<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2000
----------------------
or
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 1-13069
CHOICEPOINT INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2309650
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1000 Alderman Drive, Alpharetta, Georgia 30005
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(Address of principal executive offices) (Zip Code)
(770) 752-6000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 2000
----- -----------------------------
Common Stock, $.10 Par Value 29,605,116
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CHOICEPOINT INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
Part I. FINANCIAL INFORMATION Page No.
- ------------------------------ --------
<S> <C>
Item 1. Financial Statements
Consolidated Statements of Income -
Three Months Ended March 31, 2000 and 1999..........................3
Consolidated Balance Sheets -
March 31, 2000 and December 31, 1999................................4
Consolidated Statement of Shareholders' Equity -
Three months Ended March 31, 2000...................................5
Consolidated Statements of Cash Flows -
Three months Ended March 31, 2000 and 1999..........................6
Notes to Consolidated Financial Statements...............................7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition...................11
Item 3. Quantitative and Qualitative Disclosures about Market Risk......14
<CAPTION>
Part II. OTHER INFORMATION
<S> <C>
Item 1. Legal Proceedings...............................................15
Item 2. Changes in Securities and Use of Proceeds ......................15
Item 3. Defaults Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K................................15
Signatures..............................................................17
Exhibit Index...........................................................18
</TABLE>
2
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(In thousands, except per share data) 2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Operating revenue $ 122,872 $ 99,684
Costs and expenses:
Cost of services 77,955 64,570
Selling, general and administrative 22,138 17,694
Unusual items -- 1,583
---------- ----------
Total costs and expenses 100,093 83,847
Operating income 22,779 15,837
Gain on sale of businesses, net -- 2,513
Interest expense 3,395 2,556
---------- ----------
Income before income taxes 19,384 15,794
Provision for income taxes 8,044 6,839
---------- ----------
Net income $ 11,340 $ 8,955
========== ==========
Earnings per share - basic (Notes 5 and 6) $ 0.39 $ 0.31
Weighted average shares - basic 29,080 28,874
Earnings per share - diluted (Notes 5 and 6) $ 0.37 $ 0.30
Weighted average shares - diluted 30,628 29,610
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
3
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CHOICEPOINT INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
(In thousands, except par values) 2000 1999
- --------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,701 $ 40,085
Accounts receivable, net of allowance for doubtful accounts
of $4,359 in 2000 and $3,831 in 1999 120,322 98,784
Deferred income tax assets 7,639 7,177
Other current assets 12,736 9,795
---------- ----------
Total current assets 147,398 155,841
Property and equipment, net 55,886 52,559
Goodwill, net 326,707 255,182
Deferred income tax assets 16,751 16,580
Other 53,232 52,710
---------- ----------
Total Assets $ 599,974 $ 532,872
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 8,166 $ 595
Accounts payable 26,695 24,515
Accrued salaries and bonuses 9,985 19,036
Other current liabilities 54,312 44,216
---------- ----------
Total current liabilities 99,158 88,362
Long-term debt, less current maturities 232,170 187,195
Postretirement benefit obligations 47,506 47,782
Other long-term liabilities 6,857 6,622
---------- ----------
Total liabilities 385,691 329,961
---------- ----------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.10 par value; shares authorized - 100,000;
issued and outstanding - 29,563 in 2000 and 29,539 in 1999 2,956 2,954
Paid-in capital 122,876 123,044
Retained earnings 99,892 88,552
Cumulative translation adjustments (23) (221)
Stock held by employee benefit trusts, at cost, 468 shares in 2000
and 1999 (11,418) (11,418)
---------- ----------
Total shareholders' equity 214,283 202,911
---------- ----------
Total Liabilities and Shareholders' Equity $ 599,974 $ 532,872
========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
4
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CHOICEPOINT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Cumulative Stock Held
Comprehensive Common Paid-in Retained Translation By Benefit
(In thousands) Income Stock Capital Earnings Adjustments Trusts Total
- -------------- ------------ -------- -------- -------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 $ 2,954 $ 123,044 $88,552 $(221) $(11,418) $ 202,911
Net Income $ 11,340 -- -- 11,340 -- -- 11,340
Translation adjustments 198 -- -- -- 198 -- 198
--------
Comprehensive income $ 11,538
========
Restricted stock plans, net (4) (1,034) -- -- -- (1,038)
Stock options exercised 6 866 -- -- -- 872
------- --------- ------- ----- -------- ---------
Balance, March 31, 2000 $ 2,956 $ 122,876 $99,892 $ (23) $(11,418) $ 214,283
======= ========= ======= ===== ======== =========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
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CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
2000 1999
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(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,340 $ 8,955
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 10,566 9,784
Provision for unusual items -- 1,583
Gain on sale of businesses, net -- (2,513)
Compensation recognized under employee stock plans 626 (133)
Payment on employee stock plans (1,495) (3,378)
Changes in assets and liabilities,
excluding effects of acquisitions and divestiture:
Accounts receivable, net (17,322) (7,748)
Deferred income taxes (632) 229
Other current assets (3,111) (102)
Current liabilities, excluding debt (2,131) (9,715)
Other long-term liabilities, excluding debt (42) (332)
--------- ---------
Net cash used by operating activities (2,201) (3,370)
Cash flows from investing activities:
Acquisitions, net of cash acquired (79,433) (769)
Payment of notes payable for acquisitions -- (22,701)
Cash proceeds from sale of businesses 1,500 22,000
Additions to property and equipment (3,053) (3,267)
Additions to other assets, net (3,615) (2,968)
--------- ---------
Net cash used by investing activities (84,601) (7,705)
Cash flows from financing activities:
Proceeds from long-term debt 75,000 30,000
Payments on long-term debt (30,025) (20,105)
Net short-term borrowings 7,571 (5,131)
Proceeds from exercise of stock options 872 663
--------- ---------
Net cash provided by financing activities 53,418 5,427
--------- ---------
Effect of foreign currency exchange rates on cash -- (114)
--------- ---------
Net decrease in cash (33,384) (5,762)
Cash and cash equivalents, beginning of period 40,085 18,883
--------- ---------
Cash and cash equivalents, end of period $ 6,701 $ 13,121
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
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CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(UNAUDITED)
1. ORGANIZATION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company") is a
leading provider of decision making intelligence to businesses, individuals and
government agencies. ChoicePoint's businesses are focused on two primary
markets - Insurance Services and Business & Government Services.
The Insurance Services group provides information products and services
used in the underwriting and marketing processes by property and casualty
and life insurers. Major offerings to the personal lines property and
casualty market include claims history data, motor vehicle records, credit
information, and modeling services. Additionally, ChoicePoint provides
customized policy rating and issuance software and property inspections
and audits to the commercial insurance market, and laboratory testing
services and related technology solutions to the life and health insurance
market.
The Business & Government Services group provides direct marketing and
information products and services to Fortune 1000 corporations, consumer
finance companies, asset-based lenders, legal and professional service
providers, health care service providers and federal, state and local
government agencies. Major offerings include pre-employment background and
drug screenings, public record searches, credential verification, due
diligence information, uniform commercial code searches and filings,
database marketing services and people and shareholder locator searches.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of ChoicePoint Inc.
and its wholly owned subsidiaries. All material transactions between entities
included in the consolidated financial statements have been eliminated. The
consolidated financial statements have been prepared on the historical cost
basis, and reflect all adjustments which are, in the opinion of management,
necessary for a fair statement of the financial position of ChoicePoint as of
March 31, 2000 and the results of operations and cash flows for the three
months ended March 31, 2000 and 1999. The adjustments have been of a normal
recurring nature. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These financial
statements should be read in conjunction with the notes to the financial
statements included in ChoicePoint's Consolidated Financial Statements for the
year ended December 31, 1999 as filed with the Securities and Exchange
Commission in the Annual Report on Form 10-K (File No. 1-13069). The current
period's results are not necessarily indicative of results to be expected for a
full year.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
7
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4. REVENUE AND COSTS OF SERVICES PRESENTATION
Motor vehicle records registry revenue, the fee charged by states for motor
vehicle records which is passed on by ChoicePoint to its customers, is excluded
from revenue and is recorded as a reduction to cost of services in the
consolidated financial statements. Registry revenue was $89.7 million and $87.5
million for the three months ended March 31, 2000 and 1999, respectively.
ChoicePoint Direct Inc., f/k/a Customer Development Corporation, a business
acquired in the fourth quarter of 1998, passes on material, shipping and
postage charges to its customers. These charges are excluded from revenue and
are recorded as a reduction to cost of services in the consolidated financial
statements. Charges passed through to customers for the three months ended
March 31, 2000 and 1999 were $10.4 million and $9.9 million, respectively.
5. EARNINGS PER SHARE
The income amount used in the numerator of the Company's earnings per share
calculations is the same for both basic and diluted earnings per share. The
average outstanding shares used in the denominator of the calculation for
diluted earnings per share includes the dilutive effect of stock options.
6. STOCK SPLIT
On November 24, 1999, ChoicePoint effected a two-for-one stock split in the
form of a stock dividend. Shareholders of record as of November 10, 1999
received one additional share of common stock for each share they held on the
record date. Share and per share data for all periods presented have been
adjusted to reflect the split.
7. DEBT
In August 1997, ChoicePoint entered into a $250 million unsecured revolving
credit facility (the "Credit Facility") with a group of banks. The Credit
Facility bears interest at variable rates and is expandable to $300 million,
subject to approval of the lenders. The commitment termination date and final
maturity of the Credit Facility will occur in August 2002. In December 1999,
ChoicePoint entered into an additional $100 million unsecured revolving credit
facility ("Revolving Facility") with a group of banks. The Revolving Facility
has a termination date of one year, at which time the Company has the option to
convert the outstanding balance to a one-year term obligation. Total borrowings
under the two credit facilities were $229.0 million at March 31, 2000. In
addition, there was $3.6 million of other long-term debt outstanding at March
31, 2000.
Short-term borrowings at March 31, 2000 include $7.7 million from a line of
credit with a bank.
8. STOCK OPTIONS
During the first quarter of 2000, stock options to purchase approximately
872,000 shares of ChoicePoint common stock were granted at fair market value
under the ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan.
9. ACQUISITIONS
In February 2000, the Company entered into a definitive purchase agreement with
DBT Online, Inc. ("DBT") to acquire all of the outstanding capital stock of DBT
with newly-issued shares of ChoicePoint common stock in a transaction to be
accounted for as a pooling-of-interests transaction. Per the agreement, DBT
shareholders will receive 0.525 shares of ChoicePoint stock for every share of
DBT owned. The Company estimates that approximately 11 million shares of new
ChoicePoint stock will be issued. The transaction, which is subject to
shareholder approval, is expected to be completed in May 2000.
8
<PAGE> 9
During the first quarter of 2000, the Company acquired Statewide Data Services,
Inc. ("SDS"), a provider of direct marketing services to the property and
casualty insurance market, National Safety Alliance, Incorporated ("NSA"), a
third-party administrator of drug tests, and Practical Computer Concepts, Inc.,
d/b/a Fraud Defense Network, a web-based anti-fraud business servicing the
insurance claims industry. The total purchase price of the acquisitions, which
were accounted for as purchases, was approximately $79.6 million, with
approximately $74.6 million of that amount allocated to goodwill. The Company
has accrued $1.5 million for transaction-related costs including lease
terminations and personnel-related costs.
10. DIVESTITURES
In January 2000, the Company completed the sale of ChoicePoint Limited, the
Company's United Kingdom-based insurance services division. There was no
material gain on the sale of the business.
In December 1998, the Company sold its life and health insurance field
underwriting services and insurance claims investigation services to PMSI
Services, Inc. ("PMSI") and recorded a gain on the sale. The proceeds from the
sale included $12.0 million in warrants and $10.0 million in a note receivable.
The warrants were discounted by $4.6 million at December 31, 1998. In March
1999, ChoicePoint received $22.0 million plus interest from PMSI for the
prepayment of the note receivable and the repurchase of the warrants. As a
result, ChoicePoint recognized an additional net pretax gain on the sale of
$2.5 million. The net pretax gain includes the unamortized discount of $4.3
million less transaction-related costs including lease termination, additional
asset write-offs and personnel-related costs of $1.8 million. In December 1998,
the net pretax gain was also net of transaction-related costs, including lease
termination and personnel-related costs of $5.9 million that were accrued at
the time of divestiture. As of March 31, 2000, approximately $5.6 million has
been charged against the total $7.7 million accrued transaction-related costs.
11. UNUSUAL ITEMS
Operating income for the first quarter of 1999 includes $1.6 million of unusual
expense items. The unusual expense items relate primarily to asset impairments
($732,000), severance costs ($451,000) and other one-time costs ($400,000).
12. SEGMENT DISCLOSURES
ChoicePoint operates in two reportable segments: Insurance Services
("Insurance") and Business & Government Services ("B&G"). See Note 1 for a
description of each segment. Revenues and operating income for the three months
ended March 31, 2000 and 1999 for the two segments and the divested and
discontinued lines were as follows:
<TABLE>
<CAPTION>
March 31, 2000 March 31, 1999
----------------------------------------- -------------------------------------------
Operating Operating
Income Income
before before
Acquisition Operating Acquisition Operating
(In Thousands) Revenue Amortization Income Revenue Amortization Income
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Insurance $ 75,717 $ 28,076 $ 26,942 $ 60,682 $ 21,092 $ 20,327
B&G 47,155 7,339 4,290 36,213 4,481 1,484
Divested & Discontinued -- -- -- 2,789 1,259 1,259
Corporate -- (8,453) (8,453) -- (5,650) (5,650)
Unusual items (Note 11) -- -- -- -- (1,583) (1,583)
---------- ---------- ---------- ---------- ---------- ----------
Total $ 122,872 $ 26,962 $ 22,779 $ 99,684 $ 19,599 $ 15,837
========== ========== ========== ========== ========== ==========
</TABLE>
Corporate expenses represent costs of support functions, incentives and profit
sharing that benefit both segments. Acquisition amortization includes goodwill
and other intangible amortization related to acquisitions.
9
<PAGE> 10
Revenue and operating income from divested and discontinued lines in 1999
consists primarily of the operating results of ChoicePoint Limited. ChoicePoint
Limited, the Company's United Kingdom-based services division, was sold in
January 2000 with no material gain on the sale of the business. In 1999,
ChoicePoint Limited's operating results were included in the Insurance Services
group.
Depreciation and amortization for the three months ended March 31, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
Three Months Ended
March 31,
(In Thousands)
2000 1999
------------------------------------------------------------
<S> <C> <C>
Insurance $ 3,971 $ 3,637
B&G 5,902 5,243
Divested & Discontinued -- 367
Corporate 693 537
-------- --------
Total $ 10,566 $ 9,784
======== ========
</TABLE>
ChoicePoint's balance sheets are generally managed on a consolidated basis and
therefore it is impracticable to report assets by segment. Substantially all of
the Company's operations are located in the United States and no customer
represents more than 10% of total operating revenue.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company"), is a
leading provider of decision making intelligence to businesses, individuals and
government agencies. ChoicePoint's businesses are focused on two primary
markets - Insurance Services and Business & Government Services. See Note 1 to
the consolidated financial statements for a description of each market.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Consolidated revenues from continuing operations increased $26.0 million, or
26.8%, to $122.9 million for the three months ended March 31, 2000 from $96.9
million for the three months ended March 31, 1999 primarily as a result of
strong revenue performance in the majority of all product lines and in new
acquisitions. Comparable consolidated internal growth, excluding the effect of
revenue from acquisitions completed the first quarter of 1999, was 19.3%.
Consolidated operating income before unusual items increased $5.4 million, or
30.8%, to $22.8 million for the three months ended March 31, 2000 from $17.4
million for the three months ended March 31, 1999. Operating margins (excluding
the effects of unusual items) increased to 18.5% for the three months ended
March 31, 2000 from 17.5% for the three months ended March 31, 1999.
Revenue from Insurance Services grew $15.0 million, or 24.8%, to $75.7 million
for the three months ended March 31, 2000 from $60.7 million for the three
months ended March 31, 1999, driven by strong unit performance in personal
lines products and laboratory services and the acquisition of Statewide Data
Services, Inc. ("SDS") in January 2000. Comparable internal revenue growth for
Insurance Services, excluding the effect of revenue from the SDS acquisition,
was 19.8%. Operating income increased $6.6 million, or 32.5%, to $26.9 million
for the three months ended March 31, 2000 from $20.3 million for the three
months ended March 31, 1999, primarily as a result of revenue growth noted
above. Acquisition amortization, which includes goodwill and other intangible
amortization related to acquisitions, increased to $1.1 million for the three
months ended March 31, 2000 from $765,000 for the three months ended March 31,
1999 due to the acquisition of SDS. Operating margins for Insurance Services
increased to 35.6% for the three months ended March 31, 2000 from 33.5% for the
three months ended March 31, 1999. Excluding acquisition amortization, the
operating margin in Insurance Services for 2000 was 37.1% compared to 34.8% for
the three months ended March 31, 1999.
Revenue from Business & Government Services increased $10.9 million, or 30.2%,
to $47.2 million for the three months ended March 31, 2000 from $36.2 million
for the three months ended March 31, 1999. Comparable internal revenue growth
for Business & Government Services, excluding the effect of revenue from
acquisitions made since the first quarter of 1999, was 19.0% over prior year
driven by strong growth in the direct marketing business and new workplace
solutions customers. Operating income increased $2.8 million to $4.3 million
for the three months ended March 31, 2000 from $1.5 million for the three
months ended March 31, 1999. Acquisition amortization, which includes goodwill
and other intangible amortization related to acquisitions, was approximately
$3.0 million for the three months ended March 31, 2000 and March 31, 1999.
Operating margins for Business & Government Services increased to 9.1% for the
three months ended March 31, 2000 from 4.1% for the three months ended March
31, 1999. Excluding acquisition amortization, the operating margin in Business
& Government Services for 2000 was 15.6% compared to 12.4% for the three months
ended March 31, 1999.
Divested and discontinued operations consists primarily of the operating
results from ChoicePoint Limited sold January 2000. See Note 10 to the
Consolidated Financial Statements.
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Corporate expenses represent costs of support functions, e-commerce
initiatives, incentives and profit sharing that benefit both segments. The
increase to $8.5 million for the three months ended March 31, 2000 from $5.7
million for the three months ended March 31, 1999 is primarily due to the
expansion of the Company's branding campaign, increases in compensation expense
recognized under employee stock plans and additional research and development
costs for e-commerce initiatives.
Unusual items of $1.6 million in the first quarter of 1999 relate primarily to
asset impairments ($732,000), severance costs ($451,000) and other one-time
costs ($400,000).
Consolidated operating income after unusual items increased $6.9 million, or
43.8%, to $22.8 million for the three months ended March 31, 2000 from $15.8
million for the three months ended March 31, 1999.
In the first quarter of 1999, an additional gain on the December 1998 sale of
certain field businesses of $2.5 million was recorded in connection with the
prepayment of a note receivable and the repurchase of warrants issued by PMSI
Services, Inc. in the transaction. See Note 10 to the consolidated financial
statements.
Interest expense was $3.4 million and $2.6 million for the three months ended
March 31, 2000 and 1999, respectively. Interest expense for 1999 is net of
$431,000 of interest income from the PMSI Services, Inc. note receivable and
warrants prior to the prepayment and repurchase made in March 1999.
Net income increased $2.4 million, or 26.6%, to $11.3 million for the three
months ended March 31, 2000 from $9.0 million for the three months ended March
31, 1999. The effective tax rate decreased from 43.3% for the three months
ended March 31, 1999 to 41.5% for the three months ended March 31, 2000 as a
result of lower state income taxes.
FINANCIAL CONDITION AND LIQUIDITY
Cash used by operations was $2.2 million in the first three months of 2000 as
increased net income and depreciation and amortization were offset by
reductions in current liabilities and increases in accounts receivable and
other current assets. During the first three months of 1999, cash used by
operations was $3.4 million. During the first three months of 2000, ChoicePoint
used $84.6 million for investing activities, including $79.4 million for
acquisitions and $6.7 million for additions to property and equipment and other
assets. Additions to property and equipment were primarily system upgrades
while additions to other assets were primarily software, purchased data files,
and software developed for internal use. During the first three months of 1999,
ChoicePoint used $7.7 million for investing activities, primarily $3.3 million
for additions to property and equipment and $3.0 million for additions to other
assets. During the first three months of 2000, net cash provided by financing
activities was $53.4 million, as the proceeds from a $100 million unsecured
revolving credit facility entered into in December 1999 with a group of banks
("Revolving Facility") were used to fund the SDS and National Safety Alliance,
Incorporated ("NSA") acquisitions. Net cash provided by financing activities
was $5.4 million in the first three months of 1999, as the $10.1 million net
increase in the five-year $250 million revolving credit facility ("Credit
Facility") was used to pay down $5.1 million in short-term borrowings.
Earnings before interest, taxes, depreciation and amortization ("EBITDA")
increased $5.2 million, or 18.5%, from $28.1 million for the three months ended
March 31, 1999 to $33.3 million for the three months ended March 31, 2000.
EBITDA is presented not as a substitute for income from operations, net income
or cash flows from operating activities. The Company has included EBITDA data
(which is not a measure of financial performance under generally accepted
accounting principles) because such data is used by certain investors to
analyze and compare companies on the basis of operating performance, leverage
and liquidity, and to determine a company's ability to service debt.
The Company's short-term and long-term liquidity depends primarily upon its
level of net income, accounts receivable, accounts payable and accrued
expenses. In order to meet its working capital needs, ChoicePoint
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<PAGE> 13
entered into the Credit Facility with a group of banks in August 1997. The
Credit Facility bears interest at variable rates and is expandable to $300
million, subject to approval of the lenders. The Revolving Facility has a
termination date of one year, at which time the Company has the option to
convert the outstanding balance to a one-year term obligation. Total debt
outstanding under the two credit facilities was $229 million at March 31, 2000
and $184 million at December 31, 1999. ChoicePoint may use additional
borrowings under these facilities to finance acquisitions and general corporate
cash requirements. ChoicePoint may also utilize lines of credit with two banks
for overnight borrowings. At March 31, 2000, short-term borrowings of $7.7
million were outstanding under a line of credit with a bank.
The Company uses cash generated to invest in growing the business and to fund
acquisitions and operations. Therefore, no cash dividends have been paid and
the Company does not anticipate paying any cash dividends on its common stock
in the near future.
YEAR 2000
All applications were certified as Year 2000 compliant prior to December 31,
1999. During the rollover, only minor problems were encountered, none of which
resulted in any downtime or lost revenue. Included in operating results for the
three months ended March 31, 2000 and March 31, 1999 were $200,000 and $2.2
million, respectively, of expenses incurred to modify existing computer systems
and applications to address the Year 2000 compliance issues.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In 1999, FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities - Deferral
of the Effective Date of FASB Statement No. 133." SFAS No. 133 is effective for
the Company's fiscal year ending December 31, 2001. Management does not expect
SFAS No. 133 to have a significant impact on the Company's consolidated
financial statements.
FORWARD-LOOKING STATEMENTS
This report may contain certain information that constitutes forward-looking
statements as that term is defined in the Private Securities Litigation Reform
Act of 1995. Forward-looking statements include information concerning the
possible or assumed future results of operations of ChoicePoint, as well as
statements preceded by or that include words such as "believes," "expects,"
"anticipates," "intends," "plans," "estimates" or similar expressions. Other
statements, to the extent they are not historical facts, should also be
considered forward-looking. These statements are subject to various risks and
uncertainties. Such forward-looking statements are made based upon management's
assessments of various risks and uncertainties, as well as assumptions made in
accordance with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. The Company's actual results could differ
materially from the results anticipated in these forward-looking statements as
a result of important factors, including risks and uncertainties. Risks and
uncertainties include those identified in the Company's Annual Report on Form
10-K for the fiscal year ending December 31, 1999 and the other filings made by
the Company from time to time with the Securities and Exchange Commission. The
Company undertakes no obligation to publicly release any revisions to any
forward-looking statement contained herein to reflect events or circumstances
occurring after the date hereof or to reflect the occurrence of unanticipated
events.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
information below summarizes the Company's market risk associated with its debt
obligations as of March 31, 2000. The information below should be read in
conjunction with Note 7 of the "Notes to Consolidated Financial Statements".
As of March 31, 2000, $229 million was outstanding under two credit facilities.
The Company has also entered into six interest rate swap agreements (the "Swap
Agreements") to reduce the impact of changes in interest rates on its floating
rate obligation. The Swap Agreements have a combined notional amount of $175
million at March 31, 2000 and mature at various dates from 2000 to 2007. The
Swap Agreements involve the exchange of variable rate for fixed rate payments
and effectively change the Company's interest rate exposure to a weighted
average fixed rate of 6.14% plus a credit spread.
Based on the Company's overall interest rate exposure at March 31, 2000, a
near-term change in interest rates would not materially affect the consolidated
financial position, results of operations or cash flows of the Company.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
ChoicePoint is involved in litigation from time to time in the ordinary course
of its business. The Company does not believe that the outcome of any pending
or threatened litigation will have a material adverse effect on the financial
position or results of operations of ChoicePoint. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a
risk that unpredictable decisions adverse to the Company could be reached.
Item 2. Changes in Securities and Use of Proceeds
Not Applicable.
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
2.1 Purchase Agreement, by and among ChoicePoint Inc., ChoicePoint
Acquisition Corporation and DBT Online, Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Current Report on Form
8-K, filed February 15, 2000).
3.1 Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, as amended, File No.
333-30297).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999).
4.1 Rights Agreement, dated as of October 29, 1997, by and between
ChoicePoint Inc. and SunTrust Bank, Atlanta (incorporated by
reference to Exhibit 4.2 of the Company's Form 8-A, filed
November 5, 1997).
4.2 Amendment No. 1 to the Rights Agreement, dated as of June 21,
1999, between ChoicePoint Inc. and SunTrust Bank, Atlanta
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-A, filed August 17, 1999).
4.3 Amendment No. 2 to the Rights Agreement between ChoicePoint Inc.
and SunTrust Bank, Atlanta dated February 14, 2000 (incorporated
by reference to Exhibit 4.1 of the Company's Current Report on
Form 8-K, filed February 15, 2000).
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C>
4.4 Form of Common Stock certificate (incorporated by reference to
Exhibit 4.1 of the Company's Registration Statement on Form S-1,
as amended, File No. 333-30297).
27 Financial Data Schedule (for SEC use only).
</TABLE>
(b) Reports on Form 8-K
As previously disclosed in the Annual Report on Form 10-K filed on March
10, 2000, on February 15, 2000, the Company filed a Current Report on
Form 8-K, reporting the merger agreement, by and among ChoicePoint Inc.,
ChoicePoint Acquisition Corporation and DBT Online, Inc.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHOICEPOINT INC.
(Registrant)
May 12, 2000 /s/ Derek V. Smith
Date --------------------------------------------
Derek V. Smith, Chairman and
Chief Executive Officer
May 12, 2000 /s/ Michael S. Wood
Date --------------------------------------------
Michael S. Wood, Chief Financial Officer
17
<PAGE> 18
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
- ------- ----------------------
<S> <C>
2.1 Purchase Agreement, by and among ChoicePoint Inc.,
ChoicePoint Acquisition Corporation and DBT Online, Inc.
(incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K, filed February 15, 2000).
3.1 Articles of Incorporation of the Company, as amended
(incorporated by reference to Exhibit 3.1 of the Company's
Registration Statement on Form S-1, as amended, File No.
333-30297).
3.2 Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999).
4.1 Rights Agreement, dated as of October 29, 1997, by and
between ChoicePoint Inc. and SunTrust Bank, Atlanta
(incorporated by reference to Exhibit 4.2 of the Company's
Form 8-A, filed November 5, 1997).
4.2 Amendment No. 1 to the Rights Agreement, dated as of June 21,
1999, between ChoicePoint Inc. and SunTrust Bank, Atlanta
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-A, filed August 17, 1999).
4.3 Amendment No. 2 to the Rights Agreement between ChoicePoint
Inc. and SunTrust Bank, Atlanta dated February 14, 2000
(incorporated by reference to Exhibit 4.1 of the Company's
Current Report on Form 8-K, filed February 15, 2000).
4.4 Form of Common Stock certificate (incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement on
Form S-1, as amended, File No. 333-30297).
27 Financial Data Schedule (for SEC use only).
</TABLE>
18
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<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 6,701
<SECURITIES> 0
<RECEIVABLES> 124,681
<ALLOWANCES> 4,359
<INVENTORY> 120,322
<CURRENT-ASSETS> 147,398
<PP&E> 118,330
<DEPRECIATION> 62,444
<TOTAL-ASSETS> 599,974
<CURRENT-LIABILITIES> 99,158
<BONDS> 0
0
0
<COMMON> 2,956
<OTHER-SE> 211,327
<TOTAL-LIABILITY-AND-EQUITY> 599,974
<SALES> 122,872
<TOTAL-REVENUES> 122,872
<CGS> 77,955
<TOTAL-COSTS> 77,955
<OTHER-EXPENSES> 22,138
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<INTEREST-EXPENSE> 3,395
<INCOME-PRETAX> 19,384
<INCOME-TAX> 8,044
<INCOME-CONTINUING> 11,340
<DISCONTINUED> 0
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