<PAGE>
- --------------------------------------------------------------------------------
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): October 18, 1999
----------------
ROWECOM INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-21379 04-3370008
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification No.)
15 SOUTHWEST PARK, WESTWOOD, MA 02090
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (617) 497-5800
--------------
- --------------------------------------------------------------------------------
<PAGE>
The undersigned registrant, RoweCom Inc. ("RoweCom"), hereby amends its Current
Report on Form 8-K dated and filed on October 18, 1999, solely to add the
financial statements, pro forma financial information and exhibits required by
Item 7 of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL INFORMATION
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
The financial statements of Dawson Subscription Business, Inc. are set forth
below.
REPORT OF INDEPENDENT ACCOUNTANTS
BASIS OF PREPARATION
On October 2, 1999 RoweCom Inc. ("RoweCom") acquired (i) all of the issued
and outstanding capital stock of Dawson, Inc., a Delaware corporation, and
(ii) certain assets consisting of the remainder of the subscription
businesses of Dawson Holdings PLC ("Dawson") operating in Canada, France,
Spain and the United Kingdom. The entity acquired by RoweCom is referred to
herein as "Dawson's Subscription Business". The balance sheets as of
October 2, 1999 and September 30, 1998 and the related statements of
operations and cash flows for the year ended October 2, 1999 and each of the
two years ended September 30, 1998 and 1997 are based on an aggregation of
the assets and liabilities and results of the operations of Dawson's
Subscription Business, except that intercompany items between the entities
comprising the Dawson's Subscription Businesses have been eliminated. All
balances between the Dawson's Subscription Business and Dawson, and its
subsidiary undertakings, have been included as part of Dawson's net
investment on the Combined Balance Sheet.
RESPONSIBILITY
Such financial statements are the responsibility of the RoweCom's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
BASIS OF OPINION
We conducted our audits in accordance with generally accepted auditing
standards in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material 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.
The accompanying combined financial statements present the historical
financial position, results of operations, and cash flows of Dawson's
Subscription Business, and are not necessarily indicative of what the
financial position, results of operations, or cash flows would have been had
Dawson's Subscription Business been an independent public company during the
periods presented.
OPINION
In our opinion, such combined financial statements present fairly, in all
material respects, the financial position of Dawson's Subscription Business
as of October 2, 1999 and September 30, 1998, and of operations and cash
flows for the year ended October 2, 1999 and each of the two years ended
September 30, 1998 and 1997 in conformity with generally accepted accounting
principles in the United States of America.
Deloitte & Touche
London, England
December 17, 1999
<PAGE>
Dawson's Subscription Business
Balance Sheet
(sterling in thousands)
<TABLE>
<CAPTION>
AT OCTOBER 2, AT SEPTEMBER 30,
1999 1998
---------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents L 22,509 L 6,160
Short term investments 236 1,657
Accounts receivable 30,900 32,969
Prepayments 3,889 2,766
Other current assets 563 237
---------- -----------
Total current assets 58,097 43,789
Goodwill, net 16,634 18,329
Equipment and furnishings, net 4,957 5,994
Deferred income taxes 296 115
---------- -----------
Total assets L 79,984 L 68,227
========== ===========
LIABILITIES AND DAWSON'S NET INVESTMENT
Current liabilities:
Accounts payable 2,099 1,861
Accrued expenses and other current liabilities 4,728 4,048
Deferred revenue 52,529 43,118
Customer advances 10,703 23,128
---------- -----------
Total current liabilities 70,059 72,155
Other non-current liabilities 8 406
Dawson's net investment (Note 10) 9,917 (4,334)
---------- -----------
Total liabilities and Dawson's net investment L 79,984 L 68,227
========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Dawson's Subscription Business
Statement of Operations
(sterling in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
----------- ------------- ------------
<S> <C> <C> <C>
Revenues L 241,972 L 242,358 L 269,877
Cost of revenues 216,521 216,277 241,586
----------- ------------- ------------
Gross profit 25,451 26,081 28,291
Operating expenses:
Selling, general and
administrative expenses 24,456 25,036 26,861
----------- ------------- ------------
Income from operations 995 1,045 1,430
Interest and other income, net 77 722 1,168
----------- ------------- ------------
Income before income taxes 918 323 262
Income tax provision 1,576 1,108 1,297
----------- ------------- ------------
Net loss L (658) L (785) L (1,035)
=========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
Dawson's Subscription Business
Statements of Cash Flows
(sterling in thousands)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
OCTOBER 2, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1997
------------------ --------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss L (658) L (785) L (1,035)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 3,287 2,966 3,144
Deferred income tax provision (181) 68 (227)
Changes in operating assets and liabilities:
Accounts receivable 11,031 5,161 (3,675)
Customer advances 238 (2,842) (2,250)
Accounts payable (13,560) (507) (9,304)
Accruals and deferred income (145) 3,607 16,274
Other assets and liabilities, net (94) (176) (75)
------------------ --------------- -------------
Net cash provided/(used) in operating activities (82) 7,492 2,852
Cash flows from investing activities:
Purchase of equipment and furnishings (206) (350) (533)
Sale/(purchase) of short term investment 1,531 896 8,907
Cash paid to acquire business, net of cash acquired - (8,152) (86)
------------------ --------------- -------------
Net cash provided/(used) in investing activities 1,325 (7,606) 8,288
Cash flows from financing activities:
Net transfers from Dawson 15,644 (17,461) (1,641)
(Repayments of)/Increase in borrowings (140) (1,129) 343
Payments on long term debt (184) (680) -
------------------ --------------- -------------
Net cash provided/(used) in financing activities 15,320 (19,270) (1,298)
Effect of exchange rate on cash (214) (322) (99)
Net increase/(decrease) in cash and cash equivalents 16,349 (19,706) 9,743
Cash and cash equivalents, beginning of period 6,160 25,866 16,123
------------------ --------------- -------------
Cash and cash equivalents, end of period L 22,509 L 6,160 L 25,866
================== =============== =============
SUPPLEMENTARY INFORMATION:
Income taxes paid L 197 L 1,815 L 1,557
Interest paid L 524 L 1,315 L 1,794
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(sterling in thousands, except per share data)
1. BASIS OF PRESENTATION
On October 2, 1999 RoweCom Inc. ("RoweCom") acquired (i) all of the issued
and outstanding capital stock of Dawson, Inc., a Delaware corporation, and
(ii) certain assets consisting of the remainder of the subscription
businesses of Dawson Holdings PLC ("Dawson") operating in Canada, France,
Spain and the United Kingdom. The entity acquired by RoweCom is referred to
herein as "Dawson's Subscription Business". Dawson's Subscription Business
does not represent a legal entity structure.
The financial statements are prepared on a combined basis as opposed to a
consolidated basis. The balance sheets as of October 2, 1999 and September
30, 1998 and the related statements of operations and cash flows for the year
ended October 2, 1999 and for each of the two years ended September 30, 1998
and 1997 are based on an aggregation of the assets and liabilities and
results of the operations of Dawson's Subscription Business, except that
intercompany items between the entities comprising the Dawson's Subscription
Businesses have been eliminated. In 1999 the Dawson accounts were drawn up
for a 367 day period to bring the consolidated accounts of Dawson in line
with a significant subsidiary outside of the Dawson's Subscription Business.
All balances between the Dawson's Subscription Business and Dawson, and its
subsidiary undertakings, have been included as part of Dawson's net
investment on the Combined Balance Sheet.
The accompanying combined financial statements present the historical
financial position, results of operations, and cash flows of Dawson's
Subscription Business, and are not necessarily indicative of what the
financial position, results of operations, or cash flows would have been had
Dawson's Subscription Business been an independent public company during the
periods presented.
The financial statements of the Dawson's Subscription Business include the
consolidated accounts of Dawson, Inc. Until October 1, 1999, Dawson, Inc.
owned the issued and outstanding share capital of Electronic Online Systems
International, Inc. ("EOSi") and Quality Books, Inc. ("QB"). EOSi and QB were
not acquired by RoweCom and accordingly, the combined financial statements of
the Dawson's Subscription Business exclude the results and net assets of EOSi
and QB for the year ended October 2, 1999 and each of the years ended
September 30, 1998 and 1997.
In Canada, France, Spain and the UK statutory entities were not acquired by
RoweCom. The results and net assets included in these combined financial
statements are attributable to the businesses acquired rather than the full
results and net assets of the respective statutory entities from which the
businesses were acquired. Immediately prior to the acquisition, cash and cash
equivalents and amounts owed to government agencies were transferred from
these businesses to other Dawson entities.
The UK operations of Dawson's Subscription Business shared certain facilities
and services with Dawson's other UK operations and the associated costs are
allocated by management on a basis that they consider a reasonable reflection
of the benefit received taking into account the costs of individual staff
employed by each business, the specific overhead incurred and the allocation
of the other costs based on office space utilized. The costs allocated to
Dawson's Subscription Business for the year ended October 2, 1999 and each of
the two years ended September 30, 1998 and 1997 were L2,173, L1,941 and
L2,251, respectively.
The combined financial statements of Dawson's Subscription Business have been
prepared in accordance with generally accepted accounting principles which
require management to make estimates and assumptions that affect the amounts
reported in the financial statements. Actual results could differ from those
estimates.
All amounts receivable and payable between the businesses within Dawson's
Subscription Business have been eliminated. The capital stock held by Dawson,
Inc. in its subsidiary undertakings has also been eliminated. In accordance
with the management approach described in SFAS 131 Dawson's Subscription
Business has determined that it's principal business is in one operating
segment, namely the provision of information related services.
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
TRANSLATION OF FOREIGN CURRENCIES
Profits and losses and cash flows of foreign operations are translated to
Sterling at the average rates of exchange during the year. Non-sterling
assets and liabilities are translated at year-end rates of exchange. Key
rates used are as follows:
<TABLE>
<CAPTION>
Average rates Year-end rates
1999 1998 1997 1999 1998
------------- -------------- --------------- ----------------------------
<S> <C> <C> <C> <C> <C>
US Dollar 1.6299 1.6579 1.6352 1.6556 1.6994
Canadian Dollar 2.4479 2.4104 2.2424 2.4337 2.5937
French Franc 9.7378 9.8931 9.2063 10.1507 9.5248
Spanish Peseta 247.0194 250.2966 250.5027 257.4760 241.4250
</TABLE>
Dawson's net investment (deficit) is adjusted to include the differences arising
from the restatement to year-end rates of exchange of profits and losses and the
translation of the net assets of foreign subsidiaries at the beginning of the
year. All other exchange gains and losses are included in income before
income taxes.
FAIR VALUES AND CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the entity to credit risk are
cash and cash equivalents, short term investments and trade accounts receivable.
Concentration of credit risk with respect to trade accounts receivable is
limited due to the large number of customers comprising the entity's customer
base and their break down among several industries and geographical locations.
The entity is exposed to credit risk with respect to cash and cash equivalents
and short term investments in the event of non-performance by the counter
parties to these financial instruments, which are major financial institutions.
Management believes that the risk of incurring material losses related to this
credit risk is remote. The carrying values of financial instruments approximated
their fair values based on current market prices and rates.
CASH AND CASH EQUIVALENTS
Cash equivalents include all highly-liquid investments with an original
purchased maturity of three months or less and are stated at cost, which
approximates market value.
DEPRECIATION AND AMORTIZATION
Property, plant and equipment is stated at cost. Depreciation is recorded
principally on the straight-line method over the estimated useful lives of the
assets. Estimated useful lives used in computing depreciation and amortization
expense are 50 years for freehold and long leasehold buildings, the period of
the lease for short leasehold buildings and between 3 and 12 years for fixtures,
fittings and equipment.
GOODWILL
Goodwill relating to a business purchased by the company is amortized over a
period of 15 years. In the opinion of the directors, this represents a prudent
estimate of the period over which the company will derive direct economic
benefit from the goodwill acquired as part of that business. Goodwill is
evaluated by reviewing current and estimated undiscounted cash flows whenever
significant events or changes occur indicating that the asset may not be
recoverable.
REVENUE RECOGNITION
Dawson's Subscription Business is an information services entity whose principal
business is acting as a periodicals subscription distributor specializing in
scientific, technical and medical information. The entity's principal service is
placing customer orders for publication subscriptions. For subscription
services, the entity's policy is to recognize revenue at the time the order is
placed with the publisher. Deferred revenue arises primarily from customer
subscriptions billed but not ordered from the publisher.
-7-
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
TAXATION
Taxation on profit on ordinary activities is that which has been paid or becomes
payable in respect of the profits for the year.
Deferred taxation is provided using the comprehensive liability method of
accounting for income taxes based on provisions of enacted laws. Recognition is
given to deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Financial Statements or
in the tax returns. In estimating these tax consequences consideration is given
to expected future events. The measurement of deferred tax assets is reduced, if
necessary, by a valuation allowance representing the amount of any tax benefits
for which there is uncertainty of realization.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133 - "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for fiscal years beginning
after June 15, 2000. Earlier application of this statement is encouraged, but
is permitted only as of the beginning of any fiscal quarter beginning after
June of 1998. Dawson's Subscription Business has not completed its evaluation
of the impact of adopting this statement.
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
---------------------------
<S> <C> <C>
Land and buildings L 5,875 L 5,881
Fixtures, fittings and equipment 13,123 12,313
---------------------------
Total 18,998 18,194
Less: accumulated depreciation (14,041) (12,200)
---------------------------
Property, plant and equipment, net L 4,957 L 5,994
===========================
</TABLE>
Depreciation expense related to property, plant and equipment was L1,592, L1,686
and L1,948 for the years 1999, 1998 and 1997 respectively.
4. GOODWILL
Goodwill consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
---------------------------
<S> <C> <C>
Goodwill L 23,513 L 23,513
Less: accumulated amortization (6,879) (5,184)
---------------------------
Goodwill, net L 16,634 L 18,329
===========================
</TABLE>
Amortization expense related to goodwill was L1,695, L1,280 and L1,196 for the
years 1999, 1998 and 1997 respectively.
5. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued Expenses and Other Current Liabilities consisted of the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998
---------------------------
<S> <C> <C>
Bank loans and overdrafts L 861 L 886
Other 3,867 3,162
---------------------------
Total L 4,728 L 4,048
===========================
</TABLE>
-8-
<PAGE>
6. PENSION PLANS AND OTHER POST RETIREMENT PLANS
The Dawson's Subscription Business operation includes the following significant
pension plans.
The UK operation of Dawson's Subscription Business participated in a defined
benefit plan together with other Dawson UK operations. The numbers reported
herein represent the Dawson's Subscription Business' portion of Dawson UK plans.
Approximately 45% of the participants in Dawson's UK defined benefit plans
relate to Dawson's Subscription Business.
The benefits of Dawson's Subscription Business' pension plans are based
primarily on years of service and employees' pay near retirement. The entity's
funding policy is consistent with the funding requirements of local regulations.
-9-
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits
UK Plans
(STERLING IN THOUSANDS) 1999 1998
-------- -------------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year L 1,168 L 1,015
Service cost 146 101
Interest cost 63 70
Plan participants' contributions 35 35
Actuarial gain 273 -
Benefits paid (83) (53)
-------- -------------
Benefit obligation at end of year L 1,602 L 1,168
======== =============
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year L 1,329 L 1,406
Actual return on plan assets 362 (99)
Employer contributions 38 41
Plan participants' contributions 35 34
Benefits paid (83) (53)
-------- -------------
Fair value of plan assets at end of year L 1,681 L 1,329
======== =============
Funded Status L 80 L 162
Unrecognized net actuarial loss 364 373
Unrecognized transition asset (166) (199)
-------- -------------
Net amount recognized L 278 L 336
======== =============
<CAPTION>
(STERLING IN THOUSANDS) Pension Benefits
UK Plans
1999 1998
------------- -------------
Amount recognized in the balance sheet:
Prepaid benefit cost L 278 L 336
============= =============
</TABLE>
The actuarial assumptions used to develop the periodic benefit cost and funded
status were as follows:
<TABLE>
<CAPTION>
Pension Benefits
UK Plans
1999 1998
% %
------------- -------------
<S> <C> <C>
Discount rate 5.50 5.50
Expected return on plan assets 7.75 9.00
Rate of compensation increases 5.00 5.00
</TABLE>
-10-
<PAGE>
<TABLE>
<CAPTION>
Pension Benefits
UK Plans
(STERLING IN THOUSANDS) 1999 1998
------------- -------------
<S> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost L 146 L 101
Interest cost 63 70
Expected return on plan assets (103) (127)
Amortization of transition asset (33) (33)
Amortization of unrecognized loss 23 1
------------- -------------
Net periodic cost of defined benefit plans L 96 L 12
============= =============
</TABLE>
There were no under funded pension plans in any years.
Dawson, Inc. has a contributory profit sharing and savings plan (the "Plan")
in which substantially all employees of its subsidiary companies are eligible
to participate. The Plan qualifies under Section 401(k) of the Internal
Revenue Code. Participants contribute a minimum of 1% of their wages with the
maximum contribution not to exceed 12% of wages. The Company matches 50% of
the first 6% of the participant's contribution. At the discretion of the
Board of Directors, the Company may also make a discretionary supplemental
contribution.
Dawson, Inc.'s matching contributions for the year ended October 2, 1999, and
the two years ended September 30, 1998 and 1997 were L109, L112, and L158,
respectively. Supplemental contributions for fiscal years 1999, 1998 and 1997
were L124, L137, and L105, respectively.
The Faxon Company, Inc. terminated its defined benefit pension plan as of
January 31, 1997 and recognized a related gain of L595 in the year ended
September 30, 1997.
7. STOCK BASED AWARDS
In 1998, Dawson adopted the Directors and Senior Executives Long Term Incentive
Plan (the "1998 Plan"). Certain of the directors participating in the 1998 Plan
performed services for Dawson's Subscription Business and disclosures relating
to those directors have been included herein. Options are granted with
exercise prices that are not less than the market value of the stock.
Eligible employees may exercise vested options at any time until October 2,
2000.
In 1994, Dawson launched the Long Term Incentive Bonus Plan (the "1994 Plan").
Certain of the directors participating in the 1994 Plan performed services for
Dawson's Subscription Business. Under the 1994 Plan shares were awarded to
directors contingent upon meeting performance criteria over the three years to
September 30, 1997. These criteria included Dawson's earnings per share and
share price.
-11-
<PAGE>
Transactions during 1997, 1998 and 1999 related to stock options granted by
Dawson were as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------------- -----------------------
<S> <C> <C>
Outstanding, September 30, 1996 197,200 L 0.445
Granted - -
Canceled - -
Exercised (50,000) 0.367
----------------- -----------------------
Outstanding, September 30,1997 147,200 0.471
Granted 567,000 1.130
Canceled - -
Exercised - -
----------------- -----------------------
Outstanding, September 30, 1998 714,200 0.994
Granted - -
Canceled / Lapsed (510,300) 1.130
Exercised - -
----------------- -----------------------
Outstanding, October 2, 1999 203,900 L 0.654
================= =======================
</TABLE>
Additional information regarding options outstanding as of October 2, 1999 is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AND EXERCISABLE
---------------------------------------------------------
WEIGHTED AVERAGE
REMAINING
CONTRACTUAL LIFE WEIGHTED
RANGE OF EXERCISE NUMBER OUTSTANDING (YEARS) AVERAGE
PRICES EXERCISE PRICE
- --------------------- --------------------------------------- -----------------
<S> <C> <C> <C>
L0.471 - 0.471 147,200 5.67 L0.471
L1.130 - 1.130 56,700 1.00 L1.13
</TABLE>
The entity accounts for the Equity Plans under Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," under which no
compensation cost has been recognized for all common stock and common stock
options issued with a price equal to fair market value. The entity has
recognized compensation cost for all common stock and common stock options
issued with a price below fair market value. For common stock options, such
expense is recognized over the vesting period of the options. The entity
recognized compensation expense of approximately LNil, LNil and L3 for the
year ended October 2, 1999 and each of the two years ended September 30,
1998 and 1997, respectively, related to common stock and common stock options
issued below fair market value under the 1994 plan.
Had compensation cost for the Equity Plan been determined consistent with the
fair value methodology of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"), the entity's net income
(loss) would have been as follows:
-12-
<PAGE>
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net loss:
As reported L 658 L 785 L 1,035
Pro forma loss L 707 L 785 L 1,035
</TABLE>
Under SFAS 123, the fair value of each option is estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Risk-free interest rate 5.0% 5.0% No grants
Expected life (years) 5.0 5.0 No grants
Assumed volatility 35.0% 35.0% No grants
Expected dividends None None No grants
</TABLE>
The weighted average fair market values of options granted during 1999 and 1998
were L0.394 and L0.485. No options were granted in 1997.
8. INCOME TAXES
The income tax provisions were calculated based upon the following components
of income before taxes:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
UK L 284 L 366 L (1,021)
US (2,672) (2,792) (1,822)
France 2,790 2,414 2,483
Other 516 335 622
---------- -------- ---------
Income before taxes L 918 L 323 L 262
========== ======== =========
</TABLE>
The components of the provision for income taxes are summarized as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
INCOME TAX PROVISION (BENEFIT) INCLUDE:
Current Taxes
UK L 363 L - L -
US - 7 -
France 1,124 802 1,151
Other 270 224 374
-------------- --------------- ---------------
Total 1,757 1,033 1,525
Deferred Taxes
UK (7) (1) (2)
US - - -
France (21) 148 (163)
Other (153) (72) (63)
-------------- --------------- ---------------
Total (180) 75 (228)
-------------- --------------- ---------------
Total Tax L 1,576 L 1,108 L 1,297
============== =============== ===============
</TABLE>
Net current deferred income tax benefits consist of the tax effects of
temporary differences related to the following:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Allowances for doubtful accounts L - L 7 L 11
Other reserves - net 6 49 64
-------------- --------------- ---------------
Net current deferred tax asset (liability) L 6 L 56 L 75
</TABLE>
Net non-current deferred income tax benefits consist of the tax effects of
temporary differences related to the following:
<PAGE>
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Property and Equipment L (20) L (19) L (9)
Other - net 310 78 117
-------------- --------------- ---------------
Net non-current deferred tax asset (liability) L 290 L 59 L 108
</TABLE>
The differences between the entity's tax on profit on ordinary activities and
the statutory income tax rate in the United Kingdom are as follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Taxes computed at the statutory rate:
30% for 1999, 31% for 1998
and 1997 L 276 L 100 L 81
Goodwill 540 395 190
Other - net 761 613 1,027
-------------- --------------- ---------------
Group tax on profit on ordinary activities L 1,577 L 1,108 L 1,298
-------------- --------------- ---------------
Group effective tax rate on ordinary activities 172% 343% 495%
</TABLE>
All deferred tax assets are recognized on a full provision basis, and, if
judged appropriate, a valuation allowance is recorded based upon whether it
is "more likely than not" that some or all of the deferred tax asset will be
realized. At October 2, 1999, the US company has estimated net operating loss
carryovers sufficient to create a net deferred tax asset for the US part of
the business. A full valuation allowance is provided against the US net
deferred tax asset, which at September 30, 1998 was L4,566, because there is
a less than 50% probability that future taxable income in the US will be
sufficient to fully utilize the deferred tax assets. Given the magnitude of
the US net operating loss carryover, which at September 30, 1998 was L11,135,
the immaterial amount of current US tax, and the unavailability of completed
tax computations for the taxable year ended October 2, 1999, a full deferred
tax analysis for the US company has not been prepared for the year ended
October 2, 1999.
For companies based in countries other than the US, deferred tax assets
relating to temporary differences other than net operating loss carryforwards
have been recognized because of the respective companies' history of earnings
and utilization of the deferred amounts on a current basis.
The sources of the temporary differences in all of the companies are: book
versus tax basis on intangible assets; pension and post-employment benefit
expenses not deductible for tax purposes; the use of accelerated methods of
computing depreciation for tax purposes; other book provisions not deductible
for tax purposes; and other temporary differences applicable to assets and
liabilities.
No provision is made for the tax which would become payable on the
distribution of retained earnings by non-UK subsidiaries or joint ventures or
on the disposition of such interests where there is no present intention to
distribute such retained earnings or to dispose of such interests.
<PAGE>
9. RELATED PARTY TRANSACTIONS
Apart from transactions between Dawson and Dawson's Subscription Business, no
significant transactions with other related parties have occurred.
The primary transactions between the entity and Dawson are summarized as
follows:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Interest income / (expense) L 690 L 217 L (477)
================= ================= =================
</TABLE>
Certain group share plans were administered on behalf of Dawson's Subscription
Business by Dawson. The costs relating to employees involved in these plans
have been reflected within the income statement.
No significant transactions with directors or other executive officers of the
Entity have occurred during the period.
10. DAWSON'S NET INVESTMENT (DEFICIT)
Changes in Dawson's net investment are summarized as follows (in thousands)
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Beginning balance L (4,334) L 12,829 L 16,032
Net loss (658) (785) (1,035)
Net transfers from (to) Dawson 15,644 (17,461) (1,641)
Currency translation gain (loss) (735) 1,083 (527)
----------------- ----------------- -----------------
Ending balance L 9,917 L (4,334) L 12,829
================= ================= =================
</TABLE>
<PAGE>
11. GEOGRAPHICAL INFORMATION
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
NET REVENUE
UK L 28,051 L 31,047 L 30,864
US 128,984 131,125 159,733
France 62,928 59,871 59,313
Other 22,009 20,315 19,967
----------------- ----------------- -----------------
Total L 241,972 L 242,358 L 269,877
================= ================= =================
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
----------------- ----------------- -----------------
INCOME FROM OPERATIONS
UK L 287 L 725 L (87)
US (2,771) (2,811) (1,577)
France 2,886 2,832 2,457
Other 593 299 637
----------------- ----------------- -----------------
Total L 995 L 1,045 L 1,430
================= ================= =================
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
CONTINGENT LIABILITIES
The entity is subject to legal proceedings and other claims arising in the
ordinary course of business. Various lawsuits, claims and proceedings have
been or may be instituted or asserted against Dawson's Subscription Business
relating to the conduct of its business. Although the outcome of litigation
cannot be predicted with certainty and some lawsuits, claims or proceedings
may be disposed of unfavorably to the Company, management believes that the
ultimate outcome of matters currently pending is not likely to have a
material adverse effect on the results of operations or financial position of
the Company.
OPERATING LEASE COMMITMENTS
Dawson's Subscription Business leases certain facilities and equipment under
operating leases. Total rental expense was L255, L590 and L788 for the year
ended October 2, 1999, and each of the two years ended September 30, 1997,
and 1998, respectively as set out below:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS) 1999 1998 1997
-------------- ------------- ---------------
<S> <C> <C> <C>
OPERATING LEASE CHARGES:
Land and buildings L 94 L 156 L 157
Other Items 161 434 631
============== ============= ===============
L 255 L 590 L 788
============== ============= ===============
</TABLE>
-14-
<PAGE>
Minimum future rental commitments under operating leases by year and in the
aggregate, under non-cancelable leases with initial or remaining terms of one
or more years consisted of the following at October 2, 1999:
<TABLE>
<CAPTION>
(STERLING IN THOUSANDS)
<S> <C>
2000 L 226
2001 171
2002 41
2003 70
-------------------
Total L 508
===================
</TABLE>
-15-
<PAGE>
(b) UNAUDITED PRO FORMA FINANCIAL STATEMENTS
On October 2, 1999 RoweCom Inc. ("RoweCom") acquired (i) all of the issued
and outstanding capital stock of Dawson, Inc., a Delaware corporation, and
(ii) certain assets consisting of the remainder of the subscription businesses
of Dawson Holdings PLC ("Dawson") operating in Canada, France, Spain and the
United Kingdom. The entity acquired by RoweCom is referred to herein as
"Dawson's Subscription Business".
The total consideration of $34,502,000 consisted of $32,851,000 in cash
(subject to certain post-closing adjustments as provided in the agreement),
and 94,000 shares of RoweCom's Common Stock, which were valued at $1,651,000.
The total purchase price of $35,675,000 included the consideration as well as
acquisition costs of approximately $1,173,000, which related to legal and
accounting fees. The terms of the agreement were determined in arm's length
negotiations between RoweCom and the shareholders of Dawson's Subscription
Business. The cash portion of the purchase price came from the proceeds of
RoweCom's initial public offering, which closed on March 12, 1999.
The purchase price was allocated to the acquired assets and assumed
liabilities as follows (in thousands):
<TABLE>
<S> <C>
Cash $ 37,151
Other assets 59,227
Equipment and furnishings, net 8,182
Liabilities (106,109)
Goodwill 37,224
---------
$ 35,675
=========
</TABLE>
A final allocation of purchase price will be determined during 2000 and
changes, if any, will result in a change to the amount of goodwill recorded
in connection with the acquisition.
The Unaudited Pro Forma Balance Sheet presents the combined financial
position of RoweCom and Dawson's Subscription Business as of September 30,
1999 assuming that the acquisition had occurred as of September 30, 1999.
Such Pro Forma information is based upon the historical Balance Sheet of
RoweCom and Dawson's Subscription Business as of that date. The Unaudited Pro
Forma Statement of Operations for the year ended December 31, 1998 gives
effect to the acquisition of Dawson's Subscription Business as if it occurred
on January 1, 1998 and is based on the historical results of operations of
RoweCom and Dawson's Subscription Business for the year ended December 31,
1998. The Unaudited Pro Forma Statement of Operations for the nine months
ended September 30, 1999 gives effect to the acquisition of Dawson's
Subscription Business as if it occurred on January 1, 1999 and is based on
the historical results of operations of RoweCom and Dawson's Subscription
Business for the nine months ended September 30, 1999. The Unaudited Pro
Forma Statement of Operations and the accompanying notes should be read in
conjunction with the historical financial statements of RoweCom and Dawson's
Subscription Business and notes thereto.
The Unaudited Pro Forma Financial Information is intended for informational
purposes only and is not necessarily indicative of the future financial
position or future results of operations of the consolidated company after
the acquisition of Dawson's Subscription Business that would have actually
occurred had the acquisition of Dawson's Subscription Business been
effective on January 1, 1998.
-16-
<PAGE>
RoweCom Inc. and Dawson's Subscription Business
Unaudited Pro Forma Balance Sheet
As of September 30, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
DAWSON'S PRO PRO
ROWECOM SUBSCRIPTION FORMA FORMA
INC. BUSINESS ADJ. TOTAL
------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 47,150 $ 37,151 $ (34,024)(a) $ 50,277
Marketable securities - 390 - 390
Accounts receivable 3,809 51,000 - 54,809
Restricted cash 1,665 6,419 - 8,084
Other current assets 546 929 - 1,475
------------- ------------ ------------- ----------
Total current assets 53,170 95,889 (34,024) 115,035
Goodwill, net 7,996 27,454 9,770 (d) 45,220
Equipment and furnishings, net 1,507 8,182 - 9,689
Deferred tax asset 138 489 - 627
Other assets, net 104 - - 104
------------- ------------ ------------- ----------
Total assets $ 62,915 $ 132,014 $ (24,254) $ 170,675
============= ============ ============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 953 3,465 - 4,418
Accrued expenses 3,430 7,804 - 11,234
Accrued compensation 1,882 - - 1,882
Deferred revenue 122 86,699 (9,537)(c) 77,284
Customer advances 1,665 17,665 - 19,330
Loan payable 214 - - 214
------------- ------------- -------------- -----------
Total current liabilities 8,266 115,633 (9,537) 114,362
Other noncurrent liabilities - 13 - 13
Common stock 101 - 1 (a) 102
Additional Paid-in capital 82,380 - 1,650 (a) 84,030
Treasury stock, at cost (53) - - (53)
Accumulated deficit (27,724) 17,581 (17,581)(b) (27,724)
Accumulated other comprehensive loss (55) (1,213) 1,213 (b) (55)
------------- ------------- -------------- -----------
Total stockholders' equity 54,649 16,368 (14,717) 56,300
------------- ------------- -------------- -----------
Total liabilities and stockholders' equity $ 62,915 $ 132,014 $ (24,254) $ 170,675
============= ============= ============== ===========
</TABLE>
-17-
<PAGE>
RoweCom Inc. and Dawson's Subscription Business
Unaudited Pro Forma Statement of Operations
For the year ended December 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DAWSON'S
ROWECOM SUBSCRIPTION PRO FORMA PRO FORMA
INC. BUSINESS ADJ. TOTAL
------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenues $ 19,053 $ 400,550 $ - $ 419,603
Cost of revenues 18,736 357,445 - 376,181
------------- ------------ ----------- --------------
Gross profit 317 43,105 - 43,422
Operating expenses:
Selling, general and administrative 8,009 39,262 - 47,271
Goodwill amortization - 2,116 3,722 (e) 5,838
------------- ------------ ----------- --------------
Total operating expenses 8,009 41,378 3,722 53,109
------------- ------------ ----------- --------------
Profit/(Loss) from operations (7,692) 1,727 (3,722) (9,687)
Interest and other income, net 172 (1,193) - (1,021)
------------- ------------ ----------- --------------
Profit/(Loss) before income taxes (7,520) 534 (3,722) (10,708)
Provision for income taxes 109 1,831 - 1,940
------------- ------------ ----------- --------------
Net loss $ (7,629) $ (1,297) $ (3,722) $ (12,648)
============= ============ =========== ==============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Basic and Diluted net loss per share
Basic and diluted weighted average shares 4,079 - - 4,173
outstanding
Basic and diluted loss per share $ (1.87) - - $ (3.03)
</TABLE>
-18-
<PAGE>
RoweCom Inc. and Dawson's Subscription Business
Unaudited Pro Forma Statement of Operations
For the nine months ended September 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DAWSON'S PRO
ROWECOM SUBSCRIPTION PRO FORMA FORMA
INC. BUSINESS ADJ. TOTAL
--------------- ------------ ----------- --------------
<S> <C> <C> <C> <C>
Revenues $ 13,159 $ 127,299 $ - $ 140,458
Cost of revenues 12,325 110,374 - 122,699
--------------- ------------ ----------- --------------
Gross profit 834 16,925 - 17,759
Operating expenses:
Selling, general and administrative 14,338 28,960 - 43,298
Stock based compensation 656 - - 656
Goodwill amortization 903 2,050 2,792 (e) 5,745
--------------- ------------ ----------- --------------
Total operating expenses 15,897 31,010 2,792 49,699
--------------- ------------ ----------- --------------
Profit/(Loss) from operations (15,063) (14,085) (2,792) (31,940)
Interest and other income, net 1,673 (749) - 924
--------------- ------------ ----------- --------------
Profit/(Loss) before income taxes (13,390) (14,834) (2,792) (31,016)
Provision for income taxes 63 (1,707) - (1,644)
--------------- ------------ ----------- --------------
Net loss $ (13,453) $ (13,127) $ (2,792) $ (29,372)
=============== ============ =========== ==============
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Basic and Diluted net loss per share
Basic and diluted weighted average shares 9,209 - - 9,303
outstanding
Basic and diluted loss per share $ (1.46) - - $ (3.16)
</TABLE>
-19-
<PAGE>
ROWECOM INC.
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1999
(a) The payment of $34 million in cash and approximately 94,000 shares of
common stock valued at $1.7 million necessary to complete the purchase
acquisition.
(b) The elimination of the shareholders' equity accounts of Dawson's
Subscription Business.
(c) Adjustment to eliminate the profit on deferred revenue transactions
to be fulfilled by RoweCom subsequent to the acquisition.
(d) The excess of acquisition cost over the fair value of net assets
acquired (goodwill).
(e) Adjustment to amortization to reflect the amortization of goodwill of
approximately $37 million resulting from the acquisition of Dawson's
Subscription Business, over a ten year period, the expected period of
benefit.
20
<PAGE>
(c) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of Deloitte & Touche. LLP.
</TABLE>
<PAGE>
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.
ROWECOM INC.
January 5, 2000 By: /s/ Dr. Richard R. Rowe
--------------------------
Dr. Richard R. Rowe
President and Chief Executive Officer
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
23.1 Consent of Deloitte & Touche, LLP.
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in Registration Statement
on Form S-8 (File No. 333-77891) of RoweCom Inc. of our report on the
Subscription Business of Dawson Holdings PLC dated December 17, 1999, which
appears in this Current Report on Form 8-K of RoweCom, Inc. dated
January 5, 2000.
DELOITTE & TOUCHE
January 5, 2000
