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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
[ ] 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 ITS CHARTER)
DELAWARE 13-3668779
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
22 CROSBY DRIVE
BEDFORD, MASSACHUSETTS 01730
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (781) 687-8800
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
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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 March 19, 2001, 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 $173,323,404.
As of March 19, 2001, there were 91,217,224 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
expected to be held in June 2001 are incorporated by reference into Part III
hereof.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Data Broadcasting Corporation, directly and through its subsidiaries, is a
leading global provider of financial and business information to institutional
and retail investors.
On February 29, 2000, Data Broadcasting Corporation completed its merger
with Interactive Data Corporation, an indirect wholly-owned subsidiary of
Pearson plc ("Pearson"). As a result of the merger, Interactive Data became a
wholly owned subsidiary of Data Broadcasting Corporation and Pearson became the
indirect holder of approximately 60% of the common stock. In this report we
refer to the constituent parties to the merger as Data Broadcasting and
Interactive Data, and to the combined business that resulted from the merger as
the Company.
The business combination has been accounted for as a reverse acquisition
using the purchase method of accounting. In the acquisition, the shareholders of
the acquired company, Interactive Data received the majority of the voting
interests in the surviving consolidated company. Therefore, Interactive Data was
deemed to be the acquiring company for financial reporting purposes and
accordingly, the historical financial statements of the Company are the
historical financial statements of Interactive Data and all of the assets and
liabilities of Data Broadcasting were recorded at fair value on February 29,
2000, the date of the merger, and the operations of Data Broadcasting have been
reflected in the operations of the combined company subsequent to the date of
the merger.
OVERVIEW
The Company operates in two business segments:
(1) Institutional services and
(2) Retail Investor services.
In the Institutional services segment, the Company supplies time sensitive
pricing, dividend, corporate action and descriptive information for more than
3.5 million securities traded around the world to banks, brokerage firms,
insurance companies, money managers and mutual fund companies. The Company also
provides fixed income portfolio analytics, consulting and valuation services to
institutional fixed income portfolio managers.
The Retail Investor services segment provides streaming, real-time,
continuously updating financial data over the Internet (primarily eSignal) and
broadcast technology to individual and semi-professional investors and traders.
It also provides market quotes for stocks, options and futures, as well as
charts, news, research, alerts, analytics and decision support tools.
For the last three years, total revenue contributed by the Company's
operating segments was as follows (see Note 16 to the financial statements):
2000 1999 1998
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(IN THOUSANDS)
INSTITUTIONAL SERVICES..................................... $269,943 $188,956 $153,677
RETAIL INVESTOR SERVICES
eSignal.................................................. 27,427 -- --
Broadcast................................................ 16,768 -- --
-------- -------- --------
Total............................................ $314,138 $188,956 $153,677
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INSTITUTIONAL SERVICES
The Company operates under two brands in the Institutional Services segment
of its business, FT Interactive Data and CMS BondEdge:
FT INTERACTIVE DATA
FT Interactive Data is a leading provider of financial data. It collects,
maintains and models global data on over 3.5 million securities, including a
wide range of equities, commodities, derivative instruments and fixed income
securities that are traded in numerous national and international markets. FT
Interactive Data's customers include many of the world's leading financial
institutions. Proprietary data delivery products provide customers with data,
which is electronically delivered in a convenient, timely and reliable manner.
FT Interactive Data plays an important supporting role in many areas of the
financial information market, including:
- post-transaction portfolio evaluation where customers focus on valuing
and administering securities;
- post-transaction back office functions, in which purchases and sales of
securities are finalized and customers prepare account statements for
themselves and their clients; and
- investment research, which helps customers determine when to buy and sell
securities.
In order to best meet its customers' needs for comprehensive global
service, FT Interactive Data operates in three main geographic regions: North
America, Asia/Pacific and United Kingdom/Europe. In March 2001, the Company
began using the FT Interactive Data brand worldwide. Previously the Company had
been known as Interactive Data in North America and as Financial Times
Information elsewhere.
Products
- Data
FT Interactive Data collects and calculates information on over 2.5 million
fixed income securities traded around the world. The coverage includes North
American corporate, government and agency fixed income issues, municipal bonds,
pass-through securities, and structured finance securities. For non-North
American issues, FT Interactive Data covers convertibles, debentures, Eurobonds,
government and corporate bonds, and loan capital. The data for these issues
includes pricing, call and sinking fund, called announcements, descriptive data,
interest payments, original issue discount and reorganization data.
FT Interactive Data also collects and creates databases of information on
most equities traded on exchanges around the world. The data includes pricing,
capitalization changes and dividends, descriptive data, earnings and shares
outstanding, and reorganization announcements. FT Interactive Data is a provider
of index and constituent data to the global investment markets, supplying a wide
range of indices, from the FTSE World Index to CAC/SBF.
FT Interactive Data stores this data in a variety of databases to offer
clients up to 33 years of history. This data is valuable to clients who need to
perform a variety of analyses including investment and risk analyses.
- Data Delivery Products
FT Interactive Data provides data to customers using various delivery
applications that are designed to deliver the Company's data to clients in a
timely and reliable manner. These delivery products provide online access to a
client via their PC using a dial-up modem or a Web connection. The Company also
delivers data via a mainframe computer link that is used to deliver large
amounts of data over high-speed communication lines.
Technical Infrastructure
FT Interactive Data's technological infrastructure is designed to service
the needs of its customers. Mainframe processors located in Waltham,
Massachusetts and London are used to process securities history and daily
pricing data. Fault-tolerant processors located in Hong Kong; London; Melbourne,
Australia; New York City; and Waltham, Massachusetts, process real-time feeds
from securities exchanges around the world.
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UNIX machines located in each data center are used to collect and deliver data.
Also, at each data center, FT Interactive Data uses what it believes to be
state-of-the-art disk storage devices that are configured to provide optimum
speed and reliability.
Marketing Strategy
FT Interactive Data markets its services through a dedicated sales force
located in offices in the US, Europe and Asia Pacific. The sales force is
supported by a promotional campaign that is focused on direct mail, trade show,
and advertising in trade publications. Programs are specialized to the US,
European and Asian markets. Most of the services are sold on a subscription
basis for one year, with automatic renewal unless terminated.
In March of 2001, under a license with The Financial Times Limited, the
Company began using the FT brand on a global basis in conjunction with the
Company's traditional "Interactive Data" name. It is believed that the use of
the FT brand will help FT Interactive Data compete more effectively due to the
global recognition of the Financial Times and FT marks which are actively
promoted in relation to the newspaper and its Internet services.
The Company believes that FT Interactive Data's strength in the post-trade
segment of the financial information market is due in part to its ability to be
a "full service provider" of data. Being full service means FT Interactive Data
prices most, if not all, securities that are central to its customers'
businesses, not just one type of security or those that are widely traded.
FT Interactive Data also delivers data to redistributors who extend their
reach to specialized front and mid office applications in their primary end-user
customer base who are focused on investment research and risk analyses.
Customers and Competition
FT Interactive Data supplies data directly to several thousand separate
organizations including major banks, brokerage firms and investment management
firms. Most of FT Interactive Data's customers purchase data to support their
own operational needs.
Redistributors extend FT Interactive Data's reach to smaller institutional
and individual investors. Unlike the institutional end-user customers described
above, these redistributors use their own delivery systems, or serve as the
interface between their clients and FT Interactive Data's delivery systems, to
redistribute the data provided by FT Interactive Data.
The Company also operates within the securities research segment of the
financial information market, providing securities index data to the global
investment markets. Stockbrokers, trustees, fund managers and consultants use
this data to conduct benchmarking, risk analysis, fund tracking, performance
measurement and attribution and trading activities.
In a competitive environment, the Company endeavors to offer "one stop" for
customers' equity and fixed income data needs.
CMS BONDEDGE
Products
BondEdge is a Windows-based fixed income portfolio analytic system which
provides risk management, regulatory reporting, and compliance tools. BondEdge
portfolio applications include daily market valuations, effective duration and
convexity, standard and custom appraisals, what-if analysis, bond index
comparisons, cash flow and book value simulations, performance measurement,
performance attribution, and total return optimization.
BondEdge is provided to institutional fixed income managers on both the
buy-side and sell-side. The open architecture of BondEdge allows for the import
and export of calculated and descriptive data. BondEdge
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interfaces with major third-party accounting and asset/liability software
packages to eliminate duplicate data entry and to improve accuracy and
efficiency within an organization.
Marketing Strategy
In North America, the Company markets BondEdge as CMS BondEdge, an
affiliate of FT Interactive Data. Outside North America, the Company markets
BondEdge as FT Interactive Data to leverage off of the strength of the FT brand.
The target market for the BondEdge product is the institutional fixed income
portfolio manager who invests in a broad range of security types that require
specialized modeling. End-users at a client site are typically portfolio
managers, quantitative research analysts, and institutional brokers.
CMS BondEdge targets the premium end of the market. With over 500
institutional investment firms, banks, insurance companies, and brokerage houses
in North America who use BondEdge, CMS BondEdge believes it has a strong market
position in the North American market.
BondEdge is marketed through advertising, highly targeted trade shows
specific to fixed income analysis, direct mail, and a dedicated sales force that
provide on-site or remote product demonstrations via the Internet. The CMS
BondEdge also hosts its own annual fixed income conference for clients and
prospective clients. BondEdge is a subscription-based, modular service; clients
sign either monthly or annual contracts.
Technical Infrastructure
BondEdge clients have access to daily market data updates via the Internet
to facilitate accurate analytic calculations and reports, with a flexible array
of deployment options.
RETAIL INVESTOR SERVICES
The Retail Investor services segment provides streaming, real-time
financial market information and decision support tools over the Internet. The
financial data includes stock and commodity market quotes, equity analytics,
financial news and information, access to historical databases, customizable
portfolio tracking, exclusive news coverage and commentary and historical and
technical charting.
The Company distributes its Retail Investor services via the Internet, via
mainframe-to-mainframe transmission, via mainframe-to-PC download and via
communication devices that rely on FM subcarriers, satellite transmission, cable
television systems or telephone lines. Subscribers to Internet-delivered
services, mainframe-to-mainframe transmissions and mainframe-to-PC downloads
download the data directly to their computers.
Products
The Company's products that are targeted to retail and semi-professional
traders contain streaming, real-time securities prices for more than 300,000
securities from all major domestic markets and several international exchanges.
These products include equities, mutual funds, options, bonds, futures,
commodities, indices and foreign exchange rates. The datafeed also contains news
headlines from Dow Jones, Options News Exchange and Futures World News and
headlines and research reports such as Hightower.
- Internet Based
eSignal(SM) delivers continuously updating, real-time securities prices
from the Company's datafeed using "active push" technology on the
Internet. In addition, eSignal provides portfolio features, charting and
news and news retrieval capabilities as well as Nasdaq Level II Market
Maker information, over-the-counter bulletin board stock quotes and
access to online trading. eSignal Mobile delivers the choice of
real-time or delayed stock, index and options quotes, news and
fundamental data direct to a customer's Wireless Application Protocol
(WAP) compatible wireless web phone. eSignal Mobile provides the
investment community with another means of receiving quotes anywhere,
anytime. My eSignal offers real-time streaming quotes in a browser along
with a suite of decision support tools, and eSignal Market Scanner
searches the entire database of stocks
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from the NYSE, AMEX and Nasdaq exchanges and provides flexible
user-defined searches that allow investors to view market activity in
real-time by exchange, price range and volume.
On August 31, 2000, the Company acquired Trading Techniques, Inc., a
developer of decision support tools software.
- Broadcast Based -- the Company also provides a variety of services using
broadcast technology:
- Signal FM/Cable/Satellite(TM) is a real-time service offering many of
the same features as eSignal in a broadcast environment. Signal also
offers a delayed service and an end-of-day data service, which
provides each day's market settlement prices.
- BMI MarketCenter(R) provides continuously updating real-time and
delayed access to pricing and fundamental information. The service is
delivered via cable or satellite.
- QuoTrek(TM) is a hand-held wireless quotation monitor which receives
the Company's data feed via FM broadcast signals and displays
continuously updating real-time market quotes on up to 127 securities.
Marketing Strategy
eSignal is marketed through advertising, marketing alliances, third party
developer relationships, seminars, trade shows, email, direct mail and
referrals. Advertising is used to generate telephone calls to sales
representatives. The Company has developed marketing alliances with online
brokers whereby those firms will market the Company's Internet-delivered
products to their customers. The Company has encouraged third-party software
developers to write trading system software that is integrated with the
Company's systems. This has resulted in numerous sales leads among the
developers' customers. In addition, the Company conducts product seminars,
direct mail campaigns and provides incentives to existing subscribers for
referrals. Since broadcast based technology products are declining, the Company
does not invest in marketing these products.
Customers and Competition
eSignal services individual and professional investors. These clients seek
real-time, delayed or end-of-day quotations, analytical and portfolio tracking
services or some combination thereof. The target market for the real-time retail
services of eSignal consists primarily of individuals who make their own
investment decisions, trade frequently and earn a substantial portion of their
income from trading.
eSignal's competition consists of numerous suppliers and eSignal 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.
Technical Infrastructure
Over the years, the Company has blended technologies to create one of the
largest, most flexible networked data transmission systems dedicated to its
retail investor services. Built with Compaq Alpha Servers, reputed to be the
worlds fastest, and an advanced IP multicast backbone, the Company's
infrastructure has two completely redundant ticker plant facilities with
multiple, geographically dispersed server farms, fed with live data from direct,
redundant connections with the NYSE, AMEX, Nasdaq, Canadian, North American and
European Futures and U.S. Options exchanges. Once the data from the ticker
plants are received and consolidated, a highly compressed and proprietary
datafeed is produced and distributed via multiple technologies to the client.
News services and market commentary are also processed in this manner.
The Company's ticker plants are manned 24 hours per day, 7 days a week. Its
two locations are in Hayward, California and Salt Lake City, Utah. Either site
can immediately function as a primary site in the event of a system failure,
equipment problem or regional disaster. User connections are load balanced among
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all sites. In the event of a complete site failure, the remaining site has the
capacity to handle the additional load.
SEASONALITY
The Company has not experienced any material seasonal fluctuations in its
business. However, financial information market demand is largely dependent upon
activity levels in the securities markets. In the event that the U.S. financial
markets were to suffer a prolonged period of investor inactivity in trading
securities, the Company's business could be adversely affected. The degree of
such consequences is uncertain.
BACKLOG
Given the nature of the Company's businesses, the Company has no material
backlog of orders.
EMPLOYEES
The Company employed approximately 1,600 people as of December 31, 2000,
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 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.
DBC Securities Inc., a subsidiary of the Company, is registered as a
broker-dealer with the Securities and Exchange Commission ("SEC") and various
state securities commissions and is also subject to the regulation of the
National Association of Securities Dealers, Inc., of which it is a member. In
addition, Interactive Data is registered with the SEC as an Investment Advisor
and as such is subject to regulation under the Investment Advisor's Act of 1940.
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EXECUTIVE OFFICERS OF THE REGISTRANT(AS OF MARCH 26, 2001)
NAME AGE OFFICE HELD WITH COMPANY
- ---- --- ------------------------
Stuart Clark........................ 53 President and Chief Executive Officer
Steven G. Crane..................... 44 Executive Vice President and Chief Financial Officer
Andrea H. Loew...................... 43 Vice President, General Counsel and Corporate Secretary
John L. King........................ 50 Chief Operating Officer of FT Interactive Data
Raymond L. D'Arcy................... 48 President, Data Delivery Products, FT Interactive Data
STUART CLARK has served as president and chief executive officer of the
Company since February 29, 2000, and has been employed in the financial
information industry since 1968. Prior to his current position with the Company
he had been president of the original Interactive Data since 1995. From 1993 to
1995 Mr. Clark was a director of UK based Financial Times Information, with
specific responsibility for the Market Data Division. Prior to 1993, Mr. Clark
had led the Market Data Division of Extel Financial Limited, which was acquired
by Pearson's Financial Times Group in December 1993.
STEVEN G. CRANE has served as executive vice president and chief financial
officer of the Company since November 30, 1999. From October 1997 through
November 30, 1999, Mr. Crane served as vice president and chief financial
officer of Video Services Corporation, a company listed on the American Stock
Exchange. Prior thereto, Mr. Crane was the owner of ATE, Inc., a provider of
packaging related equipment to international bottling companies.
ANDREA H. LOEW has served as vice president, general counsel and corporate
secretary of the Company since February 29, 2000. From September 1996 until
February 29, 2000, Ms. Loew served as vice president, general counsel and
corporate secretary of the original Interactive Data. From 1998 until February
29, 2000, Ms. Loew served as vice president and general counsel to Pearson's
Financial Times Asset Management Group. Prior thereto, Ms. Loew was a partner in
Eckert, Seamans Cherin & Mellott, LLC.
JOHN L. KING has served as chief operating officer of FT Interactive Data
since April 1999. From 1997 to April 1999, Mr. King served as the managing
director/president of Financial Times Group's Extel Financial Ltd. Division.
Prior thereto, Mr. King served as vice president, IDSI services for Interactive
Data.
RAYMOND L. D'ARCY has served as President of Data Delivery Products for FT
Interactive Data since January, 2001. From 1999 to 2001, Mr. D'Arcy served as
Senior Vice President of Global Sales, Marketing and Customer Support for
Interactive Data Corporation, and from 1996 to 1999 as Vice President of North
American Sales, Marketing and Customer Support. Prior thereto, Mr. D'Arcy served
as Interactive Data's Regional Sales Director for Eastern North America for ten
years.
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ITEM 2. PROPERTIES
The Company owns no real estate but leases the following principal
facilities:
CURRENT
OPERATING SQUARE ANNUAL EXPIRATION
LOCATION UNIT FEET RATE DATE
- -------- ------------- ------ ---------- --------------
New York, NY................... Institutional 87,304 $1,921,980 May 2013
New York, NY................... Institutional 27,000 $ 857,200 November 2009
Bedford, MA.................... Corporate 64,349 $1,095,169 August 2006
Boston, MA..................... Institutional 11,910 $ 464,484 March 2005
Waltham, MA.................... Institutional 32,535 $ 422,890 September 2005
Chicago, IL.................... Institutional 3,689 $ 28,488 September 2004
Los Angeles, CA................ Institutional 475 $ 16,800 October 2001
Los Angeles, CA................ Institutional 25,498 $ 703,745 October 2002
Hong Kong, PRC................. Institutional 486 $ 21,815 April 2003
Melbourne, Australia........... Institutional 4,974 $ 45,209 December 2005
Singapore...................... Institutional 743 $ 22,183 December 2002
Hayward, CA(1)................. Retail 60,158 $ 978,000 June 2013
Salt Lake City, UT............. Retail 17,196 $ 304,000 December 2003
London, England................ Retail 5,940 $ 58,000 November 2008
Akron, OH...................... Retail 6,500 $ 140,000 September 2003
London, England................ Institutional 65,000 $1,400,080 April 2010
Edinburgh, Scotland............ Institutional 5,200 $ 105,950 August 2006
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(1) Certain of this space has been sublet under agreement of various terms.
ITEM 3. LEGAL PROCEEDINGS
Newman v. CheckRite of California, Inc., et al, CIV --S-93-1557-LKK/PAN. On
September 28, 1993, plaintiffs filed a complaint in the United States District
Court for the Eastern District of California, alleging violations of the Federal
Fair Debt Practices Act and the California Unfair Business Practices Act. The
allegations include charging check writers unauthorized fees for returned checks
and threatening litigation against check writers where none was actually
contemplated. The case was certified as a class action on August 2, 1996. The
Company has negotiated a settlement and has fully funded the settlement by
posting a letter of credit. The settlement has not had a material effect on the
Company's financial condition or results of operations.
From January 1 through February 2001, seven lawsuits were filed by various
shareholders of the Company against the Company's directors, the Company's
majority shareholder, and in several instances against the Company's chief
financial officer. These actions (collectively, the "Derivative Actions") are
all pending in the Delaware Chancery Court for New Castle County under the
following captions:
Schachter, et al. v. Hill, et al., C.A. No. 18587NC;
Brickell Partners v. Clark, et al., C.A. No. 18595NC;
Carman v. Hill, et al., C.A. No. 18603NC;
Patton v. Clark, et al., C.A. No. 18618NC;
Hirt v. Hill, et al., C.A. No. 18649NC;
Millard A. Williams Trust v. Clark, et al., C.A. No. 18659NC; and
Mark Krekorian, et al. v. Clark, et al., C.A. No. 18665NC.
In each of the Derivative Actions, the Company is named as a nominal
defendant on the theory that the plaintiff shareholders are really suing on its
behalf.
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Each Derivative Action challenges the Company's January 2001 sale of its
34.4% interest in MarketWatch.com Inc. ("MarketWatch") to Pearson as having been
consummated at an allegedly inadequate price due to the supposedly undue
influence of the Company's majority stockholder.
Because the seven Derivative Actions are still in an organizational stage
procedurally, no substantive activity has yet occurred in any of them. The
Company anticipates that the seven suits will be consolidated and proceed in
unison. Once that occurs, defendants expect to contest the allegations against
them vigorously.
There are no other 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
There were no matters submitted to a vote of security holders during the
fourth quarter of 2000.
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: 200 million shares of
common stock, $0.01 par value, of which 91,202,428 were outstanding as of
December 31, 2000, 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. The Company's Board of Directors has approved an amendment to the
Company's Certificate of Incorporation to change the name of our corporation to
Interactive Data Corporation. If such a name change is approved by our
shareholders at our annual meeting to be held in June 2001, the Company will
also change its symbol to IDCO. As of March 19, 2001, there were 1,967 holders
of record of the Company's common stock, and the Company believes it had in
excess of 20,000 beneficial owners of its common stock.
During 2000 the Company did not pay dividends on its common stock. With the
exception of the special dividend declared and paid in January 2001 related to
the proceeds received from the sale of the Company's investment in MarketWatch,
the Company currently intends to retain future earnings, if any, for the
development of the Company's business and does not anticipate paying cash
dividends on the Company's common stock in the foreseeable future. Future
determinations by the Company's Board of Directors to pay dividends on the
Company's common stock would be based primarily upon the financial condition,
results of operations and business requirements of the Company. Dividends, if
any, would be payable in the sole discretion of the Company's Board of Directors
out of the funds legally available therefor.
The range of closing prices for the common stock of the Company as reported
by Nasdaq for each quarterly period since the first quarter of 1999 is shown
below.
HIGH LOW
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2000:
Quarter Ended March 31.................................... $11.38 $ 7.44
Quarter Ended June 30..................................... $ 7.13 $ 4.03
Quarter Ended September 30................................ $ 5.81 $ 3.00
Quarter Ended December 31................................. $ 4.41 $ 2.44
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HIGH LOW
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1999:
Quarter Ended March 31.................................... $38.44 $13.00
Quarter Ended June 30..................................... $21.00 $ 8.88
Quarter Ended September 30................................ $10.94 $ 6.44
Quarter Ended December 31................................. $14.38 $ 7.31
The average of high and low bid quotations on March 19, 2001 was $5.53 and
$5.13.
RECENT SALES OF UNREGISTERED SECURITIES
On February 29, 2000 the Company issued 56,423,949 shares of its common
stock to a subsidiary of Pearson in exchange for all of the issued and
outstanding shares of Interactive Data pursuant to a merger agreement dated
November 14, 1999. The Company issued the foregoing shares of its common stock
without registration under the Securities Act of 1933, as amended, in reliance
upon the exemption therefrom set forth in Section 4(2) of such Act, relating to
sales by an issuer not involving a public offering.
ITEM 6. SELECTED FINANCIAL DATA
The following selected historical consolidated financial information for
each of the years ended December 31, 1996 through 2000 has been derived from the
Company's consolidated financial statements and represent the historical
consolidated financial information of Interactive Data prior to the date of the
merger and the combined company subsequent to the February 29, 2000 merger date.
For additional information see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" relating to the Company, included
elsewhere herein. The information set forth below is qualified by reference to
and should be read in conjunction with the consolidated financial statements and
related notes included herein.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues................................ 314,138 188,956 153,677 140,534 133,968
Income (loss) from operations........... (3,091) 17,604 (30) (5,373) (3,405)
Net income (loss)....................... (143,472) 6,197 (3,215) (6,944) (11,235)
Income (loss) per share
Basic and diluted..................... (1.68) .11 (.06) (.12) (.20)
Weighted average shares
Basic and diluted..................... 85,560 56,424 56,424 56,424 56,424
Total assets............................ 731,677 452,702 295,048 288,687 332,625
Stockholders' equity.................... 622,512 340,953 221,736 214,695 250,907
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(IN THOUSANDS)
GENERAL
The Company primarily supplies financial and business information to
institutional and retail investors worldwide. The Company is a leading provider
of time sensitive pricing, dividend, corporate action, and descriptive
information for more than 3.5 million securities. The Company also provides
fixed income portfolio analytics, consulting and valuation services to
institutional fixed income portfolio managers. At the core of the business are
its extensive database expertise and technology resources.
The Company delivers real-time, end of day and historically archived data
to customers through a variety of products featuring Internet, dedicated line,
satellite and dialup delivery protocols. Through a broad range of partnerships
and alliances, the Company provides links to leading financial service and
software companies for trading, analysis, portfolio management, and valuation.
The Company operates in two business segments:
Institutional services -- delivery of time sensitive pricing,
dividend, corporate action, hard-to-value unlisted fixed income
instruments, and descriptive information and fixed income portfolio
analytics to institutional customers.
Retail Investor services -- delivery of real-time financial market
information and decision support tools to retail customers.
The services provided by the Company include the following:
Institutional:
- FT Interactive Data provides a wide range of high quality financial
information to trading houses, custodians, and fund managers
worldwide. The financial information collected and distributed
includes pricing, descriptive and corporate action information on
equities from all over the world.
- CMS BondEdge provides fixed income analytical tools and models
designed for investment managers, broker dealers, insurance
companies and bank and pension fund managers.
- The Federal News Service division, which the Company sold on January
10, 2001, provides verbatim transcripts of hearings, briefings,
press conferences, and interviews by US government officials and
government agencies.
Retail:
- Internet based offers leading real-time, Internet delivered
subscription quote service for serious traders offering charts, news,
research, decision support tools and alerts direct to a laptop, PC, or
telephone.
- The broadcast services deliver real time quotes to communication
devices that rely on FM subcarriers, satellite, and cable television
or telephone lines.
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RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
FOR THE PERIODS ENDED DECEMBER 31,
($ THOUSANDS)
HISTORICAL PROFORMA(1)
------------------------------ --------------------------------
2000 1999 1998 2000 1999 1998
-------- ------- ------- -------- -------- --------
Revenues
Institutional.............. 269,943 188,956 153,677 276,361 258,217 238,439
Retail:
-- eSignal............... 27,427 -- -- 32,551 13,400 5,063
-- Broadcast............. 16,768 -- -- 21,547 39,641 50,644
-------- ------- ------- -------- -------- --------
TOTAL...................... 314,138 188,956 153,677 330,459 311,258 294,146
Cost of Services........... 105,524 55,031 47,992 113,592 105,466 99,996
Selling, General &
Administrative........... 116,091 77,743 65,661 123,472 136,226 127,207
-------- ------- ------- -------- -------- --------
EBITDA(2).................. 92,523 56,182 40,024 93,395 69,566 66,943
Depreciation............... 12,671 6,681 5,293 13,739 13,924 16,240
Amortization............... 82,943 31,897 31,114 88,917 88,539 98,488
Restructuring.............. -- -- 3,647 -- -- 3,647
-------- ------- ------- -------- -------- --------
INCOME (LOSS) FROM
OPERATIONS................. (3,091) 17,604 (30) (9,261) (32,897) (51,432)
Equity in loss from
MarketWatch.com, Inc..... (67,229) (79,543) (69,041) (55,450)
Other than temporary loss
in MarketWatch.com,
Inc...................... (141,844) (141,844) --
Other income, net.......... 1,170 241 382 1,538 1,450 1,396
-------- ------- ------- -------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES...................... (210,994) 17,845 352 (229,110) (100,488) (105,486)
Provision (benefit) from
income taxes............. (67,522) 11,648 3,567 (73,623) (27,624) (31,918)
-------- ------- ------- -------- -------- --------
NET INCOME (LOSS).......... (143,472) 6,197 (3,215) (155,487) (72,864) (73,568)
======== ======= ======= ======== ======== ========
Earnings per share -- Basic
and diluted.............. (1.68) 0.11 (0.06) (1.70) (0.80) (0.81)
Weighted average shares
outstanding -- Basic and
diluted.................. 85,560 56,424 56,424 91,202 91,202 91,202
- ---------------
(1) The proforma amounts reflect the results as if Data Broadcasting and
Interactive Data had been combined on January 1, 1998. In addition, they
reflect Interactive Data's July 1999 acquisition of Muller Data Corporation
and the assets of MuniView, and Valorinform, as if the acquisition had
occurred on January 1, 1998.
(2) "EBITDA" is defined as net income before net interest expense/income, income
taxes, depreciation and amortization expense and equity in losses of
MarketWatch.com, Inc. EBITDA is presented because it is a widely accepted
indicator of funds available to business, although it is not a measure of
liquidity or financial performance under generally accepted accounting
principles. We believe that EBITDA, while providing useful information,
should not be considered in isolation or as an alternative to net income or
cash flows as determined under generally accepted accounting principles.
EBITDA, as presented here,
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may differ from similarly titled measures reported by other companies due to
potential inconsistencies in methods of calculation.
HISTORICAL RESULTS
2000 versus 1999
The Company's historical results for the year ended December 31, 2000
include a full 12 month's results for Interactive Data and 10 months for the
Data Broadcasting business, while the historical results for the years ended
December 31, 1999 and 1998 include only the Interactive Data business. This is
due to the merger between Interactive Data and Data Broadcasting that occurred
on February 29, 2000 and was accounted for as a reverse merger as described in
Note 2 to the financial statements.
Revenue for the institutional business increased by 43% in 2000 over 1999.
The increase was primarily due to the inclusion of the results in 2000 of the
Muller Data, MuniView, and Valorinform businesses ("Acquired Businesses"), which
were acquired in the latter half of 1999, the inclusion of the Data
Broadcasting, CMS BondEdge, and FNS businesses and growth from the core
Interactive Data business. There are no comparatives for the retail business
since Interactive Data did not operate in this segment.
Cost of services increased by 92% in 2000 over 1999. This increase was due
to the inclusion of the results of the Acquired Businesses, and the inclusion of
10 months results of Data Broadcasting. Costs of services as a percentage of
revenue increased from 29% in 1999 to 34% in 2000. The main reason for this
growth was the higher percentage of overall costs allocated to cost of services
for Data Broadcasting compared with Interactive Data . Selling, general and
administrative expenses increased by 49% in 2000 over the comparable period in
1999. This increase was due to the inclusion of the Acquired Businesses and 10
months of Data Broadcasting. Selling, general and administrative expenses as a
percentage of revenue decreased from 41% in 1999 to 37% in 2000. The main reason
for this decrease was the lower percentage of costs allocated to this category
from Data Broadcasting combined with synergies realized from combining the
Acquired Businesses with Interactive Data and merging the central functions of
Data Broadcasting with those of Interactive Data.
EBITDA increased from $56,182 in 1999 to $92,523 in 2000, an increase of
65%. This increase was partially due to the inclusion of the Acquired Businesses
and the inclusion of 10 months of Data Broadcasting's results. In addition the
larger percentage increase in EBITDA than revenue resulted from the synergies
realized from combining the Acquired Businesses with Interactive Data and
merging the central functions of Data Broadcasting with those of Interactive
Data, as outlined above.
Income from operations declined from $17,604 in 1999 to a loss of $3,091 in
2000. The decline in income from operations was due to the inclusion of the
amortization of the goodwill and intangibles relating to the Acquired
Businesses, and goodwill and intangible amortization arising from the merger
between Interactive Data and Data Broadcasting.
During the fourth quarter of 2000, the Company recorded a charge of $4,528
in connection with the write off a trademark of one of the Acquired Businesses
that was no longer in use. This charge is included in amortization expense.
The Company's pre tax share of the net losses from MarketWatch totaled
$67,229 in the year representing the Company's equity interest in the net loss
of MarketWatch, and amortization of the fair value of the Company's investment
in excess of the share of the equity in MarketWatch.
On December 27, 2000, the Company announced the sale of its 34.4% ownership
in MarketWatch to Pearson for $26,888. The Company recorded an other than
temporary loss of $141,844 on the investment representing the difference between
the book value of the investment and the sale price. The sale was consummated in
early January, 2001 and the proceeds were distributed to shareholders.
Other income increased from $241 in 1999 to $1,170 in 2000. This increase
was due mainly to higher invested cash balances in 2000 than in 1999.
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The Company's effective tax rate declined from a charge of 65% to a benefit
of 32% mainly due to the losses in 2000 compared with net income in 1999. The
difference between the Company's statutory tax rate and effective tax rate is
primarily due to amortization deducted for financial reporting purposes which is
not deductible for federal and state tax purposes.
The Company generated a net loss of $143,472 in 2000 compared with net
income of $6,197 in 1999. This was due to higher amortization expense, the
Company's share of MarketWatch's losses, the loss on the write down of the
MarketWatch investment and the write off of a discontinued trademark, partially
offset by a benefit from income taxes.
Weighted average shares outstanding grew by 52% due to the shares issued to
Pearson on February 29,2000 in the merger of Interactive Data and Data
Broadcasting merger.
1999 versus 1998
The Company's historical results for the year ended December 31, 1999
include five months results from the Acquired Businesses, while the historical
results for the year ended December 31, 1998 include only those for Interactive
Data.
Revenue for the institutional business increased by 23% in 1999 over 1998.
The increase was primarily due to the inclusion of five months of results in
1999 from the Acquired Businesses, and growth from Interactive Data.
Cost of services increased by 15% in 1999 over 1998. This increase was due
to the inclusion of five months results from the Acquired Businesses. Costs of
services as a percentage of revenue decreased from 31% in 1998 to 29% in 1999.
The main reason for this decline was synergies in the IT and data collection
areas from combining the Acquired Businesses with Interactive Data. Selling,
general and administrative expenses increased by 18% in 1999 over the comparable
period in 1998. This increase was due the inclusion of the Acquired Businesses.
Selling, general and administrative expenses as a proportion of revenue declined
from 43% in 1998 to 41% in 1999, mainly as a result of synergies in the sales
and corporate areas.
EBITDA increased from $40,024 in 1998 to $56,182 in 1999, an increase of
40%. The increase was partially due to the inclusion of the Acquired Businesses.
In addition, the larger increase in EBITDA compared with the increase in revenue
is driven by the synergies realized from combining the Acquired Businesses with
Interactive Data, as outlined above.
Income from operations increased from a loss of $30 in 1998 to income of
$17,604 in 1999. The increase in income from operations was due to the inclusion
of the revenues from the Acquired Businesses, the benefits from the synergies of
combining Interactive Data and the Acquired Businesses and efficiencies achieved
as a result of the restructuring in 1998.
The Company's effective tax rate decreased to 65% in 1999 because of the
higher income. The difference between the Company's statutory tax rate and
effective tax rate is primarily due to amortization deducted for financial
reporting purposes which is not deductible for federal and state tax purposes.
The Company's net loss of $3,215 in 1998 improved to net income of $6,197
in 1999. This was due to the inclusion of the Acquired Businesses revenue for
five months and the cost savings associated with the synergies highlighted
above.
Weighted average shares outstanding were unchanged.
PROFORMA RESULTS
The Proforma amounts reflect the results as if Data Broadcasting and
Interactive Data had been combined on January 1, 1998. In addition they reflect
Interactive Data's July 1999 acquisition of the Acquired Businesses, as if the
acquisition had occurred on January 1, 1998.
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2000 versus 1999
On a proforma basis, for 2000, overall revenue increased by 6% over 1999.
Growth in the institutional business (+7%) and eSignal business (+143%) were
partially offset by a decline in the business using broadcast delivery (-46%).
This decline in broadcast customers is expected to continue as customers
transfer to Internet based delivery of data. Institutional revenues increased
strongly in our core Interactive Data and CMS BondEdge businesses with a
marginal decline in the Acquired Businesses as customers who had previously
purchased duplicate backup services from these entities and Interactive Data
chose to cancel and seek alternative sources.
EBITDA grew from $69,566 in 1999 to $93,395 in 2000, an increase of 34%.
This was due to cost of services remaining flat at 34% of total revenue in both
1999 and 2000, and selling, general and administrative costs declining from 44%
of revenue in 1999 to 37% in 2000. These reductions came largely from synergies
realized from combining the Acquired Businesses with Interactive Data and
merging the central functions of Data Broadcasting with those of Interactive
Data.
The loss from operations declined from $32,897 in 1999 to $9,261 in 2000 an
improvement of 72%. This improvement was due to the improved EBITDA reported
above.
1999 versus 1998
On a proforma basis, overall 1999 revenue increased by 6% over 1998. Growth
in the institutional business (+8%) and eSignal business (+165%) were partially
offset by a decline in the business using broadcast delivery (-22%). This
decline in broadcast customers is expected continue as customers transfer to
Internet based delivery of data. Institutional revenues increased strongly in
the Interactive Data and CMS BondEdge businesses.
EBITDA grew from $66,943 in 1998 to $69,566 in 1999, an increase of 4%.
This was due to cost of services remaining flat at 34% of total revenue in both
1998 and 1999, and selling, general and administrative costs increasing
marginally from 43% of revenue in 1998 to 44% in 1999. This small increase was
the result of duplicate costs from the purchase of the Acquired Businesses,
which were subsequently eliminated in 2000.
The loss from operations declined from $51,432 in 1998 to $32,897 in 1999.
The decline in the loss from operations was due to the improved EBITDA reported
above, lower amortization as a result of the ending of amortization of certain
non-compete contracts and the non-recurrence of restructuring charges which were
incurred in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $64,950, $39,310 and $38,004 in
2000, 1999 and 1998, respectively. The increase from 1999 to 2000 resulted from
the acquisition of the Acquired Businesses in the second half of 1999 and the
merger of Interactive Data and Data Broadcasting in February 2000. The increase
from 1998 to 1999 was mainly due to the move from a net loss to a net income
position being partially offset by higher accounts receivable and lower deferred
revenues.
The Company's capital expenditures have continued to increase over the
three-year period. They increased from $4,812 in 1998 to $7,920 in 1999 with the
purchase and integration of the Acquired Businesses. In 2000 they increased to
$15,699, as a result of the merger between Interactive Data and Data
Broadcasting and continuing integration of all the businesses. Capital
expenditures are expected to stay at this level as the Company expands and
purchases capital assets to enable it to utilize a common technology across its
institutional operations.
In 2000, the Company spent $14,766 on acquisitions. There were two
acquisitions made in the year. On April 1, 2000, Interactive Data acquired Itex
(FIT) Limited for consideration totaling $12,800, comprised of a cash payment of
$11,200 plus relief against an accounts receivable due to the Company's UK
subsidiary of $1,600. On August 31, 2000, the Company acquired Trading
Techniques, Inc. for consideration totaling
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$5,566, comprised of cash of $3,566, and a deferred payment of $2,000. In 1999,
Interactive Data used $149,078 for acquisitions to acquire the Acquired
Businesses. There were no acquisitions in 1998.
In 2000, the Company received $402 from the exercise of 192 stock options
and warrants.
Management believes that the cash generated by operating activities,
together with its existing cash and financing arrangements, are sufficient to
meet the short- and long-term needs of the current operations of the Company.
INCOME TAXES
The Company recognizes future tax benefits or expenses attributable to its
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 December 31, 2000,
the Company has recorded $46,915 of deferred tax assets. Based on taxable income
projections, management believes that the recorded deferred tax assets will be
realized.
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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998 and June 2000, the Financial Accounting Standards Board
("FASB") issued Financial Accounting Standard No. 133 ("FAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", and Financial Accounting
Standard No. 138 ("FAS 138"), "Accounting for Certain Derivative Instruments and
Certain Hedging Activities". This statement amends the accounting and reporting
standards for certain derivative instruments and hedging activities. FAS Nos.
133 and 138 are effective for fiscal years beginning after June 15, 2000. The
Company has not engaged in hedging activities or invested in derivative
instruments and, accordingly, does not believe implementation of FAS 133 will
have a material effect on its financial statements.
In March 2000, the FASB issued Interpretation No. 44, "Accounting for
Certain Transactions Involving Stock Compensation -- an interpretation of APB
Opinion No. 25" ("FIN 44"). FIN 44 clarifies the application of APB Opinion No.
25 and among other issues clarifies the following: the definition of an employee
for purposes of applying APB Opinion No. 25, the criteria for determining
whether a plan qualifies as a noncompensatory plan, the accounting consequence
of various modifications to the terms of previously fixed stock options or
awards, and the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000, but certain conclusions
in this interpretation cover specific events that occur after either December
15, 1998, or January 12, 2000.
Application of this pronouncement did not have a material impact on the
Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101 was effective in the
fourth quarter of Fiscal 2000. In order to comply with the gross revenue versus
net revenue presentation requirements of SAB 101, the Company reduced revenue
and costs of services by $7,750. Adoption of this SAB had no material impact on
the Company's quarterly or annual results of operations or financial position.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research,
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and development activities and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. In order to comply with the terms of the safe harbor, the Company
notes that a variety of factors could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements. The risks
and uncertainties that may affect the operations, performance, development, and
results of the Company's business include the following:
- The presence of competitors with greater financial resources and their
strategic response to the Company's services and products.
- Changes in technology, which could affect the competitiveness of the
Company's products and services.
- A decline in activity levels in the securities markets, which could lower
demand for the Company's products and services.
- Consolidation of financial services. This consolidation has two forms:
consolidations within an industry (such as banking) and across industries
(such as consolidations of insurance, banking and brokerage companies).
Such consolidations could lower demand for the Company's products and
services.
- Loss of key employees assigned to work associated with the integration of
the recently acquired businesses of the Company. This could result in a
delay in integration work designed to provide operational synergies and
product enhancements.
- Prolonged outage at one of Company's data centers. While the Company
employs high reliability hardware at its data centers, a prolonged outage
at one of its data centers could have a material impact on revenues.
- The acceptance of the Internet as a reliable real-time distribution
platform by institutional customers.
- The ability of the Company to broaden its subscriber base by adding more
individual investors outside of the Company's traditional "active-trader"
market.
- The potential obsolescence of the Company's services due to the
introduction of new technologies.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
A portion of our business is conducted outside the United States through
our foreign subsidiaries and branches. We have foreign currency exposure related
to our operations in international markets where we transact business in foreign
currencies and accordingly are subject to exposure from adverse movements in
foreign currency exchange rates. Our foreign subsidiaries maintain their
accounting records in their local currencies. Consequently, changes in currency
exchange rates may impact the translation of foreign statements of operations
into U.S. dollars, which may in turn affect our consolidated statements of
operations.
We currently invest excess cash balances in money market accounts. These
accounts are largely invested in U.S. Government obligations and investment
grade commercial paper; accordingly, we are exposed to market risk related to
changes in interest rates. We believe that the effect, if any, of reasonable
near-term changes in interest rates on our financial position, results of
operations, and cash flows will not be material.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Index to Financial Statements:
Report of Independent Accountants......................... 19
Consolidated Statements of Operations and Comprehensive
Income for the years ended December 31, 2000, 1999 and
1998.................................................. 20
Consolidated Balance Sheets as of December 31, 2000 and
1999.................................................. 21
Consolidated Statements of Cash Flows for the years
ended December 31, 2000, 1999 and 1998................ 22
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2000, 1999 and 1998.......... 23
Notes to Consolidated Financial Statements................ 24
Quarterly Financial Information (Unaudited)............... 41
Supplemental Schedule:
Report of Independent Accountants......................... 42
Schedule VIII -- Valuation and Qualifying Accounts........ 43
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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 operations and comprehensive income,
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Data Broadcasting Corporation and its subsidiaries at
December 31, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
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
auditing standards generally accepted in the United States 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 7, 2001
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DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
--------- -------- --------
REVENUES.................................................. $ 314,138 $188,956 $153,677
COSTS AND EXPENSES
Cost of services........................................ 105,524 55,031 47,992
Selling, general and administrative..................... 116,091 77,743 65,661
Depreciation............................................ 12,671 6,681 5,293
Amortization............................................ 82,943 31,897 31,114
Restructuring expense................................... -- -- 3,647
--------- -------- --------
Total costs and expenses........................ 317,229 171,352 153,707
--------- -------- --------
INCOME (LOSS) FROM OPERATIONS............................. (3,091) 17,604 (30)
Interest income, net...................................... 1,120 293 599
Other income (expense), net............................... 50 (52) (217)
Equity in loss of MarketWatch.com, Inc.................... (67,229) -- --
Other than temporary loss in MarketWatch.com, Inc. ....... (141,844) -- --
--------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES......................... (210,994) 17,845 352
Provision (benefit) for income taxes...................... (67,522) 11,648 3,567
--------- -------- --------
NET INCOME (LOSS)......................................... (143,472) 6,197 (3,215)
--------- -------- --------
Other comprehensive income (loss)
Foreign currency translation adjustment................. (6,400) (1,051) 19
--------- -------- --------
COMPREHENSIVE INCOME (LOSS)............................... $(149,872) $ 5,146 $ (3,196)
========= ======== ========
Weighted average shares
Basic and diluted....................................... 85,560 56,424 56,424
INCOME (LOSS) PER SHARE:
Basic and diluted....................................... $ (1.68) $ 0.11 $ (0.06)
See accompanying notes to consolidated financial statements.
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DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
DECEMBER 31,
---------------------
2000 1999
--------- --------
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 38,652 $ 12,008
Accounts receivable, net of allowance for doubtful
accounts of $5,763 and $5,465.......................... 50,125 40,914
Receivable from affiliate................................. 1,403 19,224
Prepaid expenses and other current assets................... 3,676 1,925
Investments................................................. 39,388 --
Deferred income taxes....................................... 2,336 10,744
--------- --------
Total current assets.............................. 135,580 84,815
Property and equipment, net................................. 35,147 20,862
Goodwill, net of accumulated amortization of $90,629 and
$60,249................................................... 395,696 222,868
Other intangible assets, net................................ 161,556 122,764
Other assets................................................ 3,698 1,393
--------- --------
Total assets...................................... $ 731,677 $452,702
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable, trade................................... $ 13,364 $ 10,644
Accrued liabilities....................................... 48,318 42,842
Promissory note to affiliate.............................. -- 20,000
Payables to affiliates.................................... 2,004 --
Income taxes payable...................................... 12,309 4,576
Deferred revenue.......................................... 26,659 15,390
--------- --------
Total current liabilities......................... 102,654 93,452
Deferred tax liabilities.................................. 3,012 18,297
Other non current liabilities............................. 3,499 --
--------- --------
TOTAL LIABILITIES................................. 109,165 111,749
--------- --------
Commitments and contingencies (Note 13)
Stockholders' Equity:
Preferred Stock........................................... -- --
Common stock, $0.01 par value:
Authorized: 200,000,000 shares; Issued and Outstanding:
91,202,428............................................. 912 --
Additional paid-in capital................................ 789,199 --
Parent's investment....................................... -- 358,680
Accumulated deficit....................................... (159,443) (15,971)
Accumulated other comprehensive income.................... (8,156) (1,756)
--------- --------
TOTAL STOCKHOLDERS' EQUITY........................ 622,512 340,953
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY........ $ 731,677 $452,702
========= ========
See accompanying notes to consolidated financial statements.
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DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
----------------------------------
2000 1999 1998
--------- --------- --------
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss)........................................ $(143,472) $ 6,197 $ (3,215)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 95,614 38,578 36,407
Tax benefit from exercise of stock options............. 499 -- --
(Gain)/loss on disposal of fixed assets................ 168 -- (15)
Equity in loss of MarketWatch.com, Inc. ................. 67,229 -- --
Loss on disposal of stake in MarketWatch.com, Inc. ...... 141,844 -- --
Deferred income taxes.................................. (83,618) (3,350) (6,878)
Other non-cash items, net................................ (55) -- --
Changes in operating assets and liabilities, net:
Accounts receivable.................................... (5,731) (6,923) 725
Prepaid expenses and other assets...................... 1,209 1,960 912
Accounts and taxes payable............................. (6,362) 556 2,072
Other current liabilities and accrued expenses......... (322) 4,553 7,902
Deferred revenue....................................... (2,053) (2,261) 94
--------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................ 64,950 39,310 38,004
--------- --------- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of fixed assets............................... (15,699) (7,920) (4,812)
Cash acquired through merger........................... 48,402 -- --
Investment in MarketWatch.com, Inc. ................... (43,000) -- --
Acquisition of businesses.............................. (14,766) (149,078) --
Proceeds from sale of fixed assets..................... -- -- 431
--------- --------- --------
NET CASH USED IN INVESTING ACTIVITIES.................... (25,063) (156,998) (4,381)
--------- --------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Receipt of payment from affiliate...................... 19,224 -- --
Payment of promissory note to affiliate................ (20,000) -- --
Proceeds from exercise of stock options................ 402 -- --
Contribution (distribution) of capital from (to)
parent.............................................. (10,764) 114,071 10,237
Advances to affiliate.................................. -- -- (35,438)
--------- --------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...... (11,138) 114,071 (25,201)
Effect of exchange on cash............................... (2,105) 588 (88)
--------- --------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 26,644 (3,029) 8,334
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD......... 12,008 15,037 6,703
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............... $ 38,652 $ 12,008 $ 15,037
========= ========= ========
Supplemental Disclosure of cash flow information:
Cash (paid) received for taxes......................... $ (9,489) $ (13,217) $ 1,214
Cash paid (received) for interest...................... $ 1,591 $ 1,138 $ (2,594)
See accompanying notes to consolidated financial statements.
22
24
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
COMMON STOCK ACCUMULATED
----------------- ADDITIONAL OTHER TOTAL
NUMBER OF PAR PAID IN PARENT'S COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES VALUE CAPITAL INVESTMENT INCOME (LOSS) DEFICIT EQUITY
--------- ----- ---------- ---------- -------------- ----------- -------------
Balance, December 31, 1997...... $ 234,372 $ (724) $ (18,953) $ 214,695
Investment by Parent............ 10,237 10,237
Other comprehensive income...... 19 19
Net Loss........................ (3,215) (3,215)
------ ---- -------- --------- ------- --------- ---------
Balance, December 31, 1998...... $ 244,609 (705) (22,168) 221,736
Investment by Parent............ 114,071 114,071
Other comprehensive loss........ (1,051) (1,051)
Net income...................... 6,197 6,197
------ ---- -------- --------- ------- --------- ---------
Balance, December 31, 1999...... -- $ -- $ -- $ 358,680 $(1,756) $ (15,971) 340,953
Distribution to parent.......... (7,764) (7,764)
Reorganization (Note 2)......... 56,424 564 350,352 (350,916) --
Issuance of shares associated
with merger (Note 2).......... 34,586 346 437,948 438,294
Exercise of stock options....... 192 2 400 402
Tax benefit from exercise of
stock options................. 499 499
Other comprehensive loss........ (6,400) (6,400)
Net loss........................ (143,472) (143,472)
------ ---- -------- --------- ------- --------- ---------
Balance, December 31, 2000...... 91,202 $912 $789,199 $ -- $(8,156) $(159,443) $ 622,512
====== ==== ======== ========= ======= ========= =========
See accompanying notes to consolidated financial statements.
23
25
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Data Broadcasting Corporation (the "Company") is a leading global provider
of financial and business information to individual and institutional investors.
The Company supplies time sensitive pricing, dividend, corporate action and
descriptive information for more than 3.5 million securities traded around the
world, including hard-to-value fixed income instruments. The core of the
business are its extensive database expertise and technology resources.
The Company delivers real-time, end-of-day and historically archived data
to customers through a variety of products featuring Internet, dedicated line,
satellite and dial-up protocols. Through a broad range of partnerships, the
Company provides links to most of the world's best-known financial service and
software companies for trading, analysis, portfolio management and valuation.
On February 29, 2000, Data Broadcasting Corporation completed a merger with
Interactive Data Corporation ("Interactive Data"). Interactive Data was a wholly
owned subsidiary of Pearson Longman, Inc. Pearson Longman, Inc., through a
series of other entities, is wholly owned by Pearson plc ("Pearson"), a company
organized under the laws of England and Wales. Upon the merger, the issued and
outstanding capital stock of Interactive Data was converted into 56,424 newly
issued shares of the Company's common stock which resulted in the ownership by
Pearson of approximately 60% of the Company. The merger was accounted for as a
reverse merger as discussed in Note 2.
Principles of Consolidation
The consolidated financial statements include the results of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and short-term investments
with an original maturity of three months or less. At December 31, 2000, the
Company had $21,889 held as cash equivalents.
Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents, trade receivables and trade
payables approximates their fair value because of the short maturity of these
investments.
Revenue Recognition
Revenues are recognized over contractual periods as services are performed.
The Company accounts for subscription revenues received in advance by deferring
such amounts until the related services are performed.
Accounts Receivable, Concentration of Credit Risk and Uncertainties
The Company is subject to credit risk through trade receivables. Credit
risk with respect to trade receivables is mitigated by the diversification of
the Company's operations, as well as its large client base and its geographical
dispersion. No single customer accounts for more than 10% of revenues or more
than 10% of accounts receivable for any period presented. Ongoing credit
evaluations of customers' financial condition are performed and collateral is
not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
24
26
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
In addition, the Company has temporary cash investments. At December 31,
2000 approximately $21,889 of cash and cash equivalents was deposited in money
market accounts. These accounts are largely invested in U.S. Government
obligations and investment grade commercial paper, thereby limiting credit risk.
At December 31, 2000, the Company believes that it had no significant
concentrations of credit risk.
Income Taxes
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," deferred tax assets and liabilities are
determined based on differences between the financial reporting and the tax
basis of assets and liabilities and are measured by applying enacted tax rates
and laws to taxable years in which such differences are expected to reverse. The
Company's practice is to provide currently for taxes that will be payable upon
remittance of foreign earnings of subsidiaries and affiliates to the extent that
such earnings are not considered to be reinvested indefinitely.
Goodwill
Goodwill of $272,750 and $229,251 at December 31, 2000 was recorded in
connection with business acquisitions and is being amortized on a straight-line
basis over ten and twenty years, respectively. Goodwill represents the excess
purchase price over the fair value of identifiable net assets at the acquisition
date. The Company reviews the recoverability of goodwill based on estimated
undiscounted future cash flows from operating activities.
Other Intangible Assets
Other intangible assets include securities databases, computer software,
covenants not to compete, customer lists, and work forces arising principally
from acquisitions. Such intangibles are valued on the acquisition dates based on
a combination of replacement cost and comparable purchase methodologies by a
third party appraiser and are amortized over periods ranging from two to fifteen
years. The carrying amount of these balances is evaluated periodically in
relation to the operating performance and estimated undiscounted future cash
flows of the underlying businesses. Adjustments are made if the sum of expected
future net cash flows is less than book value.
Property and Equipment
Fixed assets are recorded at cost. Equipment is depreciated using the
straight-line method over its estimated useful life of three to eight years.
Leasehold improvements are amortized using the straight-line method over the
terms of the respective leases or useful lives, whichever is shorter.
Maintenance and repairs are charged to operations as incurred. Retirements,
sales and disposals of assets are recorded by removing the cost and accumulated
depreciation from the asset and accumulated depreciation accounts. The Company
has adopted Statement of Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use". This pronouncement requires
the capitalization of internal use software under certain circumstances. The
Company capitalized approximately $5,306 during the year ended December 31, 2000
primarily related to the purchase and development of new computer systems. In
2000, no amortization expense has been recorded because these projects are in
the development stages.
Translation of Foreign Currencies
The functional currency of certain businesses within the consolidated
financial statements is the local currency. Assets and liabilities of foreign
companies are translated into U.S. dollars at exchange rates in effect at the
balance sheet date; income and expense items and cash flows are translated at
average exchange rates
25
27
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
for the period. Cumulative net translation adjustments are included in
stockholder's equity as other comprehensive income. Gains and losses resulting
from foreign currency transactions, not significant in amount, are included in
the results of operations as other income (expense).
Use of Estimates
The preparation of the consolidated Financial Statements in conformity with
accounting principles generally accepted in the United States requires the
extensive use of management's estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the consolidated financial statement date. Actual results could
differ from those estimates.
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. In 2000, such
amortization amounted to approximately $136. At December 31, 2000, the remaining
book value of the software was $2,031.
Research and Development Costs
Expenditures for research and development are expensed as incurred. The
Company expensed approximately $2,675 in research and development costs during
the year ended December 31, 2000, including maintenance and upgrading of
existing products and development of new products.
Advertising Costs
Advertising expenditures consist of print media, radio, television, direct
marketing and trade shows. All advertising expenses are charged to income during
the period incurred and totaled $6,825 for the year ended December 31, 2000.
Stock-Based Compensation
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB No. 25") in accounting for its employee
stock options, rather than the fair value method of accounting provided under
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("SFAS No. 123"). Under APB No. 25, the Company does not
recognize compensation expense on stock options granted to employees because the
exercise price of each option is equal to the market price of the underlying
stock on the date of the grant.
Earnings per Share
The Company calculates its earnings per share in accordance with Financial
Accounting Standards No. 128, "Earnings per Share". Below is a reconciliation of
shares outstanding (in thousands) between the basic and diluted calculations for
each period.
26
28
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
2000 1999 1998
------ ------ ------
Basic shares................................................ 91,202 56,424 56,424
Stock options and warrants.................................. -- -- --
------ ------ ------
Diluted shares.............................................. 91,202 56,424 56,424
====== ====== ======
Due to losses in 2000, the effect of the options would have been
anti-dilutive and therefore diluted earnings per share equal basic earnings per
share. Prior to 2000, there were no options outstanding, as discussed in Note
10.
Long-lived Assets
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of" ("SFAS 121"). SFAS 121 requires recognition of impairment of long-lived
assets in the event the net book value of such assets exceeds the future
undiscounted cash flows attributable to such assets.
Adoption of Staff Accounting Bulletin 101 -- Revenue Recognition (SAB 101)
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101 was effective in the
fourth quarter of Fiscal 2000. In order to comply with the gross revenue versus
net revenue presentation requirements of SAB 101, the Company reduced revenue
and costs of services by $7,750. Adoption of this SAB had no material impact on
the Company's quarterly or annual results of operations or financial position.
Accounting for Derivative Instruments and Hedging Activities (FAS 133)
In June 1998 and June 2000, the Financial Accounting Standards Board
("FASB") issued Financial Accounting Standard No. 133 ("FAS 133"), "Accounting
for Derivative Instruments and Hedging Activities", and Financial Accounting
Standard No. 138 ("FAS 138"), "Accounting for Certain Derivative Instruments and
Certain Hedging Activities". This statement amends the accounting and reporting
standards for certain derivative instruments and hedging activities. FAS Nos.
133 and 138 are effective for fiscal years beginning after June 15, 2000. The
Company has not engaged in hedging activities or invested in derivative
instruments and, accordingly, does not believe implementation of FAS 133 will
have a material effect on its financial statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year's presentation.
2. MERGER WITH INTERACTIVE DATA CORPORATION
On February 29, 2000, Data Broadcasting Corporation completed a merger with
Interactive Data. Interactive Data was a wholly owned subsidiary of Pearson
Longman, Inc. Pearson Longman, Inc., through a series of other entities, is
wholly owned by Pearson. Upon the merger, the issued and outstanding capital
stock of Interactive Data was converted into 56,424 newly issued shares of the
Company's common stock which resulted in the ownership by Pearson of
approximately 60% of the Company.
27
29
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
The merger has been accounted for as a reverse acquisition in accordance
with accounting principles generally accepted in the United States. Accordingly,
the historical financial statements of Interactive Data are the historical
financial statements of Data Broadcasting Corporation.
The merger was accounted for as follows:
ASSETS ACQUIRED
Cash and cash equivalents................................. $ 48,402
Accounts receivable....................................... 12,457
Fixed assets.............................................. 14,814
Other assets.............................................. 4,027
Goodwill.................................................. 206,484
Investment in MarketWatch.com, Inc........................ 192,960
Intangibles:
Customer Lists.......................................... 72,300
Workforces.............................................. 4,400
Technology.............................................. 8,000
--------
563,844
LIABILITIES ASSUMED
Accounts payable and accrued expenses..................... 21,960
Deferred revenue.......................................... 12,846
Other liabilities......................................... 2,387
Deferred tax liabilities.................................. 76,969
Accrued professional costs................................ 2,300
Accrued acquisition costs................................. 9,088
--------
125,550
========
Total Purchase Price................................. $438,294
========
Goodwill is being amortized over ten years. Intangible assets are being
amortized between two and eleven years. Accrued professional costs include
investment banking, accounting and legal services. As of December 31, 2000, all
accrued professional costs have been paid. Accrued acquisition costs include
severance, relocation and lease termination costs. As of December 31, 2000,
accrued acquisition costs remaining were $4,755. An additional $3,000 of
acquisition costs were funded by Pearson and treated as additional goodwill and
a capital contribution.
The following pro forma financial information reflects the transaction and
the transaction discussed in Note 4 as if they occurred on January 1, 1999:
PRO FORMA RESULTS FOR
YEARS ENDED
DECEMBER 31,
---------------------
2000 1999
--------- --------
Revenue............................................... $ 330,459 $311,258
Net Loss.............................................. $(155,487) $(72,864)
28
30
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
3. INVESTMENT IN MARKETWATCH.COM, INC.
In connection with the transaction described in Note 2, the Company's
investment in MarketWatch.com, Inc. ("MarketWatch") was written up to its fair
value on February 29, 2000 of $192,960. This amount exceeded the Company's share
of the underlying equity of MarketWatch on that date by $148,686. This excess is
being amortized over three years. Accordingly, amortization of $41,300 is
included for the ten months ended December 31, 2000, together with DBC's share
of MarketWatch's losses for the ten month period.
On March 28, 2000, the Company agreed to purchase an additional 1,136,814
shares of MarketWatch common stock for $43,000. This transaction, which was
consummated in May 2000, increased the Company's ownership interest in
MarketWatch to approximately 34.4%. As part of this transaction, the Company
borrowed $15,000 from a Pearson affiliate. Interest on this loan is payable
quarterly at the 3-month LIBOR rate plus 150 basis points. At December 31, 2000,
the balance on this borrowing had been repaid.
DBC purchased news and web advertising from MarketWatch in the amount of
$1,628 and $220, respectively, for the year ended December 31, 2000. The Company
provides services to MarketWatch including accounting, network operations, web
hosting and data feeds. DBC charged MarketWatch $614 for such services for the
year ended December 31, 2000; these amounts were recorded as reductions of the
gross expenses incurred by DBC.
On December 27, 2000, DBC entered into an agreement with an affiliate of
Pearson plc to sell its 34.4% ownership in MarketWatch.com, Inc. for $26,888. As
a result of this pending sale, the Company recorded an other than temporary loss
of $141,844 in connection with this transaction. The balance sheet at December
31, 2000 also includes an investment in MarketWatch.com, Inc. of $26,888, which
represents the related proceeds received in January 2001.
As of December 31, 2000, MarketWatch's assets and liabilities, derived from
the year end data, were as follows: current assets, $59,691; total assets,
$144,240; current and total liabilities, $10,823. MarketWatch's revenue and net
loss for the twelve months ended December 31, 2000 were $53,907 and $91,263,
respectively.
4. ACQUISITIONS
On July 29, 1999, Interactive Data acquired 100% of the outstanding capital
stock of Muller Data Corporation ("Muller Data") and the assets of MuniView and
Valorinform (collectively, the "Acquired Businesses"). The Acquired Businesses
were under common control at the time of the acquisition, and primarily engaged
in the business of the collection, analysis, marketing and distribution of
financial information relating to certain securities. The price paid for the
Acquired Businesses was $149,100 and was funded via a capital contribution from
Pearson Longman, Inc. In addition, Interactive Data incurred acquisition costs
of $2,500, including $1,100 for the termination of certain employees. As of
December 31, 2000, the accrued acquisition costs related to severance is $579.
The remaining severance costs are expected to be paid by December 31, 2001.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired and liabilities
assumed was based on the fair market value on the acquisition date. The excess
of the consideration paid over the estimated fair value of net tangible assets
acquired has been recorded as goodwill and intangibles. Goodwill is being
amortized over a period of ten years and intangibles are being amortized over
periods ranging from two to fifteen years. The Company's consolidated financial
statements include the results of operations subsequent to the acquisition date.
29
31
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
The purchase price allocation for the Acquired Businesses was as follows:
ASSETS
Accounts receivable, net.................................. $ 11,316
Fixed assets.............................................. 1,409
Other assets.............................................. 1,199
Goodwill.................................................. 55,730
Intangibles:
Non-compete agreement................................... 37,500
Customer lists.......................................... 68,200
Workforce............................................... 4,600
Municipal bond database................................. 7,500
Trademark............................................... 5,000
--------
$192,454
LIABILITIES
Accounts payable and accrued expenses..................... $ 5,422
Deferred revenue.......................................... 10,864
Accrued acquisition costs................................. 2,500
Deferred tax liabilities.................................. 24,590
--------
$ 43,376
--------
Total Purchase Price................................. $149,078
--------
As of December 31, 2000, the Company recorded the write off of the
unamortized portion of the trademark of $4,528 as it was no longer in use.
On April 1, 2000, the Company acquired Itex (FIT) Limited for consideration
totaling $12,800, comprised of a cash payment of $11,200 plus relief against an
accounts receivable due to IDC's UK subsidiary of $ 1,600. Itex (FIT) Limited is
a service delivery agent and software and technology partner of the Company.
On August 31, 2000, the Company acquired Trading Techniques, Inc. for
consideration totaling $5,566, comprised of cash of $3,566 and a deferred
payment of $2,000. Trading Techniques, Inc. develops, sells, and supports
technical analysis financial software, targeted at individual investors and
institutional traders.
5. SALE OF BUSINESS
On April 1, 2000, the Company completed the sale of the assets of its
sports business, including the stock of two subsidiaries, to SportsLine.com,
Inc. ("SportsLine"), in exchange for $10,000 in SportsLine common stock. The
assets include the stock of Las Vegas Sports Consultants, Inc., and Instant Odds
Network, Inc., as well as the SporTrax and SportSignal product lines. The
agreement includes a guarantee by SportsLine that the common stock received will
be worth at least $12,500 after approximately one year from the closing, with
any shortfall to be paid in cash by SportsLine. Based on the book value of the
net assets sold, no gain or loss was recognized by the Company. The guaranteed
value of the common stock is included as an investment in the balance sheet.
30
32
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31,
USEFUL
LIFE 2000 1999
------------- -------- --------
Computer and communication equipment............ 3-5 years $ 59,786 $ 44,903
Leasehold improvements........................ Life of lease 15,095 12,932
Furniture and fixtures........................ 3-8 years 15,237 7,921
-------- --------
90,118 65,756
Less accumulated depreciation................. (54,971) (44,894)
-------- --------
$ 35,147 $ 20,862
======== ========
Depreciation expense was $12,671, $6,681 and $5,293 for the years ended
December 31, 2000, 1999, and 1998, respectively.
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
USEFUL DECEMBER 31, DECEMBER 31,
LIFE 2000 1999
---------- ------------ ------------
Non-compete agreement......................... 2-3 1/2 $ 87,898 $ 87,500
years
Securities database........................... 3-5 years 10,792 10,156
Computer software............................. 7 years 42,976 35,271
Workforce..................................... 9 years 9,382 4,600
Customer lists................................ 2-14 years 140,500 68,200
Capitalized Software.......................... 3-5 years 2,177
Trademark..................................... 15 years -- 5,000
--------- --------
293,725 210,727
Less: accumulated amortization................ (132,169) (87,963)
--------- --------
$ 161,556 $122,764
--------- --------
31
33
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
8. ACCRUED EXPENSES
Accrued expenses consists of the following:
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
Accrued bonus...................................... $ 6,537 $ 6,382
Accrued payroll taxes.............................. 550 825
Accrued employee related costs..................... 10,935 8,850
Accrued commissions................................ 2,763 1,663
Accrued professional services...................... 3,746 2,862
Accrued acquisition costs.......................... 5,334 3,179
Accrued data center costs.......................... 2,368 3,271
Accrued property costs............................. 2,047 1,615
Accrued travel costs............................... 447 803
Accrued royalties.................................. 1,673 2,858
Accrued sales taxes................................ 1,871 1,802
Accrued data charges............................... 4,792 6,002
Accrued franchise/property taxes................... 540 --
Accrued other -- discontinued operations (Note
12).............................................. 2,208 --
Accrued other...................................... 2,507 2,730
------- -------
$48,318 $42,842
------- -------
9. CREDIT ARRANGEMENTS
At December 31, 2000, the Company has an outstanding letter of credit in
the amount of $1,500. This letter of credit was established in connection with
the settlement of a class action lawsuit against Checkrite of California, a
discontinued operation of the Company. The letter of credit expires on December
31, 2001. Management does not expect any claims to be made against this letter
of credit.
10. STOCK BASED COMPENSATION
In 2000, the Company adopted the 2000 Long Term Incentive Plan (the "2000
Plan"). Under the 2000 Plan, the Compensation Committee can grant stock-based
awards representing up to 20% of the total number of shares of common stock
outstanding at the date of grant. The 2000 Plan provides for the discretionary
issuance of stock-based awards to directors, officers, and employees of the
Company, as well as persons who provide consulting or other services to the
Company.
The exercise price of options granted under the 2000 Plan equals the market
price at the date of grant. Options expire five to ten years from the date of
grant and generally vest ratably over three years.
32
34
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
Interactive Data, which was deemed the acquirer for accounting purposes in
the reverse merger transaction discussed in Note 2 had no outstanding options on
its equity prior to the merger. Accordingly, no prior year option activity is
provided. Stock option activity for the year ended December 31, 2000 is as
follows:
WEIGHTED
AVERAGE
SHARES EXERCISE PRICE
------ --------------
Options arising from reverse merger acquisition........ 3,010 $5.32
Granted.............................................. 950 4.46
Exercised............................................ (192) 2.12
Canceled............................................. (102) 5.64
----- -----
Outstanding, December 31, 2000......................... 3,666 $5.91
===== =====
Exercisable, December 31, 2000......................... 2,454 $6.08
===== =====
The following table summarizes information about stock options outstanding
and exercisable at December 31, 2000.
OUTSTANDING EXERCISABLE
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
Range of option exercise prices:
$1.22 to $2.88
(Avg. life: 2.22 years)..................... 306 $ 2.44 300 $ 2.44
$3.00 to $5.31
(Avg. life: 6.88 years)..................... 1,656 4.63 761 4.85
$5.54 to $9.34
(Avg. life: 4.76 years)..................... 1,641 7.47 1,375 7.43
$10.25 to $18.50
(Avg. life: 8.36 years)..................... 63 15.65 18 16.38
----- -----
3,666 2,454
===== =====
The weighted average fair value per share of options granted was $4.80 for
the year ended December 31, 2000.
As discussed in Note 1, the Company applies APB Opinion No. 25 in
accounting for stock based compensation and, accordingly, no compensation cost
has been recognized for its stock options in the consolidated financial
statements. Interactive Data, which was deemed the acquirer for accounting
purposes in the reverse merger transaction discussed in Note 2 had no
outstanding options on its equity prior to the merger. Accordingly, no prior
year FAS 123 information is provided. The following pro forma information
presents DBC's net loss and basic and diluted loss per share for the year ended
December 31, 2000 as if compensation cost had been measured under the fair value
method of SFAS No. 123.
2000
---------
Net loss......................................... $(144,366)
Basic loss per share............................. $ (1.69)
33
35
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
The fair value of these options was estimated as of the date of grant using
a Black-Scholes option pricing model with the following assumptions:
2000
----
Risk free interest rate............................... 6.00%
Expected life (in years).............................. 4.06
Volatility............................................ 109%
Expected dividend yield............................... 0%
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. Additional awards in future years are anticipated.
11. STOCKHOLDERS' EQUITY
In addition to the Company's common stock, the Company may issue up to
5,000 preferred shares, at $0.01 par value, with terms determined by the Board
of Directors, without any further action by the stockholders of the Company. At
December 31, 2000, no such stock has been issued.
12. DISCONTINUED OPERATIONS
As of December 31, 2000, the Company had $2.2 million of accrued expenses
associated with the discontinued operations of CRI which was a division of Data
Broadcasting whose operations were discontinued in 1997.
13. COMMITMENTS AND CONTINGENCIES
The Company has obligations under non-cancelable operating leases for real
estate, equipment and distribution agreements for satellite and cable space and
FM radio channels. Certain of the leases include renewal options and escalation
clauses. Real estate leases are for the Company's corporate headquarters, sales
offices, and data centers. Approximate annual future commitments under
non-cancelable operating leases with lease terms in excess of one year are as
follows (in thousands):
REAL ESTATE DISTRIBUTION
AND EQUIPMENT AGREEMENTS
------------- ------------
2001............................................... $13,273 $2,982
2002............................................... 10,788 1,700
2003............................................... 8,983 1,073
2004............................................... 7,750 370
2005............................................... 5,918 --
Thereafter......................................... 31,515 --
------- ------
Total minimum lease payments.................. $78,227 $6,125
======= ======
Rental expense was $11,677, $7,448, $6,289 for the years ended December 31,
2000, 1999 and 1998, respectively.
Newman v. CheckRite of California, Inc., et al, CIV --S-93-1557-LKK/PAN. On
September 28, 1993, plaintiffs filed a complaint in the United States District
Court for the Eastern District of California, alleging violations of the Federal
Fair Debt Practices Act and the California Unfair Business Practices Act. The
allegations include charging check writers unauthorized fees for returned checks
and threatening litigation
34
36
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
against check writers where none was actually contemplated. The case was
certified a class action on August 2, 1996. The Company has negotiated a
settlement and has fully funded the settlement by posting a letter of credit.
The settlement has not had a material effect on the Company's financial
condition or results of operations.
From January 1 through February 2001, seven suits were filed by various
shareholders of the Company against the Company's directors, the Company's
majority shareholder, and in several instances against the Company's chief
financial officer. These actions (collectively, the "Derivative Actions") are
all pending in the Delaware Chancery Court for New Castle County under the
following captions:
Schachter, et al. v. Hill, et al., C.A. No. 18587NC;
Brickell Partners v. Clark, et al., C.A. No. 18595NC;
Carman v. Hill, et al., C.A. No. 18603NC;
Patton v. Clark, et al., C.A. No. 18618NC;
Hirt v. Hill, et al., C.A. No. 18649NC;
Millard A. Williams Trust v. Clark, et al., C.A. No. 18659NC; and
Mark Krekorian, et al. v. Clark, et al., C.A. No. 18665NC.
In each of the Derivative Actions, the Company is named as a nominal
defendant on the theory that the plaintiff shareholders are really suing on its
behalf.
Each Derivative Action challenges the Company's January 2001 sale of its
34.4% interest in MarketWatch.com Inc. ("MarketWatch") to Pearson as having been
consummated at an allegedly inadequate price due to the supposedly undue
influence of the Company's majority stockholder.
Because the seven Derivative Actions are still in an organizational stage
procedurally, no substantive activity has yet occurred in any of them. The
Company anticipates that the seven suits will be consolidated and proceed in
unison. Once that occurs, defendants expect to contest the allegations against
them vigorously.
Various other claims, generally incidental to the conduct of normal
business, are pending or threatened against the Company. The Company intends to
vigorously defend against all these claims. While ultimate liability, if any,
arising from any such claims is presently undeterminable, it is management's
opinion that the ultimate resolution of these claims will not have a material
adverse effect on the financial condition or results of operations of the
Company.
14. INCOME TAXES
The components of (loss) income before income taxes are as follows:
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------- -------
Domestic................................................. (222,107) $ 7,836 $(3,517)
Foreign.................................................. 11,113 10,009 3,869
-------- ------- -------
Total............................................... (210,994) $17,845 $ 352
-------- ------- -------
35
37
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
The provision for income taxes consists of the following:
YEARS ENDED DECEMBER 31,
----------------------------
2000 1999 1998
-------- ------- -------
Current:
Federal................................................ $ 6,292 $10,652 $ 7,327
State.................................................. 3,740 2,074 1,407
Foreign................................................ 6,705 5,076 3,148
-------- ------- -------
16,737 17,802 11,882
-------- ------- -------
Deferred:
Federal................................................ (71,391) (5,146) (7,327)
State.................................................. (11,940) (629) (1,089)
Foreign................................................ (928) (379) 101
-------- ------- -------
(84,259) (6,154) (8,315)
-------- ------- -------
$(67,522) $11,648 $ 3,567
-------- ------- -------
Deferred taxes are recorded for differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The components of the
Company's deferred income taxes recognized in the financial statements are as
follows:
DECEMBER 31, DECEMBER 31,
2000 1999
------------ ------------
Deferred tax assets:
Accrued expenses................................. $ 7,165 $ 3,813
Net operating loss carryforwards................. 7,962 --
Write off of investment.......................... 1,451 --
Other intangible assets.......................... 2,959 --
Covenant not to compete.......................... 22,238 17,015
Other............................................ 5,140 7,266
------- -------
Gross deferred tax assets..................... 46,915 28,094
Deferred tax liabilities:
Customer lists................................... 24,642 26,600
Sale of business................................. 1,005 --
Other intangible assets.......................... 21,944 5,769
Depreciation..................................... -- 665
Other............................................ -- 2,613
------- -------
Gross deferred tax liabilities................ 47,591 35,647
------- -------
Net deferred tax liabilities....................... $ (676) $(7,553)
------- -------
It is expected that the Company's deferred tax assets will be realized from
future taxable income.
36
38
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
Income taxes computed using the federal statutory income tax rate differ
from the Company's effective tax rate primarily due to the following:
YEARS ENDED DECEMBER 31,
-------------------------
2000 1999 1998
----- ----- -------
Statutory U.S. federal tax rate.......................... (35.0)% 35.0% 35.0%
State taxes, net of federal tax benefit.................. 1.1 9.1 260.6
Foreign income taxed at different statutory rates........ 1.0 9.2 324.0
Basis difference in sale of MarketWatch.com, Inc......... (3.1) -- --
Nondeductible goodwill................................... 4.0 16.0 668.2
Other, net............................................... -- (4.0) (274.5)
----- ----- -------
Effective tax rate....................................... (32.0)% 65.3% 1,013.3%
----- ----- -------
15. RETIREMENT PLANS
Pearson Inc. Savings and Investment Plan
The Company's U.S. employees are eligible to participate in a Pearson
subsidiary's U.S. 401(k) Plan (the "401(k) Plan"). The 401(k) Plan allows all
employees to make contributions of a specified percentage of their compensation
which is subject to a 50% employer match. The 401(k) Plan additionally allows
employees to contribute amounts above the specified percentage which are not
subject to any employer match. Contributions made by the Company for the 401(k)
plan are determined as a percentage of covered salary and amounted to $1,633,
$806 and $655 for the years ended December 31, 2000, 1999 and 1998,
respectively.
Pearson Inc. Pension Plan
Pearson Inc., a Pearson U.S. subsidiary, sponsors a defined benefit plan
(the "Plan") for Pearson's U.S. employees, including substantially all of the
Company's U.S. employees. Pension costs are actuarially determined. The Company
funds pension costs attributable to its employees to the extent allowable under
IRS regulations.
37
39
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
Presented below is certain financial information relating to the Company's
participation in the Plan:
YEAR ENDED
DECEMBER 31,
------------------
2000 1999
------- -------
Change in benefit obligation:
Benefit obligation at beginning of period................ $ 3,737 $ 3,004
Service cost............................................. 1,479 1,077
Interest cost............................................ 272 204
Amendments............................................... -- --
Actuarial loss (gain).................................... 8 (176)
Benefits paid............................................ (417) (372)
------- -------
$ 5,079 $ 3,737
------- -------
Change in plan assets:
Fair value of plan assets at beginning of period......... $ 1,173 $ 1,264
Actual return on plan assets............................. 121 281
Employer contribution.................................... 988 --
Benefits paid............................................ (417) (372)
------- -------
Fair value of plan assets at end of period............... $ 1,865 $ 1,173
------- -------
Reconciliation of Funded Status:
Benefit obligation at end of year........................ $ 5,079 $ 3,737
Fair value of plan assets at end of period............... 1,865 1,173
------- -------
Funded status at end of period........................... 3,214 2,564
Unrecognized prior service cost.......................... 316 340
Unrecognized net actuarial loss.......................... (1,017) (1,056)
------- -------
Accrued benefit cost..................................... $ 2,513 $ 1,848
------- -------
Weighted Average Assumptions:
Discount rate............................................ 8.00% 7.25%
Expected return on plan assets........................... 9.00% 9.00%
Rate of compensation increase............................ 4.50% 4.50%
YEARS ENDED DECEMBER 31,
------------------------
2000 1999 1998
------ ------ ----
Components of Net Periodic Benefit Cost:
Service cost....................................... $1,479 $1,077 $808
Interest cost...................................... 272 204 133
Expected return on plan assets..................... (75) (81) (48)
Amortization of prior service costs................ (24) (24) (24)
------ ------ ----
Net periodic benefit cost.......................... $1,652 $1,176 $869
------ ------ ----
Foreign Pension Plans
Pearson and its subsidiaries maintain certain pension plans for which
certain non-U.S. employees of the Company are eligible to participate.
Information relating to the Company's portion of the actuarial value of
38
40
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
plan benefits, asset values, and other pension disclosures pertaining to these
other Pearson plc plans are not separately determinable. Pension expense
incurred by the Company related to these plans in 2000 was $1,745. No pension
expense was incurred by the Company related to these plans in 1999 or 1998 due
to their overfunded position.
Certain of the Company's employees participate in Pearson equity based
employee benefit plans. In 2000, the Company recorded costs of $343 related to
the participation in these plans.
16. RELATED PARTY TRANSACTIONS
Pearson provides certain services to the Company and the Company provides
certain services to Pearson. The services provided by Pearson to the Company
includes administering the 401(k) and employee health benefit plans, insurance,
and billing, accounts payable, accounts receivable, computer and accounting
system support, financial accounting, tax and payroll services related to
certain subsidiaries of the Company. The services provided by the Company to
Pearson include editorial, information technology and property services. Any
amounts payable or receivable are classified as an affiliate transaction on the
balance sheet. For the years ended December 31, 2000, 1999 and 1998, the Company
incurred net expenses of $3,290, $2,000 and $2,000 for these services provided
to Pearson and received from Pearson. The Company, through its independent
directors, and Pearson are currently negotiating a master services agreement
that will govern the provision of services effective as of February 29, 2000. It
is management's opinion that any adjustment to the charges for 2000 required by
the terms of this agreement will not have a material effect on the financial
condition or results of operations of the Company.
17. SEGMENT INFORMATION
Due to the merger with Interactive Data, management has reevaluated its
reportable segments.
The Company's reportable segments are as follows:
INSTITUTIONAL............ delivery of time sensitive pricing, dividend,
corporate action, hard-to-value unlisted fixed
income instruments, and descriptive information
for more than 3.5 million securities traded
around the world, and fixed income portfolio
analytics to institutional customers.
RETAIL................... delivery of real-time financial market
information to retail customers
The Company evaluates its segments on the basis of revenue, operating
income and earnings before interest, taxes, depreciation and amortization, and
equity in the loss of MarketWatch.com, Inc. ("EBITDA") and capital expenditures.
"EBITDA" is defined as net income before net interest expense/income,
income taxes, depreciation and amortization expense and equity in losses of
MarketWatch.com. EBITDA is presented because management believes it is a widely
accepted indicator of funds available to business, although it is not a measure
of liquidity or financial performance under generally accepted accounting
principles. We believe that EBITDA, while providing useful information, should
not be considered in isolation or as an alternative to net income or cash flows
as determined under generally accepted accounting principles. EBITDA, as
presented here, may differ from similarly titled measures reported by other
companies due to potential inconsistencies in methods of calculation.
39
41
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
(EXCEPT PER SHARE DATA)
2000 1999 1998
-------- -------- --------
Revenues
Institutional.................................... $269,943 $188,956 $153,677
Retail
-- eSignal.................................... 27,427 -- --
-- Broadcast.................................. 16,768 -- --
-------- -------- --------
Total.................................... $314,138 $188,956 $153,677
======== ======== ========
Income (loss) from operations
Institutional.................................... $ 97,032 $ 53,994 $ 35,733
Retail........................................... (8,205) -- --
Corporate and unallocated........................ (91,918) (36,390) (35,763)
-------- -------- --------
Total.................................... $ (3,091) $ 17,604 $ (30)
======== ======== ========
EBITDA
Institutional.................................... $ 97,973 $ 60,675 $ 44,673
Retail........................................... 3,675 -- --
Corporate and unallocated........................ (9,125) (4,493) (4,649)
-------- -------- --------
Total.................................... $ 92,523 $ 56,182 $ 40,024
======== ======== ========
Identifiable assets
Institutional.................................... $447,425 $452,072
Retail........................................... 36,087
Corporate and unallocated........................ 248,165 --
-------- --------
Total.................................... $731,677 $452,702
======== ========
The Company's geographic distribution is as follows (in thousands):
2000 1999 1998
-------- -------- --------
Revenues
United States.................................... $242,000 $127,366 $ 98,339
Foreign.......................................... 72,138 61,590 55,338
-------- -------- --------
Total.................................... $314,138 $188,956 $153,677
======== ======== ========
Identifiable assets
United States.................................... $624,780 $329,966
Foreign.......................................... 106,897 122,736
-------- --------
Total.................................... $731,677 $452,702
======== ========
18. SUBSEQUENT EVENTS
On January 10, 2001, the Company sold its wholly owned subsidiary, Federal
News Service, for $4,000. There was no gain or loss recorded as a result of this
transaction.
On January 16, 2001, the Company paid a special dividend of $26,888 to
shareholders of record on January 8, 2001. This dividend related to the proceeds
received from the sale of the Company's investment in Marketwatch.com, Inc.
40
42
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
In December 1999, the Securities and Exchange Commission staff released
Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB No. 101), which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements. SAB 101 was effective in the
fourth quarter of Fiscal 2000. In order to comply with the gross revenue versus
net revenue presentation requirements of SAB 101, the Company reduced revenue
and costs of services by $7,750. The following quarterly financial information
reflects the financial data of DBC adjusted for the adoption of SAB 101.
QUARTERS ENDED YEAR ENDED
--------------------------------------------------- DECEMBER 31,
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 2000
-------- -------- ------------ ----------- ------------
Revenue prior to adjustment..... $65,404 $ 83,896 $ 85,021 $ 87,567 $ 321,888
SAB 101 adjustment.............. (959) (2,748) (2,136) (1,907) (7,750)
------- -------- -------- --------- ---------
Adjusted revenue................ 64,445 81,148 82,885 85,660 314,138
Total costs and expenses prior
to adjustment................. 64,150 87,419 83,496 89,914 324,979
SAB 101 adjustment.............. (959) (2,748) (2,136) (1,907) (7,750)
------- -------- -------- --------- ---------
Adjusted expenses............... 63,191 84,671 81,360 88,007 317,229
Income from operations.......... 1,254 (3,523) 1,525 (2,347) (3,091)
Equity in loss from
MarketWatch.com, Inc. ........ (6,382) (20,018) (19,376) (21,453) (67,229)
Other than temporary loss in
MarketWatch.com, Inc. ........ (141,844) (141,844)
Other income, net............... 133 230 228 579 1,170
Provision for income taxes...... 227 (4,478) (434) (62,837) (67,522)
Net loss........................ (5,222) (18,833) (17,189) (102,228) (143,472)
Loss per share
Basic & Diluted............... $ (0.08) $ (0.21) $ (0.19) $ (1.12) $ (1.68)
QUARTERS ENDED YEAR ENDED
--------------------------------------------------- DECEMBER 31,
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1999
-------- -------- ------------ ----------- ------------
Revenue......................... $37,658 $ 41,953 $ 53,200 $ 56,145 $188,956
Total costs and expenses........ 33,302 34,393 46,967 56,690 171,352
Income from operations.......... 4,356 7,560 6,233 (545) 17,604
Other income, net............... (18) 489 69 (299) 241
Provision for income taxes...... 2,567 3,995 3,817 1,269 11,648
Net income (loss)............... 1,771 4,054 2,485 (2,113) 6,197
Earnings (loss) per share
Basic & Diluted............... $ 0.03 $ 0.07 $ 0.04 $ (0.04) $ 0.11
41
43
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Data Broadcasting Corporation:
Our audits of the consolidated financial statements referred to in our
report dated February 7, 2001, 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)(2) 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.
/s/ PRICEWATERHOUSECOOPERS LLP
Boston, Massachusetts
February 7, 2001
42
44
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS)
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
CHARGED TO
BALANCE AT COSTS CHARGED WRITE BALANCE
BEGINNING AND TO OTHER OFFS/ AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD
----------- ---------- ---------- -------- ---------- ---------
Allowance for doubtful accounts:
Year Ended December 31, 2000........... $5,465 $4,094 $1,887(A)(B) $5,683 $5,763
Year Ended December 31, 1999........... 1,556 4,318 2,290(A)(B) 2,699 5,465
Year Ended December 31, 1998........... 2,161 785 (10)(B) 1,380 1,556
- ---------------
(A) Allowance for doubtful accounts acquired through acquisitions
(B) Currency translation adjustments for foreign entities
43
45
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 and to be used in connection with its Annual Meeting of Stockholders
expected to be held in June 2001 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 and to be used in connection with its Annual Meeting of Stockholders
expected to be held in June 2001 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 and to be used
in connection with its Annual Meeting of Stockholders expected to be held in
June 2001 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 and to be used in connection with its Annual Meeting of Stockholders
expected to be held in June 2001 is hereby incorporated by reference.
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 report of independent accountants required
by this item are included in Part II, Item 8. See pages 19 to 39,
herein.
2. Financial Statement Schedule
Schedule VIII, Valuation and Qualifying Accounts, and the related report
of independent accountants are included in Part II, Item 8. See pages
41 to 42 herein.
3. Exhibits*
44
46
The exhibits to this Form 10-K are listed below.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
2.1 Agreement and Plan of Merger dated as of November 14, 1999,
among Data Broadcasting Corporation, Pearson Longman, Inc.,
Detective Merger-Sub, Inc. and Interactive Data Corporation.
(Exhibit attached)
2.2 Amendment No. 1 to Agreement and Plan of Merger dated as of
January 10, 2000, among Data Broadcasting Corporation,
Pearson Longman, Inc., Detective Merger-Sub, Inc. and
Interactive Data Corporation (Exhibit 5.1 to the Company's
Current Report filed on Form 8-K on November 22, 1999).
2.3 Agreement, dated as of December 27, 2000, among Data
Broadcasting Corporation and Pearson Overseas Holdings
Limited (Exhibit 99.1 to the Company's Current Report filed
on Form 8-K on January 23, 2001).
3.1 Restated Certificate of Incorporation of Data Broadcasting
Corporation, as amended. (Exhibit 3.1 to Form 10-K for the
year ended June 30, 1995).
3.2 Bylaws of Data Broadcasting Corporation, as amended (Exhibit
3.2 to Form 8-A, filed on June 15, 1992).
3.3 Amendment to Data Broadcasting Corporation's Certificate of
Incorporation. (Exhibit attached)
3.4 Certificate of Correction to the Amendment to Data
Broadcasting Corporation's Certificate of Incorporation.
(Exhibit attached)
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. (Exhibit attached)
10.3 Data Broadcasting Corporation 2000 Long Term Incentive Plan
(Exhibit attached)
10.4 Letter Agreement, dated November 14, 1999 between Data
Broadcasting Corporation and Alan J. Hirschfield. (Exhibit
attached)
10.5 Letter Agreement, dated November 14, 1999 between Data
Broadcasting Corporation and Allan R. Tessler. (Exhibit
attached)
10.6 Letter Agreement, dated November 14, 1999 between Data
Broadcasting Corporation and Mark F. Imperiale. (Exhibit
attached)
10.7 Trade Mark License Agreement dated March 7, 2001 between
Data Broadcasting Corporation and The Financial Times
Limited. (Exhibit attached)
10.8 Employment Agreement with Steven G. Crane dated October 15,
1999 (Exhibit attached)**
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP.
- ---------------
* Exhibits followed by a parenthetical reference are incorporated by reference
herein from the document described therein.
B. Reports on Form 8-K
During the quarter ended December 31, 2000, the Company did not file a
Current Report on Form 8-K.
On January 23, 2001, the Company filed a Current Report on Form 8-K
regarding the completion of the sale of its 34.4% ownership interest in
MarketWatch.com, Inc. to Pearson Overseas Holdings Limited.
** Management contract or compensation plan or arrangement
45
47
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATA BROADCASTING CORPORATION
By: /s/ STUART J. CLARK
----------------------------------
Stuart J. Clark
Chief Executive Officer
March 27, 2001
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.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ STUART J. CLARK Chief Executive Officer March 27, 2001
- ----------------------------------
Stuart J. Clark
PRINCIPAL FINANCIAL OFFICER:
/s/ STEVEN G. CRANE Chief Financial Officer March 27, 2001
- ----------------------------------
Steven G. Crane
DIRECTORS:
/s/ STUART CLARK Chief Executive Officer and March 27, 2001
- ---------------------------------- Director
Stuart Clark
/s/ DONALD P. GREENBERG Director March 27, 2001
- ----------------------------------
Donald P. Greenberg
/s/ ALAN J. HIRSCHFIELD Director March 27, 2001
- ----------------------------------
Alan J. Hirschfield
/s/ GLORIA SAMUELS Director March 27, 2001
- ----------------------------------
Gloria Samuels
/s/ CARL SPIELVOGEL Director March 27, 2001
- ----------------------------------
Carl Spielvogel
/s/ JOHN FALLON Director March 27, 2001
- ----------------------------------
John Fallon
/s/ STEPHEN HILL Chairman of the Board March 27, 2001
- ----------------------------------
Stephen Hill
/s/ PHILIP J. HOFFMAN Director March 27, 2001
- ----------------------------------
Philip J. Hoffman
/s/ GILES SPACKMAN Director March 27, 2001
- ----------------------------------
Giles Spackman
/s/ ALLAN R. TESSLER Director March 27, 2001
- ----------------------------------
Allan R. Tessler
46