<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 JUNE 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 August 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 JUNE 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $285 $32,162
Accounts receivable, less reserve for doubtful accounts 30,173 22,772
of $1,115 in 2000 and $995 in 1999
Inventories 104 191
Deferred tax assets 40 137
Notes receivable and other current assets 3,331 2,390
----- -----
Total current assets 33,933 57,652
Notes receivable and investments 5,204 216
Property, plant and equipment at cost:
Exposition equipment 8,374 7,707
Data processing and office furniture and equipment 20,193 17,808
Less accumulated depreciation (16,509) (14,595)
-------- --------
Property, plant and equipment, net 12,058 10,920
Intangibles and other assets, net 114,695 53,342
------- ------
Total assets $165,890 $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 JUNE 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Current liabilities:
Accounts payable $3,624 $3,681
Accrued liabilities 15,115 15,098
Deferred revenue 9,912 6,594
Borrowings under credit facility 9,092 20,000
Customer deposits 24,641 13,315
Current portion of long-term debt 603 1,733
--- -----
Total current liabilities 62,987 60,421
Long-term debt, less current portion 100,566 100,584
Other liabilities 701 907
Minority interest 44,170 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 17,658 17,009
------ ------
71,942 65,248
Treasury stock (114,476) (114,476)
--------- ---------
Total stockholders' deficit (42,534) (49,228)
-------- --------
Total liabilities and stockholders' deficit $165,890 $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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenue $ 34,600 $ 26,049 $ 63,743 $ 49,231
Costs and expenses:
Operating costs 15,881 11,965 28,170 22,543
General and administrative 10,515 7,970 19,510 15,639
Depreciation and amortization 3,942 2,155 6,244 3,980
--------- --------- --------- ---------
Operating income 4,262 3,959 9,819 7,069
Interest and other income (expense) (204) 21 (116) 26
Interest expense (3,372) (2,762) (6,204) (5,415)
--------- --------- --------- ---------
Income before minority interest and income taxes 686 1,218 3,499 1,680
Minority interest in earnings of consolidated entity (745) (1,431) (2,469) (1,993)
Income tax expense 21 (80) (381) (200)
--------- --------- --------- ---------
Net income (loss) $ (38) $ (293) $ 649 $ (513)
========= ========= ========= =========
</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>
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 649 $ (513)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 6,244 3,980
Minority interest in earnings of consolidated entity 2,469 1,993
Deferred income taxes 97 145
Customers deposits 11,326 -
Changes in assets and liabilities (7,002) 2,006
------- -----
Total adjustments 13,134 8,124
------ -----
Net cash provided by operating activities 13,783 7,611
------ -----
Cash flows from investing activities:
Collections on contract and notes receivable 12 18
Capital expenditures (3,696) (2,622)
Equity Investment (5,000)
Payments for acquisitions, net of cash acquired (24,920) (7,844)
Payments on deferred contract liabilities - (90)
-------- ----
Net cash (used in) investing activities (33,604) (10,538)
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt (18) (197)
Minority interest - 2,000
Net repayment of line of credit (12,038) -
-------- --------
Net cash used in financing activities (12,056) 1,803
-------- -----
Net decrease in cash and cash equivalents (31,877) (1,124)
Cash and cash equivalents at beginning of period 32,162 3,878
------ -----
Cash and cash equivalents at end of period $ 285 $ 2,754
===== ======
</TABLE>
6
<PAGE>
THE OFFICIAL INFORMATION COMPANY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS, CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------
2000 1999
---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 5,275 $ 5,322
======== =========
Income taxes $ 2,839 $ 729
======== =========
</TABLE>
Supplemental disclosure of non-cash transactions:
Exchange of non-voting equity of Galaxy in
connection with acquisition of ExpoExchange $ 30,000
Exchange of non-voting equity of TISI in connection
with acquisition of USMA 8,300
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 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
six months ended June 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, 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 June 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
$111.5 million as of June 30, 2000.
Included in the 1999 and 2000 financial results of the LLC Guarantors are
the six months activity of Atwood, ExpoExchange, GEM and Holdings LLC.
Included in the 1999 financial results of the Subsidiary Guarantors are the
six months activity of TISI and Corsearch, Inc. Included in the 2000
financial results of the Subsidiary Guarantors are the six 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:
JUNE 30, 2000
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 93 $ 18,032 $ 15,808 $ 33,840 $ 33,933
Notes receivable and
investments 5,017 15 172 187 5,204
Investment in subsidiaries
& affiliates 97,575 30,466 23,011 53,477 (151,052) -
PPE-net 212 6,987 4,859 11,846 12,058
Intangibles and other
assets-net 14,406 62,105 38,184 100,289 114,695
---------------------------------------------------------------------------------------------------
Total assets $ 117,303 $ 117,605 $ 82,034 $ 199,639 $(151,052) $ 165,890
========= ========= ========= ========= ========= =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities 10,636 40,293 12,058 52,351 62,987
Long term debt, less current
portion 98,500 - 2,066 2,066 100,566
Other liabilities 637 2 62 64 701
Minority interest 10,478 31,437 2,255 33,692 44,170
Total stockholders' equity
(deficit) (2,948) 45,873 65,593 111,466 (151,052) (42,534)
---------------------------------------------------------------------------------------------------
Total liabilities and
Stockholders' equity $ 117,303 $ 117,605 $ 82,034 $ 199,639 $(151,052) $ 165,890
========= ========= ========= ========= ========= =========
</TABLE>
10
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue - $36,632 $27,111 $63,743 - $63,743
Costs and expenses: - - - - - -
Operating costs - 18,451 9,719 28,170 - 28,170
General &
administrative 1,329 9,000 9,181 18,181 - 19,510
Depreciation & amort. 252 3,460 2,532 5,992 - 6,244
-------------------------------------------------------------------------------
Operating income (1,581) 5,721 5,679 11,400 - 9,819
Interest and other
income (79) (38) 1 (37) - (116)
Interest expense (3,283) (720) (2,201) (2,921) - (6,204)
-------------------------------------------------------------------------------
Income before income tax (4,943) 4,963 3,479 8,442 - 3,499
Minority interest - - - - (2,469) (2,469)
Income tax expense (381) - - - - (381)
Earnings of subsidiaries 2,494 - - - (2,494) -
-------------------------------------------------------------------------------
Net income (loss) $(2,830) $ 4,963 $ 3,479 $ 8,442 $(4,963) $ 649
======= ======= ======= ======= ======= =======
</TABLE>
11
<PAGE>
SIX MONTHS ENDED JUNE 30, 2000
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) $ (5,324) $ 4,963 $ 3,479 $ 8,442 $ (2,469) $ 649
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities:
Depreciation &
amortization 252 3,460 2,532 5,992 - 6,244
Minority interest - - - - 2,469 2,469
Customer deposits - 11,326 - 11,326 - 11,326
Changes in assets &
liabilities 16,038 (18,287) (4,656) (22,943) - (6,905)
------------------------------------------------------------------------------------------
Net cash provided
by operating activities 10,966 1,462 1,355 2,817 - 13,783
Cash flows from investing
activities:
Collection on notes
receivable 12 - - - - 12
Capital expenditures (13) (2,161) (1,522) (3,683) - (3,696)
Investment in Common Stock (5,000) (5,000)
Payments for acquisitions-
net of cash acquired (24,920) - - - - (24,920)
------------------------------------------------------------------------------------------
Net cash used in investing
Activities (29,921) (2,161) (1,522) (3,683) - (33,604)
Cash flows from financing
activities:
Principal payment of long
term debt (18) - - - - (18)
Net repayment of line of
credit (12,038) - - - - (12,038)
------------------------------------------------------------------------------------------
Net cash used in
financing activities (12,056) - - - - (12,056)
Net decrease in cash
and cash equivalents (31,011) (669) (167) (866) - (31,877)
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 $(385) $(367) $1,037 $670 - $285
======== ======== ======== ======== ======== ========
</TABLE>
12
<PAGE>
DECEMBER 31, 1999
BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
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 (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 (5,195) 76,330 33,431 109,761 (153,794) (49,228)
(deficit)
------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $ 128,032 $ 105,965 $ 41,927 $ 147,892 $(153,794) $ 122,130
========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
SIX MONTHS ENDED JUNE 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ $ 29,110 $ 20,121 $ 49,231 $ - $ 49,231
Costs and expenses:
Operating costs - 15,491 7,052 22,543 - 22,543
General &
administration 1,714 7,284 6,641 13,925 - 15,639
Depreciation &
amortization 252 1,962 1,766 3,728 - 3,980
-------------------------------------------------------------------------------------------
Operating income (loss) (1,966) 4,373 4,662 9,035 - 7,069
Interest & other
income (expense) (77) 103 103 26
Interest expense (5,378) (3) (34) (37) (5,415)
-------------------------------------------------------------------------------------------
Income (loss) before income
taxes (7,421) 4,473 4,628 9,101 - 1,680
Minority interest - (35) - (35) (1,958) (1,993)
Income tax expense (200) - - - - (200)
Earnings of subsidiaries 2,480 - - - (2,480) -
-------------------------------------------------------------------------------------------
Net income (loss) $ (5,141) $ 4,438 $ 4,628 $ 9,066 $ (4,438) $ (513)
========= ========= ========= ========= ========= =========
</TABLE>
13
<PAGE>
<TABLE>
SIX MONTHS ENDED JUNE 30, 1999
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (5,141) $ 4,437 $ 4,628 $ 9,065 $ (4,437) $ (513)
Adjustments to reconcile
net income (loss)
to net cash provided by
operating activities, net 397 1,997 1,766 3,763 1,958 6,118
Changes in assets and
liabilities, net 3,890 1,168 (5,531) (4,363) 2,479 2,006
-------------------------------------------------------------------------------------------
Net cash (used in)
provided by operating
activities (854) 7,602 863 8,465 - 7,611
Cash flows from investing
activities:
Collections on
contract & notes
receivable 18 - - - - 18
Capital expenditures (62) (957) (1,603) (2,560) - (2,622)
Payments for
acquisitions, net of
cash acquired - (7,844) - (7,844) - (7,844)
Payments on
deferred contract
liabilities (90) - - - - (90)
-------------------------------------------------------------------------------------------
Net cash used in
investing activities (134) (8,801) (1,603) (10,404) - (10,538)
Cash flows from
financing activities:
Principal payments
of long-term debt (197) - - - - (197)
Minority interest 2,000 2,000 2,000
-------------------------------------------------------------------------------------------
Net cash (used in) provided
by financing activities (197) 2,000 - 2,000 - 1,803
-------------------------------------------------------------------------------------------
Net (decrease) increase in
cash and cash equivalents (1,185) 801 (740) 61 - (1,124)
Cash and cash equivalents
at beginning of period 1,078 2,339 461 2,800 - 3,878
-------------------------------------------------------------------------------------------
Cash and cash equivalents
at end of period $ (107) $ 3,140 $ (279) $ 2,861 $ - $ 2,754
========= ========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
THREE MONTHS ENDED JUNE 30, 2000
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ - $ 19,873 $ 14,727 $ 34,600 $ - $ 34,600
Costs and expenses:
Operating costs - 10,290 5,591 15,881 - 15,881
General &
administrative 732 4,699 5,084 9,783 - 10,515
Depreciation & amort. 122 2,253 1,567 3,820 - 3,942
-------------------------------------------------------------------------------------------
Operating income (loss) (854) 2,631 2,485 5,116 - 4,262
Interest & other
income (165) (39) - (39) - (204)
Interest expense (535) (636) (2,201) (2,837) - (3,372)
-------------------------------------------------------------------------------------------
Income (loss) before
income taxes (1,554) 1,956 284 2,240 - 686
Minority interest - - - - (745) (745)
Income tax expense 21 - - - - 21
Earnings of subsidiaries 1,211 - - - (1,211) -
-------------------------------------------------------------------------------------------
Net income (loss) $ (322) $ 1,956 $ 284 $ 2,240 $ (1,956) $ (38)
========= ========= ========= ========= ========= =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
TOIC LLC SUBSIDIARY SUBTOTAL TOIC
CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
--------- ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue $ $ 15,884 $ 10,165 $ 26,049 $ - $ 26,049
Costs and expenses:
Operating costs - 8,326 3,639 11,965 - 11,965
General &
administrative 823 3,847 3,300 7,147 - 7,970
Depreciation & amort. 126 1,138 891 2,029 - 2,155
-------------------------------------------------------------------------------------------
Operating income (loss) (949) 2,573 2,335 4,908 - 3,959
Interest & other
income (82) 103 - 103 - 21
Interest expense (2,747) - (15) (15) - (2,762)
-------------------------------------------------------------------------------------------
Income (loss) before
income taxes (3,778) 2,676 2,320 4,996 - 1,218
Minority interest - (35) - (35) (1,396) (1,431)
Income tax expense (80) - - - - (80)
Earnings of subsidiaries 1,246 - - - (1,246) -
-------------------------------------------------------------------------------------------
Net income (loss) $ (2,612) $ 2,641 $ 2,320 $ 4,961 $ (2,642) $ (293)
========= ========= ========= ========= ========= =========
</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.
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 second quarter of 2000 and 1999, no customer represented ten
percent or more of the Company's revenue or operating profit.
16
<PAGE>
Summarized financial information by industry segment is as follows:
<TABLE>
<CAPTION>
For the three months For the six months
ended June 30, ended June 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 $19,873 $15,884 $36,632 $29,110
Information Services 14,727 10,165 27,111 20,121
------- ------- ------- -------
34,600 26,049 63,743 49,231
======= ======= ======= =======
OPERATING INCOME:
Business to Business Communications 2,631 2,573 5,721 4,372
Information Services 2,485 2,334 5,679 4,662
----- ----- ----- -----
Operating profit from segments 5,116 4,907 11,400 9,034
Corporate expenses, net (1,058) (927) (1,697) (1,939)
Interest expense (3,372) (2,762) (6,204) (5,415)
------- ------- ------- -------
Income before income taxes & minority interest $ 686 $ 1,218 $ 3,499 $ 1,680
======= ======= ======= =======
DEPRECIATION AND AMORTIZATION:
Business to Business Communications $ 2,253 $ 1,138 $ 3,460 $ 1,961
Information Services 1,567 892 2,532 1,767
Corporate 122 125 252 252
------- ------- ------- -------
$ 3,942 $ 2,155 $ 6,244 $ 3,980
======= ======= ======= =======
CAPITAL EXPENDITURES:
Business to Business Communications $ 1,180 $ 468 $ 2,161 $ 957
Information Services 1,038 972 1,522 1,603
Corporate 12 25 13 62
------- ------- ------- -------
$ 2,230 $ 1,465 $ 3,696 $ 2,622
======= ======= ======= =======
IDENTIFIABLE ASSETS AT JUNE 30 AND DECEMBER 31: 2000 1999
---- ----
Business to Business Communications $87,139 $48,928
Information Services 59,023 34,830
Corporate 19,728 38,372
-------- ------
$165,890 $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 $22,650,000, 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 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, 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, the expected period of benefit.
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
17
<PAGE>
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, the expected period
of benefit.
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, 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,
with approximately $15.2 million paid in cash with 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. The company intends to account for these
transactions under the purchase method of accounting and 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 May 31, 2000, the Company, through Galaxy (now ExpoExchange), acquired
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,
representing approximately 20% of Holdings LLC's interest in Galaxy. The
company intends to account for this transaction under the purchase method
of accounting and is in the process of valuing the assets acquired. The
Company also purchased an equity interest in 3MC for $5 million. As a
result of this transaction, the Company recorded approximately $30.0 million
increase in minority interest on the issuance of 6,133,590 non-voting LLC
units of Galaxy representing the difference between Holding LLC's equity
interest in Galaxy before and after the transaction. A preliminary
independent valuation has valued identifiable intangible assets at $6.7
million and goodwill at $23.0 million. These intangible assets and goodwill
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.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
ended June 30, ended June 30,
-------------- --------------
2000 1999 2000 1999
---- ---- ---- ----
(In thousands)
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 34,875 $ 27,713 $ 66,465 $ 54,159
Net loss $ (2,969) $ (760) $ (3,618) $ (1,175)
EBITDA $ 6,129 $ 5,250 $ 12,841 $ 10,171
</TABLE>
18
<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) ExpoExchange, LLC (formerly Galaxy
Information Services, LLC), one of the largest independent provider 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.
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.
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.
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.
19
<PAGE>
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 May 31, 2000, the Company acquired 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. ExpoExchange 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. The
Company also purchased an equity interest in 3MC for $5 million.
RESULTS OF OPERATION
Revenues. Revenues for the three and six month periods ended June 30, 2000
totaled $34.6 million and $63.7 million, respectively, an increase of $8.6
million (33%) and $14.5 million (30%) over the same periods in 1999.
Business-to-Business Communications segment Revenue totaled $19.9 million and
$36.6 million for the three and six months ended June 30, 2000, respectively, an
increase of $4.0 million (25%) and $7.5 million (26%) over the same 1999
periods. At ExpoExchange, increased demand for registration and exhibitor
services (up 33% for the six month period) and the growth of new lead management
and interactive services contributed $ 3.7 million to the first half revenue
growth and inclusion of ITS (acquired May 1, 1999) contributed $5.6 million.
Deconsolidation of Galaxy Europe resulted in $1.1 million less revenue during
the first half of 2000 as compared with first half of 1999. At Atwood, increased
demand for all product lines except Digital produced a 14% increase in net
revenue during the first six 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 and lower participation at regional
trade shows. For the first half of 2000, net revenue at GEM's domestic and
international publications declined $630,000 (16%) compared with the same 1999
period. Cancellation of Western Gaming Congress, weak attendance at several
regional shows and postponement of Gaming for Africa Conference & Expo resulted
in a $767,000 decline in net revenue from GEM trade shows during the first half
of 2000 compared with the same period in 1999.
The Information Services segment produced revenue of $14.7 million and $27.1
million for the three and six month periods ended June 30, 2000, respectively,
an increase of $4.6 million (45%) and $7.0 million (35%) compared with the same
periods in 1999. TISI's first half 2000 revenue increased 70% over the same 1999
period, due principally to increased pre-employment screening volume at DAC, as
compared to the prior year, and inclusion of RSI (acquired August 31, 1999), STA
(acquired January 31, 2000) and USMA (acquired March 15, 2000) which together
added $9.2 million to revenue growth. Exclusion of Corsearch (sold November 11,
1999) resulted in $4.2 million less revenue in the first half 2000 compared with
first half 1999.
Operating Costs. Operating Costs increased $3.9 million (33%) and $5.6
million (25%) during the three and six months ended June 30, 2000, respectively,
compared with the same periods in 1999. Business-to-Business Communications
segment first half 2000 Operating Costs increased $3.0 million (19%) on 26%
higher revenue compared with first half 1999. Growth was attributable
principally to increased volume at ExpoExchange and Atwood, offset partially by
lower costs associated with lower volume at GEM.
Information Services segment Operating Costs increased 38% during the first
half of 2000 compared with the first half of 1999. 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.
General and Administrative Expenses. General and Administrative Expenses
increased $2.5 million (32%) and $3.9 million (25%) during the three and six
month periods ended June 30, 2000, respectively, compared with the same periods
of 1999. During the first half 2000, compared with the same 1999 period, higher
general and administrative expenses were attributable principally to the
inclusion of RSI ($1.4 million), STA ($670,000),
20
<PAGE>
USMA ($650,000) and ExpoExchange ($460,000); increased corporate infrastructure
($2.4 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 $1.8
million (83%) and $2.3 million (57%) during the three and six month periods
ended June 30, 2000 compared with the same periods in 1999. During the first
half 2000, the increase resulted principally from prior period expenditures to
acquire data, expand exposition and trade show capacity, upgrade information
technology and increased fixed and intangible assets associated with the
acquisitions of RSI, STA, USMA, and ExpoExchange offset partially by exclusion
of Corsearch.
Interest Expense. Interest Expense totaled $3.6 million and $6.3 million for
the three and six month periods ended June 30, 2000, respectively. Interest
Expense results primarily from debt incurred in connection with the
Recapitalization.
EBITDA. EBITDA totaled $8.2 million and $16.1 million during the three and
six month periods ended June 30, 2000, respectively, an increase of $2.1 million
(34%) and $5.0 million (45%), respectively, over the same periods in 1999. The
increase during the first half 2000 resulted from higher EBITDA in the
Business-to-Business Communications segment (up $2.8 million - 45%) and the
Information Services segment (up $1.8 million - 28%), 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.
21
<PAGE>
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, 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.
On May 31, 2000, the Company acquired 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. The Company also
purchased an equity interest in 3MC for $5 million.
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. 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 June 30, 2000, the Company had $15.9 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
22
<PAGE>
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 $8.6 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.
In March 2000, FASB Interpretation No. 44 - "Accounting for Certain
Transactions involving Stock Compensation, an interpretation of APB Opinion No.
25" (FIN 44) was issued. FIN 44 clarifies the application of APB No. 25
regarding (a) the definition of EMPLOYEE for purposes of appling ABP No. 25, (b)
the criteria for determining whether the plan qualifies as a non-compensatory
plan, (c) the accounting consequence of various modifications to the terms of a
previously fixed stock option or award, and (d) the accounting for an exchange
of stock compensation awards in a business combination. FIN 44 does not address
the application of the fair value method of FASB Statement No. 123. This
interpretation is effective July 1, 2000, but certain conclusions of this
Interpretation cover specific events that occur after either December 15, 1998,
or January 12, 2000. To the extent that this Interpretation covers events
occurring during the period after December 31, 1998 or January 12, 2000, but
before the effective date of July 1, 2000, the effects of applying this
Interpretation are recognized on a prospective basis from July 1, 2000. The
Company believes the adoption of FIN 44 will not have a significant effect on
its consolidated financial statements.
FORWARD-LOOKING STATEMENTS
This Quarterly Report for the period ended June 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".
23
<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 June 15, 2000, the registrant filed a current report on Form 8-K that
reported on the acquisition of the assets of the E-Products Division of 3MC.
(Item 2 and 7). An amendment to the initial report is required to be filed by
August 14, 2000 including the financial statements required by Item 7.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: August 14, 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
