================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended June 30, 1996.
|_| Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission file number 0-20311
DATA BROADCASTING CORPORATION
(Exact name of registrant as specified in charter)
Delaware 13-3668779
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7050 Union Park Center
Suite 600 3490 Clubhouse Drive, I-2
Midvale, Utah 84047 Jackson, Wyoming 83001
(Address of principal (Address of principal
administrative offices) executive offices)
Registrant's telephone number including area code:
(801) 562-2252 (307) 733-9742
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports 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 |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |_|
As of September 13, 1996, the aggregate market value of the Common Stock of the
Registrant (based upon the closing transaction price) on such date held by
nonaffiliates of the Registrant was approximately $217,526,000.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes |X| No |_|
As of September 13, 1996, there were 31,238,983 shares of Common Stock of the
Registrant outstanding.
Documents Incorporated by Reference
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission in connection with the Annual Meeting of Stockholders to be held
November 12, 1996 are incorporated by reference into Part III hereof.
================================================================================
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
Data Broadcasting Corporation ("DBC", the "Registrant" or the "Company"),
directly and through its subsidiaries, distributes financial data and business
information on a subscription basis to a broad range of individual and
professional investors, retail merchants and business associations. The Company
provides its services principally through DBC West, Market Information
Corporation (operating under the trade name "BMI") Capital Management Sciences
("CMS"), Instore Satellite Network ("ISN") and CheckRite International, Inc.
("CRI"). DBC West and BMI sell access to their networks which provide real-time
financial market and sports information. This includes stock market quotes,
equity analytics, financial and sports news and information, access to
historical databases and customized portfolio tracking services. CMS, acquired
during fiscal 1994, distributes fixed income portfolio analytics and real-time
fixed income data to a broad base of institutional investment managers including
banks, insurance companies, brokerage firms and investment management companies
for valuation and risk management purposes. ISN delivers point to multipoint
communication services, primarily to retail merchants and business associations.
CRI provides check recovery and check verification data and services to retail
merchants. The Company distributes its services via wireless communication
devices that rely on FM subcarriers and satellite transmission, as well as cable
television systems, telephone lines, the Internet and other means of
transmission. The Company provides subscribers with equipment and software
needed to access its networks and databases.
DBC was incorporated in Delaware in 1992 and is the successor registrant,
pursuant to Rule 12g-3 under the Securities Exchange Act of 1934, as amended, to
Financial News Network Inc., a California corporation ("FNN"). The existing
corporate structure of the Company results from the stipulations set forth in
the First Amended Chapter XI Plan of Reorganization of FNN, dated March 10,
1992, as subsequently amended (the "Plan"), which was confirmed by an order of
the U.S. Bankruptcy Court on May 4, 1992. DBC's common stock, par value $.01 per
share, was registered on Form 8-A filed by DBC and declared effective by the
Securities and Exchange Commission on June 26, 1992 (the "Effective Date").
DBC, including its operating units and subsidiaries, was never a party to any
bankruptcy proceedings and has continuously maintained separate and distinct
creditor relationships. Operations at DBC's operating units and subsidiaries
were not disrupted by FNN's bankruptcy proceedings.
On May 8, 1995, the Company sold substantially all of the assets of Shark
Information Services Corp. ("Shark"), an indirect, wholly-owned subsidiary of
the Company. Shark provided expansive financial data, analytical capabilities
and business information on a subscription basis to professional investors
through its own data network, utilizing leased telephone lines. The sale
represented part of the Company's strategy of focusing its resources in markets
where it has significant market share and concentrating its efforts in the
wireless data transmission business.
On June 30, 1995, the Company completed its acquisition of Broadcast
International, Inc. ("BII"), comprising its BMI, ISN and CRI operating units.
The merger of DBC and BII has significantly expanded the Company's market
position as a leading provider of wireless financial, sports and other
information services.
For the last three fiscal years, the percentage of total revenue contributed by
the Company's operating units and subsidiaries was as follows:
1996 1995 1994
---- ---- ----
DBC West 42% 55% 53%
BMI 15 -- --
CMS 14 18 7
ISN 16 -- --
CRI 13 -- --
Shark -- 27 40
---- ---- ----
100% 100% 100%
==== ==== ====
2
<PAGE>
Subsequent to the acquisition of BII, the Company operates in two business
segments: the Information Services Division ("ISD") and the Business Services
Division ("BSD"). ISD includes DBC West, BMI and CMS. BSD comprises ISN and CRI.
Financial information for the Company's segments is included in Note 12 to the
consolidated financial statements, included on page 41 of this report.
INFORMATION SERVICES DIVISION
Information Transmission Technology
DBC West creates its data feed by gathering ticker and news feeds from stock
exchanges and other sources and processing them into a single consolidated data
feed. The Company has two such information processing and ticker plants in
California. DBC West transmits its data feed from the ticker plants to multiple
satellite transponders which broadcast the feed to FM radio stations, cable
television networks and directly to individual DBC West satellite subscribers.
DBC West's FM broadcast network consists of long-term agreements with 68 radio
stations throughout the United States and Canada which are contracted to
broadcast the Company's data feed on their FM side-bands. This extensive network
provides coverage in 62 major North American cities and reaches at least 75
percent of the U.S. population. Subscribers receive this one-way transmission
through a proprietary FM receiver. Six such FM radio agreements are due for
renewal in fiscal 1997 and the Company believes they will be renewed.
DBC West also utilizes a proprietary technology to access unoccupied portions of
cable television broadcast signals (vertical blanking interval ("VBI")) to
transmit the Company's data feed along with the cable providers' broadcast. The
Company has insertion agreements with several national cable programmers which
reach virtually every U.S. cable subscriber. The television signals of these
programmers are carried by various cable systems throughout the country. DBC is
presently in the fourth year of a five-year agreement with one of the
multiple-system operators ("MSO's") offering carriage in these systems.
BMI delivers its services using the same basic technology as DBC West. BMI
receives news and quotes at its headend facility in Salt Lake City where the
data is formatted, compressed, packetized and multiplexed into two data feeds
using BMI's proprietary formats and packet switching protocols. BMI operates a
19,200 baud data feed as well as a recently developed 56,000 baud data feed.
These data feeds are transmitted primarily by satellite and VBI. FM service,
operating at 19,200 baud, is also available to BMI subscribers in six U.S.
cities through six FM radio stations.
DBC West's data carrying capacity during stock market sessions is particularly
unique with respect to its satellite and VBI data expansion capabilities. DBC
West currently uses a multiple 9,600 baud VBI feed, but has the rights and
technical abilities to increase the feed in 9,600 baud steps. FM subscribers
receive a 9,600 baud data feed while European cable and satellite subscribers
are able to receive a 19,200 baud data feed.
DBC West also provides, to the non-professional consumer, financial market data,
news and sports information via its Web site (http://www.dbc.com). The Company's
Brand Labeled Quotes service involves partnerships with other high usage Web
sites for which DBC provides stock market quotes and other financial data. The
innovative program with leading Internet site operators such as The Washington
Post, USA Today, U.S. News and World Report, AT&T WorldNet, T.Rowe Price and
approximately 35 other sites has succeeded in building usage at DBC's home page
to an average of two million hits per day. The Company believes that this
strategy will make DBC's data services available to significantly broader market
segments and attract advertising interest.
Both DBC West and BMI provide subscribers with software which is compatible with
their data feeds, which is the mechanism used to display and analyze the data.
In addition, there are over 130 third-party software packages, including
Metastock, TradeStation and OptionVue Plus, that are compatible with the
Company's data feeds and range in features from simple quote displays to
sophisticated charting and analysis.
3
<PAGE>
DBC West provides its subscribers with certain hardware that enables the
subscriber to receive the Company's data feeds. DBC West is responsible for
repairs and maintenance of such equipment through limited warranty periods.
Customers must pay for repair costs subsequent to the expiration of the warranty
period. After a customer cancels, DBC West refurbishes the equipment, if
necessary, before it is provided to new customers.
CMS updates its database of fixed income securities daily. Subscribers may
either download the database via modem or receive new diskettes from CMS
containing the revised data.
Principal Services
ISD generates revenue primarily through subscriptions to its principal services.
In addition, subscribers are charged certain installation and service initiation
fees, depending upon the service and broadcast delivery method.
DBC West
DBC West's data feed contains real-time securities prices for up to 130,000
securities from all major domestic markets and several international exchanges
including equities, options, bonds, futures, commodities and foreign exchange
rates. The data feed also contains news headlines from Dow Jones, Options News
Exchange and Futures World News, headlines and research reports from Hightower
and sports information including news, scores and betting odds from six major
Las Vegas casinos.
The capacity of the data feed during hours in which the stock market is closed
is an additional resource of DBC West. This capacity is now being used to
broadcast sports information, as sporting events typically occur during these
off-hours. Similarly, the capacity may be used in the future to broadcast
information such as traffic, weather and other consumer information, none of
which tend to fall within the stock market hours. The Company is currently
evaluating the addition of such services to offer timely information to its
subscribers.
The principal DBC West services are discussed below.
Signal(TM) and SignalCard(TM)
Signal is a one-way broadcast system which delivers real-time securities prices
from the DBC West data feed. Signal also offers a fifteen-minute delayed service
and an end-of-day data service, which provides each day's market settlement
prices. Signal functions in both the Windows and DOS environments and can be
broadcast directly to local area networks for redistribution to subscribers'
PCs. In addition, Signal provides news and news retrieval capabilities which
were developed jointly by DBC and Dow Jones. News related to specific securities
pre-selected by a customer is provided via "News Alerts" and "News Headlines"
from Dow Jones and other sources. DBC West also offers access to Dow Jones News
Retrieval databases via modem.
SignalCard is a small, wireless receiver that plugs into the PCMCIA slot of
laptop computers. It enables users to receive the complete DBC West data feed,
including both financial and sports information. When used in conjunction with
third-party software programs, a portable market analysis and portfolio system
is created, previously available only in fixed-location computers.
QuoTrek(TM)
QuoTrek is a hand-held wireless quotation monitor about the size of a small
cellular telephone which receives the DBC West data feed via FM broadcast
signals and displays real-time market quotes on up to 127 securities, as
selected by the subscriber from a universe of over 90,000 securities. The
service offers full portability to users as they travel to any city covered by
DBC West's extensive FM broadcast network. The latest release of QuoTrek also
receives sports information similar to SporTrax.
4
<PAGE>
SporTrax(TM), SportSignal(TM) and Scorecast(TM)
SporTrax is a hand-held wireless monitor similar in design to QuoTrek. Using DBC
West's FM broadcast network, SporTrax receives and displays real-time sports
data and Las Vegas odds from the DBC West data feed, including detailed scoring
updates from virtually every professional football, baseball, basketball and
hockey game and most college football and basketball games, as well as updates
and results from major golf and tennis tournaments and less frequent events such
as the Olympics and World Cup Soccer.
SportSignal is a Windows-based system that receives the extensive sports data
feed on a personal computer via FM, VBI or satellite, providing subscribers with
access to news headlines and the scoring updates mentioned above. Through Casino
Instant Odds, an add-on service, SportSignal subscribers can receive the only
live feed of odds from six major casinos in Las Vegas. DBC has also begun to
supply its odds feeds to virtually all major resellers and has become the
primary supplier of such information to most major on-line and internet sports
services, including USA Today and SportsLine.
Scorecast is an extensive database of statistical sports information covering
football, basketball, hockey and baseball. User-friendly software allows the
subscriber to query the database and analyze what-if scenarios.
MarketWatch(TM)
MarketWatch is an Internet financial data service offering real-time stock
market quotes, fundamental and historical data, a specialized business news
headline service, portfolio features, links to online brokerage services and
other investment related services to non-professional users.
BMI
BMI's data feed delivers real-time, delayed and end-of day quotes on more than
230,000 securities from all major U.S. and Canadian exchanges and several
international exchanges, including equities, options, mutual funds, bonds,
futures, commodities and indices. BMI also delivers real-time business and
financial news from Dow Jones, S&P MarketScope and Futures World News through
its principal service, Market Center.
Market Center(R)
Market Center for DOS stores data for over 100,000 securities from the BMI data
feed, allowing real-time and delayed access to pricing and fundamental
information. The system also features charting, technical analysis and a
portfolio feature that subscribers use to obtain real-time valuation of their
portfolios. Market Center for Windows takes full advantage of the Windows
multi-tasking operating system, allowing the subscriber to run other
applications while maintaining continuous reception of market data and news.
CMS
The CMS database includes government, agency and corporate debt instruments,
mortgage-backed securities, collateralized mortgage obligations, private
placements, adjustable rate mortgages, futures/options and asset backed
securities. BondEdge and BondVu, CMS' primary services, are described below.
BondEdge(TM)
BondEdge is a Windows and DOS-based system that provides fixed income data on
more than 70,000 fixed income securities and analytical tools for institutional
portfolio managers. BondEdge portfolio applications include daily market
valuations, effective duration and convexity calculations, portfolio appraisals,
option-adjusted spreads, return simulations, "what if" analyses, index
comparisons, cash flow and book value simulations, performance measurement and
regulatory compliance testing.
BondEdge is designed with an open architecture interface allowing import and
export of descriptive and calculated data. The system interfaces with various
third-party accounting and asset-liability management software packages to
eliminate manual data entry and to improve accuracy throughout an organization.
5
<PAGE>
BondVu(TM)
BondVu is an economically priced fixed income data service offering real-time
prices on more than 750,000 fixed income securities and sophisticated fixed
income analytics to retail brokers and money managers who require real-time
fixed income data to serve their clients.
Customers and Competition
The following table summarizes the subscriber levels for ISD:
At June 30,
------------------------------
1996 1995 1994
------ ------ ------
Signal and SignalCard 14,093 13,020 10,620
QuoTrek 10,584 8,940 8,330
MarketWatch 1,101 -- --
Sports, including Scorecast in 1996 and 1995 2,152 2,153 1,020
BMI* 8,814 6,860 5,550
CMS 1,022 920 680
Other -- 300 570
------ ------ ------
37,766 32,193 26,770
====== ====== ======
* 1995 and 1994 subscribers for BMI are presented for comparative
purposes only. BMI was acquired at June 30, 1995 as part of the
acquisition of BII.
DBC West and BMI compete in several sectors of the securities industry
information market, including individual and professional investors, money
managers, banks and insurance companies. These sectors consist of clients who
seek either real-time, fifteen-minute delayed or end-of-day quotations,
analytical and portfolio tracking services or some combination thereof.
The target market of DBC West and BMI consists primarily of individuals who make
their own investment decisions, trade frequently and earn in excess of 25
percent of their income from trading. The Company estimates that this total
market currently consists of approximately 200,000 to 300,000 potential
subscribers.
The Company estimates its Signal product has the largest share (approximately
50%) of the real-time non-professional investor market compared to its principal
competitors. The Company estimates that BMI has approximately 20% of the market.
In the fifteen-minute delayed segment, the Company's competition consists of
numerous suppliers and the Company competes mainly in the high quality, higher
price segment of this market. The Company believes the principal competitive
factors in the industry include data availability and reliability, ease of use,
compatibility with third-party software packages and price.
The Company believes its QuoTrek product dominates the hand-held, wireless
market for real-time financial market data with an estimated 75% market share.
Telemet America is the only significant competitor in this market and is
considerably smaller in terms of revenue than that generated by the QuoTrek
line. Several paging companies have attempted to penetrate this market, but none
to an extent considered significant by the Company. The baud rate at which the
Company broadcasts is significantly faster and offers higher data carrying
capacity than the technology used by the paging companies.
The Company believes that its established FM broadcast network provides the most
extensive high-speed data coverage in North America given the number of stations
in the network, the relative broadcast power of those stations and the long-term
contracts that it has with those stations. The Company believes this provides it
with a competitive advantage in the wireless broadcast market.
CMS competes against several other vendors of fixed income portfolio analytics
whose target market is made up of institutional investors who manage portfolios
of fixed income assets in excess of $300 million and who invest in diverse types
of bonds that require specialized modeling programs. CMS targets the premium end
of the market where clients, on average, spend upwards of $30,000 annually for
advanced analytics packages. Users in an organization are typically portfolio
managers, quantitative research analysts, and institutional
6
<PAGE>
brokers. Of its major competitors, CMS believes it has the largest installed
base of users, primarily located in North America, with an estimated 50% of the
market.
CMS' principal competitors are Salomon Brothers, Global Advanced Technology,
Barra, Inc. and to a lesser degree, other brokerage firms. CMS has a number of
competitive advantages that have increasingly made it possible for CMS to
dominate its target market. CMS has primarily focused on developing advanced
analytics, superior client support, extensive data coverage, integrated
analytics and an open architecture design.
Business Expansion and Product Development
The historical growth of the DBC West and BMI subscriber bases has been
primarily attributable to the expansion of the overall market for financial
information, advertising efforts of the Company and the introduction of new
services, including sports information.
CMS' growth has been positively impacted by increased regulation in the
financial marketplace, the issuance of increasingly complex securities,
volatility in the bond market and the industry's growing awareness of the risks
associated with fixed income securities and derivatives. CMS' ability to help
subscribers manage those risks keeps the Company well-positioned to take
advantage of these trends.
During fiscal 1996 ISD introduced several new services, including:
o MarketWatch, an Internet financial data service offering real-time stock
market quotes, fundamental and historical data, a specialized business news
headline service, portfolio features, links to online brokerage services
and other investment related services to non-professional users.
o BondVu, a financial information service delivering real-time bond market
valuation and pricing, analytical applications and fundamental bond data on
more than 750,000 U.S. fixed income securities.
During fiscal 1996, the Company saw its European customer base grow, although
European subscribers still represent a small portion of the overall subscriber
base. The Company's Signal product line, delivered by satellite across Europe
and the Middle East, is being marketed through its London sales office.
In fiscal 1996, DBC and Travelers Group, in an equal partnership, entered into
an agreement with Internet Financial Network, Inc. ("IFN") that includes an
option to acquire controlling interest of IFN, the first commercial computer
service to deliver real-time, electronically formatted Securities and Exchange
Commission filings over the Internet. IFN's services utilize proprietary data
warehousing and search engine software to provide electronic access to SEC
filings in a cost-effective, fast and convenient form.
In late fiscal 1996, ISD began developing AgCast, a broad-based agricultural
data service to be offered over the Internet and EchoStar's direct broadcast
satellite network. AgCast, to be priced below $30 per month, will include U.S.
and international commodities and futures pricing, news, weather and other
agribusiness information and be directed at agricultural professionals.
In February 1996, DBC's joint venture in Hong Kong began providing Signal
service to local customers. The data feed currently consists of Hong Kong stock
market data and may be expanded in the future to include other international
data.
Opportunities in the People's Republic of China to introduce services to the
individual investor turned unfavorable during the year, and the Company's joint
venture activities have been suspended pending a change in the market
environment. Management continues to believe that the Far East presents
significant opportunities to the Company and is developing strategies to
penetrate Japan and other Asian markets.
As a result of these efforts, the Company expects its international business to
increase in the long-term. This is expected to result in an increase in the
customary risks associated with international transactions, including political
risks, local laws and taxes, the potential imposition of trade or currency
exchange restrictions, tariff increases and difficulties or delays in collecting
accounts receivable. DBC expects that its alliances with well-positioned local
companies will help to reduce the risk involved in these ventures.
7
<PAGE>
Subsequent to year-end, the Company agreed to acquire Federal News Service
("FNS"), the leading provider of timely information from all major U.S.
government branch and agency hearings. FNS data will also be offered through
CivicLink, a service of Ameritech that will enable lawyers and real estate
professionals to retrieve documents filed with local or federal courthouses.
Subsequent to year-end, the Company also acquired Las Vegas Sports Consultants,
the leading provider of gaming odds to casinos, newspapers and other users, and
Instant Odds Network, which has exclusive rights to transmit real-time betting
odds from six major casinos in Las Vegas. These acquisitions will enhance DBC's
existing sports content.
During the fiscal years ended June 30, 1996, 1995 and 1994, the Company expensed
approximately $4.3 million, $4.5 million and $4.1 million, respectively, for
research and development, including maintenance and upgrading of existing
products, development of new products and development and maintenance of
internal systems.
ISD plans to continue to expand its businesses, both domestically and
internationally, through three general approaches:
o internal expansion and development of product lines and services, including
continued development of software interfaces to other complementary
third-party products;
o alliances and joint ventures with complementary businesses in order to
expand the scope of products offered and geographic reach of the business;
and
o business and content acquisitions.
Marketing Strategy
DBC West and BMI market their financial market services through telemarketing
and direct advertising in The Wall Street Journal, Investor's Business Daily,
Barron's and other print media, as well as radio and spot advertising on CNBC.
DBC West also offers free trial periods of approximately one month to induce
potential subscribers of these products to commit to a monthly payment plan or a
discounted one-year prepaid subscription. Most DBC West subscribers sign monthly
contracts that are automatically renewed if the customer does not cancel. BMI
typically enters into renewable one-year service agreements with its customers.
DBC uses similar efforts to market its sports services. SporTrax is marketed
under a licensing agreement with The Sporting News, the nation's oldest weekly
sports publication.
CMS markets its services through a dedicated sales force, product demonstrations
and trials and sponsorship of seminars and workshops on fixed income analysis.
Users typically sign monthly contracts which are automatically renewed unless
canceled. CMS has also signed an agreement with ILX Systems, a leading equity
market data provider to the retail brokerage community, to distribute BondVu.
The Company is also pursuing other such distribution agreements.
Seasonality
ISD has not experienced any material seasonal fluctuations in its business.
However, financial information market demand, which is segmented according to
the types of information provided, is largely dependent upon activity levels in
the securities markets. The Company's share of that demand is based on its
ability to compete effectively with other financial information providers. In
the event that the U.S. financial markets were to suffer a prolonged period of
investor inactivity in trading securities, the Company's ability to maintain
growth could be adversely affected. The degree of such consequences is
uncertain.
8
<PAGE>
BUSINESS SERVICES DIVISION
Information Transmission Technology
ISN uses satellites to deliver analog and digital communication services and
maintains a video studio and a digital uplink facility in Salt Lake City, Utah
that is capable of transmitting video and audio signals throughout North
America.
CRI delivers its services via common carrier telephone lines or satellite
equipment similar to ISN.
Principal Services
ISN services approximately 60 customers at 7,059 site locations in North
America. CRI services in excess of 40,000 merchants, including those serviced
through franchisees.
ISN
ISN delivers communication services including in-store audio advertising,
background music, video conferencing and data transmission. Customers transmit a
variety of data across the network, including price updates, inventory reorders,
product delivery schedules, electronic mail, company newsletters and training
materials. Business television services are being used by customers such as
RE/MAX and Safeway, to implement employee training programs, conduct management
meetings, introduce new products and communicate corporate policies and
procedures. ISN also provides satellite installation services for third parties.
During fiscal 1996, ISN introduced BusinessVision, a business education service
providing managerial and motivational video broadcasts via satellite using
small, direct broadcast satellite dishes. Programming for this network is being
provided by a leading developer of video training.
CRI
CRI offers a full range of check recovery services, ranging from partial
services to a full turn-key recovery operation. CRI also provides an automatic
check verification process that enables merchants to determine whether a
customer who wishes to pay by check has presented checks which were returned for
nonpayment and which remain unpaid.
CRI also markets credit card and bank card services provided by third-party
banking institutions. Under its marketing agreements with these institutions,
CRI offers authorization, electronic draft capture and settlement services.
Merchants who use the point-of-sale verification services and third-party credit
card and bank card services can verify check, credit card and bank card
transactions through the same point-of-sale terminal.
Customers and Competition
The retail stores and educational markets in which ISN competes are highly
competitive. Several companies which have greater financial resources and more
customers than ISN provide background music and in-store advertising utilizing
injector tapes or satellite transmissions. Other companies have recognized the
economic feasibility of in-store point-of-purchase advertising and have entered
the market utilizing various methods of advertising, including electronic signs,
and printed materials displayed within retail chain stores, as well as other
communication technologies, including tape injectors and FM subcarriers.
Further, some large retail chain stores have elected to own, install, operate
and maintain their own satellite networks. ISN is dependent, in part, upon a few
large customers; however, no single customer of ISN accounted for more than 10
percent of DBC's consolidated revenues for the year ended June 30, 1996.
Other large telephone, communications and computer companies provide data
communications and business television services via satellite transmission.
These companies currently compete directly with ISN in providing communications
equipment and services to large retail chains and other businesses. Should such
9
<PAGE>
companies elect to enter the background music and/or audio in-store advertising
market, ISN's ability to compete could be significantly affected. ISN believes
that its products and services offer either cost savings or convenience with
respect to business communication needs.
The market for check verification, bank card authorization and check recovery
services in which CRI competes is highly fragmented and generally characterized
by a few companies in each service area. CRI competes primarily on the basis of
price, its established database of approximately 6,000,000 local returned checks
and its ability to provide services to merchants in a timely manner. Although
CRI markets bank card processing services, CRI faces its principal competition
from other companies providing check-related services. CRI's customers are
located primarily in the western United States.
Business Expansion and Product Development
During fiscal 1996, ISN introduced BusinessVision(TM), a business education
service which can be received using a small direct broadcast satellite dish.
Also during fiscal 1996, CRI acquired a franchisee for $1.2 million.
Subsequent to year-end, the Company signed a joint venture agreement with the
American Bar Association ("ABA"), to develop and operate a nationwide video
programming and data network to be offered to the ABA's 380,000 members
beginning in the spring of 1997. The network will use direct broadcast satellite
dishes to broadcast continuing legal education courses and related legal news
and information to law firms, law libraries, law schools and corporate settings.
The network will also feature ISD's financial information and BusinessVision's
proprietary programming.
BSD plans to continue to expand its business through the acquisition of
additional check recovery businesses, the increase of credit card processing
activities and the development of alliances with business associations, through
which to distribute both BSD and ISD services.
Marketing Strategy
ISN and CRI market their services through dedicated sales forces. ISN customers
typically enter into multi-year service contracts having terms of three to five
years, while CRI customers are generally on month-to-month contracts.
In addition to operating owned offices, CRI has franchised its operations. Under
its standard franchise agreement, it grants to the franchisee the exclusive use
of the CRI trademark and the commercial benefits of the CRI name and
merchandising systems in a designated geographic area. The franchisee pays CRI a
royalty fee for services provided. In consideration of the fees paid to CRI,
franchisees receive management and sales training, the right to purchase
computer software relating to office operations and continuing assistance. CRI
also provides trained personnel to the franchisee on a temporary basis to assist
the franchisee in establishing its office and in marketing the CRI program to
merchants in its area. Future growth in franchise territories is not expected to
be significant, but is considered on a case-by-case basis as existing
franchisees request an expansion of their current territories.
10
<PAGE>
Seasonality
ISN typically records a significant amount of revenue upon installation of a new
satellite network. This non-recurring revenue may distort revenue in a given
period, depending on the timing of new installations.
CRI's business is somewhat seasonal in nature as check recovery revenues
generally lag one quarter behind traditional consumer spending patterns.
Backlog
Given the nature of the Company's businesses, DBC has no material backlog
orders.
Employees
The Company employed 737 people as of August 31, 1996, none of whom are
represented by a collective bargaining unit. The Company believes that its
relationship with employees is satisfactory.
Regulation
The Federal Communications Commission ("FCC") regulates the broadcasting of
satellite, FM-SCA and other airwave transmissions in the United States. The FCC
has licensed ISN and BMI to transmit data from their uplink facilities in Salt
Lake City, Utah. Monitoring and compliance are carried out through the space
segment suppliers. Although the Company uses its FCC license to transmit data to
third-party satellites for further transmission, the loss of such license would
not be expected to have a long-term material adverse effect on the Company
because of other transmission alternatives.
The Company's check and bank card services business is subject to various
federal and state laws and regulations. The Federal Fair Debt Collection
Practices Act prohibits certain practices with respect to debt collections,
including the use of the telephone for purposes of abusing or harassing a
debtor. The Communications Act of 1934 and regulations promulgated by the FCC
likewise prohibit the use of the telephone to abuse or harass a debtor. The
Federal Trade Commission, pursuant to authority granted to it by the Federal
Trade Commission Act, regulates unfair or deceptive acts or practices by
companies providing services such as those offered by the Company. The Federal
Fair Credit Reporting Act regulates the use and dissemination of information in
the computer databases maintained by the CRI-owned offices. The Federal Fair
Credit Billing Act governs certain credit and collection practices related to
consumer disputes of billing statement amounts. In addition, most states have
laws which regulate the collection of debts and the collection practices of debt
collection agencies. The Company believes that CRI is in material compliance
with federal and state laws and regulations concerning the collection of debts
and that compliance with these laws and regulations will not impair the ability
of CRI to conduct business. CRI is a licensed collection agency in each state in
which it does business, if required by applicable state law.
Emergence of DBC from the Chapter 11 Reorganization of Financial News Network
Inc.
The existing corporate structure of the Company results from the stipulations
set forth in the Plan. Pursuant to the Plan, the Company, newly incorporated in
Delaware on May 26, 1992, (i) acquired substantially all of the remaining assets
of FNN, including but not limited to the assets then owned by FNN's 98.75% owned
subsidiary, Old DBC, Inc., (this excluded FNN's cable network facilities, which
previously had been sold to Consumer News and Business Channel ("CNBC") in May,
1991); (ii) acquired FNN's 49% equity interest in Shark Holdings, Inc., a
Delaware corporation ("SHI") that was and is the parent of Shark; and (iii)
assumed certain obligations of FNN created pursuant to the Plan. Also on the
Effective Date, the Company acquired the remaining 51% of SHI not owned by FNN.
Pursuant to the Plan, as of the Effective Date, the property of FNN transferred
to the Company was free and clear of all claims, liens, encumbrances, charges
and other interests of creditor and equity security holders of FNN and the
Company has been free to operate its businesses without the restrictions imposed
upon FNN by the U.S. Bankruptcy Code or the Bankruptcy Court.
11
<PAGE>
DBC, including its operating units and subsidiaries, was never a party to any
bankruptcy proceedings and has continuously maintained separate and distinct
creditor relationships. Operations at DBC's operating units and subsidiaries
were not disrupted by FNN's bankruptcy proceedings.
(a) DBC Assets and Liabilities Resulting from the Reorganization
Pursuant to the Plan, the Company, as of the Effective Date, was charged with
managing the application of $15,038,000 in restricted cash for settling
$10,038,000 in trade and security-related claims, and portions of the Company's
long-term debt which resulted from the reorganization. As of June 30, 1996, all
such claims and debts were paid.
Pursuant to the Plan, the Company received certain assets from FNN's media
business segment which were not included in the sale of the segment to CNBC in
May 1991 and which had not been sold prior to the Effective Date. The remaining
assets held for sale have no value on DBC's balance sheet and are being actively
marketed by the Company through an equipment reseller. Proceeds from the sale of
such equipment are not expected to be material.
(b) Contingent Payment From Sale of Certain Media Assets
Under terms of a previous agreement, DBC received a payment of approximately
$26.6 million from CNBC in March, 1995, as additional consideration for CNBC's
purchase of certain FNN media assets in May 1991. To satisfy its obligations
under the Plan, the Company paid approximately $11.0 million and $0.4 million to
certain claimholders in June and July 1995, respectively. The Company also
incurred approximately $1.1 million in commissions and expenses associated with
these proceeds.
In March 1996, DBC received a final payment of approximately $7.7 million from
CNBC as the result of the arbitration of certain matters related to the March
1995 payment. To satisfy its obligations under the Plan, the Company paid
approximately $2.8 million to certain claimholders during fiscal 1996. The
Company also incurred approximately $1.4 million in commissions and expenses
associated with these proceeds.
Executive Officers of the Registrant
The following table contains information as of September 13, 1996 as to the
executive officers of the Company:
Name Age Office Held with Company
- ---- --- ------------------------
Alan J. Hirschfield 60 Co-Chief Executive Officer
Allan R. Tessler 59 Co-Chief Executive Officer
Mark F. Imperiale 45 President, Chief Operating Officer
and Chief Financial Officer
Dwight H. Egan 43 President - BII
James A. Kaplan 53 President - CMS
ALAN J. HIRSCHFIELD and ALLAN R. TESSLER serve as Co-Chairmen of the Board and
Co-Chief Executive Officers of the Company.
Prior to joining DBC, Mr. Hirschfield served as Managing Director of Schroder
Wertheim & Co. and as a consultant to the entertainment and media industry. He
formerly served as Chief Executive Officer of Twentieth Century Fox Film Corp.
and Columbia Pictures Inc. from 1980 to 1985 and 1973 to 1978, respectively. Mr.
Hirschfield currently serves on the boards of Cantel Industries, Inc. and Chyron
Corporation.
Mr. Tessler has been Chairman of the Board and CEO of International Financial
Group, Inc. an international merchant banking firm, since 1987. He is also
Chairman of the Board of Great Dane Holdings, Inc., Enhance Financial Services
Group Inc. and Jackpot Enterprises, Inc. From December 1991 through September
1993 Mr. Tessler was Chairman and CEO of Ameriscribe Corporation, a national
provider of facilities management services. Mr. Tessler also serves on the
boards of The Limited, Inc., Allis-Chalmers Corporation and New
12
<PAGE>
T&T DBC Limited, a joint-venture between the Company and New T&T Hong Kong
Limited, a wholly-owned subsidiary of Wharf Communications Investments, Ltd.
Messrs. Hirschfield and Tessler were appointed to serve as a restructuring team
to address the financial problems of FNN, and in that capacity served as
Co-Chief Executive Officers of FNN from October 1990 until the Effective Date.
Both currently serve as directors of the FNN Estate, having been named to the
board in June 1991. From October 1990 until September 1992, Messrs. Hirschfield
and Tessler also served as Co-Chief Executive Officers of Infotechnology, Inc.
("Infotech"), an integrated information technology and communications concern.
Infotech was formerly a beneficial owner of approximately 46 percent of FNN's
stock. Mr. Tessler served as a director of Infotech from August 1989 until
October 1990, when he was appointed as FNN's Co-Chief Executive Officer. He
rejoined the board of Infotech in June 1991, along with Mr. Hirschfield. Both
resigned their directorships of Infotech in September 1992. FNN and Infotech
each filed for reorganization under Chapter XI of the Bankruptcy Code in March
1991.
MARK F. IMPERIALE was named as President, Chief Operating Officer and Chief
Financial Officer in September 1996, having served as Executive Vice President
and Chief Financial Officer since July 1994. Mr. Imperiale was formerly
Executive Vice President and Chief Financial Officer of Ameriscribe Corporation,
a national provider of facilities management services, from May 1992 through
October 1993, when Ameriscribe was acquired by Pitney Bowes Inc., and where he
continued as a consultant through December 1993. Mr. Imperiale spent the prior
10 years in the securities industry, as Senior Vice President and Controller of
Broker Dealer Operations for Prudential Securities from May 1991 to May 1992, as
a Vice President of Merrill Lynch from November 1987 through January 1991, and
as a Vice President, Finance of the First Boston Corporation from 1983 to 1987.
Mr. Imperiale, a certified public accountant, worked with Arthur Young & Company
from 1973 to 1983 in the public accounting field.
DWIGHT H. EGAN is President and Chief Executive Officer of Broadcast
International, Inc. ("BII"), a subsidiary of the Company. He has held these
positions since 1985. Acquired by DBC in 1995, BII supplies business
information, real-time financial market information and communications services
to retail, financial and other business customers. Mr. Egan also serves on the
board of Gentner Communications, Inc.
JAMES A. KAPLAN is President of Capital Management Sciences ("CMS"), a division
of the Company. He has held this position since 1979. Acquired by DBC in 1994,
CMS distributes fixed income portfolio analytics and information.
13
<PAGE>
Item 2. PROPERTIES
The Company owns no real estate but leases the following principal facilities:
Current
Location Operating Unit Square Feet Annual Rate Expiration
- -------- -------------- ----------- ----------- ----------
Jackson, WY Corporate 1,475 $ 18,500 May 2001
San Mateo, CA DBC West 48,216 $906,700 July 2000
Belmont, CA and
Burlingame, CA DBC West 5,300 $ 49,600 March 2000
Los Angeles, CA CMS 14,200 $458,900 July 1998
New York, NY CMS 4,500 $144,000 December 2000
Midvale, UT ISN 13,880 $232,400 October 1996
Midvale, UT CRI 10,760 $182,900 October 2000
Salt Lake City, UT BMI 19,430 $226,500 December 2003
Midvale, UT ISN 15,500 $ 67,500 August 1998
The Company also has approximately 26,900 square feet of property under lease in
various locations that was previously used by Shark. This space has been sublet
through various dates no later than May 1997. The leases expire or can be
canceled at various dates no later than October 2000.
In addition to the above facilities, the Company maintains several other offices
and facilities throughout the United States, all of which are leased. The
Company believes that its current facilities are suitable and adequate to meet
present and anticipated needs.
Item 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Registrant is a
party, other than ordinary routine litigation incidental to the business.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
14
<PAGE>
PART II
Item 5. PRINCIPAL MARKET AND PRICES FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Principal Market and Prices
The Company has two classes of authorized stock: 75 million shares of common
stock, $0.01 par value, of which 31,238,983 were outstanding as of September 13,
1996, and 5 million shares of preferred stock, $0.01 par value, none of which
has been issued.
The Company's common stock trades on The Nasdaq Stock Market ("Nasdaq") under
the symbol DBCC. The Company began trading under this symbol on June 29, 1992.
As of September 13, 1996, there were 2,304 holders of record of the Company's
common stock, and the Company believes it had in excess of 10,000 beneficial
owners of its common stock. The Company has paid no dividends, and under the
terms of certain indebtedness the Company is restricted from paying dividends on
its common stock (see Liquidity and Capital Resources under Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations).
The range of high and low bid quotations for the common stock of DBC as reported
by Nasdaq for each quarterly period during the fiscal years ended June 30, 1996
and June 30, 1995 is shown below.
High Low
-------- --------
Fiscal Year 1996:
FIRST QUARTER (07/01/95 TO 09/30/95) ............. $ 10 1/8 $ 5 3/8
SECOND QUARTER (10/01/95 TO 12/31/95) ............ 15 6
THIRD QUARTER (01/01/96 TO 03/31/96).............. 13 1/2 9 7/8
FOURTH QUARTER (04/01/96 TO 06/30/96) ............ 11 5/8 7 5/8
Fiscal Year 1995:
FIRST QUARTER (07/01/94 TO 09/30/94) ............. $ 5 11/16 $ 4 7/8
SECOND QUARTER (10/01/94 TO 12/31/94) ............ 5 1/8 3 9/16
THIRD QUARTER (01/01/95 TO 03/31/95) ............. 5 3 7/8
FOURTH QUARTER (04/01/95 TO 06/30/95) ............ 7 1/4 4 3/16
15
<PAGE>
Item. 6. SELECTED FINANCIAL DATA OF DATA BROADCASTING CORPORATION
(EXCEPT AS OTHERWISE NOTED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
REVENUES $114,633 $ 74,243 $66,434 $ 55,856 $ 24,868
INCOME (LOSS) FROM OPERATIONS 13,613 8,245 7,826 4,045 (366)
INCOME (LOSS) BEFORE EXTRAORDINARY
LOSS AND ACCOUNTING CHANGE 9,096 16,365 4,358 3,247 (58,026)
NET INCOME 8,871 16,365 4,608 3,247 1,047
PRIMARY INCOME (LOSS) PER SHARE
INCOME BEFORE EXTRAORDINARY LOSS
AND ACCOUNTING CHANGE $.28 $.68 $.20 $.19 ($3.16)
NET INCOME $.28 $.68 $.21 $.19 $.06
FULLY DILUTED INCOME (LOSS) PER SHARE
INCOME BEFORE EXTRAORDINARY LOSS
AND ACCOUNTING CHANGE $.28 $.67 $.19 $.15 ($3.16)
NET INCOME $.27 $.67 $.20 $.15 $.06
WEIGHTED AVERAGE SHARES
PRIMARY 31,936 24,015 21,533 16,699 18,333
FULLY DILUTED 32,891 24,350 23,985 22,548 18,333
TOTAL ASSETS $153,967 $163,020 $72,446 $ 39,440 $ 53,609
LONG-TERM DEBT, LESS CURRENT
PORTION 2,558 8,903 11,079 4,687 16,508
STOCKHOLDERS' EQUITY 116,097 96,715 40,111 19,816 15,000
</TABLE>
- - Operating results reflect the acquisition of the remaining interest in
Shark Holdings, Inc. on June 26, 1992, the acquisition of CMS on January
31, 1994, the sale of the assets of Shark Information Services Corp.
("Shark") effective May 1, 1995, and the acquisition of BII on June 30,
1995.
- - Income from operations in 1996 includes a charge of $1.9 million related to
merger and consolidation costs. Net income also includes a non-recurring,
pre-tax benefit of $3.3 million attributable to proceeds received from
Consumer News and Business Channel ("CNBC") under a previous agreement and
an extraordinary loss of $0.2 million.
- - Income from operations in 1995 includes a charge of $0.9 million related to
merger and consolidation costs. Net income also includes a non-recurring,
pre-tax benefit of $14.1 million attributable to proceeds received from
CNBC under a previous agreement and a non-recurring, pre-tax gain of $5.4
million from the sale of the assets of Shark.
- - The 1992 balance sheet information represents the Company and not its
predecessor.
- - Long-term debt includes capital lease obligations.
- - During the five-year period ended June 30, 1996, the Company and its
predecessor registrant paid no cash dividends.
NOTE: INCOME STATEMENT INFORMATION FOR FISCAL YEAR 1992 IS NOT COMPARABLE TO
SUBSEQUENT YEARS AS IT REPRESENTS THE RESULTS OF THE PREDECESSOR REGISTRANT. THE
BOLD VERTICAL LINE HAS BEEN INSERTED TO DENOTE SUCH LACK OF COMPARABILITY.
16
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Subsequent to the acquisition of Broadcast International, Inc. ("BII"), Data
Broadcasting Corporation operates in two business segments. The Information
Services Division includes DBC West, Market Information Corporation (operating
under the trade name "BMI") and Capital Management Sciences ("CMS"). ISD
provides real-time stock market quotes, equity and fixed income analytics,
financial market information and news, access to historical financial databases,
and other information to individual investors, traders and portfolio managers on
a subscription basis. ISD also provides sports information to sports
enthusiasts. The Business Services Division includes Instore Satellite Network
("ISN") which delivers point to multipoint communication services, primarily to
retail merchants and business associations, and CheckRite International, Inc.
("CRI") which provides check recovery and check verification data and services
to retail merchants. The Company distributes its services via wireless
communication devices that rely on FM subcarriers, satellite transmission, cable
television systems, telephone lines, the Internet and other means of
transmission.
Effective May 1, 1995, the Company sold substantially all of the assets and
assigned certain liabilities of Shark Information Services Corp. ("Shark"), a
provider of financial market information and analytical capabilities to
institutional investors. The BMI, ISN and CRI operations were part of the June
30, 1995 BII acqusition.
In the following discussion, all references to specific years refer to the
Company's fiscal year ending June 30, unless otherwise noted.
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA ($ Millions)
Year Ended June 30,
--------------------------
1996 1995 1994
------ ------ ------
Revenues
Information Services Division
DBC West $ 48.1 $ 40.7 $ 34.9
BMI 17.8 -- --
CMS 15.8 13.3 4.6
Business Services Division
ISN 17.9 -- --
CRI 15.0 -- --
Shark -- 20.2 26.9
------ ------ ------
114.6 74.2 66.4
Cost of services and sales 45.1 30.5 28.9
Selling, general and administrative:
Sales and marketing 22.1 12.0 10.9
G&A 15.3 12.5 12.5
Depreciation and amortization:
Equipment and leasehold improvements 9.5 7.0 4.5
Goodwill 3.8 1.7 1.4
Software development 1.2 0.9 0.3
Customer contracts and other 2.1 0.4 0.1
Merger and consolidation costs 1.9 0.9 --
------ ------ ------
Income from operations $ 13.6 $ 8.3 $ 7.8
====== ====== ======
17
<PAGE>
Income (loss) from operations by unit
1996 1995 1994
---- ---- ----
DBC West/BMI $12.9 $ 9.1 $ 10.3
CMS 3.0 2.7 0.8
ISN 0.0 - -
CRI 1.2 - -
Shark - 0.5 1.0
Corporate and unallocated (3.5) (4.0) (4.3)
----- ----- -----
$13.6 $ 8.3 $ 7.8
===== ===== =====
1996 versus 1995
ISD revenues grew by 51 percent, primarily attributable to the acquisition of
the BMI subscriber base. DBC West experienced a 17 percent increase in average
subscribers during the year resulting in an 18 percent growth in revenues. CMS
revenues grew 18 percent mainly due to an 11 percent growth in its customer base
during the year and a six percent increase in average subscriber revenues. BMI
revenues increased 38 percent over the prior year with underlying subscriber
growth of 28 percent. The Company believes these increases are attributable to
the growing demand for financial information, the introduction of new services
and the strengthening of the Company's brands in these markets. Comparative
subscriber information as of June 30 is shown below:
1996 1995
---- ----
Signal 14,093 13,320
Quotrek 10,584 8,937
BMI 8,814 6,860
Sports 2,152 2,153
MarketWatch 1,101 -
CMS 399 358
Year over year revenues in the Business Services Division increased 12 percent,
with eight percent growth at ISN and 16 percent at CRI. Revenues at CRI were
enhanced by the January 1, 1996 acquisition of a former CRI franchisee, for
approximately $1.2 million.
Revenues for the BII entities have been presented for comparative purposes only.
Such revenues were included in the Company's consolidated results of operations
beginning July 1, 1995. Revenues (in millions) were as follows:
1996 1995
---- ----
BMI $17.8 $13.0
ISN 17.9 16.6
CRI 15.0 12.9
Operating income increased 69 percent and operating margins improved from 12
percent to 14 percent excluding $1.9 million and $0.9 million of costs in 1996
and 1995, respectively, incurred with the acquisition of BII. The Company does
not expect to incur additional merger and consolidation costs associated with
the BII acquisition. The margin improvement was largely caused by the sale of
the assets of Shark, which had only a two percent operating margin during 1995.
Operating margins for the other businesses decreased overall due to the
Company's investment in new online businesses, international markets, a new
information service for the agricultural market and CMS' new BondVu service,
which totaled approximately $5.1 million
18
<PAGE>
during 1996. Such costs included research and development expenses, data and
transmission costs and selling, general and administrative expenses.
Selling expenses increased to $22.1 million from $12.0 million; $7.7 million of
the increase was attributable to BII. The remainder of the increase was caused
by increased marketing efforts at DBC West and CMS to generate higher sales,
partially offset by the absence of marketing costs at Shark.
Of the $2.1 million increase in goodwill amortization, $1.8 million was
attributable to the acquisition of BII. The increase in other amortization was
due to the amortization of customer contracts at ISN, whose value was recorded
in purchase accounting at June 30, 1995.
Merger and consolidation costs approximating $1.9 million were incurred during
1996 in connection with the acquisition of BII. These costs are primarily
related to salaries and benefits of certain duplicative employees of BII prior
to their termination and costs to consolidate certain operations in San Mateo,
California.
During 1996, the Company's joint venture in Hong Kong commenced operations. DBC
recorded $0.8 million of losses on this investment.
Interest expense, net dropped by $0.4 million as higher interest income and
lower interest expense at DBC were partially offset by the assumption of BII's
debt as part of the acquisition. Interest income increased due to higher cash
balances during the year, attributable to the substantial cash inflows at the
end of 1995 from the sale of the assets of Shark and the CNBC net proceeds, as
described below, cash generated from operations and the exercise of 2.1 million
stock options. During 1996, the Company refinanced its bank debt, resulting in
significantly lower levels of debt at June 30, 1996 versus June 30, 1995, as
well as reduced interest expense during the year.
Other income, net includes a one-time receipt of $0.3 million, net of legal
expenses, received as a settlement from Crum & Forster from a prior year
insurance claim.
As a result of the arbitration of matters related to the Consumer News and
Business Channel's ("CNBC") purchase of certain Financial News Network, Inc.
("FNN") media assets in 1991, DBC received a final payment of approximately $7.7
million in March 1996 from CNBC. The net proceeds after commissions, expenses,
payments to claimholders under FNN's Plan of Reorganization and taxes (the "CNBC
net proceeds") approximated $1.9 million ($3.3 million before taxes). In 1995,
DBC received an initial $26.6 million payment from CNBC. The net impact of this
payment was $8.9 million ($14.1 million before taxes).
The effective tax rate for 1996 was approximately 44 percent. This was higher
than 1995, principally because of non-deductible goodwill amortization
associated with the BII acquisition.
Excluding the CNBC net proceeds, merger and consolidation costs and an
extraordinary loss from the early extinguishment of debt, 1996 net income
totaled $8.3 million, equal to $0.26 per primary share. Comparable net income in
1995 was $5.2 million, or $0.22 per primary share, excluding $0.37 attributable
to the CNBC net proceeds, $0.11 attributable to the sale of the assets of Shark
and a $0.02 charge related to merger and consolidation costs. These results
reflect a 33 percent increase in weighted average shares outstanding mainly due
to the issuance of 6.1 million shares and options to acquire 1.0 million shares
related to the BII acquisition.
1995 versus 1994
Revenue grew 12 percent in 1995 as revenue increases at DBC West and CMS were
partially offset by a decrease at Shark. DBC West revenues grew by 17 percent,
primarily attributable to a 15 percent increase in subscribers during the year
and slightly higher service revenues per subscriber, partially offset by the
19
<PAGE>
discounting of service initiation fees to meet market competition, primarily
from BMI. The acquisition of CMS, effective January 31, 1994, had a significant
positive effect on revenues, reflecting 12 months of operations in 1995 versus
five months in 1994. For the five comparable months of operations included in
both fiscal periods, revenues increased 28 percent principally due to a 21
percent increase in the number of subscribers. The subscriber growth at DBC West
and CMS was largely the result of the expansion of the overall market for
financial information, advertising efforts of the Company and the introduction
of new services.
Approximately $4.4 million of Shark's revenue decrease was attributable to the
fact that 1995 included only ten months' results while 1994 included a full year
as Shark's assets were sold effective May 1, 1995. The remaining decrease of
$2.3 million is due to the decline in the number of customer terminals
throughout the ten-month period (approximately 11 percent) and a decline in
average rates due to competitive pressures.
Operating income increased 17 percent and operating margins were flat, excluding
$0.9 million of merger and consolidation costs in 1995 incurred with the BII
acquisition. The acquisition of CMS in 1994 and the sale of Shark's assets in
1995 had a positive impact on operating income as CMS reported operating profits
for the full year in 1995 versus five months in 1994, while Shark's lower
margins were a part of the Company's operations for only 10 months in 1995
versus the full year in 1994. DBC West's year over year operating income
declined as operating income in 1994 included the one-time benefit of a change
in marketing strategy whereby DBC retains title to the receiver equipment used
by its subscribers. Such one-time benefit in 1994 compared with 1993 was $2.0
million. This change also caused significant increases in 1995 in product repair
costs and depreciation. For the years ended June 30, 1995 and 1994, the
following costs (in millions) were attributable to Shark:
1995 1994
---- ----
Cost of services and sales $14.1 $17.5
Selling, general and administrative 3.2 6.2
Depreciation and amortization 2.4 2.2
Merger and consolidation costs approximating $0.9 million were incurred in the
fourth quarter of 1995 in connection with the acquisition of BII, primarily as a
result of the consolidation of certain operations and corporate functions in San
Mateo and Salt Lake City.
Interest expense, net increased by $0.3 million net expense mainly due to
increased interest expense resulting from debt incurred for the CMS acquisition
and for equipment financing at Shark, partially offset by a reduction of
interest expense from the 1994 conversion and payment of the remaining Series B
Convertible Notes and an increase in interest income due to higher cash balances
during the year, which were largely attributable to the sale of the assets of
Shark and the CNBC net proceeds.
The sale of the assets of Shark resulted in a non-recurring, pre-tax gain of
$5.4 million in the fourth quarter of 1995. After taxes, this transaction
contributed approximately $2.6 million to net income.
Other reorganization items, net for 1995 included $0.5 million of one-time,
non-cash income related to the favorable settlement of outstanding claims,
offset, in part, by $0.2 million of administrative expenses incurred in the
resolution of outstanding reorganization matters.
Primary net income per share for 1995 equaled $0.68, including $0.37
attributable to the CNBC net proceeds, $0.11 attributable to the sale of the
assets of Shark and a $0.02 charge related to merger and consolidation costs.
This compares with $0.21 per share, including a $0.01 benefit from a change in
accounting for income taxes, for 1994. These results reflect a 12 percent
increase in primary shares outstanding, resulting principally from the
conversion of Series B Convertible Notes and the issuance of 1.5 million shares
and options to acquire 2.0 million shares in connection with the CMS acquisition
in 1994. Fully diluted net income per
20
<PAGE>
share equaled $0.67 for 1995, including $0.37 attributable to the CNBC net
proceeds, $0.11 attributable to the sale of Shark and a $0.02 charge related to
merger and consolidation costs. This compares with $0.20, including a $0.01
benefit from a change in accounting for income taxes, in 1994, reflecting a two
percent increase in fully diluted shares outstanding, mainly due to the
aforementioned options issued in connection with the CMS acquisition and the
higher stock price at June 30, 1995 compared to June 30, 1994. Weighted average
primary shares outstanding were 24.0 million compared with 21.5 million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $22.7 million, $9.4 million and $13.7
million in 1996, 1995 and 1994, respectively. The significant increase from 1995
to 1996 was mainly due to the increase in operating income before depreciation
and amortization, attributable to the BII acquisition and growth in the other
businesses. The decrease from 1994 to 1995 was largely attributable to
approximately $3.9 million of taxes paid on the CNBC net proceeds and an
increase in accounts receivable of $1.3 million. The taxes were reported as an
operating cash outflow while the proceeds were considered to be an investing
activity. In 1996, 1995 and 1994, the Company realized approximately $2.2
million, $6.4 million and $2.2 million, respectively, of its deferred tax
assets, including those related to the Company's tax credit and net operating
loss carryforwards.
In 1996, the Company used $18.5 million to complete the acquisition of BII, make
contingent earnout payments associated with the CMS acquisition and acquire a
former CRI franchisee. DBC received $4.9 million from CNBC, net of payments to
claimholders. The Company used $14.7 million in 1996 for purchases of property
and equipment. Capitalized software development costs of $1.8 million were
substantially attributable to the development of BondVu at CMS and MarketWatch
at DBC West. The Company also collected $1.3 million associated with the 1995
sale of the assets of Shark.
Investing activities generated $22.1 million of net cash in 1995, including
$16.7 million from the sale of the assets of Shark and $15.7 million from CNBC,
net of payments to claimholders. The Company used $8.3 million of cash in 1995
for purchases of property and equipment, down from $11.4 million in 1994. The
decrease reflects Shark's 1994 service improvement efforts and the reduction of
new equipment requirements at DBC West as a result of the change in marketing
strategy. Capitalized software development costs increased from $0.7 million in
1994 to $1.9 in 1995, largely as a result of the development of BondEdge for
Windows and Signal for Windows. Investing cash outflows in 1994 included $12.2
million for the acquisition of CMS, funded in part by $7.0 million of bank
borrowings.
The Company received cash of $6.6 million from the exercise of 2.1 million stock
options in 1996. DBC received $3.5 million in 1996 from a new debt agreement and
used $13.2 million to pay off existing bank debt.
The Company used $2.6 million in 1995 to make scheduled debt payments, mainly
associated with the financing of the CMS acquisition and equipment financing at
Shark. In addition, DBC used $1.5 million to pay down its revolving line of
credit. Debt payments in 1994 approximated $1.7 million.
DBC's debt agreement with Key Bank National Association requires the Company to
maintain certain financial ratios with respect to operations and financial
position. This agreement also restricts the payment of dividends to DBC's
stockholders and limits the purchase of treasury stock. At June 30, 1996, the
Company was in compliance with these covenants.
The Company currently expects cash generated from operations to increase further
during 1997, should current market conditions remain stable. Management believes
that the cash generated by operating activities, together with its existing cash
and financing facilities, are sufficient to meet the short- and long-term needs
of the current operations of the Company.
21
<PAGE>
In the first quarter of 1997, DBC expects to pay $1.7 million from existing cash
reserves to the former CMS shareholders, in connection with the contingent
earnout provisions related to that acquisition. A second payment of $1.7 million
will be paid in the fourth quarter of 1997. A final payment of $1.0 million may
also be required in the fourth quarter of 1997, pending the performance of CMS
during the current fiscal year.
EFFECT OF REORGANIZATION ITEMS UPON THE COMPANY'S REPORTED RESULTS
In 1996 and 1995, respectively, the Company recognized pre-tax gains of $3.3
million and $14.1 million from the CNBC net proceeds discussed earlier.
Additionally, during 1995 the Company recognized income of approximately $0.3
million in non-recurring gains from favorable claim settlements and equipment
sales for the FNN estate, net of equipment write-downs and legal/administrative
costs.
INCOME TAXES
The Company adopted SFAS No. 109, effective July 1, 1993. The basis of SFAS No.
109 is currently to recognize future tax benefits or expenses attributable to
the Company's temporary differences, net operating loss carryforwards and tax
credit carryforwards. Recognition of deferred tax assets is subject to the
Company's determination that realization is more likely than not. As of June 30,
1996, the Company has recorded $13.6 million of net deferred tax assets, net of
a valuation allowance of $2.6 million and deferred tax liabilities of $3.4
million. Based on taxable income projections, management believes that the
realization of the net deferred tax assets is more likely than not.
BUSINESS DEVELOPMENT AND OUTLOOK
During the fourth quarter of 1996, the Company introduced several new services,
including:
o MarketWatch, an Internet financial data service offering real-time stock
market quotes, fundamental and historical data, a specialized business news
headline service, portfolio features, links to online brokerage services
and other investment related services to non-professional users.
o BusinessVision, a business education service that can be received using a
small direct broadcast satellite dish.
o BondVu, a service offering real-time fixed income prices and sophisticated
fixed income analytics to the professional investor.
Revenues in 1996 from these new services were not significant but are expected
to be substantial in the future. The Company expects to continue to commit its
resources to the development of new services. Management expects such
development efforts to be financed through cash generated from operations.
Subsequent to June 30, 1996, the Company acquired or agreed to acquire the
following businesses, which in the aggregate had revenues of $8.1 million for
the year ended June 30, 1996:
o Las Vegas Sports Consultants ("LVSC") acquired for approximately 333,000
shares of DBC common stock valued at $2.75 million. LVSC is the premier
"opening line" odds maker in Las Vegas.
o Instant Odds Network ("ION") acquired for $2.6 million in cash. ION has the
rights to transmit electronically real-time betting odds from six major
casinos in Las Vegas and has been doing so through DBC's sports products
for the past two years.
o Federal News Service ("FNS") agreed to be acquired for an initial payment
of $7.0 million, payable in DBC common stock, options and assumption of
specified liabilities. FNS provides verbatim transcripts of major federal
government hearings to approximately 350 news organizations, political
associations and corporations around the world.
22
<PAGE>
o Check Network ("CN") acquired for approximately 129,000 shares of DBC
common stock, valued at $1.0 million. CN was a competitor of CRI in
Colorado.
In 1996, DBC and Travelers Group, in an equal partnership, entered into an
agreement with Internet Financial Network, Inc. ("IFN") that includes an option
to acquire controlling interest of IFN. Services offered by IFN utilize
proprietary data warehousing and search engine software to provide electronic
access to the Securities and Exchange Commission's EDGAR database.
The Company's joint venture in Hong Kong began providing Signal service to local
customers during 1996, ending the year with more than 1,000 subscribers. The
data feed currently consists of Hong Kong stock market data and may be expanded
in the future to include other international data.
Demand for financial market information is largely dependent upon activity
levels in the securities markets. The Company's share of that demand is based on
its ability to compete effectively with other financial information providers.
In the event that the U.S. financial markets were to experience a prolonged
period of investor inactivity in trading securities, the Company's business
could be adversely affected. The degree of such consequences is uncertain. The
Company continues to pursue projects to increase its share of its current
markets and to broaden the scope of the markets in which the Company competes.
Certain ISN customers have informed the Company that they do not intend to renew
their contracts upon expiration in 1997. Revenues from these customers amounted
to $2.5 million in 1996 and forecasted 1997 revenues on these contracts prior to
expiration are $1.6 million. While ISN expects to replace these customers in
1997, there can be no assurance that it will be successful in doing so.
Pricing for communication services to certain ISN customers has declined as a
result of increased competition. The Company expects these pricing declines to
continue as contracts are renewed in the near future. In this market, revenue
growth, if any, will come from the delivery of new services and increased market
share.
INFLATION
Although management believes that inflation has not had a material effect on the
results of its operations during the past three years, there can be no assurance
that the Company's results of operations will not be affected by inflation in
the future.
23
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements: Page
----
Reports of Independent Accountants ................................... 25
Consolidated Statements of Income .................................... 27
Consolidated Balance Sheets .......................................... 28
Consolidated Statements of Cash Flows ................................ 29
Consolidated Statements of Stockholders' Equity ...................... 30
Notes to Consolidated Financial Statements ........................... 31
Quarterly Financial Information (Unaudited) ............................... 43
Supplemental Schedule:
Reports of Independent Accountants ................................... 44
Financial Statement Schedule ......................................... 46
24
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Data Broadcasting Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows present
fairly, in all material respects, the financial position of Data Broadcasting
Corporation and its subsidiaries at June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the two years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
Salt Lake City, Utah
August 9, 1996
25
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Data Broadcasting Corporation:
We have audited the consolidated balance sheet of Data Broadcasting Corporation
and Subsidiaries as of June 30, 1994, and the related consolidated statements of
income, stockholders' equity, and cash flows for the year ended June 30, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Data
Broadcasting Corporation and Subsidiaries as of June 30, 1994, and the
consolidated results of their operations and their cash flows for the year ended
June 30, 1994, in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 9 to the consolidated financial statements,
effective July 1, 1993, the Company changed its method of accounting for income
taxes.
Coopers & Lybrand L.L.P.
New York, New York
September 13, 1994
26
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
REVENUES $ 114,633 $ 74,243 $ 66,434
COSTS AND EXPENSES
Cost of services and sales 45,055 30,547 28,950
Selling, general and administrative 37,431 24,516 23,399
Depreciation and amortization 16,621 10,012 6,259
Merger and consolidation costs 1,913 923 --
--------- -------- --------
Total costs and expenses 101,020 65,998 58,608
--------- -------- --------
INCOME FROM OPERATIONS 13,613 8,245 7,826
Gain on sale of Shark -- 5,410 --
Equity in loss of joint venture (752) (53) --
Interest expense, net (430) (816) (664)
Other income, net 408 -- 86
--------- -------- --------
INCOME BEFORE REORGANIZATION ITEMS 12,839 12,786 7,248
CNBC proceeds, net of obligations 3,299 14,135 --
Other reorganization items, net -- 263 35
--------- -------- --------
INCOME BEFORE INCOME TAXES 16,138 27,184 7,283
Provision for income taxes 7,042 10,819 2,925
--------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 9,096 16,365 4,358
Extraordinary loss on debt prepayment, net of tax (225) -- --
Cumulative effect of change in accounting for income taxes -- -- 250
--------- -------- --------
NET INCOME $ 8,871 $ 16,365 $ 4,608
========= ======== ========
INCOME PER SHARE:
Primary - Income before extraordinary loss and accounting change $0.28 $0.68 $0.20
- Extraordinary loss on debt prepayment -- -- --
- Cumulative effect of change in accounting for income taxes -- -- 0.01
----- ----- -----
Net income $0.28 $0.68 $0.21
===== ===== =====
Fully diluted - Income before extraordinary loss and accounting change $0.28 $0.67 $0.19
- Extraordinary loss on debt prepayment (0.01) -- --
- Cumulative effect of change in accounting for income taxes -- -- 0.01
----- ----- -----
Net income $0.27 $0.67 $0.20
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 19,667 $ 32,465
Restricted cash held for CheckRite merchants 1,698 1,472
Accounts receivable, less allowance for doubtful accounts of $1,321 and $1,237 9,645 7,575
Components and supplies inventory 1,362 3,444
Deferred tax assets, net of valuation allowance of $93 and $217 486 1,770
Income taxes receivable 1,330 854
Prepaid expenses and other current assets 1,133 2,404
-------- --------
Total Current Assets 35,321 49,984
Property and equipment, net 22,838 18,007
Software development costs, net of accumulated amortization of $2,445 and $1,205 4,783 4,217
Goodwill, net of accumulated amortization of $6,050 and $4,677 71,539 69,650
Deferred tax assets, net of valuation allowance of $2,508 and $2,384 13,095 14,056
Other non-current assets 6,391 7,106
-------- --------
TOTAL ASSETS $153,967 $163,020
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,852 $ 7,650
Payable to BII stockholders 209 13,484
Payable to CheckRite merchants 1,698 1,472
Accrued liabilities 11,374 14,514
Current maturities of long-term debt 3,851 7,210
Other current liabilities 668 1,289
-------- --------
24,652 45,619
Obligations for billings in advance of services 6,802 7,391
-------- --------
Total Current Liabilities 31,454 53,010
Long-term debt 2,558 8,903
Other non-current liabilities 3,858 4,392
-------- --------
TOTAL LIABILITIES 37,870 66,305
-------- --------
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value:
Authorized - 75,000,000 shares: Issued and Outstanding - 31,337,984
shares in 1996 and 29,272,667 shares in 1995 313 293
Additional paid-in capital 82,693 72,202
Retained earnings 33,091 24,220
-------- --------
TOTAL STOCKHOLDERS' EQUITY 116,097 96,715
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $153,967 $163,020
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Income before extraordinary loss and cumulative effect of accounting change $ 9,096 $ 16,365 $ 4,358
Adjustments to reconcile income before extraordinary loss and cumulative
effect of accounting change to net cash provided by operating activities:
Depreciation and amortization 16,621 10,012 6,259
Effect of tax provision on reorganization value and deferred tax assets 2,245 6,436 2,171
Provision for losses on accounts receivable 2,120 600 389
CNBC proceeds, net of obligations and taxes (1,847) (8,949) --
Equity in loss of joint venture 752 53 --
Amortization of deferred financing costs 307 350 58
Gain on sale of Shark -- (5,410) --
Non-cash merger and consolidation costs -- 821 --
Non-cash income from reorganization items -- (494) (35)
Other non-cash items, net 591 224 113
Changes in operating assets and liabilities, net of acquisitions and divestitures:
Accounts receivable (5,548) (1,341) 478
Income taxes payable (1,108) (5,529) 1,065
Accounts payable and accrued liabilities (3,815) (4,806) (454)
Obligations for billings in advance of services (743) 1,106 (214)
Other assets and liabilities, net 4,056 (31) (522)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 22,727 9,407 13,666
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Cash paid for acquisitions, net of cash acquired (18,478) (1,107) (12,170)
Purchase of property and equipment (14,718) (8,311) (11,425)
Receipt of contingent payments from CNBC 7,738 26,611 --
Payments to claimholders from CNBC proceeds (4,649) (10,930) --
Capitalized software development costs (1,805) (1,878) (691)
Investment in joint ventures (1,370) -- --
Proceeds from the sale of Shark 1,331 16,662 --
Sale of marketable securities -- 967 84
Other, net (161) 67 (251)
-------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (32,112) 22,081 (24,453)
-------- -------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of long-term debt and capital lease obligations (13,204) (4,060) (1,737)
Exercise of common stock options and warrants 6,634 1,091 495
Issuance of long-term debt 3,500 -- 9,415
Payment of financing costs (304) (19) (496)
Other, net (39) -- --
-------- -------- --------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,413) (2,988) 7,677
-------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (12,798) 28,500 (3,110)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 32,465 3,965 7,075
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,667 $ 32,465 $ 3,965
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
Common Stock
------------------------- Additional Total
Shares Paid-In Retained Stockholders'
Outstanding Amount Capital Earnings Equity
----------- ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1993 17,593,529 $176 $16,393 $ 3,247 $ 19,816
Conversion of Series B Notes 2,968,800 30 2,939 -- 2,969
Issuance of stock, options and
warrants for acquisitions 1,537,552 15 11,850 -- 11,865
Exercise of stock options
and warrants 286,010 3 492 -- 495
Tax benefit from exercise
of stock options -- -- 358 -- 358
Net income -- -- -- 4,608 4,608
----------- ---- ------- ------- --------
BALANCE AT JUNE 30, 1994 22,385,891 224 32,032 7,855 40,111
Issuance of stock and options
for acquisitions 6,091,791 61 37,545 -- 37,606
Exercise of stock options
and warrants 819,488 8 1,474 -- 1,482
Tax benefit from exercise
of stock options -- -- 833 -- 833
Reduction of deferred tax valuation
allowance applicable to pre-Effective
Date items -- -- 314 -- 314
Other (24,493) -- 4 -- 4
Net income -- -- -- 16,365 16,365
----------- ---- ------- ------- --------
BALANCE AT JUNE 30, 1995 29,272,677 293 72,202 24,220 96,715
Exercise of stock options
and warrants 2,065,528 20 6,591 -- 6,611
Tax benefit from exercise
of stock options -- -- 3,900 -- 3,900
Other (221) -- -- -- --
Net income -- -- -- 8,871 8,871
----------- ---- ------- ------- --------
BALANCE AT JUNE 30, 1996 31,337,984 $313 $82,693 $33,091 $116,097
=========== ==== ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business - Data Broadcasting Corporation and subsidiaries (the
"Company" or "DBC") currently operates through two business segments: its
Information Services Division ("ISD") and its Business Services Division
("BSD"). ISD provides real-time stock market quotes, equity and fixed
income analytics, financial market information and news and access to
historical financial databases. ISD also provides sports information to
sports enthusiasts. BSD delivers point to multipoint communication services
and provides check recovery and check verification data and services.
ISD's customer base consists mainly of individual investors, traders and
portfolio managers. BSD services are marketed primarily to retail merchants
and business associations. Customers for both segments are located
principally in North America. ISD also has customers in Europe, Hong Kong
and the Middle East.
Demand for financial market information is largely dependent upon activity
levels in the securities markets. The Company's share of that demand is
based on its ability to compete effectively with other financial
information providers. In the event that the U.S. financial markets were to
experience a prolonged period of investor inactivity in trading securities,
the Company's business could be adversely affected. The degree of such
consequences is uncertain.
Basis of Presentation - The Company is the successor registrant to
Financial News Network Inc. ("FNN") pursuant to the First Amended Plan of
Reorganization of Financial News Network Inc., dated March 10, 1992, as
amended (the "Plan"). The Plan became effective on June 26, 1992 ("the
Effective Date").
The consolidated financial statements have been prepared based on the
"fresh start reporting" provisions set forth in American Institute of
Certified Public Accountants ("AICPA") Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy
Code" ("SOP 90-7"). Pursuant to SOP 90-7, reorganization value represents
the amount of equity value not specifically attributable to identifiable
tangible assets of the Company as of the Effective Date of the Plan. As of
June 30, 1995, reorganization value was reduced to zero (see Note 9).
In accordance with AICPA Practice Bulletin 11, adjustments resulting from
preconfirmation contingencies have been included in income from continuing
operations in the period in which the adjustment was determined. The net
amount of such items is shown on the Company's Consolidated Statements of
Income as "Other reorganization items, net" and "CNBC proceeds, net of
obligations."
Principles of Consolidation - The consolidated financial statements include
the results of the Company and all majority-owned subsidiaries. The
Company's consolidated balance sheet at June 30, 1995 reflects the balance
sheet of Broadcast International, Inc. ("BII") and the related purchase
accounting. BII's results of operations have been included in the Company's
statements of income and cash flows commencing July 1, 1995. The results of
Capital Management Sciences' ("CMS") operations have been included in the
financial statements since January 31, 1994, as effective control of CMS
was transferred to the Company as of that date. See Note 2 for further
details of the BII and CMS acquisitions. All significant intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents - The Company considers all highly liquid
temporary cash investments with original maturities of three months or less
to be cash equivalents.
31
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Restricted Cash Held for CheckRite Merchants - Restricted cash held for
CheckRite merchants represents funds collected and deposited into trust
funds from check recovery services on behalf of merchants. Certain state
laws prohibit the Company from commingling such cash with operating funds
or using it for working capital needs.
Components and Supplies Inventory - Newly acquired components and supplies
are stated at the lower of cost or market. Cost is determined by the
following methods:
Satellite network equipment First-in, first-out
Satellite receiver and computer components Average cost
Computer supplies held for resale Specific identification
Property and Equipment - Fixed assets are recorded at cost and are
depreciated using the straight-line method over their estimated useful
lives ranging from two to ten years. Leasehold improvements are recorded at
cost and are depreciated using the straight-line method over the shorter of
their useful lives or the remaining lease term. Equipment acquired under
capital leases is recorded at the lower of the fair value of the equipment
or the present value of future minimum lease payments at the beginning of
the lease term and depreciated on a straight-line basis over the lease
term.
Software Development Costs - The Company capitalizes certain costs incurred
to produce certain software used by subscribers to access, manage and
analyze information in the Company's databases. Such costs, including
coding, testing and product quality assurance, are capitalized once
technological feasibility has been established. Amortization is computed on
a case-by-case basis over the estimated economic life of the software,
which ranges from three to five years.
Goodwill - Goodwill represents the excess of the cost of acquisitions over
the fair value of the net assets acquired and is being amortized on a
straight-line basis over 5 to 25 years. At each balance sheet date
management assesses whether there has been a permanent impairment in the
value of these assets. If the carrying value of goodwill exceeds the
undiscounted future cash flows from operating activities of the related
businesses, a permanent impairment is deemed to have occurred. In this
event, the assets would be written down to an amount equivalent to the
discounted future cash flows from operating activities of the related
businesses.
Long-Lived Assets - In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed Of" ("SFAS No. 121"), which is effective for fiscal years
beginning after December 15, 1995. SFAS No. 121 specifies the recognition
and measurement criteria for such impairments. The effect, if any, on the
Company's financial position or results of operations from adoption of SFAS
No. 121 on July 1, 1996 is not expected to be material.
Revenue Recognition - Prepaid subscription revenue is deferred and recorded
as income on a straight-line basis over the term of the subscription
agreement. One-time service initiation fees are recognized as revenue when
billed to the extent that no future performance obligations exist and such
fees do not exceed direct selling costs. In fiscal 1996, 1995 and 1994 such
fees aggregated approximately $6,500,000, $4,900,000 and $4,100,000,
respectively, and did not exceed direct selling costs.
Research and Development Costs - Expenditures for research and development
are expensed as incurred. The Company expensed approximately $4,300,000,
$4,500,000 and $4,100,000 in research and development costs during the
years ended June 30, 1996, 1995, and 1994, respectively, including
32
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
maintenance and upgrading of existing products, development of new products
and development and maintenance of internal systems.
Stock-Based Compensation - In October 1995, the FASB issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), which is effective for fiscal years beginning
after December 15, 1995. SFAS No. 123 specifies accounting and reporting
requirements for stock-based employee compensation plans, including the
Company's stock option plan. The accounting requirements of the statement
are optional, and it is expected that DBC will not adopt the new
methodology. However, the Company will provide the required footnote
disclosure beginning in fiscal 1997.
Income Taxes - On July 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS No.
109"), which requires the recognition of deferred tax assets and
liabilities based on expected future tax consequences of events that have
been recognized in the Company's financial statements. SFAS No. 109 also
requires consideration of future taxable income and expense in determining
the level of valuation allowance, if any, to be applied against deferred
tax assets. Previously, the Company followed SFAS No. 96, which did not
recognize such future events other than the recovery of assets and
settlement of liabilities at their carrying amounts.
Should there be a need to increase the valuation allowance in the future, a
charge to income tax expense will be required. However, in the event there
is a need to decrease the valuation allowance, SOP 90-7 requires a direct
addition to stockholders' equity. This treatment only applies to the
deferred tax assets and related valuation allowance applicable to
pre-Effective Date items. As of June 30, 1996, the entire valuation
allowance is related to pre-Effective Date items.
Earnings per Share - Primary and fully diluted net income per common share
is computed by dividing net income by the weighted average number of shares
of common stock and common stock equivalents outstanding for the period,
calculated in accordance with the treasury stock method. Accounting
Principles Board Opinion No. 15, "Earnings per share" ("APB No. 15"),
limits the assumed repurchase of shares under the treasury stock method to
twenty percent of the shares outstanding. Any excess proceeds from the
assumed exercise of options are assumed to be used to pay down debt,
resulting in interest savings. Fiscal 1995 net income is adjusted for such
assumed interest savings, net of applicable income taxes, for purposes of
these calculations. In 1994 fully diluted net income per common share was
computed by dividing net income, adjusted to exclude interest expense, net
of applicable income taxes, from DBC's Series B Convertible Subordinated
Notes ("Series B Notes"), by the weighted average number of shares of
common stock and common stock equivalents outstanding plus the additional
common shares resulting from the assumed conversion of all Series B Notes
at the beginning of the period. Supplementary income per share data, as
required by APB No. 15 for 1994, was equivalent to fully diluted income per
share data.
The weighted average number of shares of common stock and common stock
equivalents outstanding used in the computations are (in thousands):
1996 1995 1994
---- ---- ----
Primary 31,936 24,015 21,533
Fully Diluted 32,891 24,350 23,985
Accounting Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect amounts reported
in the financial statements. Actual results could differ from those
estimates.
33
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications - Certain prior year amounts have been reclassified to
conform with the current year's presentation.
2. ACQUISITIONS
Effective January 1, 1996, CheckRite International, Inc. ("CRI"), a
subsidiary of BII, acquired all of the outstanding stock of Northwest
CheckRite, Inc., a former franchisee of CRI, for $1,200,000. This
acquisition did not have a material effect on the results of operations for
the year ended June 30, 1996 or the Company's financial position at June
30, 1996. The transaction has been accounted for as a purchase and goodwill
is being amortized over 25 years using the straight-line method.
On June 30, 1995, the Company consummated its acquisition of all of the
outstanding common stock of BII, for approximately $51,041,000, comprising
cash of $13,484,000, 6,077,000 shares of DBC common stock valued at
$35,673,000, and options to purchase approximately 993,000 shares of DBC
common stock valued at $1,884,000. In addition, the Company assumed BII's
debt of approximately $8,437,000. The Company also incurred acquisition
costs of approximately $2,750,000. The adjusted assets and liabilities of
BII were included in the Company's consolidated balance sheet at June 30,
1995. The results of operations of BII have been included in the Company's
financial statements since July 1, 1995. The transaction has been accounted
for as a purchase and goodwill is being amortized over 25 years using the
straight-line method.
Incorporated in the June 30, 1995 consolidated balance sheet are the
following amounts (in thousands) for the BII acquisition, including
purchase price adjustments:
Restricted cash held for CheckRite merchants $ 1,472
Accounts receivable 3,224
Components and supplies inventory 3,444
Other current assets 1,699
Property and equipment 10,813
Software development costs 83
Goodwill 46,200
Deferred tax assets 3,493
Other non-current assets 5,461
-------
$75,889
=======
Accounts payable $ 4,940
Payable to BII stockholders 13,484
Payable to CheckRite merchants 1,472
Accrued liabilities 6,092
Obligations for billings in advance of services 1,267
Current maturities of long-term debt 4,702
Other current liabilities 557
Long-term debt 3,735
Other non-current liabilities 2,083
Common stock 61
Additional paid-in capital 37,496
-------
$75,889
=======
In connection with the acquisition of BII, management developed and
implemented restructuring plans to combine certain BII operations with the
Company's existing operations in San Mateo, California and consolidate
certain of BII's facilities in Utah. As a result, approximately 85 BII
employees in the customer service, development, sales and finance functions
were terminated. The Company also has incurred obligations for leased space
that became idle as a result of the consolidation of facilities. In
addition, certain contractual obligations of BII became redundant based on
the Company's consolidation plans. The estimated cost of these actions as
of June 30, 1995 was approximately $1,369,000 and was accrued in purchase
accounting. During 1996, the Company charged approximately $1,017,000 of
severance and lease costs against this accrual and
34
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS (continued)
increased the estimated cost by approximately $505,000. In addition to the
restructuring actions, the Company recorded certain other assets and
liabilities in purchase accounting. During 1996, DBC wrote off additional
assets and increased certain liabilities in the aggregate amount of
approximately $659,000. These adjustments have been recorded as an increase
to goodwill and will be amortized over the remaining life of goodwill.
Effective April 1, 1995, the Company acquired all of the outstanding stock
of Computer Sports World, Inc. ("CSW"), a leading on-line sports database
company, for approximately $133,000 in cash and approximately 15,000 shares
of DBC common stock, valued at $50,000. The acquisition of CSW did not have
a material effect on the results of operations for the year ended June 30,
1995 or the Company's financial position at June 30, 1995. The transaction
has been accounted for as a purchase and goodwill is being amortized over
five years using the straight-line method.
In 1994, the Company acquired CMS, a provider of fixed income analytics.
The results of operations and financial position of CMS have been included
in these financial statements as of January 31, 1994, the date effective
control was transferred to the Company. The merger was formally completed
on April 29, 1994. DBC acquired the net assets of CMS for consideration of
approximately $27,063,000, comprising cash, a note payable to the former
CMS shareholders, approximately 1,538,000 shares of DBC common stock, and
options to purchase up to 2,000,000 shares of DBC common stock. The
transaction has been accounted for as a purchase and goodwill is being
amortized over 15 years using the straight-line method.
DBC may also pay the former CMS shareholders up to $6,840,000 of additional
cash based on the pre-tax earnings of CMS over the three-year period
commencing January 31, 1994 and ending January 31, 1997. Contingent cash
payments will be added to the acquisition cost when determinable and
amortized prospectively over the then remaining life of goodwill. As of
June 30, 1996, the Company has paid the former CMS shareholders
approximately $2,423,000 and accrued approximately $3,420,000 of additional
payments.
Effective January 31, 1994, the Company acquired substantially all of the
operations and business of DataSport, Inc. ("DataSport"), an investee of
DBC and a distributor of sports data, for consideration having a value of
approximately $293,000. The transaction has been accounted for as a
purchase and goodwill is being amortized over five years using the
straight-line method.
In connection with the acquisitions of CMS and DataSport, liabilities were
assumed as follows (in thousands):
Fair value of assets acquired, including $22,725 of goodwill $31,463
Cash paid (13,339)
DBC common stock issued (7,391)
Options and warrants issued on DBC common stock (3,926)
Note issued (2,700)
Expenses incurred (1,408)
-------
Liabilities assumed $ 2,699
=======
The following unaudited pro forma combined results of operations for the
years ended June 30, 1995 and 1994 assume the acquisition of BII had
occurred on July 1, 1993 and the acquisitions of CMS and DataSport had
occurred on July 1, 1992. These results also include (a) assumed cost
reductions of $4,000,000 directly related to consolidation of certain
operations of DBC and BII, (b) assumed interest savings from the assumed
repayment of BII debt and (c) the elimination of non-recurring hostile
proxy contest expenses incurred by BII. These results are not indicative of
results that would have been obtained had the acquisitions occurred on the
assumed dates and are not intended to be a projection of future results.
35
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
2. ACQUISITIONS (continued)
(In thousands, except per share amounts)
For the years ended June 30, 1995 1994
--------- --------
Revenues $116,708 $109,029
Income before cumulative effect of
change in accounting $18,567 $ 6,435
Net income $18,567 $ 6,685
Primary earnings per share $0.62 $ 0.23
Fully diluted earnings per share $0.61 $ 0.22
3. SALE OF SHARK
On May 8, 1995, under the terms of a definitive agreement dated April 13,
1995, a subsidiary of Automatic Data Processing, Inc. ("ADP") purchased
substantially all of the assets and assumed specified liabilities of Shark
Information Services Corp. ("Shark"), a subsidiary of the Company, for
$17,993,000, plus the assumption of approximately $1,903,000 in debt. The
net assets of Shark sold were approximately $7,113,000. In connection with
the sale, DBC recorded obligations of approximately $2,756,000 for future
payments of non-cancelable office space leases not assumed by ADP,
severance, compensation and benefits costs of approximately $1,500,000 and
transaction and other costs of approximately $1,214,000. DBC recorded a
pre-tax gain of $5,410,000 ($2,628,000 after taxes).
4. MERGER AND CONSOLIDATION COSTS
During 1996, the Company expensed approximately $1,913,000 of merger and
consolidation costs, primarily related to the cost of certain duplicative
employees of BII prior to their termination and costs to consolidate
certain operations in San Mateo, California.
In connection with the acquisition of BII, management committed to product
plans based upon BII's technology that was expected to render certain of
the Company's receiver equipment obsolete by July 1, 1996. Consequently, at
June 30, 1995, those assets were written down to their net realizable
value, resulting in a non-recurring, pre-tax charge of approximately
$647,000.
In connection with the acquisition of BII and the sale of the assets of
Shark, management decided to combine the corporate functions of the Company
at BII's corporate headquarters in Salt Lake City, Utah. This resulted in a
decision to terminate 13 DBC employees in New York in the areas of finance,
administration and human resources. In the fourth quarter of fiscal 1995,
the Company expensed approximately $276,000 to cover compensation costs and
termination benefits for these employees.
5. JOINT VENTURES
In fiscal 1995, the Company formed joint ventures in Hong Kong and China.
As of June 30, 1996, no investment has been made in the joint venture in
China and none is planned until the political situation evolves to a point
where management is comfortable with such an investment. DBC owns 49
percent of the joint venture in Hong Kong, which is being accounted for
under the equity method. In fiscal 1996, DBC invested approximately
$851,000 in this joint venture of which approximately $752,000 was recorded
as an equity loss.
36
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, (in
thousands)
1996 1995
------- -------
Receiver equipment held by subscribers $29,128 $19,459
Computer and communication equipment 21,279 17,356
Furniture and fixtures 1,888 1,506
Leasehold improvements 992 1,094
------- -------
53,287 39,415
Less accumulated depreciation and amortization 30,449 21,408
------ -------
$22,838 $18,007
======= =======
Property and equipment includes approximately $166,000 and $265,000 of
assets recorded under capital leases at June 30, 1996 and 1995,
respectively. During fiscal 1994, the Company financed the acquisition
of $208,000 of communication equipment through a capital lease.
Depreciation expense, including amortization of capital leases, was
$9,536,000, $7,020,000 and $4,483,000 for fiscal years 1996, 1995, and
1994, respectively.
7. LONG-TERM DEBT
Long-term debt consisted of the following at June 30, (in thousands):
1996 1995
------ ------
Key Bank term loan $3,500 --
CMS shareholders' note 2,700 $2,700
Bank One term loan -- 4,752
Midlantic term loan -- 3,514
First Interstate loan -- 1,953
Bank One line of credit -- 1,400
Bank of America note -- 1,200
Capital lease obligations 157 263
Other 52 331
------ ------
6,409 16,113
Less current maturities 3,851 7,210
------ ------
Long-term debt $2,558 $8,903
====== ======
In March 1996, the Company entered into a $36,500,000 loan agreement with
Key Bank National Association. The agreement provides for an acquisition
line of credit of $30,000,000, a revolving line of credit of $3,000,000 and
a term loan of $3,500,000. The lines of credit are available until December
31, 2000, with the amount available under the acquisition line of credit
decreasing over time. The term loan matures on December 31, 1999 with
principal payments of $250,000 due quarterly beginning September 30, 1996.
Under this agreement substantially all of the assets of the Company and its
subsidiaries are collateralized. All facilities accrue interest at variable
rates with the interest rate on the term loan being 7.82 percent as of June
30, 1996. DBC had not drawn on the line of credit facilities as of June 30,
1996. Unused commitment fees of 0.25 percent and 0.325 percent are charged
to DBC based on the average daily balance of the unused portion of the
acquisition line of credit and revolving line of credit, respectively. This
agreement includes various restrictive covenants and requires the Company
to maintain certain financial ratios. At June 30, 1996, the Company was in
compliance with these covenants.
In conjunction with this agreement, DBC prepaid its outstanding bank debt
during fiscal 1996 using the proceeds from the term loan and existing cash
reserves. DBC recorded an extraordinary loss of
37
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
7. LONG-TERM DEBT (continued)
approximately $225,000, net of tax of $148,000 in the fourth quarter of
fiscal 1996 as a result of the prepayment of one of its bank obligations.
As part of the CMS acquisition, the Company recorded a $2,700,000 note,
payable to the former CMS shareholders on April 29, 1997. Interest is
payable semi-annually at a rate of 8.75 percent.
Amounts due associated with long-term debt and capital leases are as
follows (in thousands):
1997 $3,851
1998 1,058
1999 1,000
2000 500
------
$6,409
======
The Company paid approximately $1,078,000, $1,219,000 and $482,000 of
interest on long-term debt during the fiscal years ended June 30, 1996,
1995 and 1994, respectively. Interest expense for the fiscal years ended
June 30, 1996, 1995 and 1994, was $1,322,000, $1,436,000 and $825,000,
respectively.
8. STOCKHOLDERS' EQUITY
In addition to the Company's common stock, the Company is authorized to
issue 5,000,000 preferred shares, $0.01 par value, none of which have been
issued.
In fiscal 1995, the Company sold 1,000 shares of common stock and issued a
warrant to Timex Corporation at an above-market price to purchase 100,000
shares of common stock in connection with an agreement to develop and
market a wristwatch receiver. The warrant is exercisable at $7.00 per share
and expires on December 16, 1999.
In fiscal 1995, Bank of America exercised a warrant by purchasing 250,000
shares of DBC common stock, applying the exercise price of $375,000 to
amounts owed to it by the Company under terms of a note.
In fiscal 1994, the Company issued options to purchase 2,000,000 shares of
DBC common stock as part of the acquisition of CMS. As of June 30, 1996,
1,291,682 of these options remain outstanding. These options have an
exercise price of $3.42 per share and become exercisable at various dates
through May 1, 1997.
Further, in consideration for services performed related to a previous debt
agreement, the Company issued currently exercisable warrants for the
purchase of 250,000 shares of DBC common stock at $3.42 per share in fiscal
1994. These warrants expire on May 4, 1999.
In conjunction with the DataSport acquisition in fiscal 1994, the Company
issued currently exercisable warrants for the purchase of 111,833 shares of
DBC common stock at $4.61 per share, expiring on December 31, 1998. As of
June 30, 1996, 104,195 of these warrants remain outstanding.
In connection with the Data Broadcasting Corporation Stock Option Plan (the
"Option Plan"), 5,450,000 shares of DBC common stock were reserved for
issuance. At June 30, 1996, approximately 460,000 shares were available for
future grants. The Option Plan provides for issuance of incentive stock
options and non-qualified stock options to key employees. The Option Plan
also permits the granting of stock appreciation rights with stock options
to certain key employees. At June 30, 1996, there were no stock
appreciation rights attached to stock options. Options and warrants
outstanding at June 30, 1996 are exercisable over periods ending not later
than fiscal 2006.
38
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
8. STOCKHOLDERS' EQUITY (continued)
Additional information relating to the options and warrants is as follows
(shares in thousands):
Exercise
Shares Price
------ ---------------
Options and warrants outstanding, June 30, 1993 2,791 $1.22 to $2.44
Granted 1,068 $2.97 to $6.81
Issued as part of the CMS acquisition 2,000 $3.42
Exercised (286) $1.22 to $4.61
Surrendered or expired (60) $2.06
------
Options and warrants outstanding, June 30, 1994 5,513 $1.22 to $6.81
Granted 1,160 $4.50 to $7.00
Conversion of BII stock options 993 $2.47 to $5.76
Exercised (819) $1.22 to $5.00
Surrendered or expired (204) $3.42 to $6.81
------
Options and warrants outstanding, June 30, 1995 6,643 $1.22 to $7.00
Granted 1,140 $6.69 to $11.00
Exercised (2,066) $1.22 to $6.81
Surrendered or expired (145) $2.06 to $6.81
------
Options and warrants outstanding, June 30, 1996 5,572 $1.22 to $11.00
======
Options and warrants exercisable, June 30, 1996 2,902
======
9. INCOME TAXES
The Company adopted SFAS No. 109 effective July 1, 1993, establishing
deferred tax assets of $9,940,000, net of a $13,524,000 valuation
allowance. SOP 90-7 requires that the initial recognition of deferred taxes
arising from net operating loss carryforwards and temporary differences
existing prior to the Effective Date be recorded as a reduction of
reorganization value. Therefore, at July 1, 1993, the deferred tax assets
were recorded by reducing reorganization value by $9,690,000 and
recognizing a $250,000 benefit.
As required by SFAS No. 109, the Company periodically assesses its
valuation allowance. As a result, effective June 30, 1995 and June 30,
1994, the Company reduced its valuation allowance by $2,859,000 and
$8,064,000, respectively, principally due to the realization of deferred
tax assets and the reduction of the rate at which certain pre-Effective
Date items are expected to be realized. In accordance with SOP 90-7, the
decrease attributable to the realization of pre-Effective Date deferred tax
assets was recorded by reducing reorganization value by $10,609,000 and
increasing additional paid-in capital by $314,000.
The components of net deferred tax assets as of June 30, 1996 and 1995 are
as follows ($ in thousands):
1996 1995
------- -------
Deferred tax assets
Federal net operating loss carryforwards $ 9,987 $11,239
Property and equipment 4,180 6,161
Purchase accounting liabilities 1,708 --
State net operating loss carryforwards 1,291 1,340
Minimum tax credit carryforward 1,026 904
Expenses - sale of Shark 199 1,370
Lease obligations 476 649
Other 753 2,394
------- -------
Gross deferred tax assets 19,620 24,057
Valuation allowance 2,601 2,601
------- -------
Total deferred tax assets 17,019 21,456
------- -------
39
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
9. INCOME TAXES (continued)
Deferred tax liabilities
Sale/leaseback obligations 1,860 1,735
Subscriber contracts 1,057 1,755
Property and equipment -- 1,858
Other 521 282
------- -------
Total deferred tax liabilities 3,438 5,630
------- -------
Net deferred tax assets $13,581 $15,826
======= =======
The Company has net operating loss carryforwards ("NOLs") of $28,536,000.
The use of certain NOLs is limited by the Internal Revenue Code due to
prior ownership changes. NOLs of $26,607,000 expiring through 2007, are
subject to an annual limitation of approximately $2,200,000 Additional NOLs
of $1,929,000 expire through 2010.
The components of income tax expense are as follows for the years ended
June 30, (in thousands):
1996 1995 1994
------- ------- ------
Current:
Federal $ 3,873 $ 3,652 $ 264
State 924 731 490
Deferred:
Federal 792 4,595 807
State 201 1,074 462
NOL utilization 1,252 767 902
------- ------- ------
7,042 $10,819 $2,925
======= ======
Benefit on extraordinary loss (148)
-------
$ 6,894
=======
The Company's effective tax rate differs from state and federal statutory
rates, as shown in the following reconciliation for the three years ended
June 30, 1996:
1996 1995 1994
---- ---- ----
Income tax expense at federal statutory rate 35.0% 35.0% 34.0%
State income tax expense, net of federal benefit 4.7 5.7 5.7
Amortization of goodwill 4.1 -- --
Non-taxable reorganization adjustments -- (0.7) (0.5)
Amortization of reorganization value -- 0.1 3.4
Other, net (0.1) (0.3) (2.5)
---- ---- ----
Effective income tax rate 43.7% 39.8% 40.1%
==== ==== ====
The Company paid approximately $925,000 and $4,761,000 in federal and state
income taxes during the years ended June 30, 1996 and 1995, respectively.
In fiscal 1994, DBC received a net income tax refund of approximately
$468,000.
10. COMMITMENTS AND CONTINGENCIES
The Company leases communication and test equipment, office facilities and
equipment, and has distribution agreements for satellite space and FM radio
channels, generally under noncancellable lease arrangements that expire on
various dates through fiscal 2004. Certain of the lease agreements for
premises require the Company to pay operating costs, including property
taxes and maintenance costs, and include rent adjustment clauses.
40
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS AND CONTINGENCIES (continued)
Rent expense approximated $8,535,000, $5,892,000 and $5,525,000 in 1996,
1995, and 1994, respectively. At June 30, 1996, future minimum operating
lease payments, including approximately $2,966,000 recorded as a liability
in connection with the sale of the assets of Shark and the acquisition of
BII, are as follows (in thousands):
Real Estate and Distribution
Equipment Agreements
--------- ----------
1997 $ 5,068 $ 4,218
1998 4,061 3,618
1999 2,923 2,819
2000 878 1,573
2001 313 966
Thereafter 566 685
------- -------
Total minimum lease
payments 13,809 $13,879
=======
Less amounts accrued 2,966
-------
$10,843
=======
The Company is a party to various legal proceedings incidental to its
business operations, none of which is expected to have a material effect on
the financial condition or results of operations of the Company. See Note 2
for a discussion of a contingency related to the acquisition of CMS.
11. CNBC PROCEEDS AND OBLIGATIONS
Under terms of a previous agreement, DBC received a payment of
approximately $26,611,000 on March 31, 1995 from the Consumer News and
Business Channel ("CNBC"), as additional consideration for CNBC's purchase
of certain FNN media assets in May 1991. The agreement specified that the
Company was to receive a payment of 50 percent of the cumulative revenues
of CNBC in excess of $227,000,000 for the three fiscal years ending
December 31, 1994. To satisfy its obligations for this item under the Plan,
DBC accrued approximately $12,476,000 as of March 31, 1995 for commissions,
expenses and obligations to claimholders, all of which have been paid as of
June 30, 1996.
On March 1, 1996, DBC received a final payment of approximately $7,738,000
from CNBC as the result of the arbitration of certain matters related to
the fiscal 1995 payment. The gross amounts payable for commissions,
expenses and obligations to claimholders approximating $4,560,000, less
claims owned by DBC of approximately $345,000, were paid in the fourth
quarter of fiscal 1996.
12. SEGMENT INFORMATION
Financial information for the Company's two business segments as of and for
the year ended June 30, 1996 is set forth below (in thousands).
Corporate
and
ISD BSD Unallocated Total
------- ------- ----------- --------
Revenues $81,664 $32,969 -- $114,633
Income from operations
before merger costs 17,157 1,181 (2,812) 15,526
Income from operations 15,899 1,181 (3,467) 13,613
Depreciation and amortization 10,928 5,619 74 16,621
Identifiable assets 66,079 54,092 33,796 153,967
Capital expenditures 12,722 1,944 52 14,718
41
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
13. 401(k) PLAN
The Company has a 401(k) plan covering substantially all employees of the
Company. Employer contributions to the plan are determined annually by the
Company and are made on behalf of participants who have elected to defer
receipt of a portion of their compensation otherwise payable in a plan
year. Such Company contributions totaled approximately $551,000, $137,000,
and $83,000 in fiscal years 1996, 1995, and 1994, respectively.
14. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash
investments and accounts receivable. The Company has deposited its
temporary cash investments with 15 banks and one financial institution of
high credit quality, thereby seeking to maximize interest income while
limiting the amount of credit exposure to any entity and reducing amounts
in excess of federal insurance. At June 30, 1996, approximately $18,655,000
of cash and cash equivalents was deposited in three money market accounts.
These accounts invest largely in U.S. Government obligations and investment
grade commercial paper, thereby limiting credit risk. Concentrations of
credit risk with respect to accounts receivable are limited due to the
large number of customers comprising the Company's customer base and their
dispersion across different geographical regions of North America. At June
30, 1996, the Company believes that it had no significant concentrations of
credit risk.
15. SUBSEQUENT EVENTS
Effective July 1, 1996, the Company acquired Las Vegas Sports Consultants
("LVSC") for approximately 333,000 shares of DBC common stock valued at
$2,750,000. LVSC is the premier "opening line" odds maker in Las Vegas
Effective July 1, 1996, the Company acquired Instant Odds Network ("ION")
for $2,600,000 in cash. ION has the rights to electronically transmit
real-time betting odds from six major casinos in Las Vegas and has been
doing so through DBC's sports products for the past two years.
On August 2, 1996, the Company signed a letter of intent to acquire Federal
News Service which provides verbatim transcripts of major federal
government hearings to approximately 350 news organizations, political
associations and corporations around the world.
On September 16, 1996, the Company acquired Check Network ("CN"), a
competitor of CRI in Colorado, for approximately 129,000 shares of DBC
common stock, valued at $1,000,000.
42
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Quarter
----------------------------------------- Year Ended
First Second Third Fourth June 30, 1996
----- ------ ----- ------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $ 28,240 $ 27,593 $ 28,364 $ 30,436 $ 114,633
Total costs and expenses 25,380 24,119 24,396 27,125 101,020
Income from operations before
merger and consolidation costs 3,735 4,309 4,123 3,359 15,526
Income from operations 2,860 3,474 3,968 3,311 13,613
Reorganization items, net -- -- 3,299 -- 3,299
Income before income taxes 2,558 3,127 6,984 3,469 16,138
Provision for income taxes 1,249 1,461 2,864 1,468 7,042
Net income 1,309 1,666 4,120 1,776 8,871
Earnings per share
Primary $ 0.04 $ 0.05 $ 0.13 $ 0.06 $ 0.28
Fully diluted $ 0.04 $ 0.05 $ 0.12 $ 0.05 $ 0.27
ISD Segment
Revenues $ 19,113 $ 19,862 $ 20,613 $ 22,076 $ 81,664
Income from operations before
merger and consolidation costs 3,803 4,707 4,782 3,865 17,157
BSD Segment
Revenues 9,127 7,731 7,751 8,360 32,969
Income from operations before
merger and consolidation costs 557 333 189 102 1,181
Corporate and unallocated
Loss from operations before
merger and consolidation costs (625) (731) (848) (608) (2,812)
<CAPTION>
Quarter
----------------------------------------- Year Ended
First Second Third Fourth June 30, 1996
----- ------ ----- ------ -------------
<S> <C> <C> <C> <C> <C>
Revenues $19,052 $19,263 $19,564 $16,364 $74,243
Total costs and expenses 16,841 16,914 17,097 15,146 65,998
Income from operations before
merger and consolidation costs 2,211 2,349 2,467 2,141 9,168
Income from operations 2,211 2,349 2,467 1,218 8,245
Reorganization items, net 385 (60) 14,117 (44) 14,398
Income before income taxes 2,269 1,949 16,221 6,745 27,184
Provision for income taxes 885 758 5,897 3,279 10,819
Net income 1,384 1,191 10,324 3,466 16,365
Earnings per share
Primary $ 0.06 $ 0.05 $ 0.43 $ 0.15 $ 0.68
Fully diluted $ 0.06 $ 0.05 $ 0.43 $ 0.14 $ 0.67
</TABLE>
43
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors and Stockholders of
Data Broadcasting Corporation:
Our audits of the consolidated financial statements referred to in our report
dated August 9, 1996 appearing in this Annual Report to stockholders
of Data Broadcasting Corporation also included an audit of the Financial
Statement Schedule listed in Item 14 (a) of this Form 10-K. In our opinion, this
Financial Statement Schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
Price Waterhouse LLP
Salt Lake City, Utah
August 9, 1996
44
<PAGE>
Report of Independent Accountants
To the Board of Directors and Stockholders
of Data Broadcasting Corporation:
Our report on the consolidated financial statements of Data Broadcasting
Corporation and Subsidiaries as of June 30, 1994 and for the year ended June 30,
1994 is included on page 26 of this Form 10-K. As indicated therein, our report
includes an explanatory paragraph on the change in the Company's method of
accounting for income taxes. In connection with our audit of such consolidated
financial statements, we have also audited the related financial statement
schedule on page 46 of this Form 10-K as of June 30, 1994 and for the year ended
June 30, 1994.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
Coopers & Lybrand L.L.P.
New York, New York
September 13, 1994
45
<PAGE>
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
For the Years Ended June 30, 1996, 1995 and 1994
(in thousands)
Schedule VIII - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
---------------------
Balance at Charged Balance
Beginning to Costs Charged Write at End
of and to Other Offs/ of
Description Period Expenses Accounts Recoveries Period
- ----------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended June 30, 1994 $ 579 389 215 (A) 480 703
Year Ended June 30, 1995 703 600 579 (A) 645 (B) 1,237
Year Ended June 30, 1996 1,237 2,120 2,036 1,321
Deferred income tax valuation
allowance:
Year Ended June 30, 1994 (C) $13,524 (C) ($8,064) (D) $5,460
Year Ended June 30, 1995 5,460 (1,279) (E) 1,580 2,601
Year Ended June 30, 1996 2,601 2,601
</TABLE>
(A) Allowance for doubtful accounts recorded through acquisitions.
(B) Includes $86 recorded through the sale of Shark.
(C) Opening balance attributable to the adoption of Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes," effective
July 1, 1993.
(D) Recorded as a reduction of reorganization value, in accordance with
Statement of Position 90-7 ("SOP 90-7").
(E) Recorded as a reduction reorganization value and an increase in equity, in
accordance with SOP 90-7.
46
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
That portion of the Company's definitive Proxy Statement appearing under the
caption "Election of Board of Directors - Nominees" to be filed with the
Commission pursuant to Regulation 14A within 120 days after June 30, 1996 and to
be used in connection with its Annual Meeting of Shareholders to be held on
November 12, 1996 is hereby incorporated by reference. Information regarding
Executive Officers of the Company is located under the heading "Executive
Officers of the Registrant" included in Part I of this Form 10-K.
Item 11. EXECUTIVE COMPENSATION
That portion of the Company's definitive Proxy Statement appearing under the
caption "Executive Compensation and Other Information" to be filed with the
Commission pursuant to Regulation 14A within 120 days after June 30, 1996 and to
be used in connection with its Annual Meeting of Stockholders to be held on
November 12, 1996 is hereby incorporated by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
That portion of the Company's definitive Proxy Statement appearing under the
caption "Security Ownership" to be filed with the Commission pursuant to
Regulation 14A within 120 days after June 30, 1996 and to be used in connection
with its Annual Meeting of Stockholders to be held on November 12, 1996 is
hereby incorporated by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
That portion of the Company's definitive Proxy Statement appearing under the
caption "Certain Relationships and Other Transactions" to be filed with the
Commission pursuant to Regulation 14A within 120 days after June 30, 1996 and to
be used in connection with its Annual Meeting of Stockholders to be held on
November 12, 1996 is hereby incorporated by reference.
47
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. The following documents are filed as part of this report:
1. Financial Statements
The financial statements and reports of independent accountants
required by this item are included in Part II, Item 8. See pages 24 to
42, herein.
2. Financial Statement Schedule
Schedule VIII, Valuation and Qualifying Accounts, and the related
reports of independent accountants are included in Part II, Item 8.
See pages 44 to 46, herein.
3. Exhibits*
The exhibits to this Form 10-K are listed below.
Exhibit
Number Description of Exhibit
------ ----------------------
2.1 Plan and Agreement of Merger between Data Broadcasting
Corporation and Capital Management Sciences (Exhibit 1 to
Form 8-K, filed on May 16, 1994).
2.2 First Amendment to Plan and Agreement of Merger between
Data Broadcasting Corporation and Capital Management
Sciences (Exhibit 2 to Form 8-K, filed on May 16, 1994).
2.3 Agreement and Plan of Reorganization among Data
Broadcasting Corporation, BII Acquisition Corp. and
Broadcast International, Inc. dated as of January 24,
1995 (Annex A to the Proxy Statement/Prospectus included
as part of Form S-4, declared effective on May 25, 1995).
3.1 Restated Certificate of Incorporation of Data Broadcasting
Corporation, as amended.
3.2 Bylaws of Data Broadcasting Corporation, as amended
(Exhibit 3.2 to Form 8-A, filed on June 15, 1992).
4.1 Form of Amended Basic Option Agreement between Data
Broadcasting Corporation and shareholders of Capital
Management Sciences (Exhibit 4 to Form 8-K/A, filed on
July 13, 1994).
----------
* Exhibits followed by a parenthetical reference are incorporated by
reference herein from the document described therein.
48
<PAGE>
4.2 Form of Amended Incentive Option Agreement between Data
Broadcasting Corporation and shareholders of Capital
Management Sciences (Exhibit 6 to Form 8-K/A, filed on
July 13, 1994).
10.1 Registration Rights Agreement dated June 25, 1992 between
Data Broadcasting Corporation, on the one hand, and Allan
R. Tessler and Alan J. Hirschfield, on the other hand
(Exhibit 28.5 to Form 8-K, filed on June 30, 1992).
10.2 Data Broadcasting Corporation Stock Option Plan, as
amended through September 13, 1994.
10.3 Separate Consulting and Indemnification Agreements between
the Company and Co-Chief Executive Officers Alan J.
Hirschfield and Allan R. Tessler (Form 10-K of Financial
News Network Inc. filed in December 1990).**
10.4 Employment Agreement between Data Broadcasting Corporation
and B. Douglas Smith (Exhibit 10.9 to Form 10-K for year
ended June 30, 1993).**
10.5 Employment Agreement between Data Broadcasting Corporation
and James A. Kaplan (Exhibit 9 to Form 8-K, filed on May
16, 1994).**
10.6 Employment Agreement between Data Broadcasting Corporation
and Mark F. Imperiale (Exhibit 10.10 to Form 10-K for year
ended June 30, 1994).**
10.7 Dwight H. Egan Termination Benefits Agreement dated
December 18, 1991 (Exhibit 10.25 to Form S-4, declared
effective on May 25, 1995).**
10.8 Dennis L. Crockett Termination Benefits Agreement dated
December 18, 1991 (Exhibit 10.26 to Form S-4, declared
effective on May 25, 1995).**
10.9 Employment Agreement with Nicholas Ruitenberg dated July
18, 1994 (Exhibit 10.32 to Form S-4, declared effective on
May 25, 1995).**
10.10 Employment Agreement with Reed L. Benson dated July 18,
1994 (Exhibit 10.33 to Form S-4, declared effective on May
25, 1995).**
10.11 Term Note in favor of Bank of America issued by Data
Broadcasting Corporation in the amount of $2,000,000
(Exhibit 10.10 to Form 10-K for year ended June 30, 1993).
10.12 Promissory Note between Data Broadcasting Corporation, as
Maker, and Del, Rubel, Shaw, Mason & Derin, as Payee
(Exhibit 3 to Form 8-K, filed on May 16, 1994).
10.13 Option Shares Registration Rights Agreement between Data
Broadcasting Corporation and shareholders of Capital
Management Sciences (Exhibit 5 to Form 8-K, filed on May
16, 1994).
----------
** Management contract or compensation plan or arrangement.
49
<PAGE>
10.14 Shareholders' Agreement between Data Broadcasting
Corporation and shareholders of Capital Management
Sciences (Exhibit 7 to Form 8-K, filed on May 16, 1994).
10.15 Negative Pledge and Springing Lien Agreement between Data
Broadcasting Corporation and Del, Rubel, Shaw, Mason &
Derin, as collateral agent (Exhibit 10 to Form 8-K, filed
on May 16, 1994).
10.16 Transponder Service Agreement between Broadcast
International, Inc. and Hughes Communications Satellite
Services, Inc. dated July 1, 1990 (Exhibit 10.21 to Form
S-4, declared effective on May 25, 1995).
10.17 Satellite Transmission and Reception Service Agreement
between Broadcast International, Inc. and U.S. Satellite
Corporation, Inc. dated June 22, 1987 (Exhibit 10.23 to
Form S-4, declared effective on May 25, 1995).
10.18 Transponder Sale Agreement between Broadcast
International, Inc. and GTE Spacenet Corporation dated
December 8, 1992 (Exhibit 10.24 to Form S-4, declared
effective on May 25, 1995).
10.19 Loan Agreement and Security Agreement between Broadcast
International, Inc. and First Interstate Bank of Utah,
N.A. dated March 19, 1993 (Exhibit 10.27 to Form S-4,
declared effective on May 25, 1995).
10.20 Loan Agreement and Security Agreement between Broadcast
International, Inc. and Bank One, Utah, N.A. dated July
28, 1993 (Exhibit 10.28 to Form S-4, declared effective on
May 25, 1995).
10.21 Operating Agreement of Emerson Check-Rite Federal
Recoveries, L.L.C. (Exhibit 10.29 to Form S-4, declared
effective on May 25, 1995).
10.22 Amendment to Loan Agreement and Line of Credit Note dated
July 29, 1994 (Exhibit 10.30 to Form S-4, declared
effective on May 25, 1995).
10.23 Amended and Restated Loan Agreement between Broadcast
International, Inc. and Bank One, Utah, N.A. (Exhibit
10.34 to Form S-4, declared effective on May 25, 1995).
10.24 Second Amended and Restated Loan Agreement between
Broadcast International, Inc. and Bank One, Utah, N.A.
dated March 28, 1995 (Exhibit 10.35 to Form S-4, declared
effective on May 25, 1995).
10.25 Asset Purchase Agreement Among ADP Financial Information
Services, Inc., Shark Information Services Corp. and Data
Broadcasting Corporation (Exhibit 1 to Form 8-K filed on
May 23, 1995).
10.26 Loan Agreement by and among Data Broadcasting Corporation,
as the Borrower, and Society National Bank, as Agent
(Exhibit 1 to Form 8-K filed on April 9, 1996).
10.27 ILX/CMS Distribution Agreement (Exhibit 1 to Form 8-K
filed on May 16, 1996).
11 Statement re Computation of Earnings Per Share.
50
<PAGE>
21 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
23.2 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule.
B. Reports on Form 8-K
On April 9, 1996, the Registrant filed a Current Report on Form 8-K, dated
April 8, 1996, which reported under Items 5 and 7, the Registrant's new
loan agreement with Society National Bank.
On May 17, 1996, the Registrant filed a Current Report on Form 8-K, dated
May 16, 1996, which reported the Registrant's new distribution agreement
with ILX Information Systems, under Items 5 and 7.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATA BROADCASTING CORPORATION
By: /s/
------------------------------------
Alan J. Hirschfield
Co-Chief Executive Officer
September 27, 1996
By: /s/
------------------------------------
Allan R. Tessler
Co-Chief Executive Officer
September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated.
Principal Executive Officers:
By: /s/
------------------------------------
Alan J. Hirschfield
Co-Chief Executive Officer
September 27, 1996
By: /s/
------------------------------------
Allan R. Tessler
Co-Chief Executive Officer
September 27, 1996
Principal Financial Officer:
By: /s/
------------------------------------
Mark F. Imperiale
President, Chief Operating Officer
and Chief Financial Officer
September 27, 1996
Principal Accounting Officer:
By: /s/
------------------------------------
Andrew P. Schlotterbeck
Vice President and Controller
September 27, 1996
52
<PAGE>
Directors:
/s/ /s/
- ------------------------------------- -----------------------------------
Alan J. Hirschfield James A. Kaplan
Co-Chairman of the Board Director
September 27, 1996 September 27, 1996
/s/ /s/
- ------------------------------------- -----------------------------------
Allan R. Tessler David R. Markin
Co-Chairman of the Board Director
September 27, 1996 September 27, 1996
/s/ /s/
- ------------------------------------- -----------------------------------
Charles M. Diker Herbert S. Schlosser
Director Director
September 27, 1996 September 27, 1996
/s/ /s/
- ------------------------------------- -----------------------------------
Dwight H. Egan Carl Spielvogel
Director Director
September 27, 1996 September 27, 1996
/s/
- -------------------------------------
Donald P. Greenberg
Director
September 27, 1996
53
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------------
(In thousands, except share amounts) 1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Primary Earnings per Common share
Income before extraordinary loss and cumulative effect of accounting change $ 9,096 $ 16,365 $ 4,358
Add: Interest on assumed debt payments, net of tax -- 63 --
-------- -------- --------
Adjusted income 9,096 16,428 4,358
Extraordinary loss, net of tax (225) -- --
Cumulative effect of change in accounting for income taxes -- -- 250
-------- -------- --------
Net earnings applicable to common stock $ 8,871 $ 16,428 $ 4,608
======== ======== ========
Common shares outstanding at beginning of period 29,273 22,386 17,594
Less: Reduction for Class 7 shares -- (25) --
Shares issuable from assumed exercise of stock options and warrants 1,997 1,518 1,977
Shares issued from conversion of Series B notes -- -- 1,235
Shares issued from conversion of stock options and warrants 666 115 95
Shares issued pursuant to acquisitions -- 21 632
-------- -------- --------
Weighted average number of common shares outstanding 31,936 24,015 21,533
======== ======== ========
Earnings per share before extraordinary loss and cumulative effect
of accounting change $ 0.28 $ 0.68 $ 0.20
Earnings per share attributable to extraordinary loss -- -- --
Earnings per share attributable to change in accounting for income taxes -- -- 0.01
-------- -------- --------
Primary earnings per share $ 0.28 $ 0.68 $ 0.21
======== ======== ========
Fully Diluted Earnings per Common Share
Income before extraordinary loss and cumulative effect of accounting change $ 9,096 $ 16,365 $ 4,358
Add: Interest on Series B Notes, net of tax -- -- 96
Add: Interest on assumed debt payments, net of tax -- 22 --
-------- -------- --------
Adjusted income 9,096 16,387 4,454
Extraordinary loss, net of tax (225) -- --
Cumulative effect of change in accounting for income taxes -- -- 250
-------- -------- --------
Net earnings applicable to common stock $ 8,871 $ 16,387 $ 4,704
======== ======== ========
Common shares outstanding at beginning of period 29,273 22,386 17,594
Less: Reduction for Class 7 shares -- (25) --
Shares issuable from assumed exercise of stock options and warrants 2,087 1,701 2,209
Shares issued from conversion of Series B notes -- -- 3,314
Shares issued from conversion of stock options and warrants 1,531 267 99
Shares issued pursuant to acquisitions -- 21 769
-------- -------- --------
Weighted average number of common shares outstanding 32,891 24,350 23,985
======== ======== ========
Earnings per share before extraordinary loss and cumulative effect
of accounting change $ 0.28 $ 0.67 $ 0.19
Earnings per share attributable to extraordinary loss (0.01) -- --
Earnings per share attributable to change in accounting for income taxes -- -- 0.01
-------- -------- --------
Fully diluted earnings per share $ 0.27 $ 0.67 $ 0.20
======== ======== ========
</TABLE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or
Other Jurisdiction Percentage
Name of Subsidiary of Incorporation Ownership
- ------------------ ---------------- ---------
Broadcast International, Inc. Utah
BI Purchasing, Inc. Utah
CheckRite International, Inc. Utah
CheckRite, Ltd. Colorado
CheckRite of California, Inc. California
CheckRite of Kansas City, Inc. Kansas
CheckRite of Minnesota, Inc. Minnesota
CheckRite of Oklahoma City, Inc. Oklahoma
CheckRite of Oregon, Inc. Oregon
CheckRite of Phoenix (partnership) Arizona 51.00
CheckRite Ventures, Inc. Colorado
Northwest CheckRite, Inc. Washington
Market Information Corporation Utah
Bonneville Equipment Company Utah
DBC Securities, Inc. New York
Data Broadcasting Corporation (B.V.I.) British Virgin Islands
New T&T DBC Ltd. Hong Kong 49.00
Shark Holdings, Inc. Delaware
NOTE: All of the subsidiaries listed above are wholly-owned, unless otherwise
noted.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Nos. 333-04524, 33-74026 and 33-89146) of Data
Broadcasting Corporation of our report, dated August 9, 1996, appearing in
this Annual Report on Form 10-K. We also consent to the incorporation by
reference of our report on the Financial Statement Schedule, which appears in
this Form 10-K.
PRICE WATERHOUSE LLP
Salt Lake City, Utah
September 27, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Data Broadcasting Corporation on Form S-8 (File Nos. 333-04524, 33-74026 and
33-89146) of our reports, dated September 13, 1994, on our audit of the
consolidated financial statements and financial statement schedule of Data
Broadcasting Corporation as of June 30, 1994, and for the year then ended, which
reports are included in this Annual Report on Form 10-K. As indicated therein,
our reports include an explanatory paragraph on the change in the Company's
method of accounting for income taxes.
COOPERS & LYBRAND L.L.P.
New York, New York
September 25, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated statements of income and balance sheets and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 19,667
<SECURITIES> 0
<RECEIVABLES> 9,645
<ALLOWANCES> 0
<INVENTORY> 1,362
<CURRENT-ASSETS> 35,321
<PP&E> 53,287
<DEPRECIATION> 30,449
<TOTAL-ASSETS> 153,967
<CURRENT-LIABILITIES> 31,454
<BONDS> 2,558
0
0
<COMMON> 313
<OTHER-SE> 115,784
<TOTAL-LIABILITY-AND-EQUITY> 153,967
<SALES> 0
<TOTAL-REVENUES> 114,633
<CGS> 0
<TOTAL-COSTS> 46,968
<OTHER-EXPENSES> 16,621
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 430
<INCOME-PRETAX> 16,138
<INCOME-TAX> 7,042
<INCOME-CONTINUING> 9,096
<DISCONTINUED> 0
<EXTRAORDINARY> (225)
<CHANGES> 0
<NET-INCOME> 8,871
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
