-----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, TAuZn2549CyjqqQnGUu1AggN4YjW+jM7gz9cL0uq/+Tk9m4XP1Gjzxrv2YgFEsOY 2Kfz5Oq9ddGBDcr8Da8Hfw== 0000950134-00-002080.txt : 20000320 0000950134-00-002080.hdr.sgml : 20000320 ACCESSION NUMBER: 0000950134-00-002080 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 20000317 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFOUSA INC CENTRAL INDEX KEY: 0000879437 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DIRECT MAIL ADVERTISING SERVICES [7331] IRS NUMBER: 470751545 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 573054 BUSINESS ADDRESS: STREET 1: 5711 S 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4025934500 MAIL ADDRESS: STREET 1: 5711 SOUTH 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN BUSINESS INFORMATION INC /DE DATE OF NAME CHANGE: 19930328 10-K/A 1 AMENDMENT NO. 1 TO FORM 10-K - FISCAL END 12/31/98 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-19598 --------------- infoUSA INC. (Exact name of registrant as specified in its charter) DELAWARE 47-0751545 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127 (Address of principal executive offices) (402) 593-4500 (Registrant's telephone number, including area code) --------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $0.0025 PAR VALUE CLASS B COMMON STOCK, $0.0025 PAR VALUE SERIES A PREFERRED SHARE PURCHASE RIGHTS SERIES B PREFERRED SHARE PURCHASE RIGHTS --------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 2 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Class A Common Stock and Class B Common Stock on March 9, 1999 as reported on the NASDAQ National Market System, was approximately $114 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Class A Common Stock or Class B Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 9, 1999 registrant had outstanding 24,228,875 shares of Class A Common Stock and 23,907,875 shares of Class B Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 2, 1999, which will be filed within 120 days of the end of fiscal year 1998, is incorporated into Part III hereof by reference. ================================================================================ 2 3 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected consolidated financial data for each of the years in the five years ended December 31, 1998 has been derived from the Company's audited Consolidated Financial Statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes set forth on pages F-1 through F-24 of this Form 10-K. The Consolidated Financial Statements as of December 31, 1998 and 1997, and for each of the years in the three years ended December 31, 1998, are set forth on pages F-1 through F-24 of this Form 10-K.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ............................................... $ 228,678 $ 193,327 $ 108,298 $ 86,766 $ 69,603 Costs and expenses: Database and production costs ......................... 66,319 55,090 29,272 23,999 18,153 Selling, general and administrative ................... 117,724 80,203 45,766 37,724 28,249 Depreciation and amortization(1) ...................... 27,472 34,415 16,355 3,469 3,125 Provision for litigation settlement(2) ................ 4,500 -- -- -- -- Acquisition costs (3) ................................. 3,643 2,598 -- -- -- In-process research and development(4) ................ 3,834 53,500 10,000 -- -- Restructuring charges(5) .............................. 2,616 -- -- -- -- --------- --------- --------- --------- --------- Total costs and expenses ...................... 226,108 225,806 101,393 65,192 49,527 --------- --------- --------- --------- --------- Operating income (loss) ................................. 2,570 (32,479) 6,905 21,574 20,076 Other income (expense): Investment income ..................................... 16,628 3,748 3,194 1,322 1,109 Interest expense ...................................... (9,160) (4,098) (209) (157) (247) Other ................................................. (2,000) -- (943) -- -- --------- --------- --------- --------- --------- Income (loss) before income taxes and discontinued operations ............................................ 8,038 (32,829) 8,947 22,739 20,938 Income taxes ............................................ 5,880 6,987 3,400 8,421 7,710 --------- --------- --------- --------- --------- Income (loss) from continuing operations ................ 2,158 (39,816) 5,547 14,318 13,228 Loss on discontinued operations(6) ...................... -- -- (355) (2,317) (404) Loss from abandonment of subsidiary(6) .................. -- -- (1,373) -- -- --------- --------- --------- --------- --------- Net income (loss) ....................................... $ 2,158 $ (39,816) $ 3,819 $ 12,001 $ 12,824 ========= ========= ========= ========= ========= Basic earnings (loss) per share ......................... $ 0.04 $ (0.82) $ 0.09 $ 0.29 $ 0.31 ========= ========= ========= ========= ========= Weighted average shares outstanding ..................... 49,314 48,432 42,065 41,475 41,356 ========= ========= ========= ========= ========= Diluted earnings (loss) per share ....................... $ 0.04 $ (0.82) $ 0.09 $ 0.28 $ 0.31 ========= ========= ========= ========= ========= Weighted average shares outstanding ..................... 50,215 48,432 42,390 42,136 41,545 ========= ========= ========= ========= ========= OTHER DATA: Earnings before interest, taxes, depreciation and amortization ("EBITDA") , as adjusted(7) ........................................... $ 33,876 $ 55,436 $ 33,260 $ 25,043 $ 23,201 ========= ========= ========= ========= ========= CASH FLOW DATA: Net cash from operating activities ...................... $ 16,742 $ 30,256 $ 12,321 $ 15,819 $ 18,086 ========= ========= ========= ========= ========= Net cash used in investing activities ................... (36,626) (99,932) (13,824) (14,905) (12,394) ========= ========= ========= ========= ========= Net cash from (used in) financing activities ............ 38,834 72,832 (2,999) (2,406) (712) ========= ========= ========= ========= =========
DECEMBER 31, ----------------------------------------------------- 1998 1997 1996 1995 1994 --------- --------- --------- --------- --------- CONSOLIDATED BALANCE SHEET DATA: Working capital................................ $ 70,157 $ 60,007 $ 45,727 $ 45,363 $ 35,411 Total assets................................... 270,773 194,911 107,877 91,241 77,783 Long-term debt, including current portion...... 128,259 82,000 1,135 2,039 3,821 Stockholders' equity........................... 88,247 80,236 87,605 76,084 63,326
3 4 (1) Includes the change in estimated useful lives during 1996 based on management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995 of $11.5 million. (2) During 1998, includes $4.6 million in damages awarded to Experian Information Solutions, Inc. in connection with arbitration of a contractual dispute. (3) Includes in 1998 the following acquisition costs: 1) $3.0 million of costs associated with the Company's bid to acquire Metromail Corporation, and 2) $0.6 million associated with the Company's offering to sell Common Stock which was not completed. Includes in 1997 acquisition costs of $2.6 million associated with the acquisitions of DBA and Pro CD. (4) Includes the following charges related to purchased in-process research and development costs associated with the acquisitions of Walter Karl, Inc. of $3.8 million (1998), DBA Holdings, Inc. ("DBA") of $49.2 million (1997), Pro CD of $4.3 million (1997), and Digital Directory Assistance, Inc. of $10.0 million (1996). (5) Includes in 1998 the following restructuring charges: 1) $1.4 million for restructuring costs related to the Company's compilation and sales activities for new businesses, and 2) $1.2 million for restructuring costs related to certain cost reduction measures enacted by the Company. (6) During 1995, the Company sold American Business Communications for $3.0 million in the form of a non-recourse promissory note. In 1996 the Company recorded a loss of $1.4 million attributable to the default by the purchaser on the non-recourse promissory note delivered to the Company in this transaction. (7) "EBITDA, as adjusted" is defined as operating income (loss) adjusted to exclude depreciation, amortization of intangible assets and non-cash acquisition-related and restructuring charges. EBITDA is presented because it is a widely accepted indicator of a company's ability to incur and service debt and of the Company's cash flows from operations excluding any non-recurring items. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. (8) The Company has had several acquisitions since 1996 which would affect the comparability of historical data. See Management's Discussion and Analysis of Financial Condition and Results of Operations. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a leading provider of business and consumer marketing information products and data processing services that assist its clients in finding new customers and generating new business. The Company's key assets include a proprietary database of over 11 million businesses and a consumer database of over 115 million households and over 195 million individuals in the United States and Canada, which the Company believes are the most comprehensive and accurate available. The Company leverages these key assets by selling a wide range of information products and data processing services through multiple distribution channels primarily to small and medium-size businesses and also to consumers and large corporations. Sales lead generation products, data processing services and consumer CD-ROM products accounted for 64%, 27% and 9%, respectively, of the Company's net sales for 1998. Historically, the Company's revenue has been derived predominantly through the sale of its sales lead generation products. The Company began to recognize significant revenue from its data processing services in 1997, revenue from its consumer CD-ROM products increased substantially between 1993 and 1997, and the Company began to recognize significant list brokerage revenue during 1998 with the acquisition of Walter Karl and JAMI Marketing Services. The Company estimates that no customer represented greater than approximately 6% of net sales in 1998. During 1998, the Company recorded sales of $14.6 million (approximately 6% of data processing sales) from data processing services provided to a single customer. During 1998, the customer notified the Company that it intends to perform the data processing services in-house. As a result, sales of data processing services may decline in 1999 compared to 1998 sales levels. 4 5 The Company's net sales are generated from the sale of its products and services and the licensing of its data to third parties. Revenue from the sale of products and services is generally recognized when the product is delivered or the services are performed. Generally, a majority of revenue from data licensing is recognized at the time the initial set of data is delivered, with the remaining portion being deferred and recognized over the license term as the Company provides updated information. The Company's operating expenses are determined in part based on the Company's expectations of future revenue growth and are substantially fixed in the short term. As a result, unexpected changes in revenue will have a disproportionate effect on financial performance in any given period. The Company's database and production costs are generally expensed as incurred and relate principally to maintaining, verifying and updating its databases, fulfilling customer orders and the direct costs associated with the production of CD-ROM titles. Costs to develop new databases are capitalized by the Company and amortized upon the successful completion of the databases over a period ranging from one to five years. Selling, general and administrative expenses consist principally of salaries and benefits associated with the Company's sales force as well as costs associated with its catalogs and other promotional materials. The demand for the CD-Rom product began to decline during 1998 as customers began to use new distribution channels, primarily the Internet, for obtaining certain information also contained on the Company's CD-Roms. The demand for 1998 product lines is expected to be affected by new distribution channels in the future and therefore related sales are expected to remain at declined levels. The Company had previously made certain disclosures relative to the continuing results of operations of acquired companies where appropriate and possible, although the Company has in the case of all acquisitions since 1996, immediately integrated the operations of the acquired companies into existing operations of the Company. Generally, the results of operations for these acquired activities are no longer separately accounted for from existing activities. The Company cannot report on the results of operations of acquired companies upon completion of the integration as the results are "blended-in" with existing results. Additionally, upon integration of acquired operations, the Company frequently combines acquired products or features with existing products, and experiences significant cross-selling of products between business units, including sales of acquired products by existing business units and sales by acquired business units of existing products. Due to recent and potential future acquisitions, future results of operations will not be comparable to historical data. While the results cannot be accurately quantified, acquisitions have had a significant impact on net sales. Since 1996, database and production costs have increased as a percentage of net sales as a result of higher costs associated with data processing services and CD-ROM production. To the extent that data processing and CD-ROM sales constitute a greater percentage of net sales, the Company expects database and production costs to increase as a percentage of net sales in the future. During the last two quarters of 1997 and the first three quarters of 1998, the Company built infrastructure for continued growth and increased sales and heightened its investment in general sales operations, field sales operations, development of new products and services, and direct marketing activities. As a result, selling, general and administrative expenses increased substantially between 1997 and 1998, and constituted a greater percentage of net sales. See the discussion of selling, general and administrative expenses in "Results of Operations" for additional information related to these costs. The Company has supplemented its internal growth through strategic acquisitions. The Company has completed nine acquisitions since mid-1996. Through these acquisitions, the Company has increased its presence in the consumer marketing information industry, greatly increased its ability to provide data processing solutions, added two consumer CD-ROM product lines, increased its presence in list management and list brokerage services and broadened its offerings of business marketing information. The following table summarizes these acquisitions:
TRANSACTION VALUE ACQUIRED COMPANY KEY ASSET DATE ACQUIRED (IN MILLIONS)(1) ------------------------- -------------------------- ------------- ------------------ Digital Directory Assistance Consumer CD-ROM Products August 1996 $ 17 County Data Corporation New Businesses Database November 1996 $ 11 Marketing Data Systems Data Processing Services November 1996 $ 3 BJ Hunter Canadian Business Database December 1996 $ 3 DBA Consumer Database and Data February 1997 $ 105 Processing Services Pro CD Consumer CD-ROM Products August 1997 $ 18 Walter Karl Data Processing and List March 1998 $ 18 Management Services JAMI Marketing List Management Services June 1998 $ 13 Contacts Target Marketing Canadian Business Database July 1998 $ 1
5 6 - ---------- (1) Transaction value includes total consideration paid including cash paid, debt issued and stock issued plus long-term debt repaid or assumed at the date of acquisition plus, in the case of DBA, a subsequent purchase price adjustment in October 1997. As part of these strategic acquisitions, the Company has incurred various acquisition-related charges to operations, consisting of: 1) $10.0 million in 1996 in connection with the acquisition of Digital Directory Assistance, 2) $56.1 million in 1997 in connection with the acquisitions of the DBA and Pro CD, and 3) $10.1 million in 1998 in connection with the acquisitions of Walter Karl and JAMI marketing and for certain internal restructuring charges. In addition, the Company expects to amortize goodwill and other intangibles over periods of 1 to 15 years in connection with acquisitions completed since mid-1996. The Company's results for 1997 do not include the operations of Walter Karl or JAMI Marketing. In connection with future acquisitions, the Company expects that it will be required to incur additional acquisition-related charges to operations and to amortize additional amounts of goodwill and other intangibles over future periods. While there are currently no binding commitments with respect to any particular future acquisitions, the Company frequently evaluates the strategic opportunities available to it and intends to pursue strategic acquisitions of complementary products, technologies or businesses that it believes fit its business strategy. 6 7 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's statement of operations data expressed as a percentage of net sales. The amounts and related percentages may not be fully comparable due to the acquisition of Digital Directory Assistance (DDA) in August 1996, County Data Corporation (CDC) and Marketing Data Systems in November 1996, BJ Hunter in December 1996, the Database America Companies (DBA) in February 1997, Pro CD in August 1997, Walter Karl in March 1998 and JAMI Marketing Services (JAMI) in June 1998:
YEAR ENDED DECEMBER 31, ------------------------- 1998 1997 1996 ------ ------ ------ CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ........................................................ 100% 100% 100% Costs and expenses: Database and production costs .................................. 29 29 27 Selling, general and administrative ............................ 51 41 42 Depreciation and amortization .................................. 12 18 16 Provision for litigation settlement ............................ 2 -- -- Acquisition costs .............................................. 1 1 -- In-process research and development ............................ 2 28 9 Restructuring charges .......................................... 1 -- -- ------ ------ ------ Total costs and expenses ............................... 98 117 94 ------ ------ ------ Operating income (loss) .......................................... 2 (17) 6 Other income, net ................................................ 2 -- 2 ------ ------ ------ Income (loss) before income taxes and discontinued operations .... 4 (17) 8 Income taxes ..................................................... 3 4 3 ------ ------ ------ Income (loss) from continuing operations ......................... 1 (21) 5 Loss on discontinued operations and abandonment of subsidiary .... -- -- 1 ------ ------ ------ Net income (loss) ................................................ 1% (21)% 4% ====== ====== ====== EBITDA, as adjusted(1) ........................................... 15% 29% 31% ====== ====== ====== Other Data: Sales by Segment: Small business ................................................. $130.0 $116.3 $ 87.4 Large business ................................................. 98.7 77.0 20.9 ------ ------ ------ Total .................................................. $228.7 $193.3 $108.3 ====== ====== ====== Sales by Segment as a Percentage of Net Sales: Small business ................................................. 57% 60% 81% Large business ................................................. 43 40 19 ------ ------ ------ Total .................................................. 100% 100% 100% ====== ====== ======
- ---------- (1) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to exclude depreciation, amortization of intangible assets, provision for litigation settlement and acquisition-related and restructuring charges. EBITDA, as adjusted, is presented because it is a widely accepted indicator of a company's ability to incur and service debt and of the Company's cash flows from operations excluding any non-recurring items. However, EBITDA, as adjusted, does not purport to represent cash provided by operating activities as reflected in the Company's consolidated statements of cash flows, is not a measure of financial performance under generally accepted accounting principles ("GAAP") and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to similar measures reported by other companies. 7 8 1998 COMPARED TO 1997 Net Sales For 1998 net sales were $228.7 million, a 18% increase from $193.3 million in 1997. Net sales of the small business segment were $130.0 million, a 12% increase from $116.3 million in 1997. Included in the small business segment are sales of sales leads generation products and consumer CD-ROM products. Factors contributing to an increase in net sales of sales lead generation products included: the enhancement of existing and development of new sales lead generation products, the increase in the number of mailing pieces mailed from 30.0 million during 1997 to 38.7 million during 1998, and the acquisitions of DBA, Pro CD, and Contacts Target Marketing during 1997 and 1998. Average net sales per mailing piece declined from $6.55 per piece in 1997 to $5.75 in 1998. The principal reason for the decline in average sales per mailing piece is that during 1998, the Company increased the pieces mailed to test various markets and new product lines. The market tests did not result in significant incremental net sales. Net sales of consumer CD-ROM products for 1998 were $19.5 million, an 11% decrease from $21.7 million for 1997. The decrease in consumer CD-ROM product net sales reflects an increase in estimates for reserves of $2.7 million during 1998 related to product returns. Due to a decline in general market conditions and demand for the product, the Company experienced significant product returns during the second and third quarters of 1998. Therefore the reserve for returns was adjusted accordingly. The change in the reserve for returns related primarily to sales that occurred during the second and third quarters of 1998. The decline in market conditions and demand for the product have continued to remain low therefore sales are expected to remain at a decreased level. Net sales of the large business segment were $98.7 million, a 28% increase from $77.0 million in 1997. Included in the large business segment are sales of data processing services. Net sales of data processing services for 1998 were $62.3 million, a 45% increase from $42.7 million for 1997. The increase is principally the result of the acquisition of DBA in February 1997, Walter Karl in March 1998 and JAMI Marketing in June 1998. Additionally, during 1998, the Company entered into Internet licensing agreements totaling approximately $7.8 million compared to $4.8 million in 1997. The Company recorded sales to a significant data processing services customer totaling $14.6 million during 1998, representing 6% of total net sales. Sales to this customer occurred evenly during the year. During 1998, the customer notified the Company that it intends to perform the same processing in-house. As a result, sales of data processing services in 1999 may decline from 1998 levels. Database and Production Costs For 1998, database and production costs were $66.3 million, or 29% of net sales, compared to $55.1 million, or 29% of net sales for 1997. The Company produces, markets and sells an annual consumer CD-ROM product line consisting in excess of twenty separate titles. Each product line is customarily released during the third quarter of each fiscal year. The 1999 product line was released during the third quarter of 1998. During 1998, the Company produced units of the 1998 product line that exceeded actual sales. The write-down of $0.9 million was equal to the recorded costs for the 1998 product line which became obsolete as a result of the release of the 1999 product line during the third quarter of 1998. Selling, General and Administrative Expenses Selling, general and administrative expenses for 1998 were $117.7 million, or 51% of net sales, compared to $80.2 million, or 41% of net sales for 1997. The increase in selling, general and administrative expenses, representing 10% of net sales, is principally the result of the following items: 1) increase in estimates for reserves for bad debts of $3.5 million, 2) increase in estimates for reserves related to price protection and cooperative advertising for consumer CD-ROM products of $5.3 million, 3) decrease in estimated benefit period related to deferred advertising costs of $2.7 million, and 4) $0.6 million related to executive severance costs. The charges described above accounted for approximately one-half of the increase in selling, general and administrative expenses, expressed as a percentage of net sales. During the third quarter 1998, the Company modified the estimated benefit period related to deferred advertising costs from 12 months to 6 months. The Company updated its study of sales and responses derived from its direct marketing campaigns during the third quarter of 1998. This study was based upon specific evaluations of sales responses from specific direct marketing campaigns. Due to changes in mailing patterns, management was able to determine that the Company's catalogs generated sales for approximately 6 months after the mail date rather than 12 months. 8 9 During late 1997 and early 1998, the Company ramped-up its sales force anticipating a targeted incremental increase in net sales. The Company subsequently did not achieve the targeted incremental increase in net sales. During the third quarter of 1998, the Company enacted certain cost reduction measures as described in the section "Acquisition-related and Restructuring Charges" to counter prior measures taken. Salaries and wages principally related to the sales force accounted for approximately one-half of the increase in selling, general and administrative expenses, expressed as a percentage of net sales. Due to a decline in general market conditions and demand for the consumer CD-ROM product, the Company experienced significant product returns during the second and third quarters of 1998. In addition, the Company issued additional price protection due to the decline in demand. The change in reserve related primarily to sales of consumer CD-ROM products that occurred during the second and third quarters of 1998. Depreciation and Amortization Expenses Depreciation and amortization expenses for 1998 were $27.5 million, or 12% of net sales, compared to $34.4 million, or 18% of net sales for 1997. Amortization of acquired database costs and purchased data processing software associated with the acquisition of the DBA in February 1997 totaled $6.3 million and $21.7 million for 1998, and 1997, respectively. Excluding amortization on acquired database costs and purchased data processing software associated with the acquisition of DBA in February 1997, depreciation and amortization expenses were $21.1 million and $12.7 million for 1998 and 1997, respectively. The increase relates primarily to amortization of intangibles for acquisitions recorded since June 1997, including Pro CD in August 1997, Walter Karl in March 1998, and JAMI in June 1998. Provision for Litigation Settlement The Company recorded a provision for litigation settlement of $4.5 million, or 2% of net sales, during the third quarter of 1998 related to a dispute centered around a license agreement between DBA and Experian Information Solutions, Inc. prior to the Company's acquisition of DBA in February 1997. Acquisition Costs During 1998, the Company recorded charges totaling $3.6 million, or 1% of net sales, consisting of $3.0 million of costs associated with the Company's bid to acquire Metromail Corporation and $0.6 million associated with the Company's offering to sell Common Stock which was not completed. During 1997, the Company recorded $2.6 million of acquisition costs, or 1% of net sales, related to integrating acquired operations into the Company's existing operations. These expenses consisted primarily of costs such as travel between the Company and the new operations, consulting, payroll and other expenses related to implementing Company policies and information systems at the new locations. All costs had been incurred by December 31, 1997. In-Process Research and Development During 1998, the Company recorded a write-off of acquired in-process research and development of $3.8 million, or 2% of net sales, in connection with the acquisition of Walter Karl. A portion of the purchase price for this acquisition was attributed to the value of the IPR&D projects and was expensed in accordance with Statement of Financial Accounting Standards (SFAS) No. 2, "Accounting for Research and Development Costs." The Company believes its accounting for purchased IPR&D was made in accordance with generally accepted accounting principles and valuation practices at the time of the related acquisitions. The total amount allocated to the purchased IPR&D recorded in connection with the acquisition of Walter Karl was $3.8 million after retroactive application of the Securities and Exchange Commission's new guidelines for valuing purchased IPR&D. The Company obtained an independent valuation of the purchased IPR&D. The income valuation approach was used to determine the fair value of the IPR&D projects acquired from Walter Karl. Under the income approach, the fair value reflects the present value of the projected cash flow that will be generated by the IPR&D projects if successfully completed. The income approach focuses on the income producing capability of the acquired IPR&D, which the Company believes it represents the present value of the future 9 10 economic benefits expected to be potentially derived from these projects. As of the valuation dates, the acquired IPR&D projects had not demonstrated technological nor economic feasibility. As a result, the attainability of the income projections is subject to three risk factors: project risk, product risk, and market risk. Project risk reflects the degree to which the project can be feasibly completed and will perform upon its completion in the manner specified. Project risk is dependent upon the development phase of the project as of the acquisition date. Under this premise, the closer the project is to completion, the more likely that the project will reach a successful conclusion. Product risk refers to the concept that these products will be able to produce commercially viable products and services. This factor can be assessed based upon past management experience in the development of new products or services and success of those past ventures. Whether the development required a significant technological or process change was also considered. For a product or service which is similar to other products or services, the risk factor associated is low. Market risk refers to the concept that these products will be demanded by the market upon their completion. Market risk is based upon information that indicates the degree to which the market will demand a product or service that provides the functionality specified. Without the successful completion of the remaining development efforts, the end result would be to fail to introduce new products. A discount of 30% was applied to reflect these risks associated with the projected cash flow to be generated by the acquired IPR & D projects. The descriptions of the projects related to Walter Karl are as follows: o Internet F/E to M204 is a list fulfillment system which interfaces with the Internet to request orders. o M204 Shipping Interface automates shipping and generates the ability to setup shipping destination information as well as allow for the tracking of shipments throughout out its journey to the final destination. o List Brokerage & Management Order is a new order entry system for list fulfillment. o Global Database Update refers to a project that will create a new updated database for the client, Global. o Arandel System Postal/Inkjet allows for postal information to be formatted for Inkjet specifications. o Paul Fredrick/Garden Botanika Reporting provides new reporting and database retrieval for the client Paul Fredrick/Garden Botanika. o Chilean Database is a project for a Chilean organization which consists of creating a new database with additional information. o Datacard System allows for the integration with the List Brokerage & Management Order System for rental lists. o Inkjet Utilities will generate a different layout for Inkjet specifications and the project will also allow for new audit reporting. o Flowers Response Analysis is a project that will attempt to increase the database response time of the client, Flowers. o Data Entry System will allow for LAN data entry of additional information. A description of the stage of completion as well as the methodology employed is listed below for each IPR&D project related to Walter Karl; the stage of completion of each project was determined by examining the ratio of R&D expenses as of the acquisition date to total R&D costs (incurred and projected).
------------------------------------------------------------------------------------------------- IPR&D PROJECTS STAGE OF COMPLETION SCHEDULED BETA TEST DATE ------------------------------------ ------------------------------- ---------------------------- Internet F/E to M204 MIDDLE OF THE DESIGN PHASE JUNE 1998 ------------------------------------ ------------------------------- ---------------------------- M204 Shipping Interface DESIGN PHASE UNKNOWN - DELAYED ------------------------------------ ------------------------------- ---------------------------- List Brokerage & Mgt. Order EARLY DESIGN PHASE DECEMBER 1998 ------------------------------------ ------------------------------- ---------------------------- Global Database Update EARLY DESIGN PHASE AUGUST 1998 ------------------------------------ ------------------------------- ---------------------------- ArandalSystem Postal/InkJet DESIGN PHASE UNKNOWN - DELAYED ------------------------------------ ------------------------------- ---------------------------- Paul Fredrick DESIGN PHASE UNKNOWN - DELAYED ------------------------------------ ------------------------------- ---------------------------- Chilean Database DESIGN PHASE OCTOBER 1998 ------------------------------------ ------------------------------- ---------------------------- Datacard System DESIGN PHASE APRIL 1998 ------------------------------------ ------------------------------- ---------------------------- InkJet Utilities LATE STAGES OF DESIGN PHASE MAY 1998 ------------------------------------ ------------------------------- ---------------------------- Flowers Response analysis LATE STAGES OF DESIGN PHASE APRIL 1998 ------------------------------------ ------------------------------- ---------------------------- Data Entry System LATE STAGES OF DESIGN PHASE APRIL 1998 ------------------------------------ ------------------------------- ----------------------------
10 11 The stage of completion for each project was determined by using the formula: person years completed on R&D/Total person years of R&D effort. Below is a chart outlining the stage of completion for each project.
-------------------------------------------------------------------------------------------------------------------- IPR&D Project R&D Person Years Person Years Total R&D Percentage of Completed as of Remaining Person Years Completion Valuation Date ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Internet F/E to M204 .25 .50 .75 33% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ M204 Shipping Interface .50 .25 .75 67% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ List Brokerage & Mgt. Order .50 1.0 1.5 33% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Global Database Update .10 .50 .60 17% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ ArandalSystem Postal/InkJet .25 .50 .75 33% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Paul Fredrick .75 .50 1.25 60% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Chilean Database .10 .50 .60 17% ------------------------------------- ----------------------- ----------------- ----------------- ----------------- Datacard System 1.0 .20 1.2 83% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ InkJet Utilities .50 .20 .70 71% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Flowers Response Analysis .10 .10 .20 50% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Data Entry System .50 .10 .60 83% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ ------------------------------------- ----------------------- ----------------- ----------------- ------------------ Total 4.80 4.35 9.15 52% ------------------------------------- ----------------------- ----------------- ----------------- ------------------ ------------------------------------- ----------------------- ----------------- ----------------- ------------------
In regards to Walter Karl, product and market notes for each product are outlined in the following table.
------------------------------------------------------------------------------------------------- IPR&D PROJECT PROJECT RISK PRODUCT RISK MARKET RISK ------------------------------------- ----------------------- ----------------- ----------------- Internet F/E to M204 Low Low Medium ------------------------------------- ----------------------- ----------------- ----------------- M204 Shipping Interface Low to Medium Low to Medium Low ------------------------------------- ----------------------- ----------------- ----------------- List Brokerage & Mgt. Order Low Low Medium ------------------------------------- ----------------------- ----------------- ----------------- Global Database Update Medium Low High ------------------------------------- ----------------------- ----------------- ----------------- ArandalSystem Postal/InkJet Medium Low High ------------------------------------- ----------------------- ----------------- ----------------- Paul Fredrick Low to Medium Low High ------------------------------------- ----------------------- ----------------- ----------------- Chilean Database Medium Low High ------------------------------------- ----------------------- ----------------- ----------------- Datacard System Low Low to Medium Low ------------------------------------- ----------------------- ----------------- ----------------- InkJet Utilities Low Low Medium ------------------------------------- ----------------------- ----------------- ----------------- Flowers Response Analysis Low Low High ------------------------------------- ----------------------- ----------------- ----------------- Data Entry System Low Low Low -------------------------------------------------------------------------------------------------
See discussion of 1997 compared to 1996 for information on IPR&D charges recorded during 1997. Restructuring Charges During 1998, the Company recorded restructuring charges totaling 2.6 million, or 1% of net sales. During the first quarter of 1998, the Company recorded a restructuring charge of $1.4 million related to the closing of the CDC new business compilation and sales center and moving these operations from Vermont to Nebraska. All 45 of the CDC employees were terminated, and severance recorded totaled $0.6 million. The restructuring charges also included lease termination costs of $0.3 million and a write-off of $0.5 million of leasehold improvement costs associated with the closed Vermont facility. The restructuring, including recording the payments and write-downs described, was completed by September 30, 1998. During the third quarter of 1998, the Company recorded a restructuring charge of $1.2 million which included $0.6 million in severance for 244 employees terminated as a result of the implementation of certain cost reduction measures. These employees were primarily in support and administration positions but some under-performing sales personnel were also terminated. The restructuring 11 12 charges also included $0.4 million related to the planned closing of four field sales offices. Additionally, the Company recorded a write-down of $0.2 million related to leasehold improvement costs at facilities leased by the Company which were being closed. The restructuring, including recording the payments and write-downs described, was completed as of December 31, 1998, with the exception of the costs totaling $0.4 million related to the planned exit of certain field sales offices which are anticipated to be completed by March 31, 1999. Operating Income (Loss) Including the factors previously described, the Company had operating income of $2.6 million, or 2% of net sales for 1998, as compared to an operating loss of $(32.5) million, or (17)% of net sales for 1997. Operating income for the small business segment for 1998 was $54.7 million, or 42% of net sales, as compared to $50.5 million, or 43% of net sales for the comparable period. Factors contributing to the decrease in operating income as a percentage of net sales are described in the section "Selling, general and administrative expenses." See Note 20 of the notes to the accompanying Consolidated Financial Statements for additional information. Operating income for the large business segment for 1998 was $39.7 million, or 40% of net sales, as compared to $35.7 million, or 46% of net sales for the comparable period. Factors contributing to the decrease in operating income as a percentage of net sales are described in the section "Selling, general and administrative expenses." Additionally, the Company acquired Walter Karl and JAMI Marketing during 1998. Walter Karl and JAMI Marketing perform list brokerage services, which traditionally have lower profit margins than services associated with the Company's data processing services. See Note 20 of the notes to the accompanying Consolidated Financial Statements for additional information. Other Income (Expense), Net Other income (expense), net for 1998 and 1997 was $5.5 million and $(0.4) million, respectively. During the second quarter of 1998, the Company realized a gain of $16.5 million on the disposition of its holdings in Metromail Corporation common stock. This realized gain was partially offset during the second quarter of 1998 when the Company recorded a loss of $2.0 million on the write-off of an investment. The increase in interest expense to $9.2 million from $4.1 million is primarily attributable to the issuance of senior subordinated notes during 1998, of which $115 million was outstanding at December 31, 1998. During the first quarter of 1997, the Company made an investment of $2.0 million in preferred stock of an issuer, representing less than 20% of the issuer's outstanding stock. During 1998 the issuer commenced a reorganization and sought funding from other outside investors, diluting the Company's investment in this entity to a nominal value. Additionally, the Company obtained knowledge that the issuer was incurring significant losses and the intended line of business of this start-up entity had significantly changed. Accordingly, the Company wrote-off this investment, which was accounted for on a cost basis, during the second quarter of 1998. Income Taxes A provision for income taxes of $5.9 million and $7.0 million was recorded for 1998, and 1997, respectively. Acquisition-related charges of $3.8 million and $49.2 million were included in income before income taxes during 1998 and 1997, respectively, but are not deductible for tax purposes. The provision for these periods also reflect the inclusion of amortization on certain intangibles in taxable income not deductible for tax purposes. EBITDA, As Adjusted Excluding the purchased in-process research and development charges previously described, the Company's EBITDA, as adjusted, was $33.9 million, or 15% of net sales, during 1998, compared to $55.4 million, or 29% of net sales, during 1997. 1997 COMPARED TO 1996 Net Sales Net sales for 1997 were $193.3 million, a 79% increase from $108.3 million in 1996. Of this increase, approximately $54.4 million were attributable to the net sales of DBA for the period from February 1, 1997, the date of acquisition, through December 31, 1997. In addition, net sales in 1996 and 1997 also increased as a result of acquisitions completed in the third and fourth quarters of 1996. Net sales of the small business segment were $116.3 million, a 33% increase from $87.4 million in 1996. Included in the small business segment are sales of sales leads generation products and consumer CD-ROM products. The increase in small business 12 13 segment sales is directly attributable to the acquisitions of Digital Directory Assistance, County Data Corporation, BJ Hunter, DBA and Pro CD during 1996 and 1997. Net sales of consumer CD-ROM products for 1997 were $21.7 million, a 56% increase from $13.9 million in 1996. This increase was primarily attributable to the acquisitions of Digital Directory Assistance in August 1996 and Pro CD in August 1997. Net sales of the large business segment were $77.0 million, a 268% increase from $20.9 million in 1996. Included in the large business segment are sales of data processing services. Net sales of data processing services for 1997 were $42.7 million, as compared to $4.6 million in 1996. This increase is directly attributable to the acquisitions of DBA and Marketing Data Systems. Database and Production Cost Database and production costs for 1997 were $55.1 million, an 88% increase from $29.3 million in 1996. These costs constituted 29% of net sales in 1997 and 27% of net sales in 1996. The increase as a percentage of net sales was the result of higher database and production costs associated with sales of data processing services and CD-ROM products. As previously noted, net sales of data processing services for 1997 were $42.7 million, as compared to $4.6 million in 1996. Selling, General and Administrative Expenses Selling, general and administrative expenses for 1997 were $80.2 million, a 75% increase from $45.8 million in 1996. These expenses constituted 41% of net sales in 1997 and 42% as a percentage of net sales in 1996. This decrease as a percentage of net sales was the result of the increase in net sales of data processing services from 4% of total net sales in 1996 to 22% of total net sales in 1997. Since 1996, the overall increase in selling, general and administrative expenses as a percentage of net sales has been offset by the overall increase in the sales of data processing services and CD-ROM products, which bear a slightly lower selling, general and administrative cost margin than the same margin associated with the net sales of sales lead generation products. Depreciation and Amortization Expenses Depreciation and amortization expenses for 1997 were $34.4 million, as compared to $16.4 million in 1996. These expenses constituted 18% of net sales in 1997, and 16% of net sales in 1996. Of such increases, $21.7 million represented amortization of acquired database costs and purchased data processing costs related to the acquisition of DBA, which are being amortized over lives of one or two years. The remaining increase reflects additional depreciation on property and equipment additions and amortization of intangibles for certain other acquisitions recorded since July 1996. The increase was partially offset by changes in estimated lives. In the third quarter of 1996, the Company completed its evaluation of the remaining useful lives of certain intangible assets created through a series of acquisitions between 1990 and 1994. While each of these acquisitions consisted of "original" compilers and/or value added resellers, none of the purchased databases were retained, many of the trade names have been discontinued and, in most instances, the operations restructured so as to be unrecognizable at this point in time. For the most part, these acquisitions were "market share" acquisitions for what now has become short term periods which brought us through a growth period in the early 1990s. The Company's operations and market focus have changed over the years such that any intangibles related to markets, trade name or distribution channel virtually disappeared. This occurred as a natural evolution of the Company's business. Based on this evaluation, it was evident that the business and distribution networks acquired changed more rapidly than was originally estimated. Therefore, the estimated useful lives of the related goodwill and distribution networks were revised to 8 and 2 years, from 30 and 15 years, respectively. This change in estimated lives resulted in a charge of $11.5 million in 1996. Net income and earnings per share for 1996 were reduced due to the charge by $7.1 million and $0.17, respectively. Additionally, future annual amortization is expected to increase over the prior annual amortization amounts by approximately $672,000 through 1998. Acquisition Costs Included in acquisition-related charges for 1997 are $2.6 million of expenses related to integrating acquired operations into the Company's existing operations. These expenses consisted primarily of costs such as travel between the Company and the new operations, consulting, payroll and other expenses related to implementing Company policies and information systems at the new locations. All costs had been incurred by December 31, 1997. 13 14 In-process Research and Development During 1997, the Company recorded write-offs of acquired IPR&D totaling 53.5 million, or 28% of net sales, including charges of $49.2 million and $4.3 million in connection with the acquisitions of DBA and Pro CD, respectively. During 1996, the Company recorded writeoffs of acquired IPR&D of $10.0 million in connection with the acquisition of Digital Directory Assistance. A portion of the purchase price for these acquisitions was attributed to the value of the IPR&D projects and was expensed in accordance with Statement of Financial Accounting Standards (SFAS) No. 2, "Accounting for Research and Development Costs." The Company believes its accounting for purchased IPR&D was made in accordance with generally accepted accounting principles and valuation practices at the time of the related acquisitions. The Company obtained independent valuations of the purchased IPR&D. The income valuation approach was used to determine the fair value of the IPR&D projects acquired from DDA, DBA and Pro CD. Under the income approach, the fair value reflects the present value of the projected cash flow that will be generated by the IPR&D projects if successfully completed. The income approach focuses on the income producing capability of the acquired IPR&D, which the Company believes represents the present value of the future economic benefits expected to be potentially derived from these projects. As of the valuation dates, the acquired IPR&D projects had not demonstrated technological nor economic feasibility. As a result, the attainability of the income projections is subject to project risk, product risk and market risk. Project risk reflects the degree to which the project can be feasibly completed and will perform upon its completion in the manner specified. Project risk is dependent upon the development phase of the project as of the acquisition date. Under this premise, the closer the project is to completion, the more likely that the project will reach a successful conclusion. Product risk refers to the concept that these products will be able to produce commercially viable products and services. This factor can be assessed based upon past management experience in the development of new products or services and success of those past ventures. Whether the development required a significant technological or process change was also considered. For a product or service which is similar to other products or services, the risk factor associated is low. Market risk refers to the concept that these products will be demanded by the market upon their completion. Market risk is based upon information that indicates the degree to which the market will demand a product or service that provides the functionality specified. . Without the successful completion of the remaining development efforts, the end result would be to fail to introduce new products. A discount ranging from 24% to 30% was applied to reflect these risks associated with the projected cash flow to be generated by the acquired IPR&D projects. The stage of completion of the projects is not used in the determination of the value of IPR&D under a discounted cash flow approach. However, the remaining costs to complete each product were subtracted from the corresponding projected profits thereby intrinsically incorporating the level of completion effort. The $10 million charge for Digital Directory Assistance (DDA) represents the fair value of DDA's DVD-ROM (Digital Video Disc - Read Only Memory) database technology. The creation of a new search engine, the retrieval component and the display component of the database software technology were approximately ninety percent complete. The data layout, mapping and interface components were approximately fifty percent complete and final completion was pending access to the newly developed DVD player (hardware). Once the player was competed, an additional two months time was estimated to be necessary to integrate the software with the hardware and the testing phase could then be accomplished. This project was expected to be completed and was completed in 1997. The percentages of completion were determined by milestone achievement towards beta release. The $49.2 million charge for DBA relates to $46.9 million for interactive media products and services and $2.3 million for data processing technologies. Interactive media products included technology that would allow a customer to: access the Company's web site and download profile information on a particular business, company or individual for a per-access charge; "enrich" or "enhance" their list by matching it to the Company's via the internet; and allow the list to reside at the Company, while via the internet the customer will be "flagged" or notified of any updates to the information contained in the list. This project was in the early stages of development and was approximately 5-10% complete at acquisition. The ability to forecast project completion was not reasonable as the technological developments had not achieved a stage of feasibility as of January 31, 1997. Stage of completion was not assessed for this technology. The company had dedicated two engineering software technicians for the development of this technology concentrating on the development of the company's web-site prior to acquisition. These technologies were completed during 1998. During 1998, these functions were completed and have been utilized since that point in time to provide additional capabilities to customers . The new data processing technologies include merge/purge abilities, update and maintenance capabilities of relational databases, improved delivery systems and upgraded billing/accounting systems. 14 15 The $4.3 million charge related to Pro-CD includes the following projects: Graphical user interface technology represented $1.5 million of the charge. This project involved integrating certain features and functions of SelectPhone and Phonedisc graphical user interfaces into a common interface. The estimated costs at acquisition to complete the project were $3.1 million, with completion estimated for 1999. Database re-engineering, including process modification and restructuring records, of the SelectPhone product in order to accommodate consumer and business files accounted for $2.1 million of the charge. Additional elements were also expected to be added to enhance the SelectPhone product's competitive position. The estimated costs to complete were $5.5 million at acquisition through 2002. Applying DVD compact disc technology to the SelectPhone product line represented $0.5 million of the charge. The estimated costs to complete the project at acquisition was $0.2 million with expected completion in 1999. Finally, $0.2 million was charged relating to the extensive evaluation and correction for year 2000 date processing compliance of the SelectPhone product line. This assessment included the user interface as well as the product database. The estimated costs to complete was $0.4 million at acquisition with completion scheduled for 1998. IPR&D was a critical factor for the Company in making these acquisitions and timely completion of these projects was an equally important consideration. The time completion was expected to give the Company a competitive edge in its competition and solidify its position as a leader in the business-to-business marketing information field. A major risk of not completing these projects timely, would be the risk of losing customers on a medium to long term basis and allow a competitor to provide a solution that may include these technically advanced and value added features. A major risk of not completing these projects timely, would be the risk of losing customers on a medium to long term basis and allow a competitor to provide a solution that may include these technically advanced and value added features. Operating Income (Loss) As a result of the factors previously described, the Company had an operating loss of $(32.5) million, or (17)% of net sales in 1997, as compared to operating income of $6.9 million, or 6% of net sales in 1996. Excluding the effect of the amortization and acquisition-related charges previously described, the Company would have had operating income of $45.3 million, or 24% of net sales, in 1997, and operating income of $28.4 million, or 26% of net sales, in 1996. Operating income for the small business segment for 1997 was $50.5 million, or 43% of net sales, as compared to $38.0 million, or 43% of net sales for the comparable period. See Note 20 of the notes to the accompanying consolidated financial statements for additional information. Operating income for the large business segment for 1997 was $35.7 million, or 46% of net sales, as compared to $9.9 million, or 47% of net sales for the comparable period. The decrease in operating income as a percentage of net sales is attributable to the acquisition of DBA during 1997. DBA products and services have lower profit margins than the traditional products associated with the Company's large business segment. See Note 20 of the notes to the accompanying consolidated financial statements for additional information. Other Income (Expense), Net Other income (expense), net for 1997 was $(0.4) million, as compared to $2.0 million in 1996. This decrease was primarily attributable to interest expense incurred on a revolving credit facility, of which $78.0 million was outstanding at December 31, 1997. The Company did not have a credit facility at December 31, 1996. 15 16 Income Taxes A provision for income taxes of $7.0 million and $3.4 million was recorded for 1997 and 1996, respectively. A provision was recorded on a pretax loss in 1997 due to non-deductible acquisition related charges and amortization of certain intangibles. EBITDA, As Adjusted Excluding the purchased in-process research and development charges previously described, the Company's EBITDA, as adjusted, was $55.4 million or 29% of net sales in 1997, and $33.3 million or 31% of net sales in 1996. 16 17 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item (other than selected quarterly financial data which is set forth below) is incorporated by reference to the Consolidated Financial Statements set forth on pages F-1 through F-24 of this Form 10-K. The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, 1998. This information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with the Company's audited consolidated financial statements and the notes thereto.
1998 1997 QUARTER ENDED QUARTER ENDED -------------------------------------------------- --------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 ---------- --------- ------------ ----------- -------- ------- ------------ ----------- STATEMENT OF OPERATIONS DATA: Net sales .................... $ 55,380 $ 62,076 $ 55,072 $ 56,150 $ 41,948 $47,008 $ 50,555 $ 53,816 Costs and expenses: Database and production costs ...................... 15,405 16,086 17,978 16,850 11,415 13,111 14,148 16,416 Selling, general and administrative ............. 23,394 27,103 41,199 26,028 17,986 20,079 21,331 20,807 Depreciation and amortization ............... 6,870 6,384 7,824 6,394 6,356 9,056 8,985 10,018 Provision for litigation settlement(1) .............. -- -- 4,500 -- -- -- -- -- Acquisition costs(2) ....... 3,243 400 -- -- 2,598 -- -- -- In-process research and development(3) ............ 3,834 -- -- -- 49,200 -- 4,300 -- Restructuring charges(4).... 1,400 -- 1,216 -- -- -- -- -- ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Operating income (loss) ...... 1,234 12,103 (17,645) 6,878 (45,607) 4,762 1,791 6,575 Other income (expense), net ......................... (283) 13,233 (2,869) (4,613) 42 41 (257) (176) ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Income (loss) before income taxes ................ 951 25,336 (20,514) 2,265 (45,565) 4,803 1,534 6,399 Income taxes ................. 2,058 9,964 (7,115) 973 1,631 1,893 775 2,688 ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Net income (loss) ............ $ (1,107) $ 15,372 $ (13,399) $ 1,292 $(47,196) $ 2,910 $ 759 $ 3,711 ========== ========= ============ =========== ======== ======= ============ =========== Basic earnings (loss) per share ....................... $ (0.02) $ 0.31 $ (0.27) $ 0.03 $ (1.02) $ 0.06 $ 0.02 $ 0.08 ========== ========= ============ =========== ======== ======= ============ =========== Weighted average shares outstanding ................. 49,395 49,607 49,360 49,301 46,412 48,678 48,774 48,848 ========== ========= ============ =========== ======== ======= ============ =========== Diluted earnings (loss) per share ................... $ (0.02) $ 0.30 $ (0.27) $ 0.03 $ (1.00) $ 0.06 $ 0.02 $ 0.07 ========== ========= ============ =========== ======== ======= ============ =========== Weighted average shares outstanding ................. 49,395 51,226 49,360 49,334 47,298 49,461 50,273 49,945 ========== ========= ============ =========== ======== ======= ============ =========== AS A PERCENTAGE OF NET SALES: Net sales .................... 100% 100% 100% 100% 100% 100% 100% 100% Costs and expenses: Database and production costs ...................... 28 26 33 30 27 28 28 31 Selling, general and administrative ............. 42 44 75 46 43 43 42 39 Depreciation and amortization ............... 12 10 14 11 15 19 18 18 Provision for litigation settlement ................. -- -- 8 -- -- -- -- -- Acquisition costs .......... 6 1 -- -- 6 -- -- -- In-process research and development ............... 7 -- -- -- 117 -- 9 -- Restructuring charges ...... 2 -- 2 -- -- -- -- -- ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Operating income (loss) ..................... 2 19 (32) 12 (109) 10 4 12 Other income (expense), net ......................... (1) 21 (5) (8) -- -- (1) -- ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Income (loss) before income taxes ................ 2 41 (37) 4 (109) 10 3 12 Income taxes ................. 4 16 (13) 2 4 4 2 5 ---------- --------- ------------ ----------- -------- ------- ------------ ----------- Net income (loss) ............ (2)% 25% (24)% 2% (113)% 6% 2% 7% ========== ========= ============ =========== ======== ======= ============ ===========
- ---------- 17 18 (1) During 1998, includes $4.6 million in damages awarded to Experian Information Solutions, Inc. in connection with arbitration of a contractual dispute. (2) Includes in 1998 the following acquisition costs: 1) $3.0 million of costs associated with the Company's bid to acquire Metromail Corporation, 2) $0.6 million associated with the Company's offering to sell Class A Common Stock which was not completed. Includes in 1997 restructuring costs of $2.6 million associated with the acquisitions of DBA and Pro CD. (3) Includes charges related to purchases for in-process research and development costs associated with the acquisitions of Walter Karl, Inc. of $3.8 million (1998), DBA Holdings, Inc. ("DBA") of $49.2 million (1997), and Pro CD of $4.3 million (1997). (4) Includes in 1998 the following restructuring charges: 1) $1.4 million for restructuring costs related to the Company's compilation and sales activities for new businesses, and 2) $1.2 million for restructuring costs related to certain costs reduction measures enacted by the Company. 18 19 infoUSA INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS infoUSA Inc. and Subsidiaries: Independent Auditors' Reports.............................................................. 20 Consolidated Balance Sheets as of December 31, 1998 and 1997............................... 22 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996...................................................................................... 23 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996....................................................................... 24 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.................................................................................. 25 Notes to Consolidated Financial Statements................................................. 26 Schedule II-- Valuation and Qualifying Accounts............................................ 40
19 20 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors infoUSA Inc.: We have audited the accompanying consolidated balance sheet of infoUSA Inc. and subsidiaries as of December 31, 1998, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1998 consolidated financial statements referred to above present fairly, in all material respects, the financial position of infoUSA Inc. and subsidiaries as of December 31, 1998 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. /s/ KPMG Peat Marwick LLP ------------------------- KPMG PEAT MARWICK LLP Omaha, Nebraska January 22, 1999 20 21 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors infoUSA Inc.: We have audited the accompanying consolidated balance sheet of infoUSA Inc. and subsidiaries (formerly American Business Information, Inc.) as of December 31, 1997, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the two years in the period ended December 31, 1997. We have also audited the financial statement schedule listed in Item 14 in this Form 10-K for each of the two years in the period ended December 31, 1997. These consolidated financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of infoUSA Inc. and subsidiaries (formerly American Business Information, Inc.) as of December 31, 1997 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ PricewaterhouseCoopers LLP ------------------------------ COOPERS & LYBRAND L.L.P. Omaha, Nebraska January 23, 1998 21 22 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ ASSETS Current assets: Cash and cash equivalents ................................................. $ 29,603 $ 10,653 Marketable securities ..................................................... 20,620 24,045 Trade accounts receivable, net of allowances of $7,289 and $6,013, Respectively ............................................................ 40,126 49,409 List brokerage trade accounts receivable .................................. 17,831 -- Income taxes receivable ................................................... 3,387 345 Prepaid expenses .......................................................... 2,371 3,475 Deferred marketing costs .................................................. 4,365 3,417 ------------ ------------ Total current assets .................................................. 118,303 91,344 ------------ ------------ Property and equipment, net ............................................... 40,264 25,117 Intangible assets, net of accumulated amortization ........................ 109,378 73,741 Deferred income taxes ..................................................... -- 1,410 Other assets .............................................................. 2,828 3,299 ------------ ------------ $ 270,773 $ 194,911 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ......................................... $ 1,580 $ 716 Payable to shareholders ................................................... -- 1,871 Accounts payable .......................................................... 7,226 9,426 List brokerage trade accounts payable ..................................... 18,847 -- Accrued payroll expenses .................................................. 2,830 4,910 Accrued expenses .......................................................... 12,465 5,406 Deferred revenue .......................................................... 4,534 4,238 Deferred income taxes ..................................................... 664 4,770 ------------ ------------ Total current liabilities ............................................. 48,146 31,337 ------------ ------------ Long-term debt, net of current portion ..................................... 126,679 81,284 Deferred income taxes ...................................................... 7,701 -- Other liabilities .......................................................... -- 2,054 Stockholders' equity: Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding ................................................... -- -- Class A common stock, $.0025 par value. Authorized 220,000,000 shares; 24,689,761 shares issued and 24,581,261 shares outstanding at December 31, 1998 and 24,460,332 shares issued and outstanding at December 31, 1997 ....................................................... 62 61 Class B common stock, $.0025 par value. Authorized 75,000,000 shares; 24,854,989 shares issued and 24,655,489 shares outstanding at December 31, 1998 and 24,625,332 shares issued and 24,460,332 shares outstanding at December 31, 1997 ........................................ 62 62 Paid-in capital ........................................................... 72,476 69,055 Retained earnings ......................................................... 15,284 13,126 Treasury stock, at cost, 108,500 shares of Class A common stock and 199,500 shares of Class B common stock held at December 31, 1998 and 165,000 shares of Class B common stock held at December 31, 1997 ........ (2,951) (2,281) Accumulated other comprehensive income .................................... 3,314 213 ------------ ------------ Total stockholders' equity ............................................ 88,247 80,236 Commitments and contingencies ------------ ------------ $ 270,773 $ 194,911 ============ ============
See accompanying notes to consolidated financial statements. 22 23 infoUSA INC. SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ Net sales........................................... $ 228,678 $ 193,327 $ 108,298 ------------ ------------ ------------ Costs and expenses: Database and production costs...................... 66,319 55,090 29,272 Selling, general and administrative................ 117,724 80,203 45,766 Depreciation and amortization...................... 27,472 34,415 16,355 Provision for litigation settlement................ 4,500 -- -- Acquisition costs.................................. 3,643 2,598 -- In-process research and development................ 3,834 53,500 10,000 Restructuring charges.............................. 2,616 -- -- ------------ ------------ ------------ 226,108 225,806 101,393 ------------ ------------ ------------ Operating income (loss)............................. 2,570 (32,479) 6,905 Other income (expense): Investment income.................................. 16,628 3,748 3,194 Interest expense................................... (9,160) (4,098) (209) Other.............................................. (2,000) -- (943) ------------ ------------ ------------ Income (loss) before income taxes and discontinued operations......................................... 8,038 (32,829) 8,947 Income taxes........................................ 5,880 6,987 3,400 ------------ ------------ ------------ Income (loss) from continuing operations............ 2,158 (39,816) 5,547 Loss on discontinued operations..................... -- -- (355) Loss from abandonment of subsidiary................. -- -- (1,373) ------------ ------------ ------------ Net income (loss)................................... $ 2,158 $ (39,816) $ 3,819 ============ ============ ============ Basic earnings per share: Income (loss) from continuing operations............ $ 0.04 $ (0.82) $ 0.13 Loss on discontinued operations and abandonment of subsidiary......................................... -- -- (0.04) ------------ ------------ ------------ Net income (loss)................................... $ 0.04 $ (0.82) $ 0.09 ============ ============ ============ Weighted average shares outstanding................. 49,314 48,432 42,065 ============ ============ ============ Diluted earnings per share: Income (loss) from continuing operations........... $ 0.04 $ (0.82) $ 0.13 Loss on discontinued operations and abandonment of subsidiary......................................... -- -- (0.04) ------------ ------------ ------------ Net income (loss)................................... $ 0.04 $ (0.82) $ 0.09 ============ ============ ============ Weighted average shares outstanding................. 50,215 48,432 42,390 ============ ============ ============
See accompanying notes to consolidated financial statements. 23 24 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CLASS CLASS ACCUMULATED A B OTHER TOTAL COMMON COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY -------- -------- -------- -------- -------- ------------- ------------- Balances, December 31, 1995 ............... $ -- $ 51 $ 27,342 $ 48,937 $ -- $ (246) $ 76,084 Comprehensive income: Net income ................................ -- -- -- 3,819 -- -- 3,819 Change in unrealized loss, net of tax ...................................... -- -- -- -- -- (133) (133) -------- -------- -------- -------- -------- -------- -------- Total comprehensive income ............ -- -- -- -- -- -- 3,686 -------- -------- -------- -------- -------- -------- -------- Issuance of 2,441,950 shares of common stock .................................... -- 3 9,628 -- -- -- 9,631 Issuance of 1,120,000 shares of common stock in pooling-of-interests transaction .............................. -- 1 86 186 -- -- 273 Tax benefit related to employee stock options .................................. -- -- 212 -- -- -- 212 Acquisition of treasury stock ............. -- -- -- -- (2,281) -- (2,281) -------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1996 ............... -- 55 37,268 52,942 (2,281) (379) 87,605 Comprehensive loss: Net loss .................................. -- -- -- (39,816) -- -- (39,816) Change in unrealized gain, net of tax ...................................... -- -- -- -- -- 592 592 -------- -------- -------- -------- -------- -------- -------- Total comprehensive loss .................. -- -- -- -- -- -- (39,224) -------- -------- -------- -------- -------- -------- -------- Issuance of 4,718,744 shares of common stock .................................... -- 7 31,261 -- -- -- 31,268 Tax benefit related to employee stock options .................................. -- -- 587 -- -- -- 587 2 for 1 stock dividend .................... 61 -- (61) -- -- -- -- -------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1997 ............... 61 62 69,055 13,126 (2,281) 213 80,236 Comprehensive income: Net income ................................ -- -- -- 2,158 -- -- 2,158 Change in unrealized gain, net of tax ...................................... -- -- -- -- -- 3,101 3,101 -------- -------- -------- -------- -------- -------- -------- Total comprehensive income ............ -- -- -- -- -- -- 5,259 -------- -------- -------- -------- -------- -------- -------- Issuance of 459,086 shares of common stock .................................... 1 -- 3,020 -- -- -- 3,021 Tax benefit related to employee stock options .................................. -- -- 401 -- -- -- 401 Acquisition of treasury stock ............. -- -- -- -- (670) -- (670) -------- -------- -------- -------- -------- -------- -------- Balances, December 31, 1998 ............... $ 62 $ 62 $ 72,476 $ 15,284 $ (2,951) $ 3,314 $ 88,247 ======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 24 25 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ----------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ Cash flows from operating activities: Net income (loss) ........................................... $ 2,158 $ (39,816) $ 3,819 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................. 27,472 34,415 16,355 Deferred income taxes ..................................... (1,019) (2,787) (6,307) Loss on discontinued operations and abandonment of subsidiary ............................................... -- -- 2,788 Net realized (gains) losses on sale of marketable securities and other investments ......................... (15,511) (2,560) (1,267) Impairment of other assets ................................ 2,000 -- 740 Provision for litigation settlement ....................... 4,500 -- -- In-process research and development ....................... 3,834 53,500 10,000 Changes in assets and liabilities, net of effect of acquisitions: Trade accounts receivable ................................ 9,324 (7,445) (7,762) List brokerage trade accounts receivable ................. (4,463) -- -- Prepaid expenses ......................................... (1,233) 287 (1,117) Deferred marketing costs ................................. (948) (2,154) (267) Accounts payable ......................................... (2,861) (4,854) (1,422) List brokerage trade accounts payable .................... 752 -- -- Income taxes receivable and payable ...................... (3,042) 7,283 (128) Accrued expenses ......................................... (4,221) (5,613) (3,111) ------------ ------------ ------------ Net cash provided by operating activities ............... 16,742 30,256 12,321 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of marketable securities ................ 41,114 19,596 18,865 Purchases of marketable securities .......................... (17,177) (17,448) (17,348) Purchase of other investments ............................... (2,000) (2,000) -- Purchases of property and equipment ......................... (20,582) (8,882) (6,755) Acquisitions of businesses, including minority interest ..... (31,654) (84,224) (6,484) Consumer database costs ..................................... (603) (3,398) (494) Software development costs .................................. (5,724) (2,898) (1,955) Other ....................................................... -- (678) 347 ------------ ------------ ------------ Net cash used in investing activities ................... (36,626) (99,932) (13,824) ------------ ------------ ------------ Cash flows from financing activities: Repayment of long-term debt ................................. (110,876) (7,193) (1,450) Proceeds from long-term debt ................................ 154,800 86,000 -- Deferred financing costs .................................... (5,969) (388) -- Repayment of note payable to shareholders ................... -- (7,925) -- Acquisition of treasury stock ............................... (670) -- (2,281) Deferred offering costs ..................................... -- (339) -- Proceeds from exercise of stock options ..................... 1,148 2,090 520 Tax benefit related to employee stock options ............... 401 587 212 ------------ ------------ ------------ Net cash provided by (used in) financing activities ............................................. 38,834 72,832 (2,999) ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents ......... 18,950 3,156 (4,502) Cash and cash equivalents, beginning ......................... 10,653 7,497 11,999 ------------ ------------ ------------ Cash and cash equivalents, ending ............................ $ 29,603 $ 10,653 $ 7,497 ============ ============ ============ Supplemental cash flow information: Interest paid ........................................... $ 8,902 $ 3,616 $ 78 ============ ============ ============ Income taxes paid ....................................... $ 9,637 $ 7,443 $ 8,280 ============ ============ ============
See accompanying notes to consolidated financial statements. 25 26 infoUSA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL infoUSA Inc. and its subsidiaries (the Company), provides business and consumer marketing information products and data processing services throughout the United States and Canada. These products include customized business lists, business directories and other information services. During 1998, the Company changed names from American Business Information, Inc. to infoUSA Inc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates. The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition. The Company's revenue is primarily generated from the sale of its products and services and the licensing of its data to third parties. Revenue from the sale of products and services is recognized when the product is delivered or the services are performed. Data licensing revenue is recognized giving consideration to whether the Company retains service commitments to periodically provide updates, the incremental costs associated with providing continuing service, and the fair value of the initial set of data and subsequent updates based upon prices charged to customers who purchase elements on a separate basis. Revenue related to future updates is recorded as deferred revenue. Reserves are established for estimated returns and uncollectible amounts. Database Costs. Costs to maintain and enhance the Company's existing business and consumer databases are expensed as incurred. Costs to develop new databases, which primarily represent direct external costs, are capitalized with amortization beginning upon successful completion of the compilation project. Database costs are amortized straight-line over the expected lives of the databases generally ranging from one to five years. Advertising Costs. Direct marketing costs associated with the mailing and printing of brochures and catalogs are capitalized and amortized over periods that correspond to the estimated revenue stream of the individual advertising activities, generally for periods ranging from six to twelve months. All other advertising costs are expensed as the advertising takes place. Total unamortized marketing costs at December 31, 1998 and 1997, was $4.4 million and $3.4 million, respectively. Total advertising expense for the years ended December 31, 1998, 1997, and 1996 was $19.7 million, $15.9 million, and $11.0 million, respectively. Software Capitalization. Until technological feasibility is established, software development costs are expensed as incurred. After that time, direct costs are capitalized and amortized equal to the greater of the ratio of current revenues to the estimated total revenues for each product or the straight-line method, generally over one year for software developed for external use and over two to five years for software developed for internal use. Unamortized software costs included in intangible assets at December 31, 1998 and 1997, were $4.0 million and $1.9 million, respectively. Amortization of capitalized costs during the years ended December 31, 1998, 1997 and 1996, totaled approximately $4.1 million, $2.5 million, and $1.0 million, respectively. Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. Earnings (Loss) Per Share. Basic earnings per share are based on the weighted average number of common shares outstanding, including contingently issuable shares, which have been restated to account for the stock dividend (See Note 19). Diluted earnings per 26 27 share are based on the weighted number of common shares outstanding, including contingently issuable shares, plus dilutive potential common shares outstanding (representing outstanding stock options). The following data show the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Options on 1.1 million shares of common stock were not included in computing diluted earnings per share for 1997 because their effects were antidilutive.
FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (IN THOUSANDS) Weighted average number of shares outstanding used in basic EPS............................................................ 49,314 48,432 42,065 Net additional common equivalent shares outstanding after assumed exercise of stock options.............................. 901 -- 325 ------------ ------------ ------------ Weighted average number of shares outstanding used in diluted EPS.................................................... 50,215 48,432 42,390 ============ ============ ============
Cash Equivalents. Cash equivalents, consisting of highly liquid debt instruments that are readily convertible to known amounts of cash and when purchased have an original maturity of three months or less, are carried at cost which approximates fair value. Marketable Securities. Marketable securities have been classified as available-for-sale and are therefore carried at fair value, which are estimated based on quoted market prices. Unrealized gains and losses, net of related tax effects, are reported as a separate component of stockholders' equity until realized. Unrealized and realized gains and losses are determined by specific identification. Property and Equipment. Property and equipment (including equipment acquired under capital leases) are stated at cost and are depreciated or amortized primarily using straight-line methods over the estimated useful lives of the assets, as follows: Building and improvements................... 30 years Office furniture and equipment.............. 5 to 7 years Computer equipment.......................... 5 years Capitalized equipment leases................ 5 years
List brokerage trade accounts receivable and trade accounts payable. The Company acquired Walter Karl, Inc. in March 1998 and JAMI Marketing Services, Inc. in June 1998. A significant business line of these two entities is list brokerage services, whereby the entities serve as a broker between unrelated parties who wish to purchase a certain list and unrelated parties who have the desired list for sale. Accordingly, Walter Karl and Jami Marketing each recognize trade accounts receivable and trade accounts payable, reflecting a "gross-up" of the two concurrent transactions. The transactions are not structured providing for the right of offset. The Company did not previously engage in this type of business. Intangibles. Intangible assets are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets, as follows: Goodwill.......................................... 8 to 15 years Distribution networks............................. 2 years Noncompete agreements............................. Term of agreements Purchased data processing software................ 2 years Acquired database costs........................... 1 year Core technology costs............................. 3 years Customer base costs............................... 3 to 15 years Tradename costs................................... 10 to 15 years Perpetual software license agreement.............. 10 years Software development costs........................ 1 to 4 years Workforce costs................................... 5 to 8 years
Stock-based compensation. The Company recognizes stock-based compensation expense using the intrinsic value method. Under that method, no compensation expense is recorded if the exercise price of the employee stock options equals or exceeds the market price of the underlying stock on the date of grant. For disclosure purposes, pro forma net income (loss) and income (loss) per share are provided as if the fair value method had been applied. Long-lived assets. All of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the 27 28 carrying amount of the asset, an impairment loss is recognized in operating results. The impairment loss is measured using discounted cash flows or quoted market prices, when available. The Company also periodically reevaluates the remaining useful lives of its long-lived assets based on the original intended and expected future use or benefit to be derived from the assets. Changes in estimated useful lives are reflected prospectively by amortizing the remaining book value at the date of the change over the adjusted remaining estimated useful life. During 1998 and 1996, the Company wrote-off investments in other entities of $2.0 million and $740 thousand, respectively, which were accounted for using the cost method. In 1996 the Company revised the estimated useful lives of certain intangibles related to acquisitions prior to 1995. Management performed an evaluation of the remaining lives of these intangibles. Based on this evaluation, it was evident that the business and distribution networks acquired changed more rapidly than was originally estimated. Therefore, the estimated lives of the related goodwill and intangibles were revised to 8 and 2 years, from 30 and 15 years, respectively. As a result, amortization related to such intangibles was approximately $11.5 million higher in 1996 than calculated using the historical lives. The total impact of $7.1 million, net of tax reduced both basic earnings per share and diluted earnings per share by $0.17. Accounting pronouncements. In 1997, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 130, "Reporting Comprehensive Income." The Company adopted the provisions of this SFAS in 1998 (includes restatement for comparative disclosures for 1997 and 1996). The components of comprehensive income have been presented in Note 5 of the consolidated financial statements. In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." The Company adopted the provisions of this SFAS effective December 31, 1998 (includes restatement for comparative disclosures for 1997 and 1996). The information required is presented in Note 20 of the consolidated financial statements. In 1998, the Accounting Standards Committee issued Statement of Accounting Position (SOP) No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The Company adopted the provisions of this SOP effective January 1, 1998. The adoption of this SOP resulted in an amount capitalized of $1.5 million, net of accumulated amortization expense, as of December 31, 1998. Reclassifications. Certain reclassifications were made to the 1997 and 1996 financial statements to conform to the 1998 presentation. 3. ACQUISITIONS Effective August 1996, the Company acquired certain assets and assumed certain liabilities of Digital Directory Assistance, Inc. (DDA), a publisher of PhoneDisc CD-ROM products. The total purchase price was approximately $16.9 million of which $4.0 million was paid in September 1996, $7.9 million in the form of a promissory note issued to the sellers paid in January 1997, and the remaining amount through the issuance of 600,000 unregistered shares of the Company's Class A Common Stock and 600,000 unregistered shares of the Company's Class B Common Stock at a recorded value of $5.2 million. The acquisition was accounted for under the purchase method of accounting. In addition to purchased in-process research and development costs of $10.0 million (See Note 18), goodwill recorded as part of the purchase was $10.0 million, which is being amortized over 8 years. Effective November 1996, the Company acquired all issued and outstanding common stock of County Data Corporation (CDC), a national new business database compiler. Total consideration for the acquisition was 560,000 unregistered shares of the Company's Class A Common Stock and 560,000 unregistered shares of the Company's Class B Common Stock. The acquisition was accounted for under the pooling-of-interests method of accounting. The accompanying consolidated financial statements have not been restated to reflect this acquisition, as the financial position, results of operations and cash flows of County Data Corporation for the periods prior to acquisition were not significant. Effective November 1996, the Company acquired certain assets and assumed certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data warehousing, research and analysis services for target marketing applications to Fortune 1000 companies. Total consideration for the acquisition was $2.4 million, consisting of $1.0 million in cash and 118,000 unregistered shares of the Company's Class A Common Stock and 118,000 shares of the Company's Class B Common Stock at a recorded value of $1.3 million. The acquisition has been accounted for under the purchase method of accounting. Substantially all of the purchase price was allocated to goodwill which is being amortized over 8 years. Effective December 1996, the Company acquired all issued and outstanding common stock of Kadobec Investments, Inc., (operating as B.J. Hunter), which provides lead generation products in Canada. Total consideration for the acquisition was $3.1 million, consisting of $876 thousand in cash and 150,000 unregistered shares of the Company's Class A Common Stock and 150,000 shares of the Company's Class B Common Stock at a recorded value of $2.6 million. The acquisition has been accounted for under the purchase method of accounting. The Company allocated substantially all of the purchase price to goodwill which is being amortized over 8 years. 28 29 Effective February 1997, the Company acquired all issued and outstanding common stock of DBA Holdings, Inc. and Subsidiaries (operating as Database America Companies, or DBA), a provider of data processing and analytical services for marketing applications, and compiler of information on consumers and businesses in the United States. Total consideration, as adjusted, for the acquisition was approximately $103.5 million, consisting of $51.5 million in cash, partially funded using a revolving credit facility (See Note 8), and approximately 2.3 million unregistered shares of the Company's Class A Common Stock and 2.3 million unregistered shares of the Company's Class B Common Stock at a recorded value of $31.0 million. In October 1997, the Company and the former stockholders of DBA agreed to a purchase price adjustment, pursuant to which the Company agreed to issue to the Former DBA stockholders an additional 139,829 unregistered shares of its Class A Common Stock and 139,829 unregistered shares of its Class B Common Stock. As of December 31, 1997, these additional shares of the Company's stock had not been issued to the former DBA stockholders, and this liability of approximately $1.9 million is included in payable to shareholders in the accompanying consolidated balance sheets. The shares were issued in January 1998. The acquisition has been accounted for under the purchase method of accounting. In addition to purchased in-process research and development costs of $49.2 million (See Note 18), intangibles and goodwill recorded as part of the purchase included acquired database costs of $19.0 million, purchased data processing software of $9.4 million, noncompete agreements of $1.7 million and goodwill of $20.8 million. Goodwill is being amortized over 15 years. Effective August 1997, the Company acquired certain assets and assumed certain liabilities of Pro CD, Inc. (Pro CD) from Acxiom Corporation (Acxiom), a provider of telephone directory and other business software products on CD-ROM to consumers. The acquisition has been accounted for under the purchase method of accounting. Total consideration for the acquisition was $18 million in cash, funded using a revolving credit facility (See Note 8). At the time of the acquisition of Pro CD, the Company entered into two separate contracts with Acxiom whereby the Company agreed to license its complete business database to Acxiom in exchange for a perpetual license agreement allowing the Company the use of a CD-Rom search engine technology developed by Acxiom for the Pro CD product line. The Company's agreement with Acxiom Corporation licensed the Company's complete business database to Acxiom Corporation for total fees of $8.0 million for a two year period. The Company also entered into an agreement, which provided the Company with a perpetual license to use Acxiom's CD-Rom search engine technology for a fee of $8.0 million. The total cost is being amortized over the 10 year estimated economic life of the perpetual license. At the time of these agreements, an $8.0 million intangible asset was recorded for the perpetual license with an offsetting liability of $8.0 million. In addition to purchased in-process research and development costs of $4.3 million (See Note 18), intangibles and goodwill recorded as part of the purchase included core technology, customer base, and tradename costs totaling $5.9 million, noncompete agreements of $5.2 million and goodwill of $6.2 million. Goodwill is being amortized over 10 years. Effective March 1998, the Company acquired all issued and outstanding common stock of Walter Karl, Inc. (Walter Karl), a national direct marketing service firm that provides list management, list brokerage, and database marketing and direct marketing services to a wide array of customers. Total consideration for the acquisition was $19.4 million in cash, subject to adjustment, funded using a revolving credit facility (See Note 8). The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of Walter Karl have been included in the Company's financial statements since the date of acquisition. In addition to purchased in-process research and development costs of $3.8 million (See Note 18), intangibles and goodwill recorded based on management's preliminary estimates included goodwill of $16.0 million, core technology of $3.7 million, trade names of $4.2 million, customer base of $2.2 million, and workforce costs of $0.8 million. In addition, the Company recorded as part of the purchase of Walter Karl an accrual related to closure of a facility and relocating or terminating the employees from this facility totaling $6.8 million, of which a balance of $4.4 million remained at December 31, 1998. Goodwill is being amortized over 15 years. The amount of intangibles recorded by the Company exceeded the purchase price due to the Company recording an accrual related to costs associated with the integration of acquired operations into existing operations, deferred taxes established for certain intangibles not currently deductible for tax purposes, and the excess of liabilities over assets assumed. Effective June 1998, the Company acquired certain assets and assumed certain liabilities of JAMI Marketing Services, Inc. (JAMI), a list brokerage, list management, data processing and marketing consulting firm. Total consideration for the acquisition was $12.8 million in cash, subject to adjustment, funded with the proceeds from the disposition of the Company's holdings of Metromail Corporation common stock. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of JAMI have been included in the Company's financial statements since the date of acquisition. Intangibles and goodwill recorded based on management's preliminary estimates included goodwill of $7.3 million, trade names of $0.2 million, customer base of $5.1 million, noncompete agreements of $0.2 million, and workforce costs of $0.5 million. Goodwill is being amortized over 15 years. During the fourth quarter of 1998, a purchase price adjustment of $0.3 million was made due to the final calculation of purchase price based on the acquisition agreement and amounts were reallocated based on the purchase price allocation finalized in the fourth quarter 1998. 29 30 Effective July 1998, the Company acquired certain assets and assumed certain liabilities of Contacts Target Marketing (CTM), a regional business marketing database company, based in Vancouver, Canada. Total consideration for the acquisition was $0.4 million in cash. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of CTM have been included in the Company's financial statements since the date of acquisition. Intangibles and goodwill recorded based on management's preliminary estimates included goodwill of $0.5 million. Goodwill is being amortized over 8 years. All stock issued in acquisitions, with the exception of the final distribution related to DBA in late 1997, included the Company's common stock, prior to the October 1997 reclassification of the Company's Common Stock as Class B Common Stock and the dividend of one share of Class A Common Stock for each share of Class B Common Stock then outstanding. See Note 19 for discussion related to the Reclassification and Stock Dividend. The final distribution related to the DBA acquisition in October 1997 was an equal number of shares of Class A and Class B Common Stock. For each of the acquisitions above, with the exception of the acquisition of CDC in 1996 which was accounted for as a pooling of interests transaction, the Company recorded each purchase reflecting the issuance of restricted stock at a calculated discount, based on stock valuations performed by investment bankers. All purchase price adjustments recorded by the Company subsequent to the acquisition date were in accordance with the provisions of the related purchase agreements. Operating results for each of these acquisitions are included in the accompanying consolidated statements of operations from the respective acquisition dates. Assuming the above described companies had been acquired on January 1, 1997, and excluding the write-offs of in-process research and development costs included in acquisition-related and restructuring charges in the accompanying consolidated statements of operations, unaudited pro forma consolidated net sales, net income and net income per share would have been as follows:
FOR THE YEARS ENDED --------------------------- DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales............................... $ 245,139 $ 230,019 Net income.............................. $ 3,787 $ 23,883 Basic earnings per share................ $ 0.08 $ 0.49 Diluted earnings per share.............. $ 0.08 $ 0.49
The pro forma information provided above does not purport to be indicative of the results of operations that would actually have resulted if the acquisitions were made as of those dates or of results which may occur in the future. 4. MARKETABLE SECURITIES
AMORTIZED UNREALIZED UNREALIZED FAIR COST GROSS GAIN GROSS LOSS VALUE --------- ---------- ---------- -------- (IN THOUSANDS) At December 31, 1998: Municipal bonds................ $ 1,304 $ 3 $ (1) $ 1,306 Corporate bonds................ 4,718 3 (28) 4,693 Common stock................... 9,056 5,357 -- 14,413 Preferred stock................ 197 11 -- 208 --------- ---------- ---------- -------- $ 15,275 $ 5,374 $ (29) $ 20,620 ========= ========== ========== ======== At December 31, 1997: Municipal bonds................ $ 824 $ 1 $ (2) $ 823 Corporate bonds................ 2,459 4 (66) 2,397 Common stock................... 20,372 1,429 (1,030) 20,771 Preferred stock................ 47 7 -- 54 --------- ---------- ---------- -------- $ 23,702 $ 1,441 $ (1,098) $ 24,045 ========= ========== ========== ========
Scheduled maturities of marketable debt securities at December 31, 1998, are as follows:
LESS THAN ONE TO FIVE TO MORE THAN ONE YEAR FIVE YEARS TEN YEARS TEN YEARS --------- ---------- --------- --------- (IN THOUSANDS) Municipal bonds............ $ 217 $ 458 $ 105 $ 526 Corporate bonds............ 3,660 1,033 -- -- --------- ---------- --------- --------- $ 3,877 $ 1,491 $ 105 $ 526 ========= ========== ========= =========
30 31 For the year ended December 31, 1998 proceeds from sales of marketable securities approximated $41.1 million while realized gains totaled $17.9 million and realized losses totaled $2.4 million. For the year ended December 31, 1997, proceeds approximated $19.6 million while realized gains totaled $2.6 million and realized losses totaled $86 thousand. 5. COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income (loss) were as follows:
FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (IN THOUSANDS) Unrealized holding gains (losses) arising during the period: Unrealized net losses........................................ $ (10,162) $ (1,261) $ (1,701) Related tax benefit.......................................... 3,861 479 647 ------------ ------------ ------------ Net.......................................................... (6,301) (782) (1,054) ------------ ------------ ------------ Less: Reclassification adjustment for net gains (losses) realized on sale of marketable securities during the period Realized net gains........................................... 15,164 2,216 1,486 Related tax expense.......................................... (5,762) (842) (565) ------------ ------------ ------------ Net.......................................................... 9,402 1,374 921 ------------ ------------ ------------ Total other comprehensive income (loss)...................... $ 3,101 $ 592 $ (133) ============ ============ ============
6. PROPERTY AND EQUIPMENT
DECEMBER 31, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS) Land and improvements......................................... $ 4,274 $ 1,733 Buildings and improvements.................................... 19,537 13,040 Furniture and equipment....................................... 41,626 26,608 Capitalized equipment leases.................................. 5,050 2,014 ------------- ------------ 70,487 43,395 Less accumulated depreciation and amortization: Owned property............................................... 29,020 17,502 Capitalized equipment leases................................. 1,203 776 ------------- ------------ Property and equipment, net.............................. $ 40,264 $ 25,117 ============= ============
7. INTANGIBLE ASSETS
DECEMBER 31, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS) Goodwill.................................................... $ 70,456 $ 44,598 Noncompete agreements....................................... 7,420 6,925 Core technology............................................. 4,800 1,100 Customer base............................................... 8,372 1,100 Tradename................................................... 8,108 3,700 Purchased data processing software.......................... 9,400 9,400 Acquired database costs..................................... 19,000 19,000 Work force costs............................................ 1,338 -- Perpetual software license agreement........................ 8,000 8,000 Software development costs.................................. 4,038 1,865 Consumer database costs..................................... 5,309 3,892 Deferred financing costs.................................... 5,970 -- Other deferred costs........................................ -- 1,662 ------------- ------------ 152,211 101,242 Less accumulated amortization............................... 42,833 27,501 ------------- ------------ $ 109,378 $ 73,741 ============= ============
31 32 8. FINANCING ARRANGEMENTS Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------ ------------ (IN THOUSANDS) 9 1/2% Senior Subordinated Notes* ............................................... $ 115,000 $ -- Uncollateralized bank revolving line of credit** ................................ -- 78,000 Mortgage note, collateralized by deed of trust. Note bears a fixed interest rate of 7.4% through July 2003, and then will be adjusted to a designated Federal Reserve rate plus 1.75% Principal is due August 2008. Interest is payable monthly ...................... 10,553 -- State of Connecticut Department of Economic Development note payable. Note bears a fixed interest rate of 5.0%. Note is collateralized by certain real property. Principal is due November 2003. Interest is payable monthly ..................................... 450 -- Uncollateralized note payable for leasehold improvements. Note bears a fixed interest rate of 5.0%. Principal is due September 2003. Interest is payable monthly .............................................. 478 -- Uncollateralized bank revolving line of credit, provides for maximum borrowings of $5 million ............................................... -- 3,000 Capital lease obligations (Note 17) ............................................. 1,778 1,000 ------------ ------------ 128,259 82,000 Less current portion ............................................................ 1,580 716 ------------ ------------ Long-term debt .................................................................. $ 126,679 $ 81,284 ============ ============
The weighted average interest rate on short-term borrowings outstanding as of December 31, 1997 was 6.66%. There were no short-term borrowings outstanding at December 31, 1998. Future maturities by calendar year of long-term debt as of December 31, 1998 are as follows (in thousands): 1999.................................................... $ 1,580 2000.................................................... $ 1,534 2001.................................................... $ 1,433 2002.................................................... $ 1,371 2003.................................................... $ 1,220 Thereafter.............................................. $ 121,121
*On June 18, 1998, the Company completed a private placement of 9 1/2% Senior Subordinated Notes due June 15, 2008 in the aggregate principal amount of $115.0 million. The Notes are subject to various covenants, including among other things, limiting additional indebtedness and the ability to pay dividends. In January 1999, the Company exchanged registered 9 1/2% Senior Subordinated Notes (the "Notes") for the unregistered notes pursuant to a Registration Statement on Form S-4 declared effective by the Securities & Exchange Commission. Interest on the Notes will accrue from the original issuance date of the unregistered notes and will be payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 1998, at the rate of 9 1/2% per annum. The Notes are redeemable, in whole or in part, at the option of the Company, on or after June 15, 2003, at designated redemption prices outlined in the Indenture governing the Notes, plus any accrued interest to the date of redemption. In addition, at any time on or prior to June 15, 2001, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more equity offerings, at the redemption price equal to 109.5% of the principal amount thereof, plus any accrued interest to the date of redemption. In the event of a change in control, each holder of Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount thereof, plus any accrued interest to the repurchase date. During May 1998 in connection with the sale of the Notes, the Company entered into a Treasury yield collar agreement (the "treasury collar") with a bank, to hedge against the movement in interest rates on the Notes. The treasury collar was in the notional amount of $100.0 million. During June 1998, the Company terminated the treasury collar and, in connection therewith, made a payment of approximately $1.6 million to the bank which was recorded as deferred financing costs included in intangible assets in the accompanying consolidated balance sheets. The termination fee will be amortized over the 10 year life of the Notes. **During 1998, subsequent to completion of the private placement of notes previously described, the Company terminated its revolving line of credit with a bank. 32 33 9. INCOME TAXES The provision for income taxes on continuing operations consists of the following:
FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (IN THOUSANDS) Current: Federal................................. $ 4,469 $ 9,163 $ 8,782 State................................... 556 742 925 ------- ------- ------- 5,025 9,905 9,707 ------- ------- ------- Deferred: Federal................................. 742 (2,688) (6,159) State................................... 113 (230) (148) ------- ------- ------- 855 (2,918) (6,307) ------- ------- ------- $ 5,880 $ 6,987 $ 3,400 ======= ======= =======
Loss on discontinued operations and abandonment of subsidiary is presented net of income tax benefits of $1.1 million in 1996. The effective income tax rate varied from the Federal statutory rate as follows:
FOR THE YEARS ENDED ---------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (IN THOUSANDS) Expected Federal income taxes at statutory rate of 35%...................................................... $ 2,813 $ (11,490) $ 3,131 State taxes, net of Federal effects....................... 435 424 530 Amortization of nondeductible intangibles................. 1,260 637 29 In-process research and development....................... 1,342 17,220 -- Nondeductible expense, nontaxable income and other.................................................... 30 196 (290) ------- --------- ------- $ 5,880 $ 6,987 $ 3,400 ======= ========= =======
The components of the net deferred tax asset (liability) were as follows:
DECEMBER 31, DECEMBER 31, 1998 1997 ------------- ------------ (IN THOUSANDS) Deferred tax assets: Intangible assets........................................ $ -- $ 2,242 Accrued vacation......................................... 507 399 Accrued expenses......................................... 1,710 -- Other assets............................................. -- 521 --------- ------- 2,217 3,162 --------- ------- Deferred tax liabilities: Intangible assets........................................ (3,996) -- Accounts receivable...................................... (1,667) (2,876) Marketable securities.................................... (2,031) (130) Depreciation............................................. (1,088) (1,126) Deferred marketing costs................................. (1,659) (1,298) Prepaid expenses and other assets........................ (141) (1,092) --------- ------- (10,582) (6,522) --------- ------- Net deferred tax liability........................... $ (8,365) $(3,360) ========= =======
The Company had no valuation allowance in 1998 and 1997. 10. STOCK INCENTIVES As of December 31, 1998, a total of 5 million shares of the Company's Class A Common Stock and 5 million shares of the Company's Class B Common Stock have been reserved for issuance to officers, key employees and non-employee directors under the Company's 1992 Stock Option Plan. In addition, as of December 31, 1998, a total of 2 million shares of the Company's Class A Common Stock have been reserved for issuance to officers, key employees and non-employee directors under the Company's 1997 Class A Common Stock Option Plan. 33 34 Options are generally granted at the stock's fair market value on the date of grant, vest generally over a four or five year period and expire five or six years, respectively, from date of grant. Options issued to shareholders holding 10% or more of the Company's stock are generally issued at 110% of the stock's fair market value on the date of grant and vest over periods ranging from five to six years with early vesting if certain financial goals are met. Certain options issued to directors at the stock's fair market value vested immediately and expire five years from grant date. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards issued in or subsequent to 1996 consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
FOR THE YEARS ENDED ------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1998 1997 1996 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) -- as reported ............................... $ 2,158 $ (39,816) $ 3,819 Net income (loss) -- pro forma ................................. $ (788) $ (41,503) $ 3,072 Basic earnings (loss) per share -- as reported ................. $ 0.04 $ (0.82) $ 0.09 Diluted earnings (loss) per share -- as reported ............... $ 0.04 $ (0.82) $ 0.09 Basic earnings (loss) per share -- pro forma ................... $ (0.02) $ (0.86) $ 0.07 Diluted earnings (loss) per share -- pro forma ................. $ (0.02) $ (0.86) $ 0.07
The above pro forma results are not likely to be representative of the effects on reported net income for future years since options vest over several years and additional awards generally are made each year. The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions used for grants in 1998, 1997 and 1996: expected volatility of 17.33% (1998), 19.16% (1997) and 15.52% (1996); risk free interest rate based on the U.S. Treasury strip yield at the date of grant; and expected lives of 4 to 6 years. The following information has been restated to reflect the stock dividend (See Note 19). Each option to purchase shares of common stock outstanding prior to the Stock Dividend was converted into an option to purchase both, but not either, shares of Class A Common Stock and Class B Common Stock.
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------------ ----------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE ------------------------ ----------------------- ---------------------- SHARES PRICE SHARES PRICE SHARES PRICE ----------- ------- ---------- ------- ---------- ------ Outstanding beginning of period... 7,478,050 $ 9.22 5,203,800 $ 7.58 2,913,750 $ 5.49 Granted........................... 1,160,000 11.49 2,799,250 11.81 3,964,000 8.19 Exercised......................... (179,428) 6.40 (357,250) 5.87 (705,950) 4.32 Forfeited/expired................. (1,364,586) 10.91 (167,750) 8.95 (968,000) 6.00 ----------- ------- ---------- ------- ---------- ------ Outstanding end of period......... 7,094,036 $ 9.33 7,478,050 $ 9.22 5,203,800 $ 7.58 =========== ======= ========== ======= ========== ====== Options exercisable at end of period........................... 2,809,439 $ 8.20 1,344,550 $ 7.10 585,050 $ 5.53 =========== ======= ========== ======= ========== ====== Shares available for options that may be granted.............. 777,834 1,660,000 2,796,200 =========== ========== ========== Weighted-average grant date fair value of options, granted during the period -- exercise price equals stock market price at grant............................ $ 3.34 $ 3.30 $ 2.00 ======= ======= ====== Weighted-average grant date fair value of options granted during the period -- exercise price exceeds stock market price at grant............................ $ 2.10 ======
34 35 The following table summarizes information about stock options outstanding at December 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE --------------------------------------------- -------------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE --------------------------- ----------- ------------------- ------------ ----------- ------------ $4.09 to $5.45.......... 339,800 0.5 years $ 4.51 339,800 $ 4.51 $5.45 to $6.82.......... 691,500 1.9 years 6.21 422,998 6.12 $6.82 to $8.18.......... 549,000 1.6 years 7.42 304,000 7.49 $8.18 to $9.54.......... 2,595,570 2.3 years 8.64 1,229,814 8.67 $9.54 to $10.90......... 774,500 3.6 years 10.38 78,496 10.38 $10.90 to $12.27........ 1,213,666 3.2 years 11.23 284,333 11.17 $12.27 to $13.63........ 930,000 2.8 years 13.14 149,998 13.19 ----------- --------- ------- ----------- ------- $4.09 to $13.63......... 7,094,036 2.5 years $ 9.33 2,809,439 $ 8.20 =========== ========= ======= =========== =======
11. SAVINGS PLAN Employees who meet certain eligibility requirements can participate in the Companys' 401(k) Savings and Investment Plans. Under the plans, the Company may, at its discretion, match a percentage of the employee contributions. The Company recorded expenses related to its matching contributions of $1.1 million, $782 thousand and $115 thousand in the years ended December 31, 1998, 1997 and 1996, respectively. 12. RELATED PARTY TRANSACTIONS The Company paid $1.4 million, $364 thousand, and $48 thousand in 1998, 1997 and 1996, respectively, to Annapurna Corporation for consulting services and related expenses in connection with acquisition activity conducted by the Company. Annapurna Corporation is 100% owned by a significant stockholder. The Company also paid $200 thousand, $145 thousand, and $156 thousand in the years ended December 31, 1998, 1997 and 1996, respectively, to a Director of the Company for consulting services in connection with acquisition activity conducted by the Company. The Company utilizes a law firm of which one member of the Board of Directors is a partner to the firm. Legal fees paid to the law firm totaled $370 thousand, $146 thousand, and $91 thousand in the years ended December 31, 1998, 1997 and 1996, respectively. 13. DISCONTINUED OPERATIONS On June 1, 1995, the Company transferred substantially all of the assets and liabilities of its wholly-owned subsidiary, American Business Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University. The Company received $3.0 million in the form of a 7.52% non-recourse promissory note, due in equal monthly installments through 2005. During 1996, Baker University defaulted on the note and the Company abandoned any remaining net assets of the business. As a result, the Company recorded a loss from abandonment of subsidiary of $1.4 million, net of tax. 14. SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain acquisitions in 1998 and 1997 (See Note 3) and assumed liabilities as follows:
1998 1997 --------- --------- (IN THOUSANDS) Fair value of assets .......... $ 58,552 $ 134,555 Cash paid ..................... (31,654) (84,224) Common stock issued ........... -- (29,178) --------- --------- Liabilities assumed ........... $ 26,898 $ 21,153 ========= =========
During 1997, the Company acquired computer equipment totaling $577 thousand under a capital lease obligation (See Note 17). 35 36 15. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1998 and 1997. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts shown in the following table are included in the consolidated balance sheets under the indicated captions.
DECEMBER 31, 1998 DECEMBER 31, 1997 ------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- (AMOUNTS IN THOUSANDS) Financial assets: Cash and cash equivalents ... $ 29,603 $ 29,603 $ 10,653 $ 10,653 Marketable securities ....... 15,275 20,620 23,833 24,045 Other assets ................ 2,000 2,000 2,071 2,000 Financial liabilities: Payable to shareholders ..... -- -- (1,871) (1,871) Long-term debt .............. 128,259 105,935 (81,284) (81,284) Derivatives: Interest rate swaps ......... -- -- -- 133
The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents and payable to shareholders. The carrying amounts approximate fair value because of the short maturity of those instruments. Marketable securities. The fair values of debt securities and equity investments are based on quoted market prices at the reporting date for those or similar investments. Other assets, including investments in other companies. Investments in companies not traded on organized exchanges are valued on the basis of comparisons with similar companies whose shares are publicly traded. Long-term debt. The 9 1/2% Senior Subordinated Notes due June 2008 are valued based on quoted market prices at the reporting date. All other debt obligations are valued at the discounted amount of future cash flows. Interest rate swap. The fair value of the interest rate swap was calculated based on discounted cash flows of the difference between the swap rate and the estimated market rate for similar terms. 16. DERIVATIVES The Company may use interest rate swap agreements to reduce the potential impact of increases in interest rates on floating-rate long-term debt. The original cost of the swap is amortized to interest expense over its term. The amounts paid or received under the agreement are recorded as an adjustment to interest expense. Neither the Company nor the counterparties are required to collateralize their obligations under these agreements. Therefore, the swap agreements expose the Company to credit losses to the extent of counterparty nonperformance, but does not anticipate any losses from its agreements, which are with major financial institutions. 17. COMMITMENTS AND CONTINGENCIES The Company is committed to pay various individuals under consulting and non-compete agreements in future periods. Future payments by calendar year under consulting and non-compete agreements as of December 31, 1998 are as follows (in thousands): 1999......................................................... $ 1,844 2000......................................................... $ 1,117 2001......................................................... $ 306
Under the terms of its capital lease agreements, the Company is required to pay ownership costs, including taxes, licenses and maintenance. The Company also leases office space under operating leases expiring at various dates through October 2007. Certain of 36 37 these leases contain renewal options. Rent expense was $3.1 million, $2.6 million, and $952 thousand in the years ended December 31, 1998, 1997 and 1996, respectively. Following is a schedule of the future minimum lease payments as of December 31, 1998:
CAPITAL OPERATING ------- --------- (IN THOUSANDS) 1999............................................ $ 814 $ 3,806 2000............................................ 549 2,337 2001............................................ 353 1,978 2002............................................ 195 1,746 2003............................................ -- 1,386 ------- --------- Total future minimum lease payments............. 1,911 $ 11,253 ========= Less amounts representing interest.............. 133 ------- Present value of net minimum lease payments..... $ 1,778 =======
During October, 1998, the Company announced a decision in its year-long arbitration dispute with Experian Information Solutions, Inc. (Experian). The dispute centered around a license agreement between the Database America Companies (DBA) and Experian prior to the Company's acquisition of DBA. In October 1998 an arbitrator from the American Arbitration Association found DBA to have breached the contract and awarded damages to Experian for approximately $4.6 million. The Company and its subsidiaries are involved in other legal proceedings, claims and litigation arising in the ordinary course of business. Management believes that any resulting liability should not materially affect the Company's financial position, results of operations, or cash flows. 18. ACQUISITION COSTS, IN-PROCESS RESEARCH AND DEVELOPMENT AND RESTRUCTURING CHARGES As part of the acquisition of DDA in August 1996 (See Note 3), the Company recorded acquisition-related charges for purchased in-process research and development costs (purchased IPR&D) totaling $10.0 million for write-offs in conjunction with the merger of DDA, which related to projects that had not met technological feasibility. The projects under development involve Digital Video Disk-Read Only Memory based information database technology. The value of the technology as applied to DDA's PhoneDisc product was $3.8 million and as applied to the Company's products was $6.2 million. As part of the acquisition of DBA in February 1997 (See Note 3), the Company recorded acquisition-related charges totaling $51.8 million for write-offs in conjunction with the merger of DBA for purchased IPR&D which related to projects that had not met technological feasibility ($49.2 million), as well as other related integration and organizational restructuring costs ($2.6 million). The projects under development involve data processing technologies including merge/purge and update and maintenance capabilities of the relational databases and interactive media technology to allow DBA to provide existing services via the Internet. The value of the data processing technologies was $2.3 million and the value of the interactive media technology was $46.9 million. As part of the acquisition of Pro CD in August 1997 (See Note 3), the Company recorded acquisition-related charges totaling $4.3 million for write-offs in conjunction with the merger of Pro CD for purchased IPR&D which related to projects that had not met technological feasibility. The projects under development involve graphical user interface technology, data enhancements, DVD capability and Year 2000 compliance for the Select Phone product line. The value of these projects was $4.3 million. As part of the acquisition of Walter Karl in March 1998 (See Note 3), the Company recorded acquisition-related charges totaling $3.8 million for write-offs in conjunction with the merger of Walter Karl for purchased IPR&D which related to projects that had not met technological feasibility. The purchased IPR&D recorded in connection with the acquisition of Walter Karl consisted of various projects, of which none were individually significant, related to areas including: Internet capabilities, automated job cards and shipping information, database and merge/purge processing enhancements, list brokerage and management order and data entry systems. There were a total of 12 separately identified projects. The total amount allocated to the above IPR&D projects was $3.8 million after retroactive application of the Securities and Exchange Commission's new guidelines for valuing purchased IPR&D. In addition to the write-off of purchased IPR&D of $3.8 million for Walter Karl previously described, included in acquisition-related and restructuring charges in the accompanying consolidated statement of operations for 1998 are: $3.0 million of costs associated with the Company's bid to acquire Metromail Corporation, $0.7 million associated with the Company's offering to sell Class A Common Stock which was not completed, $1.4 million for restructuring costs related to the Company's compilation and sales 37 38 activities for new businesses enacted during the first quarter of 1998, and $1.2 million for restructuring costs related to certain cost reduction measures enacted during the third quarter of 1998. During the first quarter of 1998 the Company recorded a restructuring charge of $1.4 million related to the closing of the County Data Corporation (CDC) new business compilation and sales center and moving these operations from Vermont to Nebraska. All 45 of the CDC employees were terminated, and severance recorded totaled $0.6 million. The restructuring charges also included lease termination costs of $0.3 million and a write-off of $0.5 million of leasehold improvement costs associated with the closed Vermont facility. The restructuring, including recording the payments and write-downs described, was completed by December 31, 1998. During the third quarter of 1998 the Company recorded a restructuring charge of $1.2 million which included $0.6 million in severance for 244 employees terminated as a result of the implementation of certain cost reduction measures. These employees were primarily in support and administration positions but some under-performing sales personnel were also terminated. The restructuring charges also included a charge of $0.4 million related to the planned closing of four field sales offices. Additionally, the Company recorded a write-down of $0.2 million related to leasehold improvement costs at facilities leased by the Company which were being closed. The restructuring, including recording the payments and write-downs described, was completed as of December 31, 1998, with the exception of the costs totaling $0.5 million related to the planned exit of certain field sales offices which are anticipated to be completed by March 31, 1999. Included in acquisition-related charges for 1997 are $2.6 million of expenses related to integrating acquired operations into the Company's existing operations. These expenses consisted primarily of costs such as travel between the Company and the new operations, consulting, payroll and other expenses related to implementing Company policies and information systems at the new locations. All costs had been incurred by December 31, 1997. 19. STOCK RECLASSIFICATION AND STOCK DIVIDEND AND STOCKHOLDERS RIGHTS PLANS On October 3, 1997, the Company's Board of Directors and shareholders approved the reclassification of the existing common stock as Class B Common Stock and authorized 220,000,000 shares of a new Class A Common Stock. The Board also declared a two-for-one stock split, effected in the form of a stock dividend of one share of Class A Common Stock for each share of Class B Common Stock then outstanding. Accordingly all share and per share information has been restated to reflect the stock split. Each share of Class A Common Stock entitles the holder to one vote and a non-cumulative dividend of $0.02 per year, when and as declared by the Board of Directors in preference to any dividend on Class B Common Stock. Each share of Class B Common Stock entitles the holder to ten votes. On October 3, 1997, the Company adopted a stockholder rights plan with respect to its Class A Common Stock and adopted certain changes to the plan it had adopted on July 21, 1997 with respect to its Class B Common Stock, under which the Board declared a dividend distribution of one Preferred Stock purchase right to holders of each share of Class A Common Stock and Class B Common Stock. The rights are not exercisable until ten days after a person or group announces the acquisition of 15% or more of the Company's voting stock or announces a tender offer for 15% or more of the Company's outstanding common stock. Each right entitles the holder to purchase common stock at one half the stock's market value. The rights are redeemable at the Company's option for $0.001 per Right at any time on or prior to public announcement that a person has acquired 15% or more of the Company's voting stock. The rights are automatically attached to and trade with each share of Common Stock. 20. SEGMENT INFORMATION The Company currently manages existing operations utilizing financial information accumulated and reported for two business segments. The small business segment principally engages in the selling of sales lead generation and consumer CD-ROM products to small to medium sized companies, small office and home office businesses and individual consumers. This segment includes the sale of content via the Internet. The large business segment principally engages in the selling of data processing services, licensed databases, database marketing solutions and list brokerage and list management services to large companies. This segment includes the licensing of databases for Internet directory assistance services. 38 39 The small business and large business segments reflect actual net sales, direct order production, and identifiable direct sales and marketing costs related to their operations. The remaining indirect costs are presented as a reconciling item in Corporate Activities. Corporate activities principally represent the information systems technology, database compilation, database verification, and administrative functions of the Company. Investment income (loss), interest expense, income taxes, amortization of intangibles, and depreciation expense are only recorded in corporate activities. The Company does not allocate these costs to the two business segments. The small business and large business segments reflect actual net sales, direct order production, and identifiable direct sales and marketing-related costs related to their operations. The Company records unusual or non-recurring items including acquisition-related and restructuring charges and provisions for litigation settlement in corporate activities to allow for the analysis of the sales business segments excluding such unusual or non-recurring charges. The Company accounts for property and equipment on a consolidated basis. The Company's property and equipment is shared by the Company's business segments. Depreciation expense is recorded in corporate activities. The Company has no intercompany sales or intercompany expense transactions. Accordingly, there are no adjustments necessary to eliminate amounts between the Company's segments. The following tables summarize certain segment information:
FOR THE YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL -------- -------- ---------- ------------ (IN THOUSANDS) Net sales ................................ $129,973 $ 98,705 $ -- $ 228,678 Provision for litigation settlement ...... -- -- 4,500 4,500 Acquisition-related and restructuring Charges ................................. -- -- 10,093 10,093 Operating income (loss) .................. 54,660 39,671 (91,761) 2,570 Investment income ........................ -- -- 16,628 16,628 Interest expense ......................... -- -- 9,160 9,160 Income (loss) before income taxes and discontinued operations ................. 54,660 39,671 (86,293) 8,038
FOR THE YEAR ENDED DECEMBER 31, 1997 ---------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL -------- -------- ---------- ------------ (IN THOUSANDS) Net sales ............................... $116,333 $ 76,994 $ -- $ 193,327 Acquisition-related and restructuring Charges ................................ -- -- 56,098 56,098 Operating income (loss) ................. 50,462 35,688 (118,629) (32,479) Investment income ....................... -- -- 3,748 3,748 Interest expense ........................ -- -- 4,098 4,098 Income (loss) before income taxes and discontinued operations ................ 50,462 35,688 (118,979) (32,829)
FOR THE YEAR ENDED DECEMBER 31, 1996 ---------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL -------- -------- ---------- ------------ (IN THOUSANDS) Net sales ............................... $ 87,431 $ 20,867 $ -- $ 108,298 Acquisition-related and restructuring Charges ................................ -- -- 10,000 10,000 Operating income (loss) ................. 37,972 9,865 (40,932) 6,905 Investment income ....................... -- -- 3,194 3,194 Interest expense ........................ -- -- 209 209 Income (loss) before income taxes and discontinued operations ............. 37,972 9,865 (38,890) 8,947
39 40 infoUSA INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS -------------------------- BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND CHARGED TO END OF DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD ----------------------------- ---------- ---------- -------------- ---------- ---------- Allowance for doubtful accounts receivable:................. (A) December 31, 1996........... $1,024 $ 1,485 $364* $ 1,284 $1,589 December 31, 1997........... $1,589 $ 1,272 $961* $ 2,387 $1,435 December 31, 1998........... $1,435 $ 4,388 $578* $ 3,701 $2,700 Allowance for sales returns:. (B) December 31, 1996........... $ 800 $ 3,401 $929* $ 3,995 $1,135 December 31, 1997........... $1,135 $ 7,748 $2,477* $ 6,782 $4,578 December 31, 1998........... $4,578 $ 15,693 $-- $ 15,682 $4,589
- ---------- * Recorded as a result of acquisitions (A) Charge-offs during the period indicated (B) Returns processed during the period indicated 40 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to this Report to be signed on its behalf by the undersigned, thereunto duly authorized. infoUSA INC. By: /s/ STORMY L. DEAN --------------------------------------------- Stormy L. Dean Controller and Acting Chief Financial Officer (principal accounting and financial officer) Dated: March 17, 2000 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Amendment to the Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE - --------------------------- ----------------------------- ------------ /s/ VINOD GUPTA Chairman of the Board and Chief March 17, 2000 - --------------------------- Executive Officer (principal Vinod Gupta executive officer) /s/ STORMY L. DEAN Controller and Acting Chief March 17, 2000 - --------------------------- Financial Officer (principal Stormy L. Dean accounting officer and principal financial officer) /s/ Director March 17, 2000 - --------------------------- Charles Fote /s/ Director March 17, 2000 - --------------------------- Ben Nelson /s/ GEORGE F. HADDIX Director March 17, 2000 - --------------------------- George F. Haddix /s/ ELLIOT S. KAPLAN Director March 17, 2000 - --------------------------- Elliot S. Kaplan /s/ HAROLD ANDERSEN Director March 17, 2000 - --------------------------- Harold Andersen /s/ PAUL A. GOLDNER Director March 17, 2000 - --------------------------- Paul A. Goldner By: /s/ STORMY L. DEAN - --------------------------- Stormy L. Dean Attorney-in-fact
41 42 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION - ------- ----------- 23.1 Accountants' Consent 23.2 Consent of Independent Accountants EX-23.1 2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.1 ACCOUNTANTS' CONSENT The Board of Directors InfoUSA Inc.: We consent to the incorporation by reference in the registration statements (No. 333-91194, No. 333-77417, No. 333-43391 and No. 33-59256) on Form S-8 of infoUSA Inc. our report dated January 22, 1999, relating to the consolidated balance sheet of infoUSA Inc. and subsidiaries as of December 31, 1998, and the related statements of income, shareholders' equity and comprehensive income, and cash flows for the year ended December 31, 1998 and related schedule, which report appears in the December 31, 1998 annual report on Form 10-K/A of infoUSA Inc. Omaha, Nebraska March 17, 2000 /s/ KPMG LLP -------------------------- KPMG LLP EX-23.2 3 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-37865, No. 333-82933, No. 33-91194, No. 333-77417, No. 333-43391, and No. 33-59256) of infoUSA Inc. (formerly American Business Information, Inc.) of our report dated January 23, 1998, on our audit of the consolidated financial statements and financial statement schedule of infoUSA Inc. for the year ended December 31, 1997, which report is included in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers LLP ------------------------------------ PRICEWATERHOUSECOOPERS LLP Omaha, Nebraska March 17, 2000 -----END PRIVACY-ENHANCED MESSAGE-----