<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 8-K/A
AMENDMENT NO. 1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
----------
Date of Report (Date of earliest event reported): MARCH 21, 2000
GETTY IMAGES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 000-23747 98-0177556
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
</TABLE>
701 NORTH 34TH STREET, SUITE 400, SEATTLE, WA 98103
(Address of principal executive offices) (Zip Code)
(206) 268-2000
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name or former address, if changed since last report)
<PAGE> 2
EXPLANATORY NOTE
This Amendment No. 1 to the Current Report on Form 8-K is being filed to
amend the Company's Form 8-K that was filed with the Securities and Exchange
Commission on March 2, 2000 (the "Report"). The purpose of this Amendment is to:
1) amend Item 2 to reflect the bifurcation of the acquisitions described below;
and 2) amend Item 7 to update and provide the required financial information and
exhibits relating to such acquisitions.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 21, 2000, we completed the acquisition of VCG Holdings LLC,
Definitive Stock, Inc., and Visual Communications Group Holdings Limited and
VCG Deutschland GmbH for $204.7 million and the assumption and payment of $18.7
million of debt. An additional $3.5 million of costs were incurred and included
in the purchase price. We executed two separate stock purchase agreements,
both of which are included as exhibits to this Amendment No. 1 on Form 8-K/A and
incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
<TABLE>
<CAPTION>
Visual Communications Group U.K. Page
----
<S> <C>
Report of the Auditors F-1
Statement of the Directors' Responsibilities F-2
Consolidated Profit and Loss Account for the Years Ended
December 31, 1999 and 1998 F-3
Balance Sheet for the Years Ended December 31, 1999
and 1998 F-4
Notes to the Accounts F-5
</TABLE>
<TABLE>
<CAPTION>
VCG Deutschland GmbH Page
----
<S> <C>
Report of the Auditors F-17
Profit and Loss Account of the Subsidiary for the
year ended December 31, 1999 F-18
Group Balance Sheet at December 31, 1999 F-19
Notes to the Accounts F-20
Summary of Significant Differences Between
UK GAAP and US GAAP F-25
</TABLE>
(b) Pro Forma Financial Information.
<TABLE>
<CAPTION>
Financial Information Page
----
<S> <C>
Introductory Note F-29
Unaudited Condensed Pro Forma Consolidated Income
Statement for the Year Ended December 31, 1999 F-30
Unaudited Condensed Pro Forma Consolidated Income
Statement for the Three Months Ended March 31, 2000 F-31
Notes to the Unaudited Pro Forma Consolidated Financial
Information F-32
</TABLE>
<PAGE> 3
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1(1) Stock Purchase Agreement, dated as of March 21, 2000,
among Getty Images, Getty Communications Limited, Visual
Communications Group B.V., United Business Information
B.V. and United News & Media Plc
2.2* Stock Purchase Agreement, dated as of March 21, 2000,
among Getty Images, Tony Stone Associates GmbH, United
Business Information B.V., Ludgate Holdings GmbH and
United News & Media Plc.
</TABLE>
------------------
* Filed herewith.
(1) Incorporated by reference from the Registrant's Quarterly Report
on Form 10-Q for the three months ended March 31, 2000.
7
<PAGE> 4
In this Form 8-K/A references to "Sterling" or "L" are to the lawful currency
of the United Kingdom, references to "German Deutsch Mark" or "DM" are to the
lawful currency of Germany, and references to "U.S. dollars" or "$" are to the
lawful currency of the United States.
<PAGE> 5
REPORT OF THE AUDITORS TO THE DIRECTORS
OF VISUAL COMMUNICATIONS GROUP B.V.
We have audited the financial statements on pages F-3 to F-16.
These financial statements have not been prepared under Section 266 of
the United Kingdom Companies Act 1985 and were prepared solely for the purposes
of management.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
You, as the directors, are responsible for preparing the financial
statements. As described on page F-2, this includes responsibility for preparing
the financial statements in accordance with applicable United Kingdom accounting
standards. Our responsibilities, as independent auditors, are established by
statute, the Auditing Practices Board and our profession's ethical guidance.
We report to you our opinion as to whether the financial statements give
a true and fair view. We also report to you if, in our opinion, the Company has
not kept proper accounting records, or if we have not received all the
information and explanations we require for our audit.
BASIS OF OPINION
We conducted our audit in accordance with United Kingdom Auditing
Standards issued by the Auditing Practices Board, which are substantially the
same as those followed in the United States of America. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate
to the Company's and Group's circumstances, consistently applied and adequately
disclosed.
We planned and performed our audit so as to obtain all the information
and explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements. In
accordance with our instructions, we were not required to audit the state of
affairs of the Company and the Group at 31 December 1998 and the profit of the
Group for the year then ended.
OPINION
In our opinion the financial statements give a true and fair view of the
state of affairs of the Company and the Group at 31 December 1999 and of the
loss of the Group for the year then ended. We express no opinion on the state of
affairs of the Company and the Group at 31 December 1998 or on the profit of the
Group for the year then ended.
PricewaterhouseCoopers
Chartered Accountants and Registered Auditors
London
9 February 2000
F-1
<PAGE> 6
VISUAL COMMUNICATIONS GROUP B.V.
STATEMENT OF THE DIRECTORS' RESPONSIBILITIES
The directors are required to prepare financial statements which give a
true and fair view of the state of affairs of the Company and Group as at the
end of the financial year and of the profit for the year to that date. In
preparing the financial statements the directors are required:
- to ensure that the Company keeps accounting records which disclose with
reasonable accuracy the financial position of the Company;
- to take such steps as are reasonably open to them to safeguard the assets
of the Company and Group and to prevent and detect fraud and other
irregularities;
- to apply suitable accounting policies in a consistent manner and
supported by reasonable and prudent judgements and estimates where
necessary; and
- to comply with all applicable accounting standards, except where any
departures from this requirement are explained in the notes to the
financial statements.
IMPACT OF THE YEAR 2000
The Year 2000 issue could result in electronic processing faults producing
a wide range of possible problems. The Company and the Group is exposed to the
risk of faults in its information systems and hardware, and to the problems that
suppliers and other third parties may also encounter. The Group has yet to
experience any problems arising from faults in its information systems and
hardware as a result of the Year 2000 changeover or from any suppliers or third
parties failing to manage the Year 2000 issue. The Group does however remain at
risk to potential Year 2000 problems.
Following a review of the computer systems then in place and an assessment
of the potential risks that the Group could face as a result of the Year 2000
issue, it implemented detailed plans to address Year 2000 compliance issues in
its information systems, hardware and business infrastructure.
Part of the Group's Year 2000 compliance effort is directed towards third
parties. In addition to contacting its hardware and software suppliers and its
most critical other suppliers about their compliance with the Year 2000 issue
and evaluating their answers, the Group has also sought to include Year 2000
warranty clauses in its supply contracts.
During 1998 and 1999, the Group developed detailed contingency plans to
address key areas of Year 2000 risks; failure of a supplier, failure of a
customer and failure of internal systems or hardware, and combined these with
business recovery procedures. As the Group does remain at risk to potential Year
2000 problems, these contingency and business recovery plans which were
finalised during 1999 remain in place.
During the year ended 31 December 1999 the Group spent L79,000 (1998:
L167,000) on the Year 2000 issue. This represents the incremental internal and
external costs of ensuring that systems were compliant, and includes L50,000
(1998: L79,000) of items of a capital nature. The directors believe that this
expenditure does not represent an enhancement of fixed assets, but merely
maintains their service potential. In 2000, the Group does not expect to spend
further material amounts on the Year 2000 issue.
F-2
<PAGE> 7
VISUAL COMMUNICATIONS GROUP B.V.
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 DECEMBER 1999
<TABLE>
<CAPTION>
1999 1998
NOTE L'000 L'000
---- ------- -------
<S> <C> <C> <C>
TURNOVER
Continuing operations....................................... 47,659 50,343
Acquisitions................................................ 197 --
------- -------
2 47,856 50,343
INTERCOMPANY MANAGEMENT CHARGES RECEIVABLE:
Continuing operations....................................... 1,103 639
Acquisitions................................................ -- --
------- -------
1,103 639
NET OPERATING COSTS:
Continuing operations....................................... (51,000) (45,176)
Acquisitions................................................ (893) --
------- -------
(51,893) (45,176)
OPERATING (LOSS)/PROFIT:
Continuing operations....................................... (2,238) 5,806
Acquisitions................................................ (696) --
------- -------
TOTAL OPERATING (LOSS)/PROFIT............................... 3 (2,934) 5,806
Net interest (payable)/receivable........................... 5 (296) 230
------- -------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION........ (3,230) 6,036
Tax on (loss)/profit on ordinary activities................. 6 (713) (2,415)
------- -------
(LOSS)/PROFIT FOR THE FINANCIAL YEAR........................ (3,943) 3,621
Equity dividends............................................ (3,442) --
------- -------
RETAINED (LOSS)/PROFIT FOR THE FINANCIAL YEAR............... (7,385) 3,621
======= =======
</TABLE>
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
------- -------
<S> <C> <C> <C>
(Loss)/profit for the year.................................. (3,943) 3,621
Exchange translation differences............................ 417 --
Total recognised gains and losses for the year.............. (3,526) 3,621
======= =======
</TABLE>
There is no difference between the loss on ordinary activities before
taxation and the retained loss for the year above, and the historical cost
equivalents.
The financial statements on pages F-3 to F-16 were approved by the board of
directors on 9 February 2000 and were signed on its behalf by:
Michael Wolfson
Director
F-3
<PAGE> 8
VISUAL COMMUNICATIONS GROUP B.V.
BALANCE SHEET AT 31 DECEMBER 1999
<TABLE>
<CAPTION>
GROUP COMPANY
------------------- ---------------
1999 1998 1999 1998
NOTE L'000 L'000 L'000 L'000
---- -------- ------- ------ -----
<S> <C> <C> <C> <C> <C>
FIXED ASSETS
Intangible assets.............................. 7 6,646 -- -- --
Tangible assets................................ 8 2,993 3,393 -- --
Investments.................................... 9 -- -- 6,854 --
-------- ------- ------ --
9,639 3,393 6,854 --
CURRENT ASSETS
Stocks -- raw materials and consumables........ 274 51 -- --
Debtors........................................ 10 31,167 35,143 132 --
Cash at bank and in hand....................... 1,931 1,416 6 12
-------- ------- ------ --
33,372 36,610 138 12
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE
YEAR......................................... 11 (32,869) (25,730) (3,927) (7)
-------- ------- ------ --
NET CURRENT ASSETS/(LIABILITIES)............... 503 10,880 (3,789) 5
-------- ------- ------ --
TOTAL ASSETS LESS CURRENT LIABILITIES.......... 10,142 14,273 3,065 5
CREDITORS: AMOUNTS FALLING DUE AFTER ONE
YEAR......................................... (77) (125) -- --
PROVISION FOR LIABILITIES AND CHARGES.......... 13 -- (163) -- --
-------- ------- ------ --
NET ASSETS..................................... 10,065 13,985 3,065 5
======== ======= ====== ==
CAPITAL AND RESERVES
Called-up share capital........................ 14 13 12 13 12
Share premium account.......................... 15 3,047 -- 3,047 --
Other reserves................................. 15 110,523 110,523 -- --
Profit and loss account........................ 16 (103,518) (96,550) 5 (7)
-------- ------- ------ --
EQUITY SHAREHOLDERS' FUNDS..................... 10,065 13,985 3,065 5
======== ======= ====== ==
</TABLE>
F-4
<PAGE> 9
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999
1. ACCOUNTING POLICIES
(a) BASIS OF PREPARATION
These financial statements are not prepared under Section 266 of the
Companies Act 1985. The financial statements have been prepared on the
historical cost basis, solely for the purposes of management.
(b) CONSOLIDATION
On 14 June 1999, the Company acquired a number of United News and Media plc
group companies by way of a group reconstruction, principally VCG Holdings LLC,
Visual Communications Group Holdings Limited, Pix SA, Colorific Photo Library
Limited, Planet Earth Pictures Limited, Visual Communications Group Limited and
FPG International LLC. The group accounts consolidate the accounts of the
Company and these subsidiaries made up to 31 December each year, using the
merger method of accounting. The results of companies acquired during the year
are included from the date of acquisition under the acquisition method. As a
consolidated profit and loss account is published, a separate profit and loss
account of the parent company is omitted from group accounts.
(c) TURNOVER
The Group generates revenue from the sale of catalogues and from the
inclusion in its catalogues of images owned by third parties. Such third parties
pay for space in the catalogue for their own images for a fixed sum per image.
This income is collected by the Group by deduction from the proceeds received by
the Group in respect of the sales of such images.
Income arising from catalogue sales and space sales is recognised in full
when 50% or more of the relevant catalogue or groups of catalogues have been
printed and despatched to agents or related entities for onward despatch to
agents. The directors are satisfied that such amounts are due upon despatch of
50% or more of the relevant catalogue or groups of catalogues and the previous
experience shows that such amounts are ultimately collectible within two years
of the despatch of the catalogue or groups of catalogues.
The amounts recognised as income under this accounting policy have been as
follows:
<TABLE>
<CAPTION>
YEARS ENDED 31 DECEMBER L'000
----------------------- -----
<S> <C>
1999........................................................ 1,772
1998........................................................ 4,271
1997........................................................ 2,657
-----
</TABLE>
(d) TANGIBLE FIXED ASSETS AND DEPRECIATION
Tangible fixed assets are written off by equal number instalments over the
following estimated useful lives:
<TABLE>
<S> <C>
Building services and furniture....................... 4 years
Short leasehold land and buildings.................... Term of lease
Plant and equipment................................... 3-5 years
Motor vehicles........................................ 4 years
Computer equipment.................................... 3 years
</TABLE>
F-5
<PAGE> 10
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
(e) FINANCE AND OPERATING LEASES
Leasing arrangements which transfer to the Group substantially all the
benefits and risks of ownership of an asset are treated as if the asset was
purchased outright. These assets are included in fixed assets and the capital
element of the leasing commitments is shown as obligations under finance leases.
The lease rentals are treated as consisting of capital and interest elements.
The capital element is applied to reduce the outstanding obligations and the
interest element is charged against the profit in proportion to the reducing
capital element outstanding. Assets held under finance leases are depreciated
over the shorter of the lease terms and the useful lives of equivalent owned
assets. All other leases are operating leases and the operating rentals are
charged to the profit and loss account as they arise.
(f) STOCKS
Stocks are valued at the lower of cost and net realisable value.
(g) DEFERRED TAXATION
Deferred taxation represents corporation tax, calculated on the liability
basis, deferred by accelerated capital allowances and other timing differences,
except to the extent that the liabilities are regarded as unlikely to
crystallise in the foreseeable future. No provision is made for taxation which
might arise on the disposal of fixed assets at the amount of the valuations
incorporated in the financial statements.
(h) FOREIGN CURRENCY
Transactions in foreign currencies are recorded at the rate of exchange
ruling at the date of the transaction. Profits and losses of subsidiaries which
have currencies of operation other than sterling are translated into sterling at
average rates of exchange. Assets and liabilities denominated in foreign
currencies are translated at the year end exchange rates.
Exchange differences arising from the retranslation of the opening net
assets of subsidiaries which have currencies of operation other than sterling
and any related loans are taken to reserves together with the difference arising
when the profit and loss accounts are translated at average rates and compared
with rates ruling at the year end. Other exchange differences are taken to the
profit and loss account.
(i) INTANGIBLE ASSETS AND GOODWILL
Following the introduction of FRS 10, the Group changed its accounting
policy for goodwill and intangible assets. Intangible assets, which comprise
goodwill arising from acquisitions and acquired website addresses, are stated at
cost less amortisation.
Goodwill arising on all acquisitions prior to 1 January 1998 remains
eliminated against reserves. This goodwill will be charged in the profit and
loss account on subsequent disposal of the business to which it relates.
Purchased goodwill arising on acquisitions after 1 January 1998 is treated as an
asset on the balance sheet.
Goodwill and intangible assets are amortised over their estimated useful
economic lives based on a review of the nature of the asset acquired, which is
considered to be 10 years for goodwill and 2 years for the website addresses. A
full year of amortisation is provided on goodwill in the year of acquisition.
F-6
<PAGE> 11
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
(j) CASH FLOW STATEMENT
More than 90% of the voting rights of the Company are controlled by United
News and Media plc and the Company is included in the consolidated financial
statements of United News and Media plc, which are publicly available.
Consequently, the Company has taken advantage of the exemption from preparing a
cash flow statement under the terms of Financial Reporting Standard 1 (revised).
2. TURNOVER
The turnover is wholly attributable to the group's principal activity of
image licensing.
ANALYSIS OF TURNOVER BY DESTINATION
<TABLE>
<CAPTION>
1999 1999 1999
CONTINUING OPERATIONS ACQUISITIONS TOTAL
--------------------- ------------ ------
<S> <C> <C> <C>
United group*.................................... 2,510 -- 2,510
United Kingdom................................... 9,430 -- 9,430
North America.................................... 21,477 197 21,674
Europe and Middle East........................... 11,186 -- 11,186
Pacific Region................................... 3,056 -- 3,056
------ --- ------
47,659 197 47,856
------ --- ------
</TABLE>
* This comprises sales to United News and Media plc and its subsidiary
companies.
<TABLE>
<CAPTION>
1998 1998 1998
CONTINUING OPERATIONS ACQUISITIONS TOTAL
--------------------- ------------ ------
<S> <C> <C> <C>
United group*.................................... 2,507 -- 2,507
United Kingdom................................... 12,172 -- 12,172
North America.................................... 23,212 -- 23,212
Europe and Middle East........................... 9,841 -- 9,841
Pacific Region................................... 2,611 -- 2,611
------ -- ------
50,343 -- 50,343
------ -- ------
</TABLE>
* This comprises sales to United News and Media plc and its subsidiary
companies.
F-7
<PAGE> 12
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
3. OPERATING (LOSS)/PROFIT
Operating (loss)/profit is stated after charging:
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
------ ------
<S> <C> <C>
CONTINUING OPERATIONS
Employment costs (note 4)................................... 12,805 11,099
Depreciation of owned assets................................ 1,403 1,294
Depreciation of assets held under finance leases and hire
purchase contracts........................................ -- 96
Amortisation of intangible fixed assets..................... 740 --
------ ------
OPERATING LEASE CHARGES
-- land and buildings..................................... 607 821
-- hire of plant and machinery............................ 4 --
------ ------
611 821
AUDITORS' REMUNERATION
-- as auditors............................................ 67 64
------ ------
</TABLE>
4. EMPLOYEES AND DIRECTORS
(a) EMPLOYEE INFORMATION
The average monthly number of persons (including Executive Directors)
employed by the group during the year was:
<TABLE>
<CAPTION>
1999 1998
NUMBER NUMBER
------ ------
<S> <C> <C>
United Kingdom.............................................. 207 183
North America............................................... 232 213
Europe and Middle East...................................... 72 73
------ ------
511 469
------ ------
</TABLE>
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
------ ------
<S> <C> <C>
Employment costs for the above persons were:
Wages and salaries.......................................... 10,787 9,138
Social Security costs....................................... 1,765 1,636
Other pension costs......................................... 203 184
Redundancy and severance pay................................ 50 141
------ ------
12,805 11,099
------ ------
</TABLE>
(b) DIRECTORS' EMOLUMENTS
The emoluments of the Company's directors were not paid by the Group during
the years ended 31 December 1998 and 1999 and no recharge has been made to the
Company.
F-8
<PAGE> 13
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
5. NET INTEREST RECEIVABLE/(PAYABLE)
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
----- -----
<S> <C> <C>
Interest receivable:
-- from third parties....................................... 88 301
-- from group undertakings.................................. 217 --
Interest payable:
-- on bank loans and overdrafts............................. (86) (31)
-- on finance leases........................................ (7) (39)
-- to group undertakings.................................... (508) (1)
---- ---
(296) 230
---- ---
</TABLE>
6. TAX CREDIT/(CHARGE) ON PROFIT ON ORDINARY ACTIVITIES
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
----- ------
<S> <C> <C>
UK Corporation tax at 30.25% (1998: 31%)
Current................................................... (468) (2,030)
Deferred.................................................. 207 (158)
Overseas corporate tax...................................... (144) (211)
Overseas deferred tax....................................... (44)
Over provision in respect of prior years -- current......... (264) (16)
---- ------
(713) (2,415)
---- ------
</TABLE>
7. INTANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
OTHER TOTAL
GOODWILL INTANGIBLE ASSETS INTANGIBLE ASSETS
GROUP L'000 L'000 L'000
----- -------- ----------------- -----------------
<S> <C> <C> <C>
COST
At 1 January 1999............................ -- -- --
Additions.................................... 7,360 42 7,402
Exchange adjustments......................... (16) -- (16)
----- --- -----
At 31 December 1999.......................... 7,344 42 7,386
----- --- -----
AGGREGATE AMORTISATION
At 1 January 1999............................ -- -- --
Charge for the year.......................... (733) (7) (740)
----- --- -----
At 31 December 1999.......................... (733) (7) (740)
----- --- -----
NET BOOK AMOUNT AT 31 DECEMBER 1999.......... 6,611 35 6,646
----- --- -----
Net book amount at 31 December 1998.......... -- -- --
----- --- -----
</TABLE>
Other intangible assets consist of website addresses.
F-9
<PAGE> 14
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
8. TANGIBLE FIXED ASSETS
<TABLE>
<CAPTION>
SHORT
LEASEHOLD PLANT
LAND AND EQUIPMENT
BUILDINGS AND VEHICLES TOTAL
GROUP L'000 L'000 L'000
----- --------- ------------ ------
<S> <C> <C> <C>
COST
At 1 January 1999........................................ 1,787 5,701 7,488
Exchange adjustments..................................... 30 25 55
Additions................................................ 145 837 982
Disposals................................................ -- (160) (160)
----- ------ ------
AT 31 DECEMBER 1999...................................... 1,962 6,403 8,365
----- ------ ------
DEPRECIATION
At 1 January 1999........................................ (484) (3,575) (4,059)
Exchange adjustments..................................... (9) (24) (33)
Charge for period........................................ (199) (1,204) (1,403)
Disposals................................................ -- 123 123
----- ------ ------
AT 31 DECEMBER 1999...................................... (692) (4,680) (5,372)
----- ------ ------
NET BOOK VALUE AT 31 DECEMBER 1999....................... 1,270 1,723 2,993
----- ------ ------
Net book value at 31 December 1998....................... 1,303 2,090 3,393
----- ------ ------
</TABLE>
The net book value of tangible fixed assets includes an amount of Lnil
(1998: L101,000) in respect of assets held under finance leases.
9. INVESTMENTS
<TABLE>
<CAPTION>
1999 1998
COMPANY L'000 L'000
------- ----- -----
<S> <C> <C>
Interest in subsidiary undertakings -- shares:
COST
At 1 January 1999........................................... -- --
Additions................................................... 6,854 --
----- -----
AT 31 DECEMBER 1999......................................... 6,854 --
----- -----
</TABLE>
F-10
<PAGE> 15
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
At 31 December 1999 the Company wholly owned directly Definitive Stock LLC,
VCG Holdings LLC and Visual Communications Group Holdings Limited and indirectly
wholly owned the remaining following principal subsidiary undertakings which are
included in the consolidation:
<TABLE>
<CAPTION>
CLASS OF
COUNTRY OF INCORPORATION SHARES
PRINCIPAL SUBSIDIARIES AND OPERATION HELD AND % ACTIVITY
---------------------- ------------------------ ------------- ---------------
<S> <C> <C> <C>
Pix SA France 100% ordinary Image licensing
Colorific Photo Library Limited England & Wales 100% ordinary Image licensing
Planet Earth Pictures Limited England & Wales 100% ordinary Image licensing
Definitive Stock LLC United States of America 100% ordinary Image licensing
Visual Communications Group Limited England & Wales 100% ordinary Image licensing
FPG International LLC United States of America 100% ordinary Image licensing
iSwoop International Limited Ireland 100% ordinary Image licensing
iSwoop Limited Ireland 100% ordinary Image licensing
</TABLE>
In the opinion of the directors the aggregate value of the Company's
interest in its subsidiary undertakings is not less than the amount stated in
the balance sheet. All shares carry equal voting rights.
10. DEBTORS
<TABLE>
<CAPTION>
GROUP GROUP COMPANY COMPANY
1999 1998 1999 1998
L'000 L'000 L'000 L'000
------ ------ ------- -------
<S> <C> <C> <C> <C>
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors....................................... 8,699 9,798 -- --
Amounts owed by subsidiary undertakings............. -- -- 74 --
Amounts owed by fellow subsidiaries of United News
and Media plc (excluding the Company's own
subsidiaries)..................................... 6,568 8,520 58 --
Other debtors....................................... 6,128 5,321 -- --
Prepayments and accrued income...................... 9,088 11,504 -- --
Corporation tax receivable.......................... 684 -- -- --
------ ------ --- ---
31,167 35,143 132 --
------ ------ --- ---
</TABLE>
F-11
<PAGE> 16
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
11. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
GROUP GROUP COMPANY COMPANY
1999 1998 1999 1998
L'000 L'000 L'000 L'000
------ ------ ------- -------
<S> <C> <C> <C> <C>
Unsecured bank overdrafts........................... 1,150 477 -- --
Trade creditors..................................... 7,118 7,297 -- --
Lease obligations................................... 6 195 -- --
Amounts owed to subsidiary undertakings............. -- -- 3,879 --
Amounts owed to subsidiaries of United News and
Media plc (excluding the Company's own
subsidiaries)..................................... 20,531 13,200 32 7
Other creditors..................................... 461 213 -- --
Corporation tax..................................... -- 1,492 16 --
Other taxes and social security..................... 579 409 -- --
Accruals and deferred income........................ 3,024 2,447 -- --
------ ------ ----- --
32,869 25,730 3,927 7
------ ------ ----- --
Creditors: amounts falling due after one year....... 77 125 -- --
------ ------ ----- --
</TABLE>
12. NET OBLIGATIONS UNDER FINANCE LEASES
<TABLE>
<CAPTION>
1999 1998
GROUP L'000 L'000
----- ----- -----
<S> <C> <C>
Gross lease rentals outstanding............................. 6 241
Less: finance charges outstanding........................... - (46)
NET OBLIGATIONS............................................. 6 195
-- ---
Payable as follows:
Due within one year......................................... 6 189
Due between one and two years............................... - 6
-- ---
</TABLE>
13. PROVISION FOR LIABILITIES AND CHARGES
The movement on the provision for deferred taxation is as follows:
<TABLE>
<CAPTION>
DEFERRED
TAXATION
L'000
--------
<S> <C>
At 1 January 1999........................................... (163)
Released during the year.................................... 163
----
AT 31 DECEMBER 1999......................................... --
----
</TABLE>
F-12
<PAGE> 17
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
DEFERRED TAXATION
<TABLE>
<CAPTION>
GROUP GROUP COMPANY COMPANY
1999 1998 1999 1998
L'000 L'000 L'000 L'000
----- ----- ------- -------
<S> <C> <C> <C> <C>
Provision for deferred taxation comprises:
Accelerated capital allowances.................. -- 81 -- --
Other........................................... -- (244) -- --
-- ---- -- --
-- (163) -- --
-- ---- -- --
</TABLE>
The Group has an unprovided deferred tax asset of L249,000 relating to
accelerated capital allowances at 31 December 1999. The Company does not have
unprovided deferred tax at December 1999.
14. CALLED UP SHARE CAPITAL
<TABLE>
<CAPTION>
1999 1998
GROUP AND COMPANY L'000 L'000
----------------- ----- -----
<S> <C> <C>
AUTHORISED
20,000,000 (1998: 200) ordinary shares of 0.01 (1998: 1,000)
Dutch Guilders each....................................... 56 56
ALLOTTED, CALLED UP AND FULLY PAID
4,689,933 (1998: 40) ordinary shares of 0.01 (1998: 1,000)
Dutch Guilders............................................ 13 12
-- --
</TABLE>
On 14 June 1999 the Company issued 4 ordinary shares with a nominal value
of 1,000 Dutch Guilders each on acquisition of VCG Holdings LLC and VCG Holdings
Ltd.
On 16 July 1999 the Company redenominated the nominal value of each share
from 1,000 Dutch Guilders to 0.01 Dutch Guilders.
On 16 August 1999 the Company issued 289,933 ordinary shares with a nominal
value of 0.01 Dutch Guilders each on acquisition of Definitive Stock LLC, at a
premium of L3,047,000.
15. SHARE PREMIUM ACCOUNT AND OTHER RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM OTHER
ACCOUNT RESERVES
1999 1999
L'000 L'000
-------- --------
<S> <C> <C>
GROUP
At 1 January 1999
VCG Holdings Ltd.......................................... 75,198 --
VCG Holdings LLC.......................................... 35,325 --
Merger adjustment......................................... (110,523) 110,523
-------- --------
At 1 January 1999 (restated).............................. -- 110,523
Premium on shares issued during the year.................. 3,047 --
-------- --------
At 31 December 1999......................................... 3,047 110,523
-------- --------
COMPANY
At 1 January 1999......................................... -- --
Premium on shares issued during the year.................. 3,047 --
-------- --------
At 31 December 1999......................................... 3,047 --
-------- --------
</TABLE>
F-13
<PAGE> 18
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
16. PROFIT AND LOSS ACCOUNT
<TABLE>
<CAPTION>
GROUP COMPANY
L'000 L'000
-------- -------
<S> <C> <C>
At 1 January 1999........................................... (7) (7)
VCG Holdings Limited........................................ (67,469) --
VCG Holdings LLC............................................ (29,074) --
-------- --
At 1 January 1999 (restated)................................ (96,550) (7)
Exchange adjustments........................................ 417 --
Retained (loss)/profit for the year......................... (7,385) 12
-------- --
AT 31 DECEMBER 1999......................................... (103,518) 5
-------- --
</TABLE>
Cumulative goodwill of L33,139,000 is written off to reserves.
17. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1999 1998
GROUP L'000 L'000
----- ------ ------
<S> <C> <C>
(Loss)/profit for the financial year........................ (3,943) 3,621
Dividends................................................... (3,442) --
------ ------
(7,385) 3,621
Other recognised gains and losses relating to the year...... 417 --
Net proceeds of issue of ordinary share capital............. 3,048 --
------ ------
Net movement in shareholders' funds......................... (3,920) 3,621
------ ------
Shareholders' funds at 1 January 1999....................... 13,985 10,364
------ ------
Shareholders' funds at 31 December 1999..................... 10,065 13,985
------ ------
</TABLE>
18. COMMITMENTS AND CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
1999 1998
L'000 L'000
GROUP ----- -----
<S> <C> <C>
CAPITAL EXPENDITURE
Contracted but not provided for............................. 547 786
--- ---
</TABLE>
OPERATING LEASE COMMITMENTS
At 31 December 1999 the group had annual commitments under non-cancellable
operating leases as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
LAND LAND
AND PLANT AND AND PLANT AND
BUILDINGS EQUIPMENT BUILDINGS EQUIPMENT
L'000 L'000 L'000 L'000
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Within two to five years................... -- -- -- 10
After five years........................... 246 -- 794 --
--- -- --- --
</TABLE>
F-14
<PAGE> 19
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
19. ACQUISITION OF DEFINITIVE STOCK LLC
On 16 August 1999, a new wholly owned subsidiary, Definitive Stock LLC, was
acquired for consideration of L3,579,085 in cash and 289,953 ordinary shares of
0.01 Dutch Guilders whose minimum value was deemed to be L3,047,000.
The fair values of Definitive Stock LLC's identifiable assets and
liabilities at the date of acquisition were as follows:
<TABLE>
<CAPTION>
ALIGNMENT OF
DEFINITIVE ACCOUNTING FAIR VALUE TO
BOOK VALUE REVALUATION POLICIES GROUP
L'000 L'000 L'000 L'000
---------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
NET ASSETS ACQUIRED
Intangible assets............................ 42 -- -- 42
Fixed assets................................. 111 -- (75) 36
Current assets............................... 55 (21) (38) (4)
Other assets................................. 9 -- (7) 2
Current liabilities.......................... (168) (36) -- (204)
Other liabilities............................ (378) -- -- (378)
---- --- ---- -----
Net liabilities.............................. (329) (57) (120) (506)
---- --- ---- -----
CONSIDERATION
Shares issued................................ 3,047
Acquisition fees............................. 228
Cash......................................... 3,579
---- --- ---- -----
Total consideration................ 6,854
---- --- ---- -----
Goodwill arising............................. 7,360
---- --- ---- -----
</TABLE>
Revaluations principally represent adjustments made to the carrying value
of stock and debtors to reflect estimated realisable value together with the
recognition of liabilities not previously recorded. Adjustments for the
alignment of accounting policies relate to the write off of internet site
development costs, software costs and catalogue costs.
20. RELATED PARTY TRANSACTIONS
In accordance with Financial Reporting Standard Number 8: Related Party
Disclosures, the Company is exempt from disclosing transactions with entities
that are part of the group or entities of the group qualifying as related
parties, as more than 90% of its voting rights are controlled by United News &
Media plc, which publishes consolidated financial statements.
21. POST BALANCE SHEET EVENTS
In January 2000 one of the Company's subsidiaries, Visual Communications
Group Limited, acquired Space Frontiers Limited, an image licensing company for
a consideration of L250,000.
22. ULTIMATE PARENT COMPANY
The directors consider United Business Information B.V. (formerly United
Business Media (US) B.V.) to be the immediate parent undertaking and United News
& Media plc to be the ultimate parent undertaking
F-15
<PAGE> 20
VISUAL COMMUNICATIONS GROUP B.V.
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1999 (CONTINUED)
and ultimate controlling party. The company and the immediate parent undertaking
are registered in The Netherlands.
Copies of United News & Media plc's accounts are available at the
registered office of United News & Media plc, Ludgate House, 245 Blackfriars
Road, London SE1 9UY.
F-16
<PAGE> 21
VCG DEUTSCHLAND GmbH
(translated text):
Auditor's Report
We have audited the consolidated financial statements of VCG Deutschland GmbH
for the business year from 1 January to 31 December 1999. The maintenance of the
books and records and the preparation of the consolidated financial statements
in accordance with German commercial law are the responsibility of the company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audit.
We conducted our audit of the consolidated financial statements in
accordance with Section 317 HGB and the generally accepted standards for the
audit of financial statements promulgated by the German Institut der
Wirtschaftspurfer (IDW) which are substantially the same as those followed in
the United States of America. Those standards require that we plan and perform
the audit such that misstatements materially affecting the presentation of the
net assets, financial position and results of operations in the consolidated
financial statements in accordance with German principles of proper accounting
are detected with reasonable assurance. Knowledge of the business activities and
the economic and legal environment of the Group companies and evaluations of
possible misstatements are taken into account in the determination of audit
procedures. The effectiveness of the internal control system and the evidence
supporting the disclosures in the books and records and the consolidated
financial statements are examined primarily on a test basis within the framework
of the audit. The audit includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the consolidated financial statements. We believe that our audit
provides a reasonable basis for our opinion.
Our audit has not led to any reservations.
In our opinion, the consolidated financial statements give a true and fair view
of the net assets, financial position and results of operations of the Group in
accordance with German principles of proper accounting.
Munich, 22 May 2000
PricewaterhouseCoopers
Gesellschaft mit beschrankter Haftung
Wirtschaftsprufungsgesellschaft
Windecker McMahon
Wirtschaftsprufer Wirtschaftsprufer
F-17
<PAGE> 22
VCG DEUTSCHLAND GmbH
PROFIT AND LOSS ACCOUNT OF THE SUBSIDIARY FOR 1999
<TABLE>
<CAPTION>
1999
DM
-------------
<S> <C>
1. Turnover................................................ 30.241.782,48
2. Other income............................................ 1.347.015,30
-------------
31.588.797,78
3. Cost of Materials
a) Costs for purchased goods......................... 0.00
b) Costs for purchased services...................... 15.625.937,12
-------------
15.625.937,12
4. Personnel costs
a) Salaries and wages................................ 5.374.912,71
b) Social security costs, including pension and
support costs -- including pension costs
of DM 0......................................... 980.625,55
-------------
6.355.538,26
5. Depreciation and amortisation........................... 3.182.327,21
6. Other operating expenses................................ 5.427.907,32
7. Interest receivable and other similar income including
amount relating to associated undertakings of DM
691.420,40............................................ 691.420,40
8. Interest payable and other similar charges including
amount relating to associated undertakings of DM 0.... 28.553,53
-------------
9. Profits on ordinary activities.......................... 1.659.954,74
10. Income taxes............................................ 1.145.565,32
11. Other taxes............................................. 5.332,95
=============
12. Profit on ordinary activities after taxation............ 509.056,47
=============
</TABLE>
F-18
<PAGE> 23
VCG DEUTSCHLAND GmbH
GROUP BALANCE SHEET AT 31 DECEMBER 1999
<TABLE>
<CAPTION>
31.12.1999
DM
-------------
<S> <C>
A. FIXED ASSETS
I. INTANGIBLE FIXED ASSETS
1. Concessions, copyrights and similar
rights and values as well as licences to
such rights and values................... 670.464,00
2. Goodwill................................. 16.668.758,00
-------------
17.339.222,00
-------------
II. TANGIBLE FIXED ASSETS
1. Land, Land rights and buildings,
including buildings on third party
land..................................... 0.00
2. Plant and machinery...................... 0.00
3. Other plant, fixtures, fittings and
equipment................................ 504.167,68
-------------
504.167,68
-------------
17.843.389,68
B. CURRENT ASSETS
I. RECEIVABLES AND OTHER ASSETS
1. Trade debtors............................ 2.902.842,39
2. Amounts receivable from associated
undertakings............................. 18.151.072,66
3. Amounts receivable from shareholders..... 207.550,00
4. Other debtors............................ 24.384,64
-------------
21.285.849,69
-------------
II. LIQUID RESOURCES........................ 1.777.624,47
-------------
23.063.474,16
-------------
C. PREPAYMENTS.................................... 20.366,79
-------------
40.927.230,63
-------------
</TABLE>
<TABLE>
<CAPTION>
31.12.1999
DM
-------------
<S> <C>
A. SHARE
I. Share capital............................ 250.000,00
II. Capital Reserve......................... 28.493.416,68
III. Retained Earnings brought forward...... 3.051.992,77
IV. Result for 1999......................... 509.056,47
-------------
32.304.465,92
B. PROVISIONS
1. Tax provisions........................... 4.448.246,20
2. Other provisions......................... 681.073,27
-------------
5.129.319,47
C. LIABILITIES
1. Liabilities to banks..................... 258,23
2. Trade creditors.......................... 2.506.768,38
3. Amounts payable to associated
undertakings............................. 448.134,10
4. Amounts payable to shareholders.......... 0,00
5. Other liabilities........................ 538.284,53
(including taxes DM 273.623,33) (including
social security -- DM 190.28,43)
-------------
3.493.445,24
-------------
40.927.230,63
-------------
</TABLE>
F-19
<PAGE> 24
CONSOLIDATED ACCOUNTS YEAR ENDED 31 DECEMBER 1999
VCG DEUTSCHLAND GmbH
NOTES TO THE ACCOUNTS
1. The consolidated financial statements of the VCG Deutschland GmbH sub-group
have been prepared in accordance with the regulations of commercial law (HGB)
governing large companies.
The profit and loss account has been prepared according to the total cost
method.
2. CONSOLIDATION
In addition to VCG Deutschland GmbH, three other German companies are
included in the sub-group consolidation.
- Bavaria Bildagentur Verwaltungsgesellschaft mbH, Gauting;
- Bavaria Bildagentur GmbH & Co KG, Gauting;
- iSwoop GmbH, Gauting
3. CONSOLIDATION
The capital consolidation has been prepared based using the book-value
method. The purchase costs of the investment has been netted against the book
value of the capital and reserves at the time of the purchase.
Intra-group profits through the supply of goods and services to associated
undertakings have not arisen.
Payable and receivable balances between the consolidated companies have
been eliminated, as have expenses and income generated from financial
transactions (e.g. interest payable, etc).
4. BALANCE SHEET AND VALUATION METHODS
The rules and regulations governing large companies have been applied and
have been explained in the specific note relating to the balance sheet and
profit and loss account items.
5. FOREIGN CURRENCY
Liquid resources in foreign currency have been translated at the foreign
currency exchange rate at the balance sheet date. Foreign currency transactions
have been translated at the rate of exchange on the transaction date. Losses
generated due to exchange rate fluctuations have been taken into consideration.
6. BALANCE SHEET
6.1 INTANGIBLE FIXED ASSETS
Intangible assets that have been obtained against payment value have been
capitalised at cost and are amortised on a straight-line basis over the expected
useful economic life of 10 years. The goodwill arising from the consolidation
with Bavaria Bildagentur GmbH & Co. KG is also amortised over 10 years.
The intangible assets relate to acquired Copyrights.
F-20
<PAGE> 25
CONSOLIDATED ACCOUNTS YEAR ENDED 31 DECEMBER 1999
VCG DEUTSCHLAND GmbH
NOTES TO THE ACCOUNTS (CONTINUED)
6.2 FIXED ASSETS
Fixed assets are valued at cost/production cost less scheduled and
extraordinary depreciation. In so far as allowable under the tax code, moveable
fixed assets have been depreciated using the reducing balance method; the method
of depreciation was changed to straight-line where this resulted in a larger
depreciation.
6.4 DEBTORS AND OTHER ASSETS
Debtors and other assets have been valued at nominal value. Balances in
foreign currency value are translated at the lower of exchange rate on the date
of transaction or balance sheet date. Specific and general bad debt provisions
have been made.
Of the amounts receivable from associated undertakings TDM10.520 relates to
transactions involving supply and service of goods. Amounts receivable from the
parent company, Ludgate Holding GmbH Dusseldorf are TDM 208.
Debtors generated from transactions not relating to the supply of goods and
services have been included within other assets.
6.5 SHARE CAPITAL
The share capital of DM250,000 is fully paid.
6.6 PROVISIONS
Other provisions include identified risks and uncertain liabilities. In
addition to the provision for personnel costs, a provision has been made against
photographers resulting from the licensing of photographic materials.
6.7 LIABILITIES
Foreign currency liabilities have been translated at the higher exchange
rate on the balance sheet date.
Amounts payable to associated undertakings include TDM 53 relating to goods
and services transactions.
All of the liabilities totalling TDM 3.540 are due within one year.
6.8 CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS
Obligations in relation to long-term rental and lease contracts total TDM
9.240.
7. PROFIT AND LOSS ACCOUNT
7.1 TURNOVER
<TABLE>
<CAPTION>
Mio DM In %
REVENUE STREAM 1999 1999
-------------- ------ -----
<S> <C> <C>
Licensing................................................... 30,2 100%
---- -----
30,2 100%
---- -----
</TABLE>
F-21
<PAGE> 26
CONSOLIDATED ACCOUNTS YEAR ENDED 31 DECEMBER 1999
VCG DEUTSCHLAND GmbH
NOTES TO THE ACCOUNTS (CONTINUED)
<TABLE>
<CAPTION>
Mio DM In %
GEOGRAPHICAL MARKET 1999 1999
------------------- ------ -----
<S> <C> <C>
Germany..................................................... 28,5 94,4%
Rest of Europe.............................................. 1,7 5,6%
---- -----
30,2 100%
---- -----
</TABLE>
7.2 COST OF SALES
<TABLE>
<CAPTION>
1999
Mio DM
------
<S> <C>
Royalties................................................... 13,7
Catalogue costs............................................. 1,9
----
Cost of sales............................................... 15,6
----
</TABLE>
7.3 OTHER OPERATING INCOME AND EXPENSES
Following results are included within this category:
Results from disposal of fixed assets, write-back of provisions; Costs
relating to associated undertakings.
7.4 INTEREST
Interest income and expense mainly relates to interest payments relating to
financial transactions with the associated undertakings.
7.5 CORPORATION TAX
The tax on income relates to TDM 897 corporation tax and municipal trade
income tax for the current year and TDM 248 for previous years.
8. OTHER INFORMATION
8.1 PERSONNEL
Personnel costs constitute the following
<TABLE>
<CAPTION>
1999
Mio.DM
------
<S> <C>
Salaries and wages.......................................... 5,3
Social security and support costs........................... 1,0
Pension costs............................................... 0,0
---
6,3
---
</TABLE>
F-22
<PAGE> 27
CONSOLIDATED ACCOUNTS YEAR ENDED 31 DECEMBER 1999
VCG DEUTSCHLAND GmbH
NOTES TO THE ACCOUNTS (CONTINUED)
The average number of employees are as follows:
<TABLE>
<CAPTION>
1999
------
<S> <C>
Salaried employees.......................................... 74
Blue collar workers......................................... 0
Apprentices................................................. 2
--
76
--
</TABLE>
8.2 DIRECTORS
The directors of VCG, Deutschland, Dusseldorf are
Stephan Kurzawski, (resigned 3/99)
Reiner Klein, Stolberg
Ervin Gardosi, Stuttgart (from 3/99)
The directors did not receive any income for their activities.
8.3 RELATION TO ASSOCIATED UNDERTAKINGS
The parent company VCG Deutschland GmbH, Dusseldorf, is a 100% subsidiary
of Ludgate Holdings GmbH, Dusseldorf. The ultimate holding company is United
News and Media plc, United Kingdom.
F-23
<PAGE> 28
CONSOLIDATED ACCOUNTS YEAR ENDED 31 DECEMBER 1999
VCG DEUTSCHLAND GmbH
FIXED ASSETS OF THE SUB-GROUP FROM 1 JANUARY 1999 TO 31 DECEMBER 1999
<TABLE>
<CAPTION>
PURCHASE COSTS AND PRODUCTION COSTS
------------------------------------------------------
BALANCE
1.1.1999 BALANCE
DM ADDITIONS DISPOSALS 31.12.1999
------------- ---------- --------- -------------
DM DM DM DM
<S> <C> <C> <C> <C>
1. INTANGIBLE FIXED
ASSETS
1. Concessions
copyrights and
similar rights and
values as well as
licences of those
rights and values.... 1.117.440,00 0.00 0.00 1.117.440,00
2. Goodwill............ 27.781.262,60 0,00 0,00 27.781.262,60
------------- ---------- --------- -------------
28.898.702,60 0,00 0,00 28.898.702,60
------------- ---------- --------- -------------
2. FIXED ASSETS
1. Land, land rights
and buildings,
including buildings
on third party
land................. 0,00 0,00 0,00 0,00
2. Plant and
machinery............ 0,00 0,00 0,00 0,00
3. Other equipment,
fixture and
fittings............. 2.021.329,59 288.404,32 85.719,61 2.224.014,30
------------- ---------- --------- -------------
2.021.329,00 288.404,32 85.719,61 2.224.014,30
------------- ---------- --------- -------------
30.920.032,19 288.404,32 88.719,61 31.122,716,90
============= ========== ========= =============
<CAPTION>
CUMULATIVE DEPRECIATION/AMORTISATION
---------------------------------------------------------
AMORTISATION/ NET BOOK VALUE
DEPRECIATION -----------------------------
BALANCE DURING THE BALANCE AT BALANCE AT BALANCE AT
1.1 1999 YEAR DISPOSAL 31.12.1999 31.12.1999 31.12.1998
------------- ------------- --------- ------------- ------------- -------------
DM DM DM DM DM DM
<S> <C> <C> <C> <C> <C> <C>
1. INTANGIBLE FIXED
ASSETS
1. Concessions
copyrights and
similar rights and
values as well as
licences of those
rights and values.... 335.232,00 111.744,00 0.00 446.976,00 670.464,00 782.208,00
2. Goodwill............ 8.334.378,60 2.778.126,00 0.00 11.112.504,60 16.668.758,00 19.446.884,00
------------- ------------ --------- ------------- ------------- -------------
8.669.610.60 2.889.870,00 0.00 11.559.480,60 17.339.222,00 20.229.092,00
------------- ------------ --------- ------------- ------------- -------------
2. FIXED ASSETS
1. Land, land rights
and buildings,
including buildings
on third party
land................. 0,00 0,00 0,00 0,00 0,00 0,00
2. Plant and
machinery............ 0,00 0,00 0,00 0,00 0,00 0,00
3. Other equipment,
fixture and
fittings............. 1.513.094,95 292.457,21 85.705,54 1.719.846,62 504.167,68 508.234,64
------------- ------------ --------- ------------- ------------- -------------
1.513.094,95 292.457,21 85.705,54 1.719.846,62 504.167,68 508.234,64
------------- ------------ --------- ------------- ------------- -------------
10.182.705,55 3.182.327,21 85.705,54 13.279.327,22 17.843.389,68 20.737.326,64
============= ============ ========= ============= ============= =============
</TABLE>
F-24
<PAGE> 29
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN UK GAAP AND US GAAP
The audited consolidated financial statements of Visual Communications
Group B.V. included in this Form 8-K/A have been prepared and presented in
accordance with accounting principles and standards generally accepted in the
United Kingdom ("UK GAAP"). Such standards differ in certain material aspects
from the accounting principles and standards generally accepted in the United
States ("US GAAP").
Set forth below is a summary of the significant differences between UK
GAAP and US GAAP as they relate to the measurement of profit and loss and
shareholders' funds of Visual Communications Group B.V.. Visual Communications
Group B.V. ("VCG") has not quantified these differences, nor undertaken a full
reconciliation of UK GAAP to US GAAP financial statements. Had VCG undertaken
any such quantification, preparation or reconciliation, other potentially
significant accounting and disclosure differences may have come to its attention
which are not identified below.
Accordingly, VCG can provide no assurance that the identified
differences in the summary below represent all principal differences relating
to VCG. Further, no attempt has been made to identify future differences
between UK GAAP and US GAAP as the result of prescribed changes in accounting
standards. Regulatory bodies that promulgate UK GAAP and US GAAP have
significant projects ongoing that could affect future comparisons such as this
one. Finally, no attempt has been made to identify all future differences
between UK GAAP and US GAAP that may affect the financial statements as a result
of transactions or events that may occur in the future.
The summary does not purport to be complete and is subject to and
qualified in its entirety by reference to the respective pronouncements of the
US accounting profession, together with the Companies Act of 1985 and the
pronouncements of the UK accounting profession. Finally, the discussion of US
GAAP below does not present any additional accounting adjustments or disclosure
which might be required by the US Securities and Exchange Commission (SEC) if
these financial statements formed the basis of registered securities offered in
the United States.
REVENUE RECOGNITION
For revenue to be recorded in the income statement under UK GAAP,
revenues must be based upon a reliable measurement and a transfer of risks and
rewards of the asset ownership must have taken place. US GAAP focuses more on
revenues being realised (either converted into cash or cash equivalent or the
likelihood of its receipt is reasonably certain) and earned (no material
transaction pending and the related performance has occurred).
GOODWILL
Prior to the introduction of FRS 10, under UK GAAP, goodwill arising
from acquisitions was either written off directly to reserves or carried on the
balance sheet and amortised over its useful economic life. The former treatment
was the preferred method under SSAP 22. Negative goodwill was credited directly
to reserves.
F-25
<PAGE> 30
Under FRS 10, applicable for accounting periods ending on or after 23
December 1998, goodwill should be treated as an asset on the balance sheet and
amortised according to the following circumstances:
- Where goodwill has a limited useful economic life, it should be
amortised systematically over that life.
- There is a rebuttable assumption that the useful life of goodwill does
not exceed 20 years.
- A longer life than 20 years, or an indefinite life, may be chosen where
the value can be demonstrated to be more durable.
- Non-amortisation of goodwill is a "true and fair" override of company
law (which requires goodwill to be amortised down to zero) and so can
only be adopted in special circumstances when following the basic rule
of amortisation would not give a true and fair view.
If a company either amortises goodwill over more than 20 years or does
not amortise goodwill at all, it has to carry out an annual impairment test.
Negative goodwill up to the fair values of the non-monetary assets
should be recognised in the income statement to match the depreciation of those
assets. The balance, if any, is recognised in income over the period likely to
benefit. Negative goodwill, is presented as a "negative asset" in the same
balance sheet classification as positive goodwill.
Under US GAAP, goodwill arising from acquisitions is capitalised and
amortised over its estimated useful life up to a maximum of 40 years. Negative
goodwill is applied as a reduction to the net book value of any fixed assets
acquired. Upon the subsequent disposal of a business, unamortised goodwill is
considered in the calculation of the gain or loss on disposal.
DEFERRED TAXATION
Under UK GAAP VCG provides for deferred taxation using the partial
liability method on all material timing differences to the extent that it is
considered probable that the liabilities will crystallise in the foreseeable
future. The full potential liability is not necessarily provided. Additionally,
deferred tax assets are recognized only when they are expected to be recoverable
within the foreseeable future.
Under US GAAP deferred taxes are provided for the tax effects of all
temporary differences between the tax and book bases of assets and liabilities
(full liability basis). Deferred tax assets are recognised to the extent that it
is more likely than not the benefit will be realised. The probability of future
taxable income as well as tax planning strategies are considered in determining
the realisability of deferred tax assets. Net operating loss carry forwards
arising from tax losses are recognised as deferred tax assets to the extent that
it is more likely than not that such assets will be recovered.
PENSIONS
UK GAAP, Statement of Standard Accounting Practice 24, "Accounting for
Pension Costs", aims to produce an estimate of cost, based on long-term
actuarial assumptions. The Schemes' assets are measured on an actuarial basis
(i.e. projected future income streams discounted at a long-term stable rate).
Asset valuation methods are consistent with the method and assumptions used to
value the liabilities to pay future pensions (i.e. the discount and long-
F-26
<PAGE> 31
term return on assets are required to be the same). Differences between the
actual experience of the schemes and the actuarial assumptions made are normally
spread over the expected remaining service lives of the current employees in the
schemes after making suitable allowances for future withdrawals. The actuarial
valuation is normally performed every three years.
Under US GAAP annual actuarial valuations must be carried out for
defined benefit pension obligations. The annual pension cost comprises the
estimated cost of benefits accruing in the period, adjusted for any deficit or
surplus arising at the time Statement of Financial Accounting Standards No. 87,
"Accounting for Pensions" was adopted. The charge is further adjusted to reflect
the cost of benefit improvements and any surplus/deficits which emerge as a
result of the actuarial assumptions made not being borne out in practice.
Accordingly, there may be differences in the actuarial assumptions and methods
of valuation of the plan assets compared with those that would be made under UK
GAAP.
CASH FLOWS
Under UK GAAP, cash flow represents increases or decreases in "cash",
which is comprised of cash in hand and repayable to the Company on demand less
overdrafts. Cash flows are presented in the following categories: (i) operating
activities; (ii) returns on investments and servicing of finance; (iii)
taxation; (iv) capital expenditure; (v) acquisitions and disposals; (vi)
management of liquid resources; (vii) equity dividends and (viii) financing
activities.
Under US GAAP cash flow represents increases or decreases in "cash and
cash equivalents", which include short term highly liquid investments with
remaining maturities of less than 90 days when acquired and exclude overdrafts.
Cash flows are reported in only three categories of operating activities,
investing activities and financing activities.
Cash flows arising from taxation, returns on investments and servicing
of finance would be included as operating activities under US GAAP. The payment
of dividends and debt issue costs would be included under financing activities.
Movements in bank overdrafts are classified as a financing activity.
PROVISIONAL LIABILITIES
For UK GAAP purposes, FRS 12 became effective in March of 1999. Prior to
the adoption of FRS 12, requirements for recognising provisions under UK GAAP
were less stringent and open to interpretation, whereas US GAAP has historically
maintained a more prescribed process for recognising provisions in the balance
sheet.
SHARE OPTION SCHEMES
Under UK GAAP, VCG does not recognise compensation under its Employee
Sharesave Scheme (SAYE) and Executive Share Option Schemes (ESOS). Under US
GAAP, the compensation expense associated with shares issued through the SAYE or
the ESOS, in consideration for services received, would be recognised as the
difference between the quoted market price of the stock, at the measurement
date, and the exercise price of the options. Compensation costs, as determined
above, would be charged to expense over the period in which the related service
is provided.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock Based Compensation", introduced a preferable intrinsic-value based method
F-27
<PAGE> 32
of accounting for stock based compensation. It encourages, but does not
require, companies to recognise compensation expense for grants of stock, stock
options and other equity instruments to employees based on new fair value
accounting rules. Companies which choose not to adopt the intrinsic method are
required to disclose pro forma net income and earnings per share under the new
method. In addition, detailed disclosures are required concerning the plan
terms, exercise prices and the assumptions used in measuring the fair value of
stock based grants.
IMPAIRMENT
Under UK GAAP, if there is an indication of impairment, the assets
should be tested for impairment and, if necessary, written down to the
recoverable amount - the higher of net selling price or value in use, calculated
based on discounted future pre-tax cash flows related to the asset or the income
generating unit to which the asset belongs. Unlike US GAAP, there are no
separate rules for assets to be disposed of. Impairment losses are recognised in
the income statement unless they relate to revalued assets. Impairment losses on
revalued assets are recognised in the income statement if they are caused by a
clear consumption of economic benefits. Otherwise they are recognised in the
Statement of Recognised Gains and Losses until the carrying amount of the asset
reaches its historical cost and in the income statement thereafter.
US GAAP requires that an entity assess whether impairment has occurred
based on the future cash flows (undiscounted and excluding interest) expected to
result from use and eventual disposal of the asset. An impairment loss exists if
the sum of these cash flows is less than the carrying amount of the asset. The
impairment loss recognised in the income statement is based on the asset's fair
value, being either market value or the sum of discounted future cash flows.
DEVELOPMENT OF INTERNAL USE SOFTWARE
For UK GAAP purposes, capitalisation of development costs under SSAP 13
is permitted only if the recovery of costs can reasonably be regarded as
assured. At each balance sheet date, the unamortised balance of the cost is
reviewed to ensure that it still fulfils the SSAP 13 criteria. Where any doubt
exists as to the recovery of the carrying amount, the balance should be written
off.
For US GAAP purposes, SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" provides guidance on accounting
for costs relating to the development of internal use software. The SOP divides
the types of activities normally conducted in an internal-use software project
into three stages: preliminary project stage, application development stage and
post-implementation/operation stage. Capitalisation of costs varies by stage and
by purpose of expenditure.
DISCLOSURES
In general, disclosures required under US GAAP are more extensive than
those required under UK GAAP. For example, under US GAAP more detailed
disclosures would be required with respect to pensions, taxes, and stock
options.
F-28
<PAGE> 33
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
INTRODUCTORY NOTE
On March 13, 2000, we issued $250 million of 5% convertible loan notes
due March 15, 2007. On March 21, 2000, we completed the acquisitions of VCG
Holdings LLC, Definitive Stock, Inc., Visual Communications Group Holdings
Limited (collectively "VCG UK") and VCG Deutschland GmbH ("VCG GmbH"), using a
portion of the proceeds from the notes offering. VCG UK and VCG GmbH are
collectively known as VCG.
The following unaudited condensed pro forma consolidated financial
information (the "Pro Forma Consolidated Financial Information") gives pro forma
effect to the issue of $250 million convertible loan notes and to the completion
of the acquisition of VCG, after giving effect to the pro forma adjustments
described in the accompanying notes. The Pro Forma Consolidated Financial
Information has been prepared from, and should be read in conjunction with our
audited historical consolidated financial statements for the year ended December
31, 1999, our unaudited consolidated financial statements for the three months
ended March 31, 2000 together with the historical audited financial statements
of VCG for the year ended December 31, 1999 and the unaudited financial
statements of VCG for the period from January 1, 2000 to March 21, 2000.
Adjustments have been made to reflect the financial statements of VCG in
accordance with US GAAP.
The Pro Forma Consolidated Financial Information is provided for
illustrative purposes only and does not purport to represent what actual results
of operations or financial position would have been had the acquisition of VCG
occurred on the respective dates assumed, nor is it necessarily indicative of
our future operating results.
We will account for the acquisition of VCG by the purchase method of
accounting in accordance with US GAAP. Accordingly, the purchase consideration
for acquiring VCG will be allocated to the tangible and intangible assets
acquired and the liabilities assumed, with the excess cost being allocated to
goodwill and presented as an intangible asset. A preliminary allocation of the
purchase price of VCG has been reflected in the Pro Forma Consolidated Financial
Information. A final allocation of the purchase price of VCG is ongoing and is
dependent on the completion of certain valuations and other studies which are
expected to be completed prior to the current year end.
F-29
<PAGE> 34
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1999
The following unaudited condensed pro forma income statement for the
year ended December 31, 1999 is derived from our audited historical consolidated
statements of operations for the year then ended and the audited historical
consolidated statement of operations of VCG for the year then ended (with the
exception of cost of sales and selling, general and administrative expenses of
VCG, the amounts for which are based upon a reclassification of the amounts
included in the audited financial statements), after giving effect to the pro
forma adjustments described in the notes to the Pro Forma Consolidated Financial
Information. Such adjustments have been determined as if the acquisition of VCG
took place on January 1, 1999 the first day of the financial period presented in
the Pro Forma Consolidated Financial Information.
<TABLE>
<CAPTION>
HISTORIC US GAAP PRO FORMA
GETTY ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
IMAGES, INC. VCG (NOTE 1) (NOTE 2) (NOTE 3) (NOTE 4) CONSOLIDATED
----------- ----------- ----------- ----------- ----------- ------------
(IN THOUSANDS EXCEPT LOSS PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 247,840 $ 92,645 -- $ (1,914) -- $ 338,571
Cost of sales (67,264) (33,977) -- 1,778 (99,463)
----------- ----------- ----------- ----------- ----------- ------------
GROSS PROFIT 180,576 58,668 -- (1,914) 1,778 239,108
Selling general and administrative expenses (145,578) (60,269) 10,941 1,609 -- (193,297)
Amortization of intangibles (64,330) (2,824) (3,950) (12,978) (84,082)
Depreciation (25,670) (2,262) (10,361) -- -- (38,293)
Integration and restructuring costs (10,325) -- -- -- -- (10,325)
----------- ----------- ----------- ----------- ----------- ------------
OPERATING LOSS (65,327) (6,687) 580 (4,255) (11,200) (86,889)
Interest expense, net (4,585) (137) -- (15,234) (19,956)
Exchange gains/(losses), net 135 -- (580) -- -- (445)
Other income 284 2,468 -- -- (1,778) 974
----------- ----------- ----------- ----------- ----------- ------------
LOSS BEFORE TAXES (69,493) (4,356) -- (4,255) (28,212) (106,316)
Income taxes 1,660 (1,739) -- 122 4,570 4,613
----------- ----------- ----------- ----------- ----------- ------------
NET LOSS ($67,833) ($6,095) -- ($4,133) ($23,642) ($101,703)
=========== =========== =========== =========== =========== ===========
Basic and diluted net loss per share ($1.94) ($2.73)
=========== ===========
Shares used in computing basic and diluted
net loss per share 35,049 37,236
=========== ===========
</TABLE>
See accompanying notes to the Unaudited Condensed Pro Forma Consolidated
Financial Information
F-30
<PAGE> 35
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 2000
The following unaudited condensed pro forma income statement for the
three months ended March 31, 2000 is derived from the unaudited historical
condensed income statement of Getty Images, Inc. for the three months then ended
and the unaudited historical condensed consolidated income statement of VCG for
the period from January 1, 2000 to March 21, 2000, after giving effect to the
adjustments described in the notes to the Pro Forma Consolidated Financial
Information. Such adjustments have been determined as if the acquisition of VCG
took place on January 1, 2000, the first day of the financial period presented
in the Pro Forma Consolidated Financial Information.
<TABLE>
<CAPTION>
HISTORIC US GAAP PRO FORMA
GETTY ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
IMAGES, INC. VCG (NOTE 2) (NOTE 3) (NOTE 4) CONSOLIDATED
------------ --------- ----------- ----------- ------------ ------------
(IN $ THOUSANDS EXCEPT LOSS PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Sales $ 104,825 $ 19,789 -- $ -- -- $ 124,614
Cost of sales (30,518) (6,606) -- -- -- (37,124)
------------ --------- ----------- ----------- ------------ ------------
GROSS PROFIT 74,307 13,183 -- -- -- 87,490
Selling general and administrative expenses (60,429) (14,698) 1,624 580 -- (72,923)
Amortization of intangibles (25,035) (1,485) -- (991) (3,243) (30,754)
Depreciation (10,202) (274) (1,624) -- -- (12,100)
Integration and restructuring costs (4,191) -- -- -- -- (4,191)
------------ --------- ----------- ----------- ------------ ------------
OPERATING LOSS (25,550) (3,274) -- (411) (3,243) (32,478)
Interest expense, net (1,082) (716) -- -- (3,809) (5,607)
Debt conversion expense (6,689) -- -- -- 6,689 --
Other expenses (19) -- -- -- -- (19)
Exchange losses, net (515) (230) -- -- -- (745)
------------ --------- ----------- ----------- ------------ ------------
LOSS BEFORE TAXES (33,855) (4,220) -- (411) (363) (38,849)
Income taxes 1,134 -- -- (232) 1,143 2,045
------------ --------- ----------- ----------- ------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (32,721) (4,220) -- (643) 780 36,804
Extraordinary item 384 -- -- -- -- 384
------------ --------- ----------- ----------- ------------ ------------
NET LOSS ($32,337) ($4,220) -- ($643) $780 ($36,420)
============ ========= =========== =========== ============ ============
Basic and diluted loss per share
before extraordinary item ($0.69) ($0.74)
Extraordinary item 0.01 0.01
------------ ------------
Basic and diluted net loss per share
after extraordinary item ($0.68) ($0.73)
============ ============
Shares used in computing basic and diluted
net loss per share 47,569 49,756
============ ============
</TABLE>
See accompanying notes to the Unaudited Condensed Pro Forma Consolidated
Financial Information.
F-31
<PAGE> 36
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
1. TRANSLATION OF HISTORICAL FINANCIAL INFORMATION
The historical financial statements of VCG have been translated into U.S.
dollars.
(a) EXCHANGE RATES
For the purpose of incorporation in the pro forma consolidated financial
information, the audited historic financial information of VCG UK and VCG GmbH
has been translated into US dollars at the following rates:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1999
-----------
<S> <C>
VCG UK L1 = $1.61
VCG GmbH DM1.95 = $1
-----------
</TABLE>
Unaudited consolidated historical financial information for VCG for
the three months ended March 31, 2000 was translated at L1 = $1.61.
(b) TRANSLATION OF FINANCIAL INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
PROFORMA VCG
VCG UK VCG GmbH VCG UK VCG GmbH COMBINED
L'000S DM'000S $'000S $'000S $'000S
(AUDITED) (AUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
-------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales 47,856 30,242 77,144 15,501 92,645
Cost of sales (16,109) (15,626) (25,968) (8,009) (33,977)
-------- --------- ----------- ----------- ------------
GROSS PROFIT 31,747 14,616 51,176 7,492 58,668
Selling general and administrative expenses (33,641) (11,784) (54,229) (6,040) (60,269)
Amortization of intangibles (740) (3,182) (1,193) (1,631) (2,824)
Depreciation (1,403) -- (2,262) -- (2,262)
Integration and restructuring costs -- -- -- -- --
OPERATING LOSS (4,037) (350) (6,508) (179) (6,687)
Interest expense, net (296) 663 (477) 340 (137)
Exchange gains/(losses), net -- -- -- -- --
Other income 1,103 1,347 1,778 690 2,468
-------- --------- ----------- ----------- ------------
PROFIT/(LOSS) BEFORE TAXES (3,230) 1,660 (5,207) 851 (4,356)
Income taxes (713) (1,151) (1,149) (590) (1,739)
-------- --------- ----------- ----------- ------------
NET PROFIT/ (LOSS) (3,943) 509 (6,356) 261 (6,095)
======== ========= =========== =========== ============
</TABLE>
F-32
<PAGE> 37
2. ADJUSTMENTS TO HISTORICAL FINANCIAL STATEMENTS OF VCG
Adjustments have been made to reclassify certain expenses included in the
historic financial statements of VCG to present these amounts on a basis
consistent with the US GAAP accounting policies and presentation adopted by
Getty Images, Inc.
3. US GAAP ADJUSTMENTS
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Adjustments were made in respect of the following:
Recognition of catalogue and space revenues ($1,914) $ 0
Impact of catalogue revenue adjustments on amortization of catalogue costs 1,609 580
Amortization of goodwill previously written off to reserves (3,950) (991)
Deferred tax impact of other US GAAP adjustments 122 (232)
------- -------
($4,133) ($643)
======= =======
</TABLE>
4. PRO FORMA ADJUSTMENTS
(a) INTERCOMPANY TRADING
Intercompany trading of $1.8 million in 1999 between VCG BV and VCG GmbH has
been eliminated for the purpose of the pro forma financial information.
(b) AMORTIZATION OF GOODWILL AND OTHER INTANGIBLES
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Amortization of goodwill included in VCG's accounting
records including goodwill previously written
off to reserves, reinstated under US GAAP $ 6,778 $ 1,696
Amortization over 10 years of goodwill and
other minor intangibles on acquisition of
VCG by Getty Images, Inc (19,756) (4,939)
--------- ---------
($12,978) ($3,243)
========= =========
</TABLE>
(c) ADDITIONAL FINANCE COSTS RELATING TO CONVERTIBLE DEBT
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Amortization over 3 year period of debt issue
expenses of $8.2 million on convertible debt $ 2,734 $ 684
Interest on $250 million convertible
debt at 5% per annum 12,500 3,125
------- -------
$15,234 $ 3,809
======= =======
</TABLE>
F-33
<PAGE> 38
(d) DEBT CONVERSION EXPENSES
For the purpose of the Unaudited Condensed Pro Forma Information, expenses of
$6.7 million in relation to the conversion of debt are assumed to have been
incurred at the time of such conversion prior to the first day of the period
covered by the pro forma information.
(e) TAXATION
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(IN THOUSANDS)
<S> <C> <C>
Tax effect of additional finance costs (see Note 4c) $4,570 $1,143
====== ======
</TABLE>
(f) EARNINGS PER SHARE
Options and convertible securities are excluded from the computation of loss per
share because of their anti-dilutive effect.
The average number of shares used in the calculation of pro forma consolidated
earnings per share has been increased to take into account 2,187,034 shares
issued upon the conversion of debt referred to in Note 4(d) above.
(g) EXCESS OF PURCHASE PRICE OVER FAIR VALUE OF NET ASSETS ACQUIRED
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Cash consideration paid to holders of entire issued share capital of VCG 204,726
Intercompany borrowing of VCG assumed by Getty Images, Inc. 18,692
Transaction expenses 3,515
---------
Total purchase price 226,933
Estimated fair value of net assets of VCG (see Note 4(h)) (29,361)
---------
Excess of purchase price over fair value of net assets acquired $ 197,572
=========
Amount allocated to goodwill and minor intangibles (amortised over 10 years) $ 197,572
=========
</TABLE>
Certain minor intangibles have been identified at acquisition and are to be
included in the ongoing purchase price allocation exercise.
(h) ESTIMATED FAIR VALUE OF NET ASSETS OF VCG AT ACQUISITION
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Combined net assets acquired at date of acquisition
(including $18.7 million of indebtedness to
Getty Images, Inc.) $ 59,828
Preliminary fair value adjustments (30,467)
--------
Estimated fair value of net assets of VCG at acquisition $ 29,361
========
</TABLE>
Preliminary fair value adjustments include goodwill previously included in VCG's
accounting records which has been eliminated upon acquisition. The allocation of
purchase price is based upon a preliminary exercise. A complete fair value
exercise is ongoing and is expected to be completed prior to the year end.
F-34
<PAGE> 39
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GETTY IMAGES, INC.
Date: June 1, 2000 By: /s/ Steve Cristallo
--------------------------------------
Name: Steve Cristallo
Title: Acting Chief Financial Officer
