<PAGE> 1
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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 2, 1999
IDG BOOKS WORLDWIDE, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 0-24617 04-3078409
- -------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
919 EAST HILLSDALE BOULEVARD, SUITE 400, FOSTER CITY, CALIFORNIA 94404
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (650) 655-3000
NOT APPLICABLE
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(Former Name or Former Address, if Changed Since Last Report.)
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<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On August 2, 1999, IDG Books Worldwide, Inc. (the "Company") acquired all
of the outstanding common stock of Macmillan General Reference USA Inc.
("MGR"), from Pearson Education, Inc. ("Pearson"), for $83 million, subject
to adjustments for changes in working capital. MGR is a publisher of over
3,000 active titles and such leading brands as the Frommer's Travel
Guides(R), Weight Watchers(R) and Betty Crocker(R) Dieting and Cookbooks,
Webster's New World(TM) Dictionaries and J.K. Lasser(TM) Tax Guides.
Additionally the Company acquired the travel website, frommers.com and
related rights. The purchase price was determined as a result of arm's
length negotiations between senior management of the Company and Pearson.
The Company funded the acquisition with approximately $83 million in
borrowings from a credit agreement, dated July 30, 1999, between the
Company, Bank Boston, and a group of other banks. A copy of the Company's
press release dated August 2, 1999 was filed as Exhibit 99.1 of the 8-K
filed on August 17, 1999, included herein as Exhibit 99.1, and incorporated
herein by reference.
(b) Certain of the assets of MGR constitute plant, equipment and other physical
property, particularly furniture, fixtures and leasehold improvements used
in the business of MGR as described elsewhere herein, and the Company
intends to continue such use.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired. The following MGR historical
financial statements are provided herein:
<TABLE>
<CAPTION>
Page
<S> <C> <C>
i. Independent Auditors' Report 2
ii. Balance Sheets as of December 31, 1998 and 1997 and (unaudited)
June 30, 1999 3
iii. Statements of Operations for each of the Three Years in the
Period Ended December 31, 1998, and for the (unaudited) six-month
periods ended June 30, 1999 and 1998 4
iv. Statements of Parent's Equity for each of the three years in the
period ended December 31, 1998, and for the (unaudited) six-month
periods ended June 30, 1999 and 1998 5
v. Statements of Cash Flows to (from) Parent for each of the Three
Years in the Period Ended December 31, 1998, and for the
(unaudited) six-month periods ended June 30, 1999 and 1998 6
vi. Notes to Financial Statements 7 TO 10
(b) Pro Forma Financial Information
i. Unaudited Pro Forma Combined Balance Sheet as of June 30, 1999 12
ii. Unaudited Pro Forma Combined Statement of Income for the year
ended September 30, 1998 13
iii. Unaudited Pro Forma Combined Statement of Income for the nine
months ended June 30, 1999 14
iv. Notes to the Unaudited Pro Forma Combined Financial Statements 15
(c) Exhibits Description
2.1* Stock Purchase Agreement dated June 29, 1999 between Pearson
Education, Inc. and IDG Books Worldwide, Inc.
10.1** Credit Agreement among IDG Books Worldwide, Inc., as borrower,
and a group of lending banks, dated July 30, 1999.
23.1 Independent Auditors' Consent
99.1* Press release of IDG Books Worldwide, Inc. dated August 2, 1999
* Incorporated by reference from the Registrant's Report on Form
8-K (File No. 000-24617), filed with the Securities and
Exchange Commission on August 17, 1999.
** Incorporated by reference from the Registrant's Report on Form
10-Q (File No. 000-24617), filed with the Securities and
Exchange Commission on August 10, 1999.
</TABLE>
1
<PAGE> 3
INDEPENDENT AUDITORS' REPORT
Macmillan General Reference USA, Inc.:
We have audited the accompanying balance sheets of Macmillan General Reference
USA, Inc. (the "Company") (formerly an indirect wholly-owned subsidiary of
Pearson Education, Inc. as of December 31, 1998 and, prior to November 28, 1998,
an indirect wholly-owned subsidiary of Viacom International, Inc.) as of
December 31, 1998 and 1997, and the related statements of operations, parent's
equity and cash flows to (from) parent for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Macmillan General Reference USA, Inc. as of
December 31, 1998 and 1997, and the results of its operations and its cash flows
to (from) parent for each of the three years in the period ended December 31,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of the
conditions that would have existed if the Company had been operated as an
unaffiliated entity. As discussed in Note 6 to the financial statements, certain
expenses represent allocations made by the parent.
As discussed in Note 1 to the financial statements, on August 2, 1999 the
Company was acquired by IDG Books Worldwide, Inc.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
October 18, 1999
2
<PAGE> 4
MACMILLAN GENERAL REFERENCE USA, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Accounts receivable, net $ 1,029 $ 946 $ 207
Inventories, net 15,935 16,260 14,318
Royalty advances, net 5,422 4,479 4,642
Prepaid expenses and other assets 1,771 1,976 1,856
------- ------- -------
Current assets 24,157 23,661 21,023
Pre-publication costs, net 4,963 5,807 6,301
Intangible assets, net 1,977 1,768 1,664
Property and equipment, net 279 308 275
------- ------- -------
Total assets $31,376 $31,544 $29,263
======= ======= =======
LIABILITIES AND PARENT'S EQUITY:
Royalties payable $ 3,079 $ 2,524 $ 2,279
Accrued liabilities 11,625 8,321 5,972
------- ------- -------
Current liabilities 14,704 10,845 8,251
------- ------- -------
Commitments and contingencies
Parent's equity 16,672 20,699 21,012
------- ------- -------
Total liabilities and parent's equity $31,376 $31,544 $29,263
======= ======= =======
</TABLE>
See notes to financial statements.
3
<PAGE> 5
MACMILLAN GENERAL REFERENCE USA, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ----------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Net Sales $ 70,675 $ 80,353 $ 77,368 $ 34,812 $ 37,622
Licensing revenues and other 7,133 7,933 5,548 2,393 2,497
-------- -------- -------- -------- --------
Net revenue 77,808 88,286 82,916 37,205 40,119
-------- -------- -------- -------- --------
OPERATING COSTS AND EXPENSES:
Cost of sales 59,663 64,711 60,461 28,561 29,901
Selling, general and administrative 18,273 19,950 19,432 8,849 10,509
Depreciation and amortization 483 405 388 193 191
-------- -------- -------- -------- --------
Total operating costs and expenses 78,419 85,066 80,281 37,603 40,601
-------- -------- -------- -------- --------
Income (loss) before provision for income taxes (611) 3,220 2,635 (398) (482)
Income tax provision (benefit) (260) 1,368 1,120 (169) (205)
-------- -------- -------- -------- --------
Net income (loss) $ (351) $ 1,852 $ 1,515 $ (229) $ (277)
======== ======== ======== ======== ========
</TABLE>
See notes to financial statements.
4
<PAGE> 6
MACMILLAN GENERAL REFERENCE USA, INC.
STATEMENTS OF PARENT'S EQUITY
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PARENT'S
EQUITY
<S> <C>
Balance January 1, 1996 $ 15,717
Net loss (351)
Due (to) from parent 1,314
-----------
Balance December 31, 1996 16,680
Net income 1,852
Due (to) from parent (1,860)
-----------
Balance December 31, 1997 16,672
Net income 1,515
Due (to) from parent 2,512
-----------
Balance December 31, 1998 20,699
Net loss (unaudited) (277)
Due (to) from parent (unaudited) 590
-----------
Balance June 30, 1999 (unaudited) $ 21,012
===========
</TABLE>
See notes to financial statements.
5
<PAGE> 7
MACMILLAN GENERAL REFERENCE USA, INC.
STATEMENTS OF CASH FLOWS TO (FROM) PARENT
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------- -------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (351) $ 1,852 $ 1,515 $ (229) $ (277)
Adjustments to reflect cash provided by (used in)
operations:
Depreciation and amortization 483 405 388 193 191
Changes in current assets and liabilities:
Accounts receivable 44 521 83 (89) 739
Inventories 2,739 1,490 (325) 1,874 1,942
Prepaid expenses and other (1,183) (253) (205) 937 120
Royalty advances (302) 658 943 74 (163)
Royalties payable (712) 135 (555) (1,004) (245)
Accrued liabilities (1,085) (2,068) (3,304) (3,486) (2,349)
------- ------- ------- ------- -------
Net cash provided by (used in) operating
activities (367) 2,740 (1,460) (1,730) (42)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to pre-publication costs (425) 1,433 (844) (65) (494)
Acquisition of property and equipment (522) (63) (208) (134) (54)
Acquisition of publishing rights (2,250)
------- ------- ------- ------- -------
Net cash used in investing activities (947) (880) (1,052) (199) (548)
------- ------- ------- ------- -------
NET CASH FLOWS TO (FROM) PARENT $(1,314) $ 1,860 $(2,512) $(1,929) $ (590)
======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
6
<PAGE> 8
MACMILLAN GENERAL REFERENCE USA, INC.
NOTES TO FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
AND FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1998
(INTERIM FINANCIAL INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS ENDED
JUNE 30, 1999 AND 1998 IS UNAUDITED.)
- -------------------------------------------------------------------------------
1. BACKGROUND AND BASIS OF PRESENTATION
Macmillan General Reference USA, Inc. ("MGR" or "Company") is a publisher
of general reference books. MGR publishes its books under brand names
including the Frommer's Travel guides, Webster's New World dictionaries, J.
K. Lasser Tax guides, Betty Crocker cookbooks, Chek Chart Auto Repair
guides, Unofficial guides, Arco Test preparation guides and Howell House
pet books, the Complete Idiot's guides, the Lazy Way Series, and Elements
of Style and related series.
MGR has operated as a division of Macmillan Publishing USA ("Macmillan").
Subsequent to November 27, 1998, MGR was an indirect wholly-owned
subsidiary of Pearson Education, Inc. ("Pearson"). Prior to November 28,
1998, MGR was an indirect wholly-owned subsidiary of Viacom International,
Inc. Parent references in these financial statements refer to the ultimate
parent.
MGR was incorporated by Pearson in 1999 to facilitate the sale of certain
brand names and associated assets and liabilities. In June 1999, Pearson
agreed in principle to sell MGR to IDG Books Worldwide, Inc. ("IDG")
pursuant to a Stock Purchase Agreement. Prior to closing, Pearson
transferred to an affiliate certain assets and liabilities that were to be
retained by Pearson, and on August 2, 1999, Pearson sold all of the common
stock of MGR to IDG for cash of $83 million.
MGR has been managed as a division of Macmillan, and, historically,
separate financial statements have not been prepared for MGR. The
accompanying statements are derived from the historical accounting records
of the Company described herein. As an operating division, MGR has
historically depended on the parent for corporate administrative functions,
as well as financing, cash management, tax, payroll administration,
employee benefit administration and certain other services. Accordingly,
cash, accounts receivable (other than Chek Chart), trade accounts payable,
pension and certain employer benefit accruals, current and deferred income
tax liabilities, and long-term debt are managed through the corporate cash
management system and are settled immediately through intercompany
accounts.
Net sales represent sales of MGR products, less estimated provisions for
discounts and allowances and provision for returns. Expenses include
operating expenses directly attributable to MGR, plus allocations of
operating costs directly incurred by or otherwise related to the parent
(see Note 6). These allocated operating costs and expenses are not
necessarily indicative of the costs and expenses which would have resulted
had MGR been operated as a separate company. All of the allocations and
estimates reflected in the financial statements are based on assumptions
that Company management believes are reasonable.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and that affect revenues and expenses during
the periods reported. Actual results may differ from the estimates.
Significant estimates include the provision for sales returns, the
allowance for Chek Chart doubtful accounts, realizability of advances to
authors, inventory valuation, parent expense allocations and recoverability
of long-term assets such as pre-publication costs.
INTERIM FINANCIAL STATEMENTS - The unaudited interim financial statements
reflect all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods. Information for the interim periods is not
necessarily indicative of results to be achieved for the full year.
Allocated general, administrative and other expenses for the six-month
period ended June 30, 1999 are based
7
<PAGE> 9
upon allocation methods of Pearson and are not necessarily consistent with
the allocation methods of Viacom International, Inc. for the six-month
period ended June 30, 1998.
REVENUE RECOGNITION - Sales are recognized upon shipment of products, net of
provisions for estimated returns and allowances, which are based on
historical experience by type of book. For the years ended December 31,
1996, 1997 and 1998 and the six-month periods ended June 30, 1998 and 1999,
the provision for returns and allowances represented approximately 30%,
29%, 28% and 25% and 25% of gross sales, respectively. The accompanying
statements of operations do not include any material adjustments for actual
returns and allowances as compared to amounts estimated in prior periods.
Revenue from the licensing of titles, editorial content, and design are
recognized when received.
DEVELOPMENT FEES - The Company distributes its products to international
customers through international affiliates of the parent.
International sales to such affiliates are calculated at unit manufacturing
costs plus a development fee determined by the parent.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at cost.
Depreciation and amortization are recorded using the straight-line method
over the estimated useful lives of the assets ranging from three to ten
years.
INVENTORY VALUATION - Inventories are stated at the lower of cost or market
using the first-in, first-out ("FIFO") method.
ROYALTY ADVANCES - Royalty advances to authors are deferred and then expensed as
earned by authors or reserved when future recovery appears doubtful.
Royalty advances are recorded net of reserves of $11.6 million, $9.9
million and $10.4 million at December 31, 1997 and 1998 and June 30, 1999,
respectively.
PRE-PUBLICATION COSTS - Pre-publication costs are incurred prior to the
publication of a book, including costs associated with cover designs, art
and illustrations, page proofs, editing and generation of film and plates.
Costs are capitalized until the book is published and amortized on a
straight-line basis over twelve to thirty-six months depending on the
expected life cycles of the products. Pre-publication costs are net of
accumulated amortization of $3.1 million, $6.4 million and $8.4 million at
December 31, 1997 and 1998 and June 30, 1999, respectively.
INTANGIBLES - Intangibles consist of publishing rights and goodwill which are
amortized on a straight-line basis over the estimated economic life which
does not exceed 10 years. Amortization expense for the years ended
December 31, 1997 and 1998 was $107,000 and $209,000, respectively, and was
$104,000 for each of the six-month periods ended June 30, 1998 and 1999.
CONCENTRATIONS OF RISK - MGR's customers consist principally of retail chain
booksellers, wholesale distributors, office superstores and membership
clubs located primarily in the United States. The Company performs ongoing
credit evaluations on its customers. The following percentages of gross
sales to MGR's three largest customers for the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------ ------ -------
<S> <C> <C> <C>
Company A 16.6% 19.9% 18.4%
Company B 11.1% 14.9% 15.2%
Company C 9.9% 9.3% 10.4%
</TABLE>
INCOME TAXES - The provision for income taxes is recorded in the statements of
operations based on statutory income tax rates. The accompanying financial
statements include a charge in lieu of taxes paid, which approximates the
income tax provision as if MGR were a separate taxpayer.
3. ACCOUNTS RECEIVABLE
Accounts receivable not settled immediately with the parent consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Accounts receivable $ 1,440 $ 1,570 $ 820
Allowance for doubtful accounts (230) (480) (523)
Allowance for sales returns (181) (144) (90)
------- ------- -------
Accounts receivable, net $ 1,029 $ 946 $ 207
======= ======= =======
</TABLE>
8
<PAGE> 10
4. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Books (finished goods) $18,898 $19,001 $16,624
Paper and work in progress 2,136 2,345 2,288
------- ------- -------
Total inventory 21,034 21,346 18,912
Reserve for obsolescence (5,099) (5,086) (4,594)
------- ------- -------
Inventory, net $15,935 $16,260 $14,318
======= ======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1997 1998 1999
(UNAUDITED)
<S> <C> <C> <C>
Furniture, fixtures and equipment $ 928 $ 710 $ 572
Less accumulated depreciation (649) (402) (297)
----- ----- -----
Property and equipment, net $ 279 $ 308 $ 275
===== ===== =====
</TABLE>
Depreciation expense, including production depreciation allocated from parent,
for the years ended December 31, 1996, 1997 and 1998 was $483,000, $298,000,
$179,000, respectively, and was $89,000 and $87,000 for the six-month periods
ended June 30, 1998 and 1999.
9
<PAGE> 11
6. ALLOCATED EXPENSES
Certain expenses are allocated to MGR by the parent. Allocation methods
include, but are not limited to, relative investment, number of books
handled and number of employees. Management believes the allocations are
reasonable, but they are not necessarily indicative of the costs that would
have been incurred had MGR been a stand-alone entity. Included in the
statement of operations are the following expense allocations (in
thousands):
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------- -------------------
1996 1997 1998 1998 1999
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
------- ------- ------- ------ ------
Selling, General and
Administrative Expenses
Employee benefits $ 195 $ 162 $ 141 $ 70 $ 118
Selling 3,898 4,326 3,812 2,109 1,961
General and administrative 3,672 3,821 4,104 2,052 2,176
Rent 1,987 2,090 1,535 768 659
Advertising -- 100 100 50
------- ------- ------- ------ ------
Subtotal 9,752 $10,499 9,692 5,049 4,914
------- ------- ------- ------ ------
Cost of Goods Sold
Employee benefits 1,002 783 720 360 573
Production 483 598 674 196 411
Warehousing 4,634 5,318 5,753 2,998 3,768
------- ------- ------- ------ ------
Subtotal 6,119 6,699 7,147 3,554 4,752
------- ------- ------- ------ ------
TOTAL $15,871 $17,198 $16,839 $8,603 $9,666
======= ======= ======= ====== ======
</TABLE>
7. CONTINGENCIES
MGR is subject to various legal actions and claims which have arisen in the
ordinary course of business. In the opinion of management, the ultimate
resolution of such legal proceedings on claims will not have a material
effect on the financial position or results of operations of MGR.
10
<PAGE> 12
ITEM 7B. PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information presented herein gives
effect to the Registrant's acquisition of all of the common stock of Macmillan
General Reference USA Inc. ("MGR") which was completed on August 2, 1999. The
acquisition was structured such that the Company purchased 100% of the common
stock of MGR only after MGR completed the transfer of all existing assets and
liabilities associated with certain titles which were agreed to be retained by
the seller ("Retained Titles"). The Retained Titles include all titles within
the following imprints: Complete Idiot's Guides, Lazy Way and Elements of Style.
The pro forma financial information is based on the historical financial
statements of the Registrant and MGR. As discussed in Item 7(a), the historical
financial statements of MGR include the financial results of such Retained
Titles and also include allocations of general, administrative and other
expenses from the historical parent company of MGR, Pearson Education, Inc. The
Registrant's fiscal year end is the last Saturday of September . For
convenience, the Registrant's fiscal year ends are denoted in the accompanying
pro forma financial information as September 30.
The acquisition of MGR has been accounted for as a purchase business
combination. Accordingly, assets acquired and liabilities assumed have been
recorded at their estimated fair values, which are subject to further
adjustment, based upon other analyses, with appropriate recognition given to the
effect of the Registrant's borrowing rates and income taxes. Appropriate
recognition has also been given to that portion of the MGR business which was
not acquired, specifically, the financial results attributable to the Retained
Titles. Such allocation is preliminary and subject to revision upon receipt of
final information concerning, among other things, the amounts of working capital
at closing and the cost of the Registrant's restructuring plan with respect to
MGR.
The unaudited pro forma combined balance sheet as of June 30, 1999 gives effect
to the acquisition of MGR as if it had been consummated on June 30, 1999. This
balance sheet combines the respective unaudited historical balance sheets at
June 30, 1999 of the Registrant and of MGR.
The unaudited pro forma combined statements of income give effect to the
acquisition of MGR as if it had been consummated on October 1, 1997. The
unaudited proforma combined statement of income for the year ended September 30,
1998 combines the audited historical income statements of the Registrant for the
twelve months ended September 30, 1998 and of MGR for the twelve months ended
December 31, 1998. The unaudited pro forma combined statement of income for the
nine months ended June 30, 1999 combines the respective unaudited income
statements for the nine months ended June 30, 1999 of the Registrant and MGR.
Accordingly, the results of operations for MGR for the three months ended
December 31, 1998 are included in both the unaudited pro forma combined
statement of income for the year ended September 30, 1998 and for the nine
months ended June 30, 1999.
The pro forma adjustments are based upon available information and assumptions
that management believes are reasonable. The unaudited pro forma combined
financial statements do not purport to present the financial position or results
of operations of the Registrant had the acquisition of MGR occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The unaudited pro forma combined statements of
income do not reflect any adjustments for synergies that management expects to
realize upon consummation of the acquisition. No assurances can be made as to
the amount of cost savings or revenue enhancements, if any, that will be
realized.
11
<PAGE> 13
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
IDG BOOKS MGR PRO FORMA PRO FORMA
JUNE 30, 1999 JUNE 30, 1999 ADJUSTMENTS COMBINED
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Current Assets:
Cash ................................ $ 751 $ -- $ -- $ 751
Accounts receivable-net ............. 42,915 207 (23)(1) 43,099
Inventory-net ....................... 14,481 14,318 (1,210)(2) 27,589
Other current assets ................ 1,552 1,856 (192)(1) 3,216
Royalty advances, net ............... -- 4,642 (1,410)(1) 3,232
Deferred tax assets ................. 21,073 -- 21,073
-------- -------- -------- --------
Total current assets ............. 80,772 21,023 (2,835) 98,960
Royalty advances-net ................ 6,472 -- -- 6,472
Property and equipment-net .......... 5,183 275 -- 5,458
Intangible assets-net ............... 19,050 7,965 65,618(3) 92,633
Other assets ........................ 2,031 2,031
-------- -------- -------- --------
Total Assets .................. $113,508 $ 29,263 $ 62,783 $205,554
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................... $ 7,672 $ -- $ -- $ 7,672
Accrued liabilities ................. 42,716 8,251 795(4) 51,762
Other short term borrowings ......... -- -- 13,000(5) 13,000
-------- -------- -------- --------
Total current liabilities ........ 50,388 8,251 13,795 72,434
Line of credit ...................... 4,000 -- 4,000
Other long term borrowings .......... -- -- 70,000(5) 70,000
Total Liabilities ............. 54,388 8,251 83,795 146,434
-------- -------- -------- --------
Stockholder's Equity:
Common Stock ........................ 14 -- -- 14
Additional paid-in-capital .......... 46,197 -- -- 46,197
Retained earnings ................... 12,909 -- -- 12,909
Parent's Equity ..................... -- 21,012 (21,012)(6) --
-------- -------- -------- --------
Total Equity .................. 59,120 21,012 (21,012) 59,120
-------- -------- -------- --------
Total Liabilities and Equity ....... $113,508 $ 29,263 $ 62,783 $205,554
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma combined financial statements
12
<PAGE> 14
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE YEAR
ENDED SEPTEMBER 30, 1998
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
IDG BOOKS
FOR THE MGR FOR
TWELVE THE TWELVE
MONTHS ENDED MONTHS ENDED PRO FORMA PRO FORMA
SEPT. 30, 1998 DEC. 31, 1998 ADJUSTMENTS COMBINED
-------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Net sales ........................ $136,650 $ 77,368 $(13,834)(1) $200,184
Licensing and other revenues ..... 4,875 5,548 (710)(1) 9,713
-------- -------- -------- --------
Total net sales and revenues .... 141,525 82,916 (14,544) 209,897
Total cost of sales ............... 73,952 60,461 (8,488)(7) 125,925
Total selling, general, and
administrative expenses ......... 47,037 19,432 (2,003) 64,466
Depreciation/Amortization ......... 3,415 388 1,608(8) 5,411
-------- -------- -------- --------
Total operating expense ......... 124,404 80,281 (8,883) 195,802
-------- -------- -------- --------
Operating income .................. 17,121 2,635 (5,661) 14,095
Interest income (expense), net .... 139 -- (5,727)(9) 5,588
-------- -------- -------- --------
Income before income taxes ........ 17,260 2,635 (11,388) 8,507
Provision for taxes ............... 7,077 1,120 (4,692)(10) 3,505
-------- -------- -------- --------
Net Income ........................ $ 10,183 $ 1,515 $ (6,696) $ 5,002
======== ======== ======== ========
Net Income per share:
Basic $ 0.88 $ 0.43
======== ========
Diluted $ 0.87 $ 0.43
======== ========
Shares used in per share calculation:
Basic 11,633 11,633
======== ========
Diluted 11,701 11,701
======== ========
</TABLE>
See notes to unaudited pro forma combined financial statements
13
<PAGE> 15
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME FOR THE NINE MONTHS
ENDED JUNE 30, 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
IDG BOOKS
FOR THE MGR
NINE MONTHS FOR THE NINE PRO
ENDED JUNE 30, MONTHS ENDED PRO FORMA FORMA
1999 JUNE 30, 1999 ADJUSTMENTS COMBINED
------------- -------------- ------------ ----------
<S> <C> <C> <C> <C>
Revenue:
Net sales ........................ $119,149 $60,443 (12,411)(1) $167,181
Licensing and other revenues ..... 4,324 3,911 (503)(1) 7,732
-------- ------- -------- --------
Total net sales and revenues .... 123,473 64,354 (12,914) 174,913
Total cost of sales ............... 60,850 47,075 (8,227)(7) 99,698
Total selling, general, and
administrative expenses ........... 40,828 14,841 (1,698)(1) 53,971
Depreciation/Amortization ......... 3,772 366 1,206(8) 5,344
-------- ------- -------- --------
Total operating expense ......... 105,450 62,282 (8,719) 159,013
-------- ------- -------- --------
Operating income .................. 18,023 2,072 (4,195) 15,900
Interest income (expense) - net ... (92) 631 (4,328)(9) (3,789)
-------- ------- -------- --------
Income before income taxes ........ 17,931 2,703 (8,523) 12,111
Provision for (benefit from) taxes . 7,569 1,133 (3,580)(10) 5,122
-------- ------- -------- --------
Net Income ........................ $ 10,362 $ 1,570 $ (4,943) $ 6,989
======== ======= ======== ========
Net Income per share:
Basic $ 0.72 $ 0.49
======== ========
Diluted $ 0.70 $ 0.47
======== ========
Shares used in per share calculation:
Basic 14,379 14,379
======== ========
Diluted 14,773 14,773
======== ========
</TABLE>
See notes to unaudited pro forma combined financial statements
14
<PAGE> 16
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) For the unaudited pro forma combined balance sheet at June 30, 1999,
represents an adjustment to remove that portion of the MGR balances
relating to the Retained Titles which were not acquired by the Company.
For the unaudited pro forma combined statements of income for the year
ended September 30, 1998 and for the nine month period ended June 30,
1999, represents an adjustment to remove the historical revenues and
direct costs of the Retained Titles.
(2) Represents an adjustment of approximately $1.6 million to remove that
portion of the inventory balance as of June 30, 1999 relating to the
Retained Titles, offset by an adjustment to record the MGR inventory
acquired at its estimated selling price less the cost of selling and a
reasonable profit allowance for the selling effort.
(3) Represents goodwill and the fair value of other intangible assets
established in connection with the acquisition. Related amortization
expense is reflected over the estimated useful lives of these assets, not
exceeding 40 years.
(4) Represents approximately $1.3 million accrued for certain estimated
expenses payable in connection with the acquisition less that portion of
the MGR accrued liabilities relating to the Retained Titles.
(5) Represents $83 million of indebtedness incurred in connection with the
acquisition.
(6) Represents elimination of Macmillan General Reference USA, Inc. equity
accounts.
(7) Represents the net impact of the adjustment to remove that portion of MGR
Cost of Sales relating to the Retained Titles, offset by the additional
cost of goods sold to record upon the sale of the acquired inventory at
its adjusted book value.
(8) Represents twelve months of amortization of Intangible Assets resulting
from the acquisition for the year ended September 30, 1998 and nine months
of amortization for the nine months ended June 30, 1999.
(9) Represents interest expense assuming entire purchase price of $83 million
was initially funded using the Company's credit agreement, dated July 30,
1999, between the Company, Bank Boston, and a group of other banks. The
$83 million in debt consists of a $70 million term loan and $13 million in
short term borrowings with interest expense based on LIBOR plus 1.5%. Pro
forma adjustment assumes no principal payments for these borrowings during
the periods presented. The resulting net interest expense on the assumed
outstanding debt is calculated using an average LIBOR interest rate plus
1.5%.
(10) Represents the tax effect of the pro forma adjustments to arrive at a
blended statutory rate of approximately 42.0%.
15
<PAGE> 17
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, thereunto duly authorized.
IDG BOOKS WORLDWIDE, INC.
Date: October 18, 1999 By: /s/ James A. Doehrman
-----------------------------------------
James A. Doehrman,
Vice President and Chief Financial Officer
(Principal Accounting Officer
and Duly Authorized Officer)
16
<PAGE> 18
EXHIBIT INDEX
(c) Exhibits Description
2.1* Stock Purchase Agreement dated June 29, 1999 between Pearson
Education, Inc. and IDG Books Worldwide, Inc.
10.1** Credit Agreement among IDG Books Worldwide, Inc., as borrower,
and a group of lending banks, dated July 30, 1999.
23.1 Independent Auditors' Consent
99.1* Press release of IDG Books Worldwide, Inc. dated August 2, 1999
* Incorporated by reference from the Registrant's Report on Form
8-K (File No. 000-24617), filed with the Securities and
Exchange Commission on August 17, 1999.
** Incorporated by reference from the Registrant's Report on Form
10-Q (File No. 000-24617), filed with the Securities and
Exchange Commission on August 10, 1999.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-67977 of IDG Books Worldwide, Inc. on Form S-8 of our report dated October
18, 1999 on the financial statements of Macmillan General Reference USA, Inc.
(which report expresses an unqualified opinion and includes an explanatory
paragraph to the effect that such financial statements are not necessarily
indicative of the conditions that would have existed if Macmillan General
Reference USA, Inc. had been operated as an unaffiliated entity) appearing in
this Current Report on Form 8-K/A of IDG Books Worldwide, Inc.
DELOITTE & TOUCHE LLP
Indianapolis, Indiana
October 18, 1999
