INFOUSA INC, 10-K/A, 2000-09-29

INFOUSA INC
10-K/A, 2000-09-29
DIRECT MAIL ADVERTISING SERVICES

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K/A

(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, 1999

[ ] 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

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infoUSA INC.
(Exact name of registrant as specified in its charter)

DELAWARE 47-0751545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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:
COMMON STOCK, $0.0025 PAR VALUE
SERIES A 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 Common Stock on March 7,
2000 as reported on the NASDAQ National Market System, was approximately $286
million. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding 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 7, 2000 registrant had outstanding 49,838,408 shares of Common
Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on April 28, 2000, which will be filed within 120 days
of the end of fiscal year 1999, are incorporated into Part III hereof by
reference.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

infoUSA is a leading provider of business and consumer marketing
information, data processing and database marketing services. infoUSA is also an
incubator of Internet database companies in that companies utilize our products
and services to find new customers, manage their marketing databases, and
deliver innovative Internet solutions to their clients. The Company's key assets
include proprietary databases of 12 million businesses and 200 million consumers
in the United States and Canada. We believe our proprietary content is the most
comprehensive and accurate data available. We leverage these key assets by
selling through multiple distribution channels to small and medium-size
businesses, Fortune 1000 companies, consumers, and Internet and Wireless value
added resellers.

Historically, our revenue has been derived predominantly through the sale of
customized sales lead generation products. We estimate that no customer
represented greater than approximately 3% of net sales in 1999. As our company
has expanded product and service offerings, we have successfully capitalized on
new markets and applications for our proprietary databases. We began to
recognize significant revenue from data processing services in 1997 following
the acquisition of Database America. With the expansion of our Consumer Products
Division, and the acquisition of Pro CD and Digital Directory Assistance,
revenue from consumer CD-Rom products increased substantially between 1993 and
1997. List Brokerage and List Management revenue showed strong growth during
1998 with the acquisition of Walter Karl and JAMI Marketing Services. Finally,
the company has recognized strong growth in the past year and believes there is
significant opportunity with our various Internet initiatives.

During 1999, we formalized our Internet Strategy, which is to leverage our
proprietary content online for multiple applications. We intend to use our
powerful database assets and branded distribution to create and develop multiple
Internet database companies. Our databases are dynamic, changing by over 40% per
year, and are rich in content. In addition, we are continuously increasing the
depth and breadth of the content to include public information, pictures, videos
and many other unique data elements. We are poised to exploit this technology
and distribution channel, and have positioned our company as an incubator of
various information based Internet companies, such as infoUSA.com,
VideoYellowPages.com, businessCreditUSA.com, and listbazaar.com. Several other
potential companies are on the drawing board. We intend to leverage our
proprietary content into multiple vertical market applications and valuable B2b
e-Commerce, e-CRM, and e-Infomediary solutions.

During 1999 we named long-time company executive William Chasse as Chairman
and CEO of infoUSA.com and headquartered our Internet companies in the heart of
Silicon Valley, in Foster City, California. Mr. Chasse has during the past
several months recruited and assembled a team of executive managers who bring a
wealth of Internet experience to our company. We also made significant progress
during 1999 in our core business operations, specifically with the acquisition
of Donnelley Marketing from First Data Resources, and the expansion of our
executive management team. In July of 1999, we completed the acquisition of
Donnelley Marketing, which enhanced our proprietary consumer database and
database marketing services. The merger made us the only company in our industry
offering proprietary business and consumer data, data processing, and database
marketing services. This strategic acquisition gives us the ability to offer
complete solutions and fulfill substantially all the database, data processing,
and database marketing needs of our Fortune 1000 customers.

Susan L. Henricks joined our company during 1999 as Senior Vice President of
our large customer group, comprised of Donnelley Marketing, Database America,
and Walter Karl. Ms. Henricks previously served as Executive Vice President of
Client Development for First Data Corporation, and prior to working with First
Data Corporation, served as President and CEO of Metromail Corporation. Ms.
Henricks was instrumental in the successful integration of Donnelley Marketing
ahead of schedule, and with greater cost synergies than projected. She has a
wealth of experience in our industry, and has made significant contributions
already. Other notable additions to the management team include J. Peter
Bardwick as CFO and COO of infoUSA.com. Mr. Bardwick was previously CFO of CBS
Marketwatch. Rakesh Gupta (no relation to infoUSA chairman and chief executive
officer, Vinod Gupta) was hired as Senior Vice President, e-Commerce. Mr. Gupta
was previously the Chief Information Officer for Atlas Travel Technologies.

Overall, 1999 was a record year, with revenue of $266.1 million and EBITDA,
as adjusted of $72.4 million. The Company returned to historic levels for cash
flow, as measured by EBITDA.

The Company's net sales are 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. Generally, a majority of revenue from data
licensing is recognized at the time the initial set of data is delivered, with
the remaining

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portion being deferred and recognized over the license term as the Company
provides updated information. The Company's operating expenses are determined in
part based on the Company's expectations of future revenue growth and are
substantially fixed in the short term. As a result, unexpected changes in
revenue will have a disproportionate effect on financial performance in any
given period. The Company's database and production costs are generally expensed
as incurred and relate principally to maintaining, verifying and updating its
databases, fulfilling customer orders and the direct costs associated with the
production of CD-Rom titles. Costs to develop new databases are capitalized by
the Company and amortized upon the successful completion of the databases over a
period ranging from one to five years. Selling, general and administrative
expenses consist principally of salaries and benefits associated with the
Company's sales force as well as costs associated with its catalogs and other
promotional materials.

The Company had previously made certain disclosures relative to the
continuing results of operations of acquired companies where appropriate and
possible, although the Company has in the case of all acquisitions since 1996,
immediately integrated the operations of the acquired companies into existing
operations of the Company. Generally, the results of operations for these
acquired activities are no longer separately accounted for from existing
activities. The Company cannot report on the results of operations of acquired
companies upon completion of the integration as the results are "commingled"
with existing results. Additionally, upon integration of acquired operations,
the Company frequently combines acquired products or features with existing
products, and experiences significant cross-selling of products between business
units, including sales of acquired products by existing business units and sales
by acquired business units of existing products. Due to recent and potential
future acquisitions, future results of operations will not be comparable to
historical data. While the results cannot be accurately quantified, acquisitions
have had a significant impact on net sales. Since 1996, database and production
costs have increased as a percentage of net sales as a result of higher costs
associated with data processing services and CD-Rom production. To the extent
that data processing and CD-Rom sales constitute a greater percentage of net
sales, the Company expects database and production costs to increase as a
percentage of net sales in the future.

Since 1997, net sales of the Company's large business segment have increased
as a percentage of the Company's total net sales, due to the acquisition of the
Database America Companies, Walter Karl, JAMI Marketing and Donnelley Marketing.

The Company has experienced an increase in length of time that sales are
outstanding before collection compared to historical data, due to the recent
acquisition of Donnelly Marketing. A significant portion of Donnelly Marketing
sales include payment terms that are generally more extended than the Company's
pre-Donnelly Marketing acquisition customer base.

The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed ten acquisitions since mid-1996. Through
these acquisitions, the Company has increased its presence in the consumer
marketing information industry, greatly increased its ability to provide data
processing solutions, added two consumer CD-Rom product lines, increased its
presence in list management and list brokerage services and broadened its
offerings of business marketing information. The following table summarizes
these acquisitions:

<TABLE>
<CAPTION>
TRANSACTION
PRINCIPAL TYPE OF VALUE
ACQUIRED COMPANY KEY ASSET BUSINESS SEGMENT ACQUISITION DATE ACQUIRED (IN MILLIONS)(1)
------------------- --------- ---------------- ----------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
Digital Directory
Assistance....... Consumer CD-Rom Products Small business Asset purchase August 1996 $ 17
County Data
Corporation...... New Businesses Database Small business Pooling-of-interest November 1996 $ 11
Marketing Data
Systems.......... Data Processing Services Large business Asset purchase November 1996 $ 3
BJ Hunter.......... Canadian Business Small business Stock purchase December 1996 $ 3
Database
Database America
Companies........ Consumer Database and Large business Stock purchase February 1997 $ 105
Data Processing
Services
Pro CD............. Consumer CD-Rom Products Small business Asset purchase August 1997 $ 18
Walter Karl........ Data Processing and List Large business Stock purchase March 1998 $ 18
Management Services
JAMI Marketing..... List Management Services Large business Asset purchase June 1998 $ 13
Contacts Target
Marketing........ Canadian Business Small business Asset purchase July 1998 $ 1
Database
Donnelley Marketing Consumer Database and Large business Stock purchase July 1999 $ 200
Data Processing
Services
</TABLE>

(1) Transaction value includes total consideration paid including cash paid,
debt issued and stock issued plus long-term debt repaid or

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assumed at the date of acquisition plus, in the case of DBA, a subsequent
purchase price adjustment in October 1997.

As part of these strategic acquisitions, the Company has incurred various
acquisition-related charges to operations, consisting of: 1) $10.0 million in
1996 in connection with the acquisition of Digital Directory Assistance, 2)
$56.1 million in 1997 in connection with the acquisitions of DBA and Pro CD, 3)
$10.1 million in 1998 in connection with the acquisitions of Walter Karl and
JAMI Marketing and for certain internal restructuring charges, and 4) $9.8
million in 1999 in connection with the acquisition of Donnelley Marketing. In
addition, the Company expects to amortize goodwill and other intangibles over
periods of 1 to 20 years in connection with acquisitions completed since
mid-1996. The Company's results for 1997 do not include the operations of Walter
Karl or JAMI Marketing, and the results for 1998 and 1997 do not include the
operations of Donnelley Marketing. In connection with future acquisitions, the
Company expects that it will be required to incur additional acquisition-related
charges to operations and to amortize additional amounts of goodwill and other
intangibles over future periods. While there are currently no binding
commitments with respect to any particular future acquisitions, the Company
frequently evaluates the strategic opportunities available to it and intends to
pursue strategic acquisitions of complementary products, technologies or
businesses that it believes fit its business strategy.

Associated with the acquisitions previously described, the Company has
recorded amortization expense on goodwill and other intangibles as summarized in
the following table (amounts in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- --------
<S> <C>
1995................. $ 1,248
1996................. 1,312
1997................. 27,661
1998................. 18,147
1999................. 22,237
</TABLE>

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items
from the Company's statement of operations data expressed as a percentage of net
sales. The amounts and related percentages may not be fully comparable due to
the acquisition of the Database America Companies (DBA) in February 1997, Pro CD
in August 1997, Walter Karl in March 1998, JAMI Marketing Services (JAMI) in
June 1998, and Donnelley Marketing (Donnelley) in July 1999:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales......................................... 100% 100% 100%
Costs and expenses:
Database and production costs................... 30 29 29
Selling, general and administrative............. 42 51 41
Depreciation and amortization................... 13 12 18
Provision for litigation settlement............. -- 2 --
Impairment of assets............................ 2 -- --
Acquisition costs............................... 2 1 1
In-process research and development............. -- 2 28
Restructuring charges........................... -- 1 --
------ ------ ------
Total costs and expenses................ 88 98 117
------ ------ ------
Operating income (loss)........................... 12 2 (17)
Other income, net................................. 2 2 --
------ ------ ------
Income (loss) before income taxes and extraordinary 14 4 (17)
item..............................................

Income taxes...................................... 5 3 4
------ ------ ------
Income (loss) before extraordinary item........... 9 1 (21)
Extraordinary item, net of tax.................... -- -- --
------ ------ ------
Net income (loss)................................. 9% 1% (21)%
====== ====== ======
EBITDA, as adjusted(1)............................ 27% 15% 29%
====== ====== ======
OTHER DATA:
SALES BY SEGMENT:
Small business.................................. $130.1 $130.0 $116.3
Large business.................................. 136.0 98.7 77.0
------ ------ ------
Total................................... $266.1 $228.7 $193.3
====== ====== ======
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business.................................. 49% 57% 60%
Large business.................................. 51 43 40
------ ------ ------
Total................................... 100% 100% 100%
====== ====== ======
</TABLE>

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(1) "EBITDA, as adjusted," is defined as operating income (loss) adjusted
to exclude depreciation, amortization of intangible assets and non-cash
acquisition-related and restructuring charges. EBITDA, as adjusted, is
presented because it is a widely accepted indicator of a company's
ability to incur and service debt and of the Company's cash flows from
operations excluding any non-recurring items. However, EBITDA, as
adjusted, does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated statements of
cash flows, is not a measure of financial performance under generally
accepted accounting principles ("GAAP") and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not
be comparable to similar measures reported by other companies.

1999 COMPARED TO 1998

Net sales

Net sales for 1999 were $266.1 million, an increase of 16% from $228.7
million for 1998. Net sales of the small business segment for 1999 were $130.1
million, compared to $130.0 million for 1998. Net sales of consumer CD-Rom
products were $19.0 million, a 3% decrease from $19.5 million for 1998. Internet
content sales were $3.3 million, an 83% increase from $1.8 million for 1998, led
by growth in net sales of mailing lists, sales leads and business credit
reports. Net sales for the small business segment were flat principally due to
the implementation of stricter credit practices during late 1998. The Company
adhered to these new credit-extension practices throughout 1999, effectively
slowing the growth of sales within the small business segment, but improving the
profitability of the segment. The Company has also improved the product mix
within its small business segment resulting in improved profit margins. The
Company has been aggressively targeting mid-size customers since mid-1999, and
believe these customers represent an important growth opportunity for the small
business segment in 2000.

Net sales of the large business segment for 1999 were $136.0 million, a 38%
increase from $98.7 million for 1998. The Company recorded net sales of data
processing services of $74.8 million during 1999, compared to $62.3 million
during 1998. Net sales of Internet-based database licenses were $12.5 million, a
59% increase from $7.8 million for 1998. Since mid-1999, the Company has been
successfully renewing and signing new Internet license agreements using a
variable CPM model, no longer entering into license agreements on a flat fee
basis. The increase in net sales for the large business segment and in data
processing services is principally due to the following factors: 1) an increase
in sales of Internet-based database licenses accounted for $4.7 million of the
increase, 2) increased sales of data processing services by the Company's
National Accounts sale force accounted for $7.1 million of the increase, and 3)
the remainder of the increase is attributed to the acquisition of Donnelley
effective July 1999, although the amount can not be accurately quantified for
the reason that Donnelly products or features were combined with existing
products or features. During late 1998, a significant data processing services
customer notified the Company that it intended to perform the same processing
in-house. The customer represented 6% of total net sales during 1998. In early
1999, the customer transferred a significant portion of the business in-house.
The overall increase in the large business segment net sales was partially
offset by the loss of this customer.

Database and production costs

Database and production costs for 1999 were $78.8 million, or 30% of net
sales, compared to $66.3 million, or 29% of net sales for 1998. Since 1996,
database and production costs have increased as a percentage of net sales as a
result of higher cost margins associated with data processing services, CD-Rom
production, and list brokerage services. To the extent that data processing and
list brokerage services constitute a greater percentage of net sales, the
Company expects database and production costs to increase as a percentage of net
sales. Factors contributing to the increase in database and production costs as
a percentage of net sales include: 1) an overall increase in list brokerage and
data processing services sales due to the acquisitions of Walter Karl and JAMI
Marketing during 1998, and 2) the acquisition of Donnelley in July 1999 which
internally has significant sales of data processing services. The overall
increase in database and production costs of 2% was offset by a decrease in the
cost of production of consumer CD-Rom titles of $2.6 million, representing a
decrease of 1%. Selling, general and administrative expenses

Selling, general and administrative expenses for 1999 were $110.7 million,
or 42% of net sales, compared to $117.7 million, or 51% of net sales for 1998.
The decrease in selling, general and administrative expenses for 1999 from 1998,
represented as a percentage of net sales, is partially the result of the
following items recorded during 1998: 1) increase in estimates for reserves for
bad debts of $3.5 million, 2) increase in estimates for reserves related to
price protection and cooperative advertising for consumer CD-Rom products of
$5.3 million, 3) decrease in estimated benefit period related to deferred
advertising costs of $2.7 million, and 4) $0.6 million related to executive
severance costs.

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During late 1997 and early 1998, the Company ramped-up its sales force
anticipating a targeted incremental increase in net sales. The Company
subsequently did not achieve the targeted incremental increase in net sales.
During the third quarter of 1998, the Company enacted certain cost reduction
measures, represented principally by staffing reductions, as described in the
section "Restructuring Charges" to counter prior measures taken. During the
period from the fourth quarter of 1998 through the second quarter of 1999, the
Company focused on the reduction of operating expenses, successfully completing
during mid-1999 the cost reduction program implemented during the third quarter
of 1998. In addition to the items previously described, the decrease in selling,
general and administrative expenses in total and as a percentage of net sales is
partially the result of the staffing reductions, excluding the effects of the
addition of staff related to the acquisition of Donnelley in July 1999.

Depreciation and amortization expenses

Depreciation and amortization expenses for 1999 were $35.1 million, or 13%
of net sales, compared to $27.5 million, or 12% of net sales for 1998. The
increase in depreciation and amortization expenses is due to the acquisition of
Donnelley in July 1999.

Provision for litigation settlement

During 1998, the Company recorded a provision for litigation settlement of
$4.5 million, or 2% of net sales, related to a dispute centered around a license
agreement between DBA and Experian Information Solutions, Inc. prior to the
Company's acquisition of DBA in February 1997.

Impairment of assets

During 1999, the Company recorded asset impairment charges totaling $5.6
million, or 2% of net sales. The impairment charges included: 1) a write-down of
$3.9 million on the net unamortized balance of the Company's existing consumer
database white pages file which was impaired due to the addition of the more
complete Donnelley consumer file with the acquisition of Donnelley in July 1999,
and 2) a write-down of $1.7 million on the net book value of certain leasehold
improvements and in-process construction projects which were abandoned due to
the move of data processing services operations from Montvale, NJ to Greenwich,
CT.

Acquisition costs

During 1999, the Company recorded various integration-related charges of
$4.2 million, or 2% of net sales. The integration-related charges included
consulting costs, management bonuses, direct travel and entertainment costs and
other direct integration-related charges. These costs were not directly related
to the acquisition of Donnelley, and therefore could not be capitalized, but
were costs associated with the integration of Donnelley operations into the
Company's existing operations.

During 1998, the Company recorded charges totaling $3.6 million, or 1% of
net sales, consisting of $3.0 million of costs associated with the Company's bid
to acquire Metromail Corporation and $0.6 million associated with the Company's
offering to sell Common Stock which was not completed.

In-process research and development

During 1998, the Company recorded a charge of $3.8 million, or 2% of net
sales, for purchased in-process research and development costs associated with
the acquisition of Walter Karl, Inc. See discussion of 1998 compared to 1997 for
additional information related to this charge.

Restructuring charges

During 1998, the Company recorded restructuring charges totaling $2.6
million, or 1% of net sales. A restructuring charge of $1.4 million was recorded
related to the closing of the County Data Corp. new business compilation and
sales center and moving these operations from Vermont to Nebraska. All 45 of the
County Data Corp. employees were terminated, and severance charges recorded
totaled $0.6 million. The restructuring charges also included lease termination
costs of $0.3 million and a write-off of $0.5 million of leasehold improvement
costs associated with the closed Vermont facility. The restructuring, including
recording the payments and write-downs described, was completed by September 30,
1998.

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Also during 1998, the Company recorded a restructuring charge of $1.2
million which included $0.6 million in severance for 244 employees terminated as
a result of the implementation of certain cost reduction measures. These
employees were primarily in support and administration positions but some
under-performing sales personnel were also terminated. The restructuring charges
also included $0.4 million related to the closing of four field sales offices.
Additionally, the Company recorded a write-down of $0.2 million related to
leasehold improvement costs at facilities leased by the Company which were being
closed. The restructuring, including recording the payments and write-downs
described, was completed by June 30, 1999.

Operating income

Including the factors previously described, the Company had operating income
of $31.7 million, or 12% of net sales for 1999, as compared to operating income
of $2.6 million, or 2% of net sales for 1998.

Excluding acquisition-related, integration and restructuring, provision for
litigation settlement and asset impairment charges previously described, the
Company would have had operating income of $41.5 million, or 16% of net sales
for 1999, as compared to operating income of $17.2 million, or 8% of net sales
for 1998.

Small business segment - Operating income for the small business segment for
1999 was $59.3 million, or 46% of net sales, as compared to $54.7 million, or
42% of net sales for 1998. The increase in operating income as a percentage of
net sales of 4% directly relates to certain costs incurred during 1998 which
were not incurred during 1999, including: 1) an increase in the estimated
reserves for bad debts of $3.5 million, 2) an increase in the estimates for
reserves for consumer CD-Rom products of $5.3 million, and 3) a charge of $2.7
million related to the change in estimated lives for deferred advertising costs.
These adjustments principally related to the small business segment. The
incremental costs incurred during 1998 described above were offset by cost
reductions performed by the Company during 1998. During late 1998, the Company
enacted certain cost reduction measures described in selling, general and
administrative expenses. Specifically, the Company reduced staffing for this
segment by approximately 175 staff. The staffing reduction caused no material
deterioration in sales, improving profitability of this segment.

Large business segment - Operating income for the large business segment for
1999 was $55.9 million, or 41% of net sales, as compared to $39.7 million, or
40% of net sales for 1998. The increase in operating income as a percentage of
net sales of 1% directly relates to the cost reduction measures described in
selling, general and administrative expenses. Specifically, the Company reduced
staffing for this segment by approximately 70 staff. The staffing reduction
caused no material deterioration in sales, improving profitability of this
segment.

Other income (expense), net

Other income (expense), net was $4.5 million, or 2% of net sales, and $5.5
million, or 2% of net sales, for 1999 and 1998, respectively. Other income
(expense) is comprised of interest expense, investment income and other income
or expense items which do not represent components of operating income (expense)
of the Company.

Interest expense was $18.6 million and $9.2 million for 1999 and 1998,
respectively. The increase in interest expense is principally the result of
servicing debt under the Company's 9 1/2% Senior Subordinated Notes Due 2008
which were issued in June 1998 and the addition of the Deutsche Bank Credit
Facilities used to finance the acquisition of Donnelley in July 1999.

Investment income was $14.2 million and $16.6 million for 1999 and 1998,
respectively. The Company recorded realized gains on the sale of marketable
securities totaling $12.9 million and $15.5 million for 1999 and 1998,
respectively. During 1999, the Company realized a gain of $10.3 million on the
disposition of its holdings in InfoSpace.com common stock. During 1998, the
Company realized a gain of $16.5 million on the disposition of its holdings in
Metromail Corporation common stock.

During 1999, infoUSA.com, a subsidiary of the Company, completed its first
round of venture capital financing. As a result of the issuance of common stock
of this subsidiary, the Company recorded a gain of $8.9 million on the
transaction.

During 1998, the Company recorded a loss of $2.0 million on the write-off of
an investment. During 1997, the Company made an investment of $2.0 million in
preferred stock of an issuer, representing less than 20% of the issuer's
outstanding stock. During 1998, the issuer commenced a reorganization and sought
funding from other outside investors, diluting the Company's investment in this
entity to a nominal value. Additionally, the Company obtained knowledge that the
issuer was incurring significant losses and the intended line of business of
this start-up entity had significantly changed. Accordingly, the Company
wrote-off this investment, which was accounted for on a cost basis.

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Income taxes

A provision for income taxes of $13.1 million and $5.9 million was recorded
for 1999 and 1998, respectively. Acquisition-related charges of $3.8 million,
representing purchased in-process research and development charges for Walter
Karl, were included in income before income taxes for 1998, but are not
deductible for tax purposes. The provisions for these periods also reflect the
inclusion of amortization of certain intangibles in taxable income not
deductible for tax purposes. Amortization expense of $7.5 million and $3.3
million were not deductible for tax purposes for 1999 and 1998, respectively.

Extraordinary item, net of tax

During the first quarter of 1999, the Company repurchased $9.0 million of
its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection with the
repurchase of the Notes, the Company recorded a gain of $0.1 million, net of
deferred financing costs of $0.4 million written-off in proportion to the face
amount of Notes purchased and retired.

EBITDA, as adjusted

Excluding the purchased in-process research and development and asset
impairment charges previously described, the Company's EBITDA, as adjusted, was
$72.4 million, or 27% of net sales for 1999, and $33.9 million, or 15% of net
sales for 1998.

1998 COMPARED TO 1997

Net sales

Net sales for 1998 were $228.7 million, a 18% increase from $193.3 million
in 1997. Net sales of the small business segment were $130.0 million, a 12%
increase from $116.3 million in 1997. Included in the small business segment are
sales of sales leads generation products and consumer CD-Rom products. Factors
contributing to an increase in net sales of sales lead generation products
included: the enhancement of existing and development of new sales lead
generation products, the increase in the number of mailing pieces mailed from
30.0 million during 1997 to 38.7 million during 1998 and the acquisitions of
DBA, Pro CD, and Contacts Target Marketing during 1997 and 1998. The average net
sales per mailing piece declined from $6.55 per piece in 1997 to $5.75 in 1998.
The principal reason for the decline in average sales per mailing piece is that
during 1998, the Company increased the pieces mailed to test various markets and
new product lines. The market tests did not result in significant incremental
net sales. Net sales of consumer CD-Rom products for 1998 were $19.5 million, an
11% decrease from $21.7 million for 1997. The decrease in consumer CD-Rom
product net sales reflects an increase in estimates for reserves of $2.7 million
during 1998 related to product returns. Due to a decline in general market
conditions and demand for the product, the Company experienced significant
product returns during the second and third quarters of 1998. Therefore the
reserve for returns was adjusted accordingly. The change in the reserve for
returns related primarily to sales that occurred during the second and third
quarters of 1998. The decline in market conditions and demand for the product
have continued to remain low therefore sales are expected to remain at a
decreased level.

Net sales of the large business segment were $98.7 million, a 28% increase
from $77.0 million in 1997. Included in the large business segment are sales of
data processing services. Net sales of data processing services for 1998 were
$62.3 million, a 45% increase from $42.7 million for 1997. The increase is
principally the result of the acquisition of DBA in February 1997, Walter Karl
in March 1998 and JAMI Marketing in June 1998. Additionally, during 1998, the
Company entered into Internet licensing agreements totaling approximately $7.8
million compared to $4.8 million in 1997. The Company recorded sales to a
significant data processing services customer totaling $14.6 million during
1998, representing 6% of total net sales. Sales to this customer occurred evenly
during the year. During 1998, the customer notified the Company that it intended
to perform the same processing in-house. The overall increase in net sales of
data processing services in 1999 was partially offset by the loss of this
customer.

Database and production costs

For 1998, database and production costs were $66.3 million, or 29% of net
sales, compared to $55.1 million, or 29% of net sales for 1997. The Company
produces, markets and sells an annual consumer CD-Rom product line consisting in
excess of twenty separate titles. Each product line is customarily released
during the third quarter of each fiscal year. The 1999 product line was released
during the third quarter of 1998. During 1998, the Company produced units of the
1998 product line that exceeded actual sales. The write-down of $0.9 million was
equal to the remaining costs recorded on the books for the 1998 product line
which became obsolete as a result of the release of the 1999 product line during
the third quarter of 1998.

8
<PAGE> 9

Selling, general and administrative expenses

Selling, general and administrative expenses for 1998 were $117.7 million,
or 51% of net sales, compared to $80.2 million, or 41% of net sales for 1997.
The increase in selling, general and administrative expenses, representing 10%
of net sales, is principally the result of the following items: 1) increase in
estimates for reserves for bad debts of $3.5 million, 2) increase in estimates
for reserves related to price protection and cooperative advertising for
consumer CD-Rom products of $5.3 million, 3) decrease in estimated benefit
period related to deferred advertising costs of $2.7 million, and 4) $0.6
million related to executive severance costs. The charges described above
accounted for approximately one-half of the increase in selling, general and
administrative expenses, expressed as a percentage of net sales.

During the third quarter 1998, the Company modified the estimated benefit
period related to deferred advertising costs from 12 months to 6 months. The
Company updated its study of sales and responses derived from its direct
marketing campaigns during the third quarter of 1998. This study was based upon
specific evaluations of sales responses from specific direct marketing
campaigns. Due to changes in mailing patterns, management was able to determine
that the Company's catalogs generated sales for approximately 6 months after the
mail date rather than 12 months.

Due to a decline in general market conditions and demand for the consumer
CD-Rom product, the Company experienced significant product returns during the
second and third quarters of 1998. In addition, the Company issued additional
price protection due to the decline in demand. The change in reserve related
primarily to sales of consumer CD-Rom products that occurred during the second
and third quarters of 1998.

Depreciation and amortization expenses

Depreciation and amortization expenses for 1998 were $27.5 million, or 12%
of net sales, compared to $34.4 million, or 18% of net sales for 1997.
Amortization of acquired database costs and purchased data processing software
associated with the acquisition of the DBA in February 1997 totaled $6.3 million
and $21.7 million for 1998 and 1997, respectively.

Excluding amortization of acquired database costs and purchased data
processing software associated with the acquisition of DBA in February 1997,
depreciation and amortization expenses were $21.1 million and $12.7 million for
1998 and 1997, respectively. The increase relates primarily to amortization of
intangibles for acquisitions recorded since June 1997, including Pro CD in
August 1997, Walter Karl in March 1998, and JAMI in June 1998.

Provision for litigation settlement

The Company recorded a provision for litigation settlement of $4.5 million,
or 2% of net sales, during the third quarter of 1998 related to a dispute
centered around a license agreement between DBA and Experian Information
Solutions, Inc. prior to the Company's acquisition of DBA in February 1997.

Acquisition costs

During 1997, the Company recorded $2.6 million of acquisition costs, or 1%
of net sales, related to integrating acquired operations into the Company's
existing operations. These expenses consisted primarily of costs such as travel
between the Company and the new operations, consulting, payroll and other
expenses related to implementing Company policies and information systems at the
new locations. All costs had been incurred by December 31, 1997.

9
<PAGE> 10

In-process research and development

During 1998, the Company recorded a write-off of acquired in-process
research and development of $3.8 million, or 2% of net sales, in connection with
the acquisition of Walter Karl. A portion of the purchase price for this
acquisition was attributed to the value of the IPR&D projects and was expensed
in accordance with Statement of Financial Accounting Standards (SFAS) No. 2,
"Accounting for Research and Development Costs." The Company believes its
accounting for purchased IPR&D was made in accordance with generally accepted
accounting principles and valuation practices at the time of the related
acquisitions. The total amount allocated to the purchased IPR&D recorded in
connection with the acquisition of Walter Karl was $3.8 million after
retroactive application of the Securities and Exchange Commission's new
guidelines for valuing purchased IPR&D.

The Company obtained an independent valuation of the purchased IPR&D. The
income valuation approach was used to determine the fair value of the IPR&D
projects acquired from Walter Karl. Under the income approach, the fair value
reflects the present value of the projected cash flow that will be generated by
the IPR&D projects if successfully completed. The income approach focuses on the
income producing capability of the acquired IPR&D, which the Company believes it
represents the present value of the future economic benefits expected to be
potentially derived from these projects. As of the valuation dates, the acquired
IPR&D projects had not demonstrated technological nor economic feasibility. As a
result, the attainability of the income projections is subject to three risk
factors: project risk, product risk, and market risk. Project risk reflects the
degree to which the project can be feasibly completed and will perform upon its
completion in the manner specified. Project risk is dependent upon the
development phase of the project as of the acquisition date. Under this premise,
the closer the project is to completion, the more likely that the project will
reach a successful conclusion. Product risk refers to the concept that these
products will be able to produce commercially viable products and services. This
factor can be assessed based upon past management experience in the development
of new products or services and success of those past ventures. Whether the
development required a significant technological or process change was also
considered. For a product or service which is similar to other products or
services, the risk factor associated is low. Market risk refers to the concept
that these products will be demanded by the market upon their completion. Market
risk is based upon information that indicates the degree to which the market
will demand a product or service that provides the functionality specified.
Without the successful completion of the remaining development efforts, the end
result would be to fail to introduce new products. A discount of 30% was applied
to reflect these risks associated with the projected cash flow to be generated
by the acquired IPR & D projects.

The descriptions of the projects related to Walter Karl are as follows:

- Internet F/E to M204 is a list fulfillment system which interfaces with
the Internet to request orders.

- M204 Shipping Interface automates shipping and generates the ability to
setup shipping destination information as well as allow for the tracking
of shipments throughout out its journey to the final destination.

- List Brokerage & Management Order is a new order entry system for list
fulfillment.

- Global Database Update refers to a project that will create a new updated
database for the client, Global.

- Arandel System Postal/Inkjet allows for postal information to be formatted
for Inkjet specifications.

- Paul Fredrick/Garden Botanika Reporting provides new reporting and
database retrieval for the client Paul Fredrick/Garden Botanika.

- Chilean Database is a project for a Chilean organization which consists of
creating a new database with additional information.

- Datacard System allows for the integration with the List Brokerage &
Management Order System for rental lists.

- Inkjet Utilities will generate a different layout for Inkjet
specifications and the project will also allow for new audit reporting.

- Flowers Response Analysis is a project that will attempt to increase the
database response time of the client, Flowers.

- Data Entry System will allow for LAN data entry of additional information.

Research and Development costs of each Walter Karl project are directly
proportional to the amount of labor (i.e. technicians and engineers) required to
complete the project. It is estimated that the average annual cost per technical
worker at Walter Karl is

10
<PAGE> 11

$47,507. As a result, the R&D incurred on each project prior to the acquisition
and the total amount of research and development cost estimated to complete each
project are listed below.

<TABLE>
<CAPTION>
R&D Costs R&D Costs
Prior to the Expected Post
IPR&D Project Acquisition Acquisition Total R&D Costs
------------- ------------ ------------- ---------------
<S> <C> <C> <C>
Internet F/E to M204 $11,877 $23,754 $35,631
M204 Shipping Interface $23,754 $11,877 $35,631
List Brokerage & Mgt. Order $23,754 $47,507 $71,261
Global Database Update $4,751 $23,754 $28,504
ArandalSystem Postal/InkJet $11,877 $23,754 $35,630
Paul Fredrick $35,630 $23,754 $59,384
Chilean Database $4,751 $23,754 $28,504
Datacard System $47,507 $9,501 $57,008
InkJet Utilities $23,754 $9,501 $33,255
Flowers Response Analysis $4751 $4,751 $9,501
Data Entry System $23,754 $4,751 $28,504
Total $228,034 $206,655 $434,689
</TABLE>

A description of the stage of completion as well as the methodology employed
is listed below for each IPR&D project related to Walter Karl; the stage of
completion of each project was determined by examining the ratio of R&D expenses
as of the acquisition date to total R&D costs (incurred and projected).

<TABLE>
<CAPTION>
SCHEDULED BETA TEST
IPR&D PROJECTS STAGE OF COMPLETION DATE
-------------- ------------------- -------------------
<S> <C> <C>
Internet F/E to M204....... Middle of the Design June 1998
Phase
M204 Shipping Interface.... Design Phase Unknown - Delayed
List Brokerage & Mgt. Order Early Design Phase December 1998
Global Database Update..... Early Design Phase August 1998
ArandalSystem Postal/InkJet Design Phase Unknown - Delayed
Paul Fredrick.............. Design Phase Unknown - Delayed
Chilean Database........... Design Phase October 1998
Datacard System............ Design Phase April 1998
InkJet Utilities........... Late Stages of Design May 1998
Phase
Flowers Response analysis.. Late Stages of Design April 1998
Phase
Data Entry System.......... Late Stages of Design April 1998
Phase
</TABLE>

The stage of completion for each project was determined by using the
formula: person years completed on R&D/Total person years of R&D effort. Below
is a chart outlining the stage of completion for each project.

<TABLE>
<CAPTION>
R&D PERSON YEARS
COMPLETED AS OF PERSON YEARS TOTAL R&D PERCENTAGE OF
IPR&D PROJECT VALUATION DATE REMAINING PERSON YEARS COMPLETION
------------- ---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Internet F/E to M204...... .25 .50 .75 33%
M204 Shipping Interface... .50 .25 .75 67%
List Brokerage & Mgt. Order .50 1.0 1.5 33%
Global Database Update.... .10 .50 .60 17%
ArandalSystem Postal/InkJet .25 .50 .75 33%
Paul Fredrick............. .75 .50 1.25 60%
Chilean Database.......... .10 .50 .60 17%
Datacard System........... 1.0 .20 1.2 83%
InkJet Utilities.......... .50 .20 .70 71%
Flowers Response Analysis. .10 .10 .20 50%
Data Entry System......... .50 .10 .60 83%
Total........... 4.80 4.35 9.15 52%
</TABLE>

11
<PAGE> 12

In regards to Walter Karl, product and market risks for each project are
outlined in the following table:

<TABLE>
<CAPTION>
IPR & D PROJECT PROJECT RISK PRODUCT RISK MARKET RISK
--------------- ------------ ------------ -----------
<S> <C> <C> <C>
Internet F/E to M204.......... Low Low Medium
M204 Shipping Interface....... Low to Medium Low to Medium Low
List Brokerage & Mgt. Order... Low Low Medium
Global Database Update........ Medium Low High
ArandalSystem Postal/InkJet... Medium Low High
Paul Fredrick................. Low to Medium Low High
Chilean Database.............. Medium Low High
Datacard System............... Low Low to Medium Low
InkJet Utilities.............. Low Low Medium
Flowers Response Analysis..... Low Low High
Data Entry System............. Low Low Low
</TABLE>

During 1997, the Company recorded write-offs of acquired IPR & D totaling
$53.5 million, or 28% of net sales, including charges of $49.2 million and $4.3
million in connection with the acquisition of DBA and Pro CD, respectively. A
portion of the purchase price for these acquisitions was attributed to the value
of the IPR&D projects and was expensed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 2, "Accounting for Research and Development
Costs." The Company believes its accounting for purchased IPR&D was made in
accordance with generally accepted accounting principles and valuation practices
at the time of the related acquisitions.

The Company obtained independent valuations of the purchased IPR&D. The
income valuation approach was used to determine the fair value of the IPR&D
projects acquired from DBA and Pro CD. Under the income approach, the fair value
reflects the present value of the projected cash flow that will be generated by
the IPR&D projects if successfully completed. The income approach focuses on the
income producing capability of the acquired IPR&D, which the Company believes
represents the present value of the future economic benefits expected to be
potentially derived from these projects. As of the valuation dates, the acquired
IPR&D projects had not demonstrated technological nor economic feasibility. As a
result, the attainability of the income projections is subject to three risk
factors: project risk, product risk, and market risk. Project risk reflects the
degree to which the project can be feasibly completed and will perform upon its
completion in the manner specified. Project risk is dependent upon the
development phase of the project as of the acquisition date. Under this premise,
the closer the project is to completion, the more likely that the project will
reach a successful conclusion. Product risk refers to the concept that these
products will be able to produce commercially viable products and services. This
factor can be assessed based upon past management experience in the development
of new products or services and success of those past ventures. Whether the
development required a significant technological or process change was also
considered. For a product or service which is similar to other products or
services, the risk factor associated is low. Market risk refers to the concept
that these products will be demanded by the market upon their completion. Market
risk is based upon information that indicates the degree to which the market
will demand a product or service that provides the functionality specified.
Without the successful completion of the remaining development efforts, the end
result would be to fail to introduce new products. A discount ranging from 24%
to 30% was applied to reflect these risks associated with the projected cash
flow to be generated by the acquired IPR&D projects. The stage of completion of
the projects is not used in the determination of the value of IPR&D under a
discounted cash flow approach. In applying the income approach, management's
projections of the revenue and expenses the technologies were expected to
generate were modeled. The earnings before interest and taxes (EBIT) was
computed and tax-affected to estimate debt free net income. Debt free net income
was subsequently decreased by changes in working capital and reduced by an
appropriate rate of return on assets (assets utilized to achieve the respective
cash flows). The computation yielded debt free cash flow available for
distribution to debt and equity holders. The debt free cash flow streams for
each technology or product was discounted to the present value based on the rate
of return an investor would require for a project with a risk profile similar to
DBA. Where appropriate, a terminal value was determined using a multiple or
factor applied to the last year's projected revenue or EBITDA. The same discount
rate applied to the debt free cash flow stream was also applied to the terminal
value to arrive at the present value. This amount was then added to the present
value of the debt fee cash flow stream to determine the total value of the
technology.

The $49.2 million charge for DBA relates to $46.9 million for interactive
media products and services and $2.3 million for data processing technologies.
Interactive media products included technology that would allow a customer to:
access the Company's web site and download profile information on a particular
business, company or individual for a per-access charge; "enrich" or "enhance"
their list by matching it to the Company's via the internet; and allow the list
to reside at the Company, while via the internet the customer will be "flagged"
or notified of any updates to the information contained in the list. This
project was in the early stages of development and was approximately 5-10%
complete at acquisition. The ability to forecast project completion was not
reasonable as the technological developments had not achieved a stage of
feasibility as of January 31, 1997. Stage of completion was not assessed for
this technology. The company had dedicated two engineering software technicians
for the development of this technology concentrating on the development of the
company's web-site prior to acquisition. These technologies were completed
during 1998. During 1998, these functions were completed and have been utilized
since that point in time to provide additional capabilities to customers. The
new data processing technologies include merge/purge abilities, update and
maintenance capabilities of relational databases, improved delivery systems and
upgraded billing/accounting systems.

12
<PAGE> 13

The $4.3 million charge related to Pro-CD includes the following projects:
Graphical user interface technology represented $1.5 million of the charge. This
project involved integrating certain features and functions of SelectPhone and
Phonedisc graphical user interfaces into a common interface. The estimated costs
at acquisition to complete the project were $3.1 million, with completion
estimated for 1999. Database re-engineering, including process modification and
restructuring records, of the SelectPhone product in order to accommodate
consumer and business files accounted for $2.1 million of the charge. Additional
elements were also expected to be added to enhance the SelectPhone product's
competitive position. The estimated costs to complete were $5.5 million at
acquisition through 2002. Applying DVD compact disc technology to the
SelectPhone product line represented $0.5 million of the charge. The estimated
cost to complete the project at acquisition was $0.2 million with expected
completion in 1999. Finally, $0.2 million was charged relating to the extensive
evaluation and correction for year 2000 date processing compliance of the
SelectPhone product line. This assessment included the user interface as well as
the product database. The estimated cost to complete was $0.4 million at
acquisition with completion scheduled for 1998.

IPR&D was a critical factor for the Company in making these acquisitions and
timely completion of these projects was an equally important consideration. The
time completion was expected to give the Company a competitive edge in its
competition and solidify its position as a leader in the business-to-business
marketing information field. A major risk of not completing these projects
timely, would be the risk of losing customers on a medium to long term basis and
allow a competitor to provide a solution that may include these technically
advanced and value added features.

A major risk of not completing these projects timely, would be the risk of
losing customers on a medium to long term basis and allow a competitor to
provide a solution that may include these technically advanced and value added
features.

Restructuring charges

During 1998, the Company recorded restructuring charges totaling $2.6
million, or 1% of net sales. During the first quarter of 1998, the Company
recorded a restructuring charge of $1.4 million related to the closing of the
CDC new business compilation and sales center and moving these operations from
Vermont to Nebraska. All 45 of the CDC employees were terminated, and severance
recorded totaled $0.6 million. The restructuring charges also included lease
termination costs of $0.3 million and a write-off of $0.5 million of leasehold
improvement costs associated with the closed Vermont facility. The
restructuring, including recording the payments and write-downs described, was
completed by September 30, 1998.

During the third quarter of 1998, the Company recorded a restructuring
charge of $1.2 million which included $0.6 million in severance for 244
employees terminated as a result of the implementation of certain cost reduction
measures. These employees were primarily in support and administration positions
but some personnel from under-performing sales functions were also terminated.
The restructuring charges also included $0.4 million related to the planned
closing of four field sales offices. Additionally, the Company recorded a
write-down of $0.2 million related to leasehold improvement costs at facilities
leased by the Company which were being closed. The restructuring, including
recording the payments and write-downs described, was completed as of December
31, 1998, with the exception of the costs totaling $0.4 million related to the
exit of certain field sales offices which were completed in early 1999.

Operating income (loss)

Including the factors previously described, the Company had operating income
of $2.6 million, or 2% of net sales for 1998, as compared to an operating loss
of $(32.5) million, or (17)% of net sales for 1997.

Operating income for the small business segment for 1998 was $54.7 million,
or 42% of net sales, as compared to $50.5 million, or 43% of net sales for 1997.
Factors contributing to the decrease in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." See Note 21 of the notes to the accompanying consolidated financial
statements for additional information.

Operating income for the large business segment for 1998 was $39.7 million,
or 40% of net sales, as compared to $35.7 million, or 46% of net sales for 1997.
Factors contributing to the decrease in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." Additionally, the Company acquired Walter Karl and JAMI Marketing
during 1998. Walter Karl and JAMI Marketing perform list brokerage services,
which traditionally have lower profit margins than services associated with the
Company's data processing services. See Note 21 of the notes to the accompanying
consolidated financial statements for additional information.

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<PAGE> 14

Other income (expense), net

Other income (expense), net for 1998 and 1997 was $5.5 million and $(0.4)
million, respectively. During the second quarter of 1998, the Company realized a
gain of $16.5 million on the disposition of its holdings in Metromail
Corporation common stock. This realized gain was partially offset during the
second quarter of 1998 when the Company recorded a loss of $2.0 million on the
write-off of an investment. The increase in interest expense to $9.2 million
from $4.1 million is primarily attributable to the issuance of senior
subordinated notes during 1998, of which $115 million was outstanding at
December 31, 1998. During the first quarter of 1997, the Company made an
investment of $2.0 million in preferred stock of an issuer, representing less
than 20% of the issuer's outstanding stock. During 1998 the issuer commenced a
reorganization and sought funding from other outside investors, diluting the
Company's investment in this entity to a nominal value. Additionally, the
Company obtained knowledge that the issuer was incurring significant losses and
the intended line of business of this start-up entity had significantly changed.
Accordingly, the Company wrote-off this investment, which was accounted for on a
cost basis, during the second quarter of 1998.

Income taxes

A provision for income taxes of $5.9 million and $7.0 million was recorded
for 1998 and 1997, respectively. Acquisition-related charges of $3.8 million and
$49.2 million were included in income before income taxes during 1998 and 1997,
respectively, but are not deductible for tax purposes. The provision for these
periods also reflect the inclusion of amortization on certain intangibles in
taxable income not deductible for tax purposes.

EBITDA, as adjusted

Excluding the purchased in-process research and development charges
previously described, the Company's EBITDA, as adjusted, was $33.9 million, or
15% of net sales, during 1998, compared to $55.4 million, or 29% of net sales,
during 1997.

YEAR 2000 READINESS DISCLOSURE

The total estimated costs associated with the Company's Year 2000
remediation plan were $5.0 million. As of the date of this Form 10-K, the
Company has not experienced any material business disruptions as a result of
Year 2000 issues arising from its information systems, nor is it aware of any
material Year 2000 related business interruptions impacting its clients or
service providers. However, the Company cannot be certain that it will not
suffer business interruptions, either due to its own Year 2000 issues that may
develop or those of third parties. Accordingly, there can be no assurance the
Company or third parties will not have ongoing Year 2000 issues that may have a
material adverse effect on the Company.

ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
their fair value. If certain conditions are met, a derivative may be
specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-currency denominated forecasted transaction. SFAS 133, as
amended by Statement of Financial Accounting Standards No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect the effect of SFAS 133 to be significant to its financial
reporting.

LIQUIDITY AND CAPITAL RESOURCES

"Consolidated Statements of Cash Flows Information'

As of December 31, 1999, the Company had working capital of $41.1 million.

During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a new credit facilities arrangement which provides for a Revolving
Credit Facility of $30.0 million. As of December 31, 1999, the Company had no
borrowings under the Revolving Credit Facility, with the exception of one
outstanding letter of credit in the amount of $5.0 million reducing the
availability under the Revolving Credit Facility to $25.0 million.

14
<PAGE> 15

Net cash provided by operating activities during 1999 totaled $29.4 million,
compared to net cash provided by operating activities of $16.7 million during
1998.

During 1999, the Company spent $9.0 million for additions of property and
equipment, $10.4 million related to internal software development costs and $577
thousand related to database development costs.

The Company acquired Donnelley effective July 1999. The Company has paid
$206.4 million related to the acquisition, including consideration paid for the
acquisition of $200.0 million and $6.4 million for capitalized acquisition
costs. As part of the acquisition, the Company borrowed $165.0 million under the
new credit facilities arrangement. The Company paid financing costs of $4.0
million to secure the financing arrangement. The Company also utilized existing
cash and marketable securities of approximately $45.0 million to purchase
Donnelley.

During 1999, the Company spent $6.6 million to repurchase common stock of
the Company and $8.4 million to repurchase outstanding Senior Subordinated Notes
of the Company.

During 1999, the Company's subsidiary received $10.0 million on the issuance
of common stock of a subsidiary and $7.8 million on proceeds from the exercise
of stock options.

The issuance of subsidiary stock to outside investors has allowed the
Company to continue to execute its planned expansion related to infoUSA.com as
an online provider of white and yellow page directory assistance and an Internet
destination for sales and marketing tools and information. The issuance of stock
has allowed the Company to continue the expansion without affecting working
capital of existing operations. The Company may continue to issue additional
stock to outside investors, although there can be no assurances that the Company
will issue additional stock and such issuance is dependent upon the results of
operations related to infoUSA.com and its planned expansion.

"Consolidated Balance Sheets Information'

Cash and cash equivalents decreased from $29.6 million at December 31, 1998
to $10.8 million at December 31, 1999 and marketable securities decreased from
$20.6 million at December 31, 1998 to $70 thousand at December 31, 1999. The
Company utilized existing cash and cash equivalents and marketable securities of
approximately $45.0 million to purchase Donnelley in July 1999.

Trade accounts receivable increased from $40.1 million at December 31, 1998
to $65.8 million at December 31, 1999 principally due to the acquisition of
Donnelley in July 1999. The Company recorded trade accounts receivable of $14.5
million as part of the acquisition.

Property and equipment, net increased from $40.3 million at December 31,
1998 to $53.6 million at December, 1999 principally due to the following: 1)
$6.2 million recorded as part of the acquisition of Donnelley in July 1999, and
2) the Company recorded capital leases totaling $6.8 million during 1999,
primarily related to the acquisition of new computer equipment.

List brokerage trade accounts receivable decreased from $17.8 million at
December 31, 1998 to $16.7 million at December 31, 1999. List brokerage trade
accounts payable decreased from $18.8 million at December 31, 1998 to $16.4
million at December 31, 1999. The balance of list brokerage trade accounts
receivable and list brokerage trade accounts payable may fluctuate significantly
and is dependent on the specific timing of cash receipts and disbursements. The
Company customarily pays the selling broker shortly after being paid by the
buying broker.

Intangible assets, net increased from $109.4 million at December 31, 1998 to
$315.9 million at December 31, 1999. Goodwill and other intangibles recorded as
part of the acquisition of Donnelley based on management's preliminary estimates
totaled $228.2 million, and included goodwill of $150.3 million, purchased data
processing software of $64.1 million, trade names of $7.7 million, and
non-compete agreements of $6.1 million.

Total accrued expenses decreased from $12.5 million at December 31, 1998 to
$6.4 million at December 31, 1999 principally due to the following: 1) payment
of $4.6 million to Experian Information Solutions, Inc. during 1999 in
connection with arbitration of a contractual dispute, 2) purchase price
adjustment of $1.3 million, recorded as a reduction to goodwill, of an accrual
related to the buy-out of a lease recorded in connection with the acquisition of
Walter Karl.

15
<PAGE> 16

Long-term debt increased from $126.7 million at December 31, 1998 to $267.6
million at December 31, 1999 principally due to the borrowing of $165.0 million
under the new credit facilities arrangement to purchase Donnelley. Additionally,
the Company recorded capital leases totaling $6.8 million during 1999, primarily
related to the acquisition of new computer equipment. This increase was offset
by the Company's repurchase of $9.0 million of its infoUSA 9 1/2% Senior
Subordinated Notes as previously described and repayments totaling $10.2 million
on the Credit Facilities during 1999.

Treasury stock increased from $3.0 million at December 31, 1998 to $9.2
million at December 31, 1999 principally due to the purchase in the open market
of 1.1 million shares of common stock during 1999 at a total cost of $6.6
million.

The Company believes that its existing sources of liquidity and cash
generated from operations, assuming no major acquisitions, will satisfy the
Company's projected working capital and other cash requirements for at least the
next 12 months. To the extent the Company experiences growth in the future, the
Company anticipates that its operating and investing activities may use cash.
Any such future growth and any acquisitions of other technologies, products or
companies may require the Company to obtain additional equity or debt financing,
which may not be available or may be dilutive.

FACTORS THAT MAY AFFECT OPERATING RESULTS

Our Internet strategy -- to be an incubator of Internet database companies -- is
untested.

Our Internet strategy is to be an incubator of Internet database companies.
With this strategy, we are seeking to leverage our proprietary content into
multiple vertical market applications and provide marketing solutions for
electronic commerce applications. We recently introduced this strategy and it is
relatively untested. We cannot guarantee that our Internet ventures will attract
the number of visitors or advertisers that we project, or that our customers
will choose to have our products and services delivered to them over the
Internet. If we are successful in these ventures, we may face strong competition
from current and potential competitors, including other Internet companies and
other providers of business and consumer databases.

Implementation of our Internet strategy is dependent on our ability to attract
and retain senior management.

The demand for senior management for Internet companies currently exceeds
the supply of qualified candidates. The management team for our Internet
ventures will include senior managers who have been with us for many years as
well as newly hired senior managers. If we are unable to retain these managers
or to attract other qualified senior management, the implementation of our
Internet strategy may be delayed or impaired.

Our markets are highly competitive and many of our competitors have greater
resources than we do.

The business and consumer marketing information industry in which we operate
is highly competitive. Intense competition could harm us by causing, among other
things, price reductions, reduced gross margins, and loss of market share. Our
competition includes:

- In consumer sales lead generation products, Acxiom, R.L. Polk, Experian
(a subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax,
both directly and through reseller networks.

- In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications,
Inc. and Harte-Hanks Communications, Inc.

- In business sales lead generation products, Experian and Dun's Marketing
Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon
information compiled from Dun & Bradstreet's credit database, tends to
focus on marketing to large companies.

- In business directory publishing, from Regional Bell Operating Companies
and many smaller, regional directory publishers.

- In consumer products, certain smaller producers of CD-Rom products.

- Technologies which companies may install and implement in-house as part
of their internal IS functions, instead of purchasing or outsourcing
such functions.

16
<PAGE> 17

In addition, we may face competition from new entrants to the business and
consumer marketing information industry as a result of the rapid expansion of
the Internet, which creates a substantial new channel for distributing business
information to the market. Many of our competitors have longer operating
histories, better name recognition and greater financial resources than we do,
which may enable them to implement their business strategies more readily than
we can.

We are highly leveraged. If we are unable to service our debt as it becomes due,
our business would be harmed.

As of December 31, 1999, we had total indebtedness of approximately $277.5
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $154.8 million under a $195 million Senior Secured Credit Agreement.
Substantially all of our assets are pledged as security under the terms of the
Credit Agreement. The indebtedness under the Credit Agreement was incurred in
connection with our acquisition of Donnelley Marketing in 1999. Our ability to
pay principal and interest on the Notes issued under the Indenture and the
indebtedness under the Credit Agreement and to satisfy our other debt
obligations will depend upon our future operating performance. Our performance
will be affected by prevailing economic conditions and financial, business and
other factors. Certain of these factors are beyond the our control. The future
availability of revolving credit under the Credit Agreement will depend on,
among other things, our ability to meet certain specified financial ratios and
maintenance tests. We expect that our operating cash flow should be sufficient
to meet our operating expenses, to make necessary capital expenditures and to
service our debt requirements as they become due. If we are unable to service
our indebtedness, however, we will be forced to take actions such as reducing or
delaying acquisitions and/or capital expenditures, selling assets, restructuring
or refinancing our indebtedness (including the Notes issued under the Indenture
and the Credit Agreement) or seeking additional equity capital. We may not be
able to obtain any such remedies on terms that are favorable or satisfactory to
us, if at all.

The terms of our current indebtedness restrict our ability to take certain
actions that fit our business strategy.

Our existing credit facilities contain certain covenants which restrict our
ability to:

- Incur additional indebtedness;

- Pay dividends and make certain other similar payments;

- Guarantee indebtedness of others;

- Enter into certain transactions with affiliates;

- Consummate certain asset sales, certain mergers and consolidations, sales
or other dispositions of all or substantially all of our assets; and

- Obtain dividends or certain other payments from our subsidiaries.

These restrictions may impair our ability to take certain actions that fit
our business strategy. A breach of any of these covenants could result in an
event of default under the terms of our existing credit facilities. Upon the
occurrence of an event of default, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the payment of any such indebtedness is accelerated, our assets may
not be sufficient to repay in full the indebtedness under our credit facilities
and our other indebtedness. Moreover, if we were unable to repay amounts owed to
the lenders under our credit facilities, the lenders could foreclose on our
assets that secure the indebtedness.

Under the terms of our current indebtedness, the occurrence of a change of
control of infoUSA could have serious adverse financial consequences to us.

If a change of control of infoUSA were to occur, we would in certain
circumstances be required to make an offer to purchase all outstanding Notes
under the Indenture at a purchase price equal to 101% of the principal amount of
the Notes, together with accrued and unpaid interest. There can be no guarantee
that, if this were to happen, we would have sufficient funds to purchase the
Notes. In addition, a change of control and any repurchase of the Notes upon a
change of control may constitute an event of default under our other current or
future credit facilities. In that event, our obligations under such credit
facilities could be declared due and payable by the lenders, and the lenders may
also have the right to be paid for all outstanding obligations under such credit
facilities before we repurchase any of the Notes.

17
<PAGE> 18

Fluctuations in our operating results may result in decreases in the market
price of our common stock.

Our operating results may fluctuate on a quarterly and annual basis. Our
expense levels are relatively fixed and are based, in part, on our expectations
as to future revenues. As a result, unexpected changes in revenue levels may
have a disproportionate effect on operating performance in any given period. In
some period or periods our operating results may be below the expectations of
public market analysts and investors. Our failure to meet analyst or investor
expectations could result in a decrease in the market price of our common stock.

If we do not adapt our products and services to respond to changes in
technology, they could become obsolete.

We provide marketing information and services to our customers in a variety
of formats, including printed formats, electronic formats such as CD-Rom and
DVD, and over the Internet. Advances in information technology may result in
changing customer preferences for products and product delivery formats. If we
do not successfully adapt our products and services to take advantage of changes
in technology and customer preferences, our business, financial condition and
results of operations would be adversely affected.

We have adopted an Internet strategy because we believe that the Internet
represents an important and rapidly evolving market for marketing information
products and services. Our business, financial condition and results of
operations would be adversely affected if we:

- Fail to develop products and services that are well suited to the Internet
market;

- Experience difficulties that delay or prevent the successful development,
introduction and marketing of these products and services; or

- Fail to achieve sufficient traffic to our Internet sites to generate
significant revenues, or to successfully implement electronic commerce
operations.

Changes in laws and regulations relating to data privacy could adversely affect
our business.

We engage in direct marketing, as do many of our customers. Certain data and
services provided by us are subject to regulation by federal, state and local
authorities. In addition, growing concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
self-regulation of such practices by the direct marketing industry through
guidelines suggested by the Direct Marketing Association and to increased
federal and state regulation. There is increasing awareness and concern among
the general public regarding marketing and privacy concerns, particularly as it
relates to the Internet. This concern is likely to result in new laws and
regulations. Compliance with existing federal, state and local laws and
regulations and industry self-regulation has not to date seriously affected our
business, financial condition or results of operations. Nonetheless, federal,
state and local laws and regulations designed to protect the public from the
misuse of personal information in the marketplace and adverse publicity or
potential litigation concerning the commercial use of such information may
increasingly affect our operations. This could result in substantial regulatory
compliance or litigation expense or a loss of revenue.

Our business would be harmed if we do not successfully integrate future
acquisitions.

Our business strategy includes continued growth through acquisitions of
complementary products, technologies or businesses. We have made ten
acquisitions since mid-1996 and completed the integration of these acquisitions
into our existing business by the end of 1999. We continue to evaluate strategic
opportunities available to us and intend to pursue opportunities that we believe
fit our business strategy. Acquisitions of companies, products or technologies
may result in the diversion of management's time and attention from day-to-day
operations of our business and may entail numerous other risks, including
difficulties in assimilating and integrating acquired operations, databases,
products, corporate cultures and personnel, potential loss of key employees of
acquired businesses, difficulties in applying our internal controls to acquired
businesses, and particular problems, liabilities or contingencies related to the
businesses being acquired. To the extent our efforts to integrate future
acquisitions fail, our business, financial condition and results of operations
would be adversely affected.

18
<PAGE> 19

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of the Report:

1. Financial Statements. The following Consolidated Financial Statements
of infoUSA Inc. and Subsidiaries and Report of Independent Accountants are
included at pages F-1 through F-25 of this Form 10-K:

<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Independent Auditors' Reports....................... F-2, F-3
Consolidated Balance Sheets as of December 31, 1999
and 1998............................................ F-4
Consolidated Statements of Operations for the Year
Ended December 31, 1999, 1998, and 1997............. F-5
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998, and 1997... F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998, and 1997............. F-7
Notes to Consolidated Financial Statements.......... F-8
</TABLE>

2. Financial Statement Schedule. The following consolidated financial
statement schedule of infoUSA Inc. and Subsidiaries for the years ended
December 31, 1999, 1998, and 1997 is filed as part of this Report and should
be read in conjunction with the Consolidated Financial Statements.

<TABLE>
<CAPTION>
DESCRIPTION PAGE NO.
----------- --------
<S> <C>
Schedule II Valuation and Qualifying Accounts..... S-1
</TABLE>

Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes
thereto.

3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:

<TABLE>
<S> <C>
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 (File No. 000-19598).

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 (File No. 000-19598).

2.4 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of Marketing Data Systems, Inc. is
incorporated herein by reference to exhibits filed with the
Company's Registration Statement on Form S-3 (File No.
333-36669) filed 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.
</TABLE>

19
<PAGE> 20

<TABLE>
<S> <C>
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 exhibits filed with the Company's Current Report
on Form 8-K dated February 24, 1998.

2.8 -- Asset Purchase Agreement between the Company and JAMI
Marketing Services, Inc. is incorporated herein by reference
to exhibits filed with the Company's Annual Report on Form
10-K for the Fiscal Year ended December 31, 1998 (File No.
000-19598).

2.9 -- Agreement and Plan of Reorganization by and among the
Company, Hugo Acquisition Corporation, First Data
Corporation, First Data Information Management Group, Inc.,
DM Holdings, Inc., Donnelley Marketing Holdings, Inc., and
Donnelley Marketing, Inc. is incorporated herein by reference
to exhibits filed with the Company's Current Report on Form
8-K dated May 28, 1999.

3.1 -- Certificate of Incorporation, as amended through October
22, 1999, is Incorporated herein by reference to exhibits
filed with Company's Registration Statement on Form 8-A, as
amended, filed March 20, 2000.

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 Designation of
Participating Preferred Stock, filed in Delaware on October
22,1999, is incorporated herein by reference to exhibits
filed with the Company's Registration Statement on Form 8-A,
as amended, filed March 20, 2000.

4.1 -- Preferred Share Rights Agreement is incorporated herein
by reference to the Company's Registration Statement on Form
8-A, as amended, filed March 20, 2000.

4.2 -- Specimen of Common Stock Certificate is incorporated
herein by reference to the exhibits filed with the Company's
Registration Statement on Form 8-A, as amended), filed March
20, 2000.

4.3 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 hereof.

4.4 -- Purchase Agreement dated June 12, 1998 between the
Company, BT Alex. Brown Incorporated, Goldman, Sachs & Co.
and Hambrecht & Quist LLC is incorporated herein by reference
to exhibits filed with the Company's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1998 (File No.
000-19598).

4.5 -- Indenture dated as of June 18, 1998 (the "Indenture") by
and between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee is incorporated
herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1998 (File No. 000-19598).
</TABLE>

20
<PAGE> 21

<TABLE>
<S> <C>
4.6 -- Exchange and Registration Rights Agreement dated as of
June 18, 1998 by and among the Company and BT Alex. Brown
Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist LLC
as the Initial Purchasers is incorporated herein by reference
to exhibits filed with the Company's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1998 (File No.
000-19598).

4.7 -- Form of New 9 1/2% Senior Subordinated Note due 2008 is
incorporated herein by reference to exhibits filed with the
Company's Registration Statement on Form S-4 (File No.
333-61645), filed December 15, 1999.

4.8 -- Credit Agreement by and among infoUSA, Inc., various
Lenders (as defined therein) and Bankers Trust Company dated
as of July 23, 1999 is incorporated herein by reference to
exhibits filed with the Company's Current Report on Form 8-K
dated July 23, 1999.

4.9 * -- First Amendment dated October 29, 1999 and Second
Amendment dated December 15, 1999 to Credit Agreement by and
among the Company, various Lenders (as defined therein) and
Bankers Trust Company, filed herewith.

10.1 -- Form of Indemnification Agreement with Officers and
Directors is incorporated herein by reference to exhibits
filed with the Company's Registration Statement on Form S-1
(File No. 33-51352), filed August 28, 1992.

10.2 -- 1992 Stock Option Plan as amended is incorporated herein
by reference to exhibits filed with the Company's
Registration Statement on Form S-8 (File No. 333-37865),
filed October 14, 1997.

10.3 -- 1997 Stock Option Plan as amended is incorporated herein
by reference to exhibits filed with the Company's
Registration Statement on Form S-8 (File No. 333-82933),
filed July 15, 1999.

10.4 * -- Employment Agreement dated July 5, 1999 between the
Company and Susan Henricks, filed herewith.

10.5 -- Amended and Restated Database License Agreement between
Donnelley Marketing, Inc. and First Data Resources, Inc.
dated as of July 23, 1999 is incorporated herein by reference
to exhibits filed with the Company's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1999 (File No.
000-19598).

10.6 -- Covenant not to compete by First Data Corporation to
infoUSA Inc. dated as of July 23, 1999 is incorporated herein
by reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1999 (File
No. 000-19598).

10.7 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, 2.7, 2.8, 2.9, 4.5, 4.8 and 4.9 hereof.

21.1 * -- Subsidiaries and State of Incorporation, filed
herewith.

23.1 -- Consent of Independent Accountants, filed herewith.

23.2 -- Consent of Independent Accountants, filed herewith.

24.1 * -- Power of Attorney, filed herewith.
</TABLE>

21
<PAGE> 22

<TABLE>
<S> <C>
27.1 * -- Financial Data Schedule, filed herewith.
</TABLE>

* Previously filed

(b) Reports on Form 8-K:

On October 6, 1999, the Company filed a Current Report on Form 8-K/A dated
July 23, 1999, pursuant to Item 7 of that form, to report required pro forma and
audited financial information related to the acquisition of Donnelley Marketing
effective July 1, 1999.

22
<PAGE> 23

infoUSA INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
infoUSA Inc. and Subsidiaries:
Independent Auditors' Reports....................... F-2, F-3
Consolidated Balance Sheets as of December 31, 1999
and 1998............................................ F-4
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 1998 and 1997.............. F-5
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 1998 and 1997.... F-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 1998 and 1997.............. F-7
Notes to Consolidated Financial Statements.......... F-8 to F-22
Schedule II -- Valuation and Qualifying Accounts.... S-1
</TABLE>

F-1

<PAGE> 24

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
infoUSA Inc.:

We have audited the accompanying consolidated balance sheets of infoUSA Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and comprehensive income, and
cash flows for the years ended December 31, 1999 and 1998. In connection with
our audits of the consolidated financial statements, we also have audited the
financial statement schedule as listed in the accompanying index. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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
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 infoUSA Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.

/s/ KPMG LLP
---------------------
KPMG LLP

Omaha, Nebraska
January 24, 2000

F-2
<PAGE> 25

INDEPENDENT AUDITORS' REPORT

The Stockholders and Board of Directors
infoUSA Inc.:

We have audited the accompanying consolidated statements of operations,
stockholders' equity and comprehensive income, and cash flows of infoUSA Inc.
and subsidiaries (formerly American Business Information, Inc.) for the year
ended December 31, 1997. We have also audited the financial statement schedule
listed in Item 14 in this Form 10-K for the year ended December 31, 1997. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule 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 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
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of infoUSA Inc. and subsidiaries (formerly American Business Information,
Inc.) for the year ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.

/s/ PRICEWATERHOUSECOOPERS LLP
---------------------------------
COOPERS & LYBRAND L.L.P.

Omaha, Nebraska
January 23, 1998

F-3
<PAGE> 26

infoUSA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

ASSETS DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................. $ 10,846 $ 29,603
Marketable securities ...................................... 70 20,620
Trade accounts receivable, net of allowances of $7,068 and
$7,289, respectively .................................... 65,812 40,126
List brokerage trade accounts receivable ................... 16,734 17,831
Income taxes receivable .................................... -- 3,387
Prepaid expenses ........................................... 2,973 2,371
Deferred marketing costs ................................... 2,957 4,365
--------- ---------
Total current assets ............................... 99,392 118,303
--------- ---------
Property and equipment, net .................................. 53,569 40,264
Intangible assets, net ....................................... 315,889 109,378
Other assets ................................................. 4,494 2,828
--------- ---------
$ 473,344 $ 270,773
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Current portion of long-term debt .......................... $ 9,885 $ 1,580
Accounts payable ........................................... 8,370 7,226
List brokerage trade accounts payable ...................... 16,375 18,847
Accrued payroll expenses ................................... 5,767 2,830
Accrued expenses ........................................... 6,579 12,465
Income taxes payable ....................................... 3,699 --
Deferred revenue ........................................... 7,556 4,534
Deferred income taxes ...................................... 262 664
--------- ---------
Total current liabilities .......................... 58,493 48,146
--------- ---------
Long-term debt, net of current portion ....................... 267,637 126,679
Deferred income taxes ........................................ 35,319 7,701
Minority interest ............................................ 1,084 --
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; none issued or outstanding ...................... -- --
Common stock, $.0025 par value. Authorized 295,000,000
shares; 50,719,548 shares issued and 49,390,058 shares
outstanding at December 31, 1999 and 49,544,750 shares
issued and 49,236,750 outstanding at December 31,
1998 .................................................... 127 124
Paid-in capital ............................................ 82,025 72,476
Retained earnings .......................................... 38,470 15,284
Treasury stock, at cost, 1,329,490 shares held at December
31, 1999 and 308,000 shares held at December 31,
1998 .................................................... (9,170) (2,951)
Accumulated other comprehensive income (loss) .............. (641) 3,314
--------- ---------
Total stockholders' equity ......................... 110,811 88,247
Commitments and contingencies
--------- ---------
$ 473,344 $ 270,773
========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 27

infoUSA 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,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales ............................... $ 266,073 $ 228,678 $ 193,327
--------- --------- ---------
Costs and expenses:
Database and production costs ......... 78,760 66,319 55,090
Selling, general and administrative ... 110,740 117,724 80,203
Depreciation and amortization ......... 35,109 27,472 34,415
Provision for litigation settlement ... -- 4,500 --
Impairment of assets .................. 5,599 -- --
Acquisition costs ..................... 4,166 3,643 2,598
In-process research and development ... -- 3,834 53,500
Restructuring charges ................. -- 2,616 --
--------- --------- ---------
234,374 226,108 225,806
--------- --------- ---------
Operating income (loss) ................. 31,699 2,570 (32,479)
Other income (expense):
Investment income ..................... 14,196 16,628 3,748
Interest expense ...................... (18,579) (9,160) (4,098)
Gain on issuance of subsidiary stock .. 8,886 -- --
Other ................................. -- (2,000) --
--------- --------- ---------
Income (loss) before income taxes and
extraordinary item .................... 36,202 8,038 (32,829)
Income taxes ............................ 13,144 5,880 6,987
--------- --------- ---------
Income (loss) before extraordinary items 23,058 2,158 (39,816)
Extraordinary item, net of tax .......... 128 -- --
--------- --------- ---------
Net income (loss) ....................... $ 23,186 $ 2,158 $ (39,816)
========= ========= =========
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 0.48 $ 0.04 $ (0.82)
Extraordinary item .................... -- -- --
--------- --------- ---------
Net income (loss) ....................... $ 0.48 $ 0.04 $ (0.82)
========= ========= =========
Weighted average shares outstanding ..... 48,470 49,314 48,432
========= ========= =========
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item $ 0.48 $ 0.04 $ (0.82)
Extraordinary item .................... -- -- --
--------- --------- ---------
Net income (loss) ....................... $ 0.48 $ 0.04 $ (0.82)
========= ========= =========
Weighted average shares outstanding ..... 48,613 50,215 48,432
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 28

INFOUSA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY
--------- --------- --------- --------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>

Balances, December 31, 1996 ............ $ 55 $ 37,268 $ 52,942 $ (2,281) $ (379) $ 87,605
Comprehensive loss:
Net loss ........................... -- -- (39,816) -- -- (39,816)
Change in unrealized gain, net of
tax .............................. -- -- -- -- 592 592
--------- --------- --------- --------- --------- ---------
Total comprehensive loss ....... -- -- -- -- -- (39,224)
--------- --------- --------- --------- --------- ---------
Issuance of 4,718,744 shares of common
stock .............................. 7 31,261 -- -- -- 31,268
2 for 1 stock dividend ............... 61 (61) -- -- -- --
Tax benefit related to employee stock
options ............................ -- 587 -- -- -- 587
--------- --------- --------- --------- --------- ---------
Balances, December 31, 1997 ............ 123 69,055 13,126 (2,281) 213 80,236
Comprehensive income:
Net income ......................... -- -- 2,158 -- -- 2,158
Change in unrealized gain, net of
tax .............................. -- -- -- -- 3,101 3,101
--------- --------- --------- --------- --------- ---------
Total comprehensive income ..... -- -- -- -- -- 5,259
--------- --------- --------- --------- --------- ---------
Issuance of 459,086 shares of common
stock .............................. 1 3,020 -- -- -- 3,021
Tax benefit related to employee stock
options ............................ -- 401 -- -- -- 401
Acquisition of treasury stock ........ -- -- -- (670) -- (670)
--------- --------- --------- --------- --------- ---------
Balances, December 31, 1998 ............ 124 72,476 15,284 (2,951) 3,314 88,247
Comprehensive income:
Net income ......................... -- -- 23,186 -- -- 23,186
Foreign currency translation
adjustments ...................... -- -- -- -- (641) (641)
Change in unrealized gain, net of
tax .............................. -- -- -- -- (3,314) (3,314)
--------- --------- --------- --------- --------- ---------
Total comprehensive income ..... -- -- -- -- -- 19,231
--------- --------- --------- --------- --------- ---------
Issuance of 1,096,288 shares of common
stock .............................. 3 7,771 -- -- -- 7,774
Issuance of 78,510 shares of treasury
stock for Company's match of 401(k)
plan contribution .................. -- 160 -- 334 -- 494
Tax benefit related to employee stock
options ............................ -- 1,618 -- -- -- 1,618
Acquisition of treasury stock ........ -- -- -- (6,553) -- (6,553)
--------- --------- --------- --------- --------- ---------
Balances, December 31, 1999 ............ $ 127 $ 82,025 $ 38,470 $ (9,170) $ (641) $ 110,811
========= ========= ========= ========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 29

infoUSA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................... $ 23,186 $ 2,158 $ (39,816)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................. 35,109 27,472 34,415
Amortization of deferred financing fees ....... 1,362 -- --
Deferred income taxes ......................... (2,528) (1,019) (2,787)
Net realized gains on sale of marketable
securities and other investments ............ (12,920) (15,511) (2,560)
Gain on issuance of subsidiary stock .......... (8,886) -- --
Provision for litigation settlement ........... -- 4,500 --
Impairment of other assets .................... 5,599 2,000 --
In-process research and development ........... -- 3,834 53,500
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ................... (13,224) 9,324 (7,445)
List brokerage trade accounts receivable .... 1,097 (4,463) --
Prepaid expenses ............................ (3) (1,233) 287
Deferred marketing costs .................... 1,408 (948) (2,154)
Accounts payable ............................ (1,850) (2,861) (4,854)
List brokerage trade accounts payable ....... (2,193) 752 --
Income taxes receivable and payable ......... 7,086 (3,042) 7,283
Accrued expenses ............................ (3,866) (4,221) (5,613)
--------- --------- ---------
Net cash provided by operating activities 29,377 16,742 30,256
--------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of marketable securities .... 32,106 41,114 19,596
Purchases of marketable securities .............. (4,184) (17,177) (17,448)
Purchase of other investments ................... (1,000) (2,000) (2,000)
Purchases of property and equipment ............. (9,048) (20,582) (8,882)
Acquisitions of businesses, net of cash acquired (206,968) (31,654) (84,224)
Database development costs ...................... (577) (603) (3,398)
Software development costs ...................... (10,400) (5,724) (2,898)
Other ........................................... -- -- (678)
--------- --------- ---------
Net cash used in investing activities .... (200,071) (36,626) (99,932)
--------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt ..................... (13,540) (110,876) (7,193)
Proceeds from long-term debt .................... 165,000 154,800 86,000
Proceeds from sale of subsidiary common stock ... 10,000 -- --
Deferred financing costs ........................ (3,989) (5,969) (388)
Repayment of note payable to shareholders ....... -- -- (7,925)
Acquisition of treasury stock ................... (6,553) (670) --
Repurchase of Senior Subordinated Notes ......... (8,370) -- --
Deferred offering costs ......................... -- -- (339)
Proceeds from exercise of stock options ......... 7,771 1,148 2,090
Tax benefit related to employee stock options ... 1,618 401 587
--------- --------- ---------
Net cash provided by financing activities 152,142 38,834 72,832
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents ..................................... (18,757) 18,950 3,156
Cash and cash equivalents, beginning .............. 29,603 10,653 7,497
--------- --------- ---------
Cash and cash equivalents, ending ................. $ 10,846 $ 29,603 $ 10,653
========= ========= =========
Supplemental cash flow information:
Interest paid ................................... $ 18,299 $ 8,902 $ 3,616
========= ========= =========
Income taxes paid ............................... $ 7,047 $ 9,637 $ 7,443
========= ========= =========
</TABLE>

See accompanying notes to consolidated financial statements.

F-7
<PAGE> 30

infoUSA INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

infoUSA Inc. 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. During 1998, the Company
changed names from American Business Information, Inc. to infoUSA Inc.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.

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.

Marketable Securities. Marketable securities have been classified as
available-for-sale and are therefore carried at fair value, which are estimated
based on quoted market prices. Unrealized gains and losses, net of related tax
effects, are reported as a separate component of stockholders' equity until
realized. Unrealized and realized gains and losses are determined by specific
identification.

List brokerage trade accounts receivable and trade accounts payable. The
Company acquired Walter Karl, Inc. in March 1998 and JAMI Marketing Services,
Inc. in June 1998. A significant business line of these two entities is list
brokerage services, whereby the entities serve as a broker between unrelated
parties who wish to purchase a certain list and unrelated parties who have the
desired list for sale. Accordingly, Walter Karl and Jami Marketing each
recognize trade accounts receivable and trade accounts payable, reflecting a
"gross-up" of the two concurrent transactions. The transactions are not
structured providing for the right of offset. List brokerage sales are reflected
net of costs on the accompanying consolidated statement of operations.

Advertising Costs. Direct marketing costs associated with the mailing and
printing of brochures and catalogs are capitalized and amortized over a period
of six months which corresponds to the estimated revenue stream of the
individual advertising activities. All other advertising costs are expensed as
the advertising takes place. Total unamortized marketing costs at December 31,
1999 and 1998, was $3.0 million and $4.4 million, respectively. Total
advertising expense for the years ended December 31, 1999, 1998, and 1997 was
$21.0 million, $19.7 million, and $15.9 million, respectively.

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>
Building and improvements....................... 30 years
Office furniture and equipment.................. 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.............................. 7 to 20 years
Distribution networks................. 2 years
Noncompete agreements................. Term of agreements
Purchased data processing software.... 2 to 7 years
Acquired database costs............... 1 year
Core technology costs................. 3 years
Customer base costs................... 3 to 15 years
Tradename costs....................... 10 to 20 years
Perpetual software license agreement.. 10 years
Software development costs............ 1 to 5 years
Workforce costs....................... 5 to 8 years
</TABLE>

F-8
<PAGE> 31

Software Capitalization. Until technological feasibility is established,
software development costs are expensed as incurred. After that time, direct
costs are capitalized and amortized equal to the greater of the ratio of current
revenues to the estimated total revenues for each product or the straight-line
method, generally over one year for software developed for external use and over
two to five years for software developed for internal use. Unamortized software
costs included in intangible assets at December 31, 1999 and 1998, were $9.3
million and $4.0 million, respectively. Amortization of capitalized costs during
the years ended December 31, 1999, 1998 and 1997, totaled approximately $5.1
million, $3.6 million, and $2.5 million, respectively.

Database Development Costs. Costs to maintain and enhance the Company's
existing business and consumer databases are expensed as incurred. Costs to
develop new databases, which primarily represent direct external costs, are
capitalized with amortization beginning upon successful completion of the
compilation project. Database development costs are amortized straight-line over
the expected lives of the databases generally ranging from one to five years.
Unamortized database development costs included in intangible assets at December
31, 1999 and 1998, were $577 thousand and $4.7 million, respectively.
Amortization of capitalized costs during the years ended December 31, 1999, and
1998 totaled approximately $796 thousand, $619 thousand, respectively. During
1999, as a direct result of the acquisition of Donnelley Marketing in July 1999
and the addition of the Donnelly consumer database file (see Note 3), the
Company recorded a write-down of $3.9 million (see Note 18) on the unamortized
balance of the Company's existing consumer database white pages file which was
impaired due to the addition of the more complete Donnelley consumer file.

Long-lived assets. 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, an impairment loss is
recognized in operating results. The impairment loss is measured using
discounted cash flows or quoted market prices, when available. The Company also
periodically reevaluates the remaining useful lives of its long-lived assets
based on the original intended and expected future use or benefit to be derived
from the assets. Changes in estimated useful lives are reflected prospectively
by amortizing the remaining book value at the date of the change over the
adjusted remaining estimated useful life. During 1999, the Company transferred
its data processing services function from Montvale, NJ to an existing Company
location in Greenwich, CT. As a direct result of this move and the abandonment
of certain leasehold improvements and in-process construction projects, the
Company recorded a write-down of $1.7 million (see Note 18) on the remaining net
book value of the impaired assets. During 1998, the Company wrote-off an
investment in an other entity of $2.0 million, which was accounted for using the
cost method.

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
recognized giving consideration to whether the Company retains service
commitments to periodically provide updates, the incremental costs associated
with providing continuing service, and the fair value of the initial set of data
and subsequent updates based upon prices charged to customers who purchase
elements on a separate basis. Revenue related to future updates is recorded as
deferred revenue. Reserves are established for estimated returns and
uncollectible amounts. Royalty revenue is recognized at the time it is earned
under the Company's license agreement. Advertising revenue is typically derived
from advertising agreements in which the Company receives a fixed fee or a fee
based on a per impression or click through basis and is recognized as the
Company fulfills the terms of the agreement. Revenue from revenue-sharing
agreements is recognized after the transaction has occurred and in the period
the obligation to pay is reported by the product or service provider.
Stock-based compensation. The Company recognizes stock-based compensation
expense using the intrinsic value method. Under that method, no compensation
expense is recorded if the exercise price of the employee stock options equals
or exceeds the market price of the underlying stock on the date of grant. For
disclosure purposes, pro forma net income (loss) and income (loss) per share are
provided as if the fair value method had been applied.

CHANGE IN OWNERSHIP INTEREST - GAINS OR LOSSES FROM A CHANGE IN OWNERSHIP OF
A CONSOLIDATED SUBSIDIARY OR AN UNCONSOLIDATED AFFILIATE ARE RECOGNIZED IN THE
CONSOLIDATED STATEMENTS OF OPERATIONS IN THE PERIOD OF CHANGE.

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. Valuation allowances, if any, are established when necessary to
reduce deferred tax assets to the amount that is more likely than not to be
realized.

Earnings (Loss) Per Share. Basic earnings per share are based on the
weighted average number of common shares outstanding,

F-9
<PAGE> 32

including contingently issuable shares, which have been restated to account for
the stock combination (See Note 19). 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>
FOR THE YEARS ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Weighted average number of shares
outstanding used in basic EPS ....... 48,470 49,314 48,432
Net additional common equivalent shares
outstanding after assumed exercise of
stock options ....................... 143 901 --
------ ------ ------
Weighted average number of shares
outstanding used in diluted EPS ..... 48,613 50,215 48,432
====== ====== ======
</TABLE>

Use of Estimates. The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Reclassifications. Certain reclassifications were made to the 1998 and 1997
financial statements to conform to the 1999 presentation.

3. ACQUISITIONS

Effective February 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 $82.5 million, consisting of $51.5 million in
cash, partially funded using a revolving credit facility, and approximately 4.6
million unregistered shares of the Company's Common Stock at a recorded value of
$31.0 million. 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 279,658 unregistered shares
of its Common Stock. The shares were issued in January 1998. 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
17), 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. At the time of the acquisition of Pro
CD, the Company entered into two separate contracts with Acxiom whereby the
Company agreed to license its complete business database to Acxiom in exchange
for a perpetual license agreement allowing the Company the use of a CD-Rom
search engine technology developed by Acxiom for the Pro CD product line. The
Company's agreement with Acxiom licensed the Company's complete business
database to Acxiom for a two year period for $8.0 million to be recognized on a
straight-line basis over the period of the agreement. The Company also entered
into an agreement which provided the Company with a perpetual license to use
Acxiom's CD-Rom search engine technology for a fee of $8.0 million. The total
cost is being amortized over the 10 year estimated economic life of the
perpetual license. In addition to purchased in-process research and development
costs of $4.3 million (See Note 17), 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.

Effective March 1998, the Company acquired all issued and outstanding common
stock of Walter Karl, Inc. (Walter Karl), a national direct marketing service
firm that provides list management, list brokerage, and database marketing and
direct marketing services to a wide array of customers. Total consideration for
the acquisition was $19.4 million in cash, as adjusted, funded using a

F-10
<PAGE> 33

revolving credit facility. The acquisition has been accounted for under the
purchase method of accounting, and accordingly, the operating results of Walter
Karl have been included in the Company's financial statements since the date of
acquisition. In addition to purchased in-process research and development costs
of $3.8 million (See Note 17), intangibles and goodwill recorded estimates
included goodwill of $16.7 million, core technology of $3.7 million, trade names
of $4.2 million, customer base of $2.2 million, and workforce costs of $0.8
million. In addition, the Company recorded as part of the purchase of Walter
Karl an accrual related to closure of a facility and relocating or terminating
the employees from this facility totaling $6.8 million, of which a balance of
$4.4 million remained at December 31, 1998. Goodwill is being amortized over 15
years. The amount of intangibles recorded by the Company exceeded the purchase
price due to the Company recording an accrual related to costs associated with
the integration of acquired operations into existing operations, deferred taxes
established for certain intangibles not currently deductible for tax purposes,
and the excess of liabilities over assets assumed.

Effective June 1998, the Company acquired certain assets and assumed certain
liabilities of JAMI Marketing Services, Inc. (JAMI), a list brokerage, list
management, data processing and marketing consulting firm. Total consideration
for the acquisition was $12.8 million in cash, as adjusted, funded with the
proceeds from the disposition of the Company's holdings of Metromail Corporation
common stock. The acquisition has been accounted for under the purchase method
of accounting, and accordingly, the operating results of JAMI have been included
in the Company's financial statements since the date of acquisition. Intangibles
and goodwill recorded included goodwill of $7.3 million, trade names of $0.2
million, customer base of $5.1 million, noncompete agreements of $0.2 million,
and workforce costs of $0.5 million. Goodwill is being amortized over 15 years.
During the fourth quarter of 1998, a purchase price adjustment of $0.3 million
was made due to the final calculation of purchase price based on the acquisition
agreement and amounts were reallocated based on the purchase price allocation
finalized in the fourth quarter of 1998.

Effective July 1998, the Company acquired certain assets and assumed certain
liabilities of Contacts Target Marketing (CTM), a regional business marketing
database company, based in Vancouver, Canada. Total consideration for the
acquisition was $0.4 million in cash. The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of CTM have been included in the Company's financial statements since the date
of acquisition. Intangibles and goodwill recorded included goodwill of $0.5
million. Goodwill is being amortized over 8 years.

Effective July 1999, the Company acquired all issued and outstanding common
stock of Donnelley Marketing, Inc. (Donnelley), a division of First Data
Corporation. Donnelley is a national consumer database and database marketing
company. Total consideration for the acquisition was $200.0 million in cash,
funded using a combination of existing cash and borrowings under new senior
secured credit facilities (see Note 8). The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of Donnelley have been included in the Company's financial statements since the
date of acquisition. Goodwill and other intangibles recorded included goodwill
of $150.3 million, non-compete agreements of $6.1 million, trade names of $7.7
million, and purchased data processing software of $64.1 million, which are
being amortized over lives of 20 years, 5 years, 20 years, and 7 years,
respectively. The amount of intangibles recorded by the Company exceeded the
purchase price due to the Company recording deferred taxes established for
certain intangibles not currently deductible for tax purposes and an accrual
related to costs associated with the integration of acquired operations into
existing operations.

For each of the acquisitions above, the Company recorded each purchase
reflecting the issuance of restricted stock at a calculated discount, based on
stock valuations performed by investment bankers.

All purchase price adjustments recorded by the Company subsequent to the
acquisition date were in accordance with the provisions of the related purchase
agreements.

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, 1998, and excluding the write-offs of in-process research and
development costs included in acquisition-related and restructuring charges in
the accompanying consolidated statements of operations, unaudited pro forma
consolidated net sales, net income (loss) and net income (loss) per share would
have been as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net sales.......................... $ 308,608 $ 331,864
Net income (loss).................. $ 13,850 $ (14,876)
Basic earnings (loss) per share.... $ 0.29 $ (0.30)
Diluted earnings (loss) per share.. $ 0.28 $ (0.30)
</TABLE>

F-11
<PAGE> 34

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.

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, 1999:
Municipal bonds ... $ -- $ -- $ -- $ --
Corporate bonds ... -- -- -- --
Common stock ...... 70 -- -- 70
Preferred stock ... -- -- -- --
-------- -------- -------- --------
$ 70 $ -- $ -- $ 70
======== ======== ======== ========
At December 31, 1998:
Municipal bonds ... $ 1,304 $ 3 $ (1) $ 1,306
Corporate bonds ... 4,718 3 (28) 4,693
Common stock ...... 9,056 5,357 -- 14,413
Preferred stock ... 197 11 -- 208
-------- -------- -------- --------
$ 15,275 $ 5,374 $ (29) $ 20,620
======== ======== ======== ========
</TABLE>

For the year ended December 31, 1999 proceeds from sales of marketable
securities were $32.1 million while realized gains totaled $13.1 million and
realized losses totaled $0.2 million. For the year ended December 31, 1998,
proceeds were $41.1 million while realized gains totaled $17.9 million and
realized losses totaled $2.4 million.

5. COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income (loss) were as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Unrealized holding losses arising during
the period:
Unrealized net losses .................. $ (7,448) $(10,162) $ (1,261)
Related tax benefit .................... 2,830 3,861 479
-------- -------- --------
Net ............................ (4,618) (6,301) (782)
-------- -------- --------
Less: Reclassification adjustment for net
gains realized on sale of marketable
securities during the period:
Realized net gains ..................... 2,103 15,164 2,216
Related tax expense .................... (799) (5,762) (842)
-------- -------- --------
Net ............................ 1,304 9,402 1,374
-------- -------- --------
Foreign currency translation adjustments (641) -- --
-------- -------- --------
Total other comprehensive income
(loss) ....................... $ (3,955) $ 3,101 $ 592
======== ======== ========
</TABLE>

6. PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements..................... $ 3,205 $ 4,274
Buildings and improvements................ 25,398 19,537
Furniture and equipment................... 50,543 41,626
Capitalized equipment leases.............. 11,879 5,050
------- -------
91,025 70,487

Less accumulated depreciation and
amortization:
Owned property.......................... 35,388 29,020
Capitalized equipment leases............ 2,068 1,203
------- -------
Property and equipment, net..... $53,569 $40,264
======= =======
</TABLE>

F-12
<PAGE> 35

7. INTANGIBLE ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill........................ $ 216,548 $ 70,456
Noncompete agreements........... 13,534 7,420
Core technology................. 4,800 4,800
Customer base................... 8,372 8,372
Trade names..................... 15,802 8,108
Purchased data processing
software...................... 73,478 9,400
Acquired database costs......... 19,000 19,000
Work force costs................ 1,338 1,338
Perpetual software license
agreement..................... 8,000 8,000
Software development costs...... 9,295 4,038
Database costs.................. 577 5,309
Deferred financing costs........ 9,958 5,970
--------- ---------
380,702 152,211

Less accumulated amortization... 64,813 42,833
--------- ---------
$ 315,889 $ 109,378
========= =========
</TABLE>

8. FINANCING ARRANGEMENTS

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
9 1/2% Senior Subordinated Notes........................ $ 106,000 $ 115,000
Senior Secured Credit Facilities -- Term A Loan......... 60,977 --
Senior Secured Credit Facilities -- Term B Loan......... 93,810 --
Senior Secured Credit Facilities -- Revolving Credit
Facility.............................................. -- --
Mortgage note, collateralized by deed of trust. Note
bears a fixed interest rate of 7.4% through July 2003,
and then will be adjusted to a designated Federal
Reserve rate plus 1.75%. Principal is due August 2008.
Interest is payable monthly........................... 9,776 10,553
State of Connecticut Department of Economic Development
note payable.......................................... -- 450
Uncollateralized note payable for leasehold improvements.
Note bears a fixed interest rate of 5.0%. Principal is
due September 2003. Interest is payable monthly....... 433 478
Capital lease obligations (See Note 16)................. 6,526 1,778
--------- ---------
277,522 128,259
Less current portion.................................... 9,885 1,580
--------- ---------
Long-term debt.......................................... $ 267,637 $ 126,679
========= =========
</TABLE>

Future maturities by calendar year of long-term debt as of December 31, 1999
are as follows (in thousands):

<TABLE>
<S> <C>
1999....... $ 9,885
2000....... $ 17,299
2001....... $ 17,760
2002....... $ 18,258
2003....... $ 33,714
Thereafter. $ 180,606
</TABLE>

On June 18, 1998, the Company completed a private placement of 9 1/2% Senior
Subordinated Notes due June 15, 2008 in the aggregate principal amount of $115.0
million. The Notes are subject to various covenants, including among other
things, limiting additional indebtedness and the ability to pay dividends. In
January 1999, the Company exchanged registered 9 1/2% Senior Subordinated Notes
(the "Notes") for the unregistered notes pursuant to a Registration Statement on
Form S-4 declared effective by the Securities & Exchange Commission. Interest on
the Notes will accrue from the original issuance date of the unregistered notes
and will be payable semi-annually in arrears on June 15 and December 15 of each
year, commencing on December 15, 1998, at the rate of 9 1/2% per annum. The
Notes are redeemable, in whole or in part, at the option of the Company, on or
after June 15, 2003, at designated redemption prices outlined in the Indenture
governing the Notes, plus any accrued interest to the date of redemption. In
addition, at any time on or prior to June 15, 2001, the Company, at its option,
may redeem up to 35% of the aggregate principal amount of the Notes originally
issued with the net cash proceeds of one or more equity offerings, at the
redemption price equal to

F-13
<PAGE> 36

109.5% of the principal amount thereof, plus any accrued interest to the date of
redemption. In the event of a change in control, each holder of Notes will have
the right to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof, plus any accrued interest to the
repurchase date.

During May 1998 in connection with the sale of the Notes, the Company
entered into a Treasury yield collar agreement (the "treasury collar") with a
bank, to hedge against the movement in interest rates on the Notes. The treasury
collar was in the notional amount of $100.0 million. During June 1998, the
Company terminated the treasury collar and, in connection therewith, made a
payment of approximately $1.6 million to the bank which was recorded as deferred
financing costs included in intangible assets in the accompanying consolidated
balance sheets. The termination fee will be amortized over the 10 year life of
the Notes.

During 1999, the Company negotiated a $195.0 million Senior Secured Credit
Facilities ("Credit Facilities") borrowing arrangement with Deutsche Bank,
comprised of: Term Loan A Facility in the amount of $65.0 million which provides
for grid-based interest pricing based upon the Company's consolidated leverage
ratio and ranges from base rate + 1.25% to 2.00% for base rate loans and from
LIBOR + 2.25% to 3.00% for LIBOR loans with a maturity of 5 years; a Term Loan B
Facility in the amount of $100.0 million which provides interest at base rate +
2.50% for base rate loans and LIBOR + 3.50% for LIBOR loans with a maturity of 7
years; and a Revolving Credit Facility in the amount of $30.0 million which
provides the same interest pricing as the Term Loan A Facility with a maturity
of 5 years. Substantially all assets of the Company are pledged as security
under the terms of the Credit Facilities.

In connection with the acquisition of Donnelley during July 1999, the
Company borrowed $165.0 million under the Credit Facilities. The Company has
subsequently made repayments of $10.2 million of the Credit Facilities utilizing
proceeds received from the sales of marketable securities.

As of December 31, 1999, the Company had no borrowings under the Revolving
Credit Facility, with the exception of one outstanding letter of credit in the
amount of $5.0 million reducing the availability under the Revolving Credit
Facility to $25.0 million. There were no outstanding short-term borrowings at
December 31, 1998.

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
(See Note 15).

The Company is subject to certain financial covenants in the Credit
Facilities, including minimum consolidated interest coverage ratio, maximum
consolidated leverage ratio and minimum consolidated EBITDA. Additionally, the
Company is required to pay a commitment fee of 0.5% on the average unused amount
of the Revolving Credit Facility.

9. INCOME TAXES

The provision for income taxes before extraordinary items consists of the
following:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal $14,401 $ 4,469 $ 9,163
State.. 1,271 556 742
------- ------- -------
15,672 5,025 9,905
------- ------- -------
Deferred:
Federal (2,308) 742 (2,688)
State.. (220) 113 (230)
------- ------- -------
(2,528) 855 (2,918)
------- ------- -------
$13,144 $ 5,880 $ 6,987
======= ======= =======
</TABLE>

F-14
<PAGE> 37

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,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Expected Federal income taxes at statutory
rate of 35%.............................. $12,671 $ 2,813 $ (11,490)
State taxes, net of Federal effects........ 683 435 424
Amortization of nondeductible intangibles.. 2,619 1,260 637
Gain on of subsidiary common stock......... (3,110) -- --
In-process research and development........ -- 1,342 17,220
Other...................................... 281 30 196
------- ------- ---------
$13,144 $ 5,880 $ 6,987
======= ======= =========
</TABLE>

The components of the net deferred tax asset (liabilities) were as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued vacation............. $ 929 $ 507
Accrued expenses............. 121 1,710
--------- ---------
1,050 2,217
--------- ---------
Deferred tax liabilities:
Intangible assets............ (31,894) (3,996)
Accounts receivable.......... (1,310) (1,667)
Marketable securities........ -- (2,031)
Depreciation................. (1,173) (1,088)
Deferred marketing costs..... (1,124) (1,659)
Prepaid expenses and other
assets..................... (1,130) (141)
--------- ---------
(36,631) (10,582)
--------- ---------
Net deferred tax
liabilities........ $ (35,581) $ (8,365)
========= =========
</TABLE>

In conjunction with the acquisition of Donnelley, the Company recorded a
deferred tax liability of approximately $30 million related to intangibles which
were not currently deductible for tax purposes.

The Company had no valuation allowance in 1999 and 1998.

10. STOCK INCENTIVES

As of December 31, 1999, a total of 10.0 million shares of the Company's
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, 1999, a total of 5.0 million shares of the Company's Common
Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1997 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 Standard (SFAS)
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 1996 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:

F-15
<PAGE> 38

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) -- as reported... $ 23,186 $2,158 $(39,816)
Net income (loss) -- pro forma..... $ 20,176 $ (788) $(41,503)
Basic earnings (loss) per share --
as reported...................... $ 0.48 $ 0.04 $ (0.82)
Diluted earnings (loss) per
share -- as reported............. $ 0.48 $ 0.04 $ (0.82)
Basic earnings (loss) per share --
pro forma........................ $ 0.42 $ (0.02) $ (0.86)
Diluted earnings (loss) per
share -- pro forma............... $ 0.42 $ (0.02) $ (0.86)
</TABLE>

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 assumptions used for grants in 1999, 1998 and 1997: expected
volatility of 9.51% (1999), 17.33% (1998) and 19.16% (1997); risk free interest
rate based on the U.S. Treasury strip yield at the date of grant; and expected
lives of 4 to 6 years.

The following information has been restated to reflect the stock combination
(See Note 19).

<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------- -------------------- ---------------------
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..................... 7,094,036 $ 9.37 7,478,050 $ 9.22 5,203,800 $ 7.58
Granted...................... 2,697,335 6.57 1,160,000 11.49 2,799,250 11.81
Exercised.................... (1,322,298) 6.84 (179,428) 6.40 (357,250) 5.87
Forfeited/expired............ (547,939) 10.57 (1,364,586) 10.91 (167,750) 8.95
--------- ------- ---------- ------- -------- -------
Outstanding end of period.... 7,921,134 $ 8.74 7,094,036 $ 9.33 7,478,050 $ 9.22
========= ======= ========= ======= ========= =======
Options exercisable at end of
period..................... 3,453,689 $ 9.13 2,809,439 $ 8.20 1,344,550 $ 7.10
========= ======= ========= ======= ========= =======
Shares available for options
that may be granted........ 1,139,938 777,834 1,660,000
========= ========= =========
Weighted-average grant date
fair value of options,
granted during the
period -- exercise price
equals stock market price
at grant................... $ 1.66 $ 3.34 $ 3.30
======= ======= =======
</TABLE>

The following table summarizes information about stock options outstanding
at December 31, 1999:

<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>
$4.28 to $5.70.......... 142,000 4.7 years $ 5.08 -- $ --
$5.70 to $7.13.......... 2,822,335 3.8 years 6.62 762,500 6.38
$7.13 to $8.55.......... 2,040,500 1.8 years 8.42 1,155,500 8.48
$8.55 to $9.98.......... 365,572 1.3 years 9.05 306,570 9.01
$9.98 to $11.40......... 1,632,395 2.4 years 10.73 768,402 10.72
$11.40 to $12.83........ 333,332 2.2 years 11.95 206,762 11.89
$12.83 to $14.25........ 585,000 2.9 years 13.38 253,955 13.42
-------- ------- ---------
$4.28 to $14.25......... 7,921,134 2.8 years $ 8.74 3,453,689 $ 9.13
========= ========= ======= ========= =======
</TABLE>

11. SAVINGS PLAN

Employees who meet certain eligibility requirements can participate in the
Companys' 401(k) Savings and Investment Plans. Under the plans, the Company may,
at its discretion, match a percentage of the employee contributions. The Company
recorded expenses related to its matching contributions of $1.1 million, $1.1
million and $782 thousand in the years ended December 31, 1999, 1998 and 1997,
respectively.

F-16
<PAGE> 39

During 1999, the Company began making matching contributions to its 401(k)
Plan in the form of treasury stock. The Company contributed 78,510 shares at a
recorded value of $494 thousand.

12. RELATED PARTY TRANSACTIONS

The Company paid a total of $4.0 million, $1.4 million, and $364 thousand in
1999, 1998 and 1997, respectively, to Annapurna Corporation and Everest
Investment Management for consulting services and related expenses in connection
with investment and acquisition activity conducted by the Company. Annapurna
Corporation is wholly owned and Everest Investment Management is 40% owned by a
significant stockholder and officer of the Company. The Company also paid $200
thousand and $145 thousand in the years ended December 31, 1998 and 1997,
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 $540
thousand, $370 thousand, and $146 thousand in the years ended December 31, 1999,
1998 and 1997, respectively.

13. SUPPLEMENTAL CASH FLOW INFORMATION

The Company made certain acquisitions during 1999, 1998 and 1997 (See Note
3) and assumed liabilities as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets $ 247,201 $ 58,552 $ 134,555
Cash paid........... (206,968) (31,654) (84,224)
Common stock issued. -- -- (29,178)
---------- --------- ---------
Liabilities assumed. $ 40,233 $ 26,898 $ 21,153
========== ========= =========
</TABLE>

During 1999, the Company acquired computer equipment totaling $6.8 million
under capital lease obligations (See Note 16).

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, 1999 and 1998. The fair
value of a financial instrument is defined 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, 1999 DECEMBER 31, 1998
---------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 10,846 $ 10,846 $ 29,603 $ 29,603
Marketable securities.. 70 70 15,275 20,620
Other assets........... 3,000 3,000 2,000 2,000
Financial liabilities:
Long-term debt......... 277,522 241,088 128,259 105,935
Derivatives:
Interest rate swaps.... -- 540 -- --
</TABLE>

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:

Cash and cash equivalents. 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.

F-17
<PAGE> 40

Long-term debt. The 9 1/2% Senior Subordinated Notes due June 2008 are
valued based on quoted market prices at the reporting date. All other debt
obligations are valued at the discounted amount of future cash flows.

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. DERIVATIVES

The Company may use interest rate swap agreements to reduce the potential
impact of increases in interest rates on floating-rate long-term debt. The
original cost of the swap is amortized to interest expense over its term. The
amounts paid or received under the agreement are recorded as an adjustment to
interest expense. Neither the Company nor the counterparties are required to
collateralize their obligations under these agreements. Therefore, the swap
agreements expose the Company to credit losses to the extent of counterparty
nonperformance, but does not anticipate any losses from its agreements, which
are with major financial institutions.

At December 31, 1999, the Company was a party to one interest rate swap
agreement which expires in September 2002. The agreement entitles the Company to
receive from counterparties on a semi-annual basis the amounts, if any, by which
the Company's interest payments on $60.5 million of outstanding debt under the
Credit Facilities exceed 6.385%, and to pay counterparties on a semi-annual
basis the amounts, if any, by which the Company's interest payments on $60.5
million of outstanding debt under the Credit Facilities are less than 6.385%.

16. COMMITMENTS AND CONTINGENCIES

The Company is committed to pay various individuals under consulting and
non-compete agreements in future periods.

Future payments by calendar year under consulting and non-compete agreements
as of December 31, 1999 are as follows (in thousands):

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
April 2008. Certain of these leases contain renewal options. Rent expense was
$4.6 million, $3.1 million, and $2.6 million in the years ended December 31,
1999, 1998 and 1997, respectively.

Following is a schedule of the future minimum lease payments as of December
31, 1999:

<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
2000.................................... $ 3,213 $ 4,319
2001.................................... 2,665 3,925
2002.................................... 1,263 3,721
2003.................................... -- 3,104
2004.................................... -- 1,899
------- --------
Total future minimum lease payments..... 7,141 $ 16,968
========
Less amounts representing interest...... 615
-------
Present value of net minimum lease
payments................................ $ 6,526
=======
</TABLE>

During October, 1998, the Company announced a decision in its year-long
arbitration dispute with Experian Information Solutions, Inc. (Experian). The
dispute centered around a license agreement between the Database America
Companies (DBA) and Experian prior to the Company's acquisition of DBA. In
October 1998 an arbitrator from the American Arbitration Association found DBA
to have breached the contract and awarded damages to Experian for approximately
$4.6 million.

The Company and its subsidiaries are involved in other 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.

F-18
<PAGE> 41

17. ACQUISITION COSTS, IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D") AND
RESTRUCTURING CHARGES

As part of the acquisition of DBA in February 1997 (See Note 3), the Company
recorded charges totaling $49.2 million for write-offs in conjunction with the
merger of DBA for purchased IPR&D which related to projects that had not met
technological feasibility. The projects under development involve data
processing technologies including merge/purge and update and maintenance
capabilities of the relational databases and interactive media technology to
allow DBA to provide existing services via the Internet. The value of the data
processing technologies was $2.3 million and the value of the interactive media
technology was $46.9 million.

As part of the acquisition of Pro CD in August 1997 (See Note 3), the
Company recorded charges totaling $4.3 million for write-offs in conjunction
with the merger of Pro CD for purchased IPR&D which related to projects that had
not met technological feasibility. The projects under development involve
graphical user interface technology, data enhancements, DVD capability and Year
2000 compliance for the Select Phone product line. The value of these projects
was $4.3 million.

During 1997, the Company recorded $2.6 million of acquisition costs related
to integrating acquired operations into the Company's existing operations. These
expenses consisted primarily of costs such as travel between the Company and the
new operations, consulting, payroll and other expenses related to implementing
Company policies and information systems at the new locations. All costs had
been incurred by December 31, 1997.

As part of the acquisition of Walter Karl in March 1998 (See Note 3), the
Company recorded charges totaling $3.8 million for write-offs in conjunction
with the merger of Walter Karl for purchased IPR&D which related to projects
that had not met technological feasibility. The purchased IPR&D recorded in
connection with the acquisition of Walter Karl consisted of various projects, of
which none were individually significant, related to areas including: Internet
capabilities, automated job cards and shipping information, database and
merge/purge processing enhancements, list brokerage and management order and
data entry systems. There were a total of 12 separately identified projects
listed below. The total amount allocated to the above IPR&D projects was $3.8
million after retroactive application of the Securities and Exchange
Commission's new guidelines for valuing purchased IPR&D.

Descriptions of the projects are as follows: