-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VgejsPY/8L7OQ7mVH24kViBeB1tpPq14cpUsYqAIP4acXeHTAg1FdcYh7yKMVXUb QlFOuFPQfMBvFQnuSH1FEQ== 0000950136-01-500412.txt : 20010516 0000950136-01-500412.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950136-01-500412 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICIAL INFORMATION CO CENTRAL INDEX KEY: 0000847841 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 731341805 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-57587 FILM NUMBER: 1638250 BUSINESS ADDRESS: STREET 1: 250 WEST 57TH STREET STREET 2: SUITE 2421 CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122475160 MAIL ADDRESS: STREET 1: 250 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: T SF COMMUNICATIONS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 file001.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001 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 1-10263 THE OFFICIAL INFORMATION COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 73-1341805 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 250 West 57th Street, Suite 2421, New York, New York 10019 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 247-5160 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OR 12(g) OF THE ACT: NONE 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 May 15, 2001, 112,367 shares of common stock were outstanding, of which 72,367 were owned by VS&A T/SF, L.L.C. and 36,000 and 4,000 were owned by Fir Tree Value Fund LP. and Fir Tree Institutional Value Fund L.P., respectively. PART I Item 1. Financial Information 2 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS MARCH 31, DECEMBER 31, ------ 2001 2000 ---- ---- (UNAUDITED) Current assets: Cash and cash equivalents $ 585 $ 795 Accounts receivable, less reserve for doubtful accounts of $1,437 in 2001 and $1,378 in 2000 28,648 27,640 Inventories 110 121 Deferred tax assets -- 288 Notes receivable and other current assets 3,842 2,859 --------- --------- Total current assets 33,185 31,703 Notes receivable and investments 176 679 Property and equipment, at cost: 36,778 34,400 Less accumulated depreciation (21,028) (19,481) --------- --------- Property and equipment, net 15,750 14,919 Intangibles and other assets, net 97,174 110,037 --------- --------- $ 146,285 $ 157,338 ========= =========
See accompanying notes to consolidated condensed financial statements. 3 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDERS' DEFICIT MARCH 31, DECEMBER 31, ------------------------------------- 2001 2000 ---- ---- (UNAUDITED) Current liabilities: Accounts payable 5,467 4,757 Accrued liabilities 17,099 17,113 Deferred revenue 6,788 7,235 Borrowings under credit facility 26,253 17,189 Deferred tax liability 417 - Customer deposits 25,188 15,398 Current portion of long-term debt 29 31 ---------- ---------- Total current liabilities 81,241 61,723 Long-term debt, less current portion 99,047 99,054 Other liabilities 693 719 Minority interest 5,384 36,229 Stockholders' deficit: Common stock, $.10 par value, 150,000 shares authorized 42 42 Additional paid-in capital 56,497 56,497 Translation adjustment (109) 255 Retained earnings 17,966 17,295 ------ ------ 74,396 74,089 Treasury stock (114,476) (114,476) --------- --------- Total stockholders' deficit (40,080) (40,387) -------- -------- $146,285 $157,338 ======== ========
See accompanying notes to consolidated condensed financial statements. 4 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- (UNAUDITED) (UNAUDITED) Revenues, net $ 34,582 $ 29,143 Costs and expenses: Operating costs 15,756 12,289 General and administrative 12,098 8,995 Depreciation and amortization 5,387 2,302 -------- -------- Operating income 1,341 5,557 Other income (expense): Interest and other income 12 88 Interest expense (3,207) (2,833) -------- -------- (Loss) income before minority interest and income taxes (1,854) 2,812 Minority interest in loss (earnings) of consolidated subsidiaries 2,694 (1,723) Income tax expense (169) (402) -------- -------- Net income $ 671 $ 687 Foreign currency translation loss (364) -- -------- -------- Total comprehensive income $ 307 $ 687 ======== ========
See accompanying notes to consolidated condensed financial statements. 5 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- (UNAUDITED) (UNAUDITED) Cash flows from operating activities: Net income $ 671 $ 687 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,387 2,302 Minority interest (2,694) 1,723 Changes in assets and liabilities 8,584 7,206 -------- -------- Total adjustments 11,277 11,231 -------- -------- Net cash provided by operating activities 11,948 11,918 -------- -------- Cash flows from investing activities: Collections on contract and notes receivable 3 -- Capital expenditures (2,418) (1,466) Proceeds from sale of investment 500 -- Purchase of minority interest (15,500) -- Payments for acquisitions, net of cash acquired (3,771) (23,418) Payments on deferred contract liabilities (26) -- -------- -------- Net cash used in investing activities (21,212) (24,884) -------- -------- Cash flows from financing activities: Principal payments of long-term debt (10) (10) Net borrowings (repayments) of line of credit 9,064 (18,589) -------- -------- Net cash provided by (used in) financing activities 9,054 (18,599) -------- -------- Net decrease in cash and cash equivalents (210) (31,565) Cash and cash equivalents at beginning of period 795 32,162 -------- -------- Cash and cash equivalents at end of period $ 585 $ 597 ======== ========
6 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
THREE MONTHS ENDED MARCH 31, --------- 2001 2000 ---- ---- (UNAUDITED) (UNAUDITED) Supplemental disclosure of cash flow information: Cash paid for: Interest $ 371 $ 98 Income taxes $1,267 $1,998 Supplemental disclosure of non-cash transactions: Exchange of non-voting LLC units of Gem Communications, LLC in connection with the acquisition of CJPG $1,850 -- Stock of TISI issued to USMA -- $8,300
See accompanying notes to consolidated condensed financial statements. 7 THE OFFICIAL INFORMATION COMPANY NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION. The consolidated condensed financial statements of The Official Information Company ("TOIC" or the "Company"), include the accounts of TOIC, its wholly-owned subsidiaries, TOIC Holdings, LLC ("Holdings LLC") and the limited liability companies wholly owned by Holdings LLC (the "Subsidiary LLCs"). Through its priority interest in Holdings LLC, TOIC has voting, operational and management control of Holdings LLC and the Subsidiary LLCs and, accordingly, the financial statements of these entities are consolidated herein. Income allocated to TOIC from Holdings LLC is the lesser of net earnings or the preferred return, such amount being defined as an 11% cumulative annual compounded return on TOIC's undistributed capital in each, respectively. Losses are allocated first to the common members of Holdings LLC. TOIC and Holdings LLC share common management, resources and control. Prior to the drop down restructuring (see Note B) in February 1998, the operations of Holdings LLC and the Subsidiary LLCs were wholly-owned by TOIC. INTERIM REPORTING. The accompanying interim consolidated condensed financial statements reflect all adjustment which, in the opinion of management are considered necessary for a fair presentation of the interim periods presented. All such adjustments are of a normal recurring nature. Due to the seasonal nature of the business, the results of operations for the three months ended March 31, 2001 are not necessarily indicative of the results to be expected for the year ending December 31, 2001. For further information, refer to the consolidated financial statements and related notes thereto included in TOIC's annual report on Form 10-K for the year ended December 31, 2000. RECLASSIFICATIONS Certain 2000 account balances have been reclassified to conform to the 2001 consolidated financial statement presentation. B. RECAPITALIZATION During 1997, the Company adopted a two-phased leveraged recapitalization plan of the Company's ownership and capital structure. Phase I included a tender offer for substantially all of TOIC's outstanding common stock; selling newly-issued common stock to a new investor, VS&A-T/SF, L.L.C. and repurchasing substantially all of the outstanding stock options. Phase II was completed on February 27, 1998 and included a reverse stock split to eliminate all shares of the Company's common stock other than those owned by the Equity Investors (as defined below) and a restructuring of the Company and its subsidiaries. As of March 31, 2001, VS&A-T/SF and entities controlled by Fir Tree Partners (together referred to as the Equity Investors) own approximately 64% and 36% of TOIC's common stock, respectively. 8 The reverse stock split provided that each then outstanding share of common stock other than treasury stock and stock owned by the Equity Investors was converted into the right to receive $40.25 for each pre-split share. In the drop down restructuring, TOIC and certain of its wholly owned subsidiaries contributed substantially all of the assets and liabilities of TOIC's Business to Business Communication Segment into Holdings LLC in exchange for a $45 million priority equity interest which carries an 11% annual distribution. Simultaneous with this event, Holdings LLC contributed the assets received to the Subsidiary LLCs in exchange for a 99% interest. TOIC also purchased a priority interest in another limited liability company ("Operating LLC"), which held the remaining 1% interest in the Subsidiary LLCs. The Equity Investors purchased common equity interests in Holdings LLC and Operating LLC for approximately $4.5 million in the same proportion as their ownership of TOIC. Effective as of December 31, 1998, Operating LLC merged with and into Holdings LLC, with Holdings LLC being the surviving entity. TOIC has voting, operational and management control of Holdings LLC. C. DEBT GUARANTORS Atwood Publishing, LLC and subsidiaries ("Atwood"), ExpoExchange, LLC and subsidiaries ("ExpoExchange"), GEM Communications Holdings, LLC and subsidiaries ("GEM"), Holdings LLC (collectively the "LLC Guarantors"), TISI Holdings, Inc. and subsidiaries ("TISI") ( the "Subsidiary Guarantors" and, together with the LLC Guarantors, the "Guarantors") are included in the consolidated results of the Company. Because the Company, directly or indirectly, owns all of the voting interests in the LLC Guarantors, the LLC Guarantors are considered wholly owned subsidiaries of the Company as defined by Regulation S-X. The Company indirectly owns all of the voting shares of the Subsidiary Guarantors. Each of the Guarantors jointly and severally guarantee all of the Company's debt, on a full and unconditional basis. For accounting purposes, all Guarantors are consolidated. Separate financial statements and other disclosures concerning the Guarantors are not presented because the Company's management has determined that they are not material to investors. The Senior Credit Facility contains covenants, among others, restricting the ability of the Company and the Guarantors to: (i) declare dividends or redeem or purchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale-leaseback transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise alter debt and other material agreements; (vii) make capital expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) transact with affiliates; and (x) alter its lines of business. The net assets of the Guarantors approximated $82.3 million as of March 31, 2001. 9 The following are condensed consolidating financial statements of The Official Information Company and the Guarantors for each period presented: MARCH 31, 2001 BALANCE SHEET (UNAUDITED)
ASSETS - ------ TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Current assets $ 432 $ 18,444 $ 14,309 $ 32,753 $- $ 33,185 Notes receivable and investments -- -- 176 176 -- 176 Investment in subsidiaries & affiliates 37,801 (8,233) 3,313 (4,920) (32,881) -- PPE, net 178 8,486 7,086 15,572 -- 15,750 Intangibles & other assets, net 2,657 40,666 53,851 94,517 -- 97,174 ----------------------------------------------------------------------------------- Total assets $ 41,068 $ 59,363 $ 78,735 $ 138,098 $ (32,881) $ 146,285 ========= ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities 29,941 38,806 12,494 51,300 -- 81,241 Long term debt 98,500 -- 547 547 -- 99,047 Other liabilities 617 -- 76 76 -- 693 Minority interest 1,534 3,850 -- 3,850 -- 5,384 Total stockholders' equity (deficit) (89,524) 16,707 65,618 82,325 (32,881) (40,080) ----------------------------------------------------------------------------------- Total liabilities and Stockholders' equity (deficit) $ 41,068 $ 59,363 $ 78,735 $ 138,098 $ (32,881) $ 146,285 ========= ========= ========= ========= ========= =========
10 THREE MONTHS ENDED MARCH 31, 2001 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Revenue, net $ -- $ 19,624 $ 14,958 $ 34,582 $ -- $ 34,582 Costs and expenses: Operating costs -- 9,982 5,774 15,756 -- 15,756 General & admin. 675 6,267 5,156 11,423 -- 12,098 Deprec. & amort. 121 3,614 1,652 5,266 -- 5,387 ----------------------------------------------------------------------------------- Operating (loss) income (796) (239) 2,376 2,137 -- 1,341 Interest and other income 55 (43) -- (43) -- 12 Interest expense (3,211) 4 -- 4 -- (3,207) ----------------------------------------------------------------------------------- (Loss) income before income tax (3,952) (278) 2,376 2,098 -- (1,854) Minority interest -- -- -- -- 2,694 2,694 Income tax (expense) benefit 2 (7) (164) (171) -- (169) Preferred distribution from LLC's 1,233 -- -- -- (1,233) -- ----------------------------------------------------------------------------------- Net (loss) income $ (2,717) $ (285) $ 2,212 $ 1,927 $ 1,461 $ 671 ========= ========= ======== ======== ======== ========
11 THREE MONTHS ENDED MARCH 31,2001 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Cash flows from operating activities: Net (loss) income $ (2,717) $ (285) $ 2,212 $ 1,927 $ 1,461 $ 671 Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities, net (1,112) 3,614 1,652 5,266 (1,461) 2,693 Changes in assets & liabilities 1,590 8,423 (1,429) 6,994 -- 8,584 ------------------------------------------------------------------------------ Net cash (used in) provided by operating activities (2,239) 11,752 2,435 14,187 -- 11,948 ------------------------------------------------------------------------------ Cash flows from investing activities: Proceeds from sale of investment 500 -- -- -- -- 500 Capital expenditures -- (1,513) (905) (2,418) -- (2,418) Collections on contracts and notes receivable -- -- 3 3 -- 3 Payments on deferred contracts (26) -- -- -- -- (26) Purchase of minority interest -- (15,500) -- (15,500) -- (15,500) Payments for acquisitions- net of cash acquired (40) (3,475) (256) (3,731) -- (3,771) ------------------------------------------------------------------------------ Net cash provided by (used in) investing activities 434 (20,488) (1,158) (21,646) -- (21,212) ------------------------------------------------------------------------------ Cash flows from financing activities: Principal payment of long term debt -- -- (10) (10) -- (10) Net borrowing (repayment) of line of credit 1,780 8,763 (1,479) 7,284 -- 9,064 ------------------------------------------------------------------------------ Net cash provided by (used in) financing activities 1,780 8,763 (1,489) 7,284 -- 9,054 ------------------------------------------------------------------------------ Net (decrease) increase in cash and cash equivalents (25) 27 (212) (185) -- (210) Cash and cash equivalents at beginning of period 25 (27) 797 770 -- 795 ------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ -- $ -- $ 585 $ 585 $ -- $ 585 ======== ======== ======== ======== ======== ========
12 DECEMBER 31, 2000 BALANCE SHEET
ASSETS TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Current assets $ 3,170 $ 17,466 $ 11,067 $ 28,533 $ -- $ 31,703 Notes receivable and investments 500 -- 179 179 -- 679 Investment in subsidiaries & affil. 36,578 (179) (22,475) (22,654) (13,924) -- PPE-net 192 7,923 6,804 14,727 -- 14,919 Intangibles and other assets-net 1,692 54,410 53,935 108,345 -- 110,037 ---------------------------------------------------------------------------------------- Total assets $ 42,132 $ 79,620 $ 49,510 $ 129,130 $ (13,924) $ 157,338 ========= ========= ========= ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities $ 22,006 $ 29,248 $ 10,469 $ 39,717 $ -- $ 61,723 Long term debt 98,500 -- 554 554 -- 99,054 Other liabilities 642 -- 77 77 -- 719 Minority interest 34,229 2,000 -- 2,000 -- 36,229 Total stockholders' equity (deficit) (113,245) 48,372 38,410 86,782 (13,924) (40,387) ---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) $ 42,132 $ 79,620 $ 49,510 $ 129,130 $ (13,924) $ 157,338 ========= ========= ========= ========= ========= =========
THREE MONTHS ENDED MARCH 31, 2000 CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Revenue, net $ -- $ 16,759 $ 12,384 $ 29,143 $ -- $ 29,143 Costs and expenses: Operating costs -- 8,161 4,128 12,289 -- 12,289 General & admin. 597 4,301 4,097 8,398 -- 8,995 Depreciation & amortization 130 1,207 965 2,172 -- 2,302 --------------------------------------------------------------------------------------- Operating income (loss) (727) 3,090 3,194 6,284 -- 5,557 Interest & other income 88 -- -- -- -- 88 Interest expense (2,748) (85) -- (85) -- (2,833) --------------------------------------------------------------------------------------- Income (loss) before income taxes (3,387) 3,005 3,194 6,199 -- 2,812 Minority interest -- -- -- -- (1,723) (1,723) Income tax expense (402) -- -- -- -- (402) --------------------------------------------------------------------------------------- Net income (loss) $ (3,789) $ 3,005 $ 3,194 $ 6,199 $ (1,723) $ 687 ========= ======== ======== ======== ========= ========
13 THREE MONTHS ENDED MARCH 31, 2000 CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Cash flows from operating activities: Net income (loss) $ (3,789) $ 3,005 $ 3,194 $ 6,199 $ (1,723) $ 687 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities, net 130 1,207 965 2,172 1,723 4,025 Changes in assets and liabilities, net 14,766 (5,572) (1,988) (7,560) -- 7,206 ---------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 11,107 (1,360) 2,171 811 -- 11,918 ---------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (1) (981) (484) (1,465) -- (1,466) Payments for acquisitions, net of cash acquired (23,418) -- -- -- -- (23,418) ---------------------------------------------------------------------------------------- Net cash used in investing activities (23,419) (981) (484) (1,465) -- (24,884) ---------------------------------------------------------------------------------------- Cash flows from financing activities: Principal payments of long-term debt (10) -- -- -- -- (10) Net repayment of line of credit (18,589) -- -- -- -- (18,589) ---------------------------------------------------------------------------------------- Net cash used in financing activities (18,599) -- -- -- -- (18,599) ---------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (30,911) (2,341) 1,687 (654) -- (31,565) Cash and cash equivalents at beginning of period 30,626 332 1,204 1,536 -- 32,162 ---------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ (285) $ (2,009) $ 2,891 $ 882 -- $ 597 ======== ======== ======== ======== ======== ========
14 D. BUSINESS SEGMENT INFORMATION Operations of the Company are conducted primarily through two business segments primarily within the continental United States. These segments and the primary operations of each are as follows: BUSINESS TO BUSINESS COMMUNICATIONS Atwood is a publisher of various convention/tradeshow publications and trade journals; ExpoExchange is a provider of e-commerce, registration, exhibitor marketing, travel, housing and information services to the exposition industry; and GEM is the owner of several tradeshows, including the World Gaming Congress & Expo, the largest trade show catering to the legalized gaming industry, and the publisher of several trade magazines and newsletters. INFORMATION SERVICES TISI is a provider of pre-employment screening information including motor vehicle reports, truck driver employment information, worker's compensation information, credit reports, criminal record reports and other pre-employment screening information and services to the trucking and other industries and motor vehicle reports to the insurance industry. Operating profit is net revenues less applicable operating expenses and segment general and administrative expenses. Corporate general and administrative expenses are generally not allocated to each segment. Identifiable assets by segment are those assets that are used in the operations of each segment. Corporate assets consist principally of cash and cash equivalents, notes receivable, prepaid expenses and corporate furniture, fixtures and equipment. Capital expenditures include additions to property, plant and equipment, and truck driver employment information files. During the first quarter of 2001 and 2000, no customer represented ten percent or more of the Company's revenue or operating income. 15 Summarized financial information by industry segment is as follows:
For the three months ended March 31, 2001 2000 ---- ---- (In thousands) (Unaudited) NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS: Business to Business Communications $ 19,624 $ 16,759 Information Services 14,958 12,384 --------- --------- $ 34,582 $ 29,143 ========= ========= OPERATING INCOME (LOSS): Business to Business Communications $ (239) $ 3,090 Information Services 2,376 3,194 --------- --------- Operating profit from segments 2,137 6,284 Corporate expenses, net (796) (727) Interest and other income 12 88 Interest expense (3,207) (2,833) --------- --------- Income before income taxes and minority interest $ (1,854) $ 2,812 ========= ========= DEPRECIATION AND AMORTIZATION: Business to Business Communications $ 3,614 $ 1,207 Information Services 1,652 965 Corporate 121 130 --------- --------- $ 5,387 $ 2,302 ========= ========= CAPITAL EXPENDITURES: Business to Business Communications $ 1,513 $ 981 Information Services 905 484 Corporate -- 1 --------- --------- $ 2,418 $ 1,466 ========= ========= IDENTIFIABLE ASSETS AT MARCH 31 AND DECEMBER 31: Business to Business Communications $ 67,596 $ 79,799 Information Services 75,422 71,985 Corporate 3,267 5,554 --------- --------- $ 146,285 $ 157,338 ========= =========
E. ACQUISITIONS AND DISPOSITIONS OF ASSETS On January 31, 2000, the Company, through TISI, acquired substantially all of the assets of STA United, Inc. ("STA") for approximately $8.3 million. STA is a leading provider of drug testing services to the pre-employment screening industry. On March 15, 2000, the Company, through TISI, acquired the stock and/or assets of a group of ten companies collectively known as United States Mutual Association ("USMA"). The Company paid approximately $23.5 million plus transaction costs, with $15.2 million paid in cash and the balance ($8.3 million) in non-voting stock of TISI representing approximately 4.5% 16 of the Company's interest in TISI. USMA provides pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. These acquisitions were accounted for under the purchase method of accounting. On April 14, 2000, the Company purchased a 4.7% common equity interest in Third Millenium Communications, Inc. ("3MC") for $5.0 million. 3MC provides software development and consulting services primarily to Internet related entities. This common equity interest was sold to 3MC for $500,000 on January 19, 2001. On June 1, 2000, the Company, through ExpoExchange, acquired substantially all of the assets of the e-Products Division (Expo Event Services- "EES") of 3MC, in exchange for 6,133,590 non-voting LLC units of ExpoExchange (the "LLC units") valued at approximately $30.0 million and representing approximately 20% of Holdings LLC's interest in ExpoExchange. The Company has accounted for this transaction under the purchase method of accounting. As a result of this transaction, the Company recorded approximately $30.0 million increase in minority interest on the issuance of the LLC units. On the basis of an independent valuation, identifiable intangible assets of $6.7 million and goodwill of $23.0 million are being amortized on a straight-line basis primarily over a three- year life. On January 19, 2001, the Company, through Holdings LLC, acquired from 3MC the non-voting LLC units in ExpoExchange for $15.5 million. As a result of this transaction, the minority interest was eliminated and goodwill reduced by $14.5 million. The Company has subsequently restructured the EES organization and management at a cost of approximately $823,000, relating primarily to severance, of which $328,000 was paid as of March 31, 2001. Effective January 1, 2001, the Company, through GEM, acquired certain assets of Casino Journal Publishing Group ("CJPG") for approximately $2.6 million in cash, subject to certain future working capital adjustments, and 100,000 units of GEM Communications, LLC valued at approximately $1.9 million and representing approximately 10% of GEM. The Company has accounted for this transaction under the purchase method of accounting. Identifiable intangible assets and goodwill of $4.3 million are being amortized on a straight-line basis over a four to ten year life. The following unaudited pro forma information is presented as if the Company had completed the acquisitions as of January 1, 2000. The pro forma information is not necessarily indicative of what the results of operations would have been had the acquisitions taken place at January 1, 2000, or of the future results of operations. For the Quarter ended March 31, --------------- 2001 2000 ---- ---- (In thousands) (Unaudited) Revenues, net $34,582 $31,436 ------- ------- Revenues Net income $ 671 $ 761 ------- ------- EBITDA $ 7,551 $ 6,590 ------- ------- 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW The Company is a business-to-business communications and information services company which principally operates two lines of business: (i) business-to-business and professional database information services ("Information Services") and (ii) business to business communications, publishing and related marketing services ("Business-to-Business Communications). Information Services provides specialized information and database services principally to the pre-employment screening market through Total Information Services, Inc. (TISI). TISI, through its on-line databases, provides pre-employment screening information and services to selected vertical markets that by government regulation or business characteristic require a comprehensive candidate background investigation prior to hiring. The Company's Business-to-Business Communications operations are conducted through several individual businesses, each of which is characterized by leading competitive positions within specialized vertical markets. Business-to-Business Communications includes: (i) GEM Communications, LLC, one of the world's leading owner and operator of tradeshows and publisher of trade magazines directed to the international legalized gaming industry. (ii) Atwood Publishing, LLC, the largest domestic independent publisher of exposition and association related publications and directories; and (iii) ExpoExchange, LLC, one of the largest independent providers of e-commerce housing, travel, registration, exhibitor information and "lead" management services to the tradeshow and convention industry in the United States. On January 31, 2000, the Company acquired substantially all of the assets of STA, a leading provider of drug testing services to the pre-employment screening industry. On March 15, 2000, the Company acquired the stock and/or assets of a group of ten companies collectively known as United States Mutual Association ("USMA"), a leading provider of pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. On April 14, 2000, the Company purchased a 4.7% common equity interest in Third Millenium Communications, Inc. ("3MC") for $5.0 million. 3MC provides software development and consulting services primarily to Internet related entities. On June 1, 2000, the Company acquired substantially all of the assets of the e-Products Division of 3MC (Expo Event Services- "EES") in exchange for non-voting LLC units valued at approximately $30.0 million in ExpoExchange. On January 19, 2001, the Company acquired from 3MC the LLC units in ExpoExchange for $15.5 million and sold its stock in 3MC back to 3MC for $500,000. A write down to recognize the impairment of this investment was recorded at December 31, 2000. As a result of the acquisition of the LLC units, related minority interest was eliminated and goodwill was reduced by $14.5 million. During the first quarter of 2001, the Company restructured the EES organization and management at a cost of approximately $823,000, relating primarily to severance, of which $328,000 was paid as of March 31, 2001. Effective January 1, 2001, the Company through GEM Communications, LLC acquired certain assets of Casino Journal Publishing Group ("CJPG") for $2.6 million in cash, subject to certain future working capital adjustments, and 100,000 non-voting LLC units of GEM Communications, LLC, valued at approximately $1.9 million and representing approximately 10% of GEM. 18 RESULTS OF OPERATION Revenues. Net revenues for the three months ended March 31, 2001 totaled $34.6 million, an increase of $5.4 million (19%) over the first quarter of 2000. The Business-to-Business Communications segment revenue totaled $19.6 million for the three months ended March 31, 2001, an increase of $2.9 million (17%) over the first quarter of 2000. At ExpoExchange, increased registration and exhibitor volume and the growth of new lead management and interactive services contributed $1.5 million to the revenue growth. At Atwood, timing of several new projects and new clients contributed approximately $900,000 (26%) to revenue growth in the first quarter of 2001 compared with the first quarter of 2000. GEM provided approximately $475,000 in revenue growth, primarily from the inclusion of CJPG (acquired effective January 1, 2001) in 2001 net revenue compared with the same period in 2000. The Information Services segment produced first quarter 2001 revenue of $15.0 million, an increase of $2.6 million or 21% over the first quarter of 2000. TISI's revenue increase over the first quarter of 2000 was due principally to increased pre-employment screening volume at DAC and STA, as compared to the prior period, and inclusion of USMA (acquired March 16, 2000) which added $902,000 to 2001 growth. Operating Costs. Operating costs increased $3.5 million (28%) during the first quarter of 2001 compared with the same period in 2000. Business-to-Business Communications' first quarter 2001 operating costs increased $1.8 million (22%) on 17% higher revenue compared with first quarter 2000. Growth was attributable principally to increased volume at ExpoExchange, Atwood and GEM. Information Services operating costs increased 39% during the first quarter of 2001 on a 21% increase in net revenues compared with the first quarter of 2000. The increase was attributable principally to higher criminal record and pre-employment screening volume at Crimesearch and STA, and inclusion of USMA as of March 15, 2000. General and Administrative Expenses. General and administrative expenses increased $3.1 million (34%) during the first quarter of 2001 compared with the first quarter of 2000. Higher general and administrative expense was primarily due to the inclusion of the STA, USMA, EES, and CJPG acquisitions, restructuring of EES, and new initiatives and additional corporate infrastructure at TISI to support acquisitions and growth. Depreciation and Amortization. Depreciation and amortization increased $3.1 million (134%) during the first quarter of 2001 compared with the same period in 2000. The increase resulted principally from 2000 capital expenditures to acquire data, expand exposition and tradeshow capacity and upgrade information technology and the additional amortization of goodwill resulting from acquisitions. Interest Expense. Interest expense totaled $3.2 million and $2.8 million for the three months ended March 31, 2001 and 2000, respectively. Interest expense results primarily from debt incurred in connection with the Recapitalization. Interest expense increased in the first quarter of 2001 compared with the same period in 2000 as a result of increased utilization of the Company's Senior Credit Facility. EBITDA. EBITDA totaled $7.6 million during the first quarter of 2001 compared with $7.9 million during the same period in 2000. The decrease resulted primarily from lower EBITDA at TISI and ExpoExchange as a result of the timing of the USMA and EES acquisitions. Both USMA and EES incurred planned first quarter 2001 losses without contravening losses in the first quarter 2000. 19 EBITDA is included because management believes that such information is considered by certain investors to be an additional basis on which to evaluate the Company's ability to pay interest expense, repay debt and make capital expenditures. Excluded from EBITDA are interest expense, income taxes, depreciation and amortization, unusual gains and losses (including provision for restructuring expenses of the EES Division of ExpoExchange in 2001), minority interest in consolidated subsidiaries, discontinued operations, extraordinary loss, net of tax, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, measures of operating performance as determined in accordance with generally accepted accounting principles. EBITDA margin represents EBITDA as a percentage of total revenues. ACQUISITIONS On January 31, 2000, the Company acquired substantially all of the assets of STA, a leading provider of drug testing services to the pre-employment screening industry. On March 15, 2000, the Company acquired the stock and/or assets of a group of ten companies collectively known as United States Mutual Association ("USMA"), a leading provider of pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. On April 14, 2000, the Company purchased a 4.7% common equity interest in 3MC for $5.0 million. 3MC provides software development and consulting services primarily to Internet related entities. On June 1, 2000, the Company acquired substantially all of the assets of the e-Products Division of 3MC (EES) in exchange for non-voting LLC units valued at approximately $30.0 million in ExpoExchange. On January 19, 2001, the Company acquired from 3MC the LLC units in ExpoExchange for $15.5 million and sold its stock in 3MC back to 3MC for $500,000. A write down to recognize the impairment of this investment was recorded at December 31, 2000. As a result of the acquisition of the LLC units, the minority interest was eliminated and goodwill was reduced by $14.5 million. During the first quarter 2001, the Company restructured the EES organization and management at a cost of approximately $823,000, primarily related to severance, of which $328,000 was paid as of March 31, 2001. Effective January 1, 2001, the Company through GEM Communications, LLC acquired certain assets of CJPG for $2.6 million in cash, subject to certain future working capital adjustments, and 100,000 non-voting LLC units of GEM Communications, LLC, valued at approximately $1.9 million and representing approximately 10% of GEM. LIQUIDITY AND CAPITAL RESOURCES On October 29, 1997, the Company completed the private sale to First Union Capital Markets Corp. (the "Initial Purchaser") of $100.0 million principal amount of Senior Subordinated Notes due 2007 (the "Old Notes") at a price of 97% of the principal amount thereof. The Initial Purchaser resold the Old Notes to a limited number of qualified institutional buyers at an initial price to investors of 100% of the principal amount thereof, with net proceeds to the Company of $97.0 million (the "Offering"). The Offering was a private placement transaction exempt from the registration requirements of the Securities Act 20 pursuant to Rule 144A and Section 4 thereof. The net proceeds of the Notes sold pursuant to the Offering were applied to repay indebtedness incurred in connection with the Recapitalization under the Senior Credit Facility and the Bridge Financing Facility. On February 10, 1998, the Company offered to exchange up to $100 million aggregate principal amount of Old Notes for up to an equal aggregate principal amount of new notes (the "New Notes" and, together with the Old Notes, the "Notes"). The New Notes are obligations of the Company entitled to the benefits of the Indenture (the "Indenture") relating to the Old Notes and the form and terms of the New Notes are identical in all material respects to the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and do not contain terms with respect to transfer restrictions. On September 1, 1998 the Company purchased $1.5 million of the New Notes at a price below par. The Company's principal sources of funds are anticipated to be cash flows from operating activities and borrowings under the Senior Credit Facility which was increased from $25.0 million to $40.0 million on February 2, 2001. Based upon the successful implementation of management's business and operating strategy, the Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its current and future financial obligations, including the payment of principal and interest on the Notes, as well as to provide funds for the Company's working capital, capital expenditures and other needs. No assurance can be given, however, that this will be the case. As of March 31, 2001, the Company had $10.4 million of availability under the Senior Credit Facility, net of letters of credit totaling $3.3 million which are secured by the Senior Credit Facility. The Company's future operating performance and ability to service or refinance the Notes and to repay, extend or refinance the Senior Credit Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. In addition, any future acquisitions by the Company would likely require additional financing. In the event of a Change of Control (as defined in the Indenture), the Company will be required to make an offer for cash to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, thereon to the repurchase date. Certain events involving a Change of Control would result in an event of default under the Senior Credit Facility or other indebtedness of the Company that may be incurred in the future. Moreover, the exercise by the holders of the Notes of their right to require the Company to repurchase the Notes may cause an event of default under the Senior Credit Facility or such other indebtedness, even if the Change of Control does not. Finally, there can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a Change of Control. Capital Expenditures. Management anticipates that capital expenditures in 2001 will be approximately $10.2 million. The primary capital expenditures will be for computer equipment and software, and database acquisitions at TISI and ExpoExchange. TISI continues to offer its customers in the trucking industry credits for providing employment information to be utilized in its database, which credits can be used against charges for future services from such division. All of the credits earned are considered capital expenditures for the acquisition of such data. Management anticipates positive cash flow from operations in 2001, even after the anticipated capital expenditures for 2001. Thus, with the Company's available cash reserves and cash flow, management does not anticipate a need for additional capital or increased borrowing facilities during 2001 except for possible future acquisitions. INFLATION Management anticipates the effect of inflation on the Company's operations during 2001 will be primarily limited to the effects which general inflation will have on costs in most areas in which the Company operates. 21 FORWARD-LOOKING STATEMENTS This Quarterly Report for the quarter ended March 31, 2001, as well as other public documents of the Company contain forward-looking statements which involve risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. When used in this Quarterly Report, the words "estimate," "project," "anticipate," "expect," "intend," "believe," "seek," "plan," as well as variations of such words and similar expressions, are intended to identify forward-looking statements. While management believes these statements are reasonable, actual results could differ materially from those projected by such forward-looking statements. See "Management's Discussion and Analysis of Financial Condition and Results of Operations". PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K On February 6, 2001, the registrant filed a current report on Form 8-K that reported on the acquisition of 6,133,590 Class B LLC units and certain warrants of ExpoExchange, LLC from Third Millenium Communications, Inc. (3MC); the increase of the Company's credit line to $40 million under its Credit Agreement with First Union National Bank; and that, in a separate transaction, the Company sold its equity interest in 3MC (see items 2 and 7). 22 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Date: May 15, 2001 THE OFFICIAL INFORMATION COMPANY By /s/ Ian L.M. Thomas ---------------------------------------- IAN L. M. THOMAS PRESIDENT AND CHIEF EXECUTIVE OFFICER By /s/ Steven J. Hunt ---------------------------------------- STEVEN J. HUNT CHIEF FINANCIAL OFFICER -----END PRIVACY-ENHANCED MESSAGE-----