-----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, IrWC3h7RqbeEKa//k7pTjs/dqR4Jm/M3LtIOMpV6RpIDr/BCqWZ2Jw64Ufa+z1Cg gvf1Fz4uyh/p4rBIX2FYYA== 0000950134-00-004586.txt : 20000516 0000950134-00-004586.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950134-00-004586 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 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-Q SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 632376 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-Q 1 FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X Quarterly Report pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 For the quarterly period ended March 31, 2000 or Transition report pursuant to Section 13 or 15(d) of the Securities - --- Exchange Act of 1934 For the transition period from ________ to ________ Commission File Number 0-19598 ------- infoUSA INC. - -------------------------------------------------------------------------------- (exact name of registrant specified in its charter) DELAWARE 47-0751545 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (402) 593-4500 -------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days. Yes X No --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 50,264,309 shares of Common Stock at May 2, 2000 2 infoUSA INC. INDEX PART I - FINANCIAL INFORMATION Item 1. Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 Consolidated Statements of Operations for the Three Months Ended March 31, 2000 and 1999 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 Notes to Consolidated Financial Statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures Index to Exhibits 2 3 infoUSA INC. Form 10-Q For the Quarter Ended March 31, 2000 PART I FINANCIAL INFORMATION AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3 4 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
MARCH 31, DECEMBER 31, 2000 1999 ------------- ------------- ASSETS Current assets: Cash and cash equivalents............................................. $ 16,468 $ 10,846 Marketable securities................................................. 70 70 Trade accounts receivable, net of allowances of $6,744 and $7,068, respectively .............................................. 64,152 65,812 List brokerage trade accounts receivable ............................. 14,170 16,734 Prepaid expenses ..................................................... 4,105 2,973 Deferred marketing costs ............................................. 3,125 2,957 ------------- ------------- Total current assets ......................................... 102,090 99,392 ------------- ------------- Property and equipment, net ............................................ 55,557 53,569 Intangible assets, net of accumulated amortization ..................... 311,247 315,889 Other assets ........................................................... 5,734 4,494 ------------- ------------- $ 474,628 $ 473,344 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .................................... $ 12,802 $ 9,885 Accounts payable ..................................................... 13,045 8,370 List brokerage trade accounts payable ................................ 14,038 16,375 Accrued payroll expenses.............................................. 6,053 5,767 Accrued expenses ..................................................... 8,375 6,579 Income taxes payable ................................................. 1,400 3,699 Deferred revenue ..................................................... 7,745 7,556 Deferred income taxes ................................................ 532 262 ------------- ------------- Total current liabilities .................................... 63,990 58,493 ------------- ------------- Long-term debt, net of current portion ................................. 248,717 267,637 Deferred income taxes .................................................. 33,793 35,319 Other liabilities ...................................................... 12,000 -- Minority interest ...................................................... 1,049 1,084 Commitments and contingencies .......................................... Stockholders' equity:................................................... Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding ................................. -- -- Common stock, $.0025 par value. Authorized 295,000,000 shares; 51,122,272 shares issued and 49,839,908 outstanding at March 31, 2000 and 50,719,548 shares issued and 49,390,058 shares outstanding at December 31, 1999................................................... 127 127 Paid-in capital....................................................... 87,736 82,025 Retained earnings .................................................... 36,784 38,470 Treasury stock, at cost, 1,282,364 shares held at March 31, 2000 and 1,329,490 held at December 31, 1999 ............................... (8,934) (9,170) Accumulated other comprehensive loss ................................. (634) (641) ------------- ------------- Total stockholders' equity ................................... 115,079 110,811 ------------- ------------- $ 474,628 $ 473,344 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 4 5 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts)
FOR THE QUARTERS ENDED ------------------------------ MARCH 31, MARCH 31, 2000 1999 ------------- ------------- Net sales ............................................. $ 80,960 $ 55,520 Costs and expenses: Database and production costs ....................... 25,647 16,176 Selling, general and administrative ................. 38,781 22,336 Depreciation and amortization ....................... 12,356 6,033 Non-cash stock compensation expense ................. 1,222 -- Acquisition costs ................................... 1,368 -- ------------- ------------- 79,374 44,545 ------------- ------------- Operating income ...................................... 1,586 10,975 Other income (expense): Investment income ................................... 204 2,484 Gain on issuance of subsidiary stock ................ 2,429 -- Minority interest in subsidiary ..................... 274 -- Interest expense .................................... (6,784) (3,114) ------------- ------------- Income before income taxes and extraordinary item .................................. (2,291) 10,345 Income taxes .......................................... (605) 4,160 ------------- ------------- Income (loss) before extraordinary item ................................................ (1,686) 6,185 Extraordinary item, net of tax ........................ -- 128 ------------- ------------- Net income (loss) ..................................... $ (1,686) $ 6,313 ============= ============= BASIC EARNINGS PER SHARE: Income (loss) before extraordinary item ............................................. $ (0.03) $ 0.13 Extraordinary item .................................. -- -- ------------- ------------- Net income (loss) ................................... $ (0.03) $ 0.13 ============= ============= Weighted average shares outstanding ................. 49,610 48,602 ============= ============= DILUTED EARNINGS PER SHARE: Income (loss) before extraordinary item ............................................. $ (0.03) $ 0.13 Extraordinary item .................................. -- -- ------------- ------------- Net income (loss) ................................... $ (0.03) $ 0.13 ============= ============= Weighted average shares outstanding ................. 49,610 48,662 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 5 6 infoUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
FOR THE QUARTERS ENDED ------------------------------ MARCH 31, MARCH 31, 2000 1999 ------------- ------------- Cash flows from operating activities: Net income (loss) ................................... $ (1,686) $ 6,313 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................... 12,356 6,033 Amortization of deferred financing costs ......... 289 -- Deferred income taxes ............................ (1,256) 581 Net realized gains on sale of marketable securities investments .............. -- (2,025) Acquisition costs ................................ 1,368 -- Gain on issuance of subsidiary stock ............. (2,429) -- Non-cash stock compensation expense .............. 1,222 -- Minority interest in subsidiary .................. (274) -- Changes in assets and liabilities, net of effect of acquisitions: Trade accounts receivable ...................... 1,839 3,065 List brokerage trade accounts receivable........ 2,564 4,910 Prepaid expenses and other assets .............. (1,245) (1,446) Deferred marketing costs ....................... (168) 199 Accounts payable ............................... 4,665 250 List brokerage trade accounts payable .......... (2,337) (3,408) Income taxes receivable and payable ............ (2,299) 3,652 Accrued expenses and other liabilities ......... 14,193 (4,663) ------------- ------------- Net cash provided by operating activities ................................ 26,802 13,461 ------------- ------------- Cash flows from investing activities: Proceeds from sales of marketable securities......... -- 8,587 Purchases of marketable securities .................. -- (4,153) Purchases of other investments ...................... (1,124) -- Purchases of property and equipment ................. (4,383) (700) Acquisitions of businesses .......................... (2,775) -- Software development costs .......................... (3,494) (1,413) ------------- ------------- Net cash provided by (used in) investing activities ...................... (11,776) 2,321 ------------- ------------- Cash flows from financing activities: Repayment of long-term debt ......................... (16,003) (550) Proceeds on issuance of subsidiary stock ............ 2,668 -- Acquisitions of treasury stock ...................... -- (6,553) Repurchase of senior subordinated notes ............. -- (8,370) Proceeds from exercise of stock options ............. 3,931 -- ------------- ------------- Net cash used in financing activities ................................ (9,404) (15,473) ------------- ------------- Effect of exchange rate fluctuations on cash .......... -- (149) ------------- ------------- Net increase in cash and cash equivalents ......................................... 5,622 160 Cash and cash equivalents, beginning .................. 10,846 29,603 ------------- ------------- Cash and cash equivalents, ending ..................... $ 16,468 $ 29,763 ============= ============= Supplemental cash flow information: Interest paid ....................................... $ 3,361 $ 776 ============= ============= Income taxes paid ................................... $ 2,893 $ 7 ============= =============
The accompanying notes are an integral part of the consolidated financial statements. 6 7 infoUSA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The accompanying unaudited financial statements have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of management, contain all adjustments, consisting of normal recurring adjustments necessary to fairly present the financial information included therein. The Company suggests that this financial data be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 1999 included in the Company's 1999 Annual Report on Form 10-K filed with the Securities and Exchange Commission. Results for the interim period presented are not necessarily indicative of results to be expected for the entire year. 2. EARNINGS PER SHARE INFORMATION The following table shows the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Options on 1.8 million shares of common stock were not included in computing diluted earnings per share for the first quarter of 2000 because their effects were antidilutive.
FOR THE QUARTERS ENDED ----------------------------- MARCH 31, MARCH 31, 2000 1999 ------------- ------------- (IN THOUSANDS) Weighted average number of shares outstanding used in basic EPS.......................................... 49,610 48,602 Net additional common equivalent shares outstanding after assumed exercise of stock options ................................................... -- 60 ------------- ------------- Weighted average number of shares outstanding used in diluted EPS ....................................... 49,610 48,662 ============= =============
3. SEGMENT INFORMATION The Company currently manages existing operations utilizing financial information accumulated and reported for two business segments. The small business segment principally engages in the selling of sales lead generation and consumer CD-Rom products to small 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. The small business and large business segments reflect actual net sales, direct order production, and identifiable direct sales and marketing costs related to their operations. The remaining indirect costs are presented as a reconciling item in corporate activities. Corporate activities principally represent the information systems technology, database compilation, database verification, and administrative functions of the Company. Investment income (loss), interest expense, income taxes, amortization of intangibles, and depreciation expense are only recorded in corporate activities. The Company does not allocate these costs to the two business segments. The Company records unusual or non-recurring items including acquisition-related and restructuring charges in corporate activities to allow for the analysis of the sales business segments excluding such unusual or non-recurring charges. The Company accounts for property and equipment on a consolidated basis. The Company's property and equipment is shared by the Company's business segments. Depreciation expense is recorded in corporate activities. 7 8 The Company has no intercompany sales or intercompany expense transactions. Accordingly, there are no adjustments necessary to eliminate amounts between the Company's segments. The following table summarizes segment information:
FOR THE QUARTER ENDED MARCH 31, 2000 -------------------------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL ------------- ------------- ------------- ------------- (IN THOUSANDS) Net sales .............................. $ 39,544 $ 41,416 $ -- $ 80,960 Non stock compensation expense ......... -- -- 1,222 1,222 Acquisition costs ...................... -- -- 1,368 1,368 Operating income (loss) ................ 10,394 17,792 (26,600) 1,586 Investment income ...................... -- -- 204 204 Interest expense ....................... -- -- 6,784 6,784 Income (loss) before income taxes ...... 10,394 17,792 (30,477) (2,291)
FOR THE QUARTER ENDED MARCH 31, 1999 -------------------------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL ------------- ------------- ------------- ------------- (IN THOUSANDS) Net sales .............................. $ 33,178 $ 22,342 $ -- $ 55,520 Operating income (loss) ................ 16,676 10,287 (15,988) 10,975 Investment income ...................... -- -- 2,484 2,484 Interest expense ....................... -- -- 3,114 3,114 Income (loss) before income taxes and extraordinary item ................. 16,676 10,287 (16,618) 10,345
4. COMPREHENSIVE INCOME Comprehensive income, including the components of other comprehensive income, is as follows:
FOR THE QUARTERS ENDED ------------------------------ MARCH 31, MARCH 31, 2000 1999 ------------- ------------- (IN THOUSANDS) Net income (loss) .......................................... $ (1,686) $ 6,313 Other comprehensive income (loss): Unrealized gain (loss) from investments: Unrealized gains ....................................... -- 3,733 Related tax expense .................................... -- (1,799) ------------- ------------- Net .................................................... -- 2,314 ------------- ------------- Reclassification adjustment for net gains (losses) realized on sale of marketable securities: Unrealized gains ....................................... -- 1,206 Related tax expense .................................... -- (458) ------------- ------------- Net .................................................... -- 748 ------------- ------------- Foreign currency translation adjustments ................. 7 (634) ------------- ------------- Total other comprehensive income ........................... 7 2,428 ------------- ------------- Comprehensive income (loss) ................................ $ (1,679) $ 8,741 ============= =============
8 9 The components of accumulated other comprehensive income are as follows:
FOREIGN ACCUMULATED CURRENCY UNREALIZED OTHER TRANSLATION GAINS ON COMPREHENSIVE ADJUSTMENTS SECURITIES INCOME ------------- ----------- ------------- (IN THOUSANDS) Balance at March 31, 2000 ..................... $ (634) $ -- $ (634) ============= ============= ============= Balance at March 31, 1999 ..................... $ (634) $ 6,376 $ 5,742 ============= ============= =============
5. GAIN ON ISSUANCE OF SUBSIDIARY STOCK During the first quarter of 2000, infoUSA.com, a subsidiary of the Company, completed additional venture capital financing. As a result of the issuance of common stock of this subsidiary, the Company recorded a non-taxable gain of $2.4 million on the transaction. 6. ACQUISITION Effective March 2000, the Company acquired all issued and outstanding common stock of American Church Lists, a national proprietary database of religious institutions, organizations and affiliations. Total consideration for the acquisition was $2.0 million, funded using cash provided by operations. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of American Church Lists have been included in the Company's financial statements since the date of acquisition. Intangibles recorded as part of the purchase included goodwill of $2.1 million, which is being amortized over 15 years. No pro forma operating results have been included as the Company has determined that the results of operations for American Church Lists are not material. 7. ACQUISITION COSTS During the first quarter of 2000, the Company recorded acquisition costs of $1.4 million associated with the Company's bid to acquire the consumer database division of R.L. Polk. This entity was acquired by Equifax Inc. in May 2000. 8. NON-CASH STOCK COMPENSATION EXPENSE The Company's partially-owned subsidiary, infoUSA.com, sponsors an Equity Incentive Plan in which shares of common stock are reserved for issuance to officers, directors, employees and consultants of the subsidiary. Options granted during the quarter ended March 31, 2000 were generally with an option price less than the stock's fair market value on the date of grant. The Company uses Accounting Principles Bulletin (APB) Opinion No. 25 to account for stock-based compensation and, as such, has recorded a non cash charge of $1.2 million during the quarter ended March 31, 2000 related to the issuance of stock options for infoUSA.com. The charge was recorded as an addition to paid-in-capital. 9. CONTINGENCIES The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. Management believes that any resulting liability should not materially affect the Company's financial position, results of operations, or cash flows. 10. SUBSEQUENT EVENT Effective May 2000, the Company acquired certain assets and assumed certain liabilities of idEXEC, a Thomson Financial company. idEXEC provides a worldwide database of 60,000 large businesses and 400,000 executives for business-to-business prospecting, marketing, and research applications. Total consideration for the acquisition is estimated to be approximately $7.5 million, consisting of $5.0 million in cash, funded using cash provided by operations, and 391,000 shares of common stock, funded using shares of treasury stock held by the Company. 9 10 infoUSA INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Company is a leading provider of business and consumer marketing information and data processing services. The Company's products and services help its clients generate new customers more effectively at lower cost. The Company's key assets include a proprietary database of over 11 million businesses and a consumer database of over 115 million households and 195 million individuals in the United States and Canada, which the Company believes are among the most comprehensive and accurate available. The Company leverages these key assets by selling a broad range of marketing information products and data processing services through targeted distribution channels primarily to small and medium size businesses and also to consumers and large corporations. This discussion and analysis contains forward-looking statements, including without limitations statements in the discussion of net sales, database and production costs and liquidity and capital resources, within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, which are subject to the "safe harbor" created by those sections. The Company's actual future results could differ materially from those projected in the forward-looking statements. Some factors which could cause future actual results to differ materially from the company's recent results or those projected in the forward-looking statements are described in "Factors Affecting Operating Results" below. The Company assumes no obligation to update the forward-looking statement or such factors. 10 11 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected financial information and other data. The amounts and related percentages may not be fully comparable due to the acquisitions of Donnelley Marketing (Donnelley) during July 1999 and American Church Lists during March 2000:
FOR THE QUARTERS ENDED CONSOLIDATED STATEMENT OF OPERATIONS DATA: MARCH 31, --------------------- 2000 1999 -------- -------- Net sales ................................................................. 100% 100% Costs and expenses: Database and production costs ........................................... 32 29 Selling, general and administrative ..................................... 48 40 Depreciation and amortization ........................................... 15 11 Non-cash stock compensation expense ..................................... 1 -- Acquisition costs ....................................................... 2 -- -------- -------- Total costs and expenses ............................................. 98 80 -------- -------- Operating income .......................................................... 2 20 Other income (expense), net ............................................... (5) (1) -------- -------- Income before income taxes and extraordinary item ......................... (3) 19 Income taxes .............................................................. (1) 8 -------- -------- Income (loss) before extraordinary item ................................... (2) 11 Extraordinary item, net of tax ............................................ -- -- -------- -------- Net income (loss) ......................................................... (2)% 11% ======== ======== OTHER DATA: SALES BY SEGMENT: (amounts in thousands) Small business ..................................................... $ 39,544 $ 33,178 Large business ..................................................... 41,416 22,342 -------- -------- Total .............................................................. $ 80,960 $ 55,520 ======== ======== SALES BY SEGMENT AS A PERCENTAGE OF NET SALES: Small business ..................................................... 49% 60% Large business ..................................................... 51 40 -------- -------- Total .............................................................. 100% 100% ======== ======== (amounts in thousands) Amortization expense of goodwill and related intangibles (1) ....... $ 7,959 $ 3,280 ======== ======== Earnings before interest, taxes, depreciation and amortization (EBITDA), as adjusted (2) ............................. $ 15,164 $ 17,008 ======== ======== EBITDA, as adjusted as a percentage of net sales ..................... 19% 31% ======== ========
(1) This represents amortization expense recorded by the Company on all intangibles recorded as part of the acquisition of other companies, and excludes amortization related to deferred financing costs, software development costs, and other intangible assets not recorded as part of an acquisition of another company. (2) "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. 11 12 The Company has supplemented its internal growth through strategic acquisitions. The Company has completed thirteen acquisitions since mid-1996. Through these acquisitions, the Company has increased its presence in the consumer marketing information industry, greatly increased its ability to provide data processing solutions, added two consumer CD-Rom product lines, increased its presence in list management and list brokerage services and broadened its offerings of business marketing information. The Company has previously made certain disclosures relative to the continuing results of operations of acquired companies where appropriate and possible, although the Company has in the case of all acquisitions since 1996, immediately integrated the operations of the acquired companies into existing operations of the Company. Generally, the results of operations for these acquired activities are no longer separately accounted for from existing activities. The Company cannot report on the results of operations of acquired companies upon completion of the integration as the results are "commingled" with existing results. Additionally, upon integration of acquired operations, the Company frequently combines acquired products or features with existing products, and experiences significant cross-selling of products between business units, including sales of acquired products by existing business units and sales by acquired business units of existing products. Due to recent and potential future acquisitions, future results of operations will not be comparable to historical data. While the results cannot be accurately quantified, acquisitions have had a significant impact on net sales. Since 1996, database and production costs have increased as a percentage of net sales as a result of higher costs associated with data processing services and CD-Rom production. To the extent that data processing and CD-Rom sales constitute a greater percentage of net sales, the Company expects database and production costs to increase as a percentage of net sales in the future. Since 1997, net sales of the Company's large business segment have increased as a percentage of the Company's total net sales, due to the acquisition of the Database America Companies, Walter Karl, JAMI Marketing and Donnelley Marketing. FIRST QUARTER 2000 COMPARED TO FIRST QUARTER 1999 Net sales Net sales for the quarter ended March 31, 2000 were $81.0 million, an increase of 46% from $55.5 million for the same period of 1999. The increase in net sales is principally due to the acquisition of Donnelley in July 1999. Net sales of the small business segment for the quarter ended March 31, 2000 were $39.5 million, a 19% increase from $33.2 million for the same period of 1999. The small business segment principally engages in the selling of sales lead generation and consumer CD-Rom products to small to medium sized companies, small office and home office businesses and individual consumers. This segment includes the sale of content via the Internet. The increase in the net sales of the small business segment is principally due to the acquisition of Donnelley in July 1999 and the related sale of Donnelley's consumer data by the Company. Net sales of the large business segment for the quarter ended March 31, 2000 were $41.4 million, an 85% increase from $22.3 million for the same period of 1999. The large business segment principally engages in the selling of data processing services, licensed databases, database marketing solutions and list brokerage and list management services to large companies. This segment includes the licensing of databases for Internet directory assistance services. The Company recorded net sales of data processing services of $19.9 million for the quarter ended March 31, 2000, compared to $14.5 million for the same period of 1999. The increase in net sales of data processing services is principally due to the acquisition of Donnelley in July 1999. Net sales of Internet-based database licenses were $4.1 million, a 58% increase from $2.6 million for the same period of 1999. Since mid-1999, the Company has been successfully renewing and signing new Internet license agreements using a variable CPM model, no longer entering into Internet-based license agreements on a flat fee basis. 12 13 Database and production costs Database and production costs for the quarter ended March 31, 2000 were $25.6 million, or 32% of net sales, compared to $16.2 million, or 29% of net sales for the same period of 1999. The increase in database and production costs as a percentage of net sales is principally due to the acquisition of Donnelley in July 1999. Database and production costs as a percentage of net sales associated with the Donnelley operations are higher than database and production costs as a percentage of net sales associated with the remainder of the Company's operations. Additionally, the increase in database and production costs as a percentage of net sales is partially due to the execution of the Company's planned expansion related to various Internet initiatives. Database and production costs related to the various Internet divisions increased $1.0 million, or 1% of net sales, from the first quarter of 1999 to the first quarter of 2000. Selling, general and administrative expenses Selling, general and administrative expenses for the quarter ended March 31, 2000 were $38.8 million, or 48% of net sales, compared to $22.3 million, or 40% of net sales for the same period of 1999. The increase in selling, general and administrative expenses as a percentage of net sales is principally due to the Company's planned expansion related to various Internet initiatives. Selling, general and administrative expenses related to the various Internet divisions increased $5.8 million, or 7% of net sales, from the first quarter of 1999 to the first quarter of 2000. Depreciation and amortization expenses Depreciation and amortization expenses for the quarter ended March 31, 2000 were $12.4 million, or 15% of net sales, compared to $6.0 million, or 11% of net sales for the same period of 1999. The increase in depreciation and amortization expenses is principally due to the acquisition of Donnelley in July 1999. Non cash stock compensation expense During the quarter ended March 31, 2000, the Company recorded a non cash charge of $1.2 million, or 1% of net sales, related to the issuance of stock options for infoUSA.com, a subsidiary of the Company. The charge was recorded as an addition to paid-in-capital. Acquisition costs During the quarter ended March 31, 2000, the Company recorded acquisition costs of $1.4 million, or 2% of net sales, associated with the Company's bid to acquire the consumer database division of R.L. Polk. This entity was acquired by Equifax Inc. in May 2000. Operating income Including the factors previously described, the Company had operating income of $1.6 million, or 2% of net sales for the quarter ended March 31, 2000, as compared to operating income of $11.0 million, or 20% of net sales for the same period of 1999. Operating income for the small business segment for the quarter ended March 31, 2000 was $10.4 million, or 26% of net sales, as compared to $16.7 million, or 50% of net sales for the same period of 1999. The decrease in operating income as a percentage of net sales is principally due to the Company's execution of the planned expansion related to various Internet initiatives. Certain costs related to the Internet divisions are included in the small business segment. See the section "Selling, general and administrative expenses" and "database and production costs" for additional information. Operating income for the large business segment for 1999 was $17.8 million, or 43% of net sales, as compared to $10.3 million, or 46% of net sales for the same period of 1999. The decrease in operating income as a percentage of net sales is principally due to the acquisition of Donnelley in July 1999. The operating margins associated with Donnelley are slightly lower than the operating margins associated with the remainder of the Company's large business segment. 13 14 Other income (expense), net Other income (expense), net was $(3.9) million, or 5% of net sales, and $(0.6) million, or 1% of net sales, for the quarters ended March 31, 2000 and 1999, respectively. Other income (expense) is comprised of interest expense, investment income, minority interest in subsidiary and other income or expense items which do not represent components of operating income (expense) of the Company. Interest expense was $6.8 million and $3.1 million for the quarters ended March 31, 2000 and 1999, respectively. The increase in interest expense is principally the result of the addition of the Deutsche Bank Credit Facilities used to finance the acquisition of Donnelley in July 1999. Investment income was $0.2 million and $2.5 million for the quarters ended March 31, 2000 and 1999, respectively. The Company recorded realized gains on the sale of marketable securities totaling $2.0 million for the quarter ended March 31, 1999. During the quarter ended March 31, 2000, infoUSA.com, a subsidiary of the Company, completed additional venture capital financing. As a result of the issuance of stock of this subsidiary, the Company recorded a gain of $2.4 million on the transaction. Minority interest in subsidiary of $274 thousand for the quarter ended March 31, 2000 represents the unaffiliated investors' share of infoUSA.com's net loss for the period then ended. Income taxes A provision for income taxes of $(0.6) million and $4.2 million was recorded for the quarters ended March 31, 2000 and 1999, respectively. The gain the Company recorded during the quarter ended March 31, 2000 of $2.4 million on the issuance of subsidiary stock is not subject to income tax expense. The provisions for these periods also reflect the inclusion of amortization of certain intangibles in taxable income not deductible for tax purposes. Amortization expenses of $3.1 million and $793 thousand were not deductible for tax purposes for the quarters ended March 31, 2000 and 1999, respectively. Extraordinary item, net of tax During the quarter ended March 31, 1999, the Company repurchased $9.0 million of its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection with the repurchase of the Notes, the Company recorded a gain of $0.1 million, net of deferred financing costs of $0.4 million written-off in proportion to the face amount of Notes purchased and retired. EBITDA, as adjusted Excluding the non cash stock compensation expense previously described, the Company's EBITDA, as adjusted, was $15.2 million, or 19% of net sales for the quarter ended March 31, 2000, and $17.0 million, or 31% of net sales for the same period of 1999. YEAR 2000 READINESS DISCLOSURE The total estimated costs associated with the Company's Year 2000 remediation plan were $5.0 million. As of the date of this Form 10-Q, the Company has not experienced any material business disruptions as a result of Year 2000 issues arising from its information systems, nor is it aware of any material Year 2000 related business interruptions impacting its clients or service providers. However, the Company cannot be certain that it will not suffer business interruptions, either due to its own Year 2000 issues that may develop or those of third parties. Accordingly, there can be no assurance the Company or third parties will not have ongoing Year 2000 issues that may have a material adverse effect on the Company. 14 15 ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivatives be recognized as either assets or liabilities in the balance sheet and measured at their fair value. If certain conditions are met, a derivative may be specifically designated as (i) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (ii) a hedge of the exposure to variable cash flows of a forecasted transaction or (iii) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign-currency denominated forecasted transaction. SFAS 133, as amended by Statement of Financial Accounting Standards No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company does not expect the effect of SFAS 133 to be significant to its financial reporting. LIQUIDITY AND CAPITAL RESOURCES As of March 31, 2000, the Company's principal sources of liquidity included cash and cash equivalents of $16.5 million. As of March 31, 2000, the Company had working capital of $38.1 million. During 1999 in conjunction with the acquisition of Donnelley, the Company negotiated a new credit arrangement which includes a Revolving Credit Facility of $30.0 million. As of March 31, 2000, the Company had no borrowings under the Revolving Credit Facility, with the exception of one outstanding letter of credit in the amount of $5.0 million reducing the availability under the Revolving Credit Facility to $25.0 million. Net cash provided by operating activities during the three month period ended March 31, 2000, totaled $26.8 million compared to $13.5 million during the same period of 1999. The increase is principally the result of the receipt of $14.0 million during the quarter ended March 31, 2000 which represented a customer deposit on a long-term data license arrangement. During the three month period ended March 31, 2000, the Company spent $4.4 million for additions of property and equipment and $3.5 million related to internal software development costs. The Company acquired American Church Lists effective March 2000 for $2.0 million in cash. During the three month period ended March 31, 2000, the Company received cash proceeds of $2.7 million on the issuance of stock in its subsidiary infoUSA.com and $3.9 million from the exercise of stock options. The Company made repayments on long-term debt totaling $16.0 million during the three month period ended March 31, 2000. Other liabilities at March 31, 2000 of $12.0 million represent a customer deposit on a long-term data license arrangement. The Company believes that its existing sources of liquidity and cash generated from operations, assuming no major acquisitions, will satisfy the Company's projected working capital and other cash requirements for at least the next 12 months. To the extent the Company experiences growth in the future, the Company anticipates that its operating and investing activities may use cash. Any such future growth and any acquisitions of other technologies, products or companies may require the Company to obtain additional equity or debt financing, which may not be available or may be dilutive. FACTORS THAT MAY AFFECT OPERATING RESULTS Our Internet strategy -- to be an incubator of Internet database companies -- is untested. Our Internet strategy is to be an incubator of Internet database companies. With this strategy, we are seeking to leverage our proprietary content into multiple vertical market applications and provide marketing solutions for electronic commerce applications. We recently introduced this strategy and it is relatively untested. We cannot guarantee that our Internet ventures will attract the number of visitors or advertisers that we project, or that our customers will choose to have our products and services delivered to them over the Internet. If we are successful in these ventures, we may face strong competition from current and potential competitors, including other Internet companies and other providers of business and consumer databases. Implementation of our Internet strategy is dependent on our ability to attract and retain senior management. 15 16 The demand for senior management for Internet companies currently exceeds the supply of qualified candidates. The management team for our Internet ventures will include senior managers who have been with us for many years as well as newly hired senior managers. If we are unable to retain these managers or to attract other qualified senior management, the implementation of our Internet strategy may be delayed or impaired. Our markets are highly competitive and many of our competitors have greater resources than we do. The business and consumer marketing information industry in which we operate is highly competitive. Intense competition could harm us by causing, among other things, price reductions, reduced gross margins, and loss of market share. Our competition includes: o In consumer sales lead generation products, Acxiom, Experian (a subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax, both directly and through reseller networks. o In data processing services, Acxiom, May & Speh, Experian, Direct Marketing Technologies (a subsidiary of GUS), Snyder Communications, Inc. and Harte-Hanks Communications, Inc. o In business sales lead generation products, Experian and Dun's Marketing Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon information compiled from Dun & Bradstreet's credit database, tends to focus on marketing to large companies. o In business directory publishing, Regional Bell Operating Companies and many smaller, regional directory publishers. o In consumer products, certain smaller producers of CD-Rom products. o Technologies which companies may install and implement in-house as part of their internal IS functions, instead of purchasing or outsourcing such functions. In addition, we may face competition from new entrants to the business and consumer marketing information industry as a result of the rapid expansion of the Internet, which creates a substantial new channel for distributing business information to the market. Many of our competitors have longer operating histories, better name recognition and greater financial resources than we do, which may enable them to implement their business strategies more readily than we can. We are highly leveraged. If we are unable to service our debt as it becomes due, our business would be harmed. As of March 31, 2000, we had total indebtedness of approximately $261.5 million, including $106.0 million of Notes under an indenture (the "Indenture") and $139.8 million under a $195 million Senior Secured Credit Agreement. Substantially all of our assets are pledged as security under the terms of the Credit Agreement. The indebtedness under the Credit Agreement was incurred in connection with our acquisition of Donnelley Marketing in 1999. Our ability to pay principal and interest on the Notes issued under the Indenture and the indebtedness under the Credit Agreement and to satisfy our other debt obligations will depend upon our future operating performance. Our performance will be affected by prevailing economic conditions and financial, business and other factors. Certain of these factors are beyond the our control. The future availability of revolving credit under the Credit Agreement will depend on, among other things, our ability to meet certain specified financial ratios and maintenance tests. We expect that our operating cash flow should be sufficient to meet our operating expenses, to make necessary capital expenditures and to service our debt requirements as they become due. If we are unable to service our indebtedness, however, we will be forced to take actions such as reducing or delaying acquisitions and/or capital expenditures, selling assets, restructuring or refinancing our indebtedness (including the Notes issued under the Indenture and the Credit Agreement) or seeking additional equity capital. We may not be able to obtain any such remedies on terms that are favorable or satisfactory to us, if at all. The terms of our current indebtedness restrict our ability to take certain actions that fit our business strategy. Our existing credit facilities contain certain covenants which restrict our ability to: o Incur additional indebtedness; o Pay dividends and make certain other similar payments; 16 17 o Guarantee indebtedness of others; o Enter into certain transactions with affiliates; o Consummate certain asset sales, certain mergers and consolidations, sales or other dispositions of all or substantially all of our assets; and o Obtain dividends or certain other payments from our subsidiaries. These restrictions may impair our ability to take certain actions that fit our business strategy. A breach of any of these covenants could result in an event of default under the terms of our existing credit facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If the payment of any such indebtedness is accelerated, our assets may not be sufficient to repay in full the indebtedness under our credit facilities and our other indebtedness. Moreover, if we were unable to repay amounts owed to the lenders under our credit facilities, the lenders could foreclose on our assets that secure the indebtedness. Under the terms of our current indebtedness, the occurrence of a change of control of infoUSA could have serious adverse financial consequences to us. If a change of control of infoUSA were to occur, we would in certain circumstances be required to make an offer to purchase all outstanding Notes under the Indenture at a purchase price equal to 101% of the principal amount of the Notes, together with accrued and unpaid interest. There can be no guarantee that, if this were to happen, we would have sufficient funds to purchase the Notes. In addition, a change of control and any repurchase of the Notes upon a change of control may constitute an event of default under our other current or future credit facilities. In that event, our obligations under such credit facilities could be declared due and payable by the lenders, and the lenders may also have the right to be paid for all outstanding obligations under such credit facilities before we repurchase any of the Notes. Fluctuations in our operating results may result in decreases in the market price of our common stock. Our operating results may fluctuate on a quarterly and annual basis. Our expense levels are relatively fixed and are based, in part, on our expectations as to future revenues. As a result, unexpected changes in revenue levels may have a disproportionate effect on operating performance in any given period. In some period or periods our operating results may be below the expectations of public market analysts and investors. Our failure to meet analyst or investor expectations could result in a decrease in the market price of our common stock. If we do not adapt our products and services to respond to changes in technology, they could become obsolete. We provide marketing information and services to our customers in a variety of formats, including printed formats, electronic formats such as CD-Rom and DVD, and over the Internet. Advances in information technology may result in changing customer preferences for products and product delivery formats. If we do not successfully adapt our products and services to take advantage of changes in technology and customer preferences, our business, financial condition and results of operations would be adversely affected. We have adopted an Internet strategy because we believe that the Internet represents an important and rapidly evolving market for marketing information products and services. Our business, financial condition and results of operations would be adversely affected if we: o Fail to develop products and services that are well suited to the Internet market; o Experience difficulties that delay or prevent the successful development, introduction and marketing of these products and services; or o Fail to achieve sufficient traffic to our Internet sites to generate significant revenues, or to successfully implement electronic commerce operations. 17 18 Changes in laws and regulations relating to data privacy could adversely affect our business. We engage in direct marketing, as do many of our customers. Certain data and services provided by us are subject to regulation by federal, state and local authorities. In addition, growing concerns about individual privacy and the collection, distribution and use of information about individuals have led to self-regulation of such practices by the direct marketing industry through guidelines suggested by the Direct Marketing Association and to increased federal and state regulation. There is increasing awareness and concern among the general public regarding marketing and privacy concerns, particularly as it relates to the Internet. This concern is likely to result in new laws and regulations. Compliance with existing federal, state and local laws and regulations and industry self-regulation has not to date seriously affected our business, financial condition or results of operations. Nonetheless, federal, state and local laws and regulations designed to protect the public from the misuse of personal information in the marketplace and adverse publicity or potential litigation concerning the commercial use of such information may increasingly affect our operations. This could result in substantial regulatory compliance or litigation expense or a loss of revenue. Our business would be harmed if we do not successfully integrate future acquisitions. Our business strategy includes continued growth through acquisitions of complementary products, technologies or businesses. We have made thirteen acquisitions since mid-1996. We continue to evaluate strategic opportunities available to us and intend to pursue opportunities that we believe fit our business strategy. Acquisitions of companies, products or technologies may result in the diversion of management's time and attention from day-to-day operations of our business and may entail numerous other risks, including difficulties in assimilating and integrating acquired operations, databases, products, corporate cultures and personnel, potential loss of key employees of acquired businesses, difficulties in applying our internal controls to acquired businesses, and particular problems, liabilities or contingencies related to the businesses being acquired. To the extent our efforts to integrate future acquisitions fail, our business, financial condition and results of operations would be adversely affected. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is not exposed to significant future earnings or cash flow exposures from changes in interest rates on long-term debt as a significant portion of the Company's debt is at fixed interest rates and the Company has entered into long-term interest rate swap agreements used to reduce the potential impact of changes in interest rates on floating rate debt. The Company is not exposed to material future earnings or cash flow exposures from fluctuations in foreign currency exchange rates as operating results related to foreign operations are not material. 18 19 Info USA INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 PART II OTHER INFORMATION 19 20 Info USA INC. FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2000 PART II ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the 2000 Annual Meeting of Stockholders of the Company held on April 28, 2000, the stockholders voted and approved the following items: 1. Elected the following directors to the Board of Directors for a term of three years. Vinod Gupta FOR: 45,009,388 George Haddix FOR: 45,014,778 2. The stockholders also ratified the appointment of KPMG LLP as the Company's independent auditors to examine the financial statements of the Company for the fiscal year 2000. FOR: 44,991,090 AGAINST: 45,176 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 27 Financial Data Schedule (b) Report on Form 8-K No reports on Form 8-K have been filed during the quarter ended March 31, 2000 20 21 S I G N A T U R E S Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. infoUSA INC. Date: May 15, 2000 /s/ STORMY L. DEAN ---------------------------- Stormy L. Dean, Chief Financial Officer (principal financial officer) 21 22 INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION ----------- ----------- 27 Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 16,468 70 64,152 0 0 102,090 95,366 39,809 474,628 63,990 248,717 0 0 127 114,952 474,628 80,960 0 0 79,374 0 0 6,784 (2,291) (605) (1,686) 0 0 0 (1,686) (0.03) (0.03)
-----END PRIVACY-ENHANCED MESSAGE-----