar 1997 22 Mar 2004
50,000 - 50,000 236.00p 31 May 1998 30 May 2005
50,000 - 50,000 140.00p 30 Sep 1999 29 Sep 2006
400,000 **400,000 - 37.00p 1 Jun 2001 31 May 2008
S R Puckett 7,724 - 7,724 384.81p 8 Jun 1992 7 Jun 1999
20,000 - 20,000 313.60p 9 Feb 1993 8 Feb 2000
70,000 - 70,000 165.83p 8 Jun 1995 7 Jun 2002
80,000 - 80,000 124.00p 2 Jun 1996 1 Jun 2003
75,000 - 75,000 243.00p 23 Mar 1997 22 Mar 2004
400,000 **400,000 - 37.00p 1 Jun 2001 31 May 2008
NON-EXECUTIVE
H V Reid - - - - - -
L L Haddon - - - - - -
</TABLE>
All options granted during the year were granted under the 1996 Wace Executive
Share Option Scheme, as amended and approved by resolution at the AGM on 1 June
1998. The middle market price of the Company's Ordinary Shares on 31 December
1998 was 54p per share and the range during the year was 16.5p to 54p. On 28
January 1999, the middle market price of the Company's Ordinary Shares reached
74p. There were no changes to the directors' beneficial interests shown above
from 1 January 1999 to 10 February 1999.
<PAGE> 19
*At date of resignation.
** These options, which were granted on 1 June 1998, are only exercisable if the
market price of the Ordinary Shares reaches 74p per share at any time between 1
June 1998 and the exercise date, or after 1 June 2004, 74p increased in each
year by two per cent above the then most recently published inflation figure
derived from the Retail Prices Index. As the market price of the Ordinary Shares
reached 74p on 28 January 1999 these options are now exercisable subject to the
normal rules of the Scheme.
On 1 June 1998, Peter Brown was granted phantom options over the equivalent of
300,000 Ordinary Shares under which he will be entitled to receive a cash
payment calculated as the difference between 37p and the middle market price of
an Ordinary Share on the date of exercise multiplied by the number of Ordinary
Shares over which the phantom options are deemed to be exercised. The phantom
options are only exercisable if the market price of the Ordinary Shares reaches
74p per share at any time between 1 June 1998 and the exercise date, or after 1
June 2004, 74p increased in each year by two per cent above the then most
recently published inflation figure derived from the Retail Prices Index. As the
market price of the Ordinary Shares reached 74p on 28 January 1999 these options
are now exercisable subject to the normal rules of the Scheme.
On 2 June 1993, Stephen Puckett was granted phantom options over the equivalent
of 70,000 Ordinary Shares under which he will be entitled to receive a cash
payment calculated as the difference between 124p and any higher middle market
price of an Ordinary Share on the date of exercise (subject to a maximum of
41.83p) multiplied by the number of Ordinary Shares over which the phantom
options are deemed to be exercised. The phantom options are exercisable at the
same time and on the same terms as the 80,000 share options granted to him with
an exercise price of 124p. The maximum sum payable in respect of the phantom
options is pound sterling 29,281.
9. TAX ON LOSS ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1998 1997 1996
pound sterling000 pound sterling000 pound sterling000
- -----------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM
<S> <C> <C> <C>
Corporation tax (credit)/charge @ 31.0% (1997 - 31.5%, 1996 - 33%)
on result for the year - (1,509) 2,726
Corporation tax prior year adjustment (567) 319 -
Transfer from deferred tax (see note 21) (840) (274) (2,292)
Advance corporation tax written off 659 2,709 -
- -----------------------------------------------------------------------------------------------------------------------------------
(748) 1,245 434
- -----------------------------------------------------------------------------------------------------------------------------------
OVERSEAS
Tax charges/(credits) on results for the year 453 (2,269) 442
Tax on disposal of freehold property - 1,450 -
Transfer to/(from) deferred tax (see note 21) 87 (766) 560
- -----------------------------------------------------------------------------------------------------------------------------------
540 (1,585) 1,002
- -----------------------------------------------------------------------------------------------------------------------------------
(208) (340) 1,436
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 20
10. DIVIDENDS
<TABLE>
<CAPTION>
1998 1997 1996
pound sterling 000 pound sterling 000 pence(net) pound sterling 000
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ORDINARY
Interim - - 1.85 1,466
Final - - 1.15 910
- ----------------------------------------------------------------------------------------------------------------------------------
- - 3.00 2,376
Preference (non-equity) (see note 22) 3,133 3,134 3,133
- ----------------------------------------------------------------------------------------------------------------------------------
3,133 3,134 5,509
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11. LOSS PER SHARE
The calculation of loss per share is based on the loss for the financial year of
pound sterling 41,490,000 (1997 - loss pound sterling 76,083,000, 1996 - loss
pound sterling 3,476,000) less preference dividends of pound sterling 3,133,000
(1997 - pound sterling 3,134,000, 1996 - pound sterling 3,133,000). The weighted
average number of shares for this purpose is 79,158,347 (1997 - 79,158,285, 1996
- - 79,076,168).
There was no dilutive potential arising either through the conversion of
Preference Shares or the exercise of Share Options during the year.
12. FIXED ASSETS - INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1998
Goodwill pound sterling000
- -------------------------------------------------------------------------------
COST
<S> <C>
Arising on acquisition Colour Imaging Group on 1 July 1998 2,162
Exchange differences (13)
- -------------------------------------------------------------------------------
At 31 December 1998 2,149
- -------------------------------------------------------------------------------
AMORTISATION
Amortisation in the year 55
At 31 December 1998 55
- -------------------------------------------------------------------------------
NET BOOK VALUE
At 31 December 1998 2,094
- -------------------------------------------------------------------------------
</TABLE>
<PAGE> 21
13. ACQUISITIONS
On 1 July 1998, the Group completed the acquisition of the trade, fixed assets
and certain liabilities of Colour Imaging Pty Limited and its associated company
Gardeed Pty Limited in Sydney, Australia. The acquisition has been accounted for
using acquisition accounting and the results for the six months post acquisition
period are separately identified in note 1.
The following table sets out the book value of the identifiable assets and
liabilities acquired. No fair value adjustments were considered necessary or
made to the identifiable assets and liabilities acquired.
<TABLE>
<CAPTION>
1998
pound sterling000
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS/LIABILITIES ACQUIRED
Tangible fixed assets 272
Stock 31
Finance lease obligations (150)
Provisions for liabilities and charges (205)
- -------------------------------------------------------------------------------------------------------------------------
Net liabilities acquired (52)
- -------------------------------------------------------------------------------------------------------------------------
PURCHASE CONSIDERATION
Initial consideration 742
Deferred consideration 1,336
Incidental costs of acquisition 32
- -------------------------------------------------------------------------------------------------------------------------
2,110
- -------------------------------------------------------------------------------------------------------------------------
GOODWILL ARISING (SEE NOTE 12) 2,162
- -------------------------------------------------------------------------------------------------------------------------
NET CASH OUTFLOW IN RESPECT OF THE ACQUISITION COMPRISED:
Initial consideration 742
Incidental costs of acquisition 32
- -------------------------------------------------------------------------------------------------------------------------
774
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
14. FIXED ASSETS - TANGIBLE ASSETS
<TABLE>
<CAPTION>
GROUP
- -------------------------------------------------------------------------------------------------------------------------------
Land and Plant, TOTAL
buildings equipment
and vehicles
pound sterling000 pound sterling000 pound sterling000
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COST OR VALUATION
At 1 January 1998 31,132 120,017 151,149
Additions 196 7,090 7,286
Acquisition of subsidiary - 967 967
Disposals (7,417) (66,898) (74,315)
Transferred to properties for resale (11,082) - (11,082)
Exchange differences (83) 68 (15)
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 12,746 61,244 73,990
- -------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF COST OR VALUATION
Cost 5,458 61,244 66,702
1990 valuation 1,465 - 1,465
1997 valuation 5,823 - 5,823
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 12,746 61,244 73,990
- -------------------------------------------------------------------------------------------------------------------------------
DEPRECIATION
At 1 January 1998 6,595 78,215 84,810
Depreciation 604 10,615 11,219
Acquisition of subsidiary - 695 695
Disposals (3,877) (44,231) (48,108)
Transferred to properties for resale (154) - (154)
Exchange differences (28) 95 67
- -------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 3,140 45,389 48,529
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF NET BOOK VALUE AT 31 DECEMBER 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
pound sterling000 pound sterling 000
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Freehold land 2,013 6,667
Freehold buildings 5,125 14,660
Short leasehold buildings 2,468 3,210
- --------------------------------------------------------------------------------------------------------------------------------
9,606 24,537
Owned plant, equipment and vehicles 13,710 36,662
Plant, equipment and vehicles held under finance leases 2,145 5,140
- --------------------------------------------------------------------------------------------------------------------------------
25,461 66,339
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain freehold properties occupied by the Group, were valued at their existing
use valuation as determined by Richard Ellis, Chartered Surveyors, as at 31
December 1997.
<PAGE> 23
The carrying amount of revalued land and buildings as determined according to
historical cost accounting rules is:
<TABLE>
<CAPTION>
1998 1997
pound sterling000 pound sterling000
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cost 18,418 38,331
Provision for permanent impairment (7,078) (7,078)
Depreciation (1,939) (7,997)
- ------------------------------------------------------------------------------------------------------------------------
Net book value 9,401 23,256
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Group at 31 December 1998 had capital commitments of pound
sterling 1,352,000 (1997 - pound sterling 4,519,000).
15. FIXED ASSETS - INVESTMENTS
GROUP
At 31 December 1998, the Group had a fixed asset investment of pound
sterling 75,000, being its 5% investment in Bezier Holdings Limited, purchaser
of the specialist printing businesses disposed of by the Group on 1 May 1998.
<TABLE>
<CAPTION>
COMPANY
Loans Shares TOTAL
to Group in Group
Companies Companies
pound sterling000 pound sterling000 pound sterling000
------------------ ------------------ ------------------
COST
<S> <C> <C> <C>
At 1 January 1998 22,487 254,812 277,299
Subsidiaries disposed of during the year - (75,621) (75,621)
Exchange differences (249) - (249)
- -----------------------------------------------------------------------------------------------------------------------
At 31 December 1998 22,238 179,191 201,429
- -----------------------------------------------------------------------------------------------------------------------
PROVISIONS
At 1 January 1998 - 95,822 95,822
Provided during the year - 26,840 26,840
Released during the year - (44,327) (44,327)
Subsidiaries disposed of during the year - (28,688) (28,688)
- -----------------------------------------------------------------------------------------------------------------------
At 31 December 1998 - 49,647 49,647
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
pound sterling000 pound sterling000
- --------------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NET BOOK VALUE AT 31 DECEMBER
<S> <C> <C>
Loans to Group Companies 22,238 22,487
Shares in Group Companies 129,544 158,990
151,782 181,477
Shares in unlisted companies stated at cost 75 -
- --------------------------------------------------------------------------------------------------------------------------
151,857 181,477
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The principal subsidiaries of the Group are as follows:
<TABLE>
<S> <C> <C> <C>
UNITED KINGDOM AUSTRALIA
Seven Worldwide PLC - Digital graphic imaging Seven Sydney Pty Limited - Digital graphic imaging
Wace UK Holdings Limited - Property investment
Gallions Estates Limited - Property trading FRANCE
Seven France SA. - Digital graphic imaging
UNITED STATES OF AMERICA
Seven Worldwide Inc. - Digital graphic imaging
</TABLE>
<PAGE> 24
16. STOCK
<TABLE>
<CAPTION>
GROUP COMPANY
- ------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
<S> <C> <C> <C> <C>
Raw materials 1,062 3,410 - -
Work in progress 2,620 7,912 - -
Finished goods - 2,524 - -
- ------------------------------------------------------------------------------------------------------------------------------
3,682 13,846 - -
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17. DEBTORS
<TABLE>
<CAPTION>
GROUP COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
AMOUNTS RECOVERABLE WITHIN ONE YEAR
<S> <C> <C> <C> <C>
Trade debtors 24,637 48,126 - -
Amounts due from subsidiary undertakings - - 86,824 43,725
Advance corporation tax - - - 14
Corporation tax recoverable 550 2,607 48 -
Pension prepayment 187 94 - -
Deferred consideration 491 1,292 - -
Other debtors, prepayments and accrued income 3,429 4,317 24 268
- ---------------------------------------------------------------------------------------------------------------------------------
29,294 56,436 86,896 44,007
- ---------------------------------------------------------------------------------------------------------------------------------
AMOUNTS RECOVERABLE AFTER ONE YEAR
Pension prepayment - 936 - -
Deferred consideration 2,060 990 - -
Other debtors 256 293 - -
- ---------------------------------------------------------------------------------------------------------------------------------
31,610 58,655 86,896 44,007
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other debtors include short term relocation assistance loans to one non-director
officer of the Group of pound sterling 33,500 (1997 - pound sterling 170,000).
18. CASH AT BANK AND IN HAND
Pursuant to an agreement dated 15 April 1998 for the sale of the UK specialist
printing businesses, an amount of pound sterling 3.3m was paid into escrow on 11
January 1999 pending the resolution of the contingent liability referred to in
note 21. The directors do not consider that placing these funds into escrow
reflects any change in the nature of that contingent liability.
<PAGE> 25
19. CREDITORS
<TABLE>
<CAPTION>
GROUP COMPANY
- --------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
AMOUNTS FALLING DUE WITHIN ONE YEAR
<S> <C> <C> <C> <C>
Trade creditors 7,000 24,396 - -
Bills of exchange 237 893 - -
Amounts owed to subsidiary undertakings - - 101,774 42,813
Corporation tax 1,025 1,735 - -
Other taxes and social security costs 2,756 6,130 - -
Deferred consideration payable 235 - - -
Pension accrual 286 290 - -
Other creditors, accruals and deferred income 13,835 22,890 72 710
Accrued preference dividend 1,303 1,303 1,303 1,303
- --------------------------------------------------------------------------------------------------------------------------------
26,677 57,637 103,149 44,826
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
GROUP COMPANY
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<S> <C> <C> <C> <C>
Amounts owed to subsidiary undertakings - - 69,405 71,487
Pension accrual 21 - - -
Deferred consideration payable 940 - - -
Other creditors 902 992 - -
- ----------------------------------------------------------------------------------------------------------------------------------
1,863 992 69,405 71,487
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
20. DEBT
<TABLE>
<CAPTION>
ANALYSIS OF DEBT FALLING DUE WITHIN ONE YEAR GROUP COMPANY
- ----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
<S> <C> <C> <C> <C>
Overdrafts - 1,254 515 4,722
Revolving credit facilities - 10,909 - 9,470
Senior loan notes - 11,703 - 11,703
Finance leases 658 1,577 - -
- ----------------------------------------------------------------------------------------------------------------------------------
658 25,443 515 25,895
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
ANALYSIS OF DEBT FALLING DUE AFTER MORE THAN ONE YEAR 1998
- --------------------------------------------------------------------------------------------------------------
Between Between Over TOTAL
1 & 2 years 2 & 5 years 5 years
pound sterling000 pound sterling000 pound sterling000 pound sterling000
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GROUP
Revolving credit facilities - - - -
Senior loan notes - - - -
Finance leases 865 899 - 1,764
- --------------------------------------------------------------------------------------------------------------
865 899 - 1,764
- --------------------------------------------------------------------------------------------------------------
COMPANY
Revolving credit facilities - - - -
Senior loan notes - - - -
- --------------------------------------------------------------------------------------------------------------
- - - -
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------------
Between Between Over Total
1 & 2 years 2 & 5 years 5 years
pound sterling000 pound sterling000 pound sterling000 pound sterling000
- ------------------------------------------------------------------------------------------------------------
GROUP
<S> <C> <C> <C> <C>
Revolving credit facilities 3,261 2,097 - 5,358
Senior loan notes 3,499 2,249 - 5,748
Finance leases 1,132 3,637 1,054 5,823
- -------------------------------------------------------------------------------------------------------------
7,892 7,983 1,054 16,929
- -------------------------------------------------------------------------------------------------------------
COMPANY
Revolving credit facilities 2,831 1,820 - 4,651
Senior loan notes 3,499 2,249 - 5,748
- -------------------------------------------------------------------------------------------------------------
6,330 4,069 - 10,399
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 26
21. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
GROUP COMPANY
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
pound sterling000 pound sterling000 pound sterling000 pound sterling000
DEFERRED TAXATION
<S> <C> <C> <C> <C>
Capital allowances (647) 2,577 - (6)
Other timing differences 828 (1,256) 213 472
- --------------------------------------------------------------------------------------------------------------------------------
181 1,321 213 466
- --------------------------------------------------------------------------------------------------------------------------------
OTHER PROVISIONS
Vacant premises 1,313 1,417 - -
Reorganisations 2,109 1,661 - -
Pensions and other 468 432 - -
- --------------------------------------------------------------------------------------------------------------------------------
4,071 4,831 213 466
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MOVEMENT ON PROVISIONS GROUP
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred Vacant Re- Pensions TOTAL
taxation premises organisations and other
pound sterling 000 pound sterling 000 pound sterling000 pound sterling000 pound sterling000
<S> <C> <C> <C> <C> <C>
At 1 January 1998 1,321 1,417 1,661 432 4,831
Relating to disposals (335) - - - (335)
Relating to acquisition - - - 205 205
Utilised during the year - (368) (1,494) (272) (2,134)
Charged in the year (753) 264 1,826 86 1,423
Taxation on exchange adjustment (77) - - - (77)
Exchange differences 25 - 116 17 158
- -----------------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 181 1,313 2,109 468 4,071
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
MOVEMENT ON PROVISIONS COMPANY
- -------------------------------------------------
Deferred
taxation
pound sterling000
<S> <C>
At 1 January 1998 466
Relating to disposals -
Relating to acquisition -
Utilised during the year -
Charged in the year (176)
Taxation on exchange adjustment (77)
Exchange differences -
- -------------------------------------------------
At 31 December 1998 213
- -------------------------------------------------
</TABLE>
There is no potential deferred tax liability not provided for. Revalued
properties are occupied by the Group in the course of its business. In the event
of disposal at their carrying values, no material liability to taxation is
expected to arise.
CONTINGENT LIABILITIES
TAXATION
The Group's liability to corporation tax for the year ended 31 December 1994 was
reduced by tax losses arising on properties transferred intra Group. The Inland
Revenue are challenging these losses. The directors are advised that the Group
should succeed in its argument and accordingly no provision has been made for
the tax or the interest thereon. In the event that the Inland Revenue were to be
successful the Group would have liabilities at 31 December 1998 of pound
sterling 5,389,000 for tax and pound sterling 1,276,000 for interest (see note
18).
<PAGE> 27
22. SHARE CAPITAL
<TABLE>
<CAPTION>
Preference
Shares in issue Ordinary Pound Sterling1 Deferred
20p shares shares 1p shares TOTAL
Number Number Number Pound Sterling000
------ --------------- --------- -----------------
AUTHORISED
<S> <C> <C> <C> <C>
At 1 January and 31 December 1998 115,025,881 61,909,407 8,541,680 85,000
- ---------------------------------------------------------------------------------------------------------------------
ALLOTTED, ISSUED AND FULLY PAID
At 1 January 1998 79,158,285 39,166,918 8,541,680 55,084
Savings related share option scheme 989 - - -
At 31 December 1998 79,159,274 39,166,918 8,541,680 55,084
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The Deferred Shares and Preference Shares are classified as non-equity
shareholders' funds. The Deferred Shares carry no right to participate in income
or capital and are redeemable at par at the Company's option. The Preference
Shares carry the right to a fixed cumulative preferential dividend of 8% net and
are convertible into Ordinary Shares at the rate of 28.5714 per 100 Preference
Shares held in each year up to 31 July 2005 when they shall otherwise be
redeemed at par. Any amount of unpaid cumulative preference dividend is carried
forward and becomes payable out of the profits of the Company on the next date
on which the cumulative preference dividend is payable, in priority to the
cumulative preference dividend payable on that date. The holders of the
Preference Shares are entitled to receive notice of and attend and speak at any
general meeting of the Company but are not entitled to vote upon any resolution
at any such meeting unless at the date of the notice or requisition to convene
the meeting any dividend on the convertible Preference Shares is six months or
more in arrears after the date fixed for payment thereof.
SHARE OPTIONS
At 31 December 1998, 317 employees, including 2 full time directors, were
members of the following share option schemes:
<TABLE>
<CAPTION>
EXECUTIVE SHARE OPTION SCHEMES SAVINGS RELATED SHARE OPTION SCHEMES
- --------------------------------------------------------------------------------------------------------------------
Number Exercise period Exercise Number Exercise period Exercise
of shares/ price per of shares/ price per
options From To share options From To share
<S> <C> <C> <C> <C> <C> <C> <C>
63,649 1 Jun 1992 16 Jun 1999 384.81p 3,364 1 Dec 1996 1 Jun 1999 214.00p
57,000 9 Feb 1993 8 Feb 2000 323.00p 285,292 1 Aug 1998 1 Feb 2001 92.00p
65,000 9 Feb 1993 8 Feb 2000 313.60p 18,637 1 Jul 1999 1 Jan 2002 189.00p
6,000 19 Sep 1994 18 Sep 2001 265.50p 20,465 1 Aug 2000 1 Feb 2003 189.00p
90,000 8 Jun 1995 7 Jun 2002 165.83p 131,198 1 Dec 1999 1 Jun 2004 115.00p
15,000 8 Jun 1995 7 Jun 2002 169.40p 741,800 1 Dec 2000 1 Jun 2005 30.00p
110,000 2 Jun 1996 1 Jun 2003 124.00p
50,000 8 Sep 1996 7 Sep 2003 171.00p
125,000 23 Mar 1997 22 Mar 2004 243.00p
100,000 28 Sep 1997 27 Sep 2004 242.33p
135,000 31 May 1998 30 May 2005 236.00p
195,000 30 Sep 1999 29 Sep 2006 140.00p
3,400,000 1 Jun 2001 31 May 2008 37.00p
350,000 6 Nov 2001 5 Nov 2008 26.00p
</TABLE>
The total consideration received by the Company in respect of shares issued
under share option schemes during the year amounted to pound sterling 297 (1997
- - pound sterling nil).
<PAGE> 28
23. RESERVES
<TABLE>
<CAPTION>
GROUP
Share Profit
premium Revaluation Merger and loss
account reserve reserve account
pound sterling000 pound sterling000 pound sterling000 pound sterling000
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
At 1 January 1998 6,986 1,281 4,849 (27,160)
Impairment of goodwill previously
written off (see note 3) - 7,178 -
Transfer of revaluation surplus - (1,076) - 1,076
Goodwill on business discontinued
previously written off (see note 4) - - 44,071 -
Retained loss for the year - - - (44,623)
Exchange adjustments arising on:
results for the year - - - (329)
net assets of overseas operations - - - (123)
hedging liabilities - - - 327
Taxation on exchange - - - 77
- ------------------------------------------------------------------------------------------------------------------------
At 31 December 1998 6,986 205 56,098 (70,755)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
COMPANY
- -----------------------------------------------------------------------------------------------------------------------
Share Profit
premium Merger and loss
account reserve account
pound sterling000 pound sterling000 pound sterling000
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
At 1 January 1998 6,986 3,275 10,069
Retained loss for the year - - (2,444)
Exchange adjustments arising on:
investments in overseas subsidiaries - - 384
hedging liabilities - - 327
Taxation on exchange - - 77
- -----------------------------------------------------------------------------------------------------------------------
At 31 December 1998 6,986 3,275 8,413
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
In accordance with the concession granted under Section 230 of the Companies Act
1985, the profit and loss account of Wace Group PLC has not been presented
separately within these accounts. Of the amount available for appropriation, a
profit of pound sterling 689,000 (1997 - loss pound sterling 85,829,000, 1996 -
loss pound sterling 5,703,000) has been dealt with in the accounts of the
Company.
<PAGE> 29
24. RECONCILIATION OF OPERATING LOSS TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
<TABLE>
<CAPTION>
*restated
1998 1997
TOTAL TOTAL
pound pound
sterling000 sterling000
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING LOSS ON ORDINARY ACTIVITIES (14,776) (60,707)
ADJUSTMENTS FOR NON CASH ITEMS
Amortisation of goodwill 55 -
Depreciation and impairment of fixed assets 11,219 23,136
Loss/(profit) on disposal of tangible fixed assets 234 (913)
Goodwill 7,178 45,750
Exchange gain - (104)
DECREASE/(INCREASE) IN WORKING CAPITAL
Stock 1,613 188
Debtors 4,405 5,391
Creditors (10,721) 1,797
OTHER MOVEMENTS
Properties for resale 1,291 6,605
Provisions (222) (2,741)
- ------------------------------------------------------------------------------------------------------------
Net cash inflow from ordinary activities 276 18,402
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* see note 3
25. MOVEMENTS IN NET DEBT
<TABLE>
<CAPTION>
As at Exchange Acquisitions AS AT
1 January (gains)/ and Other 31 DECEMBER
1998 Cash Flows losses disposals changes 1998
pound pound pound pound pound pound
sterling000 sterling000 sterling000 sterling000 sterling000 sterling000
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash at bank (5,471) (5,305) - - - (10,776)
Overdrafts 1,254 69 151 (1,474) - -
- --------------------------------------------------------------------------------------------------------------------------------
Net cash (4,217) (5,236) 151 (1,474) - (10,776)
- --------------------------------------------------------------------------------------------------------------------------------
Bank borrowings and senior
loan notes 33,718 (33,507) (327) - 116 -
Finance leases 7,400 (1,342) - (5,175) 1,539 2,422
- --------------------------------------------------------------------------------------------------------------------------------
Total gross debt/(funds) 41,118 (34,849) (327) (5,175) 1,655 2,422
- --------------------------------------------------------------------------------------------------------------------------------
Total net debt/(funds) 36,901 (40,085) (176) (6,649) 1,655 (8,354)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
26. RECONCILIATION OF MOVEMENT IN DEBT TO MOVEMENT IN CASH
<TABLE>
<CAPTION>
1998 1997
pound pound
sterling000 sterling000
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Increase in net cash in the year (6,710) (110)
Cash outflow from change in debt (34,849) (5,378)
Change in net debt resulting from cash flows (41,559) (5,488)
Debt acquired with subsidiaries 150 -
Debt disposed of with subsidiaries (5,325) (2,140)
New finance leases 1,539 2,090
Exchange differences (176) 918
Net finance costs amortised in the year 116 98
- --------------------------------------------------------------------------------------------------------
Movement in net debt (45,255) (4,522)
- --------------------------------------------------------------------------------------------------------
</TABLE>
27. OPERATING LEASE COMMITMENTS
<TABLE>
<CAPTION>
GROUP COMPANY
1998 1997 1998 1997
pound pound pound pound
sterling000 sterling000 sterling000 sterling000
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Annual commitments under operating leases
Land and buildings
Within 1 year 435 1,104 - -
Within 2 and 5 years 2,187 1,985 - -
After 5 years 2,141 1,897 - -
- --------------------------------------------------------------------------------------------------------------------------
4,763 4,986 - -
- --------------------------------------------------------------------------------------------------------------------------
Plant and equipment
Within 1 year 214 656 - -
Within 2 and 5 years 1,327 1,753 - -
After 5 years - 213 - -
- --------------------------------------------------------------------------------------------------------------------------
1,541 2,622 - -
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The annual committment in respect of operating leases of land and buildings
includes rentals of vacant premises in respect of which provision has been made
for future costs (see note 21).
<PAGE> 31
28. POST BALANCE SHEET EVENT
On 19 January 1999, the Group completed the disposal of the trade and assets of
Wace Corporate Print (WCP), a division of Wace Corporate Packaging PLC. In 1998
this business contributed turnover of pound sterling 11.2m (1997 - pound
sterling 10.0m) and generated an operating loss of pound sterling 0.4m (1997 -
loss pound sterling 0.8m). The results of this operation are shown as
discontinued in the Profit and Loss Account and in the segmental analyses in
note 1. The net assets of WCP as at 31 December 1998 were pound sterling 0.9m
after taking account of pound sterling 1.0m of finance leases which are being
assumed by the purchasers. The terms of the agreement for the disposal are as
follows:
The contract dated 19 January 1999 between Wace Corporate Packaging PLC (1), GAC
No. 137 Limited (2), Wace Corporate Print Limited (3), Wace Group PLC (4) and
GAC No. 138 Limited (5) whereby Wace Corporate Packaging PLC agreed to transfer
its corporate printing business at Swindon to GAC No. 137 Limited for
consideration of pound sterling 3.0m, of which pound sterling 800,000 is in
respect of an agreement not to compete, pound sterling 400,000 is in respect of
goodwill and pound sterling 1.8m is in respect of net assets. The consideration
is payable under the terms of a secured convertible loan agreement dated 19
January 1999 with pound sterling 112,000 repayable before 29 January 1999, a
further sum as required to reduce the outstanding amount of the loan to pound
sterling 1.143m before 19 July 1999 (whereupon the security is released) and a
further pound sterling 38,000 before 29 July 1999. The balance of the
consideration is repayable in six-monthly instalments beginning on 19 January
2000. On release of the security Wace Corporate Packaging PLC has an option to
convert pound sterling 50,100 of the loan into shares representing 25.06 per
cent. of the equity of GAC No. 137 Limited. In addition Wace Corporate Packaging
PLC may convert the amount of any overdue instalments under the loan agreement
into shares in GAC No. 137 Limited. Full conversion would result in Wace
Corporate Packaging PLC holding 50.06 per cent. of GAC No. 137 Limited's issued
shares.
29. SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
The consolidated financial statements have been prepared in accordance with UK
Generally Accepted Accounting Principles ("UK GAAP"), which differs in certain
significant respects from US Generally Accepted Accounting Principles ("US
GAAP"). A description of the significant differences between accounting
principles that are applicable to the Company is given below:
(A) GOODWILL AMORTISATION
In each of the fiscal years ended prior to 31 December 1997, UK GAAP required or
permitted purchased goodwill arising on consolidation to be set against equity
shareholders' funds. In 1998, under UK GAAP, positive goodwill arising on
aquisitions was capitalised and amortised over the shorter of its useful life
and 20 years. Under US GAAP, goodwill arising on consolidation is capitalised
and amortised over its expected useful life and charged against income. For the
purpose of quantifying the difference between UK GAAP and US GAAP, the expected
useful life of goodwill set against shareholders' funds for UK GAAP has been
assumed at 35 years.
(B) LOSSES ON DISCONTINUANCES OF ACTIVITIES
Under both UK GAAP and US GAAP, the loss on disposal of a discontinued operation
includes acquired goodwill relating to the discontinued operation to the extent
that goodwill has not been charged to the profit and loss account. Under UK GAAP
goodwill arising has been set against shareholders' funds whereas under US GAAP
goodwill arising has been amortised over its expected useful life and charged to
income. As a consequence the goodwill included as part of the loss on disposal
under US GAAP is lower than under UK GAAP, the difference representing the
amount of goodwill previously charged against income.
(C) REVALUATION OF CERTAIN FREEHOLD PROPERTIES
Under UK GAAP it has become increasingly common for enterprises to revalue their
fixed assets, in particular freehold and leasehold property, and to incorporate
these revalued amounts in their financial statements. Where it is an
enterprise's policy to include some or all of its fixed assets in the financial
statements at a revalued amount, the charge for depreciation on such assets is
based on the revalued amount and the remaining useful life.
(D) CASH FLOW STATEMENTS
The cash flow statements have been prepared in conformity with UK Financial
Reporting Standard 1 (Revised) Cash Flow Statements. The principal differences
between this statement and cash flow statements presented in accordance with US
Financial Accounting Standard 95 are as follows:
1. Under UK GAAP, net cash flow from operating activities is determined before
considering cash flows from (a) returns on investments and servicing of
finance and (b) taxes paid. Under US GAAP, net cash flow from operating
activities is determined after these items.
2. Under UK GAAP, capital expenditure is classified separately while under US
GAAP, it is classified as an investing activity.
<PAGE> 32
3. Under UK GAAP, dividends are classified separately while under US GAAP,
dividends are classified as financing activities.
(E) COMPREHENSIVE INCOME
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income, was issued in June 1997 and is effective for fiscal years beginning
after December 15, 1997. This statement requires that all items that are to be
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. In addition to the losses
attributable to ordinary shareholders shown below, the Comprehensive Statements
of Income includes exchange losses arising on consolidation of pound
sterling 125,000 and pound sterling 452,000 in the years ended 31 December 1998
and 1997 respectively. In addition pound sterling 168,000 was released from the
revaluation reserve in the year ended December 31, 1997
(F) COST OF RENEGOTIATING FACILITIES
In the fiscal year ended 31 December 1997, UK GAAP required the costs associated
with the renegotiation of the Group's principal banking facilities to be charged
against profits for the year then ended. Under US GAAP the costs should be
charged against profits over the term of the facility. In the event of early
redemption of the facility the balance of any finance costs should be charged
against profits at that date.
The Group's facilities were renegotiated on 17 December 1997 on a fully secured
basis through to 30 April 2000. The facilities were fully redeemed and cancelled
by the Group in the fiscal year ended 31 December 1998
EFFECTS ON NET EARNINGS OF DIFFERENCES BETWEEN US GAAP AND UK GAAP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 DECEMBER 98 31 DECEMBER 97
POUND POUND
STERLING'000 STERLING'000
<S> <C> <C>
Loss attributable to ordinary
shareholders in accordance with UK GAAP (41,490) (76,083)
US GAAP adjustments:
Goodwill amortisation (674) (2,138)
Losses on discontinuances of activities 9,268 2,164
Revaluation of certain freehold properties 15 27
Impairment of goodwill 1,641 10,848
Cost of renegotiating facilities (2,095) 2,095
======= =======
Net loss attributable to ordinary
shareholders in accordance with US GAAP (33,335) (63,087)
======= =======
Basic loss per ordinary share under US GAAP (46.1p) (83.7p)
Basic loss per ordinary share from continuing operations
under US GAAP (21.4p) (72.9p)
Diluted loss per ordinary share under US GAAP (46.1p) (83.7p)
Diluted loss per ordinary share from continuing operations
under US GAAP (21.4p) (72.9p)
</TABLE>
The weighted average number of shares for the calculation of loss per share is
79,158,347 (1997 - 79,158,285)
There was no dilutive potential arising either through the conversion of
preference shares or the exercise of share options during 1998 or 1997.
<PAGE> 33
CUMULATIVE EFFECT ON EQUITY SHAREHOLDERS' FUNDS OF DIFFERENCES BETWEEN US GAAP
AND UK GAAP
<TABLE>
<CAPTION>
AS AT AS AT
31 DECEMBER 98 31 DECEMBER 97
pound pound
sterling'000 sterling'000
<S> <C> <C>
Equity shareholders' funds in accordance
with UK GAAP 8,366 1,788
US GAAP adjustments:
Unamortised goodwill 17,289 58,302
Revaluation of certain freehold properties (205) (1,281)
Cost of renegotiating facilities - 2,095
------- -------
EQUITY SHAREHOLDERS' FUNDS IN ACCORDANCE WITH US GAAP 25,450 60,904
======= =======
</TABLE>
RECONCILIATION OF CASH FLOW STATEMENT OF DIFFERENCES BETWEEN US GAAP AND UK GAAP
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
31 DECEMBER 98 31 DECEMBER 97
pound pound
sterling'000 sterling'000
<S> <C> <C>
Net cash (outflow)/inflow from operating activities (8,070) 6,862
Net cash inflow/(outflow) from investing activities 49,629 (464)
Net cash outflow from financing activities (34,849) (6,288)
------- -------
Net increase in cash and cash equivalents
under US GAAP 6,710 110
======= =======
Net increase in cash and cash equivalents
under UK GAAP 6,710 110
======= =======
</TABLE>
<PAGE> 34
(ii) Unaudited interim financial statements of Wace.
WACE GROUP PLC
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
(In thousands of dollars, except per-share amounts)
<TABLE>
<CAPTION>
March 31,
1999
---------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,783
Trade accounts receivable (net of allowances of $2,767) 38,672
Inventory 7,208
Other current assets 28,294
---------
Total current assets 82,957
Property, plant, and equipment - net 37,836
Goodwill and other intangible assets (net of accumulated amortization
of $10,427) 31,177
---------
Total assets $ 151,970
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 36,230
Other current liabilities 536
---------
Total current liabilities 36,766
Other liabilities 11,118
---------
Total liabilities 47,884
---------
Preference shares ($1.61 par value, 61,909,407 shares authorized;
39,166,918 shares issued and outstanding) 63,365
---------
Commitments and contingencies
Stockholders' Equity:
Ordinary shares ($0.32 par value, 115,025,881 shares authorized;
79,334,700 shares issued and outstanding) 25,614
Additional paid-in capital 129,790
Retained deficit (114,683)
---------
Total stockholders' equity 40,721
---------
Total liabilities and stockholders' equity $ 151,970
=========
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 35
WACE GROUP PLC
CONSOLIDATED CONDENSED STATEMENTS OF OPERATiONS
(Unaudited)
(In thousands, except per-share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues $ 52,058 $ 50,832
Cost of revenues 35,164 34,390
-------- --------
Gross profit 16,894 16,442
-------- --------
Selling, general, and
administrative expenses 17,634 18,005
Amortization of intangibles 276 685
-------- --------
Total operating expenses 17,910 18,690
-------- --------
Operating loss (1,016) (2,248)
Interest expense (1,455)
Interest income 271
-------- --------
Loss before provision for
income taxes (745) (3,703)
Provision for income taxes (7)
-------- --------
Net loss (745) (3,696)
======== ========
Loss per ordinary share:
Basic $ (.03) $ (.06)
Diluted $ (.03) $ (.06)
Weighted average number of ordinary shares:
Basic 79,184 79,158
Diluted 79,184 79,158
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 36
WACE GROUP PLC
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
--------------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash used by operating activities (2,616) (9,405)
-------- --------
Cash flows from investing activities:
Property, plant, and equipment
expenditures (3,568) (3,460)
Other 77 422
-------- --------
Net cash used in investing activities (3,491) (3,038)
-------- --------
Cash flows from financing activities:
Dividends paid (2,560) (2,579)
Borrowings under revolving credit
facilities - net 8,739
Repayments of other borrowings (2,064)
Other (61) (500)
-------- --------
Net cash provided by (used in)
financing activities (2,621) 3,596
-------- --------
Net decrease in cash and cash equivalents (8,728) (8,847)
Effect of exchange rate changes on cash
and cash equivalents (418) (155)
Cash and cash equivalents at beginning
of period 17,929 9,002
-------- --------
Cash and cash equivalents at end of period $ 8,783 $ 0
======== ========
</TABLE>
See Notes to Interim Consolidated Financial Statements
<PAGE> 37
WACE GROUP PLC
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands of dollars)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed interim financial
statements of Wace Group Plc and its subsidiaries ("Wace") do not include all
information and footnotes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with United States
generally accepted accounting principles, and should therefore be read in
conjunction with the notes to consolidated financial statements contained in
Wace's 1998 audited financial statements included in this Form 8-K/A. In the
opinion of the management of Wace, all adjustments (consisting primarily of
normal recurring accruals) necessary for a fair presentation have been included
in the interim financial statements. The operating results of any quarter are
not necessarily indicative of results for any future period.
The financial statements of Wace have historically been prepared in
accordance with United Kingdom generally accepted accounting principles with the
United Kingdom pound sterling as the reporting currency. For purposes of these
unaudited interim financial statements, the historical Wace financial statements
have been adjusted to be presented using United States generally accepted
accounting principles and translated into United States dollars.
2. INVENTORY
The components of inventory at March 31, 1999 were as follows:
<TABLE>
<S> <C>
Finished Goods $ 27
Work-in-process 4,982
Raw materials 2,199
------
Total $7,208
======
</TABLE>
3. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest payments were $23 and $2,088 for the three months ended March 31,
1999 and 1998, respectively.
4. EARNINGS PER SHARE
Income available to ordinary shareholders was computed by adjusting net
income for the three month periods ended March 31, 1999 and 1998, for the
dividends accrued on the 8% Cumulative Convertible Redeemable Preference Shares
(the "Preference Shares"). The accrued dividends on the Preference Shares were
$1,280 and $1,289 for the periods ended March 31, 1999 and 1998, respectively.
5. SUBSEQUENT EVENTS
On March 25, 1999, Applied Graphics Technologies, Inc. ("AGT") tendered an
offer to purchase all of the outstanding ordinary shares of Wace for 90 pence
per share. AGT's offer was declared unconditional in all respects on May 21,
1999, and Wace came under AGT's control as of that date. In addition, on July 5,
1999, AGT made an offer to purchase all of the outstanding Preference Shares of
Wace in exchange for 10% Subordinated Notes due October 31, 2005, to be issued
by AGT. On June 29, 1999, Wace's French subsidiaries commenced judicial
liquidation proceedings to close their operations in France.
<PAGE> 38
(b) Pro forma financial information.
(i) Acquisition
APPLIED GRAPHICS TECHNOLOGIES, INC.
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The pro forma consolidated balance sheets as of March 31, 1999, are
presented as if the acquisition of Wace, which was consummated on May 21, 1999,
had occurred on March 31, 1999.
The pro forma consolidated statements of operations for the three months
ended March 31, 1999, and for the year ended December 31, 1998, are presented as
if the acquisition of Wace and the merger with Devon Group, Inc. ("Devon")
(collectively, the "business combinations"), which was consummated on May 27,
1998, had occurred on January 1, 1998.
The business combinations have been accounted for using the purchase method
of accounting. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values that are subject to further refinement,
including appraisals and other analyses, with appropriate recognition given to
the effect of current interest rates and income taxes. Management does not
expect that the final allocation of the purchase price for the business
combinations will differ materially from the preliminary allocations.
The pro forma consolidated financial information does not purport to
present the financial position or results of operations of the Company had the
transactions and events assumed therein occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future.
All amounts within the pro forma consolidated financial information are
stated in United States dollars. The pro forma financial information for the
year ended December 31, 1998, was derived from Wace's audited financial
statements, adjusted to be in conformity with United States generally accepted
accounting principles and translated into United States dollars. The pro forma
financial information is based on certain assumptions and adjustments described
in the Notes to Pro Forma Financial Information and should be read in
conjunction therewith and with the financial statements and related notes of the
Company included in its 1998 Annual Report on Form 10-K, the Company's quarterly
report on Form 10-Q for the quarterly period ended March 31, 1999, the audited
financial statements and related notes of Wace included herein as Item 7(a)(i),
the unaudited interim financial statements of Wace included herein as Item
7(a)(ii), and the financial statements and related notes of Devon previously
filed in the Company's Current Report on Form 8-K dated June 10, 1998, pursuant
to Regulation S-X Rule 3-05, "Financial Statements of Businesses Acquired or to
be Acquired."
<PAGE> 39
APPLIED GRAPHICS TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Historical Pro Forma Adjustments Consolidated
AGT Wace (A) (Wace) (AGT and Wace)
--------- --------- ----------- --------------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,343 $ 8,320 $ 14,663
Trade accounts receivable - net 82,650 36,168 118,818
Inventory 38,270 6,643 44,913
Other current assets 47,137 26,951 74,088
--------- --------- ---------
Total current assets 174,400 78,082 252,482
Property, plant, and equipment - net 83,849 36,209 120,058
Intangible assets - net 412,451 31,177 $ 88,863 (B) 532,491
Other assets 7,611 7,611
--------- --------- -------- ---------
TOTAL ASSETS $ 678,311 $ 145,468 $ 88,863 $ 912,642
========= ========= ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued expenses $ 51,339 $ 26,043 $ 77,382
Other current liabilities 21,383 536 21,919
--------- --------- ---------
Total current liabilities 72,722 26,579 99,301
Long-term debt 178,802 $133,269 (C) 375,436
63,365 (D)
Other liabilities 8,961 11,118 20,079
--------- --------- -------- ---------
Total liabilities 260,485 37,697 196,634 494,816
--------- --------- -------- ---------
Preference shares 63,365 (63,365)(D) 0
--------- -------- ---------
Stockholders' equity (R) 417,826 44,406 (44,406)(E) 417,826
--------- --------- -------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 678,311 $ 145,468 $ 88,863 $ 912,642
========= ========= ======== =========
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 40
APPLIED GRAPHICS TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Historical Pro Forma Adjustments Consolidated
AGT Wace (A) (Wace) (AGT and Wace)
---------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Revenues $ 112,034 $ 46,666 $ 158,700
Cost of revenues 74,523 31,456 105,979
--------- --------- ---------
Gross profit 37,511 15,210 52,721
--------- --------- ---------
Selling, general, and
administrative expenses 30,584 15,948 $ (1,225)(F) 45,307
Amortization of intangibles 2,948 276 635 (G) 3,859
--------- --------- ---------- ---------
Total operating expenses 33,532 16,224 (590) 49,166
--------- --------- ---------- ---------
Operating income 3,979 (1,014) 590 3,555
Interest expense (3,390) (2,665)(H) (7,639)
(1,584)(I)
Other income 161 276 437
--------- --------- ---------- ---------
Income (loss) before provision for
income taxes 750 (738) (3,659) (3,647)
Provision for income taxes 375 (1,149)(J) (774)
--------- --------- ---------- ---------
Net income (loss) from continuing operations $ 375 $ (738) $ (2,510) $ (2,873)
========= ========= ========== =========
Dividends $ 1,280 $ (1,280)(K) $ 0
========= ========== =========
Earnings (loss) per common share:
Basic $ 0.02 $ (0.13)
Diluted $ 0.02 $ (0.13)
Weighted average number of common shares:
Basic 22,395 22,395
Diluted 22,395 22,395
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 41
APPLIED GRAPHICS TECHNOLOGIES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Pro Forma Consolidated Pro Forma Consolidated
Historical Historical Adjustments (AGT and Pro Forma Adjustments (AGT,Devon
AGT Devon (Devon) Devon) Wace (A) (Wace) and Wace)
---------- ---------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 394,125 $ 89,153 $ 483,278 $ 183,760 $ 667,038
Cost of revenues 249,138 60,178 309,316 116,059 425,375
--------- ---------- --------- --------- ---------
Gross profit 144,987 28,975 173,962 67,701 241,663
--------- ---------- --------- --------- ---------
Selling, general, and
administrative expenses 97,650 21,214 118,864 70,074 188,938
Amortization of intangibles 7,268 $ 3,533 (L) 10,801 1,117 $ 2,539 (G) 14,457
Restructuring and non-recurring
charges 14,209 14,209 14,209
--------- ---------- ---------- --------- --------- ---------- ---------
Total operating expenses 119,127 21,214 3,533 143,874 71,191 2,539 217,604
--------- ---------- ---------- --------- --------- ---------- ---------
Operating income (loss) 25,860 7,761 (3,533) 30,088 (3,490) (2,539) 24,059
Interest expense (8,174) (68) (3,656)(M) (11,898) (2,577) (10,662)(H) (31,474)
(6,337)(I)
Other income (expense) 2,753 1,605 (1,619)(N) 2,739 1,076 3,815
--------- ---------- ---------- --------- --------- ---------- ---------
Income (loss) before
provision for income taxes 20,439 9,298 (8,808) 20,929 (4,991) (19,538) (3,600)
Provision for income taxes 12,263 3,282 (2,163)(O) 13,382 (15) (6,460)(J) 6,907
--------- ---------- ---------- --------- --------- ---------- ---------
Net income (loss) from
continuing operations $ 8,176 $ 6,016 $ (6,645) $ 7,547 $ (4,976) $ (13,078) $ (10,507)
========= ========== ========== ========= ========= ========== =========
Dividends $ 5,192 $ (5,192)(K) $ 0
========= ========== =========
Earnings (loss) per common share:
Basic $ 0.40 $ 0.34 $ (0.47)
Diluted $ 0.39 $ 0.33 $ (0.47)
Weighted average number of common
shares:
Basic 20,563 1,845 (P) 22,408 22,408
Diluted 21,225 1,845 (P) 23,070 (662)(Q) 22,408
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 42
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION
A. See Item 7(b)(ii) for Wace pro forma financial information reflecting the
disposition of Wace's operations in France.
B. Acquisition of Wace:
AGT acquired Wace for the following
consideration ($000's):
Amount paid for Wace shares
and options $118,269
Estimated transaction costs 15,000
--------
Total acquisition cost $133,269
Estimated fair value of net assets acquired 44,406
-------------
Excess of cost over fair value on net
assets acquired $ 88,863
=============
Total acquisition cost assumes that all outstanding Wace shares and
options were tendered at closing.
C. The Pro Forma Adjustment (Wace) reflects the borrowings under AGT's credit
facilities to finance the total acquisition cost (see Note B).
D. The Pro Forma Adjustment (Wace) reflects the exchange of all of Wace's 8%
Cumulative Convertible Redeemable Preference Shares (the "Preference
Shares") for 10% Subordinated Notes to be issued by AGT.
E. The Pro Forma Adjustment (Wace) reflects the elimination of stockholders'
equity of Wace.
F. The Pro Forma Adjustment (Wace) reflects the reversal of fees incurred by
Wace in connection with various takeover efforts.
G. The Pro Forma Adjustment (Wace) reflects the effects of the increase in
amortization expense due to the increase in goodwill resulting from the
acquisition of Wace. Goodwill related to the Wace acquisition is amortized
on a straight-line basis over the period to be benefited, which is
estimated to be 35 years.
H. The Pro Forma Adjustment (Wace) reflects the interest expense on the $133.3
million of borrowings under AGT's credit facilities at an interest rate of
8%, which is the estimated variable rate (see Note C). The effect on pro
forma interest expense assuming a 1/8% variance in the variable interest
rate would be $42,000 and $167,000 for the periods ended March 31, 1999
and December 31, 1998, respectively.
I. The Pro Forma Adjustment (Wace) reflects the interest expense on the $63.4
million of Subordinated Notes to be issued by AGT at a fixed interest rate
of 10% (see Note D).
<PAGE> 43
APPLIED GRAPHICS TECHNOLOGIES, INC.
NOTES TO PRO FORMA FINANCIAL INFORMATION - (CONTINUED)
J. The Pro Forma Adjustment (Wace) represents the tax benefits associated with
the increase in interest expense related to the borrowings to fund the
acquisition and the issuance of the 10% Subordinated Notes (see Note H and
Note I).
K. The Pro Forma Adjustment (Wace) reflects the elimination of dividends on
the Preference Shares that are to be exchanged for the 10% Subordinated
Notes (see Note D).
L. The Pro Forma Adjustment (Devon) reflects the effects of the increase in
amortization expense due to the increase in goodwill of $339.2 million
resulting from the merger with Devon. Goodwill related to the Devon merger
is amortized on a straight-line basis over the period to be benefited,
which is estimated to be 40 years.
M. The Pro Forma Adjustment (Devon) reflects interest expense on the $135
million of borrowings under AGT's credit facilities at an interest rate of
6.5%, which is the estimated variable rate in effect on the date of the
borrowing. Borrowings represent the amount necessary to partially finance
the purchase price. The effect on pro forma interest expense assuming a
1/8% variance in the variable interest rate would be $169,000.
N. The Pro Forma Adjustment (Devon) reflects the elimination of interest
income on marketable securities used to partially finance the purchase
price.
O. The Pro Forma Adjustment (Devon) represents the tax benefits associated
with the increase in interest expense and the elimination of interest
income related to financing the Devon merger (see Note M and Note N).
P. The Pro Forma Adjustment (Devon) represents the weighted average number of
shares related to the AGT common stock issued in connection with the Devon
merger. The stock issuance is considered outstanding as of the beginning of
the year for purposes of the pro forma per-share calculations.
Q. The Pro Forma Adjustment (Wace) reflects an adjustment for the antidilutive
effect of incremental shares related to options.
R. Stockholders' equity as of March 31, 1999 consists of the following
($000's):
<TABLE>
<CAPTION>
Pro Forma
Historical Consolidated
AGT (AGT and Wace)
----------- --------------
<S> <C> <C>
Preferred stock $ --- $ ---
Common stock 224 224
Additional paid-in-capital 385,519 385,519
Accumulated other comprehensive income (191) (191)
Retained earnings 32,274 32,274
----------- --------------
Total stockholders' equity $ 417,826 $ 417,826
=========== ==============
</TABLE>
<PAGE> 44
(ii) Disposition
WACE GROUP PLC
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The pro forma consolidated balance sheets as of March 31, 1999, are
presented as if the disposition of Wace's operations in France (the
"Disposition"), which occurred as part of the judicial liquidation proceedings
that commenced on June 29, 1999, had occurred on March 31, 1999.
The pro forma consolidated statements of operations for the three months
ended March 31, 1999, and for the year ended December 31, 1998, are presented as
if the Disposition had occurred on January 1, 1998.
The pro forma consolidated financial information does not purport to
present the financial position or results of operations of Wace had the
transaction and events assumed therein occurred on the dates specified, nor are
they necessarily indicative of the results of operations that may be achieved in
the future.
All amounts within the pro forma consolidated financial information are
stated in United States dollars. The pro forma financial information was derived
from Wace's historical financial statements, adjusted to be in conformity with
United States generally accepted accounting principles and translated into
United States dollars. The pro forma financial information is based on certain
assumptions and adjustments described in the Notes to Pro Forma Financial
Information and should be read in conjunction therewith and with the audited
financial statements and related notes of Wace included herein as Item 7(a)(i)
and the unaudited interim financial statements and related notes of Wace
included herein as Item 7(a)(ii).
<PAGE> 45
WACE GROUP PLC
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, 1999
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Elimination
of
Historical Historical Pro Forma
Wace France (Wace)
---------- ---------- ---------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 8,783 $ (463) $ 8,320
Trade accounts receivable - net 38,672 (2,504) 36,168
Inventory 7,208 (565) 6,643
Other current assets 28,294 (1,343) 26,951
-------- -------- --------
Total current assets 82,957 (4,875) 78,082
Property, plant, and equipment -
net 37,836 (1,627) 36,209
Intangible assets - net 31,177 31,177
-------- -------- --------
TOTAL ASSETS $151,970 $ (6,502) $145,468
======== ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Accounts payable and accrued
expenses $ 36,230 $(10,187) $ 26,043
Other current liabilities 536 536
-------- -------- --------
Total current liabilities 36,766 (10,187) 26,579
Other liabilities 11,118 11,118
-------- -------- --------
Total liabilities 47,884 (10,187) 37,697
-------- -------- --------
Preference shares 63,365 63,365
-------- --------
Stockholders' equity 40,721 3,685 44,406
-------- -------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $151,970 $ (6,502) $145,468
======== ======== ========
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 46
WACE GROUP PLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Elimination
of
Historical Historical Pro Forma
Wace France (Wace)
---------- ---------- ---------
<S> <C> <C> <C>
Revenues $ 52,058 (5,392) $ 46,666
Cost of revenues 35,164 (3,708) 31,456
-------- -------- --------
Gross profit 16,894 (1,684) 15,210
-------- -------- --------
Selling, general and administrative
expenses 17,634 (1,686) 15,948
Amortization of intangibles 276 276
-------- -------- --------
Total operating expenses 17,910 (1,686) 16,224
-------- -------- --------
Operating loss (1,016) 2 (1,014)
Other income (expense) 271 5 276
-------- -------- --------
Loss before provision for income
taxes (745) 7 (738)
Provision for income taxes
-------- -------- --------
Net loss from continuing operations $ (745) $ 7 $ (738)
======== ======== ========
Dividends $ 1,280 $ 1,280
======== ========
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 47
WACE GROUP PLC
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
Elimination
of
Historical Historical Pro Forma
Wace France (Wace)
---------- ---------- ---------
<S> <C> <C> <C>
Revenues $ 205,865 $ (22,105) $ 183,760
Cost of revenues 135,430 (19,371) 116,059
--------- --------- ---------
Gross profit 70,435 (2,734) 67,701
--------- --------- ---------
Selling, general, and administrative
expenses 82,089 (12,015) 70,074
Amortization of intangibles 1,117 1,117
Restructuring and non-recurring charges 9,176 (9,176)
--------- --------- ---------
Total operating expenses 92,382 (21,191) 71,191
--------- --------- ---------
Operating income (21,947) 18,457 (3,490)
Interest expense (2,625) 48 (2,577)
Other income (expense) 1,104 (28) 1,076
--------- --------- ---------
Loss before provision for income
taxes (23,468) 18,477 (4,991)
Provision for income taxes (108) 93 (15)
--------- --------- ---------
Net loss from continuing operations $ (23,360) $ 18,384 $ (4,976)
========= ========= =========
Dividends $ 5,192 $ 5,192
========= =========
</TABLE>
See Notes to Pro Forma Financial Information
<PAGE> 48
(c) Exhibits.
23. Consent of Arthur Andersen
<PAGE> 49
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 4, 1999 By: /s/ Louis Salamone, Jr.
-------------------------
Louis Salamone, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-25059 and No. 333-76073 of Applied Graphics Technologies, Inc. on Forms S-8
of our report dated August 4, 1999, relating to the financial statements of Wace
Group Plc appearing in this Form 8-K/A of Applied Graphics Technologies, Inc.,
filed on August 4, 1999.
/s/ Arthur Andersen
Arthur Andersen
Chartered Accountants
London
England
August 4, 1999
