-----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, AjhJsQpCjnP51JxrOmDnYuyscJWy4LZTHmtnqGujFeQO8NgnOBV1iw5WCxveZlVW HnEsIViZFfNlyV3Yw6SOng== 0000950134-99-008734.txt : 19991018 0000950134-99-008734.hdr.sgml : 19991018 ACCESSION NUMBER: 0000950134-99-008734 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990723 ITEM INFORMATION: FILED AS OF DATE: 19991006 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: 8-K/A SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 99723888 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 8-K/A 1 AMENDMENT NO. 1 TO FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K /A Amendment No. 1 CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JULY 23, 1999 infoUSA INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 0-19598 47-0751545 (STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (402)593-4500 NOT APPLICABLE (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) 2
PAGE Item 7. Pro forma Financial Information and Financial Statements (a) Pro Forma financial information Pro Forma Consolidated Balance Sheet as of June 30, 1999 Pro Forma Consolidated Statement of Operations for the six months ended June 30, 1999 and the year ended December 31, 1998 Notes to Pro Forma Consolidated Financial Statements (b) Financial statements of business acquired. The following consolidated financial statements of DM Holdings, Inc. and subsidiaries (operating as Donnelley Marketing) are filed with this report: Report of Independent Public Accountants Balance Sheets as of June 30, 1999 and December 31, 1998 and 1997 Statements of Operations and Retained Earnings for the six months ended June 30, 1999, the years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 Statements of Cash Flows for the six months ended June 30, 1999, the years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 Notes to Financial Statements (c) Exhibits 23.1 Consent of Independent Accountants, filed herewith. 23.2 Consent of Independent Accountants, filed herewith.
3 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS The following unaudited pro forma consolidated balance sheet and statements of operations give effect to the purchase transaction pursuant to the Agreement and Plan of Merger dated July 23, 1999 between infoUSA Inc. ("infoUSA") and DM Holdings, Inc. and subsidiaries (operating as Donnelley Marketing). This business combination will be accounted for using the purchase method of accounting. Pro forma adjustments and the assumptions on which they are based are described in the accompanying footnotes to the pro forma consolidated financial statements. The accompanying pro forma consolidated balance sheet as of June 30, 1999 contains those pro forma adjustments necessary to reflect the business combination as if it was consummated on that date. The accompanying pro forma consolidated statements of operations for the year ended December 31, 1998 and the six months ended June 30, 1999 contain those pro forma adjustments necessary to reflect the business combination as if it was consummated on January 1, 1998 and January 1, 1999, respectively. The unaudited pro forma consolidated financial statements are based upon the historical financial statements of infoUSA and Donnelley Marketing and should be read in conjunction with those financial statements and notes thereto appearing in infoUSA's 1998 Form 10-K and June 30, 1999 Form 10-Q and elsewhere in this document. The unaudited pro forma consolidated financial data do not purport to be indicative of the results which would have actually been attained had the business combination been consummated on the dates indicated or of the results which may be expected to occur in the future. October 1, 1999 4 infoUSA INC. Pro Forma Consolidated Balance Sheet As of June 30, 1999 (Amounts in thousands)
HISTORICAL HISTORICAL infoUSA DONNELLEY PRO FORMA PRO FORMA ASSETS INC. MARKETING ADJUSTMENTS COMBINED ----------- ----------- ----------- ----------- Current assets: Cash and cash equivalents $ 38,489 572 (44,343)(h) (5,282) Marketable securities 15,290 -- -- 15,290 Trade accounts receivable, net 43,364 14,451 -- 57,815 List brokerage trade receivable, net 11,167 -- -- 11,167 Income taxes receivable 147 -- -- 147 Prepaid expenses 3,727 446 -- 4,173 Deferred marketing costs 3,784 -- -- 3,784 ----------- ----------- ----------- ----------- Total current assets 115,968 15,469 (44,343) 87,094 Property and equipment, net 42,212 8,381 (2,181)(i) 48,412 Intangible assets, net 102,484 191,895 14,232 308,611 Other assets 3,529 -- -- 3,529 ----------- ----------- ----------- ----------- $ 264,193 215,745 (32,292) 447,646 =========== =========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 2,550 -- -- 2,550 Accounts payable 5,745 2,439 2,250 (j) 10,434 List brokerage trade payable, net 12,225 -- -- 12,225 Accrued payroll expenses 5,455 3,942 -- 9,397 Accrued expenses 4,995 -- -- 4,995 Deferred revenue 5,661 -- -- 5,661 Deferred income taxes 5,728 (1,372) -- 4,356 ----------- ----------- ----------- ----------- Total current liabilities 42,359 5,009 2,250 49,618 ----------- ----------- ----------- ----------- Long-term debt, net of current portion 118,498 201,444 (36,444) 283,498 Deferred income taxes 6,540 9,844 -- 16,384 Other liabilities -- 1,350 -- 1,350 Stockholders' equity: Preferred stock -- -- -- -- Common stock: Class A 62 -- -- 62 Class B 62 -- -- 62 Paid-in capital 73,355 -- -- 73,355 Retained earnings 27,282 (1,902) 1,902 27,282 Treasury stock (9,442) -- -- (9,442) Accumulated translation adjustments (634) -- -- (634) Net unrealized holding gain 6,111 -- -- 6,111 ----------- ----------- ----------- ----------- Total stockholder' equity 96,796 (1,902) 1,902 96,796 ----------- ----------- ----------- ----------- $ 264,193 215,745 (32,292) 447,646 =========== =========== =========== ===========
See accompanying notes to pro forma consolidated financial statements. 2 5 infoUSA INC. Pro Forma Consolidated Statement of Operations Six months ended June 30, 1999 (Amounts in thousands, except per share amounts)
HISTORICAL HISTORICAL infoUSA DONNELLEY PRO FORMA PRO FORMA INC. MARKETING ADJUSTMENTS COMBINED ---------- ----------- ----------- ----------- Net sales $ 113,093 42,535 3,398 (a) 159,026 ---------- ---------- ----------- ----------- Costs and expenses: Data base and production costs 33,290 21,839 -- 55,129 Selling, general, and administrative 46,098 17,159 (3,111)(b,c,d) 60,146 Depreciation and amortization 11,727 6,392 2,119 (e) 20,238 ---------- ---------- ----------- ----------- Total costs and expenses 91,115 45,390 (992) 135,513 ---------- ---------- ----------- ----------- Operating income (loss) 21,978 (2,855) 4,390 23,513 ---------- ---------- ----------- ----------- Other income (expense): Investment income 4,188 -- -- 4,188 Interest expense (6,048) (5) (7,128)(f) (13,181) ---------- ---------- ----------- ----------- Total other expense (1,860) (5) (7,128) (8,993) ---------- ---------- ----------- ----------- Income (loss) before income taxes 20,118 (2,860) (2,738) 14,520 Income taxes 8,248 109 745 (g) 9,102 ---------- ---------- ----------- ----------- Income (loss) before extraordinary item 11,870 (2,969) (3,483) 5,418 Extraordinary item, net of tax 128 -- -- 128 ---------- ---------- ----------- ----------- Net income (loss) $ 11,998 (2,969) (3,483) 5,546 ========== ========== =========== =========== Basic earnings (loss) per share: Net income (loss) $ 0.25 (0.06) (0.07) 0.12 ========== ========== =========== =========== Average shares outstanding 48,417 48,417 48,417 48,417 ========== ========== =========== =========== Diluted earnings (loss) per share: Net income (loss) $ 0.25 (0.06) (0.07) 0.12 ========== ========== =========== =========== Average shares outstanding 48,465 48,465 48,465 48,465 ========== ========== =========== ===========
See accompanying notes to pro forma consolidated financial statements. 3 6 infoUSA INC. Pro Forma Consolidated Statement of Operations Year ended December 31, 1998 (Amounts in thousands, except per share amounts)
HISTORICAL HISTORICAL infoUSA DONNELLEY PRO FORMA PRO FORMA INC. MARKETING ADJUSTMENTS COMBINED ----------- ----------- ----------- ---------- Net sales $ 228,678 86,725 7,146 (a) 322,549 ----------- ----------- ----------- ---------- Costs and expenses: Data base and production costs 66,319 44,946 -- 111,265 Selling, general, and administrative 117,724 35,315 (6,093)(b,c,d) 146,946 Depreciation and amortization 27,472 12,588 4,434 (e) 44,494 Provision for litigation settlement 4,500 -- -- 4,500 Acquisition-related and restructuring charges 10,093 -- -- 10,093 ----------- ----------- ----------- ---------- Total costs and expenses 226,108 92,849 (1,659) 317,298 ----------- ----------- ----------- ---------- Operating income (loss) 2,570 (6,124) 8,805 5,251 ----------- ----------- ----------- ---------- Other income (expense): Investment income 16,628 133 -- 16,761 Interest expense (9,160) -- (14,255)(f) (23,415) Other (2,000) -- -- (2,000) ----------- ----------- ----------- ---------- Total other income (expense) 5,468 133 (14,255) (8,654) ----------- ----------- ----------- ---------- Income (loss) before income taxes 8,038 (5,991) (5,450) (3,403) Income tax expense (benefit) 5,880 (63) 1,499 (g) 7,316 ----------- ----------- ----------- ---------- Net income (loss) $ 2,158 (5,928) (6,949) (10,719) =========== =========== =========== ========== Basic earnings (loss) per share: Net income (loss) $ 0.04 (0.12) (0.14) (0.22) =========== =========== =========== ========== Average shares outstanding 49,314 49,314 49,314 49,314 =========== =========== =========== ========== Diluted earnings (loss) per share: Net income (loss) $ 0.04 (0.12) (0.14) (0.22) =========== =========== =========== ========== Average shares outstanding 50,215 50,215 50,215 50,215 =========== =========== =========== ==========
See accompanying notes to pro forma consolidated financial statements. 4 7 infoUSA INC. Notes to Unaudited Pro Forma Condensed Financial Statements (Amounts in thousands) (1) BASIS OF PRESENTATION The unaudited pro forma consolidated balance sheet reflects the historical financial position of infoUSA and DM Holdings, Inc. (operating as Donnelley Marketing) at June 30, 1999, with pro forma adjustments as if the business combination had taken place on June 30, 1999. The unaudited pro forma consolidated statements of operations for the year ended December 31, 1998 and six months ended June 30, 1999 reflect the historical results of operations of infoUSA and Donnelley Marketing, with pro forma adjustments based on the assumption the business combination was effective January 1, 1998 and January 1, 1999. (2) DESCRIPTION OF TRANSACTION Effective July 1, 1999, the Company acquired all issued and outstanding common stock of Donnelley Marketing. Consideration for the acquisition was $200.0 million in cash plus any related acquisition costs, which will be funded through a combination of existing cash of $43,771 and borrowings under senior secured credit facilities of $165 million, further described below. The acquisition will be accounted for using the purchase method of accounting. The aggregate purchase price of the acquisition was allocated based upon management's best estimate of the fair value of identifiable assets and liabilities of Donnelley Marketing at the date of acquisition as follows: Current assets $ 16,269 Property and equipment, net 6,200 Intangible assets, net 206,127 Current liabilities (8,631) Long-term debt (165,000) Deferred taxes, long-term (9,844) Other liabilities (1,350) ---------- Total $ 43,771 ==========
(3) The unaudited pro forma consolidated financial statements reflect the following adjustments: (a) A pro forma adjustment of $7.1 million and $3.4 million in 1998 and 1999, respectively, was made to reflect the incremental guaranteed license revenue from agreement with First Data Corporation ("FDC") entered into as part of the purchase transaction. (b) To eliminate salaries and wages associated with the white page compilation because the same function and data are obtained from existing functions. Elimination of this function has no effect on revenues. The adjustments for the year ended December 31, 1998 and the six months ended June 30, 1999 were $1,668 and $859, respectively. (c) To eliminate costs associated with employees and facilities not assumed by infoUSA Inc. which will not be acquired as part of the acquisition. The adjustments for the year ended December 31, 1998 and the six months ended June 30, 1999 were $3,425 and $1,752, respectively. (d) To reflect data processing agreement with FDC entered into as part of the purchase transaction. The adjustments for the year ended December 31, 1998 and the six months ended June 30, 1999 were $1,000 and $500, respectively. (Continued) 5 8 infoUSA INC. Notes to Unaudited Pro Forma Condensed Financial Statements (Amounts in thousands) (e) To record amortization expense related to the business combination. The adjustment is derived as follows:
1998 1999 ------- ------- Intangibles (amortized over lives 5 to 20 years) $15,702 7,851 Depreciation on adjusted fair value of property and equipment 1,320 660 Less previously recorded amortization and depreciation expense 12,588 6,392 ------- ------- Total $ 4,434 2,119 ======= =======
(f) To reflect interest expense of $13,700 and $6,850 and deferred financing costs of $555 and $278 on credit facilities issued in connection with the business combination for year ended December 31, 1998 and the six months ended June 30, 1999, respectively. (g) A pro forma adjustment of $1,499 and $745 in 1998 and 1999, respectively, was made to reflect the tax expense related to the pro forma adjustments. An effective tax rate of 38% was used to determine the pro forma income tax adjustment. The tax calculation includes a pro forma income tax adjustment related to the amortization of goodwill created as a result of the business combination due to the nondeductibility of these expenses to the surviving combined company. (h) To reflect cash of $572 not included as acquired assets in the business combination, and cash payments of $43,771 for purchase of Donnelley Marketing. (i) A pro forma adjustment of $2,181 has been made to record at fair value property and equipment acquired at the date of acquisition. See note (e) for adjustment to depreciation expense. (j) A pro forma adjustment of $2,250 has been made to record estimated direct costs to be incurred as a result of the acquisition. 6 9 DM HOLDINGS, INC. AND SUBSIDIARIES Consolidated Financial Statements For the Six Months Ended June 30, 1999, the Two Years Ended December 31, 1998 and 1997, and the Three Months Ended December 31, 1996 (With Independent Auditors' Report Thereon) 10 INDEPENDENT AUDITORS' REPORT The Board of Directors DM Holdings, Inc.: We have audited the accompanying consolidated balance sheets of DM Holdings, Inc. and subsidiaries as of June 30, 1999 and December 31, 1997 and the related consolidated statements of operations and retained earnings and cash flows for the six months ended June 30, 1999, the year ended December 31, 1997 and the three months ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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 consolidated 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 DM Holdings, Inc. and subsidiaries as of June 30, 1999 and December 31, 1997 and the results of their operations and their cash flows for the six months ended June 30, 1999, the year ended December 31, 1997, and the three months ended December 31, 1996, in conformity with generally accepted accounting principles. KPMG LLP September 3, 1999 Omaha, Nebraska 11 Report of Independent Auditors The Board of Directors and Stockholder of DM Holdings, Inc. We have audited the accompanying consolidated balance sheet of DM Holdings, Inc. (the "Company") as of December 31, 1998 and the related consolidated statement of operations and retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of DM Holdings, Inc. at December 31, 1998 and the consolidated results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP July 8, 1999 12 DM HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1999 and December 31, 1998 and 1997 (Dollar amounts in thousands)
JUNE 30, DECEMBER 31, DECEMBER 31, ASSETS 1999 1998 1997 --------- ------------ ------------ Current assets: Cash and cash equivalents $ 572 1,781 1,509 Accounts receivable, net of allowance for doubtful accounts of $1,207 in 1999, $1,772 in 1998, and $137 in 1997 14,451 12,707 20,001 Prepaid expenses and other current assets 446 624 882 Deferred tax assets 1,372 1,718 2,387 --------- --------- --------- Total current assets 16,841 16,830 24,779 Property and equipment, net 8,381 6,815 7,525 Goodwill, net of accumulated amortization 161,632 164,553 171,494 Other intangible assets, net of accumulated amortization 30,263 32,499 33,454 --------- --------- --------- Total assets $ 217,117 220,697 237,252 ========= ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT) Current liabilities: Accounts payable $ 2,439 832 1,935 Accrued expenses and other current liabilities 3,942 6,146 6,627 --------- --------- --------- Total current liabilities 6,381 6,978 8,562 --------- --------- --------- Long-term liabilities Due to First Data Corporation 201,444 201,206 209,733 Deferred tax liabilities 9,844 9,949 10,169 Other noncurrent liabilities 1,350 1,497 1,793 --------- --------- --------- Total long-term liabilities 212,638 212,652 221,695 --------- --------- --------- Stockholder's equity (deficit): Common stock, $1.00 par value; 1,000 shares authorized; 262.5 shares issued and outstanding -- -- -- Retained earnings (deficit) (1,902) 1,067 6,995 --------- --------- --------- Total stockholder's equity (deficit) (1,902) 1,067 6,995 --------- --------- --------- Total liabilities and stockholder's equity (deficit) $ 217,117 220,697 237,252 ========= ========= =========
See accompanying notes to consolidated financial statements. 2 13 DM HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Operations and Retained Earnings Six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (Dollar amounts in thousands)
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 -------- ------------ ------------ ------------ Revenue $ 42,535 86,725 100,616 19,828 -------- -------- -------- -------- Operating expenses: Salaries and benefits 15,678 29,373 36,269 9,374 Program costs 4,195 11,060 7,290 1,810 Consulting and professional services 3,082 7,315 2,764 592 Provision for employee severance -- 645 -- -- Other operating and administrative 5,949 9,464 14,768 4,379 Depreciation and amortization 6,392 12,588 11,293 3,260 Charges from First Data Corporation 10,094 22,404 13,472 771 -------- -------- -------- -------- Total operating expenses 45,390 92,849 85,856 20,186 -------- -------- -------- -------- Income (loss) from operations (2,855) (6,124) 14,760 (358) Other income (expense): Interest expense (5) -- -- (21) Interest income -- 133 27 -- -------- -------- -------- -------- Earnings (loss) before income taxes (2,860) (5,991) 14,787 (379) Income tax expense (benefit) 109 (63) 7,183 587 -------- -------- -------- -------- Net income (loss) (2,969) (5,928) 7,604 (966) Retained earnings (deficit), beginning of period 1,067 6,995 (609) 357 -------- -------- -------- -------- Retained earnings (deficit), end of period $ (1,902) 1,067 6,995 (609) ======== ======== ======== ========
See accompanying notes to consolidated financial statements. 3 14 DM HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (Dollar amounts in thousands)
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ------- ------------ ------------ ----------- Cash flows from operating activities: Net income (loss) $(2,969) (5,928) 7,604 (966) ------- ------- ------- ------- Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,392 12,588 11,293 3,260 Deferred income taxes 241 449 2,076 (222) Changes in assets and liabilities: Accounts receivable (1,745) 5,737 (5,101) 2,634 Prepaid expenses and other current assets 178 173 2,951 (33) Accounts payable, accrued expenses, and other liabilities (825) (2,311) (8,134) (2,639) ------- ------- ------- ------- Total adjustments 4,241 16,636 3,085 3,000 ------- ------- ------- ------- Net cash provided by operating activities 1,272 10,708 10,689 2,034 ------- ------- ------- ------- Cash flows from investing activities: Purchase of property and equipment (2,337) (1,277) (2,719) (206) Capitalized software development (383) (3,168) (2,502) -- ------- ------- ------- ------- Net cash used in investing activities (2,720) (4,445) (5,221) (206) ------- ------- ------- ------- Cash flows from financing activities: Payments on capital lease -- -- (569) (192) Due to First Data Corporation 239 (5,991) (4,679) (347) ------- ------- ------- ------- Net cash provided by (used in) financing activities 239 (5,991) (5,248) (539) ------- ------- ------- ------- Net increase (decrease) in cash and cash equivalents (1,209) 272 220 1,289 Cash and cash equivalents, beginning of period 1,781 1,509 1,289 -- ------- ------- ------- ------- Cash and cash equivalents, end of period $ 572 1,781 1,509 1,289 ======= ======= ======= =======
See accompanying notes to consolidated financial statements. 4 15 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DM Holdings, Inc. (the "Company") is in the business of providing target marketing and data enhancement services for direct marketers through data base management, information processing, data file enhancement, and consumer lists. The Company was acquired by, and became a wholly owned subsidiary of, First Data Corporation ("FDC") in September 1996. The accompanying consolidated financial statements reflect FDC's basis in the Company. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. 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 generally recognized when the product is delivered or the services are performed. Data licensing revenue is recognized based on percentages which are derived from the pricing of the product and corresponds to delivery of the initial set of data and any obligations to provide future updates of data. Revenue related to future updates is recorded as deferred revenue. Reserves are established for estimated returns and uncollectible amounts. DATA BASE COSTS Costs to maintain and enhance the Company's existing business and consumer data bases are expensed as incurred. Costs to develop new data bases, which primarily include labor costs, are capitalized with amortization beginning upon successful completion of the compilation project. Data base costs are amortized straight-line over the expected lives of the data bases generally ranging from one to five years. 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. PROPERTY AND EQUIPMENT Property and equipment are stated at cost, less accumulated depreciation or amortization. Depreciation expense is calculated over the estimated useful lives of the related assets, ranging from three to thirty years, using the straight-line method for financial reporting purposes. Leasehold improvements are amortized over the term of the related lease. 5 (Continued) 16 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 GOODWILL AND OTHER INTANGIBLE ASSETS Goodwill represents the excess of FDC's September 1996 purchase price over the fair value of net tangible and identifiable intangible assets acquired and is being amortized using the straight-line method over thirty years. At June 30, 1999 and December 31, 1998 and 1997, the Company had goodwill of $178,640, $178,596, and $179,605, respectively, and accumulated amortization of $17,008, $14,043, and $8,111, respectively. Other intangible assets consist primarily of the FDC acquisition purchase price allocated to identifiable intangible assets. Such assets are internally developed data bases and computer software. The amounts allocated to data bases and software at the date of acquisition were $10,405 and $25,822, respectively, and are being amortized over lives of nine to twelve years. At June 30, 1999 and December 31, 1998 and 1997, the Company had total accumulated amortization of $10,720, $8,806, and $4,991, respectively, related to data bases and software. Remaining balances of other intangibles consist of capitalized software and data base development costs, net of accumulated amortization. These costs are amortized on a straight-line basis over the benefit period, generally five years. The Company reviews its long-lived assets, including goodwill, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. 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. The taxable income of the Company is included in the U. S. federal income tax return of FDC. For financial reporting purposes, the Company's provision for income taxes has been determined as if the Company were a separate tax-paying entity. Current income taxes payable are included in "Due to First Data Corporation." USE OF ESTIMATES Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and reported amounts of revenues and expenses to prepare these consolidated financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 6 (Continued) 17 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (2) PROPERTY AND EQUIPMENT A summary of property and equipment as of June 30, 1999 and December 31, 1998 and 1997 is shown as follows:
JUNE 30, DECEMBER 31, DECEMBER 31, 1999 1998 1997 -------- ------------ ------------ Land $ 144 144 144 Building and leasehold improvements 4,892 4,007 4,602 Data processing equipment 4,913 3,523 2,052 Furniture and fixtures 1,674 1,138 1,127 Machinery and equipment 1,017 994 984 -------- -------- -------- Total property and equipment 12,640 9,806 8,909 Accumulated depreciation (4,259) (2,991) (1,384) -------- -------- -------- Net property and equipment $ 8,381 6,815 7,525 ======== ======== ========
Depreciation expense for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 was $1,125, $1,965, $1,264, and $607, respectively. (3) ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities are comprised of the following:
JUNE 30, DECEMBER 31, DECEMBER 31, 1999 1998 1997 -------- ------------ ----------- Accrued royalties $ 90 2,159 112 Accrued salaries and benefits 1,278 1,587 1,823 Accrued rent 506 683 589 Accrued sales and property taxes 500 478 482 Accrued transaction costs 140 336 1,572 Other 1,428 903 2,049 ------ ------ ------ $3,942 6,146 6,627 ====== ====== ======
7 (Continued) 18 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (4) INCOME TAXES Income tax expense (benefit) before extraordinary item consists of the following components:
SIX MONTHS THREE MONTHS ENDED YEAR ENDED YEAR ENDED ENDED JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ---------- ------------ ------------ ------------- Current: Federal $ (117) (455) 4,538 719 State (15) (57) 569 90 ------- ------- ------- ------- Total current income tax expense (benefit) (132) (512) 5,107 809 ------- ------- ------- ------- Deferred: Federal 214 399 1,845 (197) State 27 50 231 (25) ------- ------- ------- ------- Total deferred income tax expense (benefit) 241 449 2,076 (222) ------- ------- ------- ------- Total income tax expense (benefit) $ 109 (63) 7,183 587 ======= ======= ======= =======
Total income tax expense (benefit) for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 was different than that computed by applying U. S. federal income tax rates to earnings (losses) before income taxes. The reasons for the differences are shown below:
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ------- ------------ ------------ ------------ Computed "expected" tax expense (benefit) $(1,001) (2,097) 5,175 (133) State income tax expense (benefit) 8 (5) 484 79 Goodwill amortization 1,079 1,995 1,524 694 Other 23 44 -- (53) ------- ------- ------- ------- Total income tax expense (benefit) $ 109 (63) 7,183 587 ======= ======= ======= =======
8 (Continued) 19 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1999 and December 31, 1998 and 1997 are shown below:
JUNE 30, DECEMBER 31, DECEMBER 31, 1999 1998 1997 ------ ------------ ------------ Deferred tax assets: Accrued costs $ 917 1,026 980 Allowance for doubtful accounts 455 668 561 State tax loss carryforwards -- 24 846 ------ ------ ------ Total deferred tax assets 1,372 1,718 2,387 Deferred tax liability - property and equipment, principally depreciation differences 9,844 9,949 10,169 ------ ------ ------ Net deferred tax liabilities $8,472 8,231 7,782 ====== ====== ======
(5) STOCK COMPENSATION PLAN The Company participates in an FDC stock compensation plan that provides for the granting of FDC stock options to key employees and other key individuals who perform services for the Company. Under the plan, options may be granted for a term not to exceed ten years from date of grant and generally become exercisable in three or four equal annual increments beginning twelve months after the date of grant. The option price is the fair market value of the shares on the date of grant. In October 1996, FDC instituted an employee stock purchase plan for which a total of 6.0 million shares have been reserved for issuance, of which 3.4 million, 3.8 million, 5.1 million, and 6.0 million shares remain available for purchase as of June 30, 1999 and December 31, 1998, 1997, and 1996, respectively. Monies accumulated through payroll deductions elected by eligible employees are used to effect quarterly purchases of FDC common stock at a 15% discount from the lower of the market price at the beginning or end of the quarter. SFAS No. 123, Accounting for Stock-Based Compensation, permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and provide pro forma net income for employee stock option grants as if the fair value method defined in SFAS No. 123 had been applied. As such, compensation expense would be recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. 9 (Continued) 20 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 The per share weighted average fair value of stock options and employee stock purchase rights granted during the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 were: $9.70 and $6.80, $9.00 and $6.00, $8.90 and $5.90, and $8.20 and $5.10, respectively, on the date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ======= ======= ======= ======= Risk-free interest rate 5.66 % 4.54 6.23 6.20 Dividend yield 1.48 % 2.70 2.20 2.20 Volatility of FDC stock 19.90 % 24.00 18.90 16.90 Expected option life (in years) 5 5 5 5 Expected employee stock purchase right life (in years) 0.25 0.25 0.25 0.25 ======= ======= ======= =======
Had the Company recorded compensation cost based on the fair value at the grant date for its stock options and stock purchase rights under SFAS No. 123, the Company's net income for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 would have been reduced by approximately $391, $365, $237, and $46, respectively. Because SFAS No. 123 is applicable only to options granted subsequent to December 31, 1994, its pro forma effect will not be fully reflected until the year ending December 31, 1999. A summary of FDC stock option activity for the Company's employees is shown below:
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 --------- ----------- ------------ ------------ Options: Outstanding, beginning of period 420,469 272,737 176,412 144,028 Granted 2,500 194,800 123,744 40,258 Exercised (40,391) (2,948) (1,313) -- Canceled (139,642) (44,120) (26,106) (7,874) --------- --------- --------- --------- Outstanding, end of period 242,936 420,469 272,737 176,412 ========= ========= ========= ========= Exercisable, end of period 112,022 149,038 72,125 35,410 ========= ========= ========= ========= WEIGHTED AVERAGE EXERCISE PRICE: Outstanding, beginning of period $ 31 33 35 34 Granted 28 29 32 37 Exercised 29 29 32 -- Canceled 33 36 34 36 Outstanding, end of period 29 31 33 35 Exercisable, end of period $ 28 29 32 34
10 (Continued) 21 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (6) OPERATING LEASES The Company leases certain office equipment and office space under noncancelable lease agreements. Future minimum lease payments under noncancelable operating leases, with initial lease terms of at least one year at the time of inception, are as follows at June 30, 1999: 2000 $ 2,290 2001 2,221 2002 1,788 2003 1,759 2004 1,789 Thereafter 4,844 --------- Total minimum operating lease payments $ 14,691 =========
Total rent expense for all operating leases for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 was approximately $.8 million, $1.8 million, $1.3 million, and $.2 million, respectively. (7) RELATED PARTY TRANSACTIONS The following summarizes charges from FDC and its affiliates:
JUNE 30, DECEMBER 31, DECEMBER 31, DECEMBER 31, 1999 1998 1997 1996 ------- ------------ ------------ ------------ Data processing $ 7,867 17,852 11,554 -- Consulting services 450 1,800 -- -- Licensing fees 1,222 1,462 1,035 -- Corporate overhead 477 1,246 845 771 Other 78 44 38 -- ------- ------- ------- ------- Total $10,094 22,404 13,472 771 ======= ======= ======= =======
o Data processing - The Company's data processing is performed at data centers located in Denver, Colorado and Omaha, Nebraska. Data processing activities for other FDC entities are also conducted by these facilities. The annual charge to the Company for these services is based upon the mainframe charges from both data centers which are based on usage. In addition, both data centers have equipment that is dedicated to the Company in which charges incurred by the Company are based on the actual costs plus an allocation for the data center overhead. Data processing costs include charges for the use of programmers to support certain Company products. o Licensing fees - These charges represent licensing fees for software used in certain Company products. o Consulting fees - These charges represent modeling and analytical services. 11 (Continued) 22 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 o Corporate overhead - This is a general allocation of FDC's corporate overhead based on a percentage of the Company's revenue. Functions provided by FDC corporate include administration of employee benefit programs, internal audit, financial systems licensing and processing, taxes, external financial reporting, and other support services. o Direct charges - Certain programs and activities are administered by FDC on a consolidated basis. Examples are employee benefit plans, group and other insurance programs, and certain vendor agreements that are negotiated by FDC on an enterprise wide basis. The costs of these programs and activities are specifically recorded by each participating business unit and the costs are not included in the table above. o Interest - FDC does not have any specific indebtedness related to the Company. The accompanying consolidated financial statements do not reflect any allocations of FDC interest expense. There are no formal financing arrangements with FDC; however, cash not necessary for the Company's near term operating requirements has been remitted to FDC which, in turn, has funded the Company's operating, investing, and financing activities as required. Accordingly, the net change in the payable to FDC has been reflected as a financing activity in the accompanying statements of cash flows. In addition to the above described allocations, certain of the Company's functions (primarily administration, accounting, and human resources) are shared with another FDC business unit. The accompanying consolidated financial statements have been prepared using estimates of the costs of these functions that were attributable to the Company's activities. Management believes that the allocation process described in the preceding paragraph and the overall amount of charges to and from FDC and affiliates are reasonable and that, except as described above with respect to interest, the accompanying consolidated financial statements reflect all of the Company's costs of doing business. During the the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 the Company derived revenues of $3,122, $5,871, $4,587 and $1,034, respectively, from FDC and its affiliates. These revenues related primarily to royalties derived from a Company database and services for building and maintaining another marketing database. (8) CONCENTRATION OF CREDIT RISK The Company's customers, while concentrated in the United States, are spread across diverse market sectors. There were no single customers accounting for 10% or more of the Company's revenues for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996. The Company's accounts receivable are unsecured and the Company is at risk to the extent such amounts become uncollectible. The Company establishes its allowance for doubtful accounts based upon the credit risk of specific customers, historical trends, and other information. 12 (Continued) 23 DM HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements For the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996 (9) RETIREMENT PLAN FDC has an incentive savings plan which allows eligible employees of FDC and its subsidiaries to contribute a percentage of their compensation and provides for certain matching, service-related and other contributions. The Company's matching and service-related contributions associated with the plan were approximately $475, $801, $603, and $58 for the six months ended June 30, 1999, the two years ended December 31, 1998 and 1997, and the three months ended December 31, 1996. (10) PROVISION FOR EMPLOYEE SEVERANCE In May 1998, the Company formulated and announced a plan that involved a reduction in its workforce. Included in the Company's 1998 results of operations is a charge of $645 for this plan. The charge related to severance and related costs with respect to 47 employees. (11) CONTINGENCIES The Company is involved in certain litigation arising in the ordinary course of business. In the opinion of management, the ultimate resolution of these matters will not have a material adverse effect on the Company's financial position or results of operations. (12) SALE OF BUSINESS Effective July 1, 1999, FDC sold all of the outstanding stock of the Company to infoUSA Inc. for a purchase price of approximately $200 million. The accompanying consolidated financial statements do not give effect to any of the transactions contemplated under the agreement. (13) YEAR 2000 REMEDIATION (UNAUDITED) The Company is faced with "Year 2000" remediation issues. Many computer programs were written with a two digit date field and if these programs are not made Year 2000 compliant, they will be unable to correctly process date information on or after Year 2000. Remediation efforts go beyond the Company's internal computer systems and require coordination with clients, vendors, government entities, and other third parties to assure that their systems and related interfaces are compliant. Failure to achieve timely remediation of the computer systems that process client information and transactions would have a material adverse effect on the Company's business, operations, and financial results. In response to the Year 2000 concerns, FDC created a Year 2000 Task Force to coordinate and monitor the progress in the Year 2000 remediation efforts. The Task Force reports directly to FDC's executive management and also provides regular reports to the Board of Directors. In addition, at the direction of the Audit Committee of the Board of Directors, FDC engaged the Gartner Group to provide an independent analysis and assessment of its Year 2000 remediation efforts. The Gartner Group provides regular progress reports to executive management and the Board of Directors, and regularly meets with the Audit Committee of the Board to discuss its reports. The Company's plans called for all mission critical systems to be renovated and compliance testing underway by the end of 1998. Acceptance testing with clients and other third parties will take place through September 1999. Completion of all third-party interfacing testing is dependent upon those third parties completing their own internal remediation. The Company could be adversely affected to the extent third parties with which it interfaces have not properly addressed their Year 2000 issues. 13 24 SIGNATURES 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 hereunto duly authorized. infoUSA Inc. (Registrant) Date: October 6, 1999 By: /s/ JACK J. MCGOVERN ----------------------------------- Jack J. McGovern, Chief Financial Officer (for Registrant and as Principal Financial Officer) 25 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - ------- ----------- 23.1 Consent of Independent Accountants, filed herewith. 23.2 Consent of Independent Accountants, filed herewith.
EX-23.1 2 CONSENT OF INDEPENDENT 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. 333-37865, No. 333-82933, No. 33-91194, No. 333-77417, No. 333-43391 and No. 33-59256) on Form S-8 of infoUSA Inc. of our report dated September 3, 1999 relating to the consolidated balance sheets of DM Holdings, Inc. and subsidiaries as of June 30, 1999 and December 31, 1997 and the related consolidated statements of operations, stockholders' equity and cash flows for the six months ended June 30, 1999, year ended December 31, 1997 and three months ended December 31, 1996, which report is included in infoUSA Inc.'s Form 8-K dated October 6, 1999. KPMG LLP Omaha, Nebraska October 5, 1999 EX-23.2 3 CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.2 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Forms S-8 No. 333-37865, No. 333-43391, No. 333-77417, No. 333-82933, No. 33-59256 and No. 33-91194) of infoUSA Inc. of our report dated July 8, 1999 with respect to the financial statements of DM Holdings, Inc. included in this Current Report on Form 8-K of infoUSA Inc. dated October 6, 1999, filed with the Securities and Exchange Commission. ERNST & YOUNG LLP Atlanta, Georgia October 5, 1999 -----END PRIVACY-ENHANCED MESSAGE-----