<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2
TO
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
[NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 0-19598
---------------------
AMERICAN BUSINESS INFORMATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 47-0751545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
(Address of principal executive offices)
(402) 593-4500
(Registrant's telephone number, including area code)
---------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $0.0025 PAR VALUE
CLASS B COMMON STOCK, $0.0025 PAR VALUE
SERIES A PREFERRED SHARE PURCHASE RIGHTS
SERIES B PREFERRED SHARE PURCHASE RIGHTS
---------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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 [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, based upon the closing sale price of the Class A Common Stock and
Class B Common Stock on March 18, 1998 as reported on the NASDAQ National Market
System, was approximately $332 million. Shares of Common Stock held by each
officer and director and by each person who owns 5% or more of the outstanding
Class A Common Stock or Class B Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 18, 1998 registrant had outstanding 24,661,161 shares of Class A
Common Stock and 24,661,161 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
The company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on May 22, 1998, which will be filed within 120 days of
the end of fiscal year 1997, is incorporated into Part III hereof by reference.
================================================================================
<PAGE> 2
POWER OF ATTORNEY
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Amendment to the Annual Report on Form 10-K has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ VINOD GUPTA
- -----------------------------------------------------
Vinod Gupta Chairman of the Board March 31, 1998
/s/ SCOTT DAHNKE
- ----------------------------------------------------- Chief Executive Officer
Scott Dahnke (principal executive officer) March 31, 1998
/s/ JON H. WELLMAN
- ----------------------------------------------------- President and Chief Operating
Jon H. Wellman Officer March 31, 1998
Chief Financial Officer
/s/ STEVEN PURCELL (principal financial officer
- ----------------------------------------------------- and principal accounting
Steven Purcell officer) March 31, 1998
/s/ JON D. HOFFMASTER
- -----------------------------------------------------
Jon D. Hoffmaster Director March 31, 1998
/s/ GAUTAM GUPTA
- -----------------------------------------------------
Gautam Gupta Director March 31, 1998
/s/ ELLIOT S. KAPLAN
- -----------------------------------------------------
Elliot S. Kaplan Director March 31, 1998
/s/ HAROLD ANDERSEN
- -----------------------------------------------------
Harold Andersen Director March 31, 1998
/s/ GEORGE F. HADDIX
- -----------------------------------------------------
George F. Haddix Director March 31, 1998
/s/ PAUL A. GOLDNER
- -----------------------------------------------------
Paul A. Goldner Director March 31, 1998
/s/ GEORGE J. KUBAT
- -----------------------------------------------------
George J. Kubat Director March 31, 1998
By: /s/ STEVEN PURCELL
-------------------------------------------------
Steven Purcell
Attorney-in-fact
</TABLE>
28
<PAGE> 3
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
American Business Information, Inc. and Subsidiaries:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-4
Consolidated Statements of Stockholders' Equity for the
Periods Ended December 31, 1997, 1996 and 1995......... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
</TABLE>
F-1
<PAGE> 4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
American Business Information, Inc.:
We have audited the consolidated balance sheets of American Business
Information, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Business Information, Inc. and subsidiaries as of December 31, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
January 23, 1998, except for note 18,
as to which the date is March 31, 1998
F-2
<PAGE> 5
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 10,653 $ 7,497
Marketable securities..................................... 24,045 22,810
Trade accounts receivable, net of allowances of $6,013 and
$2,724, respectively................................... 49,409 29,630
Income taxes receivable................................... 345 1,105
Prepaid expenses.......................................... 3,475 3,267
Deferred marketing costs.................................. 3,417 1,263
-------- --------
Total current assets.............................. 91,344 65,572
-------- --------
Property and equipment, net................................. 25,117 18,886
Intangible assets, net of accumulated amortization.......... 73,741 17,410
Deferred income taxes....................................... 1,410 5,388
Other assets................................................ 3,299 621
-------- --------
$194,911 $107,877
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 716 $ 708
Payable to shareholders................................... 1,871 7,925
Accounts payable.......................................... 9,426 5,520
Accrued payroll expenses.................................. 4,910 2,352
Accrued expenses.......................................... 5,406 711
Deferred revenue.......................................... 4,238 2,117
Deferred income taxes..................................... 4,770 512
-------- --------
Total current liabilities......................... 31,337 19,845
-------- --------
Long-term debt, net of current portion...................... 81,284 427
Other liabilities........................................... 2,054 --
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares;
none issued or outstanding............................. -- --
Class A common stock, $.0025 par value. Authorized
220,000,000 shares; 24,460,332 shares issued and
outstanding at December 31, 1997 and 22,100,960 shares
issued and outstanding at December 31, 1996............ 61 --
Class B common stock, $.0025 par value. Authorized
75,000,000 shares; 24,625,332 shares issued and
24,460,332 shares outstanding at December 31, 1997 and
22,265,960 shares issued and 22,100,960 shares
outstanding at December 31, 1996....................... 62 55
Paid-in capital........................................... 69,055 37,268
Retained earnings......................................... 13,126 52,942
Treasury stock, at cost, 165,000 shares of Class B common
stock held at December 31, 1997 and 1996............... (2,281) (2,281)
Unrealized holding gain (loss), net of tax................ 213 (379)
-------- --------
Total stockholders' equity........................ 80,236 87,605
-------- --------
$194,911 $107,877
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 6
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $193,327 $108,298 $86,766
Costs and expenses:
Database and production costs....................... 55,090 29,272 23,999
Selling, general and administrative................. 80,203 45,766 37,724
Depreciation and amortization....................... 34,415 4,855 3,469
Acquisition-related charges......................... 56,098 21,500 --
-------- -------- -------
225,806 101,393 65,192
-------- -------- -------
Operating income (loss)............................... (32,479) 6,905 21,574
Other income (expense):
Investment income................................... 3,748 3,194 1,322
Interest expense.................................... (4,098) (209) (157)
Other............................................... -- (943) --
-------- -------- -------
Income (loss) before income taxes and discontinued
operations.......................................... (32,829) 8,947 22,739
Income taxes.......................................... 6,987 3,400 8,421
-------- -------- -------
Income (loss) from continuing operations.............. (39,816) 5,547 14,318
Loss on discontinued operations....................... -- (355) (2,317)
Loss from abandonment of subsidiary................... -- (1,373) --
-------- -------- -------
Net income (loss)..................................... $(39,816) $ 3,819 $12,001
======== ======== =======
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.35
Loss on discontinued operations and abandonment of
subsidiary....................................... -- (0.04) (0.06)
-------- -------- -------
Net income (loss)................................... $ (0.82) $ 0.09 $ 0.29
======== ======== =======
Weighted average shares outstanding................... 48,432 42,065 41,475
======== ======== =======
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.34
Loss on discontinued operations and abandonment of
subsidiary....................................... -- (0.04) (0.06)
-------- -------- -------
Net income (loss)................................... $ (0.82) $ 0.09 $ 0.28
======== ======== =======
Weighted average shares outstanding................... 48,432 42,390 42,136
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 7
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B UNREALIZED TOTAL
COMMON COMMON PAID-IN RETAINED TREASURY HOLDING STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK GAIN (LOSS) EQUITY
------- ------- ------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994............... $-- $34 $26,573 $36,936 $ -- $(217) $ 63,326
Issuance of 188,250 shares of common
stock................................... -- -- 786 -- -- -- 786
Unrealized holding loss, net of tax....... -- -- -- -- -- (29) (29)
3 for 2 stock split....................... -- 17 (17) -- -- -- --
Net income................................ -- -- -- 12,001 -- -- 12,001
--- --- ------- -------- ------- ----- --------
Balances, December 31, 1995............... -- 51 27,342 48,937 -- (246) 76,084
Issuance of 2,441,950 shares of common
stock................................... -- 3 9,628 -- -- -- 9,631
Issuance of 1,120,000 shares of common
stock in pooling-of-interests
transaction............................. -- 1 86 186 -- -- 273
Tax benefit related to employee stock
options................................. -- -- 212 -- -- -- 212
Acquisition of treasury stock............. -- -- -- -- (2,281) -- (2,281)
Unrealized holding loss, net of tax....... -- -- -- -- -- (133) (133)
Net income................................ -- -- -- 3,819 -- -- 3,819
--- --- ------- -------- ------- ----- --------
Balances, December 31, 1996............... -- 55 37,268 52,942 (2,281) (379) 87,605
Issuance of 4,718,744 shares of common
stock................................... -- 7 31,261 -- -- -- 31,268
Tax benefit related to employee stock
options................................. -- -- 587 -- -- -- 587
2 for 1 stock dividend.................... 61 -- (61) -- -- -- --
Unrealized holding gain, net of tax....... -- -- -- -- -- 592 592
Net loss.................................. -- -- -- (39,816) -- -- (39,816)
--- --- ------- -------- ------- ----- --------
Balances, December 31, 1997............... $61 $62 $69,055 $13,126 $(2,281) $ 213 $ 80,236
=== === ======= ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 8
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(39,816) $ 3,819 $ 12,001
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 34,415 4,855 3,469
Deferred income taxes.......................... (2,787) (6,307) 662
Impairment of other assets..................... -- 740 630
Loss on discontinued operations and abandonment
of subsidiary................................ -- 2,788 1,833
Net realized (gains) losses on sale of
marketable securities and other
investments.................................. (2,560) (1,267) 339
Acquisition-related charges.................... 56,098 21,500 --
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable.................... (7,445) (7,762) (4,108)
Prepaid expenses............................. 287 (1,117) (796)
Deferred marketing costs..................... (2,154) (267) (996)
Accounts payable............................. (4,854) (1,422) 2,480
Income taxes receivable and payable.......... 7,283 (128) (1,330)
Accrued expenses............................. (8,211) (3,111) 1,635
-------- -------- --------
Net cash provided by operating
activities.............................. 30,256 12,321 15,819
Cash flows from investing activities:
Proceeds from sales of marketable securities...... 19,596 18,865 15,787
Purchases of marketable securities................ (17,448) (17,348) (24,792)
Purchase of other investments..................... (2,000) -- --
Purchases of property and equipment............... (8,882) (6,755) (3,554)
Acquisitions of businesses, including minority
interest....................................... (84,224) (6,484) (1,174)
Consumer database costs........................... (3,398) (494) --
Software development costs........................ (2,898) (1,955) (512)
Other............................................. (678) 347 (660)
-------- -------- --------
Net cash used in investing activities..... (99,932) (13,824) (14,905)
Cash flows from financing activities:
Repayment of long-term debt....................... (7,193) (1,450) (3,192)
Proceeds from long-term debt...................... 86,000 -- --
Deferred financing costs.......................... (388) -- --
Repayment of note payable to shareholders......... (7,925) -- --
Acquisition of treasury stock..................... -- (2,281) --
Deferred offering costs........................... (339) -- --
Proceeds from exercise of stock options........... 2,090 520 786
Tax benefit related to employee stock options..... 587 212 --
-------- -------- --------
Net cash provided by (used in) financing
activities.............................. 72,832 (2,999) (2,406)
Net increase (decrease) in cash and cash
equivalents....................................... 3,156 (4,502) (1,492)
Cash and cash equivalents, beginning................ 7,497 11,999 13,491
-------- -------- --------
Cash and cash equivalents, ending................... $ 10,653 $ 7,497 $ 11,999
======== ======== ========
Supplemental cash flow information:
Interest paid..................................... $ 3,616 $ 78 $ 165
======== ======== ========
Income taxes paid................................. $ 7,443 $ 8,280 $ 8,226
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 9
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
American Business Information, Inc. (ABI) and its subsidiaries, (the
Company), provides business and consumer marketing information products and data
processing services throughout the United States and Canada. These products
include customized business lists, business directories and other information
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates and Assumptions. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation. The consolidated financial statements include
the accounts of ABI and its subsidiaries. Intercompany accounts and transactions
have been eliminated.
Revenue Recognition. The Company's revenue is primarily generated from the
sale of its products and services and the licensing of its data to third
parties. Revenue from the sale of products and services is generally recognized
when the product is delivered or the services are performed. A portion of
revenue from data licensing is recognized at the time the initial set of data is
delivered, with the remaining portion being deferred and recognized over the
license term as the Company provides updated information. Reserves are
established for estimated returns and uncollectible amounts.
Database Costs. Costs to maintain and enhance the Company's business
database are expensed as incurred. Costs to develop new databases are
capitalized and amortized upon the successful completion of the compilation
project, over a period not to exceed 5 years. The Company is currently
capitalizing costs associated with a compilation project to create a new
consumer database. Costs incurred as of December 31, 1997 related to the
database compilation effort totaled approximately $3.9 million, and are included
in intangible assets in the accompanying consolidated balance sheets.
Advertising Costs. Certain direct-response advertising costs are
capitalized and amortized over periods that correspond to the estimated revenue
stream of the individual advertising activity. All other advertising costs are
expensed as the advertising takes place. Total unamortized marketing costs at
December 31, 1997 and 1996, was $3.4 million and $1.3 million, respectively.
Total advertising expense for the years ended December 31, 1997, 1996, and 1995
was $15.9 million, $11.0 million, and $10.8 million, respectively.
Software Capitalization. Until technological feasibility is established,
software development costs are expensed as incurred. After that time, direct
costs are capitalized and amortized using the straight-line method over the
estimated economic life, generally one to four years. Unamortized software costs
included in intangible assets at December 31, 1997 and 1996, was $1.9 million
and $1.4 million, respectively. Amortization of capitalized costs during the
years ended December 31, 1997, 1996 and 1995, totaled approximately $2.5
million, $1.0 million, and $81 thousand, respectively.
Income taxes. The Company recognizes income taxes using the liability
method, under which deferred tax assets and liabilities are determined based on
the difference between financial and tax bases of assets and liabilities using
enacted tax rates.
Earnings Per Share. Statement of Financial Accounting Standards No. 128,
Earnings Per Share, was issued in February 1997 and is effective for financial
statements issued for fiscal periods ending after December 15, 1997. The
standard revises the calculation and presentation of earnings per share and
requires the presentation of "basic earnings per share" and "diluted earnings
per share."
F-7
<PAGE> 10
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Basic earnings per share are based on the weighted average number of common
shares outstanding, including contingently issuable shares, which have been
restated to account for the stock dividend (See Note 17). Diluted earnings per
share are based on the weighted number of common shares outstanding, including
contingently issuable shares, plus dilutive potential common shares outstanding
(representing outstanding stock options).
The following data show the amounts used in computing earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock. Options on 1.1 million shares of common stock were not included in
computing diluted earnings per share for 1997 because their effects were
antidilutive.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average number of shares outstanding used in
basic EPS............................................. 48,432 42,065 41,475
Net additional common equivalent shares outstanding
after assumed exercise of stock options............... -- 325 661
------ ------ ------
Weighted average number of shares outstanding used in
diluted EPS........................................... 48,432 42,390 42,136
====== ====== ======
</TABLE>
Invested Cash. Cash equivalents, consisting of highly liquid debt
instruments that are readily convertible to known amounts of cash and when
purchased have an original maturity of three months or less, are carried at cost
which approximates fair value. Marketable securities have been classified as
available-for-sale and are therefore carried at fair value, which are estimated
based on quoted market prices. Net unrealized gains and losses are reported as a
separate component of stockholders' equity. Unrealized and realized gains and
losses are determined by specific identification.
Property and Equipment. Property and equipment (including equipment
acquired under capital leases) are stated at cost and are depreciated or
amortized primarily using straight-line methods over the estimated useful lives
of the assets, as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................. 30 years
Office furniture and equipment.............................. 5 to 7 years
Computer equipment.......................................... 5 years
Capitalized equipment leases................................ 5 years
</TABLE>
Intangibles. Intangible assets are stated at cost and are amortized using
the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<S> <C>
Goodwill.................................................... 8 to 15 years
Distribution networks....................................... 2 years
Noncompete agreements....................................... Term of agreements
Purchased data processing software.......................... 2 years
Acquired database costs..................................... 1 year
Core technology costs....................................... 3 years
Customer base costs......................................... 3 years
Tradename costs............................................. 10 years
Perpetual software license agreement........................ 10 years
Software development costs.................................. 1 to 4 years
</TABLE>
F-8
<PAGE> 11
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, the Company shortened the lives for goodwill and distribution
networks in recognition of more rapid changes in the businesses acquired to 8
years and 2 years, respectively. Prior to 1996, goodwill and distribution
networks were amortized over 30 and 15 years, respectively.
All of the Company's long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future cash flows is less than the
carrying amount of the asset, a loss is recognized.
Reclassifications. Certain reclassifications were made to the 1996 and 1995
financial statements to conform to the 1997 presentation.
3. ACQUISITIONS
Effective August 1996, the Company acquired certain assets and assumed
certain liabilities of Digital Directory Assistance, Inc. (DDA), a publisher of
PhoneDisc CD-ROM products. The total purchase price was approximately $16.9
million of which $4.0 million was paid in September 1996, $7.9 million in the
form of a promissory note issued to the sellers paid in January 1997, and the
remaining amount through the issuance of 600,000 unregistered shares of the
Company's Class A Common Stock and 600,000 unregistered shares of the Company's
Class B Common Stock. The acquisition was accounted for under the purchase
method of accounting. In addition to purchased in-process research and
development costs of $10.0 million (See Note 16), goodwill recorded as part of
the purchase was $10.0 million, which is being amortized over 8 years.
Effective November 1996, the Company acquired the common stock of County
Data Corporation (CDC), a national new business database compiler. Total
consideration for the acquisition was 560,000 unregistered shares of the
Company's Class A Common Stock and 560,000 unregistered shares of the Company's
Class B Common Stock. The acquisition was accounted for under the
pooling-of-interests method of accounting. The accompanying consolidated
financial statements have not been restated to reflect this acquisition, as the
net sales and net income of CDC were not significant for the periods presented.
Effective November 1996, the Company acquired certain assets and assumed
certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data
warehousing, research and analysis services for target marketing applications to
Fortune 1000 companies. Total consideration for the acquisition was $2.4
million, consisting of $1.0 million in cash and 118,000 unregistered shares of
the Company's Class A Common Stock and 118,000 shares of the Company's Class B
Common Stock. The acquisition has been accounted for under the purchase method
of accounting. Substantially all of the purchase price was allocated to goodwill
which is being amortized over 8 years.
Effective December 1996, the Company acquired all of the Common Stock of
Kadobec Investments, Inc., (operating as B.J. Hunter), which provides lead
generation products in Canada. Total consideration for the acquisition was $3.1
million, consisting of $876 thousand in cash and 150,000 unregistered shares of
the Company's Class A Common Stock and 150,000 shares of the Company's Class B
Common Stock. The acquisition has been accounted for under the purchase method
of accounting. The Company allocated substantially all of the purchase price to
goodwill which is being amortized over 8 years.
Effective February 1, 1997, the Company acquired all issued and outstanding
common stock of DBA Holdings, Inc. and Subsidiaries (operating as Database
America Companies, or DBA), a provider of data processing and analytical
services for marketing applications, and compiler of information on consumers
and businesses in the United States. Total consideration, as adjusted, for the
acquisition was approximately $103.5 million, consisting of $75.0 million in
cash, partially funded using a revolving credit facility (See Note 7), and
approximately 2.3 million unregistered shares of the Company's Class A Common
Stock and 2.3 million unregistered shares of the Company's Class B Common Stock.
In October 1997, the Company and the former stockholders of DBA agreed to a
purchase price adjustment, pursuant to which the Company agreed to issue to the
former DBA stockholders an additional 139,829 unregistered shares of its Class A
Common Stock
F-9
<PAGE> 12
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and 139,829 unregistered shares of its Class B Common Stock. As of December 31,
1997, these additional shares of the Company's stock had not been issued to the
former DBA shareholders, and this liability of approximately $1.9 million is
included in payable to shareholders in the accompanying consolidated balance
sheets. The acquisition has been accounted for under the purchase method of
accounting. In addition to purchased in-process research and development costs
of $49.2 million (See Note 16), intangibles and goodwill recorded as part of the
purchase included acquired database costs of $19.0 million, purchased data
processing software of $9.4 million, noncompete agreements of $1.7 million and
goodwill of $20.8 million. Goodwill is being amortized over 15 years.
Effective August 1997, the Company acquired certain assets and assumed
certain liabilities of Pro CD, Inc. (Pro CD) from Acxiom Corporation (Acxiom), a
provider of telephone directory and other business software products on CD-ROM
to consumers. The acquisition has been accounted for under the purchase method
of accounting. Total consideration for the acquisition was $18 million in cash,
funded using a revolving credit facility (See Note 7). In conjunction with the
acquisition of Pro CD, the Company entered into a Data License Agreement with
Acxiom in which Acxiom will pay to the Company $8 million over a two year
period. Additionally, the Company entered into a Technology License Agreement
with Acxiom in which the Company will pay to Acxiom $8 million over a two year
period. In addition to purchased in-process research and development costs of
$4.3 million (See Note 16), intangibles and goodwill recorded as part of the
purchase included core technology, customer base, and tradename costs totaling
$5.9 million, noncompete agreements of $5.2 million and goodwill of $6.2
million. Goodwill is being amortized over 10 years.
Operating results for each of these acquisitions are included in the
accompanying consolidated statements of operations from the respective
acquisition dates. Assuming the above described companies had been acquired on
January 1, of the year preceding the acquisition, and excluding the write-offs
of in-process research and development costs, unaudited pro forma consolidated
revenues, net income (loss) and net income (loss) per share would have been as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales................................. $206,578 $187,325 $101,404
Net income (loss)......................... $ 29,187 $(26,054) $ 9,564
Basic earnings (loss) per share........... $ 0.60 $ (0.53) $ 0.22
Diluted earnings (loss) per share......... $ 0.60 $ (0.53) $ 0.21
</TABLE>
The pro forma information provided above does not purport to be indicative
of the results of operations that would actually have resulted if the
acquisitions were made as of those dates or of results which may occur in the
future.
F-10
<PAGE> 13
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GROSS GAIN GROSS LOSS VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1997
Municipal bonds.......................... $ 824 $ 1 $ (2) $ 823
Corporate bonds.......................... 2,459 4 (66) 2,397
Common stock............................. 20,372 1,429 (1,030) 20,771
Preferred stock.......................... 47 7 -- 54
------- ------ ------- -------
$23,702 $1,441 $(1,098) $24,045
======= ====== ======= =======
At December 31, 1996
Municipal bonds.......................... $11,450 $ 35 $ (132) $11,353
U.S. government and agency............... 808 7 (5) 810
Corporate bonds.......................... 5,751 17 (58) 5,710
Common stock............................. 5,365 18 (496) 4,887
Preferred stock.......................... 47 3 -- 50
------- ------ ------- -------
$23,421 $ 80 $ (691) $22,810
======= ====== ======= =======
</TABLE>
Scheduled maturities of marketable debt securities at December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
LESS THAN ONE TO FIVE TO MORE THAN
1 YEAR 5 YEARS 10 YEARS 10 YEARS
--------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Municipal bonds............................. $ 82 $ 251 $-- $491
Corporate bonds............................. 1,111 1,286 -- --
------ ------ --- ----
$1,193 $1,537 $-- $491
====== ====== === ====
</TABLE>
For the year ended December 31, 1997, proceeds from sales of marketable
securities approximated $19.6 million while realized gains totaled $2.6 million
and realized losses totaled $86 thousand. For the year ended December 31, 1996,
proceeds approximated $18.9 million while realized gains totaled $1.6 million
and realized losses totaled $343 thousand.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements...................................... $ 1,733 $ 1,220
Buildings and improvements................................. 13,040 9,084
Furniture and equipment.................................... 26,608 21,597
Capitalized equipment leases............................... 2,014 1,437
------- -------
43,395 33,338
Less accumulated depreciation and amortization:
Owned property........................................... 17,502 14,188
Capitalized equipment leases............................. 776 264
------- -------
Property and equipment, net........................... $25,117 $18,886
======= =======
</TABLE>
The Company has entered a commitment to construct an additional facility in
Papillion, Nebraska, near the existing Company's Ralston, Nebraska, location.
The estimated cost of the project is $8 million and is
F-11
<PAGE> 14
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
anticipated to be completed in mid 1998. The Company anticipates funding the
project with cash flows from operations and a revolving credit facility.
Under the terms of its capital lease agreements, the Company is required to
pay ownership costs, including taxes, licenses and maintenance. The Company also
leases office space under operating leases expiring at various dates through
October 2007. Certain of these leases contain renewal options. Rent expense was
$2.6 million, $952 thousand, and $593 thousand in the years ended December 31,
1997, 1996 and 1995, respectively.
Following is a schedule of the future minimum lease payments as of December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998........................................................ $ 750 $2,541
1999........................................................ 245 1,972
2000........................................................ 70 710
2001........................................................ -- 362
2002........................................................ -- 167
------ ------
Total future minimum lease payments......................... 1,065 $5,752
======
Less amounts representing interest.......................... 65
------
Present value of net minimum lease payments................. $1,000
======
</TABLE>
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill................................................... $ 44,598 $19,093
Noncompete agreements...................................... 6,925 --
Core technology............................................ 1,100 --
Customer base.............................................. 1,100 --
Tradename.................................................. 3,700 --
Purchased data processing software......................... 9,400 --
Acquired database costs.................................... 19,000 --
Perpetual software license agreement....................... 8,000 --
Software development costs................................. 1,865 1,955
Consumer database costs.................................... 3,892 494
Other deferred costs....................................... 1,662 --
-------- -------
101,242 21,542
Less accumulated amortization.............................. 27,501 4,132
-------- -------
$ 73,741 $17,410
======== =======
</TABLE>
F-12
<PAGE> 15
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Uncollateralized bank revolving line of credit, provides
for maximum borrowings of $100 million at December 31,
1997. Facility provides for borrowings with interest at
bank's base rate or LIBOR plus 0.375%-0.625%, based on
the Company's funded debt ratio. The rate in effect at
December 31, 1997 was 6.5%. Principal is due February
2000. Effective July 1997, The Company entered into an
interest rate swap whereby $30 million of outstanding
credit bears a fixed interest rate of 6.74%. The interest
rate swap terminates in July 1999. Interest is payable at
the earliest of the end of each applicable interest
period or quarterly...................................... $78,000 $ --
Uncollateralized bank revolving line of credit, provides
for maximum borrowings of $5 million. Facility provides
for borrowings with interest at bank's LIBOR plus 2.150%
The rate in effect at December 31, 1997 was 8.43%.
Principal is due January 2000. Interest is payable
monthly.................................................. 3,000 --
Bank note assumed in acquisition, repaid in January 1997... -- 225
Computer lease obligations (See Note 5).................... 1,000 910
------- ------
82,000 1,135
Less current portion....................................... 716 708
------- ------
Long-term debt............................................. $81,284 $ 427
======= ======
</TABLE>
Future maturities by calendar year of long-term debt as of December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 716
1999........................................................ $ 210
2000........................................................ $81,074
</TABLE>
The Company is subject to certain financial covenants on the $100 million
revolving credit facility, including maximum funded debt ratio, minimum interest
coverage ratio, and minimum tangible net worth tests. Additionally, the Company
is required to pay an annual commitment fee on the average unused amount of the
facility, ranging from 0.15%-0.25% based on the Company's funded debt ratio.
Interest rate swap agreements are used by the Company to reduce the
potential impact of increases in interest rates on floating-rate long-term debt.
At December 31, 1997, the Company was a party to one interest rate swap
agreement which expires in July 1999. The agreement entitles the Company to
receive from counterparties on a monthly basis the amounts, if any, by which the
Company's interest payments on $30 million of outstanding debt of its $100
million revolving line of credit due in February 2000 exceed 6.74%, and to pay
to counterparties on a monthly basis the amounts, if any, by which the Company's
interest payments on $30 million of outstanding debt of its $100 million
revolving line of credit are less than 6.74%.
F-13
<PAGE> 16
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has not declared or paid any cash dividends on its capital
stock. Pursuant to certain financing arrangements, the Company has agreed not to
pay cash dividends in any four quarter period in excess of the lesser of
$5,000,000 or 25% of net income for such four quarter period.
8. INCOME TAXES
The provision for income taxes on continuing operations consists of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal..................................... $9,163 $ 8,782 $7,101
State....................................... 742 925 658
------ ------- ------
9,905 9,707 7,759
------ ------- ------
Deferred:
Federal..................................... (2,688) (6,159) 615
State....................................... (230) (148) 47
------ ------- ------
(2,918) (6,307) 662
------ ------- ------
$6,987 $ 3,400 $8,421
====== ======= ======
</TABLE>
Loss on discontinued operations and abandonment of subsidiary is presented
net of income tax benefits of $1.1 million in 1996 and $1.3 million in 1995.
The effective income tax rate varied from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision computed at statutory rate of
35%......................................... $(11,490) $3,131 $7,959
State taxes, net.............................. 424 530 401
Amortization of nondeductible intangibles..... 637 29 --
In-process research and development........... 17,220 -- --
Nondeductible expense, nontaxable income and
other....................................... 196 (290) 61
-------- ------ ------
$ 6,987 $3,400 $8,421
======== ====== ======
</TABLE>
F-14
<PAGE> 17
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Marketable securities.................................... $ -- $ 232
Intangible assets........................................ 2,242 5,758
Accrued vacation......................................... 399 291
Accrued expenses......................................... -- 369
Accounts receivable...................................... -- 317
Other assets............................................. 521 521
------- -------
3,162 7,488
------- -------
Deferred tax liabilities:
Accounts receivable...................................... (2,876) --
Marketable securities.................................... (130) --
Depreciation............................................. (1,126) (824)
Prepaid expenses and other............................... (2,390) (1,788)
------- -------
(6,522) (2,612)
------- -------
Net deferred tax asset (liability)......................... $(3,360) $ 4,876
======= =======
</TABLE>
9. STOCK INCENTIVES
As of December 31, 1997, a total of 5.0 million shares of the Company's
Class A Common Stock and 5.0 million shares of the Company's Class B Common
Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1992 Stock Option Plan. In addition,
as of December 31, 1997, a total of 2.0 million shares of the Company's Class A
Common Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1997 Class A Common Stock Option
Plan.
Options are generally granted at the stock's fair market value on the date
of grant, vest generally over a four or five year period and expire five or six
years, respectively, from date of grant. Options issued to shareholders holding
10% or more of the Company's stock are generally issued at 110% of the stock's
fair market value on the date of grant and vest over periods ranging from five
to six years with early vesting if certain financial goals are met. Certain
options issued to directors at the stock's fair market value vested immediately
and expire five years from grant date. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost
has been recognized for the stock option plan. Had compensation cost for the
Company's stock option plan been determined based on the fair value at the grant
date for awards issued in or subsequent to 1995 consistent with the provisions
of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) -- as reported.............. $(39,816) $3,819 $12,001
Net income (loss) -- pro forma................ $(41,503) $3,072 $11,779
Basic earnings (loss) per share -- as
reported.................................... $ (0.82) $ 0.09 $ 0.29
Diluted earnings (loss) per share -- as
reported.................................... (0.82) 0.09 0.28
Basic earnings (loss) per share -- pro
forma....................................... $ (0.86) $ 0.07 $ 0.29
Diluted earnings (loss) per share -- pro
forma....................................... $ (0.86) $ 0.07 $ 0.28
</TABLE>
F-15
<PAGE> 18
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The above pro forma results are not likely to be representative of the
effects on reported net income for future years since options vest over several
years and additional awards generally are made each year.
The fair value of the weighted average of each year's option grants is
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1997, 1996
and 1995: dividend yield of 0%; expected volatility of 19.16% (1997) and 15.52%
(1996 and 1995); risk free interest rate based on the U.S. Treasury strip yield
at the date of grant; and expected lives of 4.0 to 6.0 years.
During 1995, the Company agreed to repurchase, at fair market value,
583,750 shares of common stock from a former officer of the Company for $3.1
million. The charge of $3.1 million is reflected as selling, general and
administrative expense in the accompanying 1995 consolidated statement of
operations. The actual shares were repurchased and retired in 1996. The
following information has been restated to reflect the stock dividend (See Note
17). Each option to purchase shares of common stock outstanding prior to the
Stock Dividend was converted into an option to purchase both, but not either,
shares of Class A Common Stock and Class B Common Stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE
------------------ ----------------- -----------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------ --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of period.......... 5,203,800 $ 7.58 2,913,750 $5.49 2,188,500 $4.33
Granted.................................. 2,799,250 11.81 3,964,000 8.19 996,000 7.69
Exercised................................ 357,250 5.87 (705,950) 4.32 (188,250) 4.18
Forfeited/Expired........................ 167,750 8.95 (968,000) 6.00 (82,500) 4.22
--------- ------ --------- ----- --------- -----
Outstanding end of period................ 7,478,050 $ 9.22 5,203,800 $7.58 2,913,750 $5.49
========= ====== ========= ===== ========= =====
Options exercisable at end of period..... 1,344,550 $ 7.10 585,050 $5.53 757,500 $5.49
========= ====== ========= ===== ========= =====
Shares available for options that may be
granted................................ 1,660,000 2,796,200 886,250
========= ========= =========
Weighted-average grant date fair value of
options, granted during the
period -- exercise price equals stock
market price at grant.................. $ 3.30 $2.00 $1.91
====== ===== =====
Weighted-average grant date fair value of
options granted during the
period -- exercise price exceeds stock
market price at grant.................. $2.10
=====
</TABLE>
F-16
<PAGE> 19
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.80 to $4.09............................. 78,250 0.3 years $ 3.90 78,250 $ 3.90
$4.10 to $5.45............................. 353,800 1.5 years 4.51 247,300 4.50
$5.46 to $6.82............................. 691,500 2.9 years 6.21 247,500 6.06
$6.83 to $8.18............................. 787,500 3.4 years 7.46 172,500 7.54
$8.19 to $9.54............................. 2,901,000 3.6 years 8.67 557,000 8.73
$9.55 to $10.90............................ 324,000 4.2 years 10.40 -- --
$10.91 to $12.27........................... 1,142,000 4.4 years 11.14 42,000 11.06
$12.28 to $13.63........................... 1,200,000 4.7 years 13.00 -- --
--------- --------- ------ --------- ------
$3.80 to $13.63............................ 7,478,050 3.7 years $ 9.22 1,344,550 $ 7.10
========= ========= ====== ========= ======
</TABLE>
10. SAVINGS PLAN
Employees who meet certain eligibility requirements can participate in the
Company's 401(k) Savings and Investment Plan. Under the plan, the Company may,
at its discretion, match a percentage of the employee contributions. The Company
recorded expenses related to its matching contributions of $782 thousand, $115
thousand and $80 thousand in the years ended December 31, 1997, 1996 and 1995,
respectively.
11. RELATED PARTY TRANSACTIONS
Included in other assets at December 31, 1997 and December 31, 1996, are
investments of $71 thousand and $571 thousand, respectively, in companies that
were partially owned by certain members of the Board of Directors of the Company
at the time the investments were made. At December 31, 1997, the remaining
investment included $71 thousand in IDE Corporation. The Company owns less than
10% of either company and accounts for these investments on the cost method.
The Company paid $364 thousand, $48 thousand, and $148 thousand in 1997,
1996 and 1995, respectively, to Annapurna Corporation for consulting services
and related expenses in connection with acquisition activity conducted by the
Company. Annapurna Corporation is 100% owned by a significant stockholder. The
Company also paid $145 thousand, $156 thousand, and $0 in the years ended
December 31, 1997, 1996 and 1995, respectively, to a Director of the Company for
consulting services in connection with acquisition activity conducted by the
Company.
The Company utilizes a law firm of which one member of the Board of
Directors is a partner to the firm. Legal fees paid to the law firm totaled $146
thousand, $91 thousand, and $115 thousand in the years ended December 31, 1997,
1996 and 1995, respectively.
12. DISCONTINUED OPERATIONS
On June 1, 1995, the Company transferred substantially all of the assets
and liabilities of its wholly-owned subsidiary, American Business
Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University.
The Company received $3.0 million in the form of a 7.52% non-recourse promissory
note, due in equal monthly installments through 2005. ABC recorded net sales of
$6.7 million and $2.9 million during 1994 and 1995, respectively.
F-17
<PAGE> 20
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, Baker University defaulted on the note and the Company
abandoned any remaining net assets of the business. As a result, the Company
recorded a loss from abandonment of subsidiary of $1.4 million, net of tax.
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made certain acquisitions in 1997 and 1996 (See Note 3) and
assumed liabilities as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of assets........................................ $134,555 $28,107
Cash paid................................................... (84,224) (6,484)
Promissory note issued...................................... -- (7,925)
Common stock issued......................................... (29,178) (9,382)
-------- -------
Liabilities assumed......................................... $ 21,153 $ 4,316
======== =======
</TABLE>
In conjunction with the transfer of ABC in 1995, approximately $6.8 million
of assets, less liabilities of $1.0 million, were exchanged for a $3.0 million
note receivable. As a result, the Company recognized an impairment of $1.8
million net of tax benefits, which is included in loss on discontinued
operations.
During 1997, the Company acquired computer equipment totaling $577 thousand
under a capital lease obligation (See Note 5).
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1996. Statement
of Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments, defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties.
The carrying amounts shown in the following table are included in the
consolidated balance sheets under the indicated captions.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ------- -------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents................. $10,653 $10,653 $ 7,497 $ 7,497
Marketable securities..................... 23,833 24,045 23,421 22,810
Other assets.............................. 2,071 2,000 621 621
Financial liabilities
Payable to shareholders................... (1,871) (1,871) (7,925) (7,925)
Long-term debt............................ (81,284) (81,284) (427) (427)
Derivatives
Interest rate swaps....................... -- 133 -- --
</TABLE>
F-18
<PAGE> 21
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents and payable to shareholders. The carrying amounts
approximate fair value because of the short maturity of those instruments.
Marketable securities. The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for those or
similar investments.
Other assets, including investments in other companies. Investments in
companies not traded on organized exchanges are valued on the basis of
comparisons with similar companies whose shares are publicly traded.
Long-term debt. Given the short term nature of the revolving lines of
credit as well as the variable rate of interest associated with $78 million of
the outstanding debt at December 31, 1997, fair value approximates carrying
value.
Interest rate swap. The fair value of the interest rate swap was calculated
based on discounted cash flows of the difference between the swap rate and the
estimated market rate for similar terms.
15. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
16. ACQUISITION-RELATED CHARGES
As part of the acquisition of DDA in August 1996 (See Note 3), the Company
recorded acquisition-related charges for purchased in-process research and
development costs totaling $10.0 million for write-offs in conjunction with the
merger of DDA, which related to projects that had not met technological
feasibility. Additionally in 1996, the Company recorded an acquisition-related
charge totaling $11.5 million due to the change in estimated useful lives based
on management's evaluation of the remaining lives of certain intangibles related
to acquisitions prior to 1995.
As part of the acquisition of DBA in February 1997 (See Note 3), the
Company recorded acquisition-related charges totaling $51.8 million for
write-offs in conjunction with the merger of DBA for purchased in-process
research and development costs which related to projects that had not met
technological feasibility ($49.2 million), as well as other related integration
and organizational restructuring costs ($2.6 million).
As part of the acquisition of Pro CD in August 1997 (See Note 3), the
Company recorded acquisition-related charges totaling $4.3 million for
write-offs in conjunction with the merger of Pro CD for purchased in-process
research and development costs which related to projects that had not met
technological feasibility.
17. STOCK RECLASSIFICATION AND STOCK DIVIDEND AND STOCKHOLDERS RIGHTS PLANS
On October 3, 1997, the Company's Board of Directors and shareholders
approved the reclassification of the existing common stock as Class B Common
Stock and authorized 220,000,000 shares of a new Class A Common Stock. The Board
also declared a two-for-one stock split, effected in the form of a stock
dividend of one share of Class A Common Stock for each share of Class B Common
Stock then outstanding. Accordingly all share and per share information has been
restated to reflect the stock split. Each share of Class A Common Stock entitles
the holder to one vote and a non-cumulative dividend of $0.02 per year, when and
as declared by
F-19
<PAGE> 22
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Board of Directors in preference to any dividend on Class B Common Stock.
Each share of Class B Common Stock entitles the holder to ten votes.
On October 3, 1997, the Company adopted a stockholder rights plan with
respect to its Class A Common Stock and adopted certain changes to the plan it
had adopted on July 21, 1997 with respect to its Class B Common Stock, under
which the Board declared a dividend distribution of one Preferred Stock purchase
right to holders of each share of Class A Common Stock and Class B Common Stock.
The rights are not exercisable until ten days after a person or group announces
the acquisition of 15% or more of the Company's voting stock or announces a
tender offer for 15% or more of the Company's outstanding common stock. Each
right entitles the holder to purchase common stock at one half the stock's
market value. The rights are redeemable at the Company's option for $0.001 per
Right at any time on or prior to public announcement that a person has acquired
15% or more of the Company's voting stock. The rights are automatically attached
to and trade with each share of Common Stock.
18. SUBSEQUENT EVENTS
Effective March 1998, the Company acquired certain assets and assumed
certain liabilities of Walter Karl, Inc., a national direct marketing service
firm that provides list management, list brokerage, database marketing and
direct marketing services to a wide array of customers. Total consideration for
the acquisition was approximately $19 million. The acquisition has been
accounted for under the purchase method of accounting. Substantially all of the
purchase price was allocated to goodwill.
On March 17, 1998, the Company filed suit in Delaware court to enjoin a
merger agreement whereby Great Universal Stores, PLC ("GUS") would acquire
Metromail Corporation ("Metromail") for $31.50 per share. On March 20, 1998, GUS
filed a counterclaim against the Company alleging, among other things, that ABI
tortiously interfered with the Merger Agreement and Parent's prospective
business relations with Metromail. The Counterclaim also alleges that the
Company breached a confidentiality agreement entered into by the Company with
Metromail's financial advisor and of which GUS is a third party beneficiary. As
relief, the GUS claim seeks, among other things, injunctive relief and actual,
punitive and other damages in an amount to be determined at trial, estimated by
GUS to exceed $500 million, plus fees and expenses. On March 27, 1998, the
Delaware Chancery Court denied the Company's motion for a preliminary injunction
to block the GUS Merger Agreement. The Company does not believe that the GUS
counterclaim has merit and will vigorously defend the suit, however there can be
no assurance that this matter will be resolved without a material adverse affect
on the Company's financial condition. On March 30, 1998, the Metromail Board of
Directors accepted a proposal to be acquired by GUS for $34.50 per share.
F-20
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
2.1 -- Asset Purchase Agreement between the Company and Digital
Directory Assistance, Inc. is incorporated herein by
reference to exhibits filed with the Company's current
report on Form 8-K dated September 10, 1996.
2.2 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of County Data Corporation is
incorporated herein by reference to exhibits filed with
Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1996.
2.3 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of 3319971 Canada Inc. is
incorporated herein by reference to exhibits filed with
Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 31, 1996.
2.4 -- Agreement and Plan of Reorganization between the Company
and the shareholders of Marketing Data Systems, Inc. is
incorporated herein by reference to the exhibits filed
with the Company's Registration Statement on Form S-3
(File No. 333-36669) filed on October 23, 1997.
2.5 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of DBA Holdings, Inc. is
incorporated herein by reference to exhibits filed with
the Company's Current Report on Form 8-K dated February
28, 1997.
2.6 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of Pro CD, Inc. is incorporated
herein by reference to exhibits filed with the Company's
Current Report on Form 8-K dated September 8, 1997.
2.7 -- Stock Purchase Agreement between the Company and the
shareholders of Walter Karl, Inc. is incorporated herein
by reference to the Company's Current Report on Form 8-K
dated February 24, 1998.
3.1* -- Certificate of Incorporation, as amended through October
3, 1997.
3.2 -- Bylaws are incorporated herein by reference to the
Company's Registration Statement on Form S-1 (File No.
33-42887), which became effective February 18, 1992.
3.3 -- Amended and Restated Certificate of Designations of
Participating Preferred Stock, filed in Delaware on
October 3, 1997, is incorporated herein by reference to
the Company's Registration Statement on From 8-A, (File
No. 97-690893), filed on October 6, 1997.
4.1 -- Rights Plan for Class A Common is incorporated herein by
reference to the Company's Registration Statement on Form
8-A, (File No. 97-690893), filed on October 6, 1997.
4.2 -- Rights Plan for Class B Common is incorporated herein by
reference to the Company's Registration Statement on Form
8-A, (File No. 97-690896), filed on August 6, 1997 and
amended on October 6, 1997.
4.3 -- Specimen of Class A Common Stock Certificate is
incorporated herein by reference to the exhibits filed
with the company's Registration Statement on Form S-3
(File No. 333-36669) filed on October 23, 1997.
4.4* -- Specimen Class B Common Stock Certificate, filed
herewith.
4.5 -- Amended and Restated Credit Agreement between the Company
and First Union National Bank is incorporated herein by
reference to the exhibits filed with the Company's
Current Report on Form 8-K dated September 8, 1997.
4.6 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 hereof.
10.1 -- Form of Indemnification Agreement with Officers and
Directors is incorporated herein by reference to the
exhibits filed with the Company's Registration Statement
on Form S-1 (File No. 33-51352), filed August 28, 1992.
10.2 -- Employment Agreement between the Company and Scott Dahnke
is incorporated herein by reference to the exhibits filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
10.3 -- Employment Agreement between the Company and Gregory Back
is incorporated herein by reference to the exhibits filed
with the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997.
10.5 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, 2.7 and 4.5 hereof.
21.1* -- Subsidiaries and State of Incorporation, filed herewith.
23.1 -- Consent of Independent Accountants, filed herewith.
24.1* -- Power of Attorney (included on signature page)
27.1* -- Financial Data Schedule, filed herewith.
</TABLE>
* Previously filed.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
on Form S-8 (File No. 33-59256) of American Business Information, Inc. of our
report dated January 23, 1998, on our audits of the consolidated financial
statements and financial statement schedule of American Business Information,
Inc. as of December 31, 1997 and 1996, and for each of the three years in the
period ended December 31, 1997, which report is included in this Annual Report
on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
March 31, 1998
