-----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, AQZeplurW91Nm3Egr/7mUx6O7y631EsbbamrISUmVzRi2hwnIKzv12a+yv28CP21 tCes5jM2yhjQTEaZAzRx3Q== 0001035704-98-000254.txt : 19980414 0001035704-98-000254.hdr.sgml : 19980414 ACCESSION NUMBER: 0001035704-98-000254 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980413 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BUSINESS INFORMATION INC /DE CENTRAL INDEX KEY: 0000879437 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DIRECT MAIL ADVERTISING SERVICES [7331] IRS NUMBER: 470751545 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 98592409 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 10-K/A 1 AMENDEMNT NO. 2 TO FORM 10-K 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 2 TO FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-19598 --------------------- AMERICAN BUSINESS INFORMATION, INC. (Exact name of registrant as specified in its charter) DELAWARE 47-0751545 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127 (Address of principal executive offices) (402) 593-4500 (Registrant's telephone number, including area code) --------------------- Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: CLASS A COMMON STOCK, $0.0025 PAR VALUE CLASS B COMMON STOCK, $0.0025 PAR VALUE SERIES A PREFERRED SHARE PURCHASE RIGHTS SERIES B PREFERRED SHARE PURCHASE RIGHTS --------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Class A Common Stock and Class B Common Stock on March 18, 1998 as reported on the NASDAQ National Market System, was approximately $332 million. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Class A Common Stock or Class B Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 18, 1998 registrant had outstanding 24,661,161 shares of Class A Common Stock and 24,661,161 shares of Class B Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 22, 1998, which will be filed within 120 days of the end of fiscal year 1997, is incorporated into Part III hereof by reference. ================================================================================ 2 POWER OF ATTORNEY Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Amendment to the Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ VINOD GUPTA - ----------------------------------------------------- Vinod Gupta Chairman of the Board March 31, 1998 /s/ SCOTT DAHNKE - ----------------------------------------------------- Chief Executive Officer Scott Dahnke (principal executive officer) March 31, 1998 /s/ JON H. WELLMAN - ----------------------------------------------------- President and Chief Operating Jon H. Wellman Officer March 31, 1998 Chief Financial Officer /s/ STEVEN PURCELL (principal financial officer - ----------------------------------------------------- and principal accounting Steven Purcell officer) March 31, 1998 /s/ JON D. HOFFMASTER - ----------------------------------------------------- Jon D. Hoffmaster Director March 31, 1998 /s/ GAUTAM GUPTA - ----------------------------------------------------- Gautam Gupta Director March 31, 1998 /s/ ELLIOT S. KAPLAN - ----------------------------------------------------- Elliot S. Kaplan Director March 31, 1998 /s/ HAROLD ANDERSEN - ----------------------------------------------------- Harold Andersen Director March 31, 1998 /s/ GEORGE F. HADDIX - ----------------------------------------------------- George F. Haddix Director March 31, 1998 /s/ PAUL A. GOLDNER - ----------------------------------------------------- Paul A. Goldner Director March 31, 1998 /s/ GEORGE J. KUBAT - ----------------------------------------------------- George J. Kubat Director March 31, 1998 By: /s/ STEVEN PURCELL ------------------------------------------------- Steven Purcell Attorney-in-fact
28 3 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- American Business Information, Inc. and Subsidiaries: Report of Independent Accountants......................... F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996................................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995....................... F-4 Consolidated Statements of Stockholders' Equity for the Periods Ended December 31, 1997, 1996 and 1995......... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995....................... F-6 Notes to Consolidated Financial Statements................ F-7
F-1 4 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of American Business Information, Inc.: We have audited the consolidated balance sheets of American Business Information, Inc. and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. 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 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 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 audits provide 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 American Business Information, Inc. and subsidiaries as of December 31, 1997 and 1996, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/ COOPERS & LYBRAND L.L.P. ------------------------------------ COOPERS & LYBRAND L.L.P. Omaha, Nebraska January 23, 1998, except for note 18, as to which the date is March 31, 1998 F-2 5 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ Current assets: Cash and cash equivalents................................. $ 10,653 $ 7,497 Marketable securities..................................... 24,045 22,810 Trade accounts receivable, net of allowances of $6,013 and $2,724, respectively................................... 49,409 29,630 Income taxes receivable................................... 345 1,105 Prepaid expenses.......................................... 3,475 3,267 Deferred marketing costs.................................. 3,417 1,263 -------- -------- Total current assets.............................. 91,344 65,572 -------- -------- Property and equipment, net................................. 25,117 18,886 Intangible assets, net of accumulated amortization.......... 73,741 17,410 Deferred income taxes....................................... 1,410 5,388 Other assets................................................ 3,299 621 -------- -------- $194,911 $107,877 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt......................... $ 716 $ 708 Payable to shareholders................................... 1,871 7,925 Accounts payable.......................................... 9,426 5,520 Accrued payroll expenses.................................. 4,910 2,352 Accrued expenses.......................................... 5,406 711 Deferred revenue.......................................... 4,238 2,117 Deferred income taxes..................................... 4,770 512 -------- -------- Total current liabilities......................... 31,337 19,845 -------- -------- Long-term debt, net of current portion...................... 81,284 427 Other liabilities........................................... 2,054 -- Commitments and contingencies Stockholders' equity: Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding............................. -- -- Class A common stock, $.0025 par value. Authorized 220,000,000 shares; 24,460,332 shares issued and outstanding at December 31, 1997 and 22,100,960 shares issued and outstanding at December 31, 1996............ 61 -- Class B common stock, $.0025 par value. Authorized 75,000,000 shares; 24,625,332 shares issued and 24,460,332 shares outstanding at December 31, 1997 and 22,265,960 shares issued and 22,100,960 shares outstanding at December 31, 1996....................... 62 55 Paid-in capital........................................... 69,055 37,268 Retained earnings......................................... 13,126 52,942 Treasury stock, at cost, 165,000 shares of Class B common stock held at December 31, 1997 and 1996............... (2,281) (2,281) Unrealized holding gain (loss), net of tax................ 213 (379) -------- -------- Total stockholders' equity........................ 80,236 87,605 -------- -------- $194,911 $107,877 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-3 6 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Net sales............................................. $193,327 $108,298 $86,766 Costs and expenses: Database and production costs....................... 55,090 29,272 23,999 Selling, general and administrative................. 80,203 45,766 37,724 Depreciation and amortization....................... 34,415 4,855 3,469 Acquisition-related charges......................... 56,098 21,500 -- -------- -------- ------- 225,806 101,393 65,192 -------- -------- ------- Operating income (loss)............................... (32,479) 6,905 21,574 Other income (expense): Investment income................................... 3,748 3,194 1,322 Interest expense.................................... (4,098) (209) (157) Other............................................... -- (943) -- -------- -------- ------- Income (loss) before income taxes and discontinued operations.......................................... (32,829) 8,947 22,739 Income taxes.......................................... 6,987 3,400 8,421 -------- -------- ------- Income (loss) from continuing operations.............. (39,816) 5,547 14,318 Loss on discontinued operations....................... -- (355) (2,317) Loss from abandonment of subsidiary................... -- (1,373) -- -------- -------- ------- Net income (loss)..................................... $(39,816) $ 3,819 $12,001 ======== ======== ======= BASIC EARNINGS PER SHARE: Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.35 Loss on discontinued operations and abandonment of subsidiary....................................... -- (0.04) (0.06) -------- -------- ------- Net income (loss)................................... $ (0.82) $ 0.09 $ 0.29 ======== ======== ======= Weighted average shares outstanding................... 48,432 42,065 41,475 ======== ======== ======= DILUTED EARNINGS PER SHARE: Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.34 Loss on discontinued operations and abandonment of subsidiary....................................... -- (0.04) (0.06) -------- -------- ------- Net income (loss)................................... $ (0.82) $ 0.09 $ 0.28 ======== ======== ======= Weighted average shares outstanding................... 48,432 42,390 42,136 ======== ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 7 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
CLASS A CLASS B UNREALIZED TOTAL COMMON COMMON PAID-IN RETAINED TREASURY HOLDING STOCKHOLDERS' STOCK STOCK CAPITAL EARNINGS STOCK GAIN (LOSS) EQUITY ------- ------- ------- -------- -------- ----------- ------------- Balances, December 31, 1994............... $-- $34 $26,573 $36,936 $ -- $(217) $ 63,326 Issuance of 188,250 shares of common stock................................... -- -- 786 -- -- -- 786 Unrealized holding loss, net of tax....... -- -- -- -- -- (29) (29) 3 for 2 stock split....................... -- 17 (17) -- -- -- -- Net income................................ -- -- -- 12,001 -- -- 12,001 --- --- ------- -------- ------- ----- -------- Balances, December 31, 1995............... -- 51 27,342 48,937 -- (246) 76,084 Issuance of 2,441,950 shares of common stock................................... -- 3 9,628 -- -- -- 9,631 Issuance of 1,120,000 shares of common stock in pooling-of-interests transaction............................. -- 1 86 186 -- -- 273 Tax benefit related to employee stock options................................. -- -- 212 -- -- -- 212 Acquisition of treasury stock............. -- -- -- -- (2,281) -- (2,281) Unrealized holding loss, net of tax....... -- -- -- -- -- (133) (133) Net income................................ -- -- -- 3,819 -- -- 3,819 --- --- ------- -------- ------- ----- -------- Balances, December 31, 1996............... -- 55 37,268 52,942 (2,281) (379) 87,605 Issuance of 4,718,744 shares of common stock................................... -- 7 31,261 -- -- -- 31,268 Tax benefit related to employee stock options................................. -- -- 587 -- -- -- 587 2 for 1 stock dividend.................... 61 -- (61) -- -- -- -- Unrealized holding gain, net of tax....... -- -- -- -- -- 592 592 Net loss.................................. -- -- -- (39,816) -- -- (39,816) --- --- ------- -------- ------- ----- -------- Balances, December 31, 1997............... $61 $62 $69,055 $13,126 $(2,281) $ 213 $ 80,236 === === ======= ======== ======= ===== ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 8 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ Cash flows from operating activities: Net income (loss)................................. $(39,816) $ 3,819 $ 12,001 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................. 34,415 4,855 3,469 Deferred income taxes.......................... (2,787) (6,307) 662 Impairment of other assets..................... -- 740 630 Loss on discontinued operations and abandonment of subsidiary................................ -- 2,788 1,833 Net realized (gains) losses on sale of marketable securities and other investments.................................. (2,560) (1,267) 339 Acquisition-related charges.................... 56,098 21,500 -- Changes in assets and liabilities, net of effect of acquisitions: Trade accounts receivable.................... (7,445) (7,762) (4,108) Prepaid expenses............................. 287 (1,117) (796) Deferred marketing costs..................... (2,154) (267) (996) Accounts payable............................. (4,854) (1,422) 2,480 Income taxes receivable and payable.......... 7,283 (128) (1,330) Accrued expenses............................. (8,211) (3,111) 1,635 -------- -------- -------- Net cash provided by operating activities.............................. 30,256 12,321 15,819 Cash flows from investing activities: Proceeds from sales of marketable securities...... 19,596 18,865 15,787 Purchases of marketable securities................ (17,448) (17,348) (24,792) Purchase of other investments..................... (2,000) -- -- Purchases of property and equipment............... (8,882) (6,755) (3,554) Acquisitions of businesses, including minority interest....................................... (84,224) (6,484) (1,174) Consumer database costs........................... (3,398) (494) -- Software development costs........................ (2,898) (1,955) (512) Other............................................. (678) 347 (660) -------- -------- -------- Net cash used in investing activities..... (99,932) (13,824) (14,905) Cash flows from financing activities: Repayment of long-term debt....................... (7,193) (1,450) (3,192) Proceeds from long-term debt...................... 86,000 -- -- Deferred financing costs.......................... (388) -- -- Repayment of note payable to shareholders......... (7,925) -- -- Acquisition of treasury stock..................... -- (2,281) -- Deferred offering costs........................... (339) -- -- Proceeds from exercise of stock options........... 2,090 520 786 Tax benefit related to employee stock options..... 587 212 -- -------- -------- -------- Net cash provided by (used in) financing activities.............................. 72,832 (2,999) (2,406) Net increase (decrease) in cash and cash equivalents....................................... 3,156 (4,502) (1,492) Cash and cash equivalents, beginning................ 7,497 11,999 13,491 -------- -------- -------- Cash and cash equivalents, ending................... $ 10,653 $ 7,497 $ 11,999 ======== ======== ======== Supplemental cash flow information: Interest paid..................................... $ 3,616 $ 78 $ 165 ======== ======== ======== Income taxes paid................................. $ 7,443 $ 8,280 $ 8,226 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-6 9 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL American Business Information, Inc. (ABI) and its subsidiaries, (the Company), provides business and consumer marketing information products and data processing services throughout the United States and Canada. These products include customized business lists, business directories and other information services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates and Assumptions. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation. The consolidated financial statements include the accounts of ABI and its subsidiaries. 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. A portion of revenue from data licensing is recognized at the time the initial set of data is delivered, with the remaining portion being deferred and recognized over the license term as the Company provides updated information. Reserves are established for estimated returns and uncollectible amounts. Database Costs. Costs to maintain and enhance the Company's business database are expensed as incurred. Costs to develop new databases are capitalized and amortized upon the successful completion of the compilation project, over a period not to exceed 5 years. The Company is currently capitalizing costs associated with a compilation project to create a new consumer database. Costs incurred as of December 31, 1997 related to the database compilation effort totaled approximately $3.9 million, and are included in intangible assets in the accompanying consolidated balance sheets. Advertising Costs. Certain direct-response advertising costs are capitalized and amortized over periods that correspond to the estimated revenue stream of the individual advertising activity. All other advertising costs are expensed as the advertising takes place. Total unamortized marketing costs at December 31, 1997 and 1996, was $3.4 million and $1.3 million, respectively. Total advertising expense for the years ended December 31, 1997, 1996, and 1995 was $15.9 million, $11.0 million, and $10.8 million, respectively. Software Capitalization. Until technological feasibility is established, software development costs are expensed as incurred. After that time, direct costs are capitalized and amortized using the straight-line method over the estimated economic life, generally one to four years. Unamortized software costs included in intangible assets at December 31, 1997 and 1996, was $1.9 million and $1.4 million, respectively. Amortization of capitalized costs during the years ended December 31, 1997, 1996 and 1995, totaled approximately $2.5 million, $1.0 million, and $81 thousand, respectively. Income taxes. The Company recognizes income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the difference between financial and tax bases of assets and liabilities using enacted tax rates. Earnings Per Share. Statement of Financial Accounting Standards No. 128, Earnings Per Share, was issued in February 1997 and is effective for financial statements issued for fiscal periods ending after December 15, 1997. The standard revises the calculation and presentation of earnings per share and requires the presentation of "basic earnings per share" and "diluted earnings per share." F-7 10 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Basic earnings per share are based on the weighted average number of common shares outstanding, including contingently issuable shares, which have been restated to account for the stock dividend (See Note 17). Diluted earnings per share are based on the weighted number of common shares outstanding, including contingently issuable shares, plus dilutive potential common shares outstanding (representing outstanding stock options). The following data show the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Options on 1.1 million shares of common stock were not included in computing diluted earnings per share for 1997 because their effects were antidilutive.
1997 1996 1995 ------ ------ ------ (AMOUNTS IN THOUSANDS) Weighted average number of shares outstanding used in basic EPS............................................. 48,432 42,065 41,475 Net additional common equivalent shares outstanding after assumed exercise of stock options............... -- 325 661 ------ ------ ------ Weighted average number of shares outstanding used in diluted EPS........................................... 48,432 42,390 42,136 ====== ====== ======
Invested Cash. Cash equivalents, consisting of highly liquid debt instruments that are readily convertible to known amounts of cash and when purchased have an original maturity of three months or less, are carried at cost which approximates fair value. Marketable securities have been classified as available-for-sale and are therefore carried at fair value, which are estimated based on quoted market prices. Net unrealized gains and losses are reported as a separate component of stockholders' equity. Unrealized and realized gains and losses are determined by specific identification. Property and Equipment. Property and equipment (including equipment acquired under capital leases) are stated at cost and are depreciated or amortized primarily using straight-line methods over the estimated useful lives of the assets, as follows: Buildings and improvements.................................. 30 years Office furniture and equipment.............................. 5 to 7 years Computer equipment.......................................... 5 years Capitalized equipment leases................................ 5 years
Intangibles. Intangible assets are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets, as follows: Goodwill.................................................... 8 to 15 years Distribution networks....................................... 2 years Noncompete agreements....................................... Term of agreements Purchased data processing software.......................... 2 years Acquired database costs..................................... 1 year Core technology costs....................................... 3 years Customer base costs......................................... 3 years Tradename costs............................................. 10 years Perpetual software license agreement........................ 10 years Software development costs.................................. 1 to 4 years
F-8 11 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In 1996, the Company shortened the lives for goodwill and distribution networks in recognition of more rapid changes in the businesses acquired to 8 years and 2 years, respectively. Prior to 1996, goodwill and distribution networks were amortized over 30 and 15 years, respectively. All of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the asset, a loss is recognized. Reclassifications. Certain reclassifications were made to the 1996 and 1995 financial statements to conform to the 1997 presentation. 3. ACQUISITIONS Effective August 1996, the Company acquired certain assets and assumed certain liabilities of Digital Directory Assistance, Inc. (DDA), a publisher of PhoneDisc CD-ROM products. The total purchase price was approximately $16.9 million of which $4.0 million was paid in September 1996, $7.9 million in the form of a promissory note issued to the sellers paid in January 1997, and the remaining amount through the issuance of 600,000 unregistered shares of the Company's Class A Common Stock and 600,000 unregistered shares of the Company's Class B Common Stock. The acquisition was accounted for under the purchase method of accounting. In addition to purchased in-process research and development costs of $10.0 million (See Note 16), goodwill recorded as part of the purchase was $10.0 million, which is being amortized over 8 years. Effective November 1996, the Company acquired the common stock of County Data Corporation (CDC), a national new business database compiler. Total consideration for the acquisition was 560,000 unregistered shares of the Company's Class A Common Stock and 560,000 unregistered shares of the Company's Class B Common Stock. The acquisition was accounted for under the pooling-of-interests method of accounting. The accompanying consolidated financial statements have not been restated to reflect this acquisition, as the net sales and net income of CDC were not significant for the periods presented. Effective November 1996, the Company acquired certain assets and assumed certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data warehousing, research and analysis services for target marketing applications to Fortune 1000 companies. Total consideration for the acquisition was $2.4 million, consisting of $1.0 million in cash and 118,000 unregistered shares of the Company's Class A Common Stock and 118,000 shares of the Company's Class B Common Stock. The acquisition has been accounted for under the purchase method of accounting. Substantially all of the purchase price was allocated to goodwill which is being amortized over 8 years. Effective December 1996, the Company acquired all of the Common Stock of Kadobec Investments, Inc., (operating as B.J. Hunter), which provides lead generation products in Canada. Total consideration for the acquisition was $3.1 million, consisting of $876 thousand in cash and 150,000 unregistered shares of the Company's Class A Common Stock and 150,000 shares of the Company's Class B Common Stock. The acquisition has been accounted for under the purchase method of accounting. The Company allocated substantially all of the purchase price to goodwill which is being amortized over 8 years. Effective February 1, 1997, the Company acquired all issued and outstanding common stock of DBA Holdings, Inc. and Subsidiaries (operating as Database America Companies, or DBA), a provider of data processing and analytical services for marketing applications, and compiler of information on consumers and businesses in the United States. Total consideration, as adjusted, for the acquisition was approximately $103.5 million, consisting of $75.0 million in cash, partially funded using a revolving credit facility (See Note 7), and approximately 2.3 million unregistered shares of the Company's Class A Common Stock and 2.3 million unregistered shares of the Company's Class B Common Stock. In October 1997, the Company and the former stockholders of DBA agreed to a purchase price adjustment, pursuant to which the Company agreed to issue to the former DBA stockholders an additional 139,829 unregistered shares of its Class A Common Stock F-9 12 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and 139,829 unregistered shares of its Class B Common Stock. As of December 31, 1997, these additional shares of the Company's stock had not been issued to the former DBA shareholders, and this liability of approximately $1.9 million is included in payable to shareholders in the accompanying consolidated balance sheets. The acquisition has been accounted for under the purchase method of accounting. In addition to purchased in-process research and development costs of $49.2 million (See Note 16), intangibles and goodwill recorded as part of the purchase included acquired database costs of $19.0 million, purchased data processing software of $9.4 million, noncompete agreements of $1.7 million and goodwill of $20.8 million. Goodwill is being amortized over 15 years. Effective August 1997, the Company acquired certain assets and assumed certain liabilities of Pro CD, Inc. (Pro CD) from Acxiom Corporation (Acxiom), a provider of telephone directory and other business software products on CD-ROM to consumers. The acquisition has been accounted for under the purchase method of accounting. Total consideration for the acquisition was $18 million in cash, funded using a revolving credit facility (See Note 7). In conjunction with the acquisition of Pro CD, the Company entered into a Data License Agreement with Acxiom in which Acxiom will pay to the Company $8 million over a two year period. Additionally, the Company entered into a Technology License Agreement with Acxiom in which the Company will pay to Acxiom $8 million over a two year period. In addition to purchased in-process research and development costs of $4.3 million (See Note 16), intangibles and goodwill recorded as part of the purchase included core technology, customer base, and tradename costs totaling $5.9 million, noncompete agreements of $5.2 million and goodwill of $6.2 million. Goodwill is being amortized over 10 years. Operating results for each of these acquisitions are included in the accompanying consolidated statements of operations from the respective acquisition dates. Assuming the above described companies had been acquired on January 1, of the year preceding the acquisition, and excluding the write-offs of in-process research and development costs, unaudited pro forma consolidated revenues, net income (loss) and net income (loss) per share would have been as follows:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Net sales................................. $206,578 $187,325 $101,404 Net income (loss)......................... $ 29,187 $(26,054) $ 9,564 Basic earnings (loss) per share........... $ 0.60 $ (0.53) $ 0.22 Diluted earnings (loss) per share......... $ 0.60 $ (0.53) $ 0.21
The pro forma information provided above does not purport to be indicative of the results of operations that would actually have resulted if the acquisitions were made as of those dates or of results which may occur in the future. F-10 13 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 4. MARKETABLE SECURITIES
AMORTIZED UNREALIZED UNREALIZED FAIR COST GROSS GAIN GROSS LOSS VALUE --------- ---------- ---------- ------- (IN THOUSANDS) At December 31, 1997 Municipal bonds.......................... $ 824 $ 1 $ (2) $ 823 Corporate bonds.......................... 2,459 4 (66) 2,397 Common stock............................. 20,372 1,429 (1,030) 20,771 Preferred stock.......................... 47 7 -- 54 ------- ------ ------- ------- $23,702 $1,441 $(1,098) $24,045 ======= ====== ======= ======= At December 31, 1996 Municipal bonds.......................... $11,450 $ 35 $ (132) $11,353 U.S. government and agency............... 808 7 (5) 810 Corporate bonds.......................... 5,751 17 (58) 5,710 Common stock............................. 5,365 18 (496) 4,887 Preferred stock.......................... 47 3 -- 50 ------- ------ ------- ------- $23,421 $ 80 $ (691) $22,810 ======= ====== ======= =======
Scheduled maturities of marketable debt securities at December 31, 1997, are as follows:
LESS THAN ONE TO FIVE TO MORE THAN 1 YEAR 5 YEARS 10 YEARS 10 YEARS --------- ------- -------- --------- (IN THOUSANDS) Municipal bonds............................. $ 82 $ 251 $-- $491 Corporate bonds............................. 1,111 1,286 -- -- ------ ------ --- ---- $1,193 $1,537 $-- $491 ====== ====== === ====
For the year ended December 31, 1997, proceeds from sales of marketable securities approximated $19.6 million while realized gains totaled $2.6 million and realized losses totaled $86 thousand. For the year ended December 31, 1996, proceeds approximated $18.9 million while realized gains totaled $1.6 million and realized losses totaled $343 thousand. 5. PROPERTY AND EQUIPMENT
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ (IN THOUSANDS) Land and improvements...................................... $ 1,733 $ 1,220 Buildings and improvements................................. 13,040 9,084 Furniture and equipment.................................... 26,608 21,597 Capitalized equipment leases............................... 2,014 1,437 ------- ------- 43,395 33,338 Less accumulated depreciation and amortization: Owned property........................................... 17,502 14,188 Capitalized equipment leases............................. 776 264 ------- ------- Property and equipment, net........................... $25,117 $18,886 ======= =======
The Company has entered a commitment to construct an additional facility in Papillion, Nebraska, near the existing Company's Ralston, Nebraska, location. The estimated cost of the project is $8 million and is F-11 14 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) anticipated to be completed in mid 1998. The Company anticipates funding the project with cash flows from operations and a revolving credit facility. Under the terms of its capital lease agreements, the Company is required to pay ownership costs, including taxes, licenses and maintenance. The Company also leases office space under operating leases expiring at various dates through October 2007. Certain of these leases contain renewal options. Rent expense was $2.6 million, $952 thousand, and $593 thousand in the years ended December 31, 1997, 1996 and 1995, respectively. Following is a schedule of the future minimum lease payments as of December 31, 1997:
CAPITAL OPERATING ------- --------- (IN THOUSANDS) 1998........................................................ $ 750 $2,541 1999........................................................ 245 1,972 2000........................................................ 70 710 2001........................................................ -- 362 2002........................................................ -- 167 ------ ------ Total future minimum lease payments......................... 1,065 $5,752 ====== Less amounts representing interest.......................... 65 ------ Present value of net minimum lease payments................. $1,000 ======
6. INTANGIBLE ASSETS
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ (IN THOUSANDS) Goodwill................................................... $ 44,598 $19,093 Noncompete agreements...................................... 6,925 -- Core technology............................................ 1,100 -- Customer base.............................................. 1,100 -- Tradename.................................................. 3,700 -- Purchased data processing software......................... 9,400 -- Acquired database costs.................................... 19,000 -- Perpetual software license agreement....................... 8,000 -- Software development costs................................. 1,865 1,955 Consumer database costs.................................... 3,892 494 Other deferred costs....................................... 1,662 -- -------- ------- 101,242 21,542 Less accumulated amortization.............................. 27,501 4,132 -------- ------- $ 73,741 $17,410 ======== =======
F-12 15 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. FINANCING ARRANGEMENTS Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ (IN THOUSANDS) Uncollateralized bank revolving line of credit, provides for maximum borrowings of $100 million at December 31, 1997. Facility provides for borrowings with interest at bank's base rate or LIBOR plus 0.375%-0.625%, based on the Company's funded debt ratio. The rate in effect at December 31, 1997 was 6.5%. Principal is due February 2000. Effective July 1997, The Company entered into an interest rate swap whereby $30 million of outstanding credit bears a fixed interest rate of 6.74%. The interest rate swap terminates in July 1999. Interest is payable at the earliest of the end of each applicable interest period or quarterly...................................... $78,000 $ -- Uncollateralized bank revolving line of credit, provides for maximum borrowings of $5 million. Facility provides for borrowings with interest at bank's LIBOR plus 2.150% The rate in effect at December 31, 1997 was 8.43%. Principal is due January 2000. Interest is payable monthly.................................................. 3,000 -- Bank note assumed in acquisition, repaid in January 1997... -- 225 Computer lease obligations (See Note 5).................... 1,000 910 ------- ------ 82,000 1,135 Less current portion....................................... 716 708 ------- ------ Long-term debt............................................. $81,284 $ 427 ======= ======
Future maturities by calendar year of long-term debt as of December 31, 1997 are as follows (in thousands): 1998........................................................ $ 716 1999........................................................ $ 210 2000........................................................ $81,074
The Company is subject to certain financial covenants on the $100 million revolving credit facility, including maximum funded debt ratio, minimum interest coverage ratio, and minimum tangible net worth tests. Additionally, the Company is required to pay an annual commitment fee on the average unused amount of the facility, ranging from 0.15%-0.25% based on the Company's funded debt ratio. Interest rate swap agreements are used by the Company to reduce the potential impact of increases in interest rates on floating-rate long-term debt. At December 31, 1997, the Company was a party to one interest rate swap agreement which expires in July 1999. The agreement entitles the Company to receive from counterparties on a monthly basis the amounts, if any, by which the Company's interest payments on $30 million of outstanding debt of its $100 million revolving line of credit due in February 2000 exceed 6.74%, and to pay to counterparties on a monthly basis the amounts, if any, by which the Company's interest payments on $30 million of outstanding debt of its $100 million revolving line of credit are less than 6.74%. F-13 16 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The Company has not declared or paid any cash dividends on its capital stock. Pursuant to certain financing arrangements, the Company has agreed not to pay cash dividends in any four quarter period in excess of the lesser of $5,000,000 or 25% of net income for such four quarter period. 8. INCOME TAXES The provision for income taxes on continuing operations consists of the following:
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ (IN THOUSANDS) Current: Federal..................................... $9,163 $ 8,782 $7,101 State....................................... 742 925 658 ------ ------- ------ 9,905 9,707 7,759 ------ ------- ------ Deferred: Federal..................................... (2,688) (6,159) 615 State....................................... (230) (148) 47 ------ ------- ------ (2,918) (6,307) 662 ------ ------- ------ $6,987 $ 3,400 $8,421 ====== ======= ======
Loss on discontinued operations and abandonment of subsidiary is presented net of income tax benefits of $1.1 million in 1996 and $1.3 million in 1995. The effective income tax rate varied from the federal statutory rate as follows:
FOR THE YEARS ENDED -------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ (IN THOUSANDS) Tax provision computed at statutory rate of 35%......................................... $(11,490) $3,131 $7,959 State taxes, net.............................. 424 530 401 Amortization of nondeductible intangibles..... 637 29 -- In-process research and development........... 17,220 -- -- Nondeductible expense, nontaxable income and other....................................... 196 (290) 61 -------- ------ ------ $ 6,987 $3,400 $8,421 ======== ====== ======
F-14 17 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of the net deferred tax asset (liability) were as follows:
DECEMBER 31, DECEMBER 31, 1997 1996 ------------ ------------ (IN THOUSANDS) Deferred tax assets: Marketable securities.................................... $ -- $ 232 Intangible assets........................................ 2,242 5,758 Accrued vacation......................................... 399 291 Accrued expenses......................................... -- 369 Accounts receivable...................................... -- 317 Other assets............................................. 521 521 ------- ------- 3,162 7,488 ------- ------- Deferred tax liabilities: Accounts receivable...................................... (2,876) -- Marketable securities.................................... (130) -- Depreciation............................................. (1,126) (824) Prepaid expenses and other............................... (2,390) (1,788) ------- ------- (6,522) (2,612) ------- ------- Net deferred tax asset (liability)......................... $(3,360) $ 4,876 ======= =======
9. STOCK INCENTIVES As of December 31, 1997, a total of 5.0 million shares of the Company's Class A Common Stock and 5.0 million shares of the Company's Class B Common Stock have been reserved for issuance to officers, key employees and non-employee directors under the Company's 1992 Stock Option Plan. In addition, as of December 31, 1997, a total of 2.0 million shares of the Company's Class A Common Stock have been reserved for issuance to officers, key employees and non-employee directors under the Company's 1997 Class A Common Stock Option Plan. Options are generally granted at the stock's fair market value on the date of grant, vest generally over a four or five year period and expire five or six years, respectively, from date of grant. Options issued to shareholders holding 10% or more of the Company's stock are generally issued at 110% of the stock's fair market value on the date of grant and vest over periods ranging from five to six years with early vesting if certain financial goals are met. Certain options issued to directors at the stock's fair market value vested immediately and expire five years from grant date. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation. Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards issued in or subsequent to 1995 consistent with the provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) -- as reported.............. $(39,816) $3,819 $12,001 Net income (loss) -- pro forma................ $(41,503) $3,072 $11,779 Basic earnings (loss) per share -- as reported.................................... $ (0.82) $ 0.09 $ 0.29 Diluted earnings (loss) per share -- as reported.................................... (0.82) 0.09 0.28 Basic earnings (loss) per share -- pro forma....................................... $ (0.86) $ 0.07 $ 0.29 Diluted earnings (loss) per share -- pro forma....................................... $ (0.86) $ 0.07 $ 0.28
F-15 18 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The above pro forma results are not likely to be representative of the effects on reported net income for future years since options vest over several years and additional awards generally are made each year. The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1997, 1996 and 1995: dividend yield of 0%; expected volatility of 19.16% (1997) and 15.52% (1996 and 1995); risk free interest rate based on the U.S. Treasury strip yield at the date of grant; and expected lives of 4.0 to 6.0 years. During 1995, the Company agreed to repurchase, at fair market value, 583,750 shares of common stock from a former officer of the Company for $3.1 million. The charge of $3.1 million is reflected as selling, general and administrative expense in the accompanying 1995 consolidated statement of operations. The actual shares were repurchased and retired in 1996. The following information has been restated to reflect the stock dividend (See Note 17). Each option to purchase shares of common stock outstanding prior to the Stock Dividend was converted into an option to purchase both, but not either, shares of Class A Common Stock and Class B Common Stock.
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995 ------------------ ----------------- ----------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE ------------------ ----------------- ----------------- SHARES PRICE SHARES PRICE SHARES PRICE --------- ------ --------- ----- --------- ----- Outstanding beginning of period.......... 5,203,800 $ 7.58 2,913,750 $5.49 2,188,500 $4.33 Granted.................................. 2,799,250 11.81 3,964,000 8.19 996,000 7.69 Exercised................................ 357,250 5.87 (705,950) 4.32 (188,250) 4.18 Forfeited/Expired........................ 167,750 8.95 (968,000) 6.00 (82,500) 4.22 --------- ------ --------- ----- --------- ----- Outstanding end of period................ 7,478,050 $ 9.22 5,203,800 $7.58 2,913,750 $5.49 ========= ====== ========= ===== ========= ===== Options exercisable at end of period..... 1,344,550 $ 7.10 585,050 $5.53 757,500 $5.49 ========= ====== ========= ===== ========= ===== Shares available for options that may be granted................................ 1,660,000 2,796,200 886,250 ========= ========= ========= Weighted-average grant date fair value of options, granted during the period -- exercise price equals stock market price at grant.................. $ 3.30 $2.00 $1.91 ====== ===== ===== Weighted-average grant date fair value of options granted during the period -- exercise price exceeds stock market price at grant.................. $2.10 =====
F-16 19 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes information about stock options outstanding at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------- ----------------------- WEIGHTED- AVERAGE WEIGHTED- WEIGHTED- REMAINING AVERAGE AVERAGE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE ------------------------ ----------- ----------- --------- ----------- --------- $3.80 to $4.09............................. 78,250 0.3 years $ 3.90 78,250 $ 3.90 $4.10 to $5.45............................. 353,800 1.5 years 4.51 247,300 4.50 $5.46 to $6.82............................. 691,500 2.9 years 6.21 247,500 6.06 $6.83 to $8.18............................. 787,500 3.4 years 7.46 172,500 7.54 $8.19 to $9.54............................. 2,901,000 3.6 years 8.67 557,000 8.73 $9.55 to $10.90............................ 324,000 4.2 years 10.40 -- -- $10.91 to $12.27........................... 1,142,000 4.4 years 11.14 42,000 11.06 $12.28 to $13.63........................... 1,200,000 4.7 years 13.00 -- -- --------- --------- ------ --------- ------ $3.80 to $13.63............................ 7,478,050 3.7 years $ 9.22 1,344,550 $ 7.10 ========= ========= ====== ========= ======
10. SAVINGS PLAN Employees who meet certain eligibility requirements can participate in the Company's 401(k) Savings and Investment Plan. Under the plan, the Company may, at its discretion, match a percentage of the employee contributions. The Company recorded expenses related to its matching contributions of $782 thousand, $115 thousand and $80 thousand in the years ended December 31, 1997, 1996 and 1995, respectively. 11. RELATED PARTY TRANSACTIONS Included in other assets at December 31, 1997 and December 31, 1996, are investments of $71 thousand and $571 thousand, respectively, in companies that were partially owned by certain members of the Board of Directors of the Company at the time the investments were made. At December 31, 1997, the remaining investment included $71 thousand in IDE Corporation. The Company owns less than 10% of either company and accounts for these investments on the cost method. The Company paid $364 thousand, $48 thousand, and $148 thousand in 1997, 1996 and 1995, respectively, to Annapurna Corporation for consulting services and related expenses in connection with acquisition activity conducted by the Company. Annapurna Corporation is 100% owned by a significant stockholder. The Company also paid $145 thousand, $156 thousand, and $0 in the years ended December 31, 1997, 1996 and 1995, respectively, to a Director of the Company for consulting services in connection with acquisition activity conducted by the Company. The Company utilizes a law firm of which one member of the Board of Directors is a partner to the firm. Legal fees paid to the law firm totaled $146 thousand, $91 thousand, and $115 thousand in the years ended December 31, 1997, 1996 and 1995, respectively. 12. DISCONTINUED OPERATIONS On June 1, 1995, the Company transferred substantially all of the assets and liabilities of its wholly-owned subsidiary, American Business Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University. The Company received $3.0 million in the form of a 7.52% non-recourse promissory note, due in equal monthly installments through 2005. ABC recorded net sales of $6.7 million and $2.9 million during 1994 and 1995, respectively. F-17 20 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1996, Baker University defaulted on the note and the Company abandoned any remaining net assets of the business. As a result, the Company recorded a loss from abandonment of subsidiary of $1.4 million, net of tax. 13. SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain acquisitions in 1997 and 1996 (See Note 3) and assumed liabilities as follows:
1997 1996 -------- ------- (IN THOUSANDS) Fair value of assets........................................ $134,555 $28,107 Cash paid................................................... (84,224) (6,484) Promissory note issued...................................... -- (7,925) Common stock issued......................................... (29,178) (9,382) -------- ------- Liabilities assumed......................................... $ 21,153 $ 4,316 ======== =======
In conjunction with the transfer of ABC in 1995, approximately $6.8 million of assets, less liabilities of $1.0 million, were exchanged for a $3.0 million note receivable. As a result, the Company recognized an impairment of $1.8 million net of tax benefits, which is included in loss on discontinued operations. During 1997, the Company acquired computer equipment totaling $577 thousand under a capital lease obligation (See Note 5). 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 1997 and 1996. Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts shown in the following table are included in the consolidated balance sheets under the indicated captions.
DECEMBER 31, 1997 DECEMBER 31, 1996 ------------------- ------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- -------- ------- (AMOUNTS IN THOUSANDS) Financial assets Cash and cash equivalents................. $10,653 $10,653 $ 7,497 $ 7,497 Marketable securities..................... 23,833 24,045 23,421 22,810 Other assets.............................. 2,071 2,000 621 621 Financial liabilities Payable to shareholders................... (1,871) (1,871) (7,925) (7,925) Long-term debt............................ (81,284) (81,284) (427) (427) Derivatives Interest rate swaps....................... -- 133 -- --
F-18 21 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents and payable to shareholders. The carrying amounts approximate fair value because of the short maturity of those instruments. Marketable securities. The fair values of debt securities and equity investments are based on quoted market prices at the reporting date for those or similar investments. Other assets, including investments in other companies. Investments in companies not traded on organized exchanges are valued on the basis of comparisons with similar companies whose shares are publicly traded. Long-term debt. Given the short term nature of the revolving lines of credit as well as the variable rate of interest associated with $78 million of the outstanding debt at December 31, 1997, fair value approximates carrying value. Interest rate swap. The fair value of the interest rate swap was calculated based on discounted cash flows of the difference between the swap rate and the estimated market rate for similar terms. 15. 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. 16. ACQUISITION-RELATED CHARGES As part of the acquisition of DDA in August 1996 (See Note 3), the Company recorded acquisition-related charges for purchased in-process research and development costs totaling $10.0 million for write-offs in conjunction with the merger of DDA, which related to projects that had not met technological feasibility. Additionally in 1996, the Company recorded an acquisition-related charge totaling $11.5 million due to the change in estimated useful lives based on management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995. As part of the acquisition of DBA in February 1997 (See Note 3), the Company recorded acquisition-related charges totaling $51.8 million for write-offs in conjunction with the merger of DBA for purchased in-process research and development costs which related to projects that had not met technological feasibility ($49.2 million), as well as other related integration and organizational restructuring costs ($2.6 million). As part of the acquisition of Pro CD in August 1997 (See Note 3), the Company recorded acquisition-related charges totaling $4.3 million for write-offs in conjunction with the merger of Pro CD for purchased in-process research and development costs which related to projects that had not met technological feasibility. 17. STOCK RECLASSIFICATION AND STOCK DIVIDEND AND STOCKHOLDERS RIGHTS PLANS On October 3, 1997, the Company's Board of Directors and shareholders approved the reclassification of the existing common stock as Class B Common Stock and authorized 220,000,000 shares of a new Class A Common Stock. The Board also declared a two-for-one stock split, effected in the form of a stock dividend of one share of Class A Common Stock for each share of Class B Common Stock then outstanding. Accordingly all share and per share information has been restated to reflect the stock split. Each share of Class A Common Stock entitles the holder to one vote and a non-cumulative dividend of $0.02 per year, when and as declared by F-19 22 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the Board of Directors in preference to any dividend on Class B Common Stock. Each share of Class B Common Stock entitles the holder to ten votes. On October 3, 1997, the Company adopted a stockholder rights plan with respect to its Class A Common Stock and adopted certain changes to the plan it had adopted on July 21, 1997 with respect to its Class B Common Stock, under which the Board declared a dividend distribution of one Preferred Stock purchase right to holders of each share of Class A Common Stock and Class B Common Stock. The rights are not exercisable until ten days after a person or group announces the acquisition of 15% or more of the Company's voting stock or announces a tender offer for 15% or more of the Company's outstanding common stock. Each right entitles the holder to purchase common stock at one half the stock's market value. The rights are redeemable at the Company's option for $0.001 per Right at any time on or prior to public announcement that a person has acquired 15% or more of the Company's voting stock. The rights are automatically attached to and trade with each share of Common Stock. 18. SUBSEQUENT EVENTS Effective March 1998, the Company acquired certain assets and assumed certain liabilities of Walter Karl, Inc., a national direct marketing service firm that provides list management, list brokerage, database marketing and direct marketing services to a wide array of customers. Total consideration for the acquisition was approximately $19 million. The acquisition has been accounted for under the purchase method of accounting. Substantially all of the purchase price was allocated to goodwill. On March 17, 1998, the Company filed suit in Delaware court to enjoin a merger agreement whereby Great Universal Stores, PLC ("GUS") would acquire Metromail Corporation ("Metromail") for $31.50 per share. On March 20, 1998, GUS filed a counterclaim against the Company alleging, among other things, that ABI tortiously interfered with the Merger Agreement and Parent's prospective business relations with Metromail. The Counterclaim also alleges that the Company breached a confidentiality agreement entered into by the Company with Metromail's financial advisor and of which GUS is a third party beneficiary. As relief, the GUS claim seeks, among other things, injunctive relief and actual, punitive and other damages in an amount to be determined at trial, estimated by GUS to exceed $500 million, plus fees and expenses. On March 27, 1998, the Delaware Chancery Court denied the Company's motion for a preliminary injunction to block the GUS Merger Agreement. The Company does not believe that the GUS counterclaim has merit and will vigorously defend the suit, however there can be no assurance that this matter will be resolved without a material adverse affect on the Company's financial condition. On March 30, 1998, the Metromail Board of Directors accepted a proposal to be acquired by GUS for $34.50 per share. F-20 23 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION -------------- ----------- 2.1 -- Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. is incorporated herein by reference to exhibits filed with the Company's current report on Form 8-K dated September 10, 1996. 2.2 -- Agreement and Plan of Reorganization between the Company and the Shareholders of County Data Corporation is incorporated herein by reference to exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996. 2.3 -- Agreement and Plan of Reorganization between the Company and the Shareholders of 3319971 Canada Inc. is incorporated herein by reference to exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996. 2.4 -- Agreement and Plan of Reorganization between the Company and the shareholders of Marketing Data Systems, Inc. is incorporated herein by reference to the exhibits filed with the Company's Registration Statement on Form S-3 (File No. 333-36669) filed on October 23, 1997. 2.5 -- Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated February 28, 1997. 2.6 -- Agreement and Plan of Reorganization between the Company and the Shareholders of Pro CD, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated September 8, 1997. 2.7 -- Stock Purchase Agreement between the Company and the shareholders of Walter Karl, Inc. is incorporated herein by reference to the Company's Current Report on Form 8-K dated February 24, 1998. 3.1* -- Certificate of Incorporation, as amended through October 3, 1997. 3.2 -- Bylaws are incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-42887), which became effective February 18, 1992. 3.3 -- Amended and Restated Certificate of Designations of Participating Preferred Stock, filed in Delaware on October 3, 1997, is incorporated herein by reference to the Company's Registration Statement on From 8-A, (File No. 97-690893), filed on October 6, 1997. 4.1 -- Rights Plan for Class A Common is incorporated herein by reference to the Company's Registration Statement on Form 8-A, (File No. 97-690893), filed on October 6, 1997. 4.2 -- Rights Plan for Class B Common is incorporated herein by reference to the Company's Registration Statement on Form 8-A, (File No. 97-690896), filed on August 6, 1997 and amended on October 6, 1997. 4.3 -- Specimen of Class A Common Stock Certificate is incorporated herein by reference to the exhibits filed with the company's Registration Statement on Form S-3 (File No. 333-36669) filed on October 23, 1997. 4.4* -- Specimen Class B Common Stock Certificate, filed herewith. 4.5 -- Amended and Restated Credit Agreement between the Company and First Union National Bank is incorporated herein by reference to the exhibits filed with the Company's Current Report on Form 8-K dated September 8, 1997. 4.6 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 hereof. 10.1 -- Form of Indemnification Agreement with Officers and Directors is incorporated herein by reference to the exhibits filed with the Company's Registration Statement on Form S-1 (File No. 33-51352), filed August 28, 1992. 10.2 -- Employment Agreement between the Company and Scott Dahnke is incorporated herein by reference to the exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 10.3 -- Employment Agreement between the Company and Gregory Back is incorporated herein by reference to the exhibits filed with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1997. 10.5 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7 and 4.5 hereof. 21.1* -- Subsidiaries and State of Incorporation, filed herewith. 23.1 -- Consent of Independent Accountants, filed herewith. 24.1* -- Power of Attorney (included on signature page) 27.1* -- Financial Data Schedule, filed herewith.
* Previously filed. EX-23.1 2 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-59256) of American Business Information, Inc. of our report dated January 23, 1998, on our audits of the consolidated financial statements and financial statement schedule of American Business Information, Inc. as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Omaha, Nebraska March 31, 1998 -----END PRIVACY-ENHANCED MESSAGE-----