<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED)
APRIL 30, 1999
THE OFFICIAL INFORMATION COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 1-10263 73-1341805
(STATE OR OTHER JURISDICTION OF (COMMISSION (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) FILE NUMBER) IDENTIFICATION NO.)
250 West 57th Street, Suite 2421, New York, New York 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 247-5160
<PAGE>
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Report on Form 8-K dated May 15,
1999 as set forth in the pages attached hereto.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired
INTERNATIONAL TRAVEL SERVICE, INC. FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.......................................................F-1
Balance Sheet as of December 31, 1998..............................................F-2-3
Statement of Income and Retained Earnings for the year ended December 31, 1998.....F-4
Statement of Cash Flows for the year ended December 31, 1998.......................F-5
Notes to Financial Statements......................................................F-6-9
INTERNATIONAL TRAVEL SERVICE, INC. FOR THE YEAR ENDED DECEMBER 31, 1997
Independent Auditors' Report.......................................................F-10
Balance Sheet as of December 31, 1997..............................................F-11-12
Statement of Income and Retained Earnings for the year ended December 31, 1997.....F-13
Statement of Cash Flows for the year ended December 31, 1997.......................F-14
Notes to Financial Statements......................................................F-15-18
(b) Pro Forma Financial Information:
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet as of
December 31,1998...................................................................F-19
Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations
as of December 31, 1998............................................................F-20
Notes to Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements...............................................................F-21-23
</TABLE>
<PAGE>
February 15, 1999
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Travel Service, Inc.
108 Wilmot Road
Deerfield, Illinois 60015
Gentlemen:
We have audited the accompanying balance sheet of International Travel Service,
Inc. as of December 31, 1998 and the related statement of income and retained
earnings and statement of cash flows for the year then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statements preparation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Travel Service,
Inc. at December 31, 1998 and the results of its operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information, schedule of
operating expenses, is presented for the purpose of additional analysis and is
not a required part of the basic financial statements, and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ COLEMAN JOSEPH BLITSTEIN & STUART LLC
F-1
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash in Bank and Cash Equivalents $ 11,675,066
Accounts Receivable 3,345,882
Reserve for Doubtful Accounts (5,000)
Accounts Receivable - Credit Cards 506,056
Accounts Receivable - ARC 774
Accrued Interest Receivable 64,509
Reserve for Comp Tickets 68,648
Employee Travel Advances 4,300
Prepaid Expenses 153,972
------------
Total Current Assets $ 15,814,207
PROPERTY AND EQUIPMENT
Equipment 2,514,266
Leasehold Improvements 463,527
------------
2,977,793
Less: Accumulated Depreciation (1,845,806)
------------
Net Property and Equipment 1,131,987
OTHER ASSETS
Long-term Accounts Receivable 7,636
Goodwill (Net) 7,250
Cash Surrender Value - Officer Life Insurance 102,010
Security Deposits 8,931
------------
Total Other Assets 125,827
------------
Total Assets $ 17,072,021
============
</TABLE>
F-2
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Lease Payable $ 6,697
Customer Deposits 12,232,878
Accounts Payable 5,993
Income Tax Payable 31,807
Deferred Comp Tickets 30,629
Allowance for Client Concessions 38,019
Accrued Expenses 109,819
Accrued Salaries 139,004
Accrued Payroll Taxes 83
Accrued Profit Sharing Contribution 167,326
-----------
Total Current Liabilities $12,762,255
LONG-TERM LIABILITIES
Customer Deposits 480,300
Lease Payable - Net of Current Portion 25,114
-----------
Total Long-Term Liabilities 505,414
SHAREHOLDERS' EQUITY
Common Stock, 1,000 Shares Issued and
Authorized, $1 Par Value 1,000
Paid in Capital 500,000
Retained Earnings 3,303,352
-----------
Total Shareholders' Equity 3,804,352
-----------
Total Liabilities and Shareholders' Equity $17,072,021
===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-3
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C>
REVENUES
Operations $ 8,911,126
Commercial 739,396
Conventions 748,021
Air Override Commission 214,310
------------
Total Revenues 10,612,853
OPERATING EXPENSES 8,851,972
------------
Net Operating Income 1,760,881
------------
OTHER INCOME (EXPENSES)
Interest Income 930,976
Gain on Property and Equipment 150
Depreciation and Amortization (385,067)
Profit Sharing Plan Contribution (167,326)
------------
Net Other Income 378,733
------------
Net Income Before Provision for Income Taxes 2,139,614
------------
Income Tax Provision 31,807
------------
Net Income 2,107,807
Retained Earnings - January 1, 1998 2,961,166
Shareholder Distributions (1,765,621)
------------
Retained Earnings - December 31, 1998 $ 3,303,352
============
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 2,107,807
Adjustment to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization $385,067
Gain on Sale of Property and Equipment (150)
Changes in Operating Assets and Liabilities:
(Increase) Decrease In:
Accounts Receivable (880,554)
Accounts Receivable - Credit Cards (37,529)
Accounts Receivable - ARC 3,041
Accrued Interest Receivable (35,486)
Reserve for Comp Tickets (16,823)
Deferred Comp Tickets 48,453
Employee Travel Advances (710)
Prepaid Expenses - Groups 47,354
- Insurance (5,304)
Cash Surrender Value - Officer Life Insurance (24,767)
Increase (Decrease) In:
Customer Deposits 1,207,272
Accounts Payable (115,525)
Income Tax Payable 4,887
Accrued Lease Payable 27,423
Allowance for Client Concessions (31,630)
Accrued Expenses 73,935
Accrued Payroll Taxes 83
Accrued Salaries 36,771
Accrued Profit Sharing Contribution 1,166 686,974
--------------- -------------
Net Cash Provided by Operating Activities 2,794,781
INVESTING ACTIVITIES
Purchase of Property and Equipment (345,450)
Proceeds from Sale of Property and Equipment 400
Proceeds from Investments 959,428 614,378
---------------
FINANCING ACTIVITIES
Shareholder Distributions (1,765,621)
-------------
Net Increase in Cash 1,643,538
Cash at Beginning of Year 10,031,528
-------------
Cash at End of Year $ 11,675,066
=============
SUPPLEMENTAL DISCLOSURES
Income Taxes - During 1998 the Corporation paid $25,555 in income tax expense attributable to
year-end December 31, 1997.
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-5
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
A summary of significant accounting policies which have been followed in
preparing the accompanying financial statements are as follows:
Nature of Business
International Travel Service, Inc. is engaged in providing travel
management to corporations in the areas of business travel, corporate
meetings and incentive travel programs and to trade and professional
associations with regard to providing services for conventions,
meetings, travel and registration.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in
conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and
expenses. Actual results may differ from these estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments with an
original maturity of three months or less to be cash equivalents.
Advertising and Promotion
Advertising and promotion costs are generally charged to operations
in the year incurred and totaled $10,510 in 1998.
Concentration of Credit Risk
The Company frequently maintains deposits in excess of federally
insured limits. Statement of Financial Accounting Standards No. 105
identifies these items as a concentration of credit risk requiring
disclosure, regardless of the degree of risk. The risk is managed by
maintaining all deposits in high quality short-term money markets,
demand notes, commercial paper and bonds.
Accounts Receivable and Revenue Recognition
Sales are recognized as revenue when they are realized in the point
of performing their service and can be reasonably estimated.
F-6
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES - continued
Fixed Assets, Intangible Assets, Depreciation and Amortization
Equipment is stated at cost. Depreciation is computed using the
straight-line, Accelerated and Modified Accelerated Cost Recovery
Systems over their estimated useful lives. Disposal or retirement of
assets causes the cost and accumulated depreciation of an asset to be
removed from the books with any resulting gain or loss being
recognized in the year of disposal and retirement.
The intangible asset, goodwill, is being amortized on a straight-line
basis over a period of forty years.
Income Taxes
The Corporation has elected to be treated as an S Corporation for
federal and state income tax purposes. As an S Corporation the
Corporation is not required to pay federal income taxes but it is
required to pay state income taxes.
NOTE B - FORMATION OF INTERNATIONAL TRAVEL SERVICE, INC.
At December 31, 1987 the current shareholders of the Corporation
incorporated as ITS Acquisition Co. to purchase all of the capital stock of
the then existing International Travel Service, Inc. The then existing
International Travel Service was merged into ITS Acquisition Co., whose
name was subsequently changed to International Travel Service, Inc.
As part of the stock purchase by ITS Acquisition Co., all the remaining
assets, fixed assets and liabilities of the then existing International
Travel Service, Inc. became those of ITS Acquisition Co. after the merger
as referred to previously. The newly formed International Travel Service,
Inc. began operations on January 1, 1988.
NOTE C - 401K/PROFIT SHARING CONTRIBUTION
International Travel Service, Inc. maintains a Profit Sharing/401K plan for
its eligible employees. The 401K portion of the plan is made up of
voluntary contributions from eligible employees. The Profit Sharing portion
of the plan is made up of a contribution which is discretionary as decided
by the Corporation's Directors. The tax deduction is limited to 15% of the
employees' compensation. The Profit Sharing Plan is an age-weighted plan
where each participant receives a percentage of pay that would accumulate
to provide the same benefit as compared to other participants taking into
account an employees age. The Corporation declared a $167,326 contribution
to the profit sharing portion for the year ended December 31, 1998.
F-7
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE D - GOODWILL
A portion of the purchase price paid in the transaction described in Note B
was allocated to goodwill. A basis of $10,000 was assigned to goodwill as
acquired from the seller in the transaction described in Note B. The
goodwill is being amortized over forty years as described in Note B.
NOTE E - INCOME TAXES
As discussed in Note A, the Corporation is taxed as an S Corporation for
federal and state income tax purposes. The provision for income taxes of
$31,807 consists solely of state income taxes. An S Corporation is not
liable for federal income taxes on its income which passes directly through
to its shareholders. The December 31, 1998 provision is as follows:
December 31, 1998 - Provision for Income Taxes $ 33,172
Adjustment for 1997 Income Tax Provision (1,365)
----------
$ 31,807
==========
NOTE F - LEASE COMMITMENTS
In 1995 the Corporation entered into a 10-year lease for office and storage
space expiring September 30, 2005. Future minimum lease payments are as
follows:
Annual Lease Obligations
---------------------------------------------
Year Ending Office Storage
December 31, Space Space Total
----------------- ------------ -------------- ------------
1999 $ 314,232 $ 24,996 $ 339,228
2000 323,654 24,996 348,650
2001 333,360 24,996 358,356
2002 343,365 24,996 368,361
2003 353,666 24,996 378,662
2004 364,275 24,996 389,271
2005 279,311 18,747 298,058
The minimum lease payments are subject to escalation's based on an increase
in real estate taxes and a share in the increase in operating expenses over
the base year. Under the terms of the lease the Corporation has options to
cancel the lease as of September 30, 2000 and also to extend the lease for
a five-year period beginning October 1, 2005.
F-8
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE F - LEASE COMMITMENTS - continued
Effective February 1998 the Company entered into a lease for additional
space coincidental to the original lease and subject to increases in common
area expense and real estate taxes. The minimum lease payments are as
follows:
1999 $ 5,276
2000 5,433
2001 5,595
2002 5,764
2003 5,938
2004 6,115
2005 6,300
NOTE G - LETTERS OF CREDIT
The Corporation has an outstanding irrevocable letter of credit for
$10,000. This is a requirement of the Airline Reporting Corporation. The
letter of credit has been established with Uptown National Bank. The bank
charges a one- percent service fee each year that the letter of credit
remains open.
NOTE H - OFFICERS LIFE INSURANCE
During 1992 the Corporation purchased a life insurance policy that insures
one of the shareholders of the Corporation. The policy carries a face
amount of $1,000,000 and at December 31, 1998 has a cash surrender value of
$102,010. The corporation is the beneficiary of the policy.
NOTE I - CAPITAL LEASE PAYABLE
The Corporation entered into an office equipment lease in 1998. The lease
is classified as a capital lease and the future obligations are as follows:
1998 $ 1,674
1999 6,697
2000 6,697
2001 6,697
2002 6,697
2003 5,022
----------
$ 33,484
==========
F-9
<PAGE>
March 17,1998
INDEPENDENT AUDITORS' REPORT
Board of Directors
International Travel Service, Inc.
108 Wilmot Road
Deerfield, Illinois 60015
Gentlemen:
We have audited the accompanying balance sheet of International Travel Service,
Inc. as of December 31, 1997 and the related statements of income and retained
earnings and statement of cash flows for the year then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statements preparation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Travel Service,
Inc. at December 31, 1997 and the results of its operations and cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information, schedule of
operating expenses, is presented for the purpose of additional analysis and is
not a required part of the basic financial statements, and, in our opinion, is
fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
/s/ COLEMAN JOSEPH JAFFE FLAX & STUART LLP
F-10
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
BALANCE SHEET
DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS
<S> <C> <C>
Cash in Bank and On Hand $10,031,528
Investments 959,426
Accounts Receivable 2,472,964
Reserve for Doubtful Accounts (5,000)
Accounts Receivable - Credit Cards 468,527
Accounts Receivable - ARC 3,815
Accrued Interest Receivable 29,023
Deferred Comp Tickets 17,824
Reserve for Comp Tickets 51,825
Employee Travel Advances 3,590
Prepaid Expenses - Groups 117,232
Insurance 78,790
----------
Total Current Assets $14,229,544
FIXED ASSETS
Equipment 2,171,434
Leasehold Improvements 463,527
-------
2,634,961
Less: Accumulated Depreciation (1,463,355)
----------
Net Fixed Assets 1,171,606
OTHER ASSETS
Goodwill (Net) 7,500
Cash Surrender Value - Officer Life Insurance 77,243
Security Deposits 8,931
-----
Total Other Assets 93,674
------
Total Assets $15,494,824
===========
</TABLE>
F-11
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
CURRENT LIABILITIES
Lease Payable $ 4,388
Customer Deposits 11,505,906
Accounts Payable 121,518
Income Tax Payable 26,920
Allowance for Client Concessions 69,649
Accrued Expenses 35,884
Accrued Salaries 102,233
Accrued Profit Sharing Contribution 166,160
-----------
Total Current Liabilities $12,032,658
SHAREHOLDERS' EQUITY
Common Stock, 1,000 Shares Issued and
Authorized, $1 Par Value 1,000
Paid in Capital 500,000
Retained Earnings 2,961,166 3,462,166
--------- -----------
Total Liabilities and Shareholders' Equity $15,494,824
===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-12
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
INCOME
Operations $7,318,624
Commercial 768,630
Conventions 568,136
Air Override Commission 186,967
Miscellaneous Income 283,270
-------
Total Income 9,125,627
OPERATING EXPENSES 7,558,273
---------
Net Operating Income 1,567,354
---------
OTHER INCOME (EXPENSES)
Interest Income 645,728
Depreciation and Amortization (402,276)
Profit Sharing Plan Contribution (165,999)
----------
Net Other Income 77,453
Net Income Before Provision for Income Taxes 1,644,807
---------
Income Tax Provision (28,434)
-------
Net Income 1,616,373
Retained Earnings - January 1, 1997 2,595,725
Shareholder Distributions (1,250,932)
----------
Retained Earnings - December 31, 1997 $2,961,166
==========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-13
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 1,616,373
Adjustment to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization $ 402,276
Changes in Operating Assets and Liabilities:
(increase) Decrease In:
Accounts Receivable 424,339
Accounts Receivable - Credit Cards (76,181)
Accounts Receivable - ARC 12,010
Accrued Interest Receivable (29,023)
Reserve for Comp Tickets (19,869)
Deferred Comp Tickets 11,558
Employee Travel Advances (1,630)
Prepaid Expenses -Groups (38,745)
-Insurance (25,338)
Increase (Decrease) In:
Customer Deposits 1,930,408
Accounts Payable 25,644
Income Tax Payable 10,934
Allowance for Client Concessions 8,312
Accrued Expenses (38,203)
Accrued Salaries 17,161
Accrued Profit Sharing Contribution (1,088) 2,612,565
------- ---------
Net Cash Provided by Operating Activities 4,228,938
INVESTING ACTIVITIES
Purchase of Equipment and Leasehold Improvements (167,490)
Proceeds from Investments 4,966,384 4,798,894
---------
FINANCING ACTIVITIES
Cash Surrender Value - Officer Life Insurance (10,465)
Reduction of Debt (6,268)
Shareholder Distributions (1,250,932)
-----------
Net Cash Used in Financing Activities (1,267,665)
-----------
Net Increase in Cash 7,760,167
Cash at Beginning of Year 2,271,361
---------
Cash at End of Year $10,031,528
===========
SUPPLEMENTAL DISCLOSURES
Income Taxes - During 1997 the Corporation paid $17,500 in income tax expense
attributable to year-end December 31, 1996.
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-14
<PAGE>
INTERNATIONALTRAVEL SERVICE INC
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -SUMMARY OF SIGNIFICANTACCOUNTING PRACTICES
A summary of significant accounting policies which have been followed in
preparing the accompanying financial statements are as follows:
Nature of Business
International Travel Service, Inc. is engaged in providing travel
management to corporations in the areas of business travel,
corporate meetings and incentive travel programs and to trade and
professional associations with regard to providing services for
conventions, meetings, travel and registration.
Fixed Assets, Intanigible Assets. Depreciation and Amortization
Equipment is stated at cost. Depreciation is computed using the
straight-line, Accelerated and Modified Accelerated Cost Recovery
Systems over their estimated useful lives. Disposal or retirement
of assets causes the cost and accumulated depreciation of an asset
to be removed from the books with any resulting gain or loss being
recognized in the year of disposal and retirement.
The intangible asset, goodwill, is being amortized on a
straight-line basis over a period of forty years.
Income Taxes
The Corporation has elected to be treated as an S Corporation for
federal and state income tax purposes. As an S Corporation the
Corporation is not required to pay federal income taxes but it is
required to pay state income taxes.
NOTE 2 - FORMATION OF INTERNATIONAL TRAVEL SERVICE, INC.
At December 31, 1987 the current shareholders of the Corporation
incorporated as ITS Acquisition Co. to purchase all of the capital
stock of the then existing International Travel Service, Inc. The then
existing International Travel Service was merged into ITS Acquisition
Co., whose name was subsequently changed to International Travel
Service, Inc.
As part of the stock purchase by ITS Acquisition Co., all the
remaining assets, fixed assets and liabilities of the then existing
International Travel Service, Inc. became those of ITS Acquisition Co.
after the merger as referred to previously. The newly formed
International Travel Service, Inc. began operations on January 1, 1998.
F-15
<PAGE>
INTERNATIONAL TRAVEL SERVICE INC
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - GOODWILL
A portion of the purchase price paid in the transaction described in
Note 2 was allocated to goodwill. A basis of $10,000 was assigned to
goodwill as acquired from the seller in the transaction described in
Note 2. The goodwill is being amortized over forty years as described
in Note 2.
NOTE 4 - INVESTMENTS
The investments of $959,426 held by the Corporation at December 31,
1997 consists of Eurodollar contracts. These contracts are short term
and will be maturing January, 1998. The Corporation will be making
these investments from time to time during 1998.
NOTE 5 - 401 K/PROFIT SHARING CONTRIBUTION
International Travel Service, Inc. maintains a Profit Sharing/401 K
plan for its employees. The 401K portion of the plan is made up of
voluntary contributions from employees. The Profit Sharing portion of
the plan is made up of a contribution which is discretionary as decided
by the Corporation's Directors. The Corporation declared a $165,999
contribution to the profit sharing portion for the year ended December
31, 1997.
NOTE 6 - INCOME TAXES
As discussed in Note 1, the Corporation is taxed as an S Corporation
for federal and state income tax purposes. The provision for income
taxes of $28,434 consists solely of state income taxes. An S
Corporation is not liable for federal income taxes on its income which
passes directly through to its shareholders. The December 31, 1997
provision is as follows:
December 31, 1997 - Provision for Income Taxes $ 26,920
Adjustment for 1996 Income Tax Provision 1,514
--------
$ 28,434
========
F-16
<PAGE>
INTERNATIONAL TRAVEL SERVICE, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - LEASE COMMITMENTS
In 1995 the Corporation entered into a 10-year lease for office and storage
space expiring September 30, 2005. Future minimum lease payments areas
follows:
<TABLE>
<CAPTION>
Annual Lease Obligations
Office Storage
Year Ending December3l, Space Space Total
----- ----- -----
<S> <C> <C> <C>
1998 $305,083 $24,996 $330,079
1999 314,232 24,996 339,228
2000 323,654 24,996 348,650
2001 333,360 24,996 358,356
2002 343,365 24,996 368,361
2003 353,666 24,996 378,662
2004 364,275 24,996 389,271
2005 279,311 18,747 298,058
</TABLE>
The minimum lease payments are subject to escalation's based on an
increase in real estate taxes and a share in the increase in operating
expenses over the base year. Under the terms of the lease the Corporation
has options to cancel the lease as of September 30, 2000 and also to
extend the lease for a five-year period beginning October 1, 2005.
Effective February 1998 the Company leased additional space with the 1998
additional lease obligation being $5,122. The lease on the additional
space coincides with the existing lease.
NOTE 8 - LINE OF CREDIT
The Corporation ha s established a $500,000 line of credit with the
Harris Bank. The line of credit has not been used to date.
NOTE 9 - LETTERS OF CREDIT
The Corporation has an outstanding irrevocable letter of credit for
$10,000. This is a requirement of the Airline Reporting Corporation. The
letter of credit has been established with Uptown National Bank. The bank
charges a one- percent service fee each year that the letter of credit
remains open.
NOTE 10 - OFFICERS LIFE INSURANCE
During 1992 the Corporation purchased a life insurance policy that
insures one of the shareholders of the Corporation. The policy carries a
face amount of $1,000,000 and at December 31, 1997 has a cash surrender
value of $77,243. The corporation is the beneficiary of the policy.
F-17
<PAGE>
INTERNATIONAL TRAVEL SERVICE INC
NOTES TO FINANCIAL STATEMENTS
NOTE 11 - LEASE PAYABLE
The Corporation entered into two leases for office equipment during 1994.
The future lease obligations are as follows:
Lease #1 Lease #2 Total
-------- -------- -----
1998 $4,433 $ - $4,433
======== ======== ======
F-18
<PAGE>
PRO FORMA FINANCIAL INFORMATION
<PAGE>
The Official Information Company
Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet
As of December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
The Official International Travel Pro Forma Pro Forma
Information Company Service, Inc. Adjustments Combined
------------------- -------------------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $3,878 $11,675 (10,896)E2 $4,657
Accounts receivable, net of allowances 17,555 3,848 21,403
Due from related entity 20 20
Inventories 231 231
Deferred tax assets 260 260
Notes receivable and other current assets 1,706 291 1,997
----------- ----------- ---------- ---------
Total current assets 23,650 15,814 (10,896) 28,568
----------- ----------- ---------- ---------
Notes receivable and investments 411 - 411
Property, plant and equipment, at cost 21,609 2,978 - 24,587
Less accumulated depreciation 12,584 1,846 - 14,430
----------- ----------- ---------- ---------
Net equipment and leasehold improvements 9,025 1,132 - 10,157
----------- ----------- ---------- ---------
Deferred tax assets 1,185 1,185
Intangibles and other assets, net 40,263 126 17,584 D,E1 57,973
----------- ----------- ---------- ---------
74,534 17,072 6,688 98,294
=========== =========== ========== =========
CURRENT LIABILITIES:
Accounts payable 2,967 6 2,973
Accrued liabilities 9,984 485 10,469
Customer deposits 12,233 12,233
Income tax payable 32 (476)E3 (444)
Deferred revenue 6,680 - 6,680
Current portion of long-term debt 1,367 7 11,134 A 12,508
----------- ----------- ---------- ---------
Total current liabilities 20,998 12,763 10,658 44,419
----------- ----------- ---------- ---------
Long-term debt 99,385 25 99,410
Other liabilities 1,353 480 1,833
Minority interest 6,991 - 1,941 E4 8,932
Total Stockholders' equity (deficit) (54,193) 3,804 (5,911)E5 (56,300)
----------- ----------- ---------- ---------
74,534 17,072 6,688 98,294
=========== =========== ========== =========
</TABLE>
F-19
<PAGE>
The Official Information Company
Unaudited Pro Forma Combined Condensed Consolidated Statement of Operations
Year Ended December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
The Official International Travel Pro Forma Pro Forma
Information Company Service, Inc. Adjustments Combined
-------------------- ------------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenue
Operating revenues $95,557 $10,613 $106,170
Other income 880 931 (475)E2 1,336
-------------- ----------- ---------- ----------
96,437 11,544 (475) 107,506
Costs and expenses
Operating costs 51,707 7,317 59,024
General and administrative 22,640 1,734 24,374
Interest 10,676 905 E2 11,581
Depreciation and amortization 7,078 385 1,262 E1 8,725
-------------- ----------- ---------- ----------
92,101 9,436 2,167 103,704
Income before income taxes 4,336 2,108 (2,642) 3,802
Income tax (expense) benefit (1,329) 476 E3 (853)
Minority interest in consolidated subsidiaries (2,491) - 59 E4 (2,432)
-------------- ----------- ---------- ----------
Net income $516 $2,108 ($2,107) $517
EBITDA 22,044 2,827 (475) 24,396
============== =========== ========== ==========
</TABLE>
F-20
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Note A - Description of Business Combination
On April 30, 1999, The Official Information Company (the "Company"), through a
subsidiary, acquired substantially all of the assets and assumed substantially
all of the liabilities of International Travel Services, Inc. ("ITS") for an
aggregate purchase price of $22,650,000 plus transaction costs.
Of the total purchase price of this transaction, $11,134,000 was paid out of
proceeds from the Company's line of credit, $2,000,000 from a contemporaneous
minority equity investment in Galaxy Information Services, LLC by certain former
ITS shareholders and the remainder was from existing cash.
Note B - Basis of Presentation
The pro forma financial statements included herein are unaudited and have been
prepared by the Company to conform with the requirements applicable to Form 8K.
Accordingly, certain information and disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted as permitted by such requirements. These pro forma financial
statements should be read in conjunction with the Company's 10-K for the year
ended December 31, 1998, which are incorporated herein by reference.
The unaudited pro forma Combined Condensed Consolidated Balance Sheet as of
December 31, 1998 presents the financial position of the combined Company
assuming the acquisition had occurred on December 31, 1998. Assumptions
necessary to reflect these transactions and restate historical combined balance
sheets are presented in the "Pro forma Adjustments" column, which are further
described below.
The unaudited pro forma Combined Condensed Consolidated Statement of Operations
for the year ended December 31, 1998 presents the results of operations of the
combined Company assuming the acquisition had occurred on January 1, 1998.
Assumptions necessary to reflect these transactions and restate historical
combined results of operations are presented in the "Pro forma Adjustments"
column, which are further described below.
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.
F-21
<PAGE>
Note C - Historical Financial Statements
The pro forma information has been prepared using the historical consolidated
financial statements of the Company for the year ended December 31, 1998 and the
historical financial statements of ITS for the year ended December 31, 1998.
Note D - Purchase Price Allocation
The acquisition was accounted for under the purchase method of accounting. The
preliminary allocation of purchase price represents an estimate of the fair
values of assets acquired and liabilities assumed, including estimated
professional fees and other acquisition expenses expected to be incurred. The
excess of the purchase price over the estimated fair values of the assets
acquired has been recorded as goodwill. The allocation is subject to change and
is not necessarily indicative of the ultimate purchase price allocation;
however, the Company does not expect the estimated values to change materially
upon finalization of the allocation of the purchase price.
The historical carrying value as of December 31, 1998 of the identifiable
tangible assets and liabilities of ITS are assumed to approximate fair value.
Note E - Pro Forma Adjustments
(1) Amortization of Intangibles
To record the excess of cost over fair market value of the net assets of ITS.
The excess of cost over fair market value of the acquired assets will be
amortized using the straight-line method over 15 years.
(2) Interest
To reduce interest income related to cash payments and increase interest expense
related to increased borrowings from the acquisition.
(3) Income Taxes
To record the tax impact of the pro forma adjustments.
(4) Minority Interest
To reflect equity interest in Holdings LLC owned by VSA-T/SF, Fir Tree Value
Fund LP., Fir Tree Institutional Value Fund L.P. and Fir Tree Value Partners
L.D.C. and a minority interest in one operating subsidiary.
(5) Stockholders' Equity (Deficit)
To eliminate historical equity accounts of ITS and income statement effect of
pro forma adjustments.
F-22
<PAGE>
The Board of Directors
International Travel Services, Inc.:
We consent to the inclusion of our report dated March 17, 1998 and February 15,
1999 with respect to the balance sheets of International Travel Services, Inc.
as of December 31, 1997 and 1998, respectively, and the related statements of
income, stockholders' equity, and cash flows, for the years ended December 31,
1997 and 1998, respectively, which reports appear in the Current Report on Form
8-K/A of The Official Information Company dated April 30, 1999.
Deerfield, Illinois
July 12, 1999
/s/ COLEMAN JOSEPH BLITSTEIN & STUART LLC
F-23
<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: July 13 1999
THE OFFICIAL INFORMATION COMPANY
By /s/ Ian L.M. Thomas
----------------------------
IAN L. M. THOMAS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
