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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934 for the quarterly period ended March 31, 1999 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
and Exchange Act of 1934 for the transition period from
to ---------------
---------------------
Commission file number 0-27444
F.Y.I. INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 75-2560895
(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
Or organization)
</TABLE>
3232 MCKINNEY AVENUE, SUITE 900, 75204
DALLAS, TEXAS
(Address of principal executive offices) (Zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(214) 953-7555
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
As of April 30, 1999, 14,175,847 shares of the registrant's Common
Stock, $.01 par value per share, were outstanding.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 1999
INDEX
PART I. FINANCIAL INFORMATION
Item 1 Financial Statements 3
Consolidated Balance Sheets - December 31, 1998 and
March 31,1999 (unaudited) 4
Consolidated Statements of Operations - Three months ended
March 31, 1998 and 1999 (unaudited) 5
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1999 (unaudited) 6
Notes to Consolidated Financial Statements - March 31, 1999 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures about Market Risk 13
PART II. OTHER INFORMATION
Item 2 Changes in Securities II-1
Item 5 Other Information II-1
Item 6 Exhibits and Reports on Form 8-K II-2
SIGNATURES II-3
INDEX TO EXHIBITS II-4
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
3
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(SEE NOTE 1)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ---------
ASSETS (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,592 $ 9,083
Accounts receivable and notes receivable, less allowance of $4,705 and
$5,499, respectively 51,683 58,359
Notes receivable, shareholders - short term 479 479
Prepaid expenses and other current assets 5,487 9,867
--------- ---------
Total current assets 72,241 77,788
PROPERTY, PLANT AND EQUIPMENT, NET 29,372 31,404
GOODWILL AND OTHER INTANGIBLES, NET 96,652 117,254
OTHER NONCURRENT ASSETS 8,705 10,424
--------- ---------
Total assets $ 206,970 $ 236,870
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 30,095 $ 37,640
Current maturities of long-term obligations 1,258 1,695
Income taxes payable 2,881 3,750
Current portion of deferred income taxes 214 214
--------- ---------
Total current liabilities 34,448 43,299
LONG-TERM OBLIGATIONS, net of current maturities 31,498 36,264
DEFERRED INCOME TAXES, net of current portion 1,479 1,479
OTHER LONG-TERM OBLIGATIONS 810 9,202
--------- ---------
Total liabilities 68,235 90,244
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
0 shares issued and outstanding -- --
Common stock, $.01 par value, 26,000,000 shares authorized,
14,046,725 and 14,160,284 shares issued and outstanding at
December 31, 1998 and March 31, 1999, respectively 140 142
Additional paid-in-capital 107,912 110,528
Retained earnings 31,184 36,457
--------- ---------
139,236 147,127
Less - Treasury stock, $.01 par value, 36,670 shares
at December 31, 1998 and March 31, 1999, respectively (501) (501)
--------- ---------
Total stockholders' equity 138,735 146,626
--------- ---------
Total liabilities and stockholders' equity $ 206,970 $ 236,870
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(SEE NOTE 1)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
REVENUE $ 56,504 $ 71,612
COST OF SERVICES 35,706 44,148
DEPRECIATION 1,260 1,864
-------- --------
Gross profit 19,538 25,600
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 12,211 15,555
AMORTIZATION 708 909
-------- --------
Operating income 6,619 9,136
OTHER (INCOME) EXPENSE:
Interest expense 197 497
Interest income (65) (105)
Other (income) expense, net -- (45)
-------- --------
Income before income taxes 6,487 8,789
PROVISION FOR INCOME TAXES 2,392 3,516
-------- --------
NET INCOME $ 4,095 $ 5,273
======== ========
PRO FORMA DATA:
Historical net income $ 4,095 $ 5,273
Pro forma provision for income taxes 201 --
-------- --------
PRO FORMA NET INCOME $ 3,894 $ 5,273
======== ========
NET INCOME PER COMMON SHARE
BASIC $ 0.31 $ 0.38
======== ========
DILUTED $ 0.30 $ 0.36
======== ========
PRO FORMA NET INCOME PER COMMON SHARE
BASIC $ 0.30 $ 0.38
======== ========
DILUTED $ 0.29 $ 0.36
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
BASIC 13,189 13,940
======== ========
DILUTED 13,477 14,579
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998 1999
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,095 $ 5,273
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,968 2,773
Change in operating assets and liabilities:
Accounts receivable (3,214) (3,023)
Prepaid expenses and other assets (447) (1,534)
Accounts payable and other current liabilities 4,094 4,042
-------- --------
Net cash provided by operating activities 6,496 7,531
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (2,888) (3,746)
Cash paid for acquisitions, net of cash acquired (15,426) (13,897)
-------- --------
Net cash used in investing activities (18,314) (17,643)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock issuance, net of underwriting
discounts and other costs 336 1,244
Distribution to shareholders of pooled companies (1,020) --
Proceeds from long-term obligations 15,000 10,750
Principal payments on long-term obligations (2,794) (7,391)
-------- --------
Net cash provided by financing activities 11,522 4,603
NET DECREASE IN CASH AND CASH EQUIVALENTS (296) (5,509)
CASH AND CASH EQUIVALENTS, beginning of period 10,982 14,592
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 10,686 $ 9,083
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
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F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes to
consolidated financial statements include the accounts of F.Y.I. Incorporated
and its subsidiaries (the "Company" or "F.Y.I."), which consist of: (i) F.Y.I.
Incorporated; (ii) the companies acquired in business combinations accounted
for under the purchase method of accounting from their respective acquisition
dates; and (iii) the companies acquired in business combinations accounted for
under the pooling-of-interests method of accounting either for all periods
presented or from the date of acquisition based upon their financial
materiality.
In the opinion of F.Y.I.'s management, the accompanying consolidated
financial statements include the accounts of the Company and all adjustments
necessary to present fairly the Company's financial position at March 31, 1999,
its results of operations for the three months ended March 31, 1998 and 1999,
and its cash flows for the three months ended March 31, 1998 and 1999. All
significant intercompany transactions have been eliminated. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, certain information and footnote disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (the
"Commission"). These consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company and the
related notes thereto in F.Y.I.'s Annual Report on Form 10-K filed with the
Commission on March 17, 1999 and the Company's Current Report on Form 8-K filed
with the Commission on March 2, 1999. The results of operations for the interim
periods ended March 31, 1998 and 1999 will not be indicative of the results for
the full year.
Certain prior period amounts have been reclassified to make their
presentation consistent with the current year.
2. PRO FORMA NET INCOME
The Company acquired Economic Research Services, Inc., in October 1998 in a
transaction that was accounted for as a pooling-of-interests. This company was
managed through its acquisition date as an independent S Corporation. Therefore,
the pro forma data present the incremental provision for income taxes as if this
entity had been subject to federal and state income taxes.
3. WEIGHTED AVERAGE SHARES OUTSTANDING
Basic and diluted net income per common share were computed in accordance
with Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
The differences between basic weighted average common shares and diluted
weighted average common shares and common stock equivalents are as follows (in
thousands):
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1998 1999
------ ------
<S> <C> <C>
Basic weighted average common shares 13,189 13,940
Weighted average options and warrants 265 520
Contingent acquisition consideration 23 119
------ ------
Diluted weighted average common shares 13,477 14,579
====== ======
</TABLE>
4. BUSINESS COMBINATIONS
During the first three months of 1999, the Company acquired four additional
document management businesses which were accounted for as purchases (the
"Purchased Companies"). These acquisitions were Northern Minnesota Medical
Records Services, Inc., PMI Imaging Systems, Inc., Quality Data Conversions,
Inc. and MSI Imaging Solutions, Inc. The aggregate consideration paid for the
Purchased Companies consisted of $14.9 million in cash and 38,991 shares of
Common Stock. The preliminary allocation of the purchase price is set forth
below (in thousands):
<TABLE>
<S> <C>
Consideration Paid $ 15,828
Estimated Fair Value of Tangible Assets 8,483
Estimated Fair Value of Liabilities 5,362
Goodwill 12,707
</TABLE>
The weighted average fair market values of the shares of Common Stock used
in calculating the consideration paid was $24.86, which represents a 20%
discount from the average trading price of the Common Stock based on the length
and type of restrictions in the purchase agreements.
The estimated fair market values reflected above are based on preliminary
estimates and assumptions and are subject to revision. In management's opinion,
the preliminary allocations are not expected to be materially different than the
final allocations. Certain of the acquisitions are subject to additional
consideration based upon the achievement of specified earning targets over one
to three year periods. Based upon the evaluation of cumulative earnings through
March 31, 1999 against the specified earnings targets, the Company has accrued
aggregate contingent consideration of approximately $4.9 million. The periods
applicable for the earnout targets have not been completed, and the amounts paid
at the conclusion are likely to be different from amounts presently accrued.
All intangibles are considered enterprise goodwill. Based on the historical
profitability of the purchased companies and trends in the legal, healthcare
and other industries to outsource document management functions in the
foreseeable future, the enterprise goodwill is being amortized over periods not
to exceed 30 years. Management continually evaluates whether events and
circumstances indicate that the remaining estimated useful life of intangible
assets might warrant revisions or that the remaining balance of intangibles or
other long-lived assets may not be recoverable. To make this evaluation,
management uses an estimate of undiscounted net income over the remaining life
of the intangibles or other long-lived assets. The goodwill associated with a
majority of the acquisitions is not deductible for income tax purposes.
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5. SEGMENT REPORTING
The Company and its subsidiaries are principally engaged in document and
information outsourcing services. The Company identifies segments based on
management responsibility.
(i) Healthcare Services. Healthcare services include: (i) processing a
request for release of a patient's medical records; (ii) archival records
storage and management; (iii) document and data conversion; (iv) archiving
and imaging services to hospital radiology departments; (v) providing
attending physician statements for life and health insurance underwriting;
and (vi) image processing services for handling state government disability
and workers' compensation claims.
(ii) Commercial Services. The Commercial services group offers electronic
imaging, micrographics services, data capture, document and media to media
conversion, database management, direct mail and fulfillment services, and
full service commercial printing, as well as integrated solutions to
customers in a wide range of industries, including financial services,
retail, insurance and government entities.
(iii) Legal Services. Legal services include managing the logistics of high
volume document production, microfilming and/or electronic imaging,
document coding, computer indexing, automated document retrieval, and high
speed, multiple-set reproduction of documents, as well as high level
consulting services ranging from labor discrimination, mortgage
discrimination and forensic analysis to trial support for law firms,
corporations and utility companies.
Investors services is an emerging business initiative, presented as part of
Legal services, which offers administration, record keeping and information
processing services for employee and/or investor records.
The Company measures segment profit as earnings before taxes. Information
on segments follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------------
Healthcare Commercial Legal
Services Services Services(1) Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 25,854 $ 25,152 $ 20,606 $ 71,612
Earnings before taxes 3,293 3,129 2,367 8,789
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------------
Healthcare Commercial Legal
Services Services Services(1) Consolidated
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 19,673 $ 17,794 $ 19,037 $ 56,504
Earnings before taxes 2,028 2,071 2,388 6,487
</TABLE>
(1) Includes Investor Services.
9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements of the Company and the related notes thereto appearing elsewhere in
this Report on Form 10-Q. Additional information concerning factors that could
cause results to differ materially from those forward-looking statements is
contained under "Item 5. Other Information."
INTRODUCTION
The Company's revenue is segregated into the following segments: (i)
Healthcare Services; (ii) Commercial Services; and (iii) Legal Services, which
includes Investor Services, an emerging business initiative. Services provided
to customers are described by segment as follows:
Healthcare Services: includes (i) processing a request for release of a
patient's medical records from a physician, insurance company, attorney,
healthcare institution or individual; (ii) off-site active storage of a
healthcare institution's medical records; (iii) online delivery of images
of selected medical records for healthcare institutions; (iv) document and
data conversion services for healthcare institutions; (v) image processing
for state government disability and workers compensation claims; (vi)
medical staffing services; and (vii) providing attending physicians
statements for life and health insurance underwriting.
Commercial Services: includes (i) electronic imaging services involving the
conversion of paper or microfilm documents into digitized information,
database management and indexing; (ii) micrographics services involving the
conversion of paper documents into microfilm images, film processing and
computer based indexing and formatting; (iii) data capture, document and
media-to-media conversion and database management services involving data
capture, data consolidation and elimination, storage, maintenance,
formatting and report creation; (iv) direct mail, which includes direct
mail and fulfillment services to customers who need rapid, reliable and
cost-effective methods for making large scale distributions of advertising,
literature and other information; (v) full service commercial printing,
including printing and related services such as electronic prepress
services, full-color report production of annual reports, flyers and
catalogs; and (vi) integrated solutions, that deliver technical services
with a focus on document imaging, work flow, COLD and document information
management systems.
Legal Services: includes (i) automated litigation support, including
document conversion, computer indexing and automated document retrieval;
(ii) consulting services such as discovery assistance, labor
discrimination, forensic analysis and other trial support services; (iii)
high-speed, multiple-set reproduction of documents; and (iv) records
acquisition in the form of subpoena of business documents and service of
process.
Investor Services: includes administration, record keeping and information
processing services to (i) general partners to service their investors in
limited partnerships, REITs and master limited partnerships; (ii)
corporations to provide turn-key outsourced administration of employee
stock purchase plans and employee stock option plans; and (iii) banks and
broker/dealers to provide complete record keeping and administration
services for additional brokerage and IRA accounts.
Cost of services consists primarily of compensation and benefits to
employees providing goods and services to the Company's customers, occupancy
costs, equipment costs and supplies. The Company's
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cost of services also includes the cost of products sold for micrographics and
business imaging supplies and equipment, filing supplies, shelving and
software.
Selling, general and administrative expenses ("SG&A") consist primarily of:
(i) compensation and related benefits to the sales and marketing, executive
management, accounting, human resources and other administrative employees of
the Company; (ii) other sales and marketing costs; (iii) communications costs;
(iv) insurance costs; and (v) legal and accounting professional fees and
expenses.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUE
Revenue increased 26.7% from $56.5 million for the three months ended March
31, 1998 to $71.6 million for the three months ended March 31, 1999. This
increase was largely due to: (i) revenue from the acquisitions completed
subsequent to March 31, 1998; and (ii) internal growth of 11.5% in revenue at
the companies owned for longer than one year, based on the acquisition
anniversary date. This internal growth was primarily attributable to an
increase in government services revenue relating to the State of New York
document imaging contract and an increase in healthcare records release
services revenue due to expansion into additional healthcare institutions
throughout the markets the Company serves.
GROSS PROFIT
Gross profit increased 31.0% from $19.5 million for the three months ended
March 31, 1998 to $25.6 million for the three months ended March 31, 1999,
largely due to acquisitions completed subsequent to March 31, 1998. Gross profit
as a percentage of revenue increased from 34.6% for the three months ended March
31, 1998 to 35.7% for the three months ended March 31, 1999, primarily due to
higher profit margins associated with increased legal services consulting
revenue and higher volumes in image processing for workers' compensation claims
and mortgage loan files. These higher margins were partially offset by a decline
in automated litigation support margins due to a downward fluctuation in project
revenue.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased 27.4% from $12.2 million, or 21.6% of revenue, for the three
months ended March 31, 1998 to $15.6 million, or 21.7% of revenue, for the
three months ended March 31, 1999. This increase in SG&A was a result of: (i)
SG&A incurred at companies acquired subsequent to March 31, 1998; and (ii)
increased corporate overhead required to manage the consolidated group.
OPERATING INCOME
Operating income increased 38.0% from $6.6 million, or 11.7% of revenue,
for the three months ended March 31, 1998 to $9.1 million, or 12.8% of revenue,
for the three months ended March 31, 1999, largely attributable to the factors
discussed above.
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INCOME BEFORE INCOME TAXES AND PRO FORMA NET INCOME
Income before income taxes increased 35.5% from $6.5 million for the three
months ended March 31, 1998 to $8.8 million for the three months ended March
31, 1999, and pro forma net income adjusted for the pro forma provision for
taxes increased 35.4% from $3.9 million for the three months ended March 31,
1998 to $5.3 million for the three months ended March 31, 1999, largely
attributable to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had $34.5 million of working capital and
$9.1 million of cash. Cash flows provided by operating activities for the three
months ended March 31, 1999 were $7.5 million. Net cash provided by operating
activities for the three months ended March 31, 1999 was positively impacted by
an increase in accounts payable and other current liabilities primarily due to
the accrual of 1999 federal and state income and franchise taxes and increases
in other current liabilities. This change was partially offset by an increase
in revenue and a corresponding increase in accounts receivable. Net cash used
in investing activities was $17.6 million, as the Company paid $13.9 million
for acquisitions, net of cash acquired. Net cash provided by financing
activities was $4.6 million primarily due to borrowings on the Company's line
of credit.
During the three months ended March 31, 1998, net cash flows provided by
operating activities were $6.5 million. Net cash used in investing activities
was $18.3 million, as the Company paid $15.4 million for acquisitions, net of
cash acquired. Net cash provided by financing activities was $11.5 million.
The Company anticipates that cash on hand, cash from operations, additional
bank financing available under the 1998 Credit Agreement (as defined below) and
shares of Common Stock available under the Acquisition Shelf (as defined below)
will provide sufficient liquidity to execute the Company's acquisition and
internal growth plans for at least the next 12 months. In February 1998, the
Company entered into a new credit agreement (the "1998 Credit Agreement") with
Banque Paribas and Bank of America Texas, N.A., as co-agents and lenders named
therein. Under the 1998 Credit Agreement, the Company and its subsidiaries can
borrow on a revolving credit basis loans in an aggregate outstanding principal
amount up to $65.0 million, subject to certain customary borrowing capacity
requirements. In April 1999, the 1998 Credit Agreement was amended to increase
the aggregate outstanding principal limit to $100.0 million. The availability
under the 1998 Credit Agreement as of April 30, 1999, was $53.2 million. Should
the Company accelerate its acquisition program, the Company may need to seek
additional financing through the public or private sale of equity or debt
securities. There can be no assurance that the Company could secure such
financing if and when it is needed or on terms the Company deems acceptable.
The Company has an effective acquisition shelf Registration Statement on Form
S-4 (Registration No. 333-24015) registering 2,500,000 shares of Common Stock
for issuance in its acquisition program (the "Acquisition Shelf"), of which
1,228,852 shares were available at March 31, 1999.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" describes the use of two digits rather than four
digits to define the applicable year in certain computer programs. In the Year
2000, any of the Company's computer programs that have two digit date-sensitive
software may interpret a date of "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations,
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including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The Company has approached the Year 2000 Issue in phases. A Year 2000
project director, together with a strong support organization revolving around
technology committees organized by each business unit, has designed a Year 2000
work plan that is currently being implemented. The Year 2000 work plan
includes: (i) awareness of the Year 2000 issue; (ii) inventory of all Year 2000
items; (iii) assessment and prioritization of all Year 2000 issues; (iv)
renovation, including replacing, repairing, or retiring any Year 2000 related
problems; (v) verification, including testing and certifying Year 2000
compliance; (vi) implementation; and (vii) contingency planning. The work plan
includes assessing the Year 2000 compliance of customers and vendors and
related interfaces. The Company is progressing favorably in its completion of
the various tasks and target dates identified in the Year 2000 work plan. The
Company believes it has identified and prioritized all major Year 2000 related
items. The Company expects to complete all of the currently identified and
planned Year 2000 tasks before the end of 1999. The Company estimates that the
total costs of the Year 2000 project will be approximately $3.6 to $3.9 million
of which about $2.4 to $2.7 million represent purchases of hardware,
off-the-shelf software and customized software and approximately $1.2 million
represent internal salaries and external consultant fees. As of March 31, 1999,
the Company had incurred approximately $1.8 million of Year 2000 costs. The
costs are being funded through operating cash flow. Due to the general
uncertainty inherent in the Year 2000 process, resulting in part from the
uncertainty surrounding the Year 2000 readiness of third party vendors and
customers, the Company is unable to determine a reasonable worst case scenario
at this time. Although currently considered unlikely, failure of public utility
companies to provide telephone and electrical services or the inability of the
Company's customers to conduct their operations are some of the areas of
concern. The development of contingency plans is scheduled for the first half
of 1999 after the Company has received and evaluated responses from all its
major vendors, customers and the other third parties with whom the Company has
a material relationship. The costs of the Year 2000 project and the date on
which the Company plans to complete the Year 2000 project tasks are based on
management's best estimates, which were determined utilizing numerous
assumptions of future events, including the continued availability of certain
resources, third party modification factors and other factors. Additionally,
the costs of the Year 2000 project are based on the companies owned as of March
31, 1999 and do not include the impact of any future acquisitions. The Year
2000 costs for any future acquisitions will be evaluated in the due diligence
process. As a result, there can be no assurance that these forward looking
estimates will be achieved, and the actual costs and compliance by vendors,
customers and other third parties could differ materially from the Company's
current expectations, resulting in material financial risk.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Item 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by Item 3 of Form 10-Q and
by Item 305 of Regulation S-K do not require additional disclosure by the
Company at this time.
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PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The following information relates to securities of the Company issued or
sold during the fourth quarter of 1998 that were not registered under the
Securities Act of 1933, as amended (the "Securities Act"):
In December 1998, the Company issued 416,524 shares of Common Stock for
$.01 par value per share to the former stockholders of TCH Mailhouse, Inc. and
G&W Enterprise, Inc. (collectively, "TCH") and Advanced Digital Graphics, Inc.
("ADG") in connection with the acquisitions by the Company of all of the
outstanding shares of TCH and ADG.
Each of these transactions was completed without registration of the
relevant securities under the Securities Act in reliance upon the exemption
provided by Section 4(2) of the Securities Act for transactions not involving
any public offering. On March 29, 1999, the Company filed a Registration
Statement on Form S-3 registering 49% of the shares issued in the Creative
Mailings, Inc. acquisition for resale by the holders thereof.
ITEM 5. OTHER INFORMATION
RECENT DEVELOPMENTS
Since December 31, 1998, the Company has acquired the following document
and information outsourcing solutions businesses: (i) Northern Minnesota
Medical Records Services, Inc., a medical release of information business
located in Minnesota; (ii) PMI Imaging Systems, Inc., a document systems
integrator located in New Jersey; (iii) Quality Data Conversions, Inc., a
document imaging storage and retrieval business located in Pennsylvania; and
(iv) MSI Imaging Solutions, Inc., a document conversion to electronic media and
microfilm business located in California.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This filing contains certain forward-looking statements such as the
Company's or management's intentions, hopes, beliefs, expectations, strategies,
predictions or any other variation thereof or comparable phraseology of the
Company's future activities or other future events or conditions within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, which are intended to be covered by the safe
harbors created thereby. Investors are cautioned that all forward-looking
statements involve risks and uncertainty, including, without limitation,
variations in quarterly results, volatility of the Company's stock price,
development by competitors of new or superior products or services, or entry
into the market of new competitors, the sufficiency of the Company's working
capital and the ability of the Company to realize benefits from consolidating
certain general and administrative functions, to assimilate and integrate
acquisitions, to continue its aggressive acquisition program, to retain
management, to implement its focused business strategy to expand its document
and information management services geographically, to retain or to attract
customers from other businesses, to increase revenue by cross-selling services
and to successfully defend itself in ongoing and future litigation. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and, therefore, there can be no assurance that the forward-looking
statements included in this filing will prove to be accurate. In light of the
significant uncertainties
II-1
<PAGE> 15
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Company or
any other person that the objectives and plans of the Company will be achieved.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.49 Second Amendment to Amended and Restated Credit Agreement, dated
April 13, 1999, by and among F.Y.I. Incorporated, Banque Paribas,
Nations Bank, N.A. d/b/a Bank of America National Association, and
Bank One, Texas, N.A. and the Lenders named therein.
27.1 Financial Data Schedule
27.2 1998 Restated Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K with the Commission
on March 2, 1999, reporting under Item 5 thereto certain interim
financial information of the Company, on a consolidated basis,
reflecting the combined operations of the Company, including TCH
Mailhouse, Inc., G&W Enterprise, Inc. and Advanced Digital
Graphics, Inc. for the month ended January 31, 1999.
II-2
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
F.Y.I. Incorporated
Date: May 13, 1999 By: /s/ Ed H. Bowman, Jr.
-----------------------------------------
Ed H. Bowman, Jr.
Chief Executive Officer and President
Date: May 13, 1999 By: /s/ Timothy J. Barker
-----------------------------------------
Timothy J. Barker
Senior Vice President and Chief
Financial Officer (Principal Financial
and Accounting Officer)
II-3
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.49 Second Amendment to Amended and Restated Credit Agreement,
dated April 13, 1999, by and among F.Y.I. Incorporated,
Banque Paribas, Nations Bank, N.A. d/b/a Bank of America
National Association, and Bank One, Texas, N.A. and the
Lenders named therein.
27.1 Financial Data Schedule
27.2 1998 Restated Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.49
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment") is entered into to be effective as of April 13, 1999, by and among
F.Y.I. Incorporated, a Delaware corporation ("F.Y.I."), the Lenders (as such
term is defined in the Credit Agreement, as hereinafter defined) which are
parties hereto, Paribas, a bank organized under the laws of France acting
through its Chicago Branch, as agent for itself and the other Lenders (formerly
"Banque Paribas," the "Agent"), and NationsBank, N.A., dba Bank of America,
National Association, successor by merger to Bank of America, Texas, N.A., and
Bank One, Texas, N.A., as co-agents for themselves and the other Lenders (the
"Co-Agents").
RECITALS
A. F.Y.I., the Agent, the Co-Agents and the Lenders (other than Texas
Capital Bank, National Association) entered into that certain Amended and
Restated Credit Agreement dated as of February 17, 1998 (as amended by a First
Amendment thereto dated as of August 3, 1998, the "Credit Agreement"), pursuant
to which, among other things, the Lenders agreed to make certain loans
available to F.Y.I. upon the terms and conditions set forth therein;
B. F.Y.I., the Agent, the Co-Agents and the Lenders desire to amend
the Credit Agreement to increase the aggregate principal amount of the
Commitments, to add Texas Capital Bank, National Association as a Lender, to
adjust the pricing grid and in certain other respects as more fully set out
herein.
AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, F.Y.I., the Lenders, the Agent and the Co-Agents hereby agree as
follows:
1. Terms. All terms used herein which begin with an initial capital
letter shall, unless otherwise expressly defined herein, have the same
definitions assigned to such terms in the Credit Agreement, as modified by this
Amendment.
2. Amendment to Commitment. Effective as of the date hereof, the
aggregate principal amount of the Commitments is increased from $65,000,000 to
$100,000,000. The amount set forth opposite the name of each Lender on the
signature pages hereto under the heading "Commitment" shall represent the
obligation of such Lender as increased hereby, or, in the case of Texas Capital
Bank, as first established hereby.
3. Definitions.
(a) Effective as of the date hereof, the following definitions
appearing in Section 1.1 of the Credit Agreement are hereby amended to
read in their entirety as follows:
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 1
<PAGE> 2
"Applicable Margin" means, with respect to any period and with
respect to Prime Rate Loans, Eurodollar Loans and the Commitment
Fees, the percentage set forth in the table below that corresponds
to the ratio of (a) Total Debt as of the date of the relevant
financial statements referred to below to (b) EBITDA for the four
fiscal quarters of F.Y.I. then most recently ended as of the date
of such financial statements, calculated in accordance with Section
1.4:
<TABLE>
<CAPTION>
Applicable Margins
for
Total Debt to Eurodollar Prime Commitment
EBITDA Ratio Loans Rate Loans Fee
<S> <C> <C> <C>
>= 2.50 to 1.00 1.75% 0% 0.375%
>= 2.00 to 1.00 and < 2.50 to 1.00 1.25% 0% 0.250%
>= 1.50 to 1.00 and < 2.00 to 1.00 1.00% 0% 0.250%
< 1.50 to 1.00 0.75% 0% 0.250%
</TABLE>
For purposes hereof and notwithstanding the preceding sentence, the
Applicable Margin for the period from the date of the execution of
the Second Amendment to this Agreement to the first Calculation
Date thereafter shall be deemed to be 0.75% for Eurodollar Loans,
0% for Prime Rate Loans and 0.250% for Commitment Fees and shall
thereafter be calculated on each Calculation Date based upon the
preceding table and the financial statements delivered by F.Y.I.
pursuant to Section 8.1(b) and the certificate delivered by F.Y.I.
pursuant to Section 8.1(c); provided, that if F.Y.I. fails to
deliver to the Agent such financial statements or certificate on or
before the relevant Calculation Date, the Applicable Margin shall
be deemed to be the percentage reflected in the preceding table as
if the ratio of Total Debt to EBITDA were greater than 2.50 to 1.00
until the date such statements and certificate are received by the
Agent, after which the Applicable Margin shall be determined as
otherwise provided herein.
"Commitment" means, as to any Lender, the obligation of such
Lender to make or continue Loans and incur or participate in Letter
of Credit Liabilities hereunder in an aggregate principal amount at
any one time outstanding up to but not exceeding the amount set
forth opposite the name of such Lender on the signature pages to
the Second Amendment to this Agreement under the heading
"Commitment" or, if such Lender is a party to an Assignment and
Acceptance, the amount set forth in the most recent Assignment and
Acceptance of such Lender, as the same may be reduced or terminated
pursuant to Section 2.13 or 11.2, and "Commitments" means such
obligations of all Lenders. As of the date of the execution of the
Second
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 2
<PAGE> 3
Amendment to this Agreement, the aggregate principal amount of the
Commitments is $100,000,000.
"Fee Letter" means the letter dated as of February 17, 1998,
between F.Y.I. and the Agent, as supplemented by an amendment fee
letter dated as of March 23, 1999.
"Guaranties" means the guaranty agreements, in form and
substance satisfactory to the Agent (including, without limitation,
the Master Guaranty) executed at any time pursuant to the Prior
Agreement or this Agreement by any of the Subsidiaries of F.Y.I. or
any other Loan Party in favor of the Agent for the benefit of the
Agent and the Lenders, and any guaranty agreement executed pursuant
to Section 5.3 hereof, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Permitted Acquisition" means any Acquisition which has been
approved in writing by the Agent and the Required Lenders or any
other Acquisition which satisfies each of the following
requirements: (a) the acquiror (or surviving corporation if the
acquisition is by means of a merger) is F.Y.I. or any Subsidiary of
F.Y.I., (b) the assets to be acquired in connection with such
Acquisition are assets that are to be used in the existing
businesses of the acquiror as such business is presently conducted,
(c) such Acquisition has been approved by the Board of Directors of
the acquired entity, (d) the acquired entity shall have generated
positive EBITDA during the twelve-month period preceding the
Acquisition, which positive EBITDA shall be audited or reviewed by
an accounting firm acceptable to the Agent if (but only if) the
Acquisition involves total consideration paid or payable of
$10,000,000 or more, after adjusting for excess owners'
compensation and other pro forma charges as validated by the Agent,
(e) after giving effect to such Acquisition and any Debt incurred
in connection therewith, Total Debt does not exceed 2.5 times
EBITDA for the four fiscal quarters most recently completed of
F.Y.I. and its Subsidiaries (and including the acquired entity's
trailing twelve-month EBITDA as adjusted for any interest not
acquired, if audited or reviewed by an accounting firm acceptable
to the Agent) (EBITDA may include proforma adjustments to an
acquired entity's earnings, as adjusted for any interest not
acquired, acceptable to the Agent), (f) such Acquisition shall not
exceed $25,000,000 in total consideration (including any Debt
assumed or guaranteed in connection therewith), without Required
Lenders' approval, (g) the aggregate amount of all such
Acquisitions made on or after the date of the Second Amendment
shall not exceed $30,000,000, in total consideration (including any
Debt assumed or guaranteed in connection therewith) in any
twelve-month period without Required Lenders' approval, (h) prior
to and after giving effect to the Acquisition, no Default shall
exist, (i) after giving effect to such Acquisition, F.Y.I. will not
violate any financial covenant, and (j) no material part of the
Property or business operations to be acquired are located outside
the U.S. or Canada; provided, however, that up
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 3
<PAGE> 4
to $10,000,000 (valued at total purchase consideration including
any Debt assumed or guaranteed in connection therewith) in
Acquisitions made on or after the Closing Date and during the term
of this Agreement will be deemed to be Permitted Acquisitions
despite their failure to meet the requirements of items (d) and (j)
preceding so long as no such acquired entity or entities shall have
annual sales (individually for any one such acquired entity or in
the aggregate for all such acquired entities) in excess of
$10,000,000 or cumulative EBITDA losses (individually for any one
such acquired entity or in the aggregate for all such acquired
entities) in excess of $1,500,000 incurred, in each case during the
twelve-month period preceding the respective dates of acquisition.
"Required Lenders" means, at any date of determination, the
Lenders having in the aggregate at least 71% (in Dollar amount as
to any one or more of the following) of the sum of the aggregate
outstanding Commitments (or, if the Commitments have terminated or
expired, the aggregate outstanding principal amount of the Loans
and the aggregate Letter of Credit Liabilities).
(b) Effective as of the date hereof, the following additional
definitions are added to Section 1.1 of the Credit Agreement to appear
therein in their proper alphabetical order and to read in their
entirety as follows:
"Master Guaranty" means the Master Guaranty Agreement
substantially in the form of Exhibit B to the Second Amendment to
this Agreement, together with the Joinder Agreement attached
thereto pursuant to which a Subsidiary of F.Y.I. may join in as a
Guarantor as required by Section 5.3(b) of the Credit Agreement.
"Second Amendment" means the Second Amendment to this Agreement
dated as of April 13, 1999.
4. Amendment to Section 2.2(a). Effective as of the date hereof, the
first sentence of Section 2.2(a) of the Credit Agreement is hereby amended and
restated to read in its entirety as follows:
The Loans made by each Lender shall be evidenced by a single
promissory note of F.Y.I. in substantially the form of Exhibit A to
the Second Amendment to this Agreement, dated the date of such
Second Amendment, payable to the order of such Lender in a
principal amount equal to its Commitment (as originally in effect
or thereafter increased) and otherwise duly completed; provided,
however, that the Swingline Advances made by Paribas shall be
evidenced by a single promissory note of F.Y.I. in the maximum
original principal amount of $1,000,000 payable to the order of
Paribas in substantially the form of Exhibit D hereto, dated the
Closing Date.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 4
<PAGE> 5
5. Conditions Precedent. This Amendment shall be effective upon the
occurrence of each of the following:
(a) Second Amendment. The execution of this Amendment by each of
F.Y.I., the Agent, the Co-Agents and the Lenders;
(b) Consents. The execution of a consent to this Amendment by each
of the Loan Parties other than the Borrower in the form requested by
the Agent, which, among other things, shall reaffirm the Guaranty and
Security Agreement, if any, executed by each such Loan Party;
(c) Notes. The Notes duly completed and executed by F.Y.I.
(d) Resolutions. Resolutions of the board of directors of F.Y.I.
certified by its Secretary or an Assistant Secretary or other
analogous officer or representative which authorize the execution,
delivery and performance by the Loan Parties of this Amendment and
such other Loan Documents to be executed in connection herewith to
which F.Y.I. or any other Loan Party is to be a party;
(e) Officers' Certificate. An officers' certificate of F.Y.I.
certifying as to the incumbency and signature of each officer of the
Loan Parties executing this Amendment and the other Loan Documents to
be executed in connection herewith, as to no changes to such Loan
Parties' articles or certificates of incorporation, other analogous
constitutional documents, or bylaws since the copies thereof most
recently certified and delivered to the Agent, and as to the
continuing existence and good standing of each Loan Party, such
certificate to be dated as of a current date and in form reasonably
satisfactory to the Agent and its counsel;
(f) Guaranty. A Master Guaranty executed by each existing
Subsidiary of F.Y.I. (other than MMS Securities, Inc.) in the form
attached hereto;
(g) Payment of Fees and Expenses. F.Y.I. shall have paid all fees
and expenses of or incurred by the Agent and its counsel to the extent
billed on or before the date hereof and payable pursuant to this
Amendment;
(h) Opinions of Counsel. A favorable opinion of Locke Liddell &
Sapp LLP, counsel for the Loan Parties, in form and substance
satisfactory to the Agent with respect to F.Y.I. and its Subsidiaries;
and
(i) Proceedings Satisfactory. All matters and proceedings taken in
connection with this Amendment and the other Loan Documents to be
delivered in connection herewith shall be reasonably satisfactory to
the Agent and its counsel.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 5
<PAGE> 6
Borrower shall deliver, or cause to be delivered, to the Agent
sufficient counterparts of each agreement, document or instrument to
be received by the Agent under this Section 4.1 to permit the Agent to
distribute a copy of the same to each Lender.
6. Representation and Warranties. F.Y.I. represents and warrants to
the Agent and each Lender that:
(a) On and as of the date hereof, the authorized Capital Stock,
share ownership and par value per share of each of the Subsidiaries of
F.Y.I. are listed on Schedule 1 hereto.
(b) All of the issued and outstanding Capital Stock of F.Y.I. and
its Subsidiaries has been validly issued and is fully paid and
nonassessable. Except as described on Schedule 1, there are no
outstanding subscriptions, options, warrants, calls or rights
(including preemptive rights) to acquire, and no outstanding
securities or instruments convertible into, Capital Stock of F.Y.I. or
any of its Subsidiaries.
(c) F.Y.I. has (i) undertaken or, in the case of recently acquired
Subsidiaries, is undertaking a detailed review and assessment of all
areas within the business and operations of it and its Subsidiaries
that could be adversely affected by the "Year 2000 Problem" (that is,
the risk that computer applications used by F.Y.I. or its Subsidiaries
may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December
31, 1999), (ii) developed or, in the case of recently acquired
Subsidiaries, is developing a detailed plan and timeline for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented (except in respect of recently acquired Subsidiaries) that
plan in accordance with that timetable. F.Y.I. reasonably anticipates
that all computer applications that are material to the business and
operations of it and its Subsidiaries will on a timely basis be able
to perform properly date-sensitive functions for all dates before and
after January 1, 2000 (that is, be "Year 2000 Compliant").
(d) The representations and warranties made by F.Y.I. in the Loan
Documents, as the same are amended hereby, are true and correct at the
time this Amendment is executed and delivered, except to the extent
that such representations and warranties are expressly by their terms
made only as of the Closing Date or another specified date. F.Y.I.
further represents and warrants to the Agent and the Lenders that: (i)
the execution, delivery and performance of this Amendment and any and
all other Loan Documents executed and/or delivered in connection
herewith have been authorized by all requisite corporate action on the
part of F.Y.I. and the other Loan Parties, as appropriate, and will
not violate the articles of incorporation or bylaws of F.Y.I. or such
other Loan Parties; (ii) no Event of Default has occurred and is
continuing and no event or condition has occurred that with the giving
of notice or lapse of time or both would be an Event of Default; and
(iii) F.Y.I. is in full compliance with all covenants and agreements
contained in the Credit Agreement as amended hereby.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 6
<PAGE> 7
7. Costs. F.Y.I. agrees to pay all reasonable costs incurred in
connection with the negotiation, preparation, execution and consummation of
this Amendment and the transactions preceding and contemplated by this
Amendment including, without limitation, the reasonable fees and expenses of
Jenkens & Gilchrist, P.C., counsel to the Agent and the Lenders.
8. Miscellaneous.
(a) Headings. Section headings are for reference only, and shall
not affect the interpretation or meaning of any provision of this
Amendment.
(b) No Waiver. No failure on the part of the Agent or the Lenders
to exercise, and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege under the Loan Documents
shall operate as a waiver thereof, and no single or partial exercise
of any right, power or privilege under the Loan Documents shall
preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(c) Effect of this Amendment. The Credit Agreement, as amended by
this Amendment, shall remain in full force and effect except that any
reference therein, or in any other Loan Document, referring to the
Credit Agreement, shall be deemed to refer to the Credit Agreement, as
amended by this Amendment.
(d) Governing Law. EXCEPT TO THE EXTENT THAT THE CREDIT AGREEMENT
EXPRESSLY PROVIDES OTHERWISE, THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
(e) Counterparts. This Amendment may be executed by the different
parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original, but all such counterparts shall
be construed as but one and the same Amendment.
(f) NO ORAL AGREEMENTS. THE CREDIT AGREEMENT, AS AMENDED BY THIS
AMENDMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE
ENTIRE AGREEMENT AMONG THE PARTIES, AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF
THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective duly authorized officers as of the date first
above written.
F.Y.I.:
F.Y.I. INCORPORATED
By: /s/ TIMOTHY J. BARKER
---------------------------------------
Timothy J. Barker
Senior Vice President
LENDERS:
Commitment: PARIBAS, as Agent and a Lender
$30,000,000
By: /s/ CLARK C.KING, III
---------------------------------------
Name: CLARK C. KING, III
-------------------------------------
Title: MANAGING DIRECTOR
------------------------------------
By: /s/ FRANCOIS DELANGLE
---------------------------------------
Name: FRANCOIS DELANGLE
-------------------------------------
Title: VICE PRESIDENT
------------------------------------
Commitment: NATIONSBANK, N.A.,
$30,000,000 dba BANK OF AMERICA, NATIONAL
ASSOCIATION, successor by merger to
BANK OF AMERICA, TEXAS, N.A.,
as Co-Agent and a Lender
By: /s/ TODD M. BURNS
---------------------------------------
Name: TODD M. BURNS
-------------------------------------
Title: Vice President
------------------------------------
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 8
<PAGE> 9
Commitment: BANK ONE, TEXAS, N.A.,
$30,000,000 as Co-Agent and a Lender
By: /s/ FRED POINTS
---------------------------------------
Name: FRED POINTS
-------------------------------------
Title: Vice President
------------------------------------
Commitment: TEXAS CAPITAL BANK,
$10,000,000 NATIONAL ASSOCIATION, as a Lender
By: /s/RUSSELL HARTSHEILD
---------------------------------------
Name: RUSSELL HARTSHEILD
-------------------------------------
Title: SVP
------------------------------------
Each Loan Party (other than Borrower) hereby consents and agrees to
this Amendment and agrees that the Guaranty and the Security Agreements (if
any) executed by such Loan Party shall remain in full force and effect and
shall continue to be the legal, valid and binding obligations of such Loan
Party enforceable against such Loan Party in accordance with its respective
terms.
LOAN PARTIES:
ACT MEDICAL RECORD SERVICES, INC.
APS SERVICES ACQUISITION CORP.
ACADIAN CONSULTANTS CORP.
ADVANCED DIGITAL GRAPHICS, INC.
ASSOCIATE RECORD TECHNICIAN SERVICES
ACQUISITION CORP.
B&B (BALTIMORE-WASHINGTON) ACQUISITION
CORP.
CH ACQUISITION CORP.
CALIFORNIA MEDICAL RECORD SERVICE
ACQUISITION CORP.
COMPUTER CENTRAL CORPORATION
CREATIVE MAILINGS, INC.
DPAS ACQUISITION CORP.
DEBARI ASSOCIATES ACQUISITION CORP.
DELAWARE MAJOR ACQUISITION CORP.
DELIVEREX ACQUISITION CORP.
DELIVEREX SACRAMENTO ACQUISITION CORP.
DISC ACQUISITION CORP.
DOCTEX ACQUISITION CORP.
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 9
<PAGE> 10
EAGLE LEGAL SERVICES ACQUISITION CORP.
ECONOMIC RESEARCH SERVICES, INC.
F.Y.I. INVESTMENTS, INC.
IMAGENT ACQUISITION CORP.
INFORMATION MANAGEMENT ACQUISITION
CORP.
INPUT MANAGEMENT, INC.
LIFO MANAGEMENT, INC.
LEONARD ARCHIVES ACQUISITION CORP.
MAVRICC MANAGEMENT SYSTEMS, INC.
MMS ESCROW AND TRANSFER AGENCY, INC.
MEDICOPY ACQUISITION CORP.
MICRO PUBLICATION SYSTEMS, INC.
MINNESOTA MEDICAL RECORD SERVICE
ACQUISITION CORP.
PERMANENT RECORDS MANAGEMENT, INC.
PREMIER ACQUISITION CORP.
QCS INET ACQUISITION CORP.
QUALITY COPY ACQUISITION CORP.
RAC (CALIFORNIA) ACQUISITION CORP.
RESEARCHERS ACQUISITION CORP.
ROBERT A. COOK ACQUISITION CORP.
RECORDEX ACQUISITION CORP.
T.C.H. GROUP, INC.
TCH MAILHOUSE, INC.
THE RUST CONSULTING GROUP, INC.
ZIA ACQUISITION CORP.
ZIP SHRED CANADA ACQUISITION CORP.
ZIPSHRED, INC.
By: /s/ TIMOTHY J. BAKER
----------------------------------------
Timothy J. Barker, Authorized Officer for
each of the Original Guarantors
INPUT OF TEXAS, L.P. (formerly known as
Input of Texas, Inc.)
By: Input Management, Inc., its general
partner
By: /s/ TIMOTHY J. BARKER
-------------------------------------
Timothy J. Barker, Vice President
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 10
<PAGE> 11
LIFO SYSTEMS, L.P. (formerly known as LIFO
Systems, Inc.)
By: LIFO Management, Inc., its general partner
By: /s/ TIMOTHY J. BARKER
------------------------------------
Timothy J. Barker, Vice President
PERMANENT RECORDS, L.P. (successor, by merger,
to Texas Medical Record Service
Acquisition Corp. and Permanent Records
Acquisition Corp.)
By: Permanent Records Management, Inc., its
general partner
By: /s/ TIMOTHY J. BARKER
------------------------------------
Timothy J. Barker, Vice President
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT - Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 9,083
<SECURITIES> 0
<RECEIVABLES> 58,359
<ALLOWANCES> (5,499)
<INVENTORY> 5,948
<CURRENT-ASSETS> 77,788
<PP&E> 62,816
<DEPRECIATION> (31,412)
<TOTAL-ASSETS> 236,870
<CURRENT-LIABILITIES> 43,299
<BONDS> 37,959
0
0
<COMMON> 142
<OTHER-SE> 146,484
<TOTAL-LIABILITY-AND-EQUITY> 236,870
<SALES> 3,603
<TOTAL-REVENUES> 71,612
<CGS> 2,400
<TOTAL-COSTS> 59,703
<OTHER-EXPENSES> (150)
<LOSS-PROVISION> 598
<INTEREST-EXPENSE> 497
<INCOME-PRETAX> 8,789
<INCOME-TAX> 3,516
<INCOME-CONTINUING> 5,273
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,273
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 10,686
<SECURITIES> 0
<RECEIVABLES> 42,110
<ALLOWANCES> (3,525)
<INVENTORY> 1,399
<CURRENT-ASSETS> 57,279
<PP&E> 47,121
<DEPRECIATION> (21,994)
<TOTAL-ASSETS> 173,149
<CURRENT-LIABILITIES> 31,669
<BONDS> 19,440
0
0
<COMMON> 133
<OTHER-SE> 120,274
<TOTAL-LIABILITY-AND-EQUITY> 173,149
<SALES> 1,766
<TOTAL-REVENUES> 56,504
<CGS> 1,341
<TOTAL-COSTS> 47,917
<OTHER-EXPENSES> (65)
<LOSS-PROVISION> 186
<INTEREST-EXPENSE> 197
<INCOME-PRETAX> 6,487
<INCOME-TAX> 2,392
<INCOME-CONTINUING> 4,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,095
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.30
</TABLE>
