<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 8-K/A
---------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 18, 1998
-----------------
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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (650) 655-3000
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On December 18, 1998, IDG Books Worldwide, Inc. (the "Company") closed the
acquisition of the capital stock of Cliffs Notes, Inc. ("Cliffs Notes"), a
privately held publisher of popular literary study guides, from the founder
of Cliffs Notes, certain of his family members and other stockholders. The
acquisition price included approximately $17.1 million in payments to
Cliffs Notes' stockholders, retirement of stockholders' notes and bank
debt, plus $0.5 million in transaction costs. The purchase price was
determined as a result of arm's length negotiations between senior
management of the Company and Cliffs Notes. The Company funded the
acquisition with approximately $13.2 million from existing cash balances
and approximately $4.4 million in borrowings under the Company's line of
credit agreement. A copy of the Company's press release dated December 7,
1998 is incorporated herein by reference.
(b) Certain of the assets of Cliffs Notes constitute plant, equipment and other
physical property, particularly furniture, fixtures and leasehold
improvements used in the business of Cliffs Notes 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 Cliffs Notes'
historical financial statements are provided herein:
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
i. Independent Auditors' Report 3
ii. Balance Sheets as of June 30th, 1998 and (unaudited)
September 30th, 1998 4
iii. Statements of Operations for the year ended
June 30th, 1998 and (unaudited) the three months
ended September 30th, 1998 and 1997 5
iv. Statements of Stockholders' Equity (Deficit) as of
June 30th, 1998 and (unaudited) September 30th, 1998 6
v. Statements of Cash Flows for the year ended
June 30th, 1998 and (unaudited) the three months
ended September 30th, 1998 and 1997 7
vi. Notes to Financial Statements 8 to 10
</TABLE>
(b) Pro Forma Financial Information
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
i. Unaudited Pro Forma Combined Balance Sheet as of
September 30, 1998 12
ii. Unaudited Pro Forma Combined Statement of Income for
the year ended September 30, 1998 13
iii. Notes to the Unaudited Pro Forma Combined
Financial Statements 14
</TABLE>
<TABLE>
<CAPTION>
(c) Exhibits Description
<S> <C>
2.1* Share Purchase Agreement dated December 7, 1998, by and
among the Company, Cliffs Notes and the Shareholders of
Cliffs Notes
23.1 Independent Auditors' Consent
99.1** Press release of IDG Books Worldwide, Inc. dated November 7,
1998
</TABLE>
* Incorporated by reference from the Registrant's Report on Form 10-K
(File No. 000-24617), filed with the Securities and Exchange
Commission on December 28, 1998.
** Incorporated by reference from the Registrant's Report on Form 8-K
(File No. 000-24617), filed with the Securities and Exchange
Commission on January 4, 1999.
1
<PAGE> 3
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: March 3, 1999 By: /s/ James A. Doehrman
----------------------------------
James A. Doehrman,
Vice President and Chief Financial
Officer (Principal Accounting
Officer and Duly Authorized
Officer)
2
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
Board of Directors
Cliffs Notes, Inc.
Lincoln, Nebraska
We have audited the accompanying balance sheet of Cliffs Notes, Inc. as of June
30, 1998, and the related statements of operations, stockholders' equity
(deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company at June 30, 1998, and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
November 23, 1998
3
<PAGE> 5
CLIFFS NOTES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1998 SEPT. 30, 1998
------------- --------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents ................................................. $ 795 $ 4,437
Accounts receivable ....................................................... 2,667,220 4,057,446
Inventory ................................................................. 1,366,929 1,198,611
Income taxes receivable ................................................... 188,000 188,000
Prepaid expenses .......................................................... 131,020 125,438
----------- -----------
Total current assets .............................................. 4,353,964 5,573,932
Property and Equipment:
Furniture and fixtures .................................................... 1,273,286 1,278,146
Leasehold improvements .................................................... 436,086 436,086
Leased building ........................................................... 235,956 235,956
----------- -----------
Gross property and equipment ............................................ 1,945,328 1,950,188
Less: Accumulated depreciation ............................................ 1,320,016 1,386,486
----------- -----------
Property and equipment - net ......................................... 625,312 563,702
Other assets ................................................................. 275,037 261,225
----------- -----------
Total Assets ...................................................... $ 5,254,313 $ 6,398,859
=========== ===========
Current Liabilities:
Line of credit ............................................................ $ 1,610,000 1,592,000
Accounts payable - trade .................................................. 413,452 661,773
Accounts payable - other .................................................. 317,903 268,675
Sales return allowance .................................................... 713,000 898,000
Accrued commissions ....................................................... 51,808 76,415
Accrued royalties ......................................................... 146,296 177,245
Current portion of notes payable - stockholders ........................... 338,161 338,161
Other current liabilities ................................................. 309,687 580,425
Current capitalized lease obligation ...................................... 64,394 32,538
----------- -----------
Total current liabilities ......................................... 3,964,701 4,625,232
Long Term Liabilities:
Notes payable to stockholders, less current portion ....................... 2,028,882 2,028,882
Other liabilities ......................................................... 94,681 84,537
----------- -----------
Total Liabilities ................................................. 6,088,264 6,738,651
----------- -----------
Commitments and contingencies (see note D)
Stockholder's Equity (Deficit):
Common stock, $1 par value; authorized 250,000 shares, issued 61,000 shares 61,000 61,000
Additional paid-in-capital ................................................ 285,422 285,422
Accumulated deficit ....................................................... (1,059,810) (565,651)
Treasury stock; 16,075 shares, at cost .................................... (120,563) (120,563)
----------- -----------
Total Stockholders' Equity (Deficit) .............................. (833,951) (339,792)
----------- -----------
Total Liabilities and Equity ............................................ $ 5,254,313 $ 6,398,859
=========== ===========
</TABLE>
See notes to financial statements
4
<PAGE> 6
CLIFFS NOTES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE QUARTER ENDED
ENDED ----------------------------------
JUNE 30, 1998 SEPT. 30, 1998 SEPT. 30, 1997
------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenue:
Net sales ................................. $ 11,751,909 $ 4,270,540 $ 3,785,761
Cost of sales ............................. 3,681,725 1,207,129 1,200,486
------------ ------------ ------------
Gross profit ............................. 8,070,184 3,063,411 2,585,275
Operating expenses:
Selling and marketing ..................... 4,731,433 1,595,785 1,354,589
General and administrative ................ 3,400,941 555,400 830,847
------------ ------------ ------------
Total operating expenses ................. 8,132,374 2,151,185 2,185,436
------------ ------------ ------------
Income (Loss) from operations ........... (62,190) 912,226 399,839
Interest expense ............................ (398,829) (87,529) (111,907)
Other income ................................ 44,691 (11,538) 4,552
------------ ------------ ------------
Income (Loss) before income taxes ....... (416,328) 813,159 292,484
Income tax (expense) benefit ................ 188,000 (319,000) (150,200)
------------ ------------ ------------
Net income (loss) ...................... $ (228,328) $ 494,159 $ 142,284
============ ============ ============
</TABLE>
See notes to financial statements
5
<PAGE> 7
CLIFFS NOTES. INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED TREASURY STOCK TOTAL
------------------------- PAID-IN EARNINGS -------------------------- STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) SHARES COST EQUITY (DEFICIT)
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1997 61,000 $ 61,000 $ 225,103 $ (831,482) 16,450 $ (123,375) $ (668,754)
Stock distribution -- -- 60,319 -- (375) 2,812 63,131
Net loss -- -- -- (228,328) -- -- (228,328)
--------------------------------------------------------------------------------------------------
Balance, June 30, 1998 61,000 61,000 285,422 (1,059,810) 16,075 (120,563) (833,951)
Net income (unaudited) -- -- -- 494,159 -- -- 494,159
--------------------------------------------------------------------------------------------------
Balance, Sept. 30, 1998
(unaudited) 61,000 $ 61,000 $ 285,422 $ (565,651) 16,075 $ (120,563) $ (339,792)
==================================================================================================
</TABLE>
See notes to financial statements
6
<PAGE> 8
CLIFFS NOTES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE QUARTER ENDED
ENDED ---------------------------------
JUNE 30, 1998 SEPT. 30, 1998 SEPT. 30, 1997
------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) .................................................. $ (228,328) $ 494,159 $ 142,284
Reconciliation to net cash provided by (used for) operations:
Depreciation and amortization ..................................... 301,994 66,470 124,925
Gain on sale of fixed assets ...................................... (9,098) -- --
Stock compensation expense ........................................ 63,132 -- --
Changes in assets and liabilities:
Accounts receivable ............................................... (265,172) (1,390,226) (1,111,955)
Inventory ......................................................... 321,087 168,318 303,428
Income taxes receivable ........................................... 253,730 -- 150,200
Prepaids and other assets ......................................... 25,795 5,582 43,933
Other long-term assets ............................................ 29,270 13,812 42,666
Accounts payable .................................................. 42,385 199,093 (139,001)
Accrued commissions ............................................... 38,178 24,607 46,416
Accrued royalties ................................................. (37,212) 30,949 (69,332)
Accrued expenses .................................................. (69,803) 455,738 (45,206)
Other long-term liabilities ....................................... 94,681 (10,144) --
----------- ----------- -----------
Net cash flows from operating activities ......................... 560,639 58,358 (511,642)
Cash flows from investing activities:
Purchase of property and equipment ................................. (29,232) (4,860) (237,055)
Proceeds from sale of property and equipment ....................... 192,500 -- --
Proceeds from sale of investments .................................. 189,000 -- --
Proceeds from sale of long-term assets ............................. 111,243 -- --
----------- ----------- -----------
Net cash flows from investing activities ......................... 463,511 (4,860) (237,055)
Cash flows from financing activities:
Net payments under line of credit .................................. (430,000) (18,000) --
Payments on notes to shareholders .................................. (338,161) -- --
Payments on long-term debt ......................................... (137,333) -- 595,041
Payments on capital lease obligation ............................... (117,961) (31,856) 153,656
----------- ----------- -----------
Net cash flows from financing activities ......................... (1,023,455) (49,856) 748,697
Net increase in cash and cash equivalents ............................ 695 3,642 --
Cash and cash equivalents, beginning balance ......................... 100 795 100
----------- ----------- -----------
Cash and cash equivalents, end of period ............................. $ 795 $ 4,437 $ 100
=========== =========== ===========
Supplemental cash flow information:
Cash paid during year for:
Interest ........................................................ $ 382,670 $ 85,884 $ 109,107
Income taxes refunded ........................................... $ 436,699 $ -- $ --
</TABLE>
See notes to financial statements
7
<PAGE> 9
CLIFFS NOTES, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1998
(INFORMATION FOR THE SEPTEMBER 30, 1998 AND 1997 QUARTERS IS UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business - The Company is an educational publisher. It publishes
and distributes literary notes, test preparation guides and various course
review guides under the trade names of "Cliffs Notes" and "Cliffs StudyWare".
Test preparation and course review guides are distributed in both textual and
software modes.
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents - For purposes of the statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.
Allowance For Sales Returns - The Company has an unlimited right of return
policy on most sales. A provision for estimated allowances related to future
returns of items sold has been recorded in the accompanying financial
statements.
Inventory - Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Other Assets - The primary component of other assets is art and collectibles
with an indeterminable life. All items are recorded at cost.
Furniture and Equipment - Furniture and equipment are stated at cost. The
Company provides for depreciation principally on the straight-line method over
the estimated useful lives of the property which range from 5 to 12 years.
Maintenance and repairs are expensed as incurred and major betterments and
additions are capitalized. The cost and related accumulated depreciation are
removed from the accounts for disposals and the resulting gain or loss is
reflected in earnings.
Income Taxes - The Company accounts for income taxes using the asset and
liability method for tax reporting and measures deferred tax assets and
liabilities based on temporary differences existing at the balance sheet date
using enacted tax rates.
B. NOTES PAYABLE
The Company has a $4,000,000 line of credit agreement with a bank with interest
at the bank's national rate, which was 8.5% at June 30, 1998, and is due
December 15, 1998. There was $1,610,000 and $1,592,000 borrowed under the line
as of June 30, 1998 and September 30, 1998, respectively. The line of credit is
collateralized by all trade accounts receivable and inventory.
C. NOTES PAYABLE TO STOCKHOLDERS
Notes payable to stockholders are uncollateralized and bear interest at 8% which
is paid quarterly. The notes are due in annual installments of $338,161 through
December 15, 2004.
Maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
FISCAL
YEAR
ENDING
JUNE 30, AMOUNT
-------- -----------
<S> <C>
1999 $ 338,161
2000 338,161
2001 338,161
2002 338,161
2003 338,161
Thereafter 676,238
-----------
2,367,043
Less current portion (338,161)
-----------
$ 2,028,882
===========
</TABLE>
8
<PAGE> 10
D. LEASE COMMITMENTS
The Company has a lease agreement with a partnership formed by officers of the
Company for space used for its warehouse and offices. The original lease
agreement was extended for a period of 2 years expiring in December 1998. The
related party lease is a capital lease which has future minimum lease payments
of $64,394 for fiscal year 1999.
The Company leases additional warehouse space from a third party under month to
month terms. The Company subleases office space to a third party upon which the
Company has an operating lease for office space which expires in June 2001. Rent
expense for leases for the year ended June 30, 1998 and the quarters ending
September 30, 1998 and September 30, 1997 was $79,211, $21,572 and $19,653,
respectively. The future minimum lease commitments (excluding escalation clauses
tied to Consumer Price Index) for these operating leases as of June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
YEAR
ENDED
JUNE 30 AMOUNT
------- -------
<S> <C>
1999 $28,200
2000 28,200
2001 25,850
</TABLE>
E. INCOME TAXES
Income tax expense differs from the "expected" income tax at statutory rates for
the year ended June 30, 1998 as follows:
<TABLE>
<S> <C>
Computed "expected" income tax benefit $ 142,000
Change in valuation allowance 42,000
Other 4,000
---------
$ 188,000
=========
</TABLE>
The components of deferred taxes in the balance sheet as of June 30, 1998 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Accrued liabilities $ 379,000
Inventory valuations 36,000
Allowance for doubtful accounts 46,000
NOL carryforward 17,000
Write off of long-term assets 16,000
Other 17,000
---------
Deferred tax assets 511,000
Deferred tax liabilities:
Depreciation 8,000
---------
Net deferred tax asset 503,000
Less valuation allowance (503,000)
---------
$ --
=========
</TABLE>
A valuation allowance has been recognized since it is more likely than not that
the net deferred tax asset will not be realized. During the year the Company
recognized a $42,000 decrease in the valuation allowance as a result of
decreases in the net deferred tax assets.
9
<PAGE> 11
F. RETIREMENT AND SAVINGS PLANS
The Company has a 401(k) savings plan which covers all employees 21 years of age
or older with 12 months of service. Employee contributions are matched by
Company contributions using a 50% matching percentage. All employees in the plan
are 100% vested. The Company's matching contribution charged to expense was
$81,490, $18,029 and $23,227 for the year ended June 30, 1998 and the quarters
ending September 30, 1998 and 1997, respectively.
The Company also sponsors a money purchase retirement plan which covers all
employees 21 years of age or older with 12 months of service. The Company
contributes to the plan 10% of each participant's compensation as defined in the
plan document. All employees vest at a rate of 25% per year. The Company
contributed $198,738, $47,888 and $58,063 to the plan for the year ended June
30, 1998 and the quarters ended September 30, 1998 and 1997, respectively.
G. SALES TO MAJOR CUSTOMERS
Transactions with four customers accounted for net sales of approximately
$5,140,000, $2,010,127, and $1,259,639 for the year ended June 30, 1998, and the
quarters ended September 30, 1998 and 1997, respectively. Outstanding accounts
receivable from these customers were approximately $1,581,000 and $1,696,000 at
June 30, 1998 and September 30, 1998.
H. RELATED PARTY TRANSACTIONS
The Company has an agreement with a related party who provides computer
consulting services. Total expense applicable to this agreement was
approximately $133,000, $35,000 and $33,000 for the year ended June 30, 1998 and
the quarters ended September 30, 1998 and 1997, respectively.
The Company has entered into transactions with a related party relating to the
exchange of art and collectibles. The balance of art and collectibles is
$215,109 and $201,297 at June 30, 1998 and September 30, 1998 and is included in
other assets.
I. COPYRIGHT PAYMENTS
During July of 1991, the Company acquired the copyrights to publish Cliffs Notes
from Cliff's Charitable Foundation (the Foundation) which was created by the
Company's founder. The Company is required to pay 2 1/2% of the net sales of
material sold subject to the copyrights from the date of the agreement through
December 31, 2025. The agreement requires payment to be made quarterly. For the
year ended June 30, 1998 and for the quarters ended September 30, 1998 and 1997,
$172,000, $61,142 and $45,512, respectively, was charged to cost of goods sold
for sales of copyrighted material subject to this agreement.
In the event of a sale of all the outstanding stock of the Company, the Board of
Directors approved a motion during their October 17, 1998 meeting to pay the
Foundation $900,000 plus any amount owed under the terms of the original
agreement as complete settlement of all amounts owed to the Foundation.
J. UNAUDITED INTERIM FINANCIAL STATEMENTS
Unaudited interim financial statements as of September 30, 1998 and for the
three month periods ended September 30, 1997 and 1998 are unaudited but have
been prepared in accordance with generally accepted accounting principles for
interim financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair presentation have been included. The results of operations of any interim
period are not necessarily indicative of the results of operations for the full
year.
10
<PAGE> 12
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma combined financial information presented herein gives
effect to the Registrant's acquisition of all of the capital stock of Cliffs
Notes, Inc., ("Cliffs Notes") which was completed on December 18, 1998. The pro
forma financial information is based on the historical financial statements of
the Registrant and Cliffs Notes. The Registrant's fiscal year end is the last
Saturday of September and Cliffs Notes fiscal year end is June 30. For
convenience, the Registrant's fiscal year ends are denoted in the accompanying
pro forma financial information as September 30.
The acquisition of Cliffs Notes 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. Such allocation is
preliminary and subject to revision upon receipt of final information concerning
the amounts of working capital at closing and the cost of the Registrant's
restructuring plan with respect to Cliff's notes.
The unaudited pro forma combined balance sheet as of September 30, 1998 gives
effect to the acquisition of Cliffs Notes as if it had been consummated on
September 30, 1998. This balance sheet combines the audited historical balance
sheet at September 30, 1998 for the Registrant and the unaudited historical
balance at September 30, 1998 for Cliffs Notes.
The unaudited pro forma combined income statement for the year ended September
30, 1998 gives effect to the acquisition of Cliffs Notes as if it had been
consummated on October 1, 1997. The accompanying unaudited pro forma combined
statement of income combines the respective income statements for the twelve
months ended September 30, 1998 of the Registrant and Cliffs Notes.
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 Cliffs Notes 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
statement of income does 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 SUBSIDIARY
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
IDG BOOKS CLIFFS NOTES PRO FORMA PRO FORMA
SEPT. 30, 1998 SEPT. 30, 1998 ADJUSTMENTS COMBINED
-------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Current Assets:
Cash ........................... $ 15,466 $ 4 $(13,160)(1) $ 2,310
Accounts receivable-net ........ 27,477 4,058 -- 31,535
Inventory-net .................. 10,367 1,199 149 (2) 11,715
Receivable from parent ......... 1,514 -- -- 1,514
Other current assets ........... 903 125 -- 1,028
Income taxes receivable ........ -- 188 -- 188
Deferred tax assets ............ 18,144 -- 852 (3) 18,996
-------- -------- -------- --------
Total current assets ....... 73,871 5,574 (12,159) 67,286
Royalty advances-net ........... 5,195 -- -- 5,195
Property and equipment-net ..... 5,605 564 (255)(4) 5,914
Intangible assets-net .......... 3,583 -- 15,277 (5) 18,860
Other assets ................... -- 261 (75)(6) 186
-------- -------- -------- --------
Total Assets .......... $ 88,254 $ 6,399 $ 2,788 $ 97,441
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable - trade ....... $ 5,885 $ 662 $ -- $ 6,547
Accounts payable - other ....... -- 269 -- 269
Accrued liabilities ............ 35,779 2,102 1,631 (7) 39,512
-------- -------- -------- --------
Total current liabilities .. 41,664 3,033 1,631 46,328
Long Term Liabilities:
Line of credit ................. -- 1,592 2,846 (8) 4,438
Note payable to stockholders ... -- 2,029 (2,029)(9) --
Other long term liabilities .... -- 85 -- 85
-------- -------- -------- --------
Total long term liabilities -- 3,706 817 4,523
Total Liabilities ..... 41,664 6,739 2,448 50,851
-------- -------- -------- --------
Stockholder's Equity:
Common Stock ................... 14 61 (61)(10) 14
Additional paid-in-capital ..... 44,029 286 (286)(10) 44,029
Retained earnings .............. 2,547 (566) 566 (10) 2,547
Treasury stock ................. -- (121) 121 (10) --
-------- -------- -------- --------
Total Equity .......... 46,590 (340) 340 46,590
-------- -------- -------- --------
Total Liabilities and Equity .. $ 88,254 $ 6,399 $ 2,788 $ 97,441
======== ======== ======== ========
</TABLE>
See notes to unaudited pro forma combined financial statements
12
<PAGE> 14
IDG BOOKS WORLDWIDE, INC. AND SUBSIDIARY
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLIFFS
IDG BOOKS NOTES FOR
FOR THE TWELVE THE TWELVE
MONTHS ENDED MONTHS ENDED PRO FORMA PRO FORMA
SEPT. 30, 1998 SEPT. 30, 1998 ADJUSTMENTS COMBINED
-------------- -------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenue:
Net sales .............................. $136,650 $ 12,237 -- $148,887
Licensing and other revenues ........... 4,875 -- -- 4,875
-------- -------- -------- --------
Total net sales and revenues .......... 141,525 12,237 -- 153,762
Total cost of sales ...................... 73,952 3,688 -- 77,640
Total selling, general, and administrative
expenses ................................. 46,896 7,826 -- 54,722
Depreciation/Amortization ................ 3,417 244 504 (11) 4,165
-------- -------- -------- --------
Total operating expense ............... 124,265 11,758 504 136,527
-------- -------- -------- --------
Operating profits ........................ 17,260 479 (504) 17,235
Interest expense ......................... -- 374 1,070 (12) 1,444
-------- -------- -------- --------
Income before income taxes ............... 17,260 105 (1,574) 15,791
Provision for (benefit from) taxes ....... 7,077 (19) (296) (13) 6,762
-------- -------- -------- --------
Net Income ............................... $ 10,183 $ 124 ($ 1,278) $ 9,029
======== ======== ======== ========
Net Income per share:
Basic $ 0.88 $ 0.78
======== ========
Diluted $ 0.87 $ 0.77
======== ========
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 SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(1) Represents $13.2 million cash portion of the acquisition price the Company
used to acquire all of the capital stock of Cliffs Notes. The remainder of
the purchase was funded by borrowings on the Company's line-of-credit with
Wells Fargo Bank.
(2) Represents net impact of adjustment of inventory value to net realizable
value at time of purchase.
(3) Represents deferred tax impact of purchase price allocation.
(4) Represents the adjustment to the fair value of acquired equipment,
furniture, fixtures and leasehold improvements based upon a review of the
assets.
(5) 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.
(6) Represents write off of other assets to net realizable value.
(7) Represents approximately $1.9 million accrued for certain estimated
expenses payable in connection with the acquisition including the cost of a
restructuring plan to relocate certain employees of Cliffs and terminate
certain facility leases and other business contracts, offset by $0.3
million payment of the current portion of notes payable to stockholders as
a result of the acquisition.
(8) Represents $4.4 million of indebtedness incurred in connection with the
acquisition, net of payment on the Cliffs Notes Line of Credit, which was
paid in full subsequent to the acquisition.
(9) Represents elimination of notes payable to stockholders, which were paid in
full as part of the price of the acquisition.
(10) Represents elimination of the Cliffs Notes stockholders' equity accounts.
(11) Represents twelve months amortization of Intangible Assets.
(12) Represents interest expense assuming the entire purchase price of $17.6
million was initially funded using the Company's existing line of credit.
Payments on the line of credit are assumed using net IPO cash proceeds of
$5.6 million available for general corporate purposes, plus cash
transferred to (swept by) the Parent through the intercompany account
during fiscal 1998 prior to the IPO. The resulting net interest expense on
the assumed outstanding line of credit balances is calculated using an
average interest rate of 7.3%.
(13) Represents the tax effect of the pro forma adjustments (excluding the
amortization of non-deductible goodwill) at the blended statutory rate of
41.5%.
14
<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 November
23, 1998, on Cliffs Notes, Inc., appearing in this Current Report on Form 8-K/A
of IDG Books Worldwide, Inc.
/s/ DELOITTE & TOUCHE, LLP
San Jose, California
March 1, 1999
