<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment No. 2
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 23, 1999
infoUSA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-19598 47-0751545
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (402)593-4500
NOT APPLICABLE
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
Item 7. Pro forma Financial Information and Financial Statements
(a) Pro Forma financial information
Pro Forma Consolidated Balance Sheet as of June 30, 1999
Pro Forma Consolidated Statement of Operations for the six months
ended June 30, 1999 and the year ended December 31, 1998
Notes to Pro Forma Consolidated Financial Statements
(b) Financial statements of business acquired.
The following consolidated financial statements of DM Holdings, Inc.
and subsidiaries (operating as Donnelley Marketing) are filed with
this report:
Report of Independent Public Accountants
Balance Sheets as of June 30, 1999 and December 31, 1998 and 1997
Statements of Operations and Retained Earnings for the six months
ended June 30, 1999, the years ended December 31, 1998 and 1997,
and the three months ended December 31, 1996
Statements of Cash Flows for the six months ended June 30, 1999, the
years ended December 31, 1998 and 1997, and the three months ended
December 31, 1996
Notes to Financial Statements
(c) Exhibits
23.1 Consent of Independent Accountants, filed herewith.
23.2 Consent of Independent Accountants, filed herewith.
2
<PAGE> 3
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet and statements of
operations give effect to the purchase transaction pursuant to the Agreement and
Plan of Merger dated July 23, 1999 between infoUSA Inc. ("infoUSA") and DM
Holdings, Inc. and subsidiaries (operating as Donnelley Marketing). This
business combination will be accounted for using the purchase method of
accounting.
Pro forma adjustments and the assumptions on which they are based are described
in the accompanying footnotes to the pro forma consolidated financial
statements. The accompanying pro forma consolidated balance sheet as of June 30,
1999 contains those pro forma adjustments necessary to reflect the business
combination as if it was consummated on that date. The accompanying pro forma
consolidated statements of operations for the year ended December 31, 1998 and
the six months ended June 30, 1999 contain those pro forma adjustments necessary
to reflect the business combination as if it was consummated on January 1, 1998.
The unaudited pro forma consolidated financial statements are based upon the
historical financial statements of infoUSA and Donnelley Marketing and should be
read in conjunction with those financial statements and notes thereto appearing
in infoUSA's 1998 Form 10-K and June 30, 1999 Form 10-Q and elsewhere in this
document. The unaudited pro forma consolidated financial data do not purport to
be indicative of the results which would have actually been attained had the
business combination been consummated on the dates indicated or of the results
which may be expected to occur in the future.
3
<PAGE> 4
infoUSA Inc.
Pro Forma Consolidated Balance Sheet
As of June 30, 1999
(Amounts in thousands)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
infoUSA DONNELLEY PRO FORMA PRO FORMA
ASSETS INC. MARKETING ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 38,489 572 (44,343)(h) (5,282)
Marketable securities 15,290 -- -- 15,290
Trade accounts receivable, net 43,364 14,451 -- 57,815
List brokerage trade receivable, net 11,167 -- -- 11,167
Income taxes receivable 147 -- -- 147
Prepaid expenses 3,727 446 -- 4,173
Deferred marketing costs 3,784 -- -- 3,784
-------- ------- ------- -------
Total current assets 115,968 15,469 (44,343) 87,094
Property and equipment, net 42,212 8,381 (2,181)(i) 48,412
Intangible assets, net 102,484 191,895 14,232 (k) 308,611
Other assets 3,529 -- -- 3,529
-------- ------- ------- -------
$264,193 215,745 (32,292) 447,646
======== ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,550 -- -- 2,550
Accounts payable 5,745 2,439 2,250 (j) 10,434
List brokerage trade payable, net 12,225 -- -- 12,225
Accrued payroll expenses 5,455 3,942 -- 9,397
Accrued expenses 4,995 -- -- 4,995
Deferred revenue 5,661 -- -- 5,661
Deferred income taxes 5,728 (1,372) -- 4,356
-------- ------- ------- -------
Total current liabilities 42,359 5,009 2,250 49,618
-------- ------- ------- -------
Long-term debt, net of current portion 118,498 201,444 (36,444)(l) 283,498
Deferred income taxes 6,540 9,844 -- 16,384
Other liabilities -- 1,350 -- 1,350
Stockholders' equity:
Preferred stock -- -- -- --
Common stock:
Class A 62 -- -- 62
Class B 62 -- -- 62
Paid-in capital 73,355 -- -- 73,355
Retained earnings 27,282 (1,902) 1,902 (m) 27,282
Treasury stock (9,442) -- -- (9,442)
Accumulated translation adjustments (634) -- -- (634)
Net unrealized holding gain 6,111 -- -- 6,111
-------- ------- ------- -------
Total stockholder' equity 96,796 (1,902) 1,902 96,796
-------- ------- ------- -------
$264,193 215,745 (32,292) 447,646
======== ======= ======= =======
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
4
<PAGE> 5
infoUSA Inc.
Pro Forma Consolidated Statement of Operations
Six months ended June 30, 1999
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
infoUSA DONNELLEY PRO FORMA PRO FORMA
INC. MARKETING ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 113,093 42,535 3,398 (a) 159,026
---------- ---------- ---------- ----------
Costs and expenses:
Data base and production costs 33,290 21,839 -- 55,129
Selling, general, and administrative 46,098 17,159 (3,111)(b,c,d) 60,146
Depreciation and amortization 11,727 6,392 2,119 (e) 20,238
---------- ---------- ---------- ----------
Total costs and expenses 91,115 45,390 (992) 135,513
---------- ---------- ---------- ----------
Operating income (loss) 21,978 (2,855) 4,390 23,513
---------- ---------- ---------- ----------
Other income (expense):
Investment income 4,188 -- -- 4,188
Interest expense (6,048) (5) (7,128)(f) (13,181)
---------- ---------- ---------- ----------
Total other expense (1,860) (5) (7,128) (8,993)
---------- ---------- ---------- ----------
Income (loss) before income taxes 20,118 (2,860) (2,738) 14,520
Income taxes 8,248 109 745 (g) 9,102
---------- ---------- ---------- ----------
Income (loss) before extraordinary item 11,870 (2,969) (3,483) 5,418
Extraordinary item, net of tax 128 -- -- 128
---------- ---------- ---------- ----------
Net income (loss) $ 11,998 (2,969) (3,483) 5,546
========== ========== ========== ==========
Basic earnings (loss) per share:
Net income (loss) $ 0.25 (0.06) (0.07) 0.12
========== ========== ========== ==========
Average shares outstanding 48,417 48,417 48,417 48,417
========== ========== ========== ==========
Diluted earnings (loss) per share:
Net income (loss) $ 0.25 (0.06) (0.07) 0.12
========== ========== ========== ==========
Average shares outstanding 48,465 48,465 48,465 48,465
========== ========== ========== ==========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
5
<PAGE> 6
infoUSA Inc.
Pro Forma Consolidated Statement of Operations
Year ended December 31, 1998
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
infoUSA DONNELLEY PRO FORMA PRO FORMA
INC. MARKETING ADJUSTMENTS COMBINED
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $ 228,678 86,725 7,146 (a) 322,549
---------- ---------- ---------- ----------
Costs and expenses:
Data base and production costs 66,319 44,946 -- 111,265
Selling, general, and administrative 117,724 35,315 (6,093)(b,c,d) 146,946
Depreciation and amortization 27,472 12,588 4,434 (e) 44,494
Provision for litigation settlement 4,500 -- -- 4,500
Acquisition-related and restructuring charges 10,093 -- -- 10,093
---------- ---------- ---------- ----------
Total costs and expenses 226,108 92,849 (1,659) 317,298
---------- ---------- ---------- ----------
Operating income (loss) 2,570 (6,124) 8,805 5,251
---------- ---------- ---------- ----------
Other income (expense):
Investment income 16,628 133 -- 16,761
Interest expense (9,160) -- (14,255)(f) (23,415)
Other (2,000) -- -- (2,000)
---------- ---------- ---------- ----------
Total other income (expense) 5,468 133 (14,255) (8,654)
---------- ---------- ---------- ----------
Income (loss) before income taxes 8,038 (5,991) (5,450) (3,403)
Income tax expense (benefit) 5,880 (63) 1,499 (g) 7,316
---------- ---------- ---------- ----------
Net income (loss) $ 2,158 (5,928) (6,949) (10,719)
========== ========== ========== ==========
Basic earnings (loss) per share:
Net income (loss) $ 0.04 (0.12) (0.14) (0.22)
========== ========== ========== ==========
Average shares outstanding 49,314 49,314 49,314 49,314
========== ========== ========== ==========
Diluted earnings (loss) per share:
Net income (loss) $ 0.04 (0.12) (0.14) (0.22)
========== ========== ========== ==========
Average shares outstanding 50,215 50,215 50,215 50,215
========== ========== ========== ==========
</TABLE>
See accompanying notes to pro forma consolidated financial statements.
6
<PAGE> 7
infoUSA Inc.
Notes to Unaudited Pro Forma Condensed Financial Statements
(Amounts in thousands)
(1) BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet reflects the historical
financial position of infoUSA and DM Holdings, Inc. (operating as Donnelley
Marketing) at June 30, 1999, with pro forma adjustments as if the business
combination had taken place on June 30, 1999. The unaudited pro forma
consolidated statements of operations for the year ended December 31, 1998
and six months ended June 30, 1999 reflect the historical results of
operations of infoUSA and Donnelley Marketing, with pro forma adjustments
based on the assumption the business combination was effective January 1,
1998.
(2) DESCRIPTION OF TRANSACTION
Effective July 1, 1999, the Company acquired all issued and outstanding
common stock of Donnelley Marketing. Consideration for the acquisition was
$200.0 million in cash plus any related acquisition costs, which will be
funded through a combination of existing cash of $43,771 and borrowings
under senior secured credit facilities of $165 million, further described
below. The acquisition will be accounted for using the purchase method of
accounting. The aggregate purchase price of the acquisition was allocated
based upon management's best estimate of the fair value of identifiable
assets and liabilities of Donnelley Marketing at the date of acquisition as
follows:
<TABLE>
<S> <C>
Current assets $ 16,269
Property and equipment, net 6,200
Goodwill 176,127
Non-compete 10,000
Software 20,000
Current liabilities (8,631)
Long-term debt (165,000)
Deferred taxes, long-term (9,844)
Other liabilities (1,350)
----------
Total $ 43,771
==========
</TABLE>
(3) The unaudited pro forma consolidated financial statements reflect the
following adjustments:
(a) A pro forma adjustment of $7.1 million and $3.4 million in 1998 and
1999, respectively, was made to reflect the incremental guaranteed
license revenue from agreement with First Data Corporation ("FDC")
entered into as part of the purchase transaction.
(b) To eliminate salaries and wages associated with the white page
compilation because the same function and data are obtained from
existing functions. Elimination of this function has no effect on
revenues. The adjustments for the year ended December 31, 1998 and the
six months ended June 30, 1999 were $1,668 and $859, respectively.
(c) To eliminate costs associated with employees and facilities not assumed
by infoUSA Inc. which will not be acquired as part of the acquisition.
The adjustments for the year ended December 31, 1998 and the six months
ended June 30, 1999 were $3,425 and $1,752, respectively.
(d) To reflect data processing agreement with FDC entered into as part of
the purchase transaction. The adjustments for the year ended December
31, 1998 and the six months ended June 30, 1999 were $1,000 and $500,
respectively.
(e) To record amortization expense related to the business combination. The
adjustment is derived as follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Intangibles (amortized over lives 5 to 20 years) $ 15,702 7,851
Depreciation on adjusted fair value of
property and equipment 1,320 660
Less previously recorded amortization and
depreciation expense 12,588 6,392
-------- --------
Total $ 4,434 2,119
======== ========
</TABLE>
7
<PAGE> 8
(f) To reflect interest expense of $13,700 and $6,850 and deferred financing
costs of $555 and $278 on credit facilities issued in connection with
the business combination for year ended December 31, 1998 and the six
months ended June 30, 1999, respectively.
(g) A pro forma adjustment of $1,499 and $745 in 1998 and 1999,
respectively, was made to reflect the tax expense related to the pro
forma adjustments. An effective tax rate of 38% was used to determine
the pro forma income tax adjustment. The tax calculation includes a pro
forma income tax adjustment related to the amortization of goodwill
created as a result of the business combination due to the
nondeductibility of these expenses to the surviving combined company.
(h) To reflect cash of $572 not included as acquired assets in the business
combination, and cash payments of $43,771 for purchase of Donnelley
Marketing.
(i) A pro forma adjustment of $2,181 has been made to record at fair value
property and equipment acquired at the date of acquisition. See note (e)
for adjustment to depreciation expense.
(j) A pro forma adjustment of $2,250 has been made to record estimated
direct costs to be incurred as a result of the acquisition.
(k) The pro forma adjustment of $14,232 for intangible assets is made to
record intangible assets of $206,127 arising from the acquisition. The
$206,127 of intangible assets included the following:
<TABLE>
<S> <C>
Non-compete agreement $ 10,000
Software 20,000
Goodwill 176,127
--------
$206,127
</TABLE>
(l) The pro forma adjustment of $(36,444) to long-term debt was made to
reverse inter-company debt ($201,444) not assumed by the Company in the
acquisition and to record the acquisition debt ($165,000).
(m) The pro forma adjustment of $1,902 to retained earnings was to eliminate
the retained deficit on Donnelley Marketing's financial statements.
(4) ALLOCATION OF COSTS AND EXPENSES
Due to differences in classifications of operating expenses excluding,
depreciation and amortization, the Company reclassified these costs as
follows to correspond with infoUSA's operating expense classifications:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Salaries and benefits 15,678 29,373
Program costs 4,195 11,060
Consulting and professional services 3,082 7,315
Provision for employee severance 0 645
Other operating and administrative 5,949 9,464
Charges from First Data Corporation 10,094 22,404
Total 38,998 80,261
Database and production costs (56%) 21,839 44,946
Selling, general, and administrative (44%) 17,159 35,315
Total 38,998 80,261
</TABLE>
The allocation of the 56% to database and production costs and the 44% to
selling, general, and administrative expenses was based on functionality.
8
<PAGE> 9
DM HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements
For the Six Months Ended June 30, 1999, the
Two Years Ended December 31, 1998 and 1997,
and the Three Months Ended December 31, 1996
(With Independent Auditors' Report Thereon)
9
<PAGE> 10
INDEPENDENT AUDITORS' REPORT
The Board of Directors DM Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of DM Holdings,
Inc. and subsidiaries as of June 30, 1999 and December 31, 1997 and the related
consolidated statements of operations and retained earnings and cash flows for
the six months ended June 30, 1999, the year ended December 31, 1997 and the
three months ended December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of DM Holdings, Inc.
and subsidiaries as of June 30, 1999 and December 31, 1997 and the results of
their operations and their cash flows for the six months ended June 30, 1999,
the year ended December 31, 1997, and the three months ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG LLP
-----------------------
KPMG LLP
September 3, 1999
Omaha, Nebraska
10
<PAGE> 11
Report of Independent Auditors
The Board of Directors and Stockholder of DM Holdings, Inc.
We have audited the accompanying consolidated balance sheet of DM Holdings, Inc.
(the "Company") as of December 31, 1998 and the related consolidated statement
of operations and retained earnings, and cash flows for the year then ended.
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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of DM Holdings, Inc.
at December 31, 1998 and the consolidated results of its operations and its cash
flows for the year then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
----------------------------
ERNST & YOUNG LLP
July 8, 1999
Atlanta, Georgia
11
<PAGE> 12
DM HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998 and 1997
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
ASSETS 1999 1998 1997
---------- ------------ ------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 572 1,781 1,509
Accounts receivable, net of allowance for doubtful
accounts of $1,207 in 1999, $1,772 in 1998, and
$137 in 1997 14,451 12,707 20,001
Prepaid expenses and other current assets 446 624 882
Deferred tax assets 1,372 1,718 2,387
---------- ---------- ----------
Total current assets 16,841 16,830 24,779
Property and equipment, net 8,381 6,815 7,525
Goodwill, net of accumulated amortization 161,632 164,553 171,494
Other intangible assets, net of accumulated amortization 30,263 32,499 33,454
---------- ---------- ----------
Total assets $ 217,117 220,697 237,252
========== ========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 2,439 832 1,935
Accrued expenses and other current liabilities 3,942 6,146 6,627
---------- ---------- ----------
Total current liabilities 6,381 6,978 8,562
---------- ---------- ----------
Long-term liabilities
Due to First Data Corporation 201,444 201,206 209,733
Deferred tax liabilities 9,844 9,949 10,169
Other noncurrent liabilities 1,350 1,497 1,793
---------- ---------- ----------
Total long-term liabilities 212,638 212,652 221,695
---------- ---------- ----------
Stockholder's equity (deficit):
Common stock, $1.00 par value; 1,000 shares
authorized; 262.5 shares issued and outstanding -- -- --
Retained earnings (deficit) (1,902) 1,067 6,995
---------- ---------- ----------
Total stockholder's equity (deficit) (1,902) 1,067 6,995
---------- ---------- ----------
Total liabilities and stockholder's equity (deficit) $ 217,117 220,697 237,252
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
DM HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Retained Earnings
Six months ended June 30, 1999, the
two years ended December 31, 1998 and 1997,
and the three months ended December 31, 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 42,535 86,725 100,616 19,828
------------ ------------ ------------ ------------
Operating expenses:
Salaries and benefits 15,678 29,373 36,269 9,374
Program costs 4,195 11,060 7,290 1,810
Consulting and professional services 3,082 7,315 2,764 592
Provision for employee severance -- 645 -- --
Other operating and administrative 5,949 9,464 14,768 4,379
Depreciation and amortization 6,392 12,588 11,293 3,260
Charges from First Data Corporation 10,094 22,404 13,472 771
------------ ------------ ------------ ------------
Total operating expenses 45,390 92,849 85,856 20,186
------------ ------------ ------------ ------------
Income (loss) from operations (2,855) (6,124) 14,760 (358)
Other income (expense):
Interest expense (5) -- -- (21)
Interest income -- 133 27 --
------------ ------------ ------------ ------------
Earnings (loss) before income (2,860) (5,991) 14,787 (379)
Income tax expense (benefit) 109 (63) 7,183 587
------------ ------------ ------------ ------------
Net income (loss) (2,969) (5,928) 7,604 (966)
Retained earnings (deficit), beginning of period 1,067 6,995 (609) 357
------------ ------------ ------------ ------------
Retained earnings (deficit), end of period $ (1,902) 1,067 6,995 (609)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
DM HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six months ended June 30, 1999, the
two years ended December 31, 1998 and 1997,
and the three months ended December 31, 1996
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (2,969) (5,928) 7,604 (966)
------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 6,392 12,588 11,293 3,260
Deferred income taxes 241 449 2,076 (222)
Changes in assets and liabilities:
Accounts receivable (1,745) 5,737 (5,101) 2,634
Prepaid expenses and other current assets 178 173 2,951 (33)
Accounts payable, accrued expenses, and other
liabilities (825) (2,311) (8,134) (2,639)
------------ ------------ ------------ ------------
Total adjustments 4,241 16,636 3,085 3,000
------------ ------------ ------------ ------------
Net cash provided by operating activities 1,272 10,708 10,689 2,034
------------ ------------ ------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (2,337) (1,277) (2,719) (206)
Capitalized software development (383) (3,168) (2,502) --
------------ ------------ ------------ ------------
Net cash used in investing activities (2,720) (4,445) (5,221) (206)
------------ ------------ ------------ ------------
Cash flows from financing activities:
Payments on capital lease -- -- (569) (192)
Due to First Data Corporation 239 (5,991) (4,679) (347)
------------ ------------ ------------ ------------
Net cash provided by (used in) financing activities 239 (5,991) (5,248) (539)
------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents (1,209) 272 220 1,289
Cash and cash equivalents, beginning of period 1,781 1,509 1,289 --
------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 572 1,781 1,509 1,289
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
DM HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For the six months ended June 30, 1999, the
two years ended December 31, 1998 and 1997,
and the three months ended December 31, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DM Holdings, Inc. (the "Company") is in the business of providing target
marketing and data enhancement services for direct marketers through data
base management, information processing, data file enhancement, and consumer
lists. The Company was acquired by, and became a wholly owned subsidiary of,
First Data Corporation ("FDC") in September 1996. The accompanying
consolidated financial statements reflect FDC's basis in the Company.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material 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 recognized when the product is
delivered or the services are performed. Data licensing revenue is primarily
recognized based on actual usage of the data. Data licenses with fixed fees
are recognized ratably over the term of the license with any obligations to
provide future updates of data being recorded as deferred revenue. Deferred
revenue is based on the percentage of data updated through out the license
term. Reserves are established for estimated returns and uncollectible
amounts.
CASH EQUIVALENTS
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.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, less accumulated depreciation or
amortization. Depreciation expense is calculated over the estimated useful
lives of the related assets, ranging from three to thirty years, using the
straight-line method for financial reporting purposes. Leasehold
improvements are amortized over the term of the related lease.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of FDC's September 1996 purchase price over
the fair value of net tangible and identifiable intangible assets acquired
and is being amortized using the straight-line method over thirty years. At
June 30, 1999 and December 31, 1998 and 1997, the Company had goodwill of
$178,640, $178,596, and $179,605, respectively, and accumulated amortization
of $17,008, $14,043, and $8,111, respectively.
Other intangible assets consist primarily of the FDC acquisition purchase
price allocated to identifiable intangible assets. Such assets are
internally developed data bases and computer software. The amounts allocated
to databases and software at the date of acquisition were $10,405 and
$25,822, respectively, and are being amortized over lives of nine to twelve
years. At June 30, 1999 and December 31, 1998 and 1997, the Company had
total accumulated amortization of $10,720, $8,806, and $4,991, respectively,
related to databases and software. Remaining balances of other intangibles
consist of capitalized software and data base development costs, net of
accumulated amortization. These costs are amortized on a straight-line basis
over the benefit period, generally five years.
The Company reviews its long-lived assets, including goodwill, for
impairment whenever events or changes in circumstances
15
<PAGE> 16
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future undiscounted net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
The taxable income of the Company is included in the U. S. federal income
tax return of FDC. For financial reporting purposes, the Company's provision
for income taxes has been determined as if the Company were a separate
tax-paying entity. Current income taxes payable are included in "Due to
First Data Corporation."
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and reported amounts of
revenues and expenses to prepare these consolidated financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30, 1999 and December 31,
1998 and 1997 is shown as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Land $ 144 144 144
Building and leasehold Improvements 4,892 4,007 4,602
Data processing equipment 4,913 3,523 2,052
Furniture and fixtures 1,674 1,138 1,127
Machinery and equipment 1,017 994 984
------------ ------------ ------------
Total property and equipment 12,640 9,806 8,909
Accumulated depreciation (4,259) (2,991) (1,384)
------------ ------------ ------------
Net property and equipment $ 8,381 6,815 7,525
============ ============ ============
</TABLE>
Depreciation expense for the six months ended June 30, 1999, the two years
ended December 31, 1998 and 1997, and the three months ended December 31,
1996 was $1,125, $1,965, $1,264, and $607, respectively.
16
<PAGE> 17
(3) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities are comprised of the
following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Accrued royalties $ 90 2,159 112
Accrued salaries and benefits 1,278 1,587 1,823
Accrued rent 506 683 589
Accrued sales and property taxes 500 478 482
Accrued transaction costs 140 336 1,572
Other 1,428 903 2,049
------------ ------------ ------------
$ 3,942 6,146 6,627
============ ============ ============
</TABLE>
(4) INCOME TAXES
Income tax expense (benefit) before extraordinary item consists of the
following components:
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED YEAR ENDED YEAR ENDED ENDED
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:
Federal $ (117) (455) 4,538 719
State (15) (57) 569 90
------------ ------------ ------------ ------------
Total current income
tax expense (benefit) (132) (512) 5,107 809
------------ ------------ ------------ ------------
Deferred:
Federal 214 399 1,845 (197)
State 27 50 231 (25)
------------ ------------ ------------ ------------
Total deferred income
tax expense (benefit) 241 449 2,076 (222)
------------ ------------ ------------ ------------
Total income tax
expense (benefit) $ 109 (63) 7,183 587
============ ============ ============ ============
</TABLE>
Total income tax expense (benefit) for the six months ended June 30, 1999,
the two years ended December 31, 1998 and 1997, and the three months ended
December 31, 1996 was different than that computed by applying U. S. federal
income tax rates to earnings (losses) before income taxes. The reasons for
the differences are shown below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computed "expected" tax expense
(benefit) $ (1,001) (2,097) 5,175 (133)
State income tax expense (benefit) 8 (5) 484 79
Goodwill amortization 1,079 1,995 1,524 694
Other 23 44 -- (53)
------------ ------------ ------------ ------------
Total income tax expense
(benefit) $ 109 (63) 7,183 587
============ ============ ============ ============
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1999 and December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued costs $ 917 1,026 980
Allowance for doubtful accounts 455 668 561
State tax loss carryforwards -- 24 846
------------ ------------ ------------
Total deferred tax assets 1,372 1,718 2,387
Deferred tax liability - property and
equipment, principally depreciation
differences 9,844 9,949 10,169
------------ ------------ ------------
Net deferred tax liabilities $ 8,472 8,231 7,782
============ ============ ============
</TABLE>
17
<PAGE> 18
(5) STOCK COMPENSATION PLAN
The Company participates in an FDC stock compensation plan that provides for
the granting of FDC stock options to key employees and other key individuals
who perform services for the Company. Under the plan, options may be granted
for a term not to exceed ten years from date of grant and generally become
exercisable in three or four equal annual increments beginning twelve months
after the date of grant. The option price is the fair market value of the
shares on the date of grant.
In October 1996, FDC instituted an employee stock purchase plan for which a
total of 6.0 million shares have been reserved for issuance, of which 3.4
million, 3.8 million, 5.1 million, and 6.0 million shares remain available
for purchase as of June 30, 1999 and December 31, 1998, 1997, and 1996,
respectively. Monies accumulated through payroll deductions elected by
eligible employees are used to effect quarterly purchases of FDC common
stock at a 15% discount from the lower of the market price at the beginning
or end of the quarter.
SFAS No. 123, Accounting for Stock-Based Compensation, permits entities to
recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and provide
pro forma net income for employee stock option grants as if the fair value
method defined in SFAS No. 123 had been applied. As such, compensation
expense would be recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
The per share weighted average fair value of stock options and employee
stock purchase rights granted during the six months ended June 30, 1999, the
two years ended December 31, 1998 and 1997, and the three months ended
December 31, 1996 were: $9.70 and $6.80, $9.00 and $6.00, $8.90 and $5.90,
and $8.20 and $5.10, respectively, on the date of grant using the Black
Scholes option-pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Risk-free interest rate 5.66% 4.54 6.23 6.20
Dividend yield 1.48% 0.27 2.20 2.20
Volatility of FDC stock 19.90% 24.00 18.90 16.90
Expected option life (in years) 5 5 5 5
Expected employee stock purchase
right life (in years) 0.25 0.25 0.25 0.25
============ ============ ============ ============
</TABLE>
Had the Company recorded compensation cost based on the fair value at the
grant date for its stock options and stock purchase rights under SFAS No.
123, the Company's net income for the six months ended June 30, 1999, the
two years ended December 31, 1998 and 1997, and the three months ended
December 31, 1996 would have been reduced by approximately $391, $365, $237,
and $46, respectively. Because SFAS No. 123 is applicable only to options
granted subsequent to December 31, 1994, its pro forma effect will not be
fully reflected until the year ending December 31, 1999.
A summary of FDC stock option activity for the Company's employees is shown
below:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Options:
Outstanding, beginning of period 420,469 272,737 176,412 144,028
Granted 2,500 194,800 123,744 40,258
Exercised (40,391) (2,948) (1,313) --
Canceled (139,642) (44,120) (26,106) (7,874)
------------ ------------ ------------ ------------
Outstanding, end of period 242,936 420,469 272,737 176,412
============ ============ ============ ============
Exercisable, end of period 112,022 149,038 72,125 35,410
============ ============ ============ ============
WEIGHTED AVERAGE EXERCISE PRICE:
Outstanding, beginning of period $ 31 33 35 34
Granted 28 29 32 37
Exercised 29 29 32 --
Canceled 33 36 34 36
Outstanding, end of period 29 31 33 35
Exercisable, end of period $ 28 29 32 34
</TABLE>
18
<PAGE> 19
(6) OPERATING LEASES
The Company leases certain office equipment and office space under
noncancelable lease agreements. Future minimum lease payments under
noncancelable operating leases, with initial lease terms of at least one
year at the time of inception, are as follows at June 30, 1999:
<TABLE>
<S> <C>
2000 $ 2,290
2001 2,221
2002 1,788
2003 1,759
2004 1,789
Thereafter 4,844
---------
Total minimum operating
lease payments $ 14,691
=========
</TABLE>
Total rent expense for all operating leases for the six months ended June
30, 1999, the two years ended December 31, 1998 and 1997, and the three
months ended December 31, 1996 was approximately $.8 million, $1.8 million,
$1.3 million, and $.2 million, respectively.
(7) RELATED PARTY TRANSACTIONS
The following summarizes charges from FDC and its affiliates:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Data processing $ 7,867 17,852 11,554 --
Consulting services 450 1,800 -- --
Licensing fees 1,222 1,462 1,035 --
Corporate overhead 477 1,246 845 771
Other 78 44 38 --
------------ ------------ ------------ ------------
Total $ 10,094 22,404 13,472 771
============ ============ ============ ============
</TABLE>
o Data processing - The Company's data processing is performed at data
centers located in Denver, Colorado and Omaha, Nebraska. Data processing
activities for other FDC entities are also conducted by these
facilities. The annual charge to the Company for these services is based
upon the mainframe charges from both data centers which are based on
usage. In addition, both data centers have equipment that is dedicated
to the Company in which charges incurred by the Company are based on the
actual costs plus an allocation for the data center overhead. Data
processing costs include charges for the use of programmers to support
certain Company products.
o Licensing fees - These charges represent licensing fees for software
used in certain Company products.
o Consulting fees - These charges represent modeling and analytical
services.
o Corporate overhead - This is a general allocation of FDC's corporate
overhead based on a percentage of the Company's revenue. Functions
provided by FDC corporate include administration of employee benefit
programs, internal audit, financial systems licensing and processing,
taxes, external financial reporting, and other support services.
o Direct charges - Certain programs and activities are administered by FDC
on a consolidated basis. Examples are employee benefit plans, group and
other insurance programs, and certain vendor agreements that are
negotiated by FDC on an enterprise wide basis. The costs of these
programs and activities are specifically recorded by each participating
business unit and the costs are not included in the table above.
o Interest - FDC does not have any specific indebtedness related to the
Company. The accompanying consolidated financial statements do not
reflect any allocations of FDC interest expense. There are no formal
financing arrangements with FDC; however, cash not necessary for the
Company's near term operating requirements has been remitted to FDC
which, in turn, has funded the Company's operating, investing, and
financing activities as required. Accordingly, the net change in the
payable to FDC has been reflected as a financing activity in the
accompanying statements of cash flows.
19
<PAGE> 20
In addition to the above described allocations, certain of the Company's
functions (primarily administration, accounting, and human resources) are
shared with another FDC business unit. The accompanying consolidated
financial statements have been prepared using estimates of the costs of
these functions that were attributable to the Company's activities.
Management believes that the allocation process described in the preceding
paragraph and the overall amount of charges to and from FDC and affiliates
are reasonable and that, except as described above with respect to interest,
the accompanying consolidated financial statements reflect all of the
Company's costs of doing business.
During the six months ended June 30, 1999, the two years ended December 31,
1998 and 1997, and the three months ended December 31, 1996 the Company
derived revenues of $3,122, $5,871, $4,587 and $1,034, respectively, from
FDC and its affiliates. These revenues related primarily to royalties
derived from a Company database and services for building and maintaining
another marketing database.
(8) CONCENTRATION OF CREDIT RISK
The Company's customers, while concentrated in the United States, are
spread across diverse market sectors. There were no single customers
accounting for 10% or more of the Company's revenues for the six months
ended June 30, 1999, the two years ended December 31, 1998 and 1997, and
the three months ended December 31, 1996. The Company's accounts
receivable are unsecured and the Company is at risk to the extent such
amounts become uncollectible. The Company establishes its allowance for
doubtful accounts based upon the credit risk of specific customers,
historical trends, and other information.
(9) RETIREMENT PLAN
FDC has an incentive savings plan which allows eligible employees of FDC
and its subsidiaries to contribute a percentage of their compensation and
provides for certain matching, service-related and other contributions.
The Company's matching and service-related contributions associated with
the plan were approximately $475, $801, $603, and $58 for the six months
ended June 30, 1999, the two years ended December 31, 1998 and 1997, and
the three months ended December 31, 1996.
(10) PROVISION FOR EMPLOYEE SEVERANCE
In May 1998, the Company formulated and announced a plan that involved a
reduction in its workforce. Included in the Company's 1998 results of
operations is a charge of $645 for this plan. The charge related to
severance and related costs with respect to 47 employees.
(11) CONTINGENCIES
The Company is involved in certain litigation arising in the ordinary
course of business. In the opinion of management, the ultimate resolution
of these matters will not have a material adverse effect on the Company's
financial position or results of operations.
(12) SALE OF BUSINESS
Effective July 1, 1999, FDC sold all of the outstanding stock of the
Company to infoUSA Inc. for a purchase price of approximately $200
million. The accompanying consolidated financial statements do not give
effect to any of the transactions contemplated under the agreement.
(13) YEAR 2000 REMEDIATION (UNAUDITED)
The Company is faced with "Year 2000" remediation issues. Many computer
programs were written with a two digit date field and if these programs
are not made Year 2000 compliant, they will be unable to correctly
process date information on or after Year 2000. Remediation efforts go
beyond the Company's internal computer systems and require coordination
with clients, vendors, government entities, and other third parties to
assure that their systems and related interfaces are compliant. Failure
to achieve timely remediation of the computer systems that process client
information and transactions would have a material adverse effect on the
Company's business, operations, and financial results.
20
<PAGE> 21
In response to the Year 2000 concerns, FDC created a Year 2000 Task Force
to coordinate and monitor the progress in the Year 2000 remediation
efforts. The Task Force reports directly to FDC's executive management
and also provides regular reports to the Board of Directors. In addition,
at the direction of the Audit Committee of the Board of Directors, FDC
engaged the Gartner Group to provide an independent analysis and
assessment of its Year 2000 remediation efforts. The Gartner Group
provides regular progress reports to executive management and the Board
of Directors, and regularly meets with the Audit Committee of the Board
to discuss its reports.
The Company's plans called for all mission critical systems to be
renovated and compliance testing underway by the end of 1998. Acceptance
testing with clients and other third parties will take place through
September 1999. Completion of all third-party interfacing testing is
dependent upon those third parties completing their own internal
remediation. The Company could be adversely affected to the extent third
parties with which it interfaces have not properly addressed their Year
2000 issues.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
infoUSA Inc.
Date: March 17, 2000 By: /s/ STORMY DEAN
---------------
Stormy Dean, Controller and
acting Chief Financial Officer
(Principal Financial Officer)
22
<PAGE> 23
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
23.1 Consent of Independent Accountants, filed
herewith.
23.2 Consent of Independent Accountants, filed
herewith.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors
infoUSA Inc.:
We consent to the incorporation by reference in the registration statements (No.
333-37865, No. 333-82933, No. 33-91194, No. 333-77417, No. 333-43391 and No.
33-59256) on Form S-8 of infoUSA Inc. our report dated September 3, 1999
relating to the consolidated balance sheets of DM Holdings, Inc. and
subsidiaries as of June 30, 1999 and December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the six months ended June 30, 1999, year ended December 31, 1997 and three
months ended December 31, 1996, which report is included in infoUSA Inc.'s Form
8-K/A dated March 17, 2000.
/s/ KPMG LLP
----------------
KPMG LLP
Omaha, Nebraska
March 17, 2000
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Forms S-8 No. 333-37865, No. 333-43391, No. 333-77417, No. 333-82933, No.
33-59256 and No. 33-91194) of infoUSA Inc. of our report dated July 8, 1999 with
resect to the financial statements of DM Holdings, Inc. included in this
Amendment No. 1 to the Current Report on Form 8-K/A of infoUSA Inc. dated March
17, 2000, filed with the Securities and Exchange Commission.
/s/ ERNST & YOUNG LLP
------------------------
ERNST & YOUNG LLP
Atlanta, Georgia
March 17, 2000
