<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 MARCH 31, 2000
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.)
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
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 May 15, 2000, 112,367 shares of common stock were outstanding, of
which 72,367 were owned by VS&A T/SF, L.L.C. and 36,000 and 4,000 were owned by
Fir Tree Value Fund LP. and Fir Tree Institutional Value Fund L.P.,
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 MARCH 31, DECEMBER 31,
------ 2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $597 $32,162
Accounts receivable, less reserve for doubtful accounts 25,480 22,772
of $1,114 in 2000 and $995 in 1999
Inventories 101 191
Deferred tax assets 137 137
Notes receivable and other current assets 2,805 2,390
----- -----
Total current assets 29,120 57,652
Notes receivable and investments 212 216
Property, plant and equipment at cost:
Exposition equipment 7,708 7,707
Data processing and office furniture and equipment 18,281 17,808
Less accumulated depreciation (15,320) (14,595)
-------- --------
Property, plant and equipment, net 10,669 10,920
Intangibles and other assets, net 76,593 53,342
------ ------
$116,594 $122,130
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) MARCH 31, DECEMBER 31,
---------------------------------------------- 2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable $3,372 $3,681
Accrued liabilities 13,885 15,098
Deferred revenue 10,108 6,594
Borrowing under credit facility 1,411 20,000
Customer deposits 22,148 13,315
Current portion of long-term debt 1,723 1,733
----- -----
Total current liabilities 52,647 60,421
Long-term debt 100,565 100,584
Other liabilities 754 907
Minority interest 11,169 9,446
Stockholders' equity (deficit):
Common stock, $.10 par value, 150,000 shares authorized 42 42
Additional paid-in capital 48,197 48,197
Retained earnings 17,696 17,009
------ ------
65,935 65,248
Treasury stock (114,476) (114,476)
--------- ---------
Total stockholders' deficit (48,541) (49,228)
-------- --------
$116,594 $122,130
======== ========
</TABLE>
4
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net Revenues $29,143 $ 23,182
Costs and expenses:
Operating costs 12,289 10,578
General and administrative 8,995 7,669
Depreciation and amortization 2,302 1,825
----- -----
Operating income 5,557 3,110
Interest and other income 88 5
Interest expense (2,833) (2,653)
------- -------
Income before income taxes and minority interest 2,812 462
Minority interest in consolidated subsidiaries (1,723) (562)
Income tax expense (402) (120)
----- -----
Net Income (loss) $687 $ (220)
==== =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 687 $ (220)
Adjustments to reconcile income (loss) to net Cash provided by operating
activities:
Depreciation and amortization 2,302 1,825
Minority interest in earnings of consolidated
entity 1,723 562
Deferred income taxes - 30
Customers deposits 8,833 -
Changes in assets and liabilities (1,627) 527
------- ---
Total adjustments 11,231 2,944
------ -----
Net cash provided by operating activities 11,918 2,724
------ -----
Cash flows from investing activities:
Collections on contract and notes receivable - 9
Capital expenditures (1,466) (1,167)
Payments for acquisition, net of cash acquired (23,418) (668)
Payments on deferred contract liabilities - (42)
------- ----
Net cash used in investing
Activities (24,884) (1,868)
-------- -------
Cash flows from financing activities:
Principal payments of long-term debt (10) (611)
Net repayment of line of credit (18,589) -
-------- --------
Net cash used in financing activities (18,599) (611)
-------- -----
Net (decrease) increase in cash and cash equivalents (31,565) 245
Cash and cash equivalents at beginning of period 32,162 3,878
------ -----
Cash and cash equivalents at end of period $ 597 $ 4,124
====== ========
</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"), include the
accounts of TOIC, its wholly-owned subsidiaries, TOIC Holdings, LLC
("Holdings LLC") and the limited liability companies wholly owned by
Holdings LLC (the "Subsidiary LLCs"). Through its priority interest in
Holdings LLC, TOIC has voting, operational and management control of
Holdings LLC and the Subsidiary LLCs and, accordingly, the financial
statements of these entities are consolidated herein. Income allocated to
TOIC from Holdings 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. TOIC and Holdings LLC
share common management, resources and control. Prior to the drop down
restructuring (see Note B) in February 1998, the operations of Holdings LLC
and the Subsidiary LLCs were wholly-owned by TOIC.
INTERIM REPORTING. The accompanying interim consolidated condensed financial
statements reflect all adjustment 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
months ended March 31, 2000 are not necessarily indicative of the results to
be expected for the year ending December 31, 2000. For further information,
refer to the consolidated financial statements and related notes thereto
included in TOIC's annual report on Form 10-K for the year ended December
31, 1999.
RECLASSIFICATIONS
Certain 1999 account balances have been reclassified to conform to the 2000
consolidated financial statement presentation.
B. 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. and
repurchasing substantially all of the 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 restructuring of the Company
and its subsidiaries. As of March 31, 2000, 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.
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.
7
<PAGE>
In the drop down restructuring, 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 another limited liability company
("Operating LLC"), which held 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. Effective as of December 31, 1998, Operating LLC
merged with and into Holdings LLC, with Holdings LLC being the surviving
entity. TOIC has voting, operational and management control of Holdings LLC.
C. DEBT GUARANTORS
Atwood Publishing, LLC ("Atwood"), Galaxy Information Services, LLC and
subsidiaries ("Galaxy"), GEM Communications, LLC ("GEM"), Holdings, LLC
(collectively the "LLC Guarantors"), Total Information Service, Inc. and
subsidiaries ("TISI") and Corsearch, Inc. (until November 11, 1999)
(collectively, the "Subsidiary Guarantors" and, together with the LLC
Guarantors, the "Guarantors") are included in the consolidated results of
the Company. Because the Company, directly or indirectly, owns all of the
voting interests in the LLC Guarantors, the LLC Guarantors are considered
wholly owned subsidiaries of the Company as defined by Regulation S-X. The
Company indirectly owns all of the voting shares of the Subsidiary
Guarantors.
Each of the Guarantors jointly and severally guarantee all of the Company's
debt, on a full and unconditional basis. For accounting purposes, all
Guarantors are consolidated. Separate financial statements and other
disclosures concerning the Guarantors are not presented because the
Company's management has determined that they are not material to investors.
The Senior Credit Facility contains covenants, among others, restricting the
ability of the Company and the Guarantors to: (i) declare dividends or
redeem or purchase capital stock; (ii) prepay, redeem or purchase debt;
(iii) incur liens and engage in sale-leaseback transactions; (iv) make loans
and investments; (v) issue more debt; (vi) amend or otherwise alter debt and
other material agreements; (vii) make capital expenditures; (viii) engage in
mergers, acquisitions and asset sales; (ix) transact with affiliates and (x)
alter its lines of business. The net assets of the Guarantors approximated
$68.4 as of March 31, 2000.
Included in the 1999 and 2000 financial results of the LLC Guarantors are
the three months activity of Atwood, Galaxy, GEM and Holdings LLC. Included
in the 1999 financial results of the Subsidiary Guarantors are the three
months activity of TISI and Corsearch, Inc. Included in the 2000 financial
results of the Subsidiary Guarantors are the three months activity of TISI.
8
<PAGE>
The following are condensed consolidating financial statements of The
Official Information Company and the Guarantors for each period presented:
MARCH 31, 2000
BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 68 $ 14,017 $ 15,035 $ 29,052 $ 29,120
Notes receivable and
investments 17 15 180 195 212
Investment in subsidiaries
& affil. 94,610 12,881 7,097 19,978 (114,588) -
PPE-Net 213 5,983 4,473 10,456 10,669
Intangibles and other
assets-net 18,252 32,177 26,164 58,341 76,593
-----------------------------------------------------------------------------------------------------
Total assets $113,160 $65,073 $52,949 $118,022 $(114,588) $116,594
======== ======= ======= ======== ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities 7,143 35,972 9,532 45,504 52,647
Long term debt 98,500 - 2,065 2,065 100,565
Other liabilities 686 2 66 68 754
Minority interest 9,169 2,000 2,000 11,169
Total shareholders' equity
(deficit) (2,338) 27,099 41,286 68,385 (114,588) (48,541)
-----------------------------------------------------------------------------------------------------
Total liabilities and
Shareholders' equity $ 113,160 $65,073 $52,949 $118,022 $(114,588) $116,594
========= ======= ======= ======== ========== ========
</TABLE>
9
<PAGE>
THREE MONTHS ENDED MARCH 31,2000
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenue - $ 16,759 $ 12,384 $ 29,143 - $29,143
Costs and expenses: - - - - - -
Operating costs - 8,161 4,128 12,289 - 12,289
General & admin. 597 4,301 4,097 8,398 - 8,995
Deprec. & amort. 130 1,207 965 2,172 - 2,302
-----------------------------------------------------------------------------------------------------
Operating income (727) 3,090 3,194 6,284 - 5,557
Interest and other income 88 - - - - 88
Interest expense (2,748) (85) - (85) - (2,833)
-----------------------------------------------------------------------------------------------------
Income before income tax (3,387) 3,005 3,194 6,199 - 2,812
Minority interest - - - - (1,723) (1,723)
Income tax (expense)
benefit (402) - - - - (402)
-----------------------------------------------------------------------------------------------------
Net Income (loss) $(3,789) $ 3,005 $ 3,194 $ 6,199 $(1,723) $ 687
======= ======== ======== ======== ======= =======
</TABLE>
10
<PAGE>
THREE MONTHS ENDED MARCH 31,2000
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (3,789) $ 3,005 $3,194 $6,199 $(1,723) $ 687
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities, net
Depreciation & amortization 130 1,207 965 2,172 - 2,302
Minority Interest - - - - 1,723 1,723
Customer deposits - 8,833 - 8,833 - 8,833
Changes in assets &
Liabilities 14,766 (14,405) (1,988) (16,393) (1,627)
-----------------------------------------------------------------------------------------------------
Net cash (used in) provided
by operating activity 11,107 (1,360) 2,171 811 - 11,918
Cash flows from investing
Activities:
Capital expenditures (1) (981) (484) (1,465) - (1,466)
Payments for acquisitions-
Net of cash (23,418) - - - - (23,418)
-----------------------------------------------------------------------------------------------------
Net cash used in investing
activities (23,419) (981) (484) (1,465) - (24,884)
Cash flow from financing
activities:
Principal payment of long
term debt (10) - - - - (10)
Net repayment of line of
credit (18,589) - - - - (18,589)
-----------------------------------------------------------------------------------------------------
Net cash (used in) provided by
financing activities (18,599) - - - - (18,599)
Net increase (decrease)
in cash and cash equivalents (30,911) (2,341) 1,687 (654) - (31,565)
Cash equivalents at beginning
of period 30,626 332 1,204 1,536 - 32,162
-----------------------------------------------------------------------------------------------------
Cash equivalents at end of
the period $ (285) $(2,009) $2,891 $ 882 - $ 597
======== ======= ====== ====== = =======
</TABLE>
11
<PAGE>
<TABLE>
DECEMBER 31, 1999
BALANCE SHEET
<CAPTION>
ASSETS
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $35,061 $10,196 $12,395 $22,591 $- $57,652
Notes receivable and investments 18 15 183 198 - 216
Investment in subsidiaries & affil. 89,660 57,037 7,097 64,134 (153,794) -
PPE-Net 213 6,202 4,505 10,707 - 10,920
Deferred tax assets - - - - - -
Intangibles and other assets-net 3,080 32,515 17,747 50,262 - 53,342
-------------------------------------------------------------------------------------------------
Total assets $128,032 $105,965 $41,927 $147,892 $(153,794) $122,130
======== ======== ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities $26,554 $27,632 $6,235 $33,867 $- $60,421
Long term debt 98,500 - 2,084 2,084 - 100,584
Other liabilities 727 3 177 180 - 907
Minority interest 7,446 2,000 - 2,000 - 9,446
Total shareholders' equity
(deficit) (5,195) 76,330 33,431 109,761 (153,794) (49,228)
-------------------------------------------------------------------------------------------------
Total liabilities and
Shareholders' equity $128,032 $105,965 $41,927 $147,892 $(153,794) $122,130
======== ======== ======= ======== ========= ========
<CAPTION>
THREE MONTHS ENDED MARCH 31,1999
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ $13,226 $9,956 $23,182 $ - $23,182
Costs and expenses:
Operating costs - 7,166 3,412 10,578 - 10,578
General & admin. 890 3,437 3,341 6,778 - 7,669
Deprec. & amort. 126 823 876 1,699 - 1,825
-------------------------------------------------------------------------------------------------
Operating income (loss) (1,016) 1,800 2,327 4,127 - 3,110
Interest & other income 5 5
Interest expense (2,632) (3) (18) (21) (2,653)
-------------------------------------------------------------------------------------------------
Income (loss) before income taxes (3,642) 1,796 2,309 4,105 - 462
Minority interest - - (562) (562)
Income tax expense (120) - - - - (120)
Earnings (losses) of
subsidiaries 1,233 - - (1,233) -
-------------------------------------------------------------------------------------------------
Net Income (loss) $ (2,530) $1,796 $2,309 $4,105 $(1,795) $ (220)
======== ====== ====== ====== ======= ======
</TABLE>
12
<PAGE>
<TABLE>
THREE MONTHS ENDED MARCH 31,1999
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (2,530) $1,796 $2,309 $4,105 $(1,795) $ (220)
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities, net 159 820 875 1,696 562 2,417
Changes in assets and
liabilities, net 3,400 (1,584) (2,522) (4,105) 1,233 527
----------------------------------------------------------------------------------------------------
Net cash provided by
operating activity 1,029 1,032 663 1,695 - 2,724
Cash flows from investing
activities:
Collections on
Contract & notes
Receivable 9 - - - - 9
Capital expenditures (37) (631) (499) (1,130) - (1,167)
Payments for
Acquisitions, net of
Cash acquired - (668) - (668) - (668)
Payments on
Deferred contract
Liabilities (42) - - - - (42)
----------------------------------------------------------------------------------------------------
Net cash used in by
investing activity (70) (1,299) (499) (1,798) - (1,868)
Cash flows from financing
activities:
Principal payments
of long-term debt (452) - (159) (159) - (611)
----------------------------------------------------------------------------------------------------
Net cash used in by
financing activities (452) - (159) (159) - (611)
----------------------------------------------------------------------------------------------------
Net increase (decrease) in
cash and cash equivalents 507 (267) 5 (262) - 245
Cash equivalents at
beginning of period 1,078 2,339 461 2,800 - 3,878
----------------------------------------------------------------------------------------------------
Cash equivalents at end of
period $1,585 $2,072 $467 $2,539 $ - $4,124
====== ====== ==== ====== === ======
</TABLE>
13
<PAGE>
D. BUSINESS SEGMENT INFORMATION
Operations of the Company are conducted primarily through two business
segments primarily within the continental United States. These segments and
the primary operations of each are as follows:
BUSINESS TO BUSINESS COMMUNICATIONS
Publisher (Atwood) of various convention/trade show publications and two
trade journals, provider (Galaxy) of registration services, exhibitor
marketing, travel, housing and information services to the exposition
industry and owner (GEM) of the World Gaming Congress, a trade show catering
to the legalized gaming industry, and the publisher of several trade
magazines and newsletters.
INFORMATION SERVICES
Provider (TISI) of pre-employment screening information including motor
vehicle reports, truck driver employment information, worker's compensation
information, credit reports, criminal record reports and other
pre-employment screening information and services to the trucking and other
industries and motor vehicle reports to the insurance industry. Provider
(Corsearch) of trademark research and information services, using both
proprietary and public databases until sold in November 1999.
Corporate revenues consist principally of revenues from interest,
covenants-not-to-compete and miscellaneous non-operating income. Operating
profit is net revenues less applicable operating expenses and segment
general and administrative expenses. Corporate general and administrative
expenses are generally not allocated to each segment.
Identifiable assets by segment are those assets that are used in the
operations of each segment. Corporate assets consist principally of cash and
cash equivalents, notes receivable, prepaid expenses and corporate
furniture, fixtures and equipment. Capital expenditures include additions to
property, plant and equipment, goodwill and truck driver employment
information files.
During the first quarter of 2000 and 1999, no customer represented ten
percent or more of the Company's revenue or operating profit.
14
<PAGE>
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
For the three months
ended March 31,
2000 1999
---- ----
(In thousands)
<S> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Business to Business Communications $ 16,759 $ 13,226
Information Services 12,384 9,956
-------- --------
$ 29,143 $ 23,182
======== ========
OPERATING INCOME (LOSS):
Business to Business Communications $ 3,090 $ 1,798
Information Services 3,194 2,328
-------- --------
Operating profit from segments 6,284 4,126
Corporate expenses, net (639) (1,011)
Interest expense (2,833) (2,653)
-------- --------
Income before income taxes and minority interest $ 2,812 $ 462
======== ========
IDENTIFIABLE ASSETS AT MARCH 31 AND DECEMBER 31:
Business to Business Communications $ 52,192 $ 48,928
Information Services 45,852 34,830
Corporate 18,550 38,372
-------- --------
$116,594 122,130
======== ========
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $ 1,207 $ 6,373
Information Services 965 4,113
Corporate 130 512
-------- --------
$ 2,302 $ 10,998
======== ========
CAPITAL EXPENDITURES:
Business to Business Communications $ 981 $ 3,476
Information Services 484 3,139
Corporate 1 77
-------- --------
$ 1,466 $ 6,692
======== ========
</TABLE>
E. ACQUISITIONS AND DISPOSITIONS OF ASSETS
On April 30, 1999, the Company, through Galaxy, 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 was paid from a contemporaneous minority equity
investment in Galaxy Information Services, LLC by certain former ITS
shareholders and the remainder was paid from existing cash. The acquisition
was accounted as a purchase business combination. The excess of the purchase
price over the estimated fair value of the net assets acquired was
approximately $18.9 million, and has been preliminarily recorded as goodwill
pending an appraisal of acquired intangibles and is being amortized on a
straight-line basis over 15 years.
15
<PAGE>
On August 31, 1999, the Company, through TISI, acquired all the stock of
Record Search, Inc. ("RSI") for an aggregate purchase price of $12,780,000,
plus transaction costs. Of the total purchase price of this transaction,
$9,000,000 was paid out from existing cash and the balance in the form of a
note to be paid over three years. The acquisition was accounted for under
the purchase business combination. The excess of the purchase price over the
estimated fair value of the net assets acquired was approximately $11.5
million, and has been recorded as goodwill, which is being amortized on a
straight-line basis over 15 years.
On November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement in consideration for
approximately $20 million, plus additional consideration of $1.6 million for
certain defined net assets resulting in a gain of $4.8 million.
On January 31, 2000, the Company acquired substantially all of the assets of
STA United, Inc. ("STA") for approximately $8.3 million. STA is a leading
provider of drug testing services to the pre-employment industry. On March
16, 2000, the Company acquired the stock and/or assets of a group of ten
companies collectively known as United States Mutual Association ("USMA").
The Company paid approximately $23.5 million, with approximately $15.2
million paid in cash with the balance in non-voting stock of TISI. USMA
provides pre-employment screening services to the retail industry,
principally through a proprietary database of employee theft incident
records. The company intends to account for these transactions under the
purchase method of accounting and is in the process of valuing the assets
acquired.
The following unaudited pro forma information is presented as if the Company
had completed the acquisitions as of January 1, 1999. The pro forma
information is not necessarily indicative of what the results of operations
would have been had the acquisitions taken place at January 1, 1999, or of
the future results of operations.
<TABLE>
<CAPTION>
For the Quarter
ended March 31,
2000 1999
---- ----
(In thousands)
(Unaudited)
<S> <C> <C>
Revenues $ 31,375 $ 26,435
-------- --------
Net income (loss) $ 775 $ (15)
-------- --------
EBITDA $ 8,140 $ 5,530
-------- --------
</TABLE>
F. SUBSEQUENT EVENT
On May 3, 2000, the Company executed an agreement to acquire, through a
subsidiary, substantially all of the assets of ExpoExchange, the E-Products
business division of Third Millennium Communications, Inc. (3MC), in
exchange for non-voting equity valued at approximately $30 million in Galaxy
Information Services, LLC. Consummation of the transaction is subject to the
satisfaction of certain conditions, including regulatory approval. The
Company also purchased an equity interest in 3MC for $5 million.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
OVERVIEW
The Company is a business-to-business communications and information
services company which principally operates two lines of business: (i)
business-to-business and professional database information services
("Information Services") and (ii) business to business communications,
publishing and related marketing services ("Business-to-Business
Communications).
Information Services provides specialized information and database services
principally to the pre-employment screening market through Total Information
Services, Inc. (TISI). TISI, through its on-line databases, provides
pre-employment screening information and services to selected vertical markets
that by government regulation or business characteristic require a comprehensive
candidate background investigation prior to hiring. In November 1999, the
Company sold Corsearch, Inc., 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 vertical markets. Business-to-Business
Communications includes: (i) GEM Communications, LLC, one of the world's leading
owner and operator of trade shows and publisher of trade magazines directed to
the international legalized gaming industry. (ii) Atwood Publishing, LLC, the
largest domestic independent publisher of exposition and association related
publications and directories; and (iii) Galaxy Information Services, LLC, one of
the largest independent provider of housing, travel, registration, exhibitor
information and "lead" management services to the trade show and convention
industry in the United States.
During 1998, GEM had a 49% interest in Gaming for Africa Expo, a gaming
trade show and conference held in South Africa, and Gaming for Africa, the
leading trade magazine for gaming in Sub-Saharan Africa. Effective as of January
1, 1999, GEM acquired, in a series of transactions, the business of Gaming for
Africa Expo and Gaming for Africa for approximately $668,000. The investment had
previously been accounted for under the equity method. In May 1999, the Company
acquired substantially all of the assets of International Travel Services, Inc.
(ITS), a major provider of housing and travel services to the tradeshow and
convention industry. In connection with this transaction, two of the former
owners of ITS, who remained as key executives, invested $2 million of their
proceeds in non voting membership units of Galaxy.
In September 1999, the Company acquired all of the outstanding stock of
Record Search, Inc.(RSI), a leading provider of pre-employment screening
services. In November 1999, the Company sold 100% of the outstanding stock of
Corsearch. On January 31, 2000, the Company acquired substantially all of the
assets of STA United, Inc. ("STA"), a leading provider of drug testing services
to the pre-employment industry. On March 16, 2000, the Company acquired the
stock and/or assets of a group of ten companies collectively known as United
States Mutual Association ("USMA"), a leading provider of pre-employment
screening services to the retail industry, principally through a proprietary
database of employee theft incident records.
On December 24, 1999 Galaxy Expocard Europe B.V. (Galaxy Europe), a 73%
owned subsidiary of Galaxy, was placed in court supervised administrative
reorganization process. As a result, the Company no longer has effective
management control over Galaxy Europe. Accordingly, effective January 1, 2000,
Galaxy Europe is no longer included in the Company's consolidated results.
17
<PAGE>
RESULTS OF OPERATION
Revenues. Revenues for the three months ended March 31, 2000 totaled $29.1
million, an increase of $6.0 million (26%) over the first quarter of 1999. The
Business-to-Business Communications segment Revenue totaled $16.8 million for
the three months ended March 31, 2000, an increase of $3.5 million (27%) over
the first quarter 1999. At Galaxy, increased registration and exhibitor volume
and the growth of new lead management and interactive services contributed $1.4
million to the revenue growth and inclusion of ITS (acquired May 1, 1999)
contributed $3.9 million. Deconsolidation of Galaxy Europe resulted in $570,000
less revenue during the first quarter 2000 as compared with first quarter 1999.
At Atwood, timing of several directory projects resulted in a small decrease in
revenue in the first quarter of 2000 compared with the first quarter of 1999. At
GEM, soft advertising spending in GEM's domestic and international publications
and cancellation of a first quarter trade show resulted in a $774,000 decline in
net revenue compared with the same period in 1999.
The Information Services segment produced first quarter 2000 revenue of
$12.4 million, an increase of $2.4 million or 24% over the first quarter of
1999. TISI's first quarter 2000 revenue increased 58% over the first quarter of
1999, due principally to increased pre-employment screening volume at DAC, as
compared to the prior year and inclusion of RSI (acquired September 1, 1999) and
STA (acquired February 1, 2000) which together added $3.2 million to growth.
Exclusion of Corsearch (sold November 11, 1999) resulted in $2.1 million less
revenue in the first quarter 2000 compared with first quarter 1999.
Operating Costs. Operating Costs increased $1.7 million (16%) during the
first quarter of 2000 compared with the same period in 1999.
Business-to-Business Communications first quarter 2000 Operating Costs increased
$1.2 million (17%) on 29% higher revenue compared with first quarter 1999.
Growth was attributable principally to increased volume at Galaxy offset
partially by lower costs associated lower volume at Atwood and GEM.
Information Services Operating Costs increased 21% during the first quarter
of 2000 compared with the first quarter of 1999. The increase was attributable
principally to higher criminal record and pre-employment screening volume at
TISI and inclusion of RSI and STA, offset partially by exclusion of Corsearch.
General and Administrative Expenses. General and Administrative Expenses
increased $1.3 million (17%) during the first quarter of 2000 compared with the
first quarter of 1999. Higher general and administrative expense was primarily
due to the inclusion of ITS, RSI and STA, increased corporate staff at TISI to
support business expansion offset partially by lower corporate business
development costs and the exclusion of Corsearch.
Depreciation and Amortization. Depreciation and Amortization increased
$477,000 (26%) during the first quarter of 2000 compared with the same period in
1999. The increase resulted principally from 1999 capital expenditures to
acquire data, expand exposition and trade show capacity and upgrade information
technology and the addition of ITS, RSI and STA offset partially by exclusion of
Corsearch.
Interest Expense. Interest Expense totaled $2.8 million and $2.7 million for
the three months ended March 31, 2000 and 1999, respectively. Interest expense
results primarily from debt incurred in connection with the Recapitalization.
Interest expense increased in the first quarter 2000 compared with the same
period in 1999 as the result of increased utilization the Company's Senior
Credit Facility.
EBITDA. EBITDA totaled $7.9 million during the first quarter of 2000
compared with $4.9 million during the same 1999 period, an increase of $2.9
million (59%). The increase resulted from higher EBITDA
18
<PAGE>
in the Business-to-Business Communications segment (up $1.7 million - 64%) and
the Information Services segment (up $956,000 - 30%), offset partially by the
impact of the sale of Corsearch
EBITDA is included because management believes 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 expense, income taxes,
depreciation and amortization, unusual gains and losses (including provision for
loss on disposition of subsidiary in 1999), minority interest in consolidated
subsidiaries, discontinued operations, 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. EBITDA margin
represents EBITDA as a percentage of total revenues.
ACQUISITIONS AND DIVESTITURE
On April 30, 1999, the Company, through Galaxy, acquired substantially all
of the assets and assumed substantially all of the liabilities of 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 was paid from a contemporaneous
minority equity investment in Galaxy Information Services, LLC by certain former
ITS shareholders and the remainder was paid from existing cash. The acquisition
was accounted for under the purchase method of accounting.
On August 31, 1999, the Company, through TISI, acquired all the stock of RSI
for an aggregate purchase price of $12,780,000 plus transaction costs. Of the
total purchase price of this transaction, $9,000,000 was paid out from existing
cash and the balance in the form of a note to be paid over three years. The
acquisition was accounted for under the purchase method of accounting.
On November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement for approximately $20 million,
plus additional consideration of $1.6 million for certain defined net assets.
On January 31, 2000, the Company acquired substantially all of the assets of
STA for approximately $8.3 million. STA is a leading provider of drug testing
services to the pre-employment industry. On March 16, 2000, the Company acquired
the stock and/or assets of a group of ten companies collectively known as USMA.
The Company paid approximately $23.5 million, with approximately $15.2 million
paid in cash with the balance in non-voting stock of TISI. USMA provides
pre-employment screening services to the retail industry, principally through a
proprietary database of employee theft incident records. These acquisitions are
being accounted for under the purchase method of accounting.
LIQUIDITY AND CAPITAL RESOURCES
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, 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.
19
<PAGE>
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. On September 1, 1998 the Company purchased $1.5 million
of the New Notes at a price below par.
The Company's principal sources of funds are anticipated to be cash flows
from operating activities and borrowings under the $25 million 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. At December 31, 1999 the Company had $20
million outstanding under the Senior Credit Facility. The proceeds were invested
in high-grade short-term securities to provide funds for general corporate
purposes. In January 2000, the Company repaid these outstanding borrowings. As
of March 31, 2000, the Company had $23.6 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.
20
<PAGE>
Capital Expenditures. Management anticipates that capital expenditures in
2000 will be approximately $7.5 million. The primary capital expenditures will
be for computer equipment and software, and database acquisitions at TISI. 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 2000, even after
the anticipated capital expenditures for 2000. Thus, with the Company's
available cash reserves and cash flow, management does not anticipate a need for
additional capital or increased borrowing facilities during 2000 except for
possible future acquisitions.
INFLATION
Management anticipates the effect of inflation on the Company's operations
during 2000 will be primarily limited to the effects which general inflation
will have on costs in most areas in which the Company operates.
NEW ACCOUNTING PRONOUNCEMENTS
The FASB issued Statement of Financial Accounting Standards No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS
No. 132) and Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 132
revises employer's disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of those plans. SFAS
No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. Subsequently, the FASB issued SFAS No. 137,
which deferred the effective date of SFAS No. 133. SFAS No. 137 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. 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 ended March 31, 2000 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
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations".
SUBSEQUENT EVENT
On May 3, 2000, the Company executed an agreement to acquire, through a
subsidiary, substantially all of the assets of ExpoExchange, the E-Products
business division of Third Millennium Communications, Inc. (3MC), in exchange
for non-voting equity valued at approximately $30 million (equal to
approximately 20%) in Galaxy Information Services, LLC. Consummation of the
transaction is subject to the satisfaction of certain conditions, including
regulatory approval. The Company also purchased an equity interest in 3MC for $5
million.
21
<PAGE>
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
On March 24, 2000, the regestrant filed a current report on Form 8-K that
reported on the acquisition of the stock and/or assets of a group of ten
companies collectively known as United States Mutual Association (Item 2 and 7).
22
<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: May 15, 2000
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 MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 597
<SECURITIES> 0
<RECEIVABLES> 25,480
<ALLOWANCES> 1,114
<INVENTORY> 101
<CURRENT-ASSETS> 29,120
<PP&E> 25,989
<DEPRECIATION> 15,320
<TOTAL-ASSETS> 116,594
<CURRENT-LIABILITIES> 52,647
<BONDS> 98,500
0
0
<COMMON> 42
<OTHER-SE> (48,583)
<TOTAL-LIABILITY-AND-EQUITY> 116,594
<SALES> 29,143
<TOTAL-REVENUES> 29,143
<CGS> 12,289
<TOTAL-COSTS> 12,289
<OTHER-EXPENSES> 2,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,833
<INCOME-PRETAX> 2,812
<INCOME-TAX> 402
<INCOME-CONTINUING> 687
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 687
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
