<PAGE>
UNITED STATES
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 SEPTEMBER 30, 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 November 14, 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 AND PER SHARE DATA)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 455 $ 32,162
Accounts receivable, less reserve for doubtful accounts
of $1,367 in 2000 and $995 in 1999 27,820 22,772
Inventories 126 191
Deferred tax assets 40 137
Notes receivable and other current assets 5,065 2,390
--------- ---------
Total current assets 33,506 57,652
Notes receivable and investments 5,182 216
Property, plant and equipment, at cost: 30,488 25,515
Less accumulated depreciation (17,787) (14,595)
--------- ---------
Property, plant and equipment, net 12,701 10,920
Intangibles and other assets, net 116,283 53,342
--------- ---------
Total assets $ 167,672 $ 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 AND PER SHARE DATA)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT SEPTEMBER 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable $ 3,266 $ 3,681
Accrued liabilities 24,987 15,098
Deferred revenue 13,661 6,594
Borrowings under credit facility 10,168 20,000
Customer deposits 20,099 13,315
Current portion of long-term debt 20 1,733
--------- ---------
Total current liabilities 72,201 60,421
Long-term debt, less current portion 98,500 100,584
Other liabilities 664 907
Minority interest 38,617 9,446
Commitments and contingencies
Stockholders' deficit:
Common stock, $.10 par value, 150,000 shares authorized;
112,367 shares issued and outstanding 42 42
Additional paid-in capital 54,242 48,197
Retained earnings 17,882 17,009
--------- ---------
72,166 65,248
Treasury stock (114,476) (114,476)
--------- ---------
Total stockholders' deficit (42,310) (49,228)
--------- ---------
Total liabilities and stockholders' deficit $ 167,672 $ 122,130
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements
4
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue $ 30,553 $ 30,700 $ 94,296 $ 79,931
Costs and expenses:
Operating costs 14,737 13,133 42,907 35,676
General and administrative 12,679 8,398 32,189 24,037
Depreciation and amortization 5,921 2,473 12,165 6,453
-------- -------- -------- --------
Operating (loss) income (2,784) 6,696 7,035 13,765
Interest and other income (expense) 331 (6) 215 20
Interest expense (2,123) (2,651) (8,327) (8,066)
-------- -------- -------- --------
Income (loss) before minority interest and income taxes
(4,576) 4,039 (1,077) 5,719
Minority interest in loss (earnings) of consolidated
entity 5,553 (3,784) 3,084 (5,777)
Income tax expense (753) (200) (1,134) (400)
-------- -------- -------- --------
Net income (loss) $ 224 $ 55 $ 873 $ (458)
======== ======== ======== ========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 873 $ (458)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 12,165 6,453
Loss on sale of assets -- 22
Minority interest in (loss) earnings of consolidated entity (3,084) 5,777
Deferred income taxes 97 454
Customers deposits 6,784 19,285
Changes in assets and liabilities 8,640 (14,324)
-------- --------
Total adjustments 24,602 17,667
-------- --------
Net cash provided by operating activities 25,475 17,209
-------- --------
Cash flows from investing activities:
Collections on contract and notes receivable 34 15
Capital expenditures (4,973) (4,295)
Equity investment (5,000) --
Payments for acquisitions, net of cash acquired (33,614) (17,082)
Payments on deferred contract liabilities -- (122)
-------- --------
Net cash used in investing activities (43,553) (21,484)
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt (3,797) (1,603)
Minority interest -- 2,000
Net repayment of line of credit (9,832) --
-------- --------
Net cash (used in) provided by financing activities (13,629) 397
-------- --------
Net decrease in cash and cash equivalents (31,707) (3,878)
Cash and cash equivalents at beginning of period 32,162 3,878
-------- --------
Cash and cash equivalents at end of period $ 455 $ --
======== ========
</TABLE>
6
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 5,705 $5,545
======= ======
Income taxes $ 3,175 $ 400
======= ======
Supplemental disclosure of non-cash transactions:
Exchange of non-voting LLC units of Galaxy in
connection with the acquisition of ExpoExchange $30,000
Exchange of non-voting shares of TISI stock in connection
with the acquisition of USMA 8,300
</TABLE>
See accompanying notes to consolidated condensed financial statements.
7
<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 or
controlled 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 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 nine months ended September 30, 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, LLC 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 September 30, 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.
8
<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"), ExpoExchange, LLC (formerly Galaxy
Information Services, LLC) and subsidiaries ("ExpoExchange"), GEM
Communications, LLC ("GEM"), Holdings LLC (collectively the "LLC
Guarantors"), Total Information Services, 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 $108.6 million as of September 30, 2000.
Included in the 1999 and 2000 financial results of the LLC Guarantors are
the nine months activity of Atwood, ExpoExchange, GEM and Holdings LLC.
Included in the 1999 financial results of the Subsidiary Guarantors are the
nine months activity of TISI and Corsearch, Inc. Included in the 2000
financial results of the Subsidiary Guarantors are the nine months activity
of TISI. Coresearch was sold in November 1999.
9
<PAGE>
The following are condensed consolidating financial statements of The
Official Information Company and the Guarantors for each period presented:
SEPTEMBER 30, 2000
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------------- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $1,095 $ 16,662 $ 15,749 $ 32,411 - $ 33,506
Notes receivable
and investments 5,017 - 165 165 - 5,182
Investment in subsidiaries
& affiliates 101,845 34,647 10,266 44,913 (146,758) -
PPE-net 204 7,298 5,199 12,497 - 12,701
Intangibles and other
assets-net 8,664 59,399 48,220 107,619 - 116,283
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total assets $116,825 $118,006 $79,599 $197,605 $(146,758) $167,672
======== ======== ======= ======== ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities 16,372 45,609 10,220 55,829 - 72,201
Long term debt, less current
portion 98,500 - - - - 98,500
Other liabilities 597 2 65 67 - 664
Minority interest 5,546 30,816 2,255 33,071 - 38,617
Total stockholders' equity
(deficit) (4,190) 41,579 67,059 108,638 (146,758) (42,310)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Total liabilities and
Stockholders' equity $ 116,825 $118,006 $79,599 $197,605 $(146,758) $167,672
========= ======== ======= ======== ========== ========
</TABLE>
10
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ---------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue - $ 51,959 $ 42,337 $ 94,296 - $ 94,296
Costs and expenses:
Operating costs - 27,258 15,649 42,907 - 42,907
General & administrative 1,988 16,364 13,837 30,201 - 32,189
Depreciation & amort. 379 7, 874 3,912 11,786 - 12,165
------------- ----------------- --------------- ---------------- ----------------- ------------------
Operating income (loss) (2,367) 463 8,939 9,402 - 7,035
Interest and other
income (expense) (50) 29 236 265 - 215
Interest expense (4,274) 177 (4,230) (4,053) - (8,327)
------------- ----------------- --------------- ---------------- ----------------- ------------------
Income (loss) before
income tax (6,691) 669 4,945 5,614 - (1,077)
Minority interest - - - - 3,084 3,084
Income tax expense (1,134) - - - - (1,134)
Earnings of subsidiaries 3,753 - - - (3,753) -
------------- ----------------- --------------- ---------------- ----------------- ------------------
Net income (loss) $ (4,072) $ 669 $ 4,945 $ 5,614 $ (669) $ 873
=========== ======= ======== ======== ======= ========
</TABLE>
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ----------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (4,072) $669 $ 4,945 $ 5,614 $ (669) $ 873
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation &
amortization 379 7,874 3,912 11,786 - 12,165
Minority interest (3,753) - - - 669 (3,084)
Customer deposits - 6,784 - 6,784 - 6,784
Changes in assets &
liabilities 25,901 (13,893) (3,271) (17,164) - 8,737
------------- ---------------- ---------------- ----------------- ---------------- ------------------
Net cash provided
by operating activities 18,455 1,434 5,586 7,020 - 25,475
Cash flows from investing
activities:
Collection on notes
receivable 1 15 18 33 - 34
Capital expenditures (33) (2,627) (2,313) (4,940) - (4,973)
Investment in common stock (5,000) - - - - (5,000)
Payments for acquisitions
Net of cash acquired (33,614) - - - - (33,614)
------------- ---------------- ---------------- ----------------- ---------------- ------------------
Net cash used in investing
activities (38,646) (2,612) (2,295) (4,907) - (43,553)
Cash flows from financing
activities:
Principal payment of
long term debt (18) - (3,779) (3,779) - (3,797)
Net repayment of line of
credit (9,832) - - - - (9,832)
------------- ---------------- ---------------- ----------------- ---------------- ------------------
Net cash used in
financing activities (9,850) - (3,779) (3,779) - (13,629)
Net decrease in cash
And cash equivalents (30,041) (1,176) (488) (1,666) - (31,707)
Cash and cash equivalents
at beginning of
period 30,626 332 1,204 1,536 - 32,162
------------- ---------------- ---------------- ----------------- ---------------- ------------------
Cash and cash equivalents
at end of period $585 $(846) $716 $(130) - $455
==== ====== ==== ====== ========== ====
</TABLE>
12
<PAGE>
DECEMBER 31, 1999
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
LLC SUBSIDIARY SUBTOTAL
TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC 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 (DEFICIT)
Current liabilities $26,554 $27,632 $6,235 $33,867 $- $60,421
Long term debt, less current portion 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 stockholders' equity (deficit) (5,195) 76,330 33,431 109,761 (153,794) (49,228)
--------------- --------------- ------------- -------------- --------------- --------------------
Total liabilities and
stockholders' equity $128,032 $105,965 $41,927 $147,892 $(153,794) $122,130
======== ======== ======= ======== ========== ========
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ---------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $(395) $49,079 $31,247 $80,326 $ - $79,931
Costs and expenses:
Operating costs - 24,724 10,952 35,676 - 35,676
General & administration 2,306 11,542 10,189 21,731 - 24,037
Depreciation &
amortization 378 3,293 2,782 6,075 - 6,453
------------- ----------------- --------------- ----------------- ---------------- ------------------
Operating income (loss) (3,079) 9,520 7,324 16,844 - 13,765
Interest & other income 20 - - - - 20
Interest expense (8,015) (4) (47) (51) - (8,066)
------------- ----------------- --------------- ----------------- ---------------- ------------------
Income (loss) before income
taxes (11,074) 9,516 7,277 16,793 - 5,719
Minority interest - - - - (5,777) (5,777)
Income tax expense (400) - - - - (400)
Earnings of subsidiaries 3,739 - - - (3,739) -
------------- ----------------- --------------- ----------------- ---------------- ------------------
Net income (loss) $ (7,735) $9,516 $7,277 $16,793 $(9,516) $ (458)
========= ====== ====== ======= ======== =======
</TABLE>
13
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (7,735) $ 9,516 $ 7,277 $ 16,793 $ (9,516) $ (458)
Adjustments to reconcile
net income (loss)
to net cash (used
in) provided
by operating
activities, net
Depreciation &
amortization 378 3,293 2,782 6,075 -- 6,453
Loss (Gain) on sale
of assets 22 -- -- -- -- 22
Minority interest (3,739) -- -- -- 9,516 5,777
Changes in assets
and liabilities, net 12,726 (7,573) 262 (7,311) 5,415
-------- -------- -------- -------- -------- --------
Net cash (used in) provided
by operating activities 1,652 5,236 10,321 15,557 -- 17,209
Cash flows from investing
activities:
Collections on
contract & notes
receivable 15 -- -- -- -- 15
Capital expenditures (77) (1,993) (2,225) (4,218) -- (4,295)
Payments for
acquisitions, net of
cash acquired -- (7,961) (9,121) (17,082) -- (17,082)
Payments on
deferred contract
liabilities (122) -- -- -- -- (122)
-------- -------- -------- -------- -------- --------
Net cash used in
investing activities (184) (9,954) (11,346) (21,300) -- (21,484)
Cash flows from
financing activities:
Principal payments
of long-term debt (1,603) -- -- -- -- (1,603)
Minority interest -- 2,000 -- 2,000 -- 2,000
-------- -------- -------- -------- -------- --------
Net cash (used in) provided by
financing activities (1,603) 2,000 -- 2,000 -- 397
-------- -------- -------- -------- -------- --------
Net decrease in cash and
cash equivalents (135) (2,718) (1,025) (3,743) -- (3,878)
Cash and cash equivalents
at beginning of period 1,078 2,339 461 2,800 -- 3,878
-------- -------- -------- -------- -------- --------
Cash and cash equivalents
at end of perio $ 943 $ (379) $ (564) $ (943) $ $ 0
======== ======== ======== ======== ======== ========
</TABLE>
14
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ----------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ -- $ 15,327 $ 15,226 $ 30,553 $ -- $ 30,553
Costs and expenses:
Operating costs -- 8,807 5,930 14,737 -- 14,737
General & administrative 659 7,364 4,656 12,020 -- 12,679
Depreciation & amort 127 4,414 1,380 5,794 -- 5,921
-------- -------- -------- -------- -------- --------
Operating income (loss) (786) (5,258) 3,260 (1,998) -- (2,784)
Interest & other income 29 67 235 302 -- 331
Interest expense (991) 897 (2,029) (1,132) -- (2,123)
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes (1,748) (4,294) 1,466 (2,828) -- (4,576)
Minority interest -- -- -- -- 5,553 5,553
Income tax expense (753) -- -- -- -- (753)
Earnings of subsidiaries 1,259 -- -- -- (1,259) --
-------- -------- -------- -------- -------- --------
Net income (loss) $ (1,242) $ (4,294) $ 1,466 $ (2,828) $ 4,294 $ 224
======== ======== ======== ======== ======== ========
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS TOIC CONSOLIDATED
--------- ---------- ---------- ----------- ------------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ (315) $ 19,867 $ 11,148 $ 31,015 $ -- $30,700
Costs and expenses:
Operating costs -- 9,233 3,900 13,133 -- 13,133
General &
administrative 592 4,257 3,549 7,806 -- 8,398
Depreciation & amort 126 1,332 1,015 2,347 -- 2,473
-------- -------- -------- -------- -------- ---------
Operating income (loss) (1,033) 5,045 2,684 7,729 -- 6,696
Interest & other
income 16 -- (22) (22) -- (6)
Interest expense (2,638) -- (13) (13) -- (2,651)
-------- -------- -------- -------- -------- ---------
Income (loss) before
income taxes (3,655) 5,045 2,649 7,694 -- 4,039
Minority interest -- -- -- -- (3,784) (3,784)
Income tax expense (200) -- -- -- -- (200)
Earnings of subsidiaries 1,260 -- -- -- (1,260) --
-------- -------- -------- -------- -------- ---------
Net income (loss) $ (2,595) $ 5,045 $ 2,649 $ 7,694 $ (5,044) $ 55
======== ======== ======== ======== ======== =========
</TABLE>
15
<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 (ExpoExchange - formerly Galaxy) of e-commerce,
registration, exhibitor marketing, travel, housing and information services
to the exposition industry; and owner (GEM) of the World Gaming Congress &
Expo, the largest 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.
Operating income 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 and truck driver employment information
files.
During the third quarter of 2000 and 1999, no customer represented ten
percent or more of the Company's revenue or operating income.
<PAGE>
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
For the three.months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---- ---- ---- ----
(In thousands) (In thousands)
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS:
Business to Business Communications $ 15,327 $ 19,552 $ 51,959 $ 48,661
Information Services 15,226 11,148 42,337 31,280
------ ------ ------ ------
30,553 30,700 94,296 79,931
====== ====== ====== ======
OPERATING INCOME (LOSS):
Business to Business Communications (5,258) 4,729 463 9,102
Information Services 3,260 2,685 8,939 7,347
----- ----- ----- -----
Operating profit from segments (1,998) 7,414 9,402 16,449
Corporate expenses, net (455) (724) (2,152) (2,664)
Interest expense (2,123) (2,651) (8,327) (8,066)
------- ------- ------- -------
Income (loss) before income taxes & minority interest $ (4,576) $ 4,039 $ (1,077) $ 5,719
======== ====== ======== =======
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $4,414 $1,332 $7,874 $3,293
Information Services 1,380 1,015 3,912 2,782
Corporate 127 126 379 378
--- --- --- ---
$5,921 $2,473 $12,165 $6,453
====== ====== ======= ======
CAPITAL EXPENDITURES:
Business to Business Communications $466 $1,036 $2,627 $1,993
Information Services 791 622 2,313 2,225
Corporate 20 15 33 77
-- -- -- --
$1,277 $1,673 $4,973 $4,295
====== ====== ====== ======
IDENTIFIABLE ASSETS AT SEPTEMBER 30, 2000 AND 2000 1999
---- ----
DECEMBER 31, 1999:
Business to Business Communications $82,576 $48,928
Information Services 70,116 34,830
Corporate 14,880 38,372
-------- --------
$167,672 $122,130
======== ========
</TABLE>
E. ACQUISITIONS AND DISPOSITIONS OF ASSETS
On April 30, 1999, the Company, through ExpoExchange (formerly 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 $22.6 million, plus transaction costs. Of the
total purchase price of this transaction, $11.1 million was paid out of
proceeds from the Company's line of credit, $2.0 million was paid from a
contemporaneous minority equity investment in ExpoExchange 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. On the basis of an independent appraisal
acquired intangibles are being amortized on a straight-line basis over
periods ranging from 2 to 15 years, the expected period of benefit.
18
<PAGE>
On August 31, 1999, the Company, through TISI, acquired all the stock of
Record Search, Inc. ("RSI") for an aggregate purchase price of $12.8
million, plus transaction costs. Of the total purchase price of this
transaction, $9.0 million 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, the expected period
of benefit. On August 31, 2000 the Company paid the remaining balance due
under the notes in connection with settlement of certain issues with the
sellers of RSI. In connection with this settlement, two sellers, who had
also been employees of RSI, terminated their employment with the Company.
On November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement in consideration for
approximately $20.0 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, through TISI, 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
screening industry.
On March 15, 2000, the Company, through TISI, 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
plus transaction costs, with $15.2 million paid in cash and the balance
($8.3 million) in non-voting stock of TISI representing approximately 4.5%
of the Company's interest in TISI. USMA provides pre-employment screening
services to the retail industry, principally through a proprietary database
of employee theft incident records. These acquisitions were accounted for
under the purchase method of accounting and the Company is in the process
of valuing the assets acquired. As a result of this transaction, the
Company recorded a $6.0 million increase in additional paid-in capital on
the issuance of 8,300 non-voting shares of TISI stock representing the
difference between the Company's equity interest in TISI before and after
the transaction.
On April 14, 2000, the Company purchased a 4.7% common equity interest in
Third Millennium Communications, Inc. ("TMC") for $5.0 million. TMC
provides software development and consulting services primarily to internet
related entities.
On June 1, 2000, the Company, through Galaxy (now ExpoExchange), acquired
substantially all of the assets of the E-Products division
(ExpoExchange-interactive or "EEi") of TMC, in exchange for 6,133,590
non-voting LLC units of Galaxy (the "LLC units") valued at approximately
$30.0 million, representing approximately 20% of Holdings LLC's interest in
Galaxy. The Company has accounted for this transactions under the purchase
method of accounting. As a result of this transaction, the Company recorded
approximately $30.0 million increase in minority interest on the issuance
of the LLC units. On the basis of an independent valuation, identifiable
intangible assets of $6.7 million and goodwill of $23.0 million are being
amortized on a straight - line basis primarily over a three year life.
The following unaudited pro forma information is presented as if the
Company had completed these 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.
19
<PAGE>
For the Three Months For the Nine Months
ended September 30, ended September 30,
2000 1999 2000 1999
-------- ------- -------- ----------
(In thousands)
(Unaudited)
Revenues $ 30,553 $ 34,699 $ 96,864 $ 96,716
Net income (loss) $ 224 $ (532) $ (2,554) $ (873)
EBITDA $ 3,137 $ 8,927 $ 15,856 $ 20,919
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
owners and operators 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) ExpoExchange, LLC (formerly Galaxy
Information Services, LLC), one of the largest independent providers of housing,
travel, registration, exhibitor information, "lead" management services and
internet-based market place and e-commerce services to the trade show,
conference and convention industry in the United States.
On September 1, 1998, GEM acquired all the stock of UK based InterGame
Limited, the publisher of a leading series of publications for the international
coin-operated amusement and gaming machines and amusement park businesses, for
approximately $8.0 million.
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.
On April 30, 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 (now ExpoExchange).
On August 31, 1999, the Company acquired all of the outstanding stock of
Record Search, Inc. (RSI), a leading provider of pre-employment screening
services.
20
<PAGE>
On November 11, 1999, the Company sold 100% of the outstanding stock of
Corsearch.
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.
Efforts to structure a reorganization of Galaxy Europe have not been successful
and it is anticipated that the court will place Galaxy Europe into liquidation
upon completion of its November 2000 trade show contracts. In December 1999, the
Company wrote off its investment in Galaxy Europe.
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 15, 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 June 1, 2000, the Company acquired substantially all of the assets of
EEi, in exchange for non-voting LLC units valued at approximately $30.0 million
in Galaxy Information Services, LLC. EEi is a leading provider of internet-based
market place and e-commerce services to the trade show industry. The combined
entity was renamed ExpoExchange, LLC.
RESULTS OF OPERATION
Revenues. Revenues for the three and nine month periods ended September 30,
2000 totaled $30.6 million and $94.3 million, respectively, a decrease of
$146,000 and an increase of $14.4 million (18%) over the same periods,
respectively, in 1999. Business-to-Business Communications segment revenue
totaled $15.3 million and $52.0 million for the three and nine months ended
September 30, 2000, respectively, a decrease of $4.2 million (22%) and an
increase of $3.3 million (7%), respectively, over the same 1999 periods. At
ExpoExchange, increased demand for registration and exhibitor services (up 41%
for the nine month period in 2000) and the growth of new lead management and
interactive services contributed $ 5.9 million to revenue growth for the nine
month period ended September 30, 2000 and inclusion of ITS (acquired May 1,
1999) contributed $6.0 million. Deconsolidation of Galaxy Europe resulted in
$1.6 million less revenue during the nine month period ended September 30, 2000
as compared with the same period of 1999. At Atwood, increased demand for all
product lines produced a 15% increase in net revenue during the first nine
months of 2000 compared with the same 1999 period. At GEM, continuing
consolidation of suppliers in the gaming industry resulted in reduced industry
advertising expenditures. For the first nine months of 2000, net revenue at
GEM's domestic and international publications declined approximately 20%
compared with the same 1999 period. Trade show revenues for the three and nine
month periods ended September 30, 2000 were $6.3 million lower than the
comparable 1999 periods as the result of the change in timing of the World
Gaming Congress & Expo (WGC&E) from September 1999 to October 2000. Cancellation
of the Western Gaming Congress and postponement of Gaming for Africa Conference
& Expo resulted in a $1.1 million decline in net revenue from GEM trade shows
during the first nine months of 2000 compared with the same period in 1999.
The Information Services segment produced revenue of $15.3 million and
$42.3 million for the three and nine month periods ended September 30, 2000,
respectively, an increase of $4.1 million (37%) and $11.1 million (35%),
respectively, compared with the same periods in 1999. TISI's first nine months
2000 revenue increased 69% over the same 1999 period, due principally to
increased pre-employment screening volume at DAC, a 32% increase in criminal
records volume at CrimeSearch, and inclusion of RSI (acquired August 31, 1999),
STA (acquired January 31, 2000) and USMA (acquired March 15, 2000), which
together added $14.3 million to
21
<PAGE>
revenue growth. Exclusion of Corsearch (sold November 11, 1999) resulted in $6.2
million less revenue in the Information Services segment for the first nine
months of 2000 compared with the same period in 1999.
Operating Costs. Operating Costs increased $1.6 million (12%) and $7.2
million (20%) during the three and nine months ended September 30, 2000,
respectively, compared with the same periods in 1999. Business-to-Business
Communications segment first nine months 2000 Operating Costs increased $2.5
million (10%) compared with first nine months of 1999. Operating Costs at
ExpoExchange and Atwood increased 58% and 8% ,respectively, on 46% and 15%
higher revenue, respectively, principally reflecting increased volume, offset
partially by lower operating costs at GEM (down $3.8 million - 60%) attributable
principally to the timing of WGC&E.
Information Services segment Operating Costs increased 43% during the first
nine months of 2000 compared with the same 1999 period. The increase was
attributable principally to higher criminal record and pre-employment screening
volume at TISI and inclusion of RSI, STA and USMA, offset partially by exclusion
of Corsearch from the segment.
General and Administrative Expenses. General and Administrative Expenses
increased $4.2 million (51%) and $8.2 million (34%) during the three and nine
month periods ended September 30, 2000, respectively, compared with the same
periods of 1999. During the first nine months 2000, compared with the same 1999
period, higher general and administrative expenses were attributable principally
to the inclusion of RSI ($1.8 million), STA ($1.0 million), USMA ($1.1 million)
and EEi ($1.8 million); increased corporate infrastructure ($3.4 million) at
TISI, ExpoExchange and Atwood to support business expansion and acquisition
integration; offset partially by cost reductions at GEM, lower Corporate
business development costs and the exclusion of Corsearch.
Depreciation and Amortization. Depreciation and Amortization increased $3.4
million (136%) and $5.7 million (87%) during the three and nine month periods
ended September 30, 2000 compared with the same periods in 1999. During the
first nine months of 2000, the increase resulted principally from amortization
of intangible assets associated with the acquisitions of RSI, STA, USMA and EEi,
to acquire data, expand exposition and trade show capacity and upgrade
information technology, offset partially by exclusion of Corsearch. Depreciation
and Amortization also included additional amortization ($618,000) resulting from
the Company's decision to reduce the period of amortization from 15 to 10 years
for intangible assets associated with the 1998 acquisition of a UK subsidiary,
and on the basis of an independent valuation, to shorten the period of
amortization for certain identified intangible assets related to the acquisition
of ITS.
Interest Expense. Interest Expense totaled $2.1 million and $8.3 million
for the three and nine month periods ended September 30, 2000, respectively.
Interest Expense results primarily from debt incurred in connection with the
Recapitalization.
EBITDA. EBITDA totaled $3.1 million and $19.2 million during the three and
nine month periods ended September 30, 2000, respectively, a decrease of $6.1
million (66%) and $1 million (5%), respectively, over the same periods in 1999.
The decrease during the first nine months of 2000 resulted from lower EBITDA in
the Business-to-Business Communications segment (down $4.1 million - 33%) offset
partially by higher EBITDA in the Information Services segment (up $3.6 million
- 38%) excluding the impact from the sale of Corsearch. Lower EBITDA in the
Business-to-Business Communications segment resulted principally from timing of
WGC&E ($4.0 impact) and inclusion of EEi ($2.7 million impact) from June 1,
2000, offset partially by increase EBITDA at the former Galaxy Information
Services LLC operation and Atwood.
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,
22
<PAGE>
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 $22.6 million plus transaction costs. Of the total
purchase price of this transaction, $11.1 million was paid out of proceeds from
the Company's line of credit, $2.0 million 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 $12.8 million plus transaction costs. Of
the total purchase price of this transaction, $9.0 million 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
August 31, 2000 the Company paid the remaining balance due under the notes in
connection with settlement of certain issues with the sellers of RSI. In
connection with this settlement two seller, who had also been employees of RSI,
terminated their employment with the Company.
On November 11, 1999, the Company sold all of the outstanding stock of
Corsearch and executed a non-compete agreement for approximately $20.0 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 15, 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 plus transaction costs, with $15.2 million paid in cash and 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.
On April 14, 2000, the Company purchased a 4.7% common equity interest in
Third Millennium Communications, Inc. ("TMC") for $5.0 million. TMC provides
development and consulting services primarily to internet related entities.
On June 1, 2000, the Company acquired substantially all of the assets of
EEi, the E-Products division of Third Millennium Communications, Inc. (TMC), in
exchange for non-voting LLC units valued at approximately $30.0 million in
Galaxy Information Services, LLC.
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 $13.0
million under a $25.0 million revolving senior credit facility (the "Senior
Credit Facility") with First Union National Bank ("FUNB"); (ii) issued
23
<PAGE>
$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. 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 $100.0 million 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 $25.0 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 September 30, 2000, the Company had $14.8 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
2000 will be approximately $8.3 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. Although management believes that
the Company's available cash reserves and cash flow will be adequate without the
need during 2000 for additional Capital, except for possible future
acquisitions, the Company is in the process of increasing the Senior Credit
Facility to $45.0 million.
24
<PAGE>
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 period ended September 30, 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".
25
<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 August 14, 2000, the registrant filed an amendment on Form 8-K/A to its
current report on Form 8-K filed on June 15, 2000 that included the financial
statements of the E-Products Division of TMC required by Item 7 of the current
report
26
<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: November 14, 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
