<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the - Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
Transition report pursuant to Section 13 or 15(d) of the - Securities
Exchange Act of 1934
For the transition period from to
-------- --------
Commission File Number 0-19598
infoUSA INC.
--------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
DELAWARE 47-0751545
------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 593-4500
--------------
(Former name, former address and former fiscal year,
if changed since last report)
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 at least the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
50,336,647 shares of Common Stock at August 1, 2000
<PAGE> 2
infoUSA INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of June 30, 2000 and December
31, 1999
Consolidated Statements of Operations for the three months and
six months ended June 30, 2000 and 1999
Consolidated Statements of Cash Flows for the six months ended
June 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
Index to Exhibits
2
<PAGE> 3
infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2000
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
3
<PAGE> 4
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
JUNE 30, 2000 DECEMBER 31, 1999
------------- -----------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents ..................................... $ 24,707 $ 10,846
Marketable securities ......................................... 102 70
Trade accounts receivable, net of allowances of $4,449 and
$7,068, respectively ........................................ 65,200 65,812
List brokerage trade accounts receivable ...................... 12,206 16,734
Prepaid expenses .............................................. 4,930 2,973
Deferred marketing costs ...................................... 3,508 2,957
--------- ---------
Total current assets .................................. 110,653 99,392
--------- ---------
Property and equipment, net ..................................... 55,987 53,569
Intangible assets, net .......................................... 313,770 315,889
Other assets .................................................... 5,617 4,494
--------- ---------
$ 486,027 $ 473,344
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ............................. $ 15,803 $ 9,885
Accounts payable .............................................. 12,908 8,370
List brokerage trade accounts payable ......................... 11,835 16,375
Accrued payroll expenses ...................................... 7,611 5,767
Accrued expenses .............................................. 6,773 6,579
Income taxes payable .......................................... 38 3,699
Deferred revenue .............................................. 10,265 7,556
Deferred income taxes ......................................... 1,612 262
--------- ---------
Total current liabilities ............................. 66,845 58,493
--------- ---------
Long-term debt, net of current portion .......................... 245,577 267,637
Deferred income taxes ........................................... 32,070 35,319
Deferred revenue ................................................ 12,000 --
Minority interest ............................................... 7,814 1,084
Commitments and contingencies
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; 51,519,872 shares issued and
50,317,805 outstanding at June 30, 2000 and 50,719,548
shares issued and 49,390,058 outstanding at December 31,
1999 ........................................................ 129 127
Paid-in capital ............................................... 91,811 82,025
Retained earnings ............................................. 38,918 38,470
Treasury stock, at cost, 1,202,067 shares held at
June 30, 2000 and 1,329,490 held at
December 31, 1999 ........................................... (8,469) (9,170)
Accumulated other comprehensive loss .......................... (668) (641)
--------- ---------
Total stockholders' equity ............................ 121,721 110,811
--------- ---------
$ 486,027 $ 473,344
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30
2000 1999 2000 1999
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ..................................... $ 78,953 $ 57,573 $ 159,913 $ 113,093
Costs and expenses:
Database and production costs
(excluding non-cash stock
compensation expense of $44 and
$78 for the periods ended June 30,
2000, respectively) ........................ 25,692 17,114 51,389 33,290
Selling, general and administrative
(excluding non-cash stock
compensation expense of $1,641 and
$2,829 for the periods ended June 30,
2000, respectively) ........................ 40,950 23,762 79,664 46,098
Depreciation and amortization ................. 13,623 5,694 25,979 11,727
Non-cash stock compensation expense ........... 1,685 -- 2,907 --
Acquisition costs ............................. 821 -- 2,201 --
--------- --------- --------- ---------
82,771 46,570 162,140 91,115
--------- --------- --------- ---------
Operating income (loss) ....................... (3,818) 11,003 (2,227) 21,978
Other income (expense):
Investment income ........................... 233 1,704 437 4,188
Gain on issuance of subsidiary stock ........ 12,205 -- 14,634 --
Minority interest in loss of subsidiary ..... 1,426 -- 1,700 --
Interest expense ............................ (6,468) (2,934) (13,252) (6,048)
--------- --------- --------- ---------
Income before income taxes and
extraordinary item .......................... 3,578 9,773 1,292 20,118
Income taxes .................................. 1,449 4,088 844 8,248
--------- --------- --------- ---------
Income before extraordinary item .............. 2,129 5,685 448 11,870
Extraordinary item, net of tax ................ -- -- -- 128
--------- --------- --------- ---------
Net income .................................... $ 2,129 $ 5,685 $ 448 $ 11,998
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income before extraordinary item ............ $ 0.04 $ 0.12 $ 0.01 $ 0.25
Extraordinary item .......................... -- -- -- --
--------- --------- --------- ---------
Net income .................................. $ 0.04 $ 0.12 $ 0.01 $ 0.25
========= ========= ========= =========
Weighted average shares outstanding ......... 49,900 48,233 49,674 48,417
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income before extraordinary item ............ $ 0.04 $ 0.12 $ 0.01 $ 0.25
Extraordinary item .......................... -- -- -- --
--------- --------- --------- ---------
Net income .................................. $ 0.04 $ 0.12 $ 0.01 $ 0.25
========= ========= ========= =========
Weighted average shares outstanding ......... 49,928 48,307 50,519 48,465
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
---------- ----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................ $ 448 $ 11,998
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization ................... 25,979 11,728
Amortization of deferred financing costs ........ 578 --
Deferred income taxes ........................... (1,899) 2,189
Net realized gains on sale of
marketable securities investments .............. -- (3,373)
Non-cash acquisition costs ...................... 1,266 --
Gain on issuance of subsidiary stock ............ (14,634) --
Non-cash stock compensation expense ............. 2,907 --
Non-cash marketing costs ........................ 183 --
Minority interest in loss of subsidiary ......... (1,700) --
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ..................... 2,007 (2,633)
List brokerage trade accounts
receivable ................................... 4,528 6,664
Prepaid expenses and other assets ............. (1,941) (1,298)
Deferred marketing costs ...................... (551) 581
Accounts payable .............................. 4,452 (1,481)
List brokerage trade accounts payable ......... (4,539) (6,343)
Income taxes receivable and payable ........... (3,661) 3,240
Accrued expenses and other liabilities ........ 13,713 (3,718)
---------- ----------
Net cash provided by operating activities .... 27,136 17,554
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities ...... -- 17,338
Purchases of marketable securities ................ (32) (4,184)
Purchases of other investments .................... (1,124) --
Purchases of property and equipment ............... (6,482) (2,342)
Acquisitions of businesses ........................ (8,642) (1,536)
Software and database development costs ........... (6,951) (2,929)
Other ............................................. -- 531
---------- ----------
Net cash provided by (used in)
investing activities ........................... (23,231) 6,878
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt ....................... (17,047) (1,213)
Proceeds on issuance of subsidiary stock .......... 22,845 --
Acquisitions of treasury stock .................... -- (6,553)
Deferred financing costs .......................... (42) (103)
Repurchase of senior subordinated notes ........... -- (8,370)
Proceeds from exercise of stock options ........... 4,200 842
---------- ----------
Net cash provided by (used in)
financing activities ........................... 9,956 (15,397)
Effect of exchange rate fluctuations on cash ...... -- (149)
---------- ----------
Net increase in cash and cash equivalents .......... 13,861 8,886
Cash and cash equivalents, beginning ............... 10,846 29,603
---------- ----------
Cash and cash equivalents, ending .................. $ 24,707 $ 38,489
========== ==========
Supplemental cash flow information:
Interest paid ..................................... $ 13,512 $ 6,220
========== ==========
Income taxes paid ................................. $ 6,363 $ 2,891
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments,
necessary to fairly present the financial information included therein.
The Company suggests that this financial data be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1999 included in the Company's 1999 Annual Report on Form 10-K
filed with the Securities and Exchange Commission. Results for the interim
period presented are not necessarily indicative of results to be expected for
the entire year.
2. EARNINGS PER SHARE INFORMATION
The following table shows the amounts used in computing earnings per share and
the effect on the weighted average number of shares of dilutive potential common
stock.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding used in
basic EPS ................................................ 49,900 48,233 49,674 48,417
Net additional common stock equivalent shares
outstanding after assumed exercise of stock options ...... 28 74 845 48
-------- -------- -------- --------
Weighted average number of shares outstanding
used in diluted EPS ...................................... 49,928 48,307 50,519 48,465
======== ======== ======== ========
</TABLE>
3. SEGMENT INFORMATION
The Company currently manages existing operations utilizing financial
information accumulated and reported for two business segments.
The small business segment principally engages in the selling of sales lead
generation and consumer CD-Rom products to small and medium sized companies,
small office and home office businesses and individual consumers. This segment
includes the sale of content via the Internet.
The large business segment principally engages in the selling of data
processing services, licensed databases, database marketing solutions and list
brokerage and list management services to large companies. This segment includes
the licensing of databases for Internet directory assistance services.
The small business and large business segments reflect actual net sales,
direct order production, and identifiable direct sales and marketing costs
related to their operations. The remaining indirect costs are presented as a
reconciling item in corporate activities.
Corporate activities principally represent the information systems
technology, database compilation, database verification, and administrative
functions of the Company. Investment income (loss), interest expense, income
taxes, amortization of intangibles, and depreciation expense are only recorded
in corporate activities. The Company does not allocate these costs to the two
business segments. The Company records unusual or non-recurring items including
acquisition costs, non-cash stock compensation expense, gain on issuance of
subsidiary stock and minority interest in loss of subsidiary in corporate
activities to allow for the analysis of the sales business segments excluding
such unusual or non-recurring charges.
The Company accounts for property and equipment on a consolidated basis. The
Company's property and equipment is shared by the Company's business segments.
Depreciation expense is recorded in corporate activities.
7
<PAGE> 8
The Company has no intercompany sales or intercompany expense transactions.
Accordingly, there are no adjustments necessary to eliminate amounts between the
Company's segments.
The following table summarizes segment information:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 2000
------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ........................ $ 36,491 $ 42,462 $ -- $ 78,953
Non-cash stock compensation ...... -- -- 1,685 1,685
Acquisition costs ................ -- -- 821 821
Operating income (loss) .......... 6,452 21,524 (31,794) (3,818)
Investment income ................ -- -- 233 233
Interest expense ................. -- -- 6,468 6,468
Income (loss) before income
taxes and extraordinary item .. 6,452 21,524 (24,398) 3,578
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ......................... $ 32,894 $ 24,679 $ -- $ 57,573
Operating income (loss) ........... 14,962 11,883 (15,842) 11,003
Investment income ................. -- -- 1,704 1,704
Interest expense .................. -- -- 2,934 2,934
Income (loss) before income
taxes and extraordinary item ... 14,962 11,883 (17,072) 9,773
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 2000
------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ............................ $ 76,035 $ 83,878 $ -- $ 159,913
Non-cash stock compensation .......... -- -- 2,907 2,907
Acquisition costs .................... -- -- 2,201 2,201
Operating income (loss) .............. 19,911 40,074 (62,212) (2,227)
Investment income .................... -- -- 437 437
Interest expense ..................... -- -- 13,252 13,252
Income (loss) before income taxes
and extraordinary item ............ 19,911 40,074 (58,693) 1,292
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales ............................ $ 66,022 $ 47,071 $ -- $ 113,093
Operating income (loss) .............. 31,632 22,221 (31,875) 21,978
Investment income .................... -- -- 4,188 4,188
Interest expense ..................... -- -- 6,048 6,048
Income (loss) before income taxes
and extraordinary item............. 31,632 22,221 (33,735) 20,118
</TABLE>
8
<PAGE> 9
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), including the components of other comprehensive
income (loss), is as follows:
<TABLE>
<CAPTION>
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 1999 2000 1999
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income ......................................... $ 2,129 $ 5,685 $ 448 $ 11,998
Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized gains (losses) ...................... -- (595) 1,034 2,908
Related tax expense ............................ -- 226 (393) (1,105)
-------- -------- -------- --------
Net ............................................ -- (369) 641 1,803
-------- -------- -------- --------
Reclassification adjustment for net gains
(losses) realized on sale of marketable
securities:
Realized gains (losses) ........................ -- 168 -- 1,603
Related tax expense ............................ -- (64) -- (609)
-------- -------- -------- --------
Net ............................................ -- 104 -- 994
-------- -------- -------- --------
Foreign currency translation adjustments ......... (34) -- (668) (634)
-------- -------- -------- --------
Total other comprehensive income (loss) ............ (34) (265) (27) 2,163
-------- -------- -------- --------
Comprehensive income ............................... $ 2,095 $ 5,420 $ 421 $ 14,161
======== ======== ======== ========
</TABLE>
The components of accumulated other comprehensive income (loss) is as
follows:
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION GAINS ON COMPREHENSIVE
ADJUSTMENTS SECURITIES INCOME
----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at June 30, 2000 $ (668) $ -- $ (668)
====== ======= =======
Balance at June 30, 1999 $ (634) $ 6,111 $ 5,477
======= ======= =======
</TABLE>
5. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
During the six months ended June 30, 2000, infoUSA.com, a subsidiary of the
Company, issued approximately 5.1 million shares of convertible preferred stock
for approximately $22.8 million or $4.47 per share. As a result of the issuance
of the convertible preferred stock, the Company's ownership in infoUSA.com went
from approximately 83 percent at December 31, 1999 to approximately 67 percent
at June 30, 2000 and a gain of $14.6 million was recorded. No deferred income
taxes were recorded due to the gain being a non-taxable transaction. infoUSA.com
is an online provider of white and yellow page directory assistance and an
Internet destination for sales and marketing tools and information.
6. ACQUISITIONS
Effective March 2000, the Company acquired all issued and outstanding common
stock of American Church Lists, a national proprietary database of religious
institutions, organizations and affiliations. Total consideration for the
acquisition was $2.0 million, funded using cash provided by operations. The
acquisition has been accounted for under the purchase method of accounting, and
accordingly, the operating results of American Church Lists have been included
in the Company's financial statements since the date of acquisition. Intangibles
recorded as part of the purchase included goodwill of $2.1 million, which is
being amortized over 15 years. No pro forma operating results have been included
as the Company has determined that the results of operations for American Church
Lists are not material.
9
<PAGE> 10
Effective May 2000, the Company acquired certain assets and assumed certain
liabilities of idEXEC, a Thomson Financial company. idEXEC provides a worldwide
database of 60,000 large businesses and 400,000 executives for
business-to-business prospecting, marketing, and research applications. Total
consideration for the acquisition was $7.3 million, consisting of $5.1 million
in cash, funded using cash provided by operations, and 391,000 shares of common
stock at a recorded value of $2.2 million, funded using shares of treasury stock
held by the Company. The acquisition has been accounted for under the purchase
method of accounting, and accordingly, the operating results of idEXEC have been
included in the Company's financial statements since the date of acquisition.
Intangibles recorded as part of the purchase included goodwill of $8.4 million,
which is being amortized over 15 years. No pro forma operating results have been
included as the Company has determined that the results of operations for idEXEC
are not material.
Effective May 2000, the Company acquired certain assets and assumed certain
liabilities of Getko Direct Response of Canada ("Getko"), a Cendant Corporation
company. Getko provides Canadian list and data processing services for the
direct marketing industry. Total consideration for the acquisition was $1.6
million, funded using cash provided by operations. The acquisition has been
accounted for under the purchase method of accounting, and accordingly, the
operating results of Getko have been included in the Company's financial
statements since the date of acquisition. Intangibles recorded as part of the
purchase included goodwill of $1.4 million, which is being amortized over 15
years. No pro forma operating results have been included as the Company has
determined that the results of operations for Getko are not material.
7. ACQUISITION COSTS
During the quarter ended June 30, 2000, the Company recorded charges of $821
thousand principally related to the Company's acquisition of American Church
Lists, idEXEC and Getko, representing costs to integrate these acquired
operations into the Company's existing operations. These costs were not directly
related to the acquisition of these companies, and therefore could not be
capitalized as part of the purchase price. Also, the Company recorded additional
charges associated with the Company's bid to acquire the consumer database
division of R.L. Polk. This entity was acquired by Equifax in May 2000.
For the six months ended June 30, 2000, the Company recorded acquisition
costs of $2.2 million, including $821 thousand of costs described above and $1.4
million associated with the Company's bid to acquire the consumer database
division of R.L. Polk.
8. NON-CASH STOCK COMPENSATION EXPENSE
The Company's partially-owned subsidiary, infoUSA.com, sponsors an Equity
Incentive Plan in which shares of common stock are reserved for issuance to
officers, directors, employees and consultants of the subsidiary. Options
granted during the six months ended June 30, 2000 totaled 2.5 million options
with a weighted average exercise price of $1.19. The Company uses Accounting
Principles Bulletin (APB) Opinion No. 25 to account for stock-based compensation
and, as such, has recorded a non cash charge of $2.9 million during the six
months ended June 30, 2000 related to the issuance of stock options for
infoUSA.com. The charge was recorded as an addition to paid-in-capital.
9. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
10
<PAGE> 11
infoUSA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of business and consumer marketing information
and data processing services. The Company's products and services help its
clients generate new customers more effectively at lower cost. The Company's key
assets include proprietary databases of 12 million businesses and 200 million
consumers in the United States and Canada, which the Company believes are among
the most comprehensive and accurate available. The Company leverages these key
assets by selling a broad range of marketing information products and data
processing services through targeted distribution channels primarily to small
and medium size businesses and also to consumers and large corporations.
This discussion and analysis contains forward-looking statements, including
without limitation statements in the discussion of comparative results of
operations, year 2000 readiness disclosure, accounting standards and liquidity
and capital resources, within the meaning of Section 21E of the Securities
Exchange Act of 1934 and Section 27A of the Securities Act of 1933, which are
subject to the "safe harbor" created by those sections. The Company's actual
future results could differ materially from those projected in the
forward-looking statements. Some factors which could cause future actual results
to differ materially from the company's recent results or those projected in the
forward-looking statements are described in "Factors Affecting Operating
Results" below. The Company assumes no obligation to update the forward-looking
statement or such factors.
11
<PAGE> 12
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information and other data. The amounts and related percentages may
not be fully comparable due to the acquisitions of Donnelley Marketing
(Donnelley) during July 1999, American Church Lists during March 2000, idEXEC in
May 2000 and Getko Direct Response of Canada (Getko) in May 2000:
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................... 100% 100% 100% 100%
Costs and expenses:
Database and production costs......................... 33 30 32 30
Selling, general and administrative................... 52 41 50 41
Depreciation and amortization......................... 17 10 16 10
Non-cash stock compensation expense................... 2 -- 2 --
Acquisition-related and restructuring charges......... 1 -- 1 --
-------- -------- -------- --------
Total costs and expenses........................... 105 81 101 81
-------- -------- -------- --------
Operating income (loss)................................. (5) 19 (1) 19
Other income (expense), net............................. 10 (2) 2 (1)
-------- -------- -------- --------
Income before income taxes and extraordinary item....... 5 17 1 18
Income taxes............................................ 2 7 1 7
-------- -------- -------- --------
Income before extraordinary item........................ 3 10 0 11
Extraordinary item, net of tax.......................... -- -- -- --
-------- -------- -------- --------
Net income.............................................. 3% 10% 0% 11%
======== ======== ======== ========
OTHER DATA:
SALES BY SEGMENT:
(in thousands)
Small business................................... $ 36,491 $ 32,894 $ 76,035 $ 66,022
Large business................................... 42,462 24,679 83,878 47,071
--------- --------- --------- ---------
Total............................................ $ 78,953 $ 57,573 $ 159,913 $ 113,093
========= ========= ========= =========
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business................................... 46% 57% 48% 58%
Large business................................... 54 43 52 42
-------- -------- -------- --------
Total............................................ 100% 100% 100% 100%
======== ======== ======== ========
(dollars in thousands)
Earnings before, interest, taxes, depreciation and
amortization, (EBITDA), as adjusted (1)............... $ 11,490 $ 16,697 $ 26,659 $ 33,705
======== ======== ======== ========
EBITDA, as adjusted, as a percentage of net sales....... 15% 29% 17% 30%
======== ======== ======== ========
</TABLE>
(1) "EBITDA, as adjusted" is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets and non-cash items such
as non-cash stock compensation expense. EBITDA 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-cash 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.
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Overview
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed thirteen 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 Company has 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.
Since the beginning of 1999, operating costs have increased significantly
due to the Company's execution of the planned expansion of certain Internet
initiatives, including infoUSA.com, BusinessCreditUSA.com, VideoYellowPages.com
and ListBazaar.com. Selling, general and administrative expenses have increased
significantly, and to a lesser extent, database and production costs have
increased moderately. For the quarter ended June 30, 2000, net sales for the
four Internet divisions increased $3.3 million, or 87% from the same period in
1999, although total operating costs for the four Internet divisions increased
$12.0 million or 601% from the same period in 1999. For the six months ended
June 30, 2000, the Company's net sales for the four Internet divisions have
increased $5.6 million or 76% from the same period in 1999, although total
operating costs for the four Internet divisions have increased $20.1 million, or
634% from the same period in 1999. Marketing costs specific to the Internet
initiatives represent the principal source for the increase.
Quarter ended June 30, 2000 compared to quarter ended June 30, 1999 and six
months ended June 30, 2000 compared to six months ended June 30, 1999
Net sales
Net sales of the Company for the quarter ended June 30, 2000 were $79.0
million, an increase of 37% from $57.6 million for the same period of 1999. Net
sales for the six months ended June 30, 2000 were $159.9 million, an increase of
41% for the same period of 1999 The increase in net sales is principally due to
the acquisition of Donnelley in July 1999. The acquisitions of American Church
Lists in March 2000 and idEXEC and Getko in May 2000 contributed to the
increase, although the sales associated with these acquired entities were not
significant.
Net sales of the small business segment for the quarter ended June 30,
2000 were $36.5 million, an 11% increase from $32.9 million for the same period
of 1999. Net sales of the small business segment for the six months ended June
30, 2000 were $76.0 million, a 15% increase from $66.0 million for the same
period in 1999. The small business segment principally engages in the selling of
sales lead generation and consumer CD-Rom products to small to medium sized
companies, small office and home office businesses and individual consumers.
This segment also includes the sale of content via the Internet. The increase in
the net sales of the small business segment is principally due to the
acquisition of Donnelley in July 1999 and the related sale of Donnelley's
consumer data by the segment although the amount can not be accurately
quantified for reasons previously described in the section "Overview."
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Net sales of the large business segment for the quarter ended June 30, 2000
were $42.5 million, a 72% increase from $24.7 million for the same period of
1999. Net sales of the large business segment for the six months ended June 30,
2000 were $83.9 million, a 78% increase from $47.1 million for the same period
in 1999. The large business segment principally engages in the selling of data
processing services, marketing database licenses, database marketing solutions
and list brokerage and list management services to large companies. This segment
also includes the licensing of databases for Internet directory assistance
services. Net sales of the large business segment increased due to the
following: 1) acquisition of Donnelley effective July 1999, 2) increased sales
of Internet-based database licenses, and 3) increased sales of marketing
database licenses. A significant portion of the increase is attributable to the
acquisition of Donnelley Marketing in July 1999 although the amount can not be
accurately quantified for reasons previously described in the section
"Overview." Net sales of Internet-based database licenses for the quarter ended
June 30, 2000 were $5.5 million, an 86% increase from $3.0 million for the same
period of 1999. For the six months ended June 30, 2000, net sales of
Internet-based database licenses were $9.6 million, a 72% increase from $5.6
million for the same period in 1999. Since mid-1999, the Company has been
successfully renewing and signing new Internet license agreements using a
variable CPM model, no longer entering into Internet-based license agreements on
a flat fee basis. Net sales of marketing database licenses for the quarter ended
June 30, 2000 were $8.8 million, a 174% increase from $3.2 million for the same
period of 1999. For the six months ended June 30, 2000, net sales of marketing
database licenses were $17.5 million, a 274% increase from $4.7 million for the
same period in 1999. The increase relates principally due to the addition of
several significant license arrangements. The Company recorded net sales of data
processing services of $19.5 million for the quarter ended June 30, 2000,
compared to $13.6 million for the same period of 1999. For the six months ended
June 30, 2000, net sales of data processing services were $41.4 million,
compared to $28.1 million for the same period in 1999. The increase in net sales
of data processing services is principally due to the acquisition of Donnelley
in July 1999.
Database and production costs
Database and production costs for the quarter ended June 30, 2000 were $25.7
million, or 33% of net sales, compared to $17.1 million, or 30% of net sales for
the same period of 1999. For the six months ended June 30, 2000, database and
production costs were $51.4 million, or 32% of net sales, compared to $33.3
million or 30% of net sales for the same period in 1999.
The increase in database and production costs as a percentage of net sales
is principally due to the acquisition of Donnelley in July 1999. Database and
production costs as a percentage of net sales associated with the Donnelley
operations are higher than database and production costs as a percentage of net
sales associated with the remainder of the Company's operations.
Additionally, the increase in database and production costs as a percentage
of net sales is partially due to the execution of the Company's planned
expansion related to various Internet initiatives. Database and production costs
related to the various Internet divisions increased $1.1 million, or 1% of net
sales, from the second quarter of 1999 to the second quarter of 2000, and $2.2
million, or 1% of net sales, for the six months ended June 30, 1999 to the six
months ended June 30, 2000. The increase for the Internet divisions is due to
additional information technology and data content costs.
Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter ended June 30,
2000 were $41.0 million, or 52% of net sales, compared to $23.8 million, or 41%
of net sales for the same period of 1999. For the six months ended June 30,
2000, selling, general and administrative expenses were $79.7 million, or 50% of
net sales, compared to $46.1 million, or 41% of net sales for the same period in
1999.
The increase in selling, general and administrative expenses as a percentage
of net sales is principally due to the Company's planned expansion related to
various Internet initiatives. Selling, general and administrative expenses
related to the various Internet divisions increased $8.6 million, or 11% of net
sales, from the second quarter of 1999 to the second quarter of 2000, and $14.3
million or 9% of net sales, for the six months ended June 30, 1999 compared to
the six months ended June 30, 2000. The increase for the Internet divisions is
principally due to expanded marketing campaigns specific to these initiatives.
Depreciation and amortization expenses
Depreciation and amortization expenses for the quarter ended June 30, 2000
were $13.6 million, or 17% of net sales, compared to $5.7 million, or 10% of net
sales for the same period of 1999. For the six months ended June 30, 2000,
depreciation and amortization expenses were $26.0 million, or 16% of net sales,
compared to $11.7 million or 10% of net sales for the same period in 1999. The
increase in depreciation and amortization expenses is principally due to the
acquisition of Donnelley in July 1999.
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Non cash stock compensation expense
During the quarter ended June 30, 2000, the Company recorded a non-cash
charge of $1.7 million, or 2% of net sales, related to the issuance of stock
options for infoUSA.com, a subsidiary of the Company. For the six months ended
June 30, 2000, the Company recorded a charge of $2.9 million, or 2% of net
sales, related to these stock options. The charge was recorded as an addition to
paid-in-capital.
Acquisition costs
During the quarter ended June 30, 2000, the Company recorded charges
totaling $821 thousand, or 1% of net sales, principally related to the Company's
acquisition of American Church Lists, idEXEC and Getko, representing costs to
integrate these acquired operations into the Company's existing operations.
Also, the Company recorded additional charges associated with the Company's bid
to acquire the consumer database division of R.L. Polk. This entity was
subsequently acquired by Equifax. For the six months ended June 30, 2000, the
Company recorded acquisition costs of $2.2 million, including $821 thousand of
costs described above and $1.4 million associated with the Company's bid to
acquire the consumer database division of R.L. Polk.
Operating income (loss)
Including the factors previously described, the Company had an operating
loss of $3.8 million, or (5)% of net sales for the quarter ended June 30, 2000,
compared to operating income of $11.0 million, or 19% of net sales for the same
period in 1999. For the six months ended June 30, 2000, the Company had an
operating loss of $2.2 million, or (1)% of net sales, compared to operating
income of $22.0 million or 19% of net sales for the same period in 1999.
Operating income for the small business segment for the quarter ended June
30, 2000 was $6.5 million, or 18% of net sales, as compared to $15.0 million, or
45% of net sales for the same period in 1999. For the six months ended June 30,
2000, operating income for the small business segment was $19.9 million, or 26%
of net sales, compared to operating income of $31.6 million or 48% of net sales
for the same period in 1999. The decrease in operating income as a percentage of
net sales is principally due to the Company's execution of the planned expansion
related to various Internet initiatives. Principally all costs related to the
Internet divisions are included in the small business segment. See the sections
"Overview," "Selling, general and administrative expenses" and "database and
production costs" for additional information describing the Internet divisions
and the effects on the results of operations.
Operating income for the large business segment for the quarter ended June
30, 2000 was $21.5 million, or 51% of net sales, as compared to $11.9 million,
or 48% of net sales for the same period in 1999. For the six months ended June
30, 2000, operating income for the large business segment was $40.1 million, or
48% of net sales, compared to $22.2 million, or 47% of net sales for the same
period in 1999. The increase in operating income as a percentage of net sales
directly relates to the overall increase in sales of marketing database licenses
and Internet-based database licenses, as the cost margins associated with these
products are lower than the cost margins associated with the remainder of the
large business segment's products.
Other income (expense), net
Other income (expense), net was $7.4 million, or 10% of net sales, and
$(1.2) million, or (2)% of net sales, for the quarters ended June 30, 2000 and
1999, respectively. For the six months ended June 30, 2000, other income
(expense), net was $3.5 million, or 2% of net sales, compared to $(1.9) million
or (1)% for the same period in 1999. Other income (expense) is comprised of
interest expense, investment income, minority interest in subsidiary and other
income or expense items which do not represent components of operating income
(expense) of the Company.
Interest expense was $6.5 million and $2.9 million for the quarters ended
June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000,
interest expense was $13.3 million compared to $6.0 million for the same period
in 1999. The increase in interest expense is principally the result of the
addition of the Deutsche Bank Credit Facilities used to finance the acquisition
of Donnelley in July 1999.
Investment income was $0.2 million and $1.7 million for the quarters ended
June 30, 2000 and 1999, respectively. For the six months ended June 30, 2000,
investment income was $0.4 million compared to $4.2 million for the same period
in 1999. The Company recorded realized gains on the sale of marketable
securities totaling $1.3 million for the quarter ended June 30, 2000 and $3.4
million for the six months ended June 30, 1999.
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During the quarter ended June 30, 2000, infoUSA.com, a subsidiary of the
Company, completed additional venture capital financing. As a result of the
issuance of stock of this subsidiary, the Company recorded a gain of $12.2
million on the transaction. For the six months ended June 30, 2000, the Company
recorded a gain of $14.6 million on the issuance of stock of this subsidiary.
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 effecting 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 is dependent upon the results of operations
related to infoUSA.com and its planned expansion.
Minority interest in subsidiary of $1.4 million for the quarter ended June
30, 2000 and $1.7 million for the six month period ended June 30, 2000,
represents the unaffiliated investors' share of infoUSA.com's net loss for the
period then ended.
Income taxes
A provision for income taxes of $1.4 million and $4.1 million was recorded
for the quarters ended June 30, 2000 and 1999, respectively. For the six months
ended June 30, 2000, a provision for income taxes of $0.8 million was recorded
compared to $8.2 million recorded for the same period in 1999. The gain the
Company recorded on the issuance of subsidiary stock is not subject to income
tax expense. The provisions for these periods also reflect the inclusion of
amortization of certain intangibles in taxable income not deductible for tax
purposes. The provisions for the periods beginning January 1, 2000 do not
include the net losses associated with infoUSA.com, as this entity is not
included in the Company's consolidated federal income tax return from this date
forward.
Extraordinary item, net of tax
During the six months ended June 30, 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 non-cash stock compensation expense previously described, the
Company's EBITDA, as adjusted, was $11.5 million, or 15% of net sales for the
quarter ended June 30, 2000, and $16.7 million, or 29% of net sales for the same
period in 1999. For the six months ended June 30, 2000, EBITDA, as adjusted, was
$26.7 million, or 17% of net sales, compared to $33.7 million or 30% of net
sales for the same period in 1999.
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-Q, 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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin no. 101 (SAB 101) which summarizes certain of the staff's
view in applying generally accepted accounting principles to revenue recognition
in financial statements. The effective date of SAB 101 for the Company is the
quarter ended December 31, 2000. The Company continues to evaluate the impact
that SAB 101 will have on the timing of revenue recognition in future periods.
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LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Company's principal source of liquidity included
cash and cash equivalents of $24.7 million. The Company's subsidiary,
infoUSA.com, principally held this cash which is restricted for use by this
subsidiary. Proceeds on the issuance of subsidiary stock totaled $22.8 million
for the six months ended June 30, 2000. As of June 30, 2000, the Company had
working capital of $43.8 million, although the Company is restricted to the
access of working capital of its subsidiary, infoUSA.com.
During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a credit arrangement which includes a Revolving Credit Facility of
$30.0 million. As of June 30, 2000, the Company had no borrowings under the
Revolving Credit Facility, with the exception of one outstanding letter of
credit in the amount of $8.0 million reducing the availability under the
Revolving Credit Facility to $22.0 million.
Net cash provided by operating activities during the six months ended June
30, 2000, totaled $27.1 million compared to $17.6 million during the same period
of 1999. The increase is principally the result of the receipt of $14.0 million
during 2000 which represented a customer prepayment on a long-term data license
arrangement.
During the six months ended June 30, 2000, the Company spent $6.5 million
for additions of property and equipment and $7.0 million related to internal
software development costs.
During the six months ended June 30, 2000, the Company spent $8.6 million
for the acquisitions of businesses. The Company acquired American Church Lists
in March 2000 for $2.0 million, Getko in May 2000 for $1.6 million and idEXEC in
May 2000 for $5.0 million in cash.
During the six months ended June 30, 2000, the Company received cash
proceeds of $22.8 million on the issuance of stock in its subsidiary infoUSA.com
and $4.2 million from the exercise of stock options.
The Company made repayments on long-term debt totaling $17.0 million during
the six months ended June 30, 2000.
Deferred revenue at June 30, 2000 of $12.0 million represent a customer
prepayment on a long-term data license arrangement.
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.
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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:
o In consumer sales lead generation products, Acxiom, Experian (a
subsidiary of Great Universal Stores, P.L.C. ("GUS")) and Equifax, both
directly and through reseller networks.
o In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications,
Inc. and Harte-Hanks Communications, Inc.
o 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.
o In business directory publishing, Regional Bell Operating Companies and
many smaller, regional directory publishers.
o In consumer products, certain smaller producers of CD-Rom products.
o Technologies which companies may install and implement in-house as part
of their internal IS functions, instead of purchasing or outsourcing
such functions.
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 June 30, 2000, we had total indebtedness of approximately $261.4
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $139.8 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 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:
o Incur additional indebtedness;
o Pay dividends and make certain other similar payments;
o Guarantee indebtedness of others;
o Enter into certain transactions with affiliates;
o Consummate certain asset sales, certain mergers and consolidations, sales
or other dispositions of all or substantially all of our assets; and
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o 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.
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:
o Fail to develop products and services that are well suited to the
Internet market;
o Experience difficulties that delay or prevent the successful development,
introduction and marketing of these products and services; or
o 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-
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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 thirteen
acquisitions since mid-1996. 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to significant future earnings or cash flow
exposures from changes in interest rates on long-term debt as a significant
portion of the Company's debt is at fixed interest rates and the Company has
entered into long-term interest rate swap agreements used to reduce the
potential impact of changes in interest rates on floating rate debt. The Company
is not exposed to material future earnings or cash flow exposures from
fluctuations in foreign currency exchange rates as operating results related to
foreign operations are not material.
20
<PAGE> 21
infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2000
PART II
OTHER INFORMATION
21
<PAGE> 22
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Third Amendment dated April 12, 2000 to Credit Agreement by and
among the Company, various lenders (as defined therein) and
Bankers Trust Company, filed herewith
4.2 Fourth Amendment dated June 8, 2000 to Credit Agreement by and
among the Company, various lenders (as defined therein) and
Bankers Trust Company, filed herewith
10.1 Employment Agreement dated May 9, 2000 between the Company and
Stormy L. Dean, filed herewith
27 Financial Data Schedule, filed herewith
(b) Report on Form 8-K
No reports on Form 8-K have been filed during the quarter ended June
30, 2000
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
infoUSA INC.
Date: August 11, 2000 /s/ STORMY L. DEAN
-----------------------------------------
Stormy L. Dean, Chief Financial Officer
(principal financial officer)
23
<PAGE> 24
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
4.1 Third Amendment dated April 12, 2000 to Credit Agreement by and
among the Company, various lenders (as defined therein) and Bankers
Trust Company, filed herewith
4.2 Fourth Amendment dated June 8, 2000 to Credit Agreement by and
among the Company, various lenders (as defined therein) and Bankers
Trust Company, filed herewith
10.1 Employment Agreement dated May 9, 2000 between the Company and
Stormy L. Dean, filed herewith
27 Financial Data Schedule, filed herewith
</TABLE>
24
