<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
OR
___ 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 1-10263
THE OFFICIAL INFORMATION COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 73-1341805
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
888 Seventh Avenue, 28th Floor, New York, New York 10106
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 247-5160
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE ACT: NONE
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
As of August 10, 1998, 112,367 shares of common stock were
outstanding, of which 72,367 were owned by VS&A-T/SF, L.L.C. and 1,628, 3,831
and 34,541 were owned by Fir Tree Value Fund LP., Fir Tree Institutional Value
Fund L.P. and Fir Tree Value Partners L.D.C., respectively.
<PAGE>
PART I
Item 1. Financial Information
2
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS JUNE 30, DECEMBER 31,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,778 $ 10,564
Accounts receivable, less reserve for doubtful accounts 13,495 11,018
Inventories 242 329
Deferred tax assets 1,605 1,520
Notes receivable and other current assets 2,223 1,345
Refundable income taxes 1,938 3,166
----- -------
Total current assets 27,281 27,942
------ ------
Notes receivable and investments 1,753 1,769
----- -------
Property, plant and equipment, at cost: 18,720 16,963
Less accumulated depreciation 10,723 9,910
------ -------
Property, plant and equipment, net 7,997 7,053
----- -------
Deferred tax assets 1,150 1,150
Intangibles and other assets, net 33,944 33,052
------ ------
$ 72,125 $ 70,966
====== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
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<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) JUNE 30, DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,438 $ 4,505
Accrued liabilities 7,702 9,261
Deferred revenue 5,926 2,843
Current portion of long-term debt 1,350 1,232
----- ---------
Total current liabilities 19,416 17,841
------ --------
Long-term debt 101,417 102,302
Other liabilities 1,551 1,425
Minority interest 5,102 -
Stockholders' equity (deficit):
Common stock, $.10 par value, 150,000 and 10,000,000 shares authorized at
June 30, 1998 and December 31, 1997, respectively
42 419
Additional paid-in capital 48,197 47,820
Retained earnings 10,877 11,528
------ --------
59,116 59,767
Treasury stock (114,477) (110,369)
--------- -------
Total stockholders' deficit (55,361) (50,602)
-------- --------
$ 72,125 $ 70,966
======== ========
</TABLE>
4
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THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues
Operating revenues $ 22,533 $ 19,049 $ 43,594 $ 36,179
Interest and other income 340 670 510 966
Loss on sale of assets, net (134) (210) (86) (210)
--------- --------- --------- -----------
Total revenues 22,739 19,509 44,018 36,935
------ ------ ------ --------
Costs and expenses:
Operating costs 14,109 11,259 27,705 22,003
General and administrative 4,128 4,428 8,136 8,191
Interest 2,682 130 5,374 285
Depreciation and amortization 1,493 1,160 2,806 2,272
----- ----- ----- -----
22,412 16,977 44,021 32,751
------ ------ ------ ------
Income (loss) before minority interest and 327 2,532 (3) 4,184
income taxes
Minority interest in earnings of consolidated entity (456) - (602) -
Income tax expense (68) (1,035) (46) (1,751)
------- ------- ------- -------
Net income (loss) $ (197) $ 1,497 $ (651) $ 2,433
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
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THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (651) $ 2,433
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 2,806 2,272
Loss on sale of assets 86 210
Minority interest in earnings of consolidated entity 602 -
Deferred income taxes (85) 439
Other - 115
Changes in assets and liabilities (870) 2,755
----- -----
Total adjustments 2,539 5,791
----- -----
Net cash provided by operating activities 1,888 8,224
------ -----
Cash flows from investing activities:
Collections on contract and notes receivable 15 563
Capital expenditures (2,916) (2,675)
Proceeds from the sale of assets 308 35
Payments for acquisition, net of cash acquired (2,009) (939)
Net additions to investments - (143)
Payments on deferred contract liabilities (205) (339)
------- -------
Net cash used in investing activities (4,807) (3,498)
------- -------
Cash flows from financing activities:
Principal payments of long-term debt (767) (1,016)
Repayment of bank lines-of-credit, net - (500)
Issuance of common stock - 63
Minority interest 4,500 -
Repurchase of common stock (3,600) (1,375)
------- -------
Net cash provided by (used in) financing activities 133 (2,828)
------- -------
Net increase (decrease) in cash and cash equivalents (2,786) 1,898
Cash and cash equivalents at beginning of period 10,564 2,257
------ -----
Cash and cash equivalents at end of period $ 7,778 $ 4,155
====== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
6
<PAGE>
THE OFFICIAL INFORMATION COMPANY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The consolidated condensed financial statements of
The Official Information Company ("TOIC" or the "Company"), formerly known
as T/SF Communications Corporation, include the accounts of TOIC, its
wholly owned subsidiaries, TOIC Holdings, LLC ("Holdings LLC"), T/SF
Operating LLC ("Operating LLC") and the limited liability companies wholly
owned by Holdings LLC and Operating LLC (the "Subsidiary LLCs"). Through
its priority interest in Holdings LLC and Operating LLC, TOIC has voting,
operational and management control of Holdings LLC, Operating LLC and the
Subsidiary LLCs and, accordingly, the financial statements of these
entities are consolidated herein. Income allocated to TOIC from Holdings
LLC and Operating LLC is the lesser of net earnings or the preferred
return, such amount being defined as an 11% cumulative annual compounded
return on TOIC's undistributed capital in each, respectively. Losses are
allocated first to the common members of Holdings LLC and Operating LLC.
TOIC, Holdings LLC and Operating LLC share common management, resources
and control. Prior to the drop down restructuring (see Note B) in February
1998, the operations of Holdings LLC, Operating LLC and the Subsidiary
LLCs were wholly owned by TOIC.
INTERIM REPORTING. The accompanying interim consolidated condensed
financial statements reflect all adjustments which, in the opinion of
management, are considered necessary for a fair presentation of the
interim periods presented. All such adjustments are of a normal recurring
nature. Due to the seasonal nature of the business, the results of
operations for the three and six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the year ending
December 31, 1998. For further information, refer to the consolidated
financial statements and related notes thereto included in TOIC's (then
known as T/SF Communications Corporation) annual report on Form 10-K for
the year ended December 31, 1997.
RECLASSIFICATION. Certain amounts in the 1997 consolidated condensed
financial statements have been reclassified to conform with the 1998
presentation.
B. DROP DOWN RECAPITALIZATION
During 1997, the Company adopted a two phased leveraged recapitalization
plan of the Company's ownership and capital structure. Phase I included a
tender offer for substantially all of TOIC's outstanding common stock;
selling newly-issued common stock to a new investor, VS&A-T/SF, L.L.C.
("VS&A-T/SF ") and repurchasing substantially all of the Company's
outstanding stock options. Phase II was completed on February 27, 1998 and
included a reverse stock split to eliminate all shares of the Company's
common stock other than those owned by the Equity Investors (as defined
below) and a recapitalization of the Company and its subsidiaries. As of
June 30, 1998, VS&A-T/SF and entities controlled by Fir Tree Partners
(together referred to as the Equity Investors) own approximately 64% and
36% of TOIC's common stock, respectively.
7
<PAGE>
The reverse stock split provided that each then outstanding share of
common stock other than treasury stock and stock owned by the Equity
Investors was converted into the right to receive $40.25 for each
pre-split share.
In the drop down recapitalization, TOIC and certain of its wholly owned
subsidiaries contributed substantially all of the assets and liabilities
of TOIC's Business to Business Communication segment into Holdings LLC in
exchange for a $45 million priority equity interest which carries an 11%
annual distribution. Simultaneous with this event, Holdings LLC
contributed the assets received to the Subsidiary LLCs in exchange for a
99% interest. TOIC also purchased a priority interest in Operating LLC,
which holds the remaining 1% interest in the Subsidiary LLCs. The Equity
Investors purchased common equity interests in Holdings LLC and Operating
LLC for approximately $4.5 million in the same proportion as their
ownership of TOIC. TOIC has voting, operational and management control of
Holdings LLC and Operating LLC.
C. CONSOLIDATING SCHEDULE OF NET INCOME
The following consolidating schedule of net income (loss) for the six
months ended June 30, 1998 includes the accounts of TOIC and the combined
accounts of Holdings LLC, Operating LLC and the Subsidiary LLCs.
All material intercompany transactions have been eliminated.
<TABLE>
<CAPTION>
HOLDINGS TOIC
TOIC LLC ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
REVENUE:
Business to Business Communication 6,929 18,739 25,668
Information services 17,926 - 17,926
Other income 361 63 424
---------------------------------------------------------------
25,216 18,802 0 44,018
---------------------------------------------------------------
COST AND EXPENSES:
Business to Business Communication 5,030 12,850 17,880
Information services 9,825 - 9,825
General and administrative 5,228 2,908 8,136
Interest 5,374 - 5,374
Depreciation and amortization 2,034 772 2,806
---------------------------------------------------------------
Total cost and expenses 27,491 16,530 0 44,021
---------------------------------------------------------------
INCOME BEFORE PRIORITY AND MINORITY INTERESTS AND INCOME TAXES (2,275) 2,272 0 (3)
Priority interest in net earnings of Holdings LLC 1,670 (1,670) 0
---------------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS (605) 2,272 (1,670) (3)
Income tax (expense) benefit (46) 0 (46)
Minority interest in net earnings of consolidated entity 0 (602) (602)
---------------------------------------------------------------
NET INCOME (LOSS) (651) 2,272 (2,272) (651)
===============================================================
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
OVERVIEW
The Company is a diversified business media company which principally
operates two lines of business: (i) business and professional information
services and (ii) business to business communications, publishing and related
services. In February 1997, the Company increased its ownership in Casino
Publishing Company, publisher of the trade journal, Casino Executive, to 88%,
which is included in the Company's consolidated operations since that date.
Effective January 31, 1998, the Company acquired the remaining interests in
Casino Publishing Company. Effective May 1, 1997, the Company acquired a
majority ownership in Galaxy Expocard Europe B.V. and increased its ownership
to 73% effective July 1, 1997.
Information Services provides specialized information and database
management services to selected market segments. Total Information Services,
Inc. ("TISI") is a leading supplier of pre-employment screening information to
the trucking industry and a provider of risk assessment and underwriting
information to agents, underwriters and others in the insurance industry.
CORSEARCH, Inc., acquired by the Company in 1996, is the second largest
supplier in the United States of trademark and trade name searches and
information research.
The Company's Business to Business Communications operations are
conducted through several individual businesses, each of which is characterized
by leading competitive positions within specialized market niches. Business to
Business Communications includes: (i) Atwood Publishing, LLC and its affiliates
(collectively, "Atwood"), the largest domestic independent publisher of
exposition and association related publications and directories; (ii) Galaxy
Information Services, LLC ("Galaxy"), the largest independent provider of trade
show and convention registration, exhibitor information and "lead" management
services in the United States and (iii) GEM Communications, LLC and its
affiliates (collectively, "GEM"), the owner and operator of the World Gaming
Congress, the world's largest trade show catering to the legalized gaming
industry and the publisher of trade magazines directed to the legalized gaming
industry, principally IGWB, the leading gaming industry magazine, and Casino
Executive, the major magazine for casino management. In June, 1998, GEM
acquired all the assets and rights to the International Gaming Business
Exposition, a conference and trade show serving the casino gaming industry.
As part of the Recapitalization, VS&A-T/SF and Fir Tree caused the
Company, directly or indirectly, to contribute to T/SF Holdings, LLC ("Holdings
LLC") substantially all of the assets and liabilities of the predecessors of
Atwood, Galaxy and GEM in exchange for a $45.0 million preferred equity
interest in Holdings LLC and VS&A-T/SF and Fir Tree contributed $4.5 million to
acquire the common equity interests in Holdings LLC in the same proportion as
their ownership of the common stock immediately following the consummation of
the Recapitalization. The preferred equity interest held, directly or
indirectly, by the Company carries an 11% annual distribution rate and,
together with a voting agreement among its wholly owned subsidiaries, gives the
Company voting, operational and management control of Holdings LLC. As part of
the Recapitalization, Holdings LLC contributed substantially all of the assets
of the predecessors of Galaxy, Atwood and GEM into several limited liability
companies (the "Subsidiary LLCs"). 99% of the common equity interests of each
Operating LLC is owned by Holdings LLC and gives Holdings LLC voting,
operational and management control of such entities and a 1% common equity
interest of each Subsidiary LLC is owned by T/SF Operating, LLC ("Operating
LLC"). The preferred equity interest in Operating LLC is owned by Holdings LLC
and the common equity interests
9
<PAGE>
of Operating LLC are held by VS&A-T/SF and Fir Tree in the same proportion
as their ownership of the common stock immediately following the consummation
of the Recapitalization. Through its priority interest in Holdings LLC
and Operating LLC, the Company has voting, operational and management
control of Holdings LLC, Operating LLC and the Subsidiary LLCs. As a
result of such control, the financial results of Holdings LLC, Operating
LLC and the Subsidiary LLCs are included in the consolidated financial
statements of the Company.
RESULTS OF OPERATION
Revenues. Revenues of $22.7 million and $44.0 million for the three
and six months periods ended June 30, 1998, respectively, were $3.2 million
(17%) and $7.1 million (19%) higher, respectively, than the same periods in the
prior year. The Business to Business Communications segment Revenue totaled
$13.5 million and $25.7 million for the three and six months ended June 30,
1998, respectively, an increase of $2.2 million (19%) and $5.5 million (27%),
respectively, over the three and six months ended June 30, 1997. At Galaxy, the
return of several bi-annual trade shows, an overall increase in the number of
shows completed through June 1998 and Galaxy Europe, which was not consolidated
in the first quarter of 1997, contributed $1.3 million and $2.8 million to the
revenue growth, respectively, over the same periods in the prior year. At
Atwood, the addition of Dallas Market Center business and strong periodical
publishing advertising sales led to a 13% and 24% increase in revenue in the
three and six month periods of 1998, respectively, compared with the same
periods of 1997. The addition of two new shows managed by GEM--GameTech '98 and
Dion Entertainment, Inc. -- "Bingo World Expo and Conference" -- contributed to
a 13% and 22% increase in revenue at GEM for the three and six month periods of
1998, respectively, compared to the same periods in 1997.
The Information Services segment produced revenue of $9.1 million and
$17.9 million, for the three and six month periods ended June 30, 1998,
respectively, an increase of $1.3 million (17%) and $1.9 million (12%),
respectively, over the same three and six month periods of 1997. CORSEARCH
increased revenue 32% and 20% during the three and six months of 1998,
respectively, compared with the same periods of 1997. This return to double
digit growth from relatively flat revenue growth during 1997, compared with
1996, resulted from increased sales and marketing efforts. TISI's revenue
increased 13% and 10% for the three and six months ended June 30, 1998,
respectively, over the same periods of 1997. TISI's revenue growth was impacted
somewhat by anticipated enactment in late 1997 of Fair Credit Reporting Act
regulations which have slowed the processing of employment history records.
TISI's Crimesearch affiliate, acquired in 1996, experienced an 85% increase in
six month revenue reflecting growing demand for criminal records.
Operating Costs. Operating Costs increased $2.8 million (25%) and $5.7
million (26%) for the three and six month periods ended June 30, 1998,
respectively. Operating Costs of the Business to Business Communications
operations increased by $2.1 million (30%) and $4.4 million (33%) for the three
and six months ended June 30, 1998, respectively, on 17% and 19% higher revenue
compared with the same periods in 1997. The increase was attributable
principally to an increase in volume at Atwood, additional trade shows at
Galaxy, inclusion of Galaxy Europe, and two new shows GameTech '98 and "Bingo
World Expo" managed by GEM.
Information Services Operating Costs increased 20% and 15% for the
three and six month periods ended June 30, 1998, respectively, compared to the
same periods of 1997. The increase was attributable principally to the
expansion of research capacity at CORSEARCH and higher criminal record and
pre-employment screening volume at TISI, offset partially by lower costs
resulting from elimination of National Employment Screening Services, Inc., an
unprofitable business venture, closed by TISI in 1997.
10
<PAGE>
General and Administrative Expenses. General and Administrative
Expenses decreased $300,000 (7%) and $55,000 for the three and six months ended
June 30, 1998, respectively, compared with the year ago periods. General and
Administrative Expenses were favorably impacted during the three and six months
periods of 1998 by elimination of NESS ($129,000), restructuring of two
unprofitable magazines to consolidate overhead and lower corporate overhead
(down $356,000 or 26%) resulting principally from elimination of the Tulsa,
Oklahoma corporate office and establishment of a smaller corporate office in
New York City. The favorable impact in General and Administrative Expenses was
partially offset by approximately $32,000 and $450,000 for the three and six
months periods ended June 30, 1998, respectively, attributable principally to
the consolidation of Galaxy Europe which was not included until May 1, 1997.
Depreciation and Amortization. Depreciation and Amortization increased
$333,000 (29%) and $534,000 (24%) during the three and six months ended June
30, 1998, respectively, compared with the same periods in 1997. For the six
months ended June 30, 1998, capital spending increased to support new online
products and expansion of capacity at CORSEARCH and additional reader rental
boxes at Galaxy accounted for most of the increase.
Interest Expense. Interest Expense totaled $2.7 million and $5.4
million for the three and six months ended June 30, 1998, respectively,
compared with $130,000 and $285,000 for the same periods in 1997. The increase
of $2.6 million and $5.1 million for the three and six months ended June 30,
1998, respectively, resulted from interest on new debt incurred in connection
with the Recapitalization.
EBITDA. EBITDA increased $605,000 (15%) and $1.3 million (19%) to $4.6
million and $8.3 million for the three and six months ended June 30, 1998,
respectively, compared with $4.0 million and $7.0 million, respectively, during
the same 1997 periods. The increase for the three months was principally
attributable to higher EBITDA in the Business to Business Communications
segment (up $161,000 - 7%) and the Information Services segment (up $550,000 -
26%). The increase for the six months ended June 30, 1998 was principally
attributable to higher EBITDA in the Business to Business Communications
segment (up $470,000 - 16%) and the Information Services segment (up $820,000 -
18%) and lower corporate expenses ($356,000 - 26%).
EBITDA, as presented, represents operating income plus depreciation
and amortization. EBITDA is included because management understands that such
information is considered by certain investors to be an additional basis on
which to evaluate the Company's ability to pay interest expense, repay debt and
make capital expenditures. Excluded from EBITDA are interest expenses, income
taxes, depreciation and amortization, unusual gains, minority interest in
consolidated subsidiaries, discontinued operations, net and extraordinary loss,
net of tax, each of which can significantly affect the Company's results of
operations and liquidity and should be considered in evaluating the Company's
financial performance. EBITDA is not intended to represent and should not be
considered more meaningful than, or an alternative to, measures of operating
performance as determined in accordance with generally accepted accounting
principles.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity. In connection with the Recapitalization, the Company: (i)
borrowed $13 million under a $25.0 million revolving senior credit facility
(the "Senior Credit Facility") with First Union National Bank ("FUNB"); (ii)
issued $80.0 million aggregate principal amount of notes pursuant to a facility
(the "Bridge Financing Facility") provided by First Union Corporation; and
(iii) received $40.0 million of equity contributions (the "Equity
Contributions") from VS&A-T/SF and Fir Tree. On October 29, 1997,
11
<PAGE>
the Company completed the private sale to First Union Capital Markets Corp.
(the "Initial Purchaser") of $100.0 million principal amount of Senior
Subordinated Notes due 2007 (the "Old Notes") at a price of 97% of the
principal amount thereof. The Initial Purchaser resold the Old Notes to a
limited number of qualified institutional buyers at an initial price to
investors of 100% of the principal amount thereof, with net proceeds to the
Company of $97.0 million (the "Offering"). The Offering was a private placement
transaction exempt from the registration requirements of the Securities Act
pursuant to Rule 144A and Section 4 thereof. The net proceeds of the Notes sold
pursuant to the Offering were applied to repay indebtedness incurred in
connection with the Recapitalization under the Senior Credit Facility and the
Bridge Financing Facility. On February 10, 1998, the Company offered to
exchange up to $100,000,000 aggregate principal amount of Old Notes for up to
an equal aggregate principal amount of new notes (the "New Notes" and, together
with the Old Notes, the "Notes")). The New Notes are obligations of the Company
entitled to the benefits of the Indenture (the "Indenture") relating to the Old
Notes and the form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except that the New Notes have
been registered under the Securities Act and do not contain terms with respect
to transfer restrictions.
The Company's principal sources of funds are anticipated to be cash flows
from operating activities and borrowings under the Senior Credit Facility.
Based upon the successful implementation of management's business and operating
strategy, the Company believes that these funds will provide the Company with
sufficient liquidity and capital resources for the Company to meet its current
and future financial obligations, including the payment of principal and
interest on the Notes, as well as to provide funds for the Company's working
capital, capital expenditures and other needs. No assurance can be given,
however, that this will be the case. As of June 30, 1998, the Company had $25.0
million of availability under the Senior Credit Facility. The Company's future
operating performance and ability to service or refinance the Notes and to
repay, extend or refinance the Senior Credit Facility will be subject to future
economic conditions and to financial, business and other factors, many of which
are beyond the Company's control. In addition, any future acquisitions by the
Company would likely require additional financing.
In the event of a Change of Control (as defined in the Indenture), the
Company will be required to make an offer for cash to repurchase the Notes at
101% of the principal amount thereof, plus accrued and unpaid interest and
Additional Interest (as defined in the Indenture), if any, thereon to the
repurchase date. Certain events involving a Change of Control would result in
an event of default under the Senior Credit Facility or other indebtedness of
the Company that may be incurred in the future. Moreover, the exercise by the
holders of the Notes of their right to require the Company to repurchase the
Notes may cause an event of default under the Senior Credit Facility or such
other indebtedness, even if the Change of Control does not. Finally, there can
be no assurance that the Company will have the financial resources necessary to
repurchase the Notes upon a Change of Control.
Capital Expenditures. Management anticipates that capital expenditures in
1998 will be approximately $7 million. The primary capital expenditures will be
for computers, software, furniture and office equipment and to acquire
additional "reader rental boxes" at Galaxy. TISI continues to offer its
customers in the trucking industry credits for providing employment information
to be utilized in its database, which credits can be used against charges for
future services from such division. All of the credits earned are considered
capital expenditures for the acquisition of such data. Management anticipates
positive cash flow from operations in 1998, even after the anticipated capital
expenditures for 1998. Thus, with the Company's available cash reserves and
cash flow, management does not anticipate a need for capital during 1998 except
for possible, and as yet unidentified, future acquisitions.
12
<PAGE>
INFLATION
Management anticipates the effect of inflation on the Company's operations
during 1998 will be primarily limited to the effects which general inflation
will have on costs in most areas in which the Company operates.
YEAR 2000 COMPLIANCE
The Company is modifying its computer systems to be Year 2000
compliant. The Company does not expect that the cost of modifying such systems
will be material. The Company believes it will achieve Year 2000 compliance in
advance of the year 2000, and does not anticipate any material disruption in
its operations as the result of any failure by the Company to be in compliance.
The Company does not have any information concerning the Year 2000 compliance
status of its suppliers and customers.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information (SFAS 131)
in June 1997. SFAS 131 supersedes FASB Statement No. 14, Financial Reporting
for Segments of a Business Enterprise, but retains the requirement to report
information about major customers. SFAS 131 replaces the "industry segment"
concept of Statement 14 with a "management approach" concept as the basis for
identifying reportable segments. The management approach is based on the way
that management organizes the segments within the enterprise for making
operating decisions and assessing performance. Consequently, the segments are
evident from the structure of the enterprise's internal organization. It
focuses on financial information that an enterprise's decision makers use to
make decisions about the enterprise's operating matters. SFAS 131 is effective
for financial statements issued for fiscal years beginning after December 15,
1997 and is not anticipated to have a significant impact on the Company's
segment reporting. SFAS 131 has not been adopted for the interim period ending
June 30, 1998.
The FASB also recently issued Statement of Financial Accounting Standards No.
132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132) and Statement of Financial Accounting Standards No. 133, Accounting
for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 132 revises
employer's disclosures about pension and other postretirement benefit plans. It
does not change the measurement or recognition of those plans. SFAS 133
establishes accounting and reporting standards for derivative instruments and
hedging activities. These Statements are not expected to have a material impact
on the Company's financial reporting as the Company does not currently sponsor
pension or other postretirement benefit plans and does not engage in the use of
derivative instruments.
FORWARD-LOOKING STATEMENTS
This Quarterly Report for the quarter and six months ended June 30, 1998
as well as other public documents of the Company contains forward-looking
statements which involve risks and uncertainties. The Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for certain
forward-looking statements. When used in this Quarterly Report, the words
"estimate," "project," "anticipate," "expect," "intend," "believe," "seek,"
"plan," as well as variations of such words and similar expressions, are
intended to identify forward-looking statements. While management believes
these statements are reasonable, actual results could differ materially from
those projected by such forward-looking
13
<PAGE>
statements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations".
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) List of Exhibits:
Financial Data Schedule (Exhibit 27)
(b) Reports on Form 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
June 30, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 1998
THE OFFICIAL INFORMATION COMPANY
By /s/ Ian L.M. Thomas
----------------------------------------
IAN L. M. THOMAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
By /s/ Steven J. Hunt
----------------------------------------
STEVEN J. HUNT
CHIEF FINANCIAL OFFICER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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