<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
Commission File Number 1-8260
PRIMARK CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
MICHIGAN 38-2383282
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1000 WINTER STREET, SUITE 4300N, WALTHAM, MA 02154
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
781-466-6611
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NO CHANGES
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No ____
Number of shares outstanding of each of the registrant's classes of common
stock, as of April 30, 1998:
Common Stock, without par value: 27,103,966
================================================================================
<PAGE> 2
PRIMARK CORPORATION
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
COVER....................................................... i
INDEX....................................................... ii
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.............................. 1
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition................ 8
PART II -- OTHER INFORMATION
Item 4. Results of Votes of Security Holders.............. 11
Item 6. Exhibits and Reports on Form 8-K.................. 11
SIGNATURE................................................... 11
</TABLE>
ii
<PAGE> 3
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
---------- ------------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents, at cost (which approximates
market value)........................................... $ 22,185 $ 12,780
Billed receivables less allowance for doubtful accounts of
$2,319,000 and $2,756,000, respectively................. 84,628 70,084
Unbilled and other receivables............................ 27,720 9,546
Federal and state income tax benefit...................... 13,472 21,304
Other current assets...................................... 31,783 24,036
Net assets of discontinued operations..................... 205,611 197,330
---------- ----------
385,399 335,080
---------- ----------
DEFERRED CHARGES AND OTHER ASSETS
Goodwill, less accumulated amortization of $45,751,000 and
$41,834,000, respectively............................... 552,811 556,737
Capitalized data and other intangible assets, less
accumulated amortization of $22,742,000 and $20,710,000,
respectively............................................ 46,015 47,512
Capitalized software, less accumulated amortization of
$23,112,000 and $20,162,000, respectively............... 49,591 48,645
Other..................................................... 9,225 8,980
---------- ----------
657,642 661,874
---------- ----------
PROPERTY, PLANT AND EQUIPMENT, AT COST
Computer equipment........................................ 62,218 63,169
Leasehold improvements.................................... 6,070 17,631
Other..................................................... 26,487 9,806
---------- ----------
94,775 90,606
---------- ----------
Less-accumulated depreciation............................. (47,644) (43,751)
---------- ----------
47,131 46,855
---------- ----------
$1,090,172 $1,043,809
========== ==========
LIABILITIES AND COMMON SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable............................................. $ 30,000 $ 27,602
Accounts Payable.......................................... 13,902 14,125
Accrued employee payroll and benefits..................... 17,865 24,585
Foreign and other taxes payable........................... 12,300 10,717
Deferred income........................................... 101,854 69,931
Current portion of long-term debt, including capital lease
obligations............................................. 16,008 11,301
Other..................................................... 48,246 43,814
---------- ----------
240,175 202,075
---------- ----------
LONG-TERM DEBT AND OTHER CURRENT LIABILITIES
Long-term debt, including capital lease obligations....... 326,220 331,260
Deferred income taxes..................................... 22,573 21,133
Other..................................................... 16,412 18,370
---------- ----------
365,205 370,763
---------- ----------
Total liabilities.................................. 605,380 572,838
COMMITMENTS AND CONTINGENCIES (NOTE 13)
COMMON SHAREHOLDERS' EQUITY
Common stock and additional paid-in-capital............... 280,479 275,370
Retained earnings....................................... 207,178 198,658
Less cummulative foreign currency translation
adjustment............................................. (2,865) (3,057)
---------- ----------
Total common shareholders' equity.................. 484,792 470,971
---------- ----------
Total liabilities and shareholders' equity.............. $1,090,172 $1,043,809
========== ==========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
1
<PAGE> 4
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
---- ----
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
OPERATING REVENUES.......................................... $104,411 $ 94,681
OPERATING EXPENSES
Cost of services.......................................... 40,949 39,303
Selling, general and administrative....................... 39,094 37,732
Depreciation.............................................. 4,106 4,483
Amortization of goodwill.................................. 4,122 3,862
Amortization of other intangible assets................... 4,823 3,704
Restructuring charge...................................... -- 1,800
-------- --------
Total operating expenses.......................... 93,094 90,884
-------- --------
Operating income.................................. 11,317 3,797
-------- --------
OTHER INCOME AND (DEDUCTIONS)
Investment income......................................... 192 355
Interest expense.......................................... (4,149) (3,640)
Foreign currency gain (loss).............................. (119) 973
Other..................................................... (184) (829)
-------- --------
Total other income and (deductions)............... (4,260) (3,141)
-------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES....... 7,057 656
INCOME TAX EXPENSE.......................................... 3,435 2,479
-------- --------
INCOME FROM CONTINUING OPERATIONS........................... 3,622 (1,823)
-------- --------
DISCONTINUED OPERATIONS
Discontinued operations, net of income tax expense of
$3,724,000 and $3,572,000, respectively................ 4,898 5,938
INCOME BEFORE EXTRAORDINARY LOSS............................ 8,520 4,115
-------- --------
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
net of income tax benefit of $1,379,000................... -- (1,955)
-------- --------
NET INCOME.................................................. 8,520 2,160
-------- --------
NET INCOME APPLICABLE TO COMMON STOCK....................... $ 8,520 2,160
======== ========
EARNINGS PER COMMON SHARE -- BASIC
Income from continuing operations......................... $ 0.13 $ (0.07)
Discontinued operations................................... 0.18 0.22
Extraordinary loss........................................ -- (0.07)
-------- --------
Net Income................................................ $ 0.32 $ 0.08
======== ========
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION
Income from continuing operations......................... $ 0.13 $ (0.06)
Discontinued operations................................... 0.17 0.21
Extraordinary loss........................................ -- (0.07)
-------- --------
Net Income................................................ $ 0.30 $ 0.08
======== ========
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING
Basic..................................................... 26,942 27,089
Effect of Dilutive Securities............................. 1,299 1,556
-------- --------
Diluted................................................... 28,241 28,645
-------- --------
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
2
<PAGE> 5
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
Balance -- Beginning of period.............................. $198,658 $178,943
Add -- Net Income........................................... 8,520 2,160
-------- --------
Balance -- End of period.................................... $207,178 $181,103
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
3
<PAGE> 6
PRIMARK CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1998 1997
---- ----
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 8,520 $ 2,160
Adjustments to reconcile net income to net cash flows from
operating activities:
Discontinued operations................................... (4,898) (5,938)
Extraordinary loss on early extinguishment of debt........ -- 1,955
Cash provided by (contributed to) discontinued
operations............................................. (2,373) 2,148
Depreciation and amortization............................. 13,051 12,049
Other charges and credits -- net.......................... (3,691) (3,862)
Changes in operating working capital, excluding the effect
of acquisitions:
Increase decrease in billed, unbilled and other
receivables -- net.................................... (32,695) (19,264)
Increase in other current assets....................... (6,120) (1,401)
Decrease (increase) in accounts payable................ 333 (741)
Increase in accrued employee payroll and benefits...... (6,381) (6,405)
(Decrease) increase in income and other taxes
payable -- net........................................ 9,415 (4,100)
Increase in deferred income............................ 32,158 19,720
Increase in other current liabilities.................. 4,644 5,738
-------- --------
Net cash provided from operating activities....... 11,963 2,059
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of short-term notes payable...................... 100,045 58,596
Repayment of short-term notes payable..................... (97,647) (58,596)
Issuance of long-term debt................................ -- 100,000
Common stock issuance..................................... 5,109 1,493
Debt issue costs and other................................ (335) (2,831)
-------- --------
Net cash provided from financing activities....... 7,172 98,662
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (4,804) (6,124)
Capitalized software...................................... (3,880) (4,226)
Purchase of subsidiaries -- net of acquired cash.......... -- (86,022)
Other -- net.............................................. -- 55
Cash provided by (contributed to) discontinued
operations............................................. (1,008) 927
-------- --------
Net cash used for investing activities............ (9,692) (95,390)
-------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (38) (427)
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 9,405 4,904
CASH AND CASH EQUIVALENTS, JANUARY 1........................ 12,780 25,276
-------- --------
CASH AND CASH EQUIVALENTS, MARCH 31......................... $ 22,185 $ 30,180
======== ========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
4
<PAGE> 7
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DISCONTINUED OPERATIONS
As of December 8, 1997, the Company entered into an agreement to sell its
subsidiary, TASC, Inc. and its weather information affiliates subject to
shareholder approval, for $432 million in cash plus an adjustment for changes in
TASC's consolidated equity account from September 30, 1997 through the date of
the closing. On March 30, 1998, the shareholders of Primark approved the terms
of the related stock purchase agreement and the sale of TASC and its weather
information companies to Litton Industries, Inc. and its affiliates was closed
on April 1, 1998. (Note 7)
In June 1997, the Company adopted a formal plan to sell its non-core
transportation services segment consisting of the Triad International
Maintenance Corporation ("TIMCO"). The Company anticipates that the sale of
TIMCO will be completed by the middle of 1998.
The accompanying consolidated financial statements reflect the operating
results of TASC and TIMCO separately from the Company's continuing operations
for all periods presented. Consolidated interest expense has been allocated to
discontinued operations based upon the ratio of net assets of discontinued
operations to total consolidated net assets. The net assets of discontinued
operations represent the net book value of the Company's investment in TASC and
TIMCO and consist principally of working capital, fixed assets, goodwill, and
other non-current assets and liabilities.
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
DISCONTINUED OPERATIONS (000s) 1998 1997
- ------------------------------ --------- ---------
<S> <C> <C>
INCOME/(LOSS)
TASC.............................................. $ 3,756 $ 6,104
TIMCO............................................. 1,142 (166)
-------- --------
Total........................................ $ 4,898 $ 5,938
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
<S> <C> <C>
NET ASSETS
TASC.............................................. $162,685 $155,376
TIMCO............................................. 42,926 41,954
-------- --------
Total........................................ $205,611 $197,330
======== ========
</TABLE>
2. RESTRUCTURING
At the time of the acquisition of DAFSA in June of 1996, approximately $1.5
million of integration costs were recorded as part of the purchase accounting.
During the second quarter of 1997, the Company recorded a restructuring charge
of $5.0 million related to the integration and downsizing of operations at
DAFSA. The subsequent restructuring charge was the result of a plan to further
integrate DAFSA's personnel, workspace, and products with those of the Company's
other subsidiaries. The restructuring at DAFSA is complete. The $6.5 million
total restructuring provision included costs for exiting a line of business of
$1.7 million, the future rent cost of abandoned space under lease of $1 million,
employee severance and other benefits of $1.4 million, asset write-downs of $1.2
million and legal, professional and other related costs of $1.2 million. Cash
flow expenditures were funded from the Company's operating activities.
Substantially all expenditures related to the restructuring have been incurred.
3. REORGANIZATION
With the sale of TASC and in connection with the Company's strategy of
focusing its operations solely on its information services businesses,
management is reviewing the benefits and costs of further integration of
5
<PAGE> 8
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the various operational units within Primark. Such integration being considered
involves, among other things, sales forces, administrative functions, software
development, production platforms, and delivery systems.
4. CONTINGENCIES
There have been no significant developments with respect to the Company's
contingent liabilities which were disclosed in the Company's 1997 Annual Report.
Management cannot predict the final disposition of such issues, but believes
that adequate provision has been made in the financial statements and that the
ultimate resolution of any outstanding issues will not have a material adverse
effect on the Company's financial condition.
5. GENERAL
There have been no significant changes in the Company's principal
accounting policies that were set forth in the Company's 1997 Annual Report and
Form 10-K. Certain reclassifications have been made to the prior year's
statements to conform with the 1998 presentation.
The unaudited information furnished herein, in the opinion of management,
reflects all adjustments necessary for a fair statement of the results of
operations during the interim periods.
The revenues, expenses, net income and earnings per share for the interim
periods should not be construed as representative of revenues, expenses, net
income and earnings per share for all or any part of the balance of the current
year or succeeding periods.
6. NEWLY ISSUED ACCOUNTING STANDARDS
The Company adopted SFAS No. 130 "Reporting Comprehensive Income" which was
issued by the FASB in June of 1997. This standard requires companies to report
and display comprehensive income and its components in a full set of
general-purpose financial statements. The following table provides a
reconciliation of net income to comprehensive income.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
----------------------
1998 1997
---- ----
<S> <C> <C>
Net Income.................................................. 8,520 2,160
Cumulative Translation Adjustment........................... 192 (2,575)
Tax benefit of Option exercise.............................. 1,390 229
------ ------
Comprehensive Income........................................ 10,102 (186)
====== ======
</TABLE>
In June of 1997 the FASB issued SFAS No. 131 "Disclosure about Segments of
an Enterprise and Related Information" which will be applicable for the Company
in fiscal 1998. Management has not yet concluded its assessment of the impact of
implementation of this standard.
7. SUBSEQUENT EVENTS
A. SALE OF TASC
On April 1, 1998 the Company completed the sale of TASC and its affiliated
weather information companies for $432 million in cash plus an equity
adjustment. The equity adjustment, which must be reviewed by Litton Industries,
Inc. and its independent auditors, is anticipated to provide approximately $11.5
million to the Company. The adjustment is based upon changes in TASC's
consolidated equity account, less certain intercompany transactions, from
September 30, 1997 through March 31, 1998. The Company expects to record a gain
on the sale in excess of $175 million after deducting transaction costs, taxes
and the net book value of TASC's assets.
6
<PAGE> 9
PRIMARK CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cash, net of all transaction costs and taxes, to be received by the
Company from the foregoing sale is estimated to be in excess of $340 million.
b. REFINANCING
In March 1998, the Company amended the terms of its revolving credit
facility and term loan agreements. Under the terms of the revised agreement,
which became effective April 1, 1998, the Company used the proceeds from the
sale of TASC to prepay its $220 million outstanding term loan in full, and its
outstanding $112 million Senior Notes. In conjunction with the above, the
Company has replaced its outstanding $75 million credit facility with a $225
million revolving credit facility which expires in 2002. Interest on the
borrowings under the new revolving credit facility is payable at rates ranging
from 0.375% to 1.00% above the current prevailing LIBOR rate of interest. The
Company is not subject to any new debt covenants as a result of the new
financing. The Company incurred costs of $125 thousand in connection with the
foregoing arrangement, which will be amortized over the term of the debt. The
write-off of the unamortized debt issuance costs related to the original
financing will generate an extraordinary after-tax loss of $2.0 million in the
quarter ending June 30, 1998.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS
Primark Corporation reported net income of $8.5 million for the three
months ended March 31, 1998, compared to $2.2 million reported for the first
quarter of 1997. When calculating earnings per share on a dilutive basis, the
first quarter results were reported at $0.30 per share compared to $0.08 per
share last year. This nearly 300% increase of net income is a result of
significant improvements in Primark's core information product lines. TASC, Inc.
and its weather information companies, the Company's principal applied
technology businesses, has been reclassified as a discontinued operation as a
result of shareholder approval on March 30, 1998 of the sale of TASC to Litton
Industries, Inc. The sale of TASC was executed on April 1, 1998. Additionally,
discontinued operations contain the operating results of TIMCO, Primark's
aircraft maintenance subsidiary.
Income from continuing operations for the first quarter 1998 was reported
at $3.6 million ($0.13 per share) compared to a loss of $1.8 million ($0.06 per
share loss) in the first quarter of 1997. A portion of consolidated interest
expense has been allocated to discontinued operations based on the ratio of the
net assets of discontinued operations to total consolidated net assets. However,
the first quarter 1998 financial results include interest cost of $4.1 million
associated with outstanding debt issues which management intends to pay off from
the proceeds from the sale of TASC by the end of the second quarter. Excluding
interest expense, income from continuing operations for the first quarter 1998
would have been $0.22 per share.
REVIEW OF STRATEGIC ALTERNATIVES
The Company has now completed its review of strategic alternatives, which
was announced on December 8, 1997 at the time the company executed the contract
to sell its major applied information technology subsidiary TASC, Inc. After a
thorough review of options available to the Company, the Board of Directors has
concluded that, at this time, Primark will continue to operate as an independent
entity and repurchase 4 million shares of its common stock.
CONTINUING OPERATIONS:
Revenues from continuing operations during the first quarter were reported
at $104.4 million compared to $94.7 million in 1997, a 10.3% increase. Currency
movements continued to adversely affect reported results, as the dollar
strengthened against most other currencies worldwide. Excluding the impact of
currency on Primark's continuing operations, the Company would have grown
revenues 11.8% in the first quarter. Operating Income for the first quarter was
reported at $11.3 million compared to $3.8 million in 1997. The first quarter
1997 includes a $1.8 million restructuring charge. However, even excluding this
restructuring charge, the Company increased operating income 102%. This
increased profitability results from higher volume and margin improvement at
both Datastream/ICV and the Financial Analytic operations. Datastream/ICV
increased its operating margin from 10.7% to 15.9% while the Financial Analytic
operations increased from nearly flat to 14.1% when the first quarter 1998 is
compared to 1997. Operating income was also adversely affected by currency.
Excluding currency, operating income would have increased 116% for the first
quarter 1998. Because of the timing of currency hedges put in place over the
last twelve months, the Company experienced small losses in its hedging program
and was not able to offset the negative impact on operating income. However,
based upon the hedging instruments currently in place, management believes it
has adequately addressed the Company's foreign currency risk for the remainder
of 1998.
The revenues at Datastream/ICV improved only 8% because these operations
were adversely affected by the negative impacts of currency and due to declining
revenues associated with fees charged for stock exchange data. Exchange fees
generate very small margins and do not affect operating income in a material way
but do affect overall revenue growth rates. Without the effects of currency and
exchange fees, Datastream/ICV grew 15% during the first quarter. Excluding
currency, the Datastream research product line grew 10%, the PIMS business grew
22% and real-time products grew 31%. Datastream/ICV exhibited strong regional
growth with continental Europe up 13% and the United Kingdom up 14%.
Disclosure/Worldscope experienced a 4% drop in revenues when comparing the first
quarter 1998 to 1997. The Worldscope product grew 14% which contributed to the
electronic products growing 30% overall. The traditional paper-based
8
<PAGE> 11
business reported 18% lower revenues in the first quarter of 1998 compared to
1997. Over the last twelve months a significant transition in product sales at
Disclosure has taken place, as evidenced by the percentage of total revenue
represented by the electronic business year over year. As of the first quarter
1997, the electronic products represented 29% of revenue. As of the first
quarter 1998, the electronic products generated approximately 40% of
Disclosure's consolidated revenues, demonstrating a significant transition to
the next generation of platforms. The Financial Analytics operations grew
revenues 25% during the first quarter of 1998 when compared to last year. IBES
led the way with a 34% growth rate in revenues, followed by Baseline at 32%. The
buildup for the introduction and implementation of the Euro has been
particularly beneficial to Primark. Many of the Primark product lines provide
information of critical importance to financial professionals operating within
the planned European economic union or impacted by its formation.
The Yankee Group was originally acquired, in part, to be the market
research arm of the Company's applied technology segment, focusing on
identifying current trends and future directions in the communications and
computer industries. With the sale of TASC, management is still assessing the
most optimal means to integrate Yankee's market research and technology insights
into Primark's products and operations. Yankee experienced revenue and operating
income growth in the first quarter of 28% and over 150%, respectively, when
compared to the same period in 1997.
The dramatic improvement in operating income at Primark is due to three
factors; 1) implementing the DAFSA and Disclosure restructuring successfully, 2)
integrating operations at Datastream/ICV and 3) volume increases and resulting
operating leverage within Primark's fast growing product lines. DAFSA has been
resized for its market potential and its operations have been divided between
Disclosure and WEFA. Disclosure has likewise resized its U.S. paper-based
operations. The Datastream and ICV operations have been combined for efficiency
in areas such as product development, communications, sales, marketing and
administration. The IBES, Baseline and Worldscope businesses have improved
margins due to largely fixed costs supporting more revenues.
With the sale of TASC the Company is reviewing further integration and
restructuring plans. Management believes there are significant opportunities to
reduce product development and delivery costs together with reductions in sales,
marketing and administration expenses by integrating these functions. Currently,
to a large extent, twelve operating companies perform these functions
independently and there are significant economies possible as Primark moves from
its original "holding company" structure to that of an integrated operating
company serving more defined markets. Management also believes the integration
will provide more robust product offerings to its customers and the ability to
react to market needs quickly with new products and improved service.
Additionally, on March 17, 1998, Dow Jones & Company Inc. reported that it has
agreed to sell its wholly owned subsidiary, Dow Jones Markets to Bridge
Information Systems, Inc. While Dow Jones & Company and Dow Jones Markets are
both contractually obligated to provide news and financial information for the
Primark/Dow Jones product, management is reviewing the value of its investment
in ICV based upon the potential impact of this sale. The formal review is
anticipated to be completed during the second quarter of 1998 and includes a
review of intangible assets and accounting policies supporting current
operations. The Company anticipates some level of asset write-offs in the second
quarter of 1998. While the level of write-offs cannot be specified at this time,
the Company believes that it would be no more than $100 million, and may be less
depending on the extent and nature of the restructuring of the operations within
Primark. The $100 million largely represents non-cash items.
DISCONTINUED OPERATIONS:
On March 30, 1998 Primark's shareholders approved of the sale of TASC, Inc
and its weather information companies to Litton Industries and its affiliates
for $432 million in cash plus a purchase price adjustment for changes in TASC's
net worth. The sale was then accomplished on April 1, 1998. The net worth
adjustment will be finalized during the second quarter; however, the Company
currently estimates its value to be approximately $11.5 million. Upon the
closing of the transaction on April 1, the Company repaid its outstanding bank
debt and notified the public senior note holders that the Company would call all
outstanding notes as required by their terms. There are $112 million of
outstanding notes, with an additional 4.375% call premium required. The total
cost of the senior note repurchase is $116.9 million, which closed on May 8,
1998.
9
<PAGE> 12
Upon receipt of shareholder approval, TASC was placed in discontinued operations
at the end of March. The gain on the sale of TASC, currently estimated to be in
excess of $175 million, will be recorded in the second quarter of 1998.
Discontinued operations also contain the operating results of TIMCO, the
Company's aircraft maintenance operation, which is currently being marketed for
sale with the goal of executing a contract by the end of the second quarter.
CAPITAL RESOURCES & LIQUIDITY
Primark's cash and cash equivalent balances increased $9.4 million during
the three months ended March 31, 1998 as a result of operating activities
contributing $11.9 million, financing operations generating $7.2 million and
investing activities absorbing $9.7 million.
Most of the $12.0 million increase in cash flows from operating activities
is a result of improved earnings at the operating level. Income from continuing
operations plus depreciation and amortization charges totaled $16.7 million for
the three-month period ending March 31, 1998 compared to $8.3 million in 1997.
Working capital provided only $1.4 million during the first quarter due to a
significant increase in billed accounts receivable being offset by a deferred
liability to provide related service in future periods. Because a majority of
Primark's products are billed quarterly in advance, the Company typically
experiences small working capital requirements.
Financing activities, for the most part, reflect $5.1 million received on
the exercise of stock options for the three months ended March 31, 1998. An
additional $2.4 million was drawn on Primark's revolving credit facility,
resulting in $372.2 million of funded debt outstanding as of March 31, 1998. On
April 1, 1998 Primark received $432 million for the sale of TASC and immediately
repaid $250 million of bank debt. The senior notes were retired at a cost of
$116.9 million, including a call premium of $4.9 million, on May 8, 1998. Tax
payments related to the TASC sale are estimated to be $94 million for state and
Federal taxes. The tax payments from the TASC gain are due on June 15, 1998 and
are offset by $13 million of tax benefits related to stock options exercised in
December of 1997. As noted previously, the Company estimates it is due an
additional $11.5 million as a purchase price adjustment from the sale of TASC.
The payment of the purchase price adjustment is anticipated to be received in
the third quarter of 1998.
Simultaneous with the repayment of the bank debt Primark increased its
current revolving credit facility to $225 million maturing on December 31, 2002.
The new revolving credit facility amortizes the credit availability such that it
has an average life of 3.75 years. The interest rate on this facility ranges
from 3/8% to 1% over LIBOR depending on several predetermined factors. After the
sale of TASC on April 1, there were no borrowings outstanding under this
facility. The Company intends to repurchase 4 million shares of common stock at
prices ranging from $34 per share to $41.50 per share in a Dutch Auction
self-tender offer. The credit facility allowed for the repurchase of common
stock up to $100 million, and has been subsequently revised to allow for a $150
million stock repurchase.
Investing activities included $4.8 million of capital expenditures and $3.9
million of capitalized software. The capital expenditures consisted primarily of
computer equipment purchases, which totaled $3.1 million in the first quarter.
Datastream/ICV incurred $1.9 million of the computer purchases primarily to meet
rising customer requirements. Capitalized software represents expenditures on
new product offerings at Datastream/ICV and Disclosure of $1.7 million and $2.1
million, respectively.
10
<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The Company held a special meeting of shareholders on March 30, 1998 for
the purpose of approving the sale of TASC, Inc. and its weather information
affiliates to Litton Industries, Inc. and its affiliates. Proxies for the
meeting were solicited pursuant to section 14(a) of the Securities Exchange Act
of 1934. There was no solicitation in opposition to management's solicitations.
The solicitation to sell TASC, the Company's principal applied technology
business, to Litton Industries, Inc. was approved by the following vote:
<TABLE>
<CAPTION>
DESCRIPTION NUMBER OF SHARES PERCENTAGE OF SHARES
----------- ---------------- --------------------
<S> <C> <C>
Shares voted for............................ 19,648,920 72.87%
Shares voted against........................ 75,642 .28%
Shares abstaining........................... 53,916 .20%
Shares not voted............................ 7,185,102 26.65%
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27* Financial Data Schedule
- ---------------
* Indicates document filed herewith.
(b) The Company filed one report on Form 8-K on April 8, 1998 regarding the
disposition of TASC.
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.
PRIMARK CORPORATION
By: /s/ STEPHEN H. CURRAN
------------------------------------
Stephen H. Curran
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: May 12, 1998
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PRIMARK
CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31,
1998 AS REPORTED IN THE FORM 10-Q FOR SUCH PERIOD AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-Q.
</LEGEND>
<CIK> 0000356064
<NAME> PRIMARK
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 22,185
<SECURITIES> 0
<RECEIVABLES> 114,667
<ALLOWANCES> 2,319
<INVENTORY> 0
<CURRENT-ASSETS> 385,399
<PP&E> 94,775
<DEPRECIATION> 47,644
<TOTAL-ASSETS> 1,090,172
<CURRENT-LIABILITIES> 240,175
<BONDS> 326,220
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,090,172
<SALES> 0
<TOTAL-REVENUES> 104,411
<CGS> 0
<TOTAL-COSTS> 40,949
<OTHER-EXPENSES> 52,145
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,149
<INCOME-PRETAX> 7,057
<INCOME-TAX> 3,435
<INCOME-CONTINUING> 3,622
<DISCONTINUED> 4,898
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,520
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.30
</TABLE>
