-----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, QSk/st2ZvWqPPWktU4Ki7HyyUUEfuthqLz/nw3LKxIxpkHHEyc0aBSmPR6aAwOFC lYLj15VptQOLPHj/akdSjQ== 0000950136-98-001463.txt : 19980817 0000950136-98-001463.hdr.sgml : 19980817 ACCESSION NUMBER: 0000950136-98-001463 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE 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: 98688794 BUSINESS ADDRESS: STREET 1: 888 SEVENTH AVENUE STREET 2: 28TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10106 BUSINESS PHONE: 212/247-5160 MAIL ADDRESS: STREET 1: 888 SEVENTH AVENUE 28TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10106 FORMER COMPANY: FORMER CONFORMED NAME: T SF COMMUNICATIONS CORP DATE OF NAME CHANGE: 19920703 10-Q 1 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 JUNE 30, 1998 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.) 888 Seventh Avenue, 28th Floor, New York, New York 10106 (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 August 10, 1998, 112,367 shares of common stock were outstanding, of which 72,367 were owned by VS&A-T/SF, L.L.C. and 1,628, 3,831 and 34,541 were owned by Fir Tree Value Fund LP., Fir Tree Institutional Value Fund L.P. and Fir Tree Value Partners L.D.C., respectively. PART I Item 1. Financial Information 2 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS JUNE 30, DECEMBER 31, 1998 1997 ---- ---- (UNAUDITED) Current assets: Cash and cash equivalents $ 7,778 $ 10,564 Accounts receivable, less reserve for doubtful accounts 13,495 11,018 Inventories 242 329 Deferred tax assets 1,605 1,520 Notes receivable and other current assets 2,223 1,345 Refundable income taxes 1,938 3,166 ----- ------- Total current assets 27,281 27,942 ------ ------ Notes receivable and investments 1,753 1,769 ----- ------- Property, plant and equipment, at cost: 18,720 16,963 Less accumulated depreciation 10,723 9,910 ------ ------- Property, plant and equipment, net 7,997 7,053 ----- ------- Deferred tax assets 1,150 1,150 Intangibles and other assets, net 33,944 33,052 ------ ------ $ 72,125 $ 70,966 ====== ======
See accompanying notes to consolidated condensed financial statements. 3
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) JUNE 30, DECEMBER 31, 1998 1997 ---- ---- Current liabilities: Accounts payable $ 4,438 $ 4,505 Accrued liabilities 7,702 9,261 Deferred revenue 5,926 2,843 Current portion of long-term debt 1,350 1,232 ----- --------- Total current liabilities 19,416 17,841 ------ -------- Long-term debt 101,417 102,302 Other liabilities 1,551 1,425 Minority interest 5,102 - Stockholders' equity (deficit): Common stock, $.10 par value, 150,000 and 10,000,000 shares authorized at June 30, 1998 and December 31, 1997, respectively 42 419 Additional paid-in capital 48,197 47,820 Retained earnings 10,877 11,528 ------ -------- 59,116 59,767 Treasury stock (114,477) (110,369) --------- ------- Total stockholders' deficit (55,361) (50,602) -------- -------- $ 72,125 $ 70,966 ======== ========
4 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------- -------- 1998 1997 1998 1997 ---- ---- ---- ---- (UNAUDITED) (UNAUDITED) Revenues Operating revenues $ 22,533 $ 19,049 $ 43,594 $ 36,179 Interest and other income 340 670 510 966 Loss on sale of assets, net (134) (210) (86) (210) --------- --------- --------- ----------- Total revenues 22,739 19,509 44,018 36,935 ------ ------ ------ -------- Costs and expenses: Operating costs 14,109 11,259 27,705 22,003 General and administrative 4,128 4,428 8,136 8,191 Interest 2,682 130 5,374 285 Depreciation and amortization 1,493 1,160 2,806 2,272 ----- ----- ----- ----- 22,412 16,977 44,021 32,751 ------ ------ ------ ------ Income (loss) before minority interest and 327 2,532 (3) 4,184 income taxes Minority interest in earnings of consolidated entity (456) - (602) - Income tax expense (68) (1,035) (46) (1,751) ------- ------- ------- ------- Net income (loss) $ (197) $ 1,497 $ (651) $ 2,433 ======= ======= ======= =======
See accompanying notes to consolidated condensed financial statements. 5 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, 1998 1997 ---- ---- (UNAUDITED) Cash flows from operating activities: Net income (loss) $ (651) $ 2,433 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,806 2,272 Loss on sale of assets 86 210 Minority interest in earnings of consolidated entity 602 - Deferred income taxes (85) 439 Other - 115 Changes in assets and liabilities (870) 2,755 ----- ----- Total adjustments 2,539 5,791 ----- ----- Net cash provided by operating activities 1,888 8,224 ------ ----- Cash flows from investing activities: Collections on contract and notes receivable 15 563 Capital expenditures (2,916) (2,675) Proceeds from the sale of assets 308 35 Payments for acquisition, net of cash acquired (2,009) (939) Net additions to investments - (143) Payments on deferred contract liabilities (205) (339) ------- ------- Net cash used in investing activities (4,807) (3,498) ------- ------- Cash flows from financing activities: Principal payments of long-term debt (767) (1,016) Repayment of bank lines-of-credit, net - (500) Issuance of common stock - 63 Minority interest 4,500 - Repurchase of common stock (3,600) (1,375) ------- ------- Net cash provided by (used in) financing activities 133 (2,828) ------- ------- Net increase (decrease) in cash and cash equivalents (2,786) 1,898 Cash and cash equivalents at beginning of period 10,564 2,257 ------ ----- Cash and cash equivalents at end of period $ 7,778 $ 4,155 ====== =======
See accompanying notes to consolidated condensed financial statements. 6 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"), formerly known as T/SF Communications Corporation, include the accounts of TOIC, its wholly owned subsidiaries, TOIC Holdings, LLC ("Holdings LLC"), T/SF Operating LLC ("Operating LLC") and the limited liability companies wholly owned by Holdings LLC and Operating LLC (the "Subsidiary LLCs"). Through its priority interest in Holdings LLC and Operating LLC, TOIC has voting, operational and management control of Holdings LLC, Operating LLC and the Subsidiary LLCs and, accordingly, the financial statements of these entities are consolidated herein. Income allocated to TOIC from Holdings LLC and Operating 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 and Operating LLC. TOIC, Holdings LLC and Operating LLC share common management, resources and control. Prior to the drop down restructuring (see Note B) in February 1998, the operations of Holdings LLC, Operating LLC and the Subsidiary LLCs were wholly owned by TOIC. INTERIM REPORTING. The accompanying interim consolidated condensed financial statements reflect all adjustments 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 and six months ended June 30, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. For further information, refer to the consolidated financial statements and related notes thereto included in TOIC's (then known as T/SF Communications Corporation) annual report on Form 10-K for the year ended December 31, 1997. RECLASSIFICATION. Certain amounts in the 1997 consolidated condensed financial statements have been reclassified to conform with the 1998 presentation. B. DROP DOWN 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. ("VS&A-T/SF ") and repurchasing substantially all of the Company's 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 recapitalization of the Company and its subsidiaries. As of June 30, 1998, 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. 7 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 recapitalization, 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 Operating LLC, which holds 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. TOIC has voting, operational and management control of Holdings LLC and Operating LLC. C. CONSOLIDATING SCHEDULE OF NET INCOME The following consolidating schedule of net income (loss) for the six months ended June 30, 1998 includes the accounts of TOIC and the combined accounts of Holdings LLC, Operating LLC and the Subsidiary LLCs. All material intercompany transactions have been eliminated.
HOLDINGS TOIC TOIC LLC ELIMINATIONS CONSOLIDATED REVENUE: Business to Business Communication 6,929 18,739 25,668 Information services 17,926 - 17,926 Other income 361 63 424 --------------------------------------------------------------- 25,216 18,802 0 44,018 --------------------------------------------------------------- COST AND EXPENSES: Business to Business Communication 5,030 12,850 17,880 Information services 9,825 - 9,825 General and administrative 5,228 2,908 8,136 Interest 5,374 - 5,374 Depreciation and amortization 2,034 772 2,806 --------------------------------------------------------------- Total cost and expenses 27,491 16,530 0 44,021 --------------------------------------------------------------- INCOME BEFORE PRIORITY AND MINORITY INTERESTS AND INCOME TAXES (2,275) 2,272 0 (3) Priority interest in net earnings of Holdings LLC 1,670 (1,670) 0 --------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS (605) 2,272 (1,670) (3) Income tax (expense) benefit (46) 0 (46) Minority interest in net earnings of consolidated entity 0 (602) (602) --------------------------------------------------------------- NET INCOME (LOSS) (651) 2,272 (2,272) (651) ===============================================================
8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION OVERVIEW The Company is a diversified business media company which principally operates two lines of business: (i) business and professional information services and (ii) business to business communications, publishing and related services. In February 1997, the Company increased its ownership in Casino Publishing Company, publisher of the trade journal, Casino Executive, to 88%, which is included in the Company's consolidated operations since that date. Effective January 31, 1998, the Company acquired the remaining interests in Casino Publishing Company. Effective May 1, 1997, the Company acquired a majority ownership in Galaxy Expocard Europe B.V. and increased its ownership to 73% effective July 1, 1997. Information Services provides specialized information and database management services to selected market segments. Total Information Services, Inc. ("TISI") is a leading supplier of pre-employment screening information to the trucking industry and a provider of risk assessment and underwriting information to agents, underwriters and others in the insurance industry. CORSEARCH, Inc., acquired by the Company in 1996, is the second largest supplier in the United States of trademark and trade name searches and information research. 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 market niches. Business to Business Communications includes: (i) Atwood Publishing, LLC and its affiliates (collectively, "Atwood"), the largest domestic independent publisher of exposition and association related publications and directories; (ii) Galaxy Information Services, LLC ("Galaxy"), the largest independent provider of trade show and convention registration, exhibitor information and "lead" management services in the United States and (iii) GEM Communications, LLC and its affiliates (collectively, "GEM"), the owner and operator of the World Gaming Congress, the world's largest trade show catering to the legalized gaming industry and the publisher of trade magazines directed to the legalized gaming industry, principally IGWB, the leading gaming industry magazine, and Casino Executive, the major magazine for casino management. In June, 1998, GEM acquired all the assets and rights to the International Gaming Business Exposition, a conference and trade show serving the casino gaming industry. As part of the Recapitalization, VS&A-T/SF and Fir Tree caused the Company, directly or indirectly, to contribute to T/SF Holdings, LLC ("Holdings LLC") substantially all of the assets and liabilities of the predecessors of Atwood, Galaxy and GEM in exchange for a $45.0 million preferred equity interest in Holdings LLC and VS&A-T/SF and Fir Tree contributed $4.5 million to acquire the common equity interests in Holdings LLC in the same proportion as their ownership of the common stock immediately following the consummation of the Recapitalization. The preferred equity interest held, directly or indirectly, by the Company carries an 11% annual distribution rate and, together with a voting agreement among its wholly owned subsidiaries, gives the Company voting, operational and management control of Holdings LLC. As part of the Recapitalization, Holdings LLC contributed substantially all of the assets of the predecessors of Galaxy, Atwood and GEM into several limited liability companies (the "Subsidiary LLCs"). 99% of the common equity interests of each Operating LLC is owned by Holdings LLC and gives Holdings LLC voting, operational and management control of such entities and a 1% common equity interest of each Subsidiary LLC is owned by T/SF Operating, LLC ("Operating LLC"). The preferred equity interest in Operating LLC is owned by Holdings LLC and the common equity interests 9 of Operating LLC are held by VS&A-T/SF and Fir Tree in the same proportion as their ownership of the common stock immediately following the consummation of the Recapitalization. Through its priority interest in Holdings LLC and Operating LLC, the Company has voting, operational and management control of Holdings LLC, Operating LLC and the Subsidiary LLCs. As a result of such control, the financial results of Holdings LLC, Operating LLC and the Subsidiary LLCs are included in the consolidated financial statements of the Company. RESULTS OF OPERATION Revenues. Revenues of $22.7 million and $44.0 million for the three and six months periods ended June 30, 1998, respectively, were $3.2 million (17%) and $7.1 million (19%) higher, respectively, than the same periods in the prior year. The Business to Business Communications segment Revenue totaled $13.5 million and $25.7 million for the three and six months ended June 30, 1998, respectively, an increase of $2.2 million (19%) and $5.5 million (27%), respectively, over the three and six months ended June 30, 1997. At Galaxy, the return of several bi-annual trade shows, an overall increase in the number of shows completed through June 1998 and Galaxy Europe, which was not consolidated in the first quarter of 1997, contributed $1.3 million and $2.8 million to the revenue growth, respectively, over the same periods in the prior year. At Atwood, the addition of Dallas Market Center business and strong periodical publishing advertising sales led to a 13% and 24% increase in revenue in the three and six month periods of 1998, respectively, compared with the same periods of 1997. The addition of two new shows managed by GEM--GameTech '98 and Dion Entertainment, Inc. -- "Bingo World Expo and Conference" -- contributed to a 13% and 22% increase in revenue at GEM for the three and six month periods of 1998, respectively, compared to the same periods in 1997. The Information Services segment produced revenue of $9.1 million and $17.9 million, for the three and six month periods ended June 30, 1998, respectively, an increase of $1.3 million (17%) and $1.9 million (12%), respectively, over the same three and six month periods of 1997. CORSEARCH increased revenue 32% and 20% during the three and six months of 1998, respectively, compared with the same periods of 1997. This return to double digit growth from relatively flat revenue growth during 1997, compared with 1996, resulted from increased sales and marketing efforts. TISI's revenue increased 13% and 10% for the three and six months ended June 30, 1998, respectively, over the same periods of 1997. TISI's revenue growth was impacted somewhat by anticipated enactment in late 1997 of Fair Credit Reporting Act regulations which have slowed the processing of employment history records. TISI's Crimesearch affiliate, acquired in 1996, experienced an 85% increase in six month revenue reflecting growing demand for criminal records. Operating Costs. Operating Costs increased $2.8 million (25%) and $5.7 million (26%) for the three and six month periods ended June 30, 1998, respectively. Operating Costs of the Business to Business Communications operations increased by $2.1 million (30%) and $4.4 million (33%) for the three and six months ended June 30, 1998, respectively, on 17% and 19% higher revenue compared with the same periods in 1997. The increase was attributable principally to an increase in volume at Atwood, additional trade shows at Galaxy, inclusion of Galaxy Europe, and two new shows GameTech '98 and "Bingo World Expo" managed by GEM. Information Services Operating Costs increased 20% and 15% for the three and six month periods ended June 30, 1998, respectively, compared to the same periods of 1997. The increase was attributable principally to the expansion of research capacity at CORSEARCH and higher criminal record and pre-employment screening volume at TISI, offset partially by lower costs resulting from elimination of National Employment Screening Services, Inc., an unprofitable business venture, closed by TISI in 1997. 10 General and Administrative Expenses. General and Administrative Expenses decreased $300,000 (7%) and $55,000 for the three and six months ended June 30, 1998, respectively, compared with the year ago periods. General and Administrative Expenses were favorably impacted during the three and six months periods of 1998 by elimination of NESS ($129,000), restructuring of two unprofitable magazines to consolidate overhead and lower corporate overhead (down $356,000 or 26%) resulting principally from elimination of the Tulsa, Oklahoma corporate office and establishment of a smaller corporate office in New York City. The favorable impact in General and Administrative Expenses was partially offset by approximately $32,000 and $450,000 for the three and six months periods ended June 30, 1998, respectively, attributable principally to the consolidation of Galaxy Europe which was not included until May 1, 1997. Depreciation and Amortization. Depreciation and Amortization increased $333,000 (29%) and $534,000 (24%) during the three and six months ended June 30, 1998, respectively, compared with the same periods in 1997. For the six months ended June 30, 1998, capital spending increased to support new online products and expansion of capacity at CORSEARCH and additional reader rental boxes at Galaxy accounted for most of the increase. Interest Expense. Interest Expense totaled $2.7 million and $5.4 million for the three and six months ended June 30, 1998, respectively, compared with $130,000 and $285,000 for the same periods in 1997. The increase of $2.6 million and $5.1 million for the three and six months ended June 30, 1998, respectively, resulted from interest on new debt incurred in connection with the Recapitalization. EBITDA. EBITDA increased $605,000 (15%) and $1.3 million (19%) to $4.6 million and $8.3 million for the three and six months ended June 30, 1998, respectively, compared with $4.0 million and $7.0 million, respectively, during the same 1997 periods. The increase for the three months was principally attributable to higher EBITDA in the Business to Business Communications segment (up $161,000 - 7%) and the Information Services segment (up $550,000 - 26%). The increase for the six months ended June 30, 1998 was principally attributable to higher EBITDA in the Business to Business Communications segment (up $470,000 - 16%) and the Information Services segment (up $820,000 - 18%) and lower corporate expenses ($356,000 - 26%). EBITDA, as presented, represents operating income plus depreciation and amortization. EBITDA is included because management understands 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 expenses, income taxes, depreciation and amortization, unusual gains, minority interest in consolidated subsidiaries, discontinued operations, net and 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. LIQUIDITY AND CAPITAL RESOURCES Liquidity. In connection with the Recapitalization, the Company: (i) borrowed $13 million under a $25.0 million revolving senior credit facility (the "Senior Credit Facility") with First Union National Bank ("FUNB"); (ii) issued $80.0 million aggregate principal amount of notes pursuant to a facility (the "Bridge Financing Facility") provided by First Union Corporation; and (iii) received $40.0 million of equity contributions (the "Equity Contributions") from VS&A-T/SF and Fir Tree. On October 29, 1997, 11 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 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 $100,000,000 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. The Company's principal sources of funds are anticipated to be cash flows from operating activities and borrowings under the Senior Credit Facility. 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 June 30, 1998, the Company had $25.0 million of availability under 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 1998 will be approximately $7 million. The primary capital expenditures will be for computers, software, furniture and office equipment and to acquire additional "reader rental boxes" at Galaxy. 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 1998, even after the anticipated capital expenditures for 1998. Thus, with the Company's available cash reserves and cash flow, management does not anticipate a need for capital during 1998 except for possible, and as yet unidentified, future acquisitions. 12 INFLATION Management anticipates the effect of inflation on the Company's operations during 1998 will be primarily limited to the effects which general inflation will have on costs in most areas in which the Company operates. YEAR 2000 COMPLIANCE The Company is modifying its computer systems to be Year 2000 compliant. The Company does not expect that the cost of modifying such systems will be material. The Company believes it will achieve Year 2000 compliance in advance of the year 2000, and does not anticipate any material disruption in its operations as the result of any failure by the Company to be in compliance. The Company does not have any information concerning the Year 2000 compliance status of its suppliers and customers. NEW ACCOUNTING PRONOUNCEMENTS The FASB issued Statement of Financial Accounting Standards No. 131, Disclosures about Segments of an Enterprise and Related Information (SFAS 131) in June 1997. SFAS 131 supersedes FASB Statement No. 14, Financial Reporting for Segments of a Business Enterprise, but retains the requirement to report information about major customers. SFAS 131 replaces the "industry segment" concept of Statement 14 with a "management approach" concept as the basis for identifying reportable segments. The management approach is based on the way that management organizes the segments within the enterprise for making operating decisions and assessing performance. Consequently, the segments are evident from the structure of the enterprise's internal organization. It focuses on financial information that an enterprise's decision makers use to make decisions about the enterprise's operating matters. SFAS 131 is effective for financial statements issued for fiscal years beginning after December 15, 1997 and is not anticipated to have a significant impact on the Company's segment reporting. SFAS 131 has not been adopted for the interim period ending June 30, 1998. The FASB also recently issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (SFAS 132) and Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 132 revises employer's disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS 133 establishes accounting and reporting standards for derivative instruments and hedging activities. These Statements are not expected to have a material impact on the Company's financial reporting as the Company does not currently sponsor pension or other postretirement benefit plans and does not engage in the use of derivative instruments. FORWARD-LOOKING STATEMENTS This Quarterly Report for the quarter and six months ended June 30, 1998 as well as other public documents of the Company contains 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 13 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) List of Exhibits: Financial Data Schedule (Exhibit 27) (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the quarter ended June 30, 1998. 14 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: August 14, 1998 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 EX-27 2 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 7,778 0 14,260 765 242 27,281 18,720 10,723 72,125 19,416 101,417 0 0 42 (55,403) 72,125 43,594 44,018 27,705 35,841 2,806 0 5,374 (3) (46) (651) 0 0 0 (651) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----