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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 1999
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
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infoUSA INC.
(Exact name of registrant as specified in its charter)
DELAWARE 47-0751545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
(Address of principal executive offices)
(402) 593-4500
(Registrant's telephone number, including area code)
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Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.0025 PAR VALUE
SERIES A PREFERRED SHARE PURCHASE RIGHTS
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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 Common Stock on March
7, 2000 as reported on the NASDAQ National Market System, was approximately $286
million. Shares of Common Stock held by each officer and director and by each
person who owns 5% or more of the outstanding 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 7, 2000 registrant had outstanding 49,838,408 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held on April 28, 2000, which will be filed within 120
days of the end of fiscal year 1999, are incorporated into Part III hereof by
reference.
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PART I
This Annual Report on Form 10-K and the documents incorporated by reference
into this Annual Report contain forward-looking statements that have been made
pursuant to the provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements include, without limitation, statements
related to potential future acquisitions and our strategy and plans for our
business contained in Item 1 "Business," Item 2 "Properties" and Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Such forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's
beliefs, and certain assumptions made by our management. These statements are
not guarantees of future performance and are subject to certain risks,
uncertainties and assumptions that are difficult to predict; therefore, actual
results may differ materially from those expressed or forecasted in any such
forward-looking statements. Such risks and uncertainties include those set forth
in this Annual Report under "Factors That May Affect Operating Results," as well
as those noted in the documents incorporated by reference into this Annual
Report. Unless required by law, we undertake no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review the risk factors
set forth in other reports or documents we file from time to time with the
Securities and Exchange Commission, particularly the Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K.
ITEM 1. BUSINESS
COMPANY PROFILE
infoUSA Inc. compiles and updates proprietary databases of 12 million
businesses and 200 million consumers in the United States and Canada. These
databases are compiled from thousands of public sources and are extremely rich
in content. In order to improve the quality of our databases, we make over 20
million phone calls per year to gather additional content and verify existing
information. We maintain a staff of 500 full-time employees in Omaha to manage
the database. The database changes by more than 40 percent every year. Our
customers need to continually refresh their databases which is why they keep
coming to us to purchase additional products and services. Recurring revenue is
a major component of our revenue, and approximately two-thirds of our revenue is
recurring in nature.
More than 3 million customers use this information in the form of sales
leads, prospect lists, mailing labels, printed directories, 3 x 5 cards,
computer diskettes, business credit reports, consumer products, and on the
Internet. The information is used by businesses for sales leads, mailing lists,
credit decisions, market research, competitive analysis and vendor
relationships. Consumers use our information for travel planning, job searches,
due diligence and multiple other uses.
BUSINESS STRATEGY
Our strategy is to be the leader in proprietary databases of businesses and
consumers in the United States and Canada, and produce innovative products and
services to meet the needs of businesses and consumers. The information provided
by our databases is integral to the decision making process. Our Business
Strategy is divided into five main groups. First is our Database Group, which is
proprietary databases of unique content. Second is our Small Business & Consumer
Markets Group. Third is our Large Customer markets. Fourth is Database
Licensing, where we license our data to Internet companies and value-added
resellers. Fifth is our Internet Strategy, which involves exploiting future
potential applications for our data using Internet and Wireless technology.
Unlike some people who think the Internet may cannibalize our core business, we
believe otherwise. We believe the Internet expands our marketplace many times by
allowing small businesses and consumers worldwide to access our databases and
purchase information in small quantities with more frequency.
DATABASES
It is our strategy to add depth to our proprietary databases. Content is
king, and we have some of the finest content available. We believe that we are
the only company that offers proprietary databases of businesses and consumers,
compiled and updated under one roof. We use thousands of sources and hundreds of
processes to
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compile and enhance our databases. We employ over 500 people, and spend over $50
million annually to create, maintain, and enhance our databases.
Business Database. Our proprietary business database contains information
on 12 million businesses in the United States and Canada. The database contains
many elements including name, address, phone numbers, SIC codes, employee size,
business owner and key executives' names, credit ratings, and sales volume.
Where available, we provide fax and 800 numbers, website addresses, headline
news, and public filings including liens, judgements, lawsuits, and
bankruptcies. Our data can be segmented into various segments such as Small
Business Owners, Small Business Owners at Home, Big Businesses and their
Corporate Affiliations, Growing Businesses, and Female Business Owners.
Additionally, vertical industry data segments are created such as Physicians and
Surgeons, Schools, Restaurants, Places of Interest, Importers/Exporters, and
Government Offices.
We compile the business information from over 15,000 sources. Some sources,
such as the yellow pages, telephone directory white pages, and chamber
directories, are used to identify businesses for inclusion in the database.
Other sources such as primary telephone research surveys are used to enhance the
database with key data elements like number of employees, Fax numbers, company
web site addresses, and year established. Additional sources such as annual
reports, SEC filings and public filings, are used to update the database with
lawsuits, liens, judgments, bankruptcies, headline news, commercial debtor data,
changes in leadership, changes of address, changes of corporate affiliations,
and the like. In addition, we use information licensed from the United States
Postal Service's National Change of Address (NCOA) and Delivery Sequence File
(DSF) to update and maintain our business database.
Our future plan is to add unique business elements to our database. Planned
additions to the database include storefront pictures and videos of businesses,
direct dial numbers and e-mail addresses of owners and key executives, headline
news on private companies, square footage of buildings, own-versus-lease data,
type of software used, etc.
Consumer Database. Our consumer database is among the most comprehensive
and accurate available. Key elements in our database include names, addresses,
phone numbers, age & income, marital status, presence of children, active bank
cards, religion, ethnicity, dwelling type & size, home value, length of
residence, vehicle data, and dozens of self-reported behavioral and lifestyle
elements.
We begin the compilation process of all households using telephone
directories. This core data source is compiled with greater accuracy and
timeliness than most others using this base source. The white page file is then
enhanced with over 1 billion records licensed from third parties to add
individuals not listed in the telephone directories and to add the demographic
and psychographic data required to segment consumer prospects. The end result is
a database of 200 million consumers, 115 million households, and 57 million
homeowners.
Privacy Issues and Consumer Data: infoUSA utilizes public record
information and self-reported information provided by the consumer in order to
create marketing solutions for our clients. We do not use any credit or
confidential purchasing data on consumers as a part of our database.
Effect of Internet on Data Compilation: Our future plans include new
sources of consumer information. We have introduced Internet opt-in consumer
surveys, where consumers can volunteer lifestyle and buyer behavior that can be
used to assist web marketers in targeting advertising to best meet their needs.
The opt-in feature also allows infoUSA to match online and offline data to form
a complete profile of consumer purchase intentions and decisions. This
self-reported survey information can be obtained on the Internet with more
speed, greater accuracy and at lower cost than mail-based surveys.
PRODUCTS AND SERVICES
From our databases of 12 million businesses in the United States and Canada
and 200 million consumers in the United States we produce products such as
prospect lists, mailing labels, 3 x 5 cards, diskettes, printed directories,
Consumer Products, Business Credit Reports, and many other products and
services. Our products and data processing services are used by customers for
activities such as identifying and qualifying prospective customers, initiating
direct mail programs, telemarketing, analyzing and assessing market potential,
monitoring the effectiveness of marketing efforts and surveying competitive
markets. We are organized around two customer
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segment groups: Small Business and Consumer Markets Group and the Large Business
Customers Group. Our products and services are designed for the unique needs of
each group.
OUR CUSTOMERS AND POTENTIAL MARKETS
SMALL BUSINESS AND CONSUMER MARKETS GROUP We estimate our potential market
to be approximately six million small businesses and 50 million consumers. This
group concentrates on the needs of small to medium size businesses, small office
and home office businesses, aspiring entrepreneurs, and individual consumers.
Our products and services help small businesses and consumers analyze their
existing customers, identify new markets, and grow their businesses. The
products are also used to locate suppliers, look up business credit profiles,
and for other marketing and reference purposes. The accompanying notes to the
consolidated financial statements include segment financial information for the
small business and consumer markets group.
Prospect Lists, Mailing Labels, and Sales Lead Products. These products are
used by customers who request specific information and formats. We produce sales
lead generation products using a combination of customized sorting criteria to
meet the customer's specific marketing objectives.
Electronic Delivery of Products. We deliver sales lead generation products
using a variety of electronic formats, including diskettes formatted for most
common software applications, magnetic tape media, CD-ROM's, and Internet
delivery of files.
Monthly Updates: Our databases change by over 40% annually, therefore, our
customers need to refresh their customer and marketing databases periodically.
That is why we offer a subscription program that provides customers with a
prospect database and monthly updates including new leads for the market area,
changes to the original database, and a list of companies that have gone out of
business. Very soon we will offer daily updates using Internet delivery.
Business Directories and CD-Rom Products: Many customers are small
businesses who sell to other businesses within a specific state. They use our
printed business directories bundled with CD-ROMs. Our customers use them for
lead generation, telemarketing, and reference purposes. Our plan is to offer an
interface with our web site with these CD-ROMs to offer our customers complete
flexibility for one price.
Business Credit Directories: Our business credit directories include a
printed directory bundled with a CD-ROM. The product is used by customers for
decision making, verifying company information, assisting in collection support,
and identifying potential new customers.
Directory Assistance+Plus: For busy executives and people on the road we
supply our information over the phone. We price our telephone information
services on a subscription basis. Also, Business Credit Reports and other
products can be purchased individually, or on a subscription basis.
Consumer Products: Our consumer CD-ROM and DVD products can be used on
personal computers as an affordable way to find addresses and phone numbers of
businesses and consumers anywhere in the country. Consumer products are sold
through over 5,000 retail outlets in North America, including OfficeMax, Office
Depot, Staples, CompUSA, and Best Buy. A good percentage of the consumers who
buy these products register them with us and sign up for a subscription to
receive annual renewals.
LARGE BUSINESS GROUP This group, now called Donnelley Marketing, is
comprised of Database America, Donnelley Marketing, and Walter Karl. Their focus
is selling to Fortune 1000 types of companies. They offer full service solutions
by providing databases, data processing services, and database marketing
services. Most of our large customers license our entire database on an annual
contract, using the information as an integral part of their marketing
databases. Most of these customers use our information for many applications
including modeling, analyzing their customers, new customer acquisition, direct
marketing, telemarketing, etc. The accompanying notes to the consolidated
financial statements include segment financial information for the large
business group.
Database Marketing Services: Database marketing involves the use of
sophisticated statistical methodologies to segment customers, glean insight
about customer characteristics, and identify the best prospective markets. We
offer a variety of market research services, including customer and market
profile analyses, market segmentation reports, statistical marketing reports,
list enhancements to update a customer's in-house database,
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computerized name search service, and other analytical tools and reports. We
also provide database marketing solutions in the form of proprietary technology
for the creation and usage of customer and prospecting marketing databases.
Direct Marketing Services: Direct marketing services help customers turn
their in-house databases into a more powerful marketing tool. The services we
offer include "merge-purge" services (merging data from multiple sources and
purging duplicative and erroneous data), list enhancement (appending additional
data to a customer file to provide a better description of the customer) and
National Change of Address (NCOA) processing (maintaining an accurate,
up-to-date file of customer addresses which minimizes the number of mail pieces
which cannot be delivered).
List Management & Brokerage: The Walter Karl division provides list
management services to a variety of list owners. Our special integrated,
targeted marketing programs develop list rental usage in the broadest range of
potential markets. With the list brokerage business, Walter Karl sources and
sells specialty lists to a wide range of businesses across many industries.
DATABASE LICENSING GROUP
Our databases have multiple applications, and infoUSA cannot possibly meet
all the potential needs of our customers directly. Therefore, we license our
databases to value added resellers who deliver the information for a wide range
of applications. Examples of the types of applications we license our data for
include in-car navigation systems, phone company call centers for directory
assistance, internet directory assistance services, and many others. Most
Internet providers offering national white page and yellow page services license
the database from us. Licensees (including such customers as Microsoft,
InfoSpace, Yahoo!, CBS, and Mapquest) pay us royalties to use our databases on
their web sites. In addition, most of these Internet sites provide a link to our
web site, allowing potential customers to purchase additional products or
services directly from us. Our directory assistance information over the
Internet is free. We also license our databases to value added resellers who pay
us royalties for the use of our information.
SALES AND MARKETING DISTRIBUTION CHANNELS
We market and sell our information products and data processing services
directly through direct mail, telemarketing, field sales offices and national
accounts sales teams, and the Internet, and indirectly through distribution
channels such as value-added resellers and retail outlets. The sales and
marketing channels used by us vary by product. Sales lead generation products
are sold through direct mail, telesales, field sales offices and national
accounts sales teams, and the Internet. Data processing services are sold
primarily through national accounts sales teams. We currently employ over 100
national and mid-market sales executives who work with our largest customer
accounts. Consumer products are sold through direct mail, telemarketing and
retail outlets, and we license our databases to information resellers and large
corporations.
INTERNET STRATEGY
infoUSA intends to use its powerful database assets and branded
distribution to create and develop its Internet database companies. As the owner
of the content, infoUSA is uniquely able to use its content for unlimited
Internet vertical market applications. infoUSA is currently incubating the
following Internet companies that are targeted at these vertical markets:
infoUSA.com: The exclusive licensor of yellow and white page directory
information to the Internet and Wireless Web. Directory Assistance is the third
most popular use of the Internet, with a potential of 300 billion annual
searches. In addition to license revenues, infoUSA.com generates advertising
revenue as well as revenue from selling infoUSA content, products and services
over the Internet. infoUSA.com also functions as a small business portal,
receiving over 14 million page views per month from small businesses,
entrepreneurs and sales professionals.
VideoYellowPages.com: The first multimedia yellow page directory with full
motion 30-60 second videos, or "on demand" commercials. More than 1000
advertisers have signed on with VideoYellow Pages since its
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inception in September 1998. Revenues include production fees, monthly
subscription fees, advertising and e-commerce. Proprietary video content can
also be licensed to Internet and media partners.
BusinessCreditUSA.com: The first "credit portal", offering free business
credit reports, "watchdog" update service and standardized free online Business
Credit applications which can be updated and downloaded by approved vendors. By
providing businesses with instantly available and updated credit information
online, the site will facilitate B2b e-commerce. Businesses can self-report a
variety of information, providing infoUSA with timely, updated data and reducing
compilation costs. Revenues generated by "watchdog" fees, content sales,
advertising and e-commerce. Potential market of 50 million businesses and 100
million sales professionals and consumers.
ListBazaar.com: First online "farmers market" for business and consumer
lists, aggregating 650 list owners and 10,000 list titles. Single-source
resource for small businesses and end users seeking custom, affordable lists of
all sizes. Revenues generated from list sales, and revenue-sharing relationships
with list owners and e-commerce partners and advertising. Estimated market of 50
million potential list resellers and ultimate users.
infoUSA is also a dominant player in the small business market, which
represents a significant growth market for its Internet services. Working with
CRM partners such as SalesLogix, infoUSA now offers these small businesses a
full range of e-CRM solutions, enabling them to both update and analyze their
customer databases online. These small businesses can then use the infoUSA.com
web site as their gateway to the Internet, where they can register a domain
name, create an e-commerce enabled web site, and implement direct e-marketing
programs.
Another important application for infoUSA's e-CRM customers will be the
introduction of idUSA(TM), where a unique ID number is assigned for every
business, person and location in the database. It will enable infoUSA to track
businesses as they change and grow, and accompany individuals as they move
location and cycle through important life events. Using this code, infoUSA will
be able to provide customers with faster and more accurate record matching and
database updates, which will be delivered online. These ID numbers are the
foundation for linkUSA(TM), the only database that will link people with both
their work and home. Having both a proprietary business and consumer database
provides infoUSA with the unique ability to accurately conjoin person, place and
profession. The ID's will also link offline behaviors with self-reported online
data while protecting identity and privacy with this proprietary code. This
codified and linked data, combined with its leading content platform, will
position infoUSA as the premier e-infomediary, defining the online standards for
client profile presentation and purchaser information.
infoUSA has advanced its development as e-infomediary by using the Internet
as a valuable tool for data compilation as well as distribution. The company has
introduced Internet opt-in consumer surveys, where consumers can volunteer
lifestyle and buyer behavior that can be used to assist web marketers in
targeting advertising to best meet their needs. The opt-in feature also allows
infoUSA to match online and offline data to form a complete profile of consumer
purchase intentions and decisions. This self-reported survey information can be
obtained on the Internet with more speed, greater accuracy and at lower cost
than mail-based surveys. In this way, infoUSA intends to use the Internet to
increase productivity, cut data compilation costs and obtain more relevant
real-time information in the database. As with the consumer surveys, the company
is adding self-reported options to its incubator company sites in order to
enhance the infoUSA database with more unique and valuable information. For
example, businesses will be able to update their own database information
online, adding content such as names, titles and e-mail addresses of executives,
as well as other demographics.
COMPUTER OPERATIONS AND DATABASE PROTECTION
We operate six data centers located in Omaha, Nebraska; Papillion,
Nebraska; Carter Lake, Iowa; Woodcliff Lake, New Jersey; Pearl River, New York;
and Greenwich, Connecticut. Business continuity is assured through our use of
these six separate data center locations. We can reestablish sales, marketing,
production and administrative functions at a combination of the data center
sites.
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The Omaha Data Center supports our Sales Order Entry systems, Internet
website systems, company enterprise systems (e.g. email, file servers) and
company accounting systems. Sales Order Entry and accounting systems run on a
midrange IBM AS/400 and five Sun UNIX machines. The Internet website resides on
a mixture of approximately 33 Sun UNIX machines. Enterprise systems are driven
by large-scale servers running Microsoft NT. This center is also the home for
network connectivity for desktop computers in the Omaha facility, four T1
Internet connections, and connectivity to the other data centers and remote
offices. This center also contains a Nortel Option 81 PBX for telephone services
within the facility. MCI and US West provide telephone service over redundant
access points into the facility. The Omaha data center is protected by a fire
suppression system and an uninterrupted power supply battery backup system.
Business and financial data is backed up daily and stored off-site.
Our Papillion Data Center contains the data compilation systems, enterprise
support systems, and software development platforms. The compilation systems run
on a IBM AS/400. Software development and testing is done on a mixture of three
IBM AS/400s. Enterprise systems and scanning services are run on large-scale
servers running Microsoft NT. Network services to desktop computers and
terminals and other data centers are supported in this center. Like the Omaha
center, this center also contains a Nortel Option 81 PBX with redundant MCI and
US West telephone service access points into the facility. A fire suppression
system, an uninterrupted power supply battery backup system, and a diesel
generator protect the Papillion center. Data is backed up daily and stored
off-site. This facility is staffed with a team of over 80 Information Technology
professionals.
The Carter Lake Data Center is home to the business and consumer order
fulfillment systems. Fulfillment computer services are provided by an IBM
AS/400. Various high-end printers, CDROM, magnetic tape, and diskette devices
are used here to produce the customer's product. A Nortel Option 11 PBX provides
facility telephone services with connection to MCI and US West circuits. The
Carter Lake center is protected by a fire suppression system and an
uninterrupted power supply battery backup system. Data is backed up daily and
stored off-site. This facility is staffed by 40 production, operations, and
shipping professionals.
We maintain our consumer database in Ames, Iowa and analytical data
processing capabilities at our Greenwich Data Center. The data is regularly
backed up and stored off-site. We have contracted with a third party to load and
access our consumer database in the event of loss at the Greenwich facility, and
we believe that it could regenerate our analytical capabilities through the
lease of computer equipment in less than two weeks.
The Greenwich Data Center houses three Mainframe class CPU's (two OS
systems and one DOS), eight large midrange UNIX systems, a number of high-end PC
network class machines, a large LAN PC network, a multitude of telecommunication
equipment, and transport abilities supporting various protocols. A Nortel Option
61 PBX provides telephone services for the facility. The facility also maintains
direct T1 connectivity to the Internet and a WAN connection to all other Company
computer facilities.
All midrange and mainframe class computers are used to service direct
marketing needs to large and mid-sized clients, many in the fortune 500
marketplace. The mainframe class machines are used in every aspect of direct
marketing computer services while the mid-range systems are used in a client
server or three tiered architecture to house relational database marketing
files. These systems service over 200 clients and are available to the Woodcliff
Lake, NJ staff of over 250 on a seven day a week, twenty-four hours a day basis.
The Greenwich facility services its clients with time tested proprietary
direct marketing software as well as state of the art three tiered and client
server open systems. Through these systems and services, along with Company
owned databases, we provide a product that is not offered by many.
Greenwich houses a large data tape library with over 350,000 volumes of
tape. While it is impossible to secure a secondary backup of a library of this
size, all critical databases and system backups are sent offsite to a secure
location with a third party contracted data and document security company. These
'backups' are secured on a daily basis.
The Greenwich facility maintains contracts with Comdisco for disaster
recovery. In the event of a disaster, all on-line computer operations can be
resumed within 48 hours, while other normal operations would resume within two
weeks. The shear volume of data to be recovered is one of the largest concerns
and time-consuming
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factors in the event of a disaster. The data center is set up to guard against
potential fire hazards. Power fluctuations and outages are protected by battery
back-up powered by a diesel generator.
Our computer operations include a mix of mainframe, midrange, server, and
desktop systems.
As part of the acquisition of Donnelley Marketing in July 1999, we entered
into three information technology service agreements with First Data
Technologies, Inc. ("First Data Technologies"), a subsidiary of First Data
Corporation, whereby First Data Technologies will perform certain data
processing functions for Donnelley Marketing. The Company purchased Donnelley
Marketing from First Data Corporation.
First Data Technology's Denver Data Center will continue to process the
Donnelley Lists DP Services, and data processing will be billed at the same
internal transfer pricing Donnelley Marketing has received over the two years
previous to the acquisition. This data processing agreement is for a period of
five years and Donnelley Marketing may terminate the agreement with 180 days
notice. The Company currently performs similar data processing services and
anticipates that as it expands its processing capacity, it will be able to
perform Donnelley Marketing's data processing requirements in-house at a lower
cost.
First Data Resources' Omaha processing facility will continue the
operations and new development required by Donnelley Marketing's InfoSight and
KnowledgeSight customers. Costs for these services will be passed through to
Donnelley Marketing at internal cost. Donnelley Marketing will receive quarterly
net revenue generated from these products. First Data Resources is a subsidiary
of First Data Corporation.
First Data Resources will host the computers and provide online access to
Donnelley Marketing employees and customers of its Decision Scope product.
As part of the merger, Donnelley Marketing entered into a Transition
Services Agreement with First Data Corporation whereby First Data Corporation
will perform agreed-upon processing for certain accounting functions for
customer billing and accounts receivable systems and will reside on First Data
systems at the Denver service center location and must be converted to our
platforms no later than June 30, 2000.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
We regard our databases and software as proprietary. Our databases are
copyrighted, and we depend on trade secret and non-disclosure safeguards for
protection of our software. We distribute our products under agreements that
grant customers a license to use our products in the ordinary course of their
businesses and contain terms and conditions prohibiting the unauthorized
reproduction of our products. In addition, we generally enter into
confidentiality agreements with our management and programming staff and limit
access to and distribution of our proprietary information. There can be no
assurance that the steps taken by us will be adequate to deter misappropriation
of our proprietary rights or independent third party development of
substantially similar products and technology. We believe, however, that legal
protection of our database and software is less significant than the knowledge
and experience of our management and personnel, and their ability to develop,
enhance and market existing and new products and services.
COMPETITION
The business and consumer marketing information industry is highly
competitive. We believe that competition in our industry is based on the quality
and comprehensiveness of the information provided, the ability to deliver the
information in products and formats that the customer needs and, to a lesser
extent, on the pricing of information products and services. We also believe
that the ability to provide proprietary consumer and business databases along
with data processing and database marketing services is a key competitive
advantage. A number of small and large competitors are active in specific
aspects of our business. In business sales lead products, we face competition
from Dun's Marketing Services ("DMS"). DMS, which relies upon information
compiled from Dun & Bradstreet's credit database, tends to focus on marketing to
large companies. In business directory publishing, we compete primarily with
Regional Bell Operating Companies and many smaller, regional directory
publishers. In consumer sales lead products, we compete with R.L. Polk, Experian
and Equifax, both directly and through reseller networks. In data processing
services, we compete with Acxiom and Harte-Hanks Data Technologies. In consumer
products, we compete with certain smaller producers of CD-Rom products.
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EMPLOYEES
As of December 31, 1999, we employed a total of approximately 1,985 people
on a full-time basis. None of our employees is represented by a labor union or
is the subject of a collective bargaining agreement. We have never experienced a
work stoppage and believe that our employee relations are good.
ITEM 2. PROPERTIES
Our headquarters are located in a 148,000 square foot facility in Omaha,
Nebraska, where we perform sales and administrative activities. Order
fulfillment and shipping are conducted at our 30,000 square foot Carter Lake,
Iowa facility, which is located 15 miles from our headquarters. Data
compilation, telephone verification, data and product development, and
information technology services are conducted at our 130,000 square foot
Papillion, Nebraska facility which is located about 5 miles from our
headquarters. Donnelley Marketing catalog sales operations are performed in a
40,000 square foot location in Marshfield, Wisconsin. We own these facilities,
as well as adjacent land at certain locations for possible future expansion.
In addition, we lease a 69,000 square foot facility in Greenwich,
Connecticut which lease expires in September 2003. The Greenwich, Connecticut
facility houses various Donnelley Marketing sales and operations functions, and
serves as one of our data centers. Donnelley Marketing also leases a 60,000
square foot facility in Ames, Iowa, which houses consumer database and client
services operations. Donnelley Marketing is currently headquartered in Omaha,
Nebraska. We also lease sales office space at over 30 different locations in the
United States and Canada, the aggregate rental obligations of which are not
significant.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS
At a Special Meeting of Stockholders held on October 21, 1999, our
stockholders approved an amendment to our Certificate of Incorporation to
authorize a new class of common stock (the "Reclassified Common Stock") and
combine and reclassify our Class A and Class B common stock into the
Reclassified Common Stock on a one-for-one basis. See our Quarterly Report on
Form 10-Q for the quarter ended September 30, 1999 for more detailed information
about this matter.
8
10
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Vinod Gupta........................... 53 Chairman of the Board and Chief
Executive Officer
Stormy Dean........................... 42 Controller and Acting Chief Financial
Officer
Susan Henricks........................ 49 President and Chief Operating Officer,
Donnelley Marketing
DJ Thayer............................. 33 President, Small Business Group
Monica Messer......................... 37 President, Database and Technology
Group
William Chasse........................ 41 President and Chief Executive Officer,
infoUSA.Com
William Kerrey........................ 51 President, License Group
Vinod Gupta is the founder of the Company and has been Chairman of the
Board of the Company since its incorporation in 1972. Mr. Gupta served as Chief
Executive Officer of the Company from the time of its incorporation in 1972
until September 1997 and since August 1998. Mr. Gupta holds a B.S. in
Engineering from the Indian Institute of Technology, Kharagpur, India, and an
M.S. in Engineering and an M.B.A. from the University of Nebraska.
Stormy Dean has served as the Corporate Controller since September of 1998
and as the acting Chief Financial Officer from January 1998 to August 1998 and
since January 2000. From August 1995 to September 1998, Mr. Dean served as the
Company's tax director. Prior to that, Mr. Dean worked in the Tax Department of
Peter Kiewit Sons Inc., a construction and telecommunications company, from
January of 1990 until joining the Company in August of 1995. Mr. Dean holds a
B.S. in Accounting from the University of Nebraska at Omaha, an M.B.A from the
University of Nebraska at Omaha, and a Certified Public Accountant certificate.
Susan Henricks has served as President and Chief Operating Officer of
Donnelley Marketing since August 1999. Ms. Henricks previously served as
Executive Vice President of Client Development for First Data Corporation from
1998 to 1999, and prior to working with First Data Corporation, Ms. Henricks
most recently served as President and Chief Executive Officer of Metromail
Corporation. Ms. Henricks worked for Metromail Corporation from 1986 to 1998.
Ms. Henricks holds a B.S. and an M.B.A. from Northwestern University.
DJ Thayer has served as President of the Small Business Group since May
1999, as Senior Vice President from October 1997 to May 1999, and as a Vice
President and General Manager since joining the Company in 1993. Prior to that,
Mr. Thayer worked for US West, Inc., and as a legislative aide in the U.S. House
of Representatives. Mr. Thayer holds a B.A. in Political Science from the
University of Nebraska, and an M.B.A. from Auburn University.
Monica Messer has served as Executive Vice President and Chief Information
Officer of the Company since February 1997, and served as a Senior Vice
President of the Company from January 1996 to January 1997. Ms. Messer joined
the Company in 1983 and has served as a Vice President of the Company since
1985. Ms. Messer holds a B.S. in Business Administration from Bellevue
University.
William Chasse has served as President and Chief Executive Officer of
infoUSA.Com since April 1999, as Executive Vice President, Sales and Marketing
of the Company from October 1996 to April 1999, as a Senior Vice President from
January 1995 to October 1996, and as a Vice President from 1990 to January 1995.
Mr. Chasse joined the Company in 1988. Mr. Chasse holds a B.S. in Business
Administration and an M.B.A. from the University of Nebraska.
William Kerrey has served as Senior Vice President, Licenses since August
1994, and served as a Vice President from 1989 to August 1994. Mr. Kerrey holds
a B.S. in Economics, a B.S. in Spanish and an M.S. in Agronomy from the
University of Nebraska.
9
11
PART II
ITEM 5.MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock $0.0025 par value, is traded on the NASDAQ National Market
System under the symbol IUSA.
We had two classes of Common Stock that were traded on the NASDAQ National
Market between October 10, 1997 and October 21, 1999. These were Class A Common
Stock and Class B Common Stock with symbols of IUSAA and IUSAB, respectively. On
October 21, 1999, we received shareholder approval to combine and reclassify the
Class A common stock and Class B common stock into a single class of common
stock. The combination had no effect on the total number of shares outstanding,
with each of the Class A and Class B shares converted on a one-for-one basis for
the reclassified single class of common stock. Each share of stock is entitled
to a single vote. Effective October 25, 1999, our shares began trading on NASDAQ
under the temporary symbol of IUSAD, which was ultimately changed to the
permanent symbol IUSA.
The following table sets forth the high and low closing prices for our
Common Stock during each quarter of 1999 and 1998, as adjusted to give effect to
stock splits and stock combinations completed to date.
COMMON STOCK
HIGH LOW
------ ------
1999
Fourth Quarter............................................ $14.38 $ 5.19
Third Quarter............................................. $ 8.06 $ 5.00
Second Quarter............................................ $11.13 $ 5.38
First Quarter............................................. $ 6.31 $ 4.50
1998
Fourth Quarter............................................ $ 7.50 $ 2.69
Third Quarter............................................. $15.81 $ 6.00
Second Quarter............................................ $16.00 $12.38
First Quarter............................................. $17.63 $10.50
As of March 7, 2000, there were 106 stockholders of record of the Common
Stock, and an estimated additional 5,100 stockholders who held beneficial
interests in shares of common stock registered in nominee names of banks and
brokerage houses.
We have not declared or paid any cash dividends on our capital stock. We
currently intend to retain future earnings to fund the development and growth of
our business and, therefore, do not anticipate paying cash dividends within the
foreseeable future. Any future payment of dividends will be determined by our
Board of Directors and will depend on our financial condition, results of
operations and other factors deemed relevant by our Board of Directors. Our
existing credit agreement generally prohibits the payment of dividends or other
distributions with respect to our common stock.
10
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the years in
the five years ended December 31, 1999 has been derived from the Company's
audited Consolidated Financial Statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes set
forth on pages F-1 through F-25 of this Form 10-K. The Consolidated Financial
Statements as of December 31, 1999 and 1998, and for each of the years in the
three years ended December 31, 1999, are set forth on pages F-1 through F-22 of
this Form 10-K.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales................................................... $ 266,073 $228,678 $193,327 $108,298 $ 86,766
Costs and expenses:
Database and production costs............................. 78,760 66,319 55,090 29,272 23,999
Selling, general and administrative....................... 110,740 117,724 80,203 45,766 37,724
Depreciation and amortization(1).......................... 35,109 27,472 34,415 16,355 3,469
Provision for litigation settlement(2).................... -- 4,500 -- -- --
Impairment of assets(3)................................... 5,599 -- -- -- --
Acquisition costs(4)...................................... 4,166 3,643 2,598 -- --
In-process research and development(5).................... -- 3,834 53,500 10,000 --
Restructuring charges(6).................................. -- 2,616 -- -- --
--------- -------- -------- -------- --------
Total costs and expenses............................ 234,374 226,108 225,806 101,393 65,192
--------- -------- -------- -------- --------
Operating income (loss)..................................... 31,699 2,570 (32,479) 6,905 21,574
Other income (expense):
Investment income......................................... 14,196 16,628 3,748 3,194 1,322
Interest expense.......................................... (18,579) (9,160) (4,098) (209) (157)
Gain on issuance of subsidiary stock(7)................... 8,886 -- -- -- --
Other..................................................... -- (2,000) -- (943) --
--------- -------- -------- -------- --------
Income (loss) before income taxes and discontinued
operations................................................ 36,202 8,038 (32,829) 8,947 22,739
Income taxes................................................ 13,144 5,880 6,987 3,400 8,421
--------- -------- -------- -------- --------
Income (loss) from continuing operations.................... 23,058 2,158 (39,816) 5,547 14,318
Extraordinary item, net of tax(8)........................... 128 -- -- -- --
Loss on discontinued operations(9).......................... -- -- -- (355) (2,317)
Loss from abandonment of subsidiary(9)...................... -- -- -- (1,373) --
--------- -------- -------- -------- --------
Net income (loss)........................................... $ 23,186 $ 2,158 $(39,816) $ 3,819 $ 12,001
========= ======== ======== ======== ========
Basic earnings (loss) per share............................. $ 0.48 $ 0.04 $ (0.82) $ 0.09 $ 0.29
========= ======== ======== ======== ========
Weighted average shares outstanding......................... 48,470 49,314 48,432 42,065 41,475
========= ======== ======== ======== ========
Diluted earnings (loss) per share........................... $ 0.48 $ 0.04 $ (0.82) $ 0.09 $ 0.28
========= ======== ======== ======== ========
Weighted average shares outstanding......................... 48,613 50,215 48,432 42,390 42,136
========= ======== ======== ======== ========
OTHER DATA:
Earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as adjusted(10).................. $ 72,407 $ 33,876 $ 55,436 $ 33,260 $ 25,043
========= ======== ======== ======== ========
CASH FLOW DATA:
Net cash from operating activities.......................... $ 29,172 $ 16,742 $ 30,256 $ 12,321 $ 15,819
========= ======== ======== ======== ========
Net cash used in investing activities....................... (200,071) (36,626) (99,932) (13,824) (14,905)
========= ======== ======== ======== ========
Net cash from (used in) financing activities................ 152,142 38,834 72,832 (2,999) (2,406)
========= ======== ======== ======== ========
DECEMBER 31,
-----------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- -------- -------- --------
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $ 40,899 $ 70,157 $ 60,007 $ 45,727 $ 45,363
Total assets................................................ 473,344 270,773 194,911 107,877 91,241
Long-term debt, including current portion................... 277,522 128,259 82,000 1,135 2,039
Stockholders' equity........................................ 110,811 88,247 80,236 87,605 76,084
11
13
- ---------------
(1) During 1996, includes a charge of $11.5 million for the change in estimated
useful lives based on management's evaluation of the remaining lives of
certain intangibles related to acquisitions prior to 1995.
(2) During 1998, includes $4.6 million in damages awarded to Experian
Information Solutions, Inc. in connection with arbitration of a contractual
dispute.
(3) During 1999, the Company recorded a write-down of $3.9 million on the
Company's existing consumer database due to the acquisition of Donnelley
Marketing and a write-down of $1.7 million on leasehold improvements and
in-process construction projects due to the move of the Company's data
processing operations from Montvale, NY to Greenwich, CT.
(4) Includes the following acquisition costs: 1) $4.2 million associated with
the acquisition and integration of Donnelley Marketing (1999), 2) $3.0
million of costs associated with the Company's bid to acquire Metromail
Corporation (1998), 3) $0.6 million associated with the Company's offering
to sell Common Stock which was not completed (1998), and 4) $2.6 million
associated with the acquisition and integration of DBA Holdings, Inc.
("DBA") and Pro CD (1997).
(5) Includes the following charges for purchased in-process research and
development costs associated with the acquisitions of Walter Karl, Inc. of
$3.8 million (1998), DBA of $49.2 million (1997), Pro CD of $4.3 million
(1997) and Digital Directory Assistance, Inc. of $10.0 million (1996).
(6) During 1998, includes the following restructuring charges: 1) $1.4 million
related to the Company's compilation and sales activities for new
businesses, and 2) $1.2 million related to certain cost reduction measures
enacted by the Company.
(7) During 1999, infoUSA.com, a subsidiary of the Company, completed its first
round of venture capital financing. As a result of the issuance of common
stock of this subsidiary, the Company recorded a gain of $8.9 million on
the transaction.
(8) During 1999, the Company repurchased $9.0 million of its Senior
Subordinated Notes. As part of the repurchase, the Company recorded a net
gain of $0.1 million.
(9) During 1995, the Company sold American Business Communications for $3.0
million in the form of a non-recourse promissory note. In 1996 the Company
recorded a loss of $1.4 million attributable to the default by the
purchaser on the non-recourse promissory note delivered to the Company in
this transaction.
(10) "EBITDA, as adjusted" is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets and non-cash
acquisition-related and restructuring charges. EBITDA is presented because
it is a widely accepted indicator of a company's ability to incur and
service debt and of the Company's cash flows from operations excluding any
non-recurring items. However, EBITDA, as adjusted, does not purport to
represent cash provided by operating activities as reflected in the
Company's consolidated statements of cash flows, is not a measure of
financial performance under generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the measure
of EBITDA, as adjusted, may not be comparable to similar measures reported
by other companies.
(11) The Company has had several acquisitions since 1996 which would affect the
comparability of historical data. See Management's Discussion and Analysis
of Financial Condition and Results of Operations.
12
14
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
infoUSA is a leading provider of business and consumer marketing
information, data processing and database marketing services. infoUSA is also an
incubator of Internet database companies in that companies utilize our products
and services to find new customers, manage their marketing databases, and
deliver innovative Internet solutions to their clients. The Company's key assets
include proprietary databases of 12 million businesses and 200 million consumers
in the United States and Canada. We believe our proprietary content is the most
comprehensive and accurate data available. We leverage these key assets by
selling through multiple distribution channels to small and medium-size
businesses, Fortune 1000 companies, consumers, and Internet and Wireless value
added resellers.
Historically, our revenue has been derived predominantly through the sale
of customized sales lead generation products. We estimate that no customer
represented greater than approximately 3% of net sales in 1999. As our company
has expanded product and service offerings, we have successfully capitalized on
new markets and applications for our proprietary databases. We began to
recognize significant revenue from data processing services in 1997 following
the acquisition of Database America. With the expansion of our Consumer Products
Division, and the acquisition of Pro CD and Digital Directory Assistance,
revenue from consumer CD-Rom products increased substantially between 1993 and
1997. List Brokerage and List Management revenue showed strong growth during
1998 with the acquisition of Walter Karl and JAMI Marketing Services. Finally,
the company has recognized strong growth in the past year and believes there is
significant opportunity with our various Internet initiatives.
During 1999, we formalized our Internet Strategy, which is to leverage our
proprietary content online for multiple applications. We intend to use our
powerful database assets and branded distribution to create and develop multiple
Internet database companies. Our databases are dynamic, changing by over 40% per
year, and are rich in content. In addition, we are continuously increasing the
depth and breadth of the content to include public information, pictures, videos
and many other unique data elements. We are poised to exploit this technology
and distribution channel, and have positioned our company as an incubator of
various information based Internet companies, such as infoUSA.com,
VideoYellowPages.com, businessCreditUSA.com, and listbazaar.com. Several other
potential companies are on the drawing board. We intend to leverage our
proprietary content into multiple vertical market applications and valuable B2b
e-Commerce, e-CRM, and e-Infomediary solutions. During 1999 we named long-time
company executive William Chasse as Chairman and CEO of infoUSA.com and
headquartered our Internet companies in the heart of Silicon Valley, in Foster
City, California. Mr. Chasse has during the past several months recruited and
assembled a team of executive managers who bring a wealth of Internet experience
to our company.
We also made significant progress during 1999 in our core business
operations, specifically with the acquisition of Donnelley Marketing from First
Data Resources, and the expansion of our executive management team. In July of
1999, we completed the acquisition of Donnelley Marketing, which enhanced our
proprietary consumer database and database marketing services. The merger made
us the only company in our industry offering proprietary business and consumer
data, data processing, and database marketing services. This strategic
acquisition gives us the ability to offer complete solutions and fulfill
substantially all the database, data processing, and database marketing needs of
our Fortune 1000 customers.
Susan L. Henricks joined our company during 1999 as Senior Vice President
of our large customer group, comprised of Donnelley Marketing, Database America,
and Walter Karl. Ms. Henricks previously served as Executive Vice President of
Client Development for First Data Corporation, and prior to working with First
Data Corporation, served as President and CEO of Metromail Corporation. Ms.
Henricks was instrumental in the successful integration of Donnelley Marketing
ahead of schedule, and with greater cost synergies than projected. She has a
wealth of experience in our industry, and has made significant contributions
already. Other notable additions to the management team include J. Peter
Bardwick as CFO and COO of infoUSA.com. Mr. Bardwick was previously CFO of CBS
Marketwatch. Rakesh Gupta (no relation to infoUSA chairman and chief executive
officer, Vinod Gupta) was hired as Senior Vice President, e-Commerce. Mr. Gupta
was previously the Chief Information Officer for Atlas Travel Technologies.
13
15
Overall, 1999 was a record year, with revenue of $266.1 million and EBITDA,
as adjusted of $72.4 million. The Company returned to historic levels for cash
flow, as measured by EBITDA.
The Company's net sales are generated from the sale of its products and
services and the licensing of its data to third parties. Revenue from the sale
of products and services is generally recognized when the product is delivered
or the services are performed. Generally, a majority of revenue from data
licensing is recognized at the time the initial set of data is delivered, with
the remaining portion being deferred and recognized over the license term as the
Company provides updated information. The Company's operating expenses are
determined in part based on the Company's expectations of future revenue growth
and are substantially fixed in the short term. As a result, unexpected changes
in revenue will have a disproportionate effect on financial performance in any
given period. The Company's database and production costs are generally expensed
as incurred and relate principally to maintaining, verifying and updating its
databases, fulfilling customer orders and the direct costs associated with the
production of CD-Rom titles. Costs to develop new databases are capitalized by
the Company and amortized upon the successful completion of the databases over a
period ranging from one to five years. Selling, general and administrative
expenses consist principally of salaries and benefits associated with the
Company's sales force as well as costs associated with its catalogs and other
promotional materials.
The Company had previously made certain disclosures relative to the
continuing results of operations of acquired companies where appropriate and
possible, although the Company has in the case of all acquisitions since 1996,
immediately integrated the operations of the acquired companies into existing
operations of the Company. Generally, the results of operations for these
acquired activities are no longer separately accounted for from existing
activities. The Company cannot report on the results of operations of acquired
companies upon completion of the integration as the results are "commingled"
with existing results. Additionally, upon integration of acquired operations,
the Company frequently combines acquired products or features with existing
products, and experiences significant cross-selling of products between business
units, including sales of acquired products by existing business units and sales
by acquired business units of existing products. Due to recent and potential
future acquisitions, future results of operations will not be comparable to
historical data. While the results cannot be accurately quantified, acquisitions
have had a significant impact on net sales.
Since 1996, database and production costs have increased as a percentage of
net sales as a result of higher costs associated with data processing services
and CD-Rom production. To the extent that data processing and CD-Rom sales
constitute a greater percentage of net sales, the Company expects database and
production costs to increase as a percentage of net sales in the future.
Since 1997, net sales of the Company's large business segment have
increased as a percentage of the Company's total net sales, due to the
acquisition of the Database America Companies, Walter Karl, JAMI Marketing and
Donnelley Marketing.
14
16
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed ten acquisitions since mid-1996. Through
these acquisitions, the Company has increased its presence in the consumer
marketing information industry, greatly increased its ability to provide data
processing solutions, added two consumer CD-Rom product lines, increased its
presence in list management and list brokerage services and broadened its
offerings of business marketing information. The following table summarizes
these acquisitions:
TRANSACTION
PRINCIPAL TYPE OF VALUE
ACQUIRED COMPANY KEY ASSET BUSINESS SEGMENT ACQUISITION DATE ACQUIRED (IN MILLIONS)(1)
- ---------------- --------- ---------------- ----------- ------------- ----------------
Digital Directory
Assistance............ Consumer CD-Rom Products Small business Asset purchase August 1996 $ 17
County Data
Corporation........... New Businesses Database Small business Pooling-of-interests November 1996 $ 11
Marketing Data
Systems............... Data Processing Services Large business Asset purchase November 1996 $ 3
BJ Hunter............... Canadian Business Small business Stock purchase December 1996 $ 3
Database
Database America
Companies............. Consumer Database and Large business Stock purchase February 1997 $105
Data Processing
Services
Pro CD.................. Consumer CD-Rom Products Small business Asset purchase August 1997 $ 18
Walter Karl............. Data Processing and List Large business Stock purchase March 1998 $ 18
Management Services
JAMI Marketing.......... List Management Services Large business Asset purchase June 1998 $ 13
Contacts Target
Marketing............. Canadian Business Small business Asset purchase July 1998 $ 1
Database
Donnelley Marketing..... Consumer Database and Large business Stock purchase July 1999 $200
Data Processing
Services
- ---------------
(1) Transaction value includes total consideration paid including cash paid,
debt issued and stock issued plus long-term debt repaid or assumed at the
date of acquisition plus, in the case of DBA, a subsequent purchase price
adjustment in October 1997.
As part of these strategic acquisitions, the Company has incurred various
acquisition-related charges to operations, consisting of: 1) $10.0 million in
1996 in connection with the acquisition of Digital Directory Assistance, 2)
$56.1 million in 1997 in connection with the acquisitions of DBA and Pro CD, 3)
$10.1 million in 1998 in connection with the acquisitions of Walter Karl and
JAMI Marketing and for certain internal restructuring charges, and 4) $9.8
million in 1999 in connection with the acquisition of Donnelley Marketing. In
addition, the Company expects to amortize goodwill and other intangibles over
periods of 1 to 20 years in connection with acquisitions completed since
mid-1996. The Company's results for 1997 do not include the operations of Walter
Karl or JAMI Marketing, and the results for 1998 and 1997 do not include the
operations of Donnelley Marketing. In connection with future acquisitions, the
Company expects that it will be required to incur additional acquisition-related
charges to operations and to amortize additional amounts of goodwill and other
intangibles over future periods. While there are currently no binding
commitments with respect to any particular future acquisitions, the Company
frequently evaluates the strategic opportunities available to it and intends to
pursue strategic acquisitions of complementary products, technologies or
businesses that it believes fit its business strategy.
Associated with the acquisitions previously described, the Company has
recorded amortization expense on goodwill and other intangibles as summarized in
the following table (amounts in thousands):
FISCAL YEAR AMOUNT
----------- -------
1995............................................. $ 1,248
1996............................................. 1,312
1997............................................. 27,661
1998............................................. 18,147
1999............................................. 22,237
15
17
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's statement of operations data expressed as a percentage of net
sales. The amounts and related percentages may not be fully comparable due to
the acquisition of the Database America Companies (DBA) in February 1997, Pro CD
in August 1997, Walter Karl in March 1998, JAMI Marketing Services (JAMI) in
June 1998, and Donnelley Marketing (Donnelley) in July 1999:
YEAR ENDED DECEMBER 31,
------------------------
1999 1998 1997
------ ------ ------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales.................................................. 100% 100% 100%
Costs and expenses:
Database and production costs............................ 30 29 29
Selling, general and administrative...................... 42 51 41
Depreciation and amortization............................ 13 12 18
Provision for litigation settlement...................... -- 2 --
Impairment of assets..................................... 2 -- --
Acquisition costs........................................ 2 1 1
In-process research and development...................... -- 2 28
Restructuring charges.................................... -- 1 --
------ ------ ------
Total costs and expenses......................... 88 98 117
------ ------ ------
Operating income (loss).................................... 12 2 (17)
Other income, net.......................................... 2 2 --
------ ------ ------
Income (loss) before income taxes and extraordinary item... 14 4 (17)
Income taxes............................................... 5 3 4
------ ------ ------
Income (loss) before extraordinary item.................... 9 1 (21)
Extraordinary item, net of tax............................. -- -- --
------ ------ ------
Net income (loss).......................................... 9% 1% (21)%
====== ====== ======
EBITDA, as adjusted(1)..................................... 27% 15% 29%
====== ====== ======
OTHER DATA:
SALES BY SEGMENT:
Small business........................................... $130.1 $130.0 $116.3
Large business........................................... 136.0 98.7 77.0
------ ------ ------
Total............................................ $266.1 $228.7 $193.3
====== ====== ======
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business........................................... 49% 57% 60%
Large business........................................... 51 43 40
------ ------ ------
Total............................................ 100% 100% 100%
====== ====== ======
- ---------------
(1) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets and non-cash
acquisition-related and restructuring charges. EBITDA, as adjusted, is
presented because it is a widely accepted indicator of a company's ability
to incur and service debt and of the Company's cash flows from operations
excluding any non-recurring items. However, EBITDA, as adjusted, does not
purport to represent cash provided by operating activities as reflected in
the Company's consolidated statements of cash flows, is not a measure of
financial performance under generally accepted accounting principles
("GAAP") and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with GAAP. Also, the measure
of EBITDA, as adjusted, may not be comparable to similar measures reported
by other companies.
16
18
1999 COMPARED TO 1998
Net sales
Net sales for 1999 were $266.1 million, an increase of 16% from $228.7
million for 1998. Net sales of the small business segment for 1999 were $130.1
million, compared to $130.0 million for 1998. Net sales of consumer CD-Rom
products were $19.0 million, a 3% decrease from $19.5 million for 1998. Internet
content sales were $3.3 million, an 83% increase from $1.8 million for 1998, led
by growth in net sales of mailing lists, sales leads and business credit
reports. Net sales for the small business segment were flat principally due to
the implementation of stricter credit practices during late 1998. The Company
adhered to these new credit-extension practices throughout 1999, effectively
slowing the growth of sales within the small business segment, but improving the
profitability of the segment. The Company has also improved the product mix
within its small business segment resulting in improved profit margins. The
Company has been aggressively targeting mid-size customers since mid-1999, and
believe these customers represent an important growth opportunity for the small
business segment in 2000.
Net sales of the large business segment for 1999 were $136.0 million, a 38%
increase from $98.7 million for 1998. The Company recorded net sales of data
processing services of $74.8 million during 1999, compared to $62.3 million
during 1998. Net sales of Internet-based database licenses were $12.5 million, a
59% increase from $7.8 million for 1998. Since mid-1999, the Company has been
successfully renewing and signing new Internet license agreements using a
variable CPM model, no longer entering into license agreements on a flat fee
basis. The increase in net sales for the large business segment and in data
processing services is principally due to the following factors: 1) the
acquisition of Donnelley effective July 1999, 2) an increase in sales of
Internet-based database licenses, and 3) increased sales of data processing
services by the Company's National Accounts sale force. During late 1998, a
significant data processing services customer notified the Company that it
intended to perform the same processing in-house. The customer represented 6% of
total net sales during 1998. In early 1999, the customer transferred a
significant portion of the business in-house. The overall increase in the large
business segment net sales was partially offset by the loss of this customer.
Database and production costs
Database and production costs for 1999 were $78.8 million, or 30% of net
sales, compared to $66.3 million, or 29% of net sales for 1998. Since 1996,
database and production costs have increased as a percentage of net sales as a
result of higher cost margins associated with data processing services, CD-Rom
production, and list brokerage services. To the extent that data processing and
list brokerage services constitute a greater percentage of net sales, the
Company expects database and production costs to increase as a percentage of net
sales. Factors contributing to the increase in database and production costs as
a percentage of net sales include: 1) an overall increase in list brokerage and
data processing services sales due to the acquisitions of Walter Karl and JAMI
Marketing during 1998, and 2) the acquisition of Donnelley in July 1999 which
internally has significant sales of data processing services. The overall
increase in database and production costs was partially offset by a decrease in
consumer CD-Rom sales and reduced operating costs associated with the production
of consumer CD-Rom titles.
Selling, general and administrative expenses
Selling, general and administrative expenses for 1999 were $110.7 million,
or 42% of net sales, compared to $117.7 million, or 51% of net sales for 1998.
The decrease in selling, general and administrative expenses for 1999 from 1998,
represented as a percentage of net sales, is partially the result of the
following items recorded during 1998: 1) increase in estimates for reserves for
bad debts of $3.5 million, 2) increase in estimates for reserves related to
price protection and cooperative advertising for consumer CD-Rom products of
$5.3 million, 3) decrease in estimated benefit period related to deferred
advertising costs of $2.7 million, and 4) $0.6 million related to executive
severance costs.
During late 1997 and early 1998, the Company ramped-up its sales force
anticipating a targeted incremental increase in net sales. The Company
subsequently did not achieve the targeted incremental increase in net sales.
During the third quarter of 1998, the Company enacted certain cost reduction
measures, represented principally
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by staffing reductions, as described in the section "Restructuring Charges" to
counter prior measures taken. During the period from the fourth quarter of 1998
through the second quarter of 1999, the Company focused on the reduction of
operating expenses, successfully completing during mid-1999 the cost reduction
program implemented during the third quarter of 1998. In addition to the items
previously described, the decrease in selling, general and administrative
expenses in total and as a percentage of net sales is partially the result of
the staffing reductions, excluding the effects of the addition of staff related
to the acquisition of Donnelley in July 1999.
Depreciation and amortization expenses
Depreciation and amortization expenses for 1999 were $35.1 million, or 13%
of net sales, compared to $27.5 million, or 12% of net sales for 1998. The
increase in depreciation and amortization expenses is due to the acquisition of
Donnelley in July 1999.
Provision for litigation settlement
During 1998, the Company recorded a provision for litigation settlement of
$4.5 million, or 2% of net sales, related to a dispute centered around a license
agreement between DBA and Experian Information Solutions, Inc. prior to the
Company's acquisition of DBA in February 1997.
Impairment of assets
During 1999, the Company recorded asset impairment charges totaling $5.6
million, or 2% of net sales. The impairment charges included: 1) a write-down of
$3.9 million on the net unamortized balance of the Company's existing consumer
database white pages file which was impaired due to the addition of the more
complete Donnelley consumer file with the acquisition of Donnelley in July 1999,
and 2) a write-down of $1.7 million on the net book value of certain leasehold
improvements and in-process construction projects which were abandoned due to
the move of data processing services operations from Montvale, NJ to Greenwich,
CT.
Acquisition costs
During 1999, the Company recorded various integration-related charges of
$4.2 million, or 2% of net sales. The integration-related charges included
consulting costs, management bonuses, direct travel and entertainment costs and
other direct integration-related charges. These costs were not directly related
to the acquisition of Donnelley, and therefore could not be capitalized, but
were costs associated with the integration of Donnelley operations into the
Company's existing operations.
During 1998, the Company recorded charges totaling $3.6 million, or 1% of
net sales, consisting of $3.0 million of costs associated with the Company's bid
to acquire Metromail Corporation and $0.6 million associated with the Company's
offering to sell Common Stock which was not completed.
In-process research and development
During 1998, the Company recorded a charge of $3.8 million, or 2% of net
sales, for purchased in-process research and development costs associated with
the acquisition of Walter Karl, Inc. See discussion of 1998 compared to 1997 for
additional information related to this charge.
Restructuring charges
During 1998, the Company recorded restructuring charges totaling $2.6
million, or 1% of net sales. A restructuring charge of $1.4 million was recorded
related to the closing of the County Data Corp. new business compilation and
sales center and moving these operations from Vermont to Nebraska. All 45 of the
County Data Corp. employees were terminated, and severance charges recorded
totaled $0.6 million. The restructuring charges also included lease termination
costs of $0.3 million and a write-off of $0.5 million of leasehold improvement
costs associated with the closed Vermont facility. The restructuring, including
recording the payments and write-downs described, was completed by September 30,
1998.
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Also during 1998, the Company recorded a restructuring charge of $1.2
million which included $0.6 million in severance for 244 employees terminated as
a result of the implementation of certain cost reduction measures. These
employees were primarily in support and administration positions but some
under-performing sales personnel were also terminated. The restructuring charges
also included $0.4 million related to the closing of four field sales offices.
Additionally, the Company recorded a write-down of $0.2 million related to
leasehold improvement costs at facilities leased by the Company which were being
closed. The restructuring, including recording the payments and write-downs
described, was completed by June 30, 1999.
Operating income
Including the factors previously described, the Company had operating
income of $31.7 million, or 12% of net sales for 1999, as compared to operating
income of $2.6 million, or 2% of net sales for 1998.
Excluding acquisition-related, integration and restructuring, provision for
litigation settlement and asset impairment charges previously described, the
Company would have had operating income of $41.5 million, or 16% of net sales
for 1999, as compared to operating income of $17.2 million, or 8% of net sales
for 1998.
Operating income for the small business segment for 1999 was $59.3 million,
or 46% of net sales, as compared to $54.7 million, or 42% of net sales for 1998.
Factors contributing to the increase in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." See Note 21 of the notes to the accompanying consolidated financial
statements for additional information.
Operating income for the large business segment for 1999 was $55.9 million,
or 41% of net sales, as compared to $39.7 million, or 40% of net sales for 1998.
Factors contributing to the increase in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." See Note 21 of the notes to the accompanying consolidated financial
statements for additional information.
Other income (expense), net
Other income (expense), net was $4.5 million, or 2% of net sales, and $5.5
million, or 2% of net sales, for 1999 and 1998, respectively. Other income
(expense) is comprised of interest expense, investment income and other income
or expense items which do not represent components of operating income (expense)
of the Company.
Interest expense was $18.6 million and $9.2 million for 1999 and 1998,
respectively. The increase in interest expense is principally the result of
servicing debt under the Company's 9 1/2% Senior Subordinated Notes Due 2008
which were issued in June 1998 and the addition of the Deutsche Bank Credit
Facilities used to finance the acquisition of Donnelley in July 1999.
Investment income was $14.2 million and $16.6 million for 1999 and 1998,
respectively. The Company recorded realized gains on the sale of marketable
securities totaling $12.9 million and $15.5 million for 1999 and 1998,
respectively. During 1999, the Company realized a gain of $10.3 million on the
disposition of its holdings in InfoSpace.com common stock. During 1998, the
Company realized a gain of $16.5 million on the disposition of its holdings in
Metromail Corporation common stock.
During 1999, infoUSA.com, a subsidiary of the Company, completed its first
round of venture capital financing. As a result of the issuance of common stock
of this subsidiary, the Company recorded a gain of $8.9 million on the
transaction.
During 1998, the Company recorded a loss of $2.0 million on the write-off
of an investment. During 1997, the Company made an investment of $2.0 million in
preferred stock of an issuer, representing less than 20% of the issuer's
outstanding stock. During 1998, the issuer commenced a reorganization and sought
funding from other outside investors, diluting the Company's investment in this
entity to a nominal value. Additionally, the Company obtained knowledge that the
issuer was incurring significant losses and the intended line of business of
this start-up entity had significantly changed. Accordingly, the Company
wrote-off this investment, which was accounted for on a cost basis.
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Income taxes
A provision for income taxes of $13.1 million and $5.9 million was recorded
for 1999 and 1998, respectively. Acquisition-related charges of $3.8 million,
representing purchased in-process research and development charges for Walter
Karl, were included in income before income taxes for 1998, but are not
deductible for tax purposes. The provisions for these periods also reflect the
inclusion of amortization of certain intangibles in taxable income not
deductible for tax purposes. Amortization expense of $7.5 million and $3.3
million were not deductible for tax purposes for 1999 and 1998, respectively.
Extraordinary item, net of tax
During the first quarter of 1999, the Company repurchased $9.0 million of
its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection with the
repurchase of the Notes, the Company recorded a gain of $0.1 million, net of
deferred financing costs of $0.4 million written-off in proportion to the face
amount of Notes purchased and retired.
EBITDA, as adjusted
Excluding the purchased in-process research and development and asset
impairment charges previously described, the Company's EBITDA, as adjusted, was
$72.4 million, or 27% of net sales for 1999, and $33.9 million, or 15% of net
sales for 1998.
1998 COMPARED TO 1997
Net sales
Net sales for 1998 were $228.7 million, a 18% increase from $193.3 million
in 1997. Net sales of the small business segment were $130.0 million, a 12%
increase from $116.3 million in 1997. Included in the small business segment are
sales of sales leads generation products and consumer CD-Rom products. Factors
contributing to an increase in net sales of sales lead generation products
included: the enhancement of existing and development of new sales lead
generation products, the increase in the number of mailing pieces mailed from
30.0 million during 1997 to 38.7 million during 1998 and the acquisitions of
DBA, Pro CD, and Contacts Target Marketing during 1997 and 1998. The average net
sales per mailing piece declined from $6.55 per piece in 1997 to $5.75 in 1998.
The principal reason for the decline in average sales per mailing piece is that
during 1998, the Company increased the pieces mailed to test various markets and
new product lines. The market tests did not result in significant incremental
net sales. Net sales of consumer CD-Rom products for 1998 were $19.5 million, an
11% decrease from $21.7 million for 1997. The decrease in consumer CD-Rom
product net sales reflects an increase in estimates for reserves of $2.7 million
during 1998 related to product returns. Due to a decline in general market
conditions and demand for the product, the Company experienced significant
product returns during the second and third quarters of 1998. Therefore the
reserve for returns was adjusted accordingly. The change in the reserve for
returns related primarily to sales that occurred during the second and third
quarters of 1998. The decline in market conditions and demand for the product
have continued to remain low therefore sales are expected to remain at a
decreased level.
Net sales of the large business segment were $98.7 million, a 28% increase
from $77.0 million in 1997. Included in the large business segment are sales of
data processing services. Net sales of data processing services for 1998 were
$62.3 million, a 45% increase from $42.7 million for 1997. The increase is
principally the result of the acquisition of DBA in February 1997, Walter Karl
in March 1998 and JAMI Marketing in June 1998. Additionally, during 1998, the
Company entered into Internet licensing agreements totaling approximately $7.8
million compared to $4.8 million in 1997. The Company recorded sales to a
significant data processing services customer totaling $14.6 million during
1998, representing 6% of total net sales. Sales to this customer occurred evenly
during the year. During 1998, the customer notified the Company that it intended
to perform the same processing in-house. The overall increase in net sales of
data processing services in 1999 was partially offset by the loss of this
customer.
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Database and production costs
For 1998, database and production costs were $66.3 million, or 29% of net
sales, compared to $55.1 million, or 29% of net sales for 1997. The Company
produces, markets and sells an annual consumer CD-Rom product line consisting in
excess of twenty separate titles. Each product line is customarily released
during the third quarter of each fiscal year. The 1999 product line was released
during the third quarter of 1998. During 1998, the Company produced units of the
1998 product line that exceeded actual sales. The write-down of $0.9 million was
equal to the remaining costs recorded on the books for the 1998 product line
which became obsolete as a result of the release of the 1999 product line during
the third quarter of 1998.
Selling, general and administrative expenses
Selling, general and administrative expenses for 1998 were $117.7 million,
or 51% of net sales, compared to $80.2 million, or 41% of net sales for 1997.
The increase in selling, general and administrative expenses, representing 10%
of net sales, is principally the result of the following items: 1) increase in
estimates for reserves for bad debts of $3.5 million, 2) increase in estimates
for reserves related to price protection and cooperative advertising for
consumer CD-Rom products of $5.3 million, 3) decrease in estimated benefit
period related to deferred advertising costs of $2.7 million, and 4) $0.6
million related to executive severance costs. The charges described above
accounted for approximately one-half of the increase in selling, general and
administrative expenses, expressed as a percentage of net sales.
During the third quarter 1998, the Company modified the estimated benefit
period related to deferred advertising costs from 12 months to 6 months. The
Company updated its study of sales and responses derived from its direct
marketing campaigns during the third quarter of 1998. This study was based upon
specific evaluations of sales responses from specific direct marketing
campaigns. Due to changes in mailing patterns, management was able to determine
that the Company's catalogs generated sales for approximately 6 months after the
mail date rather than 12 months.
During late 1997 and early 1998, the Company ramped-up its sales force
anticipating a targeted incremental increase in net sales. The Company
subsequently did not achieve the targeted incremental increase in net sales.
During the third quarter of 1998, the Company enacted certain cost reduction
measures as described in the section "Restructuring Charges" to counter prior
measures taken. Salaries and wages principally related to the sales force
accounted for approximately one-half of the increase in selling, general and
administrative expenses, expressed as a percentage of net sales.
Due to a decline in general market conditions and demand for the consumer
CD-Rom product, the Company experienced significant product returns during the
second and third quarters of 1998. In addition, the Company issued additional
price protection due to the decline in demand. The change in reserve related
primarily to sales of consumer CD-Rom products that occurred during the second
and third quarters of 1998.
Depreciation and amortization expenses
Depreciation and amortization expenses for 1998 were $27.5 million, or 12%
of net sales, compared to $34.4 million, or 18% of net sales for 1997.
Amortization of acquired database costs and purchased data processing software
associated with the acquisition of the DBA in February 1997 totaled $6.3 million
and $21.7 million for 1998 and 1997, respectively.
Excluding amortization of acquired database costs and purchased data
processing software associated with the acquisition of DBA in February 1997,
depreciation and amortization expenses were $21.1 million and $12.7 million for
1998 and 1997, respectively. The increase relates primarily to amortization of
intangibles for acquisitions recorded since June 1997, including Pro CD in
August 1997, Walter Karl in March 1998, and JAMI in June 1998.
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Provision for litigation settlement
The Company recorded a provision for litigation settlement of $4.5 million,
or 2% of net sales, during the third quarter of 1998 related to a dispute
centered around a license agreement between DBA and Experian Information
Solutions, Inc. prior to the Company's acquisition of DBA in February 1997.
Acquisition costs
During 1998, the Company recorded charges totaling $3.6 million, or 1% of
net sales, consisting of $3.0 million of costs associated with the Company's bid
to acquire Metromail Corporation and $0.6 million associated with the Company's
offering to sell Common Stock which was not completed.
During 1997, the Company recorded $2.6 million of acquisition costs, or 1%
of net sales, related to integrating acquired operations into the Company's
existing operations. These expenses consisted primarily of costs such as travel
between the Company and the new operations, consulting, payroll and other
expenses related to implementing Company policies and information systems at the
new locations. All costs had been incurred by December 31, 1997.
In-process research and development
During 1998, the Company recorded a write-off of acquired in-process
research and development of $3.8 million, or 2% of net sales, in connection with
the acquisition of Walter Karl. A portion of the purchase price for this
acquisition was attributed to the value of the IPR&D projects and was expensed
in accordance with Statement of Financial Accounting Standards (SFAS) No. 2,
"Accounting for Research and Development Costs." The Company believes its
accounting for purchased IPR&D was made in accordance with generally accepted
accounting principles and valuation practices at the time of the related
acquisitions. The total amount allocated to the purchased IPR&D recorded in
connection with the acquisition of Walter Karl was $3.8 million after
retroactive application of the Securities and Exchange Commission's new
guidelines for valuing purchased IPR&D.
The Company obtained an independent valuation of the purchased IPR&D. The
income valuation approach was used to determine the fair value of the IPR&D
projects acquired from Walter Karl. Under the income approach, the fair value
reflects the present value of the projected cash flow that will be generated by
the IPR&D projects if successfully completed. The income approach focuses on the
income producing capability of the acquired IPR&D, which the Company believes it
represents the present value of the future economic benefits expected to be
potentially derived from these projects. As of the valuation dates, the acquired
IPR&D projects had not demonstrated technological nor economic feasibility. As a
result, the attainability of the income projections is subject to three risk
factors: project risk, product risk, and market risk. Project risk reflects the
degree to which the project can be feasibly completed and will perform upon its
completion in the manner specified. Project risk is dependent upon the
development phase of the project as of the acquisition date. Under this premise,
the closer the project is to completion, the more likely that the project will
reach a successful conclusion. Product risk refers to the concept that these
products will be able to produce commercially viable products and services. This
factor can be assessed based upon past management experience in the development
of new products or services and success of those past ventures. Whether the
development required a significant technological or process change was also
considered. For a product or service which is similar to other products or
services, the risk factor associated is low. Market risk refers to the concept
that these products will be demanded by the market upon their completion. Market
risk is based upon information that indicates the degree to which the market
will demand a product or service that provides the functionality specified.
Without the successful completion of the remaining development efforts, the end
result would be to fail to introduce new products. A discount of 30% was applied
to reflect these risks associated with the projected cash flow to be generated
by the acquired IPR & D projects.
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The descriptions of the projects related to Walter Karl are as follows:
- Internet F/E to M204 is a list fulfillment system which interfaces with
the Internet to request orders.
- M204 Shipping Interface automates shipping and generates the ability to
setup shipping destination information as well as allow for the tracking
of shipments throughout out its journey to the final destination.
- List Brokerage & Management Order is a new order entry system for list
fulfillment.
- Global Database Update refers to a project that will create a new updated
database for the client, Global.
- Arandel System Postal/Inkjet allows for postal information to be
formatted for Inkjet specifications.
- Paul Fredrick/Garden Botanika Reporting provides new reporting and
database retrieval for the client Paul Fredrick/Garden Botanika.
- Chilean Database is a project for a Chilean organization which consists
of creating a new database with additional information.
- Datacard System allows for the integration with the List Brokerage &
Management Order System for rental lists.
- Inkjet Utilities will generate a different layout for Inkjet
specifications and the project will also allow for new audit reporting.
- Flowers Response Analysis is a project that will attempt to increase the
database response time of the client, Flowers.
- Data Entry System will allow for LAN data entry of additional
information.
A description of the stage of completion as well as the methodology
employed is listed below for each IPR&D project related to Walter Karl; the
stage of completion of each project was determined by examining the ratio of R&D
expenses as of the acquisition date to total R&D costs (incurred and projected).
IPR&D PROJECTS STAGE OF COMPLETION SCHEDULED BETA TEST DATE
- -------------- ------------------- ------------------------
Internet F/E to M204............... Middle of the Design Phase June 1998
M204 Shipping Interface............ Design Phase Unknown - Delayed
List Brokerage & Mgt. Order........ Early Design Phase December 1998
Global Database Update............. Early Design Phase August 1998
ArandalSystem Postal/InkJet........ Design Phase Unknown - Delayed
Paul Fredrick...................... Design Phase Unknown - Delayed
Chilean Database................... Design Phase October 1998
Datacard System.................... Design Phase April 1998
InkJet Utilities................... Late Stages of Design Phase May 1998
Flowers Response analysis.......... Late Stages of Design Phase April 1998
Data Entry System.................. Late Stages of Design Phase April 1998
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The stage of completion for each project was determined by using the
formula: person years completed on R&D/Total person years of R&D effort. Below
is a chart outlining the stage of completion for each project.
R&D PERSON YEARS
COMPLETED AS OF PERSON YEARS TOTAL R&D PERCENTAGE OF
IPR&D PROJECT VALUATION DATE REMAINING PERSON YEARS COMPLETION
- ------------- ---------------- ------------ ------------ -------------
Internet F/E to M204............ .25 .50 .75 33%
M204 Shipping Interface......... .50 .25 .75 67%
List Brokerage & Mgt. Order..... .50 1.0 1.5 33%
Global Database Update.......... .10 .50 .60 17%
ArandalSystem Postal/InkJet..... .25 .50 .75 33%
Paul Fredrick................... .75 .50 1.25 60%
Chilean Database................ .10 .50 .60 17%
Datacard System................. 1.0 .20 1.2 83%
InkJet Utilities................ .50 .20 .70 71%
Flowers Response Analysis....... .10 .10 .20 50%
Data Entry System............... .50 .10 .60 83%
Total................. 4.80 4.35 9.15 52%
In regards to Walter Karl, product and market risks for each project are
outlined in the following table:
IPR & D PROJECT PROJECT RISK PRODUCT RISK MARKET RISK
- --------------- ------------ ------------ -----------
Internet F/E to M204.................... Low Low Medium
M204 Shipping Interface................. Low to Medium Low to Medium Low
List Brokerage & Mgt. Order............. Low Low Medium
Global Database Update.................. Medium Low High
ArandalSystem Postal/InkJet............. Medium Low High
Paul Fredrick........................... Low to Medium Low High
Chilean Database........................ Medium Low High
Datacard System......................... Low Low to Medium Low
InkJet Utilities........................ Low Low Medium
Flowers Response Analysis............... Low Low High
Data Entry System....................... Low Low Low
During 1997, the Company recorded write-offs of acquired IPR & D totaling
$53.5 million, or 28% of net sales, including charges of $49.2 million and $4.3
million in connection with the acquisition of DBA and Pro CD, respectively. A
portion of the purchase price for these acquisitions was attributed to the value
of the IPR&D projects and was expensed in accordance with Statement of Financial
Accounting Standards (SFAS) No. 2, "Accounting for Research and Development
Costs." The Company believes its accounting for purchased IPR&D was made in
accordance with generally accepted accounting principles and valuation practices
at the time of the related acquisitions.
The Company obtained independent valuations of the purchased IPR&D. The
income valuation approach was used to determine the fair value of the IPR&D
projects acquired from DBA and Pro CD. Under the income approach, the fair value
reflects the present value of the projected cash flow that will be generated by
the IPR&D projects if successfully completed. The income approach focuses on the
income producing capability of the acquired IPR&D, which the Company believes
represents the present value of the future economic benefits expected to be
potentially derived from these projects. As of the valuation dates, the acquired
IPR&D projects had not demonstrated technological nor economic feasibility. As a
result, the attainability of the income projections is subject to three risk
factors: project risk, product risk, and market risk. Project risk reflects the
degree to which the project can be feasibly completed and will perform upon its
completion in the manner specified. Project risk is dependent upon the
development phase of the project as of the acquisition date. Under this premise,
the closer the project is to completion, the more likely that the project will
reach a successful conclusion. Product risk refers to the concept that these
products will be able to produce commercially viable products and services. This
factor can be assessed based upon past management experience in the development
of
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new products or services and success of those past ventures. Whether the
development required a significant technological or process change was also
considered. For a product or service which is similar to other products or
services, the risk factor associated is low. Market risk refers to the concept
that these products will be demanded by the market upon their completion. Market
risk is based upon information that indicates the degree to which the market
will demand a product or service that provides the functionality specified.
Without the successful completion of the remaining development efforts, the end
result would be to fail to introduce new products. A discount ranging from 24%
to 30% was applied to reflect these risks associated with the projected cash
flow to be generated by the acquired IPR&D projects. The stage of completion of
the projects is not used in the determination of the value of IPR&D under a
discounted cash flow approach. However, the remaining costs to complete each
product were subtracted from the corresponding projected profits thereby
intrinsically incorporating the level of completion effort.
The $49.2 million charge for DBA relates to $46.9 million for interactive
media products and services and $2.3 million for data processing technologies.
Interactive media products included technology that would allow a customer to:
access the Company's web site and download profile information on a particular
business, company or individual for a per-access charge; "enrich" or "enhance"
their list by matching it to the Company's via the internet; and allow the list
to reside at the Company, while via the internet the customer will be "flagged"
or notified of any updates to the information contained in the list. This
project was in the early stages of development and was approximately 5-10%
complete at acquisition. The ability to forecast project completion was not
reasonable as the technological developments had not achieved a stage of
feasibility as of January 31, 1997. Stage of completion was not assessed for
this technology. The company had dedicated two engineering software technicians
for the development of this technology concentrating on the development of the
company's web-site prior to acquisition. These technologies were completed
during 1998. During 1998, these functions were completed and have been utilized
since that point in time to provide additional capabilities to customers. The
new data processing technologies include merge/purge abilities, update and
maintenance capabilities of relational databases, improved delivery systems and
upgraded billing/accounting systems.
The $4.3 million charge related to Pro-CD includes the following projects:
Graphical user interface technology represented $1.5 million of the charge. This
project involved integrating certain features and functions of SelectPhone and
Phonedisc graphical user interfaces into a common interface. The estimated costs
at acquisition to complete the project were $3.1 million, with completion
estimated for 1999. Database re-engineering, including process modification and
restructuring records, of the SelectPhone product in order to accommodate
consumer and business files accounted for $2.1 million of the charge. Additional
elements were also expected to be added to enhance the SelectPhone product's
competitive position. The estimated costs to complete were $5.5 million at
acquisition through 2002. Applying DVD compact disc technology to the
SelectPhone product line represented $0.5 million of the charge. The estimated
cost to complete the project at acquisition was $0.2 million with expected
completion in 1999. Finally, $0.2 million was charged relating to the extensive
evaluation and correction for year 2000 date processing compliance of the
SelectPhone product line. This assessment included the user interface as well as
the product database. The estimated cost to complete was $0.4 million at
acquisition with completion scheduled for 1998.
IPR&D was a critical factor for the Company in making these acquisitions
and timely completion of these projects was an equally important consideration.
The time completion was expected to give the Company a competitive edge in its
competition and solidify its position as a leader in the business-to-business
marketing information field. A major risk of not completing these projects
timely, would be the risk of losing customers on a medium to long term basis and
allow a competitor to provide a solution that may include these technically
advanced and value added features.
A major risk of not completing these projects timely, would be the risk of
losing customers on a medium to long term basis and allow a competitor to
provide a solution that may include these technically advanced and value added
features.
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Restructuring charges
During 1998, the Company recorded restructuring charges totaling $2.6
million, or 1% of net sales. During the first quarter of 1998, the Company
recorded a restructuring charge of $1.4 million related to the closing of the
CDC new business compilation and sales center and moving these operations from
Vermont to Nebraska. All 45 of the CDC employees were terminated, and severance
recorded totaled $0.6 million. The restructuring charges also included lease
termination costs of $0.3 million and a write-off of $0.5 million of leasehold
improvement costs associated with the closed Vermont facility. The
restructuring, including recording the payments and write-downs described, was
completed by September 30, 1998.
During the third quarter of 1998, the Company recorded a restructuring
charge of $1.2 million which included $0.6 million in severance for 244
employees terminated as a result of the implementation of certain cost reduction
measures. These employees were primarily in support and administration positions
but some personnel from under-performing sales functions were also terminated.
The restructuring charges also included $0.4 million related to the planned
closing of four field sales offices. Additionally, the Company recorded a
write-down of $0.2 million related to leasehold improvement costs at facilities
leased by the Company which were being closed. The restructuring, including
recording the payments and write-downs described, was completed as of December
31, 1998, with the exception of the costs totaling $0.4 million related to the
exit of certain field sales offices which were completed in early 1999.
Operating income (loss)
Including the factors previously described, the Company had operating
income of $2.6 million, or 2% of net sales for 1998, as compared to an operating
loss of $(32.5) million, or (17)% of net sales for 1997.
Operating income for the small business segment for 1998 was $54.7 million,
or 42% of net sales, as compared to $50.5 million, or 43% of net sales for 1997.
Factors contributing to the decrease in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." See Note 21 of the notes to the accompanying consolidated financial
statements for additional information.
Operating income for the large business segment for 1998 was $39.7 million,
or 40% of net sales, as compared to $35.7 million, or 46% of net sales for 1997.
Factors contributing to the decrease in operating income as a percentage of net
sales are described in the section "Selling, general and administrative
expenses." Additionally, the Company acquired Walter Karl and JAMI Marketing
during 1998. Walter Karl and JAMI Marketing perform list brokerage services,
which traditionally have lower profit margins than services associated with the
Company's data processing services. See Note 21 of the notes to the accompanying
consolidated financial statements for additional information.
Other income (expense), net
Other income (expense), net for 1998 and 1997 was $5.5 million and $(0.4)
million, respectively. During the second quarter of 1998, the Company realized a
gain of $16.5 million on the disposition of its holdings in Metromail
Corporation common stock. This realized gain was partially offset during the
second quarter of 1998 when the Company recorded a loss of $2.0 million on the
write-off of an investment. The increase in interest expense to $9.2 million
from $4.1 million is primarily attributable to the issuance of senior
subordinated notes during 1998, of which $115 million was outstanding at
December 31, 1998. During the first quarter of 1997, the Company made an
investment of $2.0 million in preferred stock of an issuer, representing less
than 20% of the issuer's outstanding stock. During 1998 the issuer commenced a
reorganization and sought funding from other outside investors, diluting the
Company's investment in this entity to a nominal value. Additionally, the
Company obtained knowledge that the issuer was incurring significant losses and
the intended line of business of this start-up entity had significantly changed.
Accordingly, the Company wrote-off this investment, which was accounted for on a
cost basis, during the second quarter of 1998.
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Income taxes
A provision for income taxes of $5.9 million and $7.0 million was recorded
for 1998 and 1997, respectively. Acquisition-related charges of $3.8 million and
$49.2 million were included in income before income taxes during 1998 and 1997,
respectively, but are not deductible for tax purposes. The provision for these
periods also reflect the inclusion of amortization on certain intangibles in
taxable income not deductible for tax purposes.
EBITDA, as adjusted
Excluding the purchased in-process research and development charges
previously described, the Company's EBITDA, as adjusted, was $33.9 million, or
15% of net sales, during 1998, compared to $55.4 million, or 29% of net sales,
during 1997.
YEAR 2000 READINESS DISCLOSURE
The total estimated costs associated with the Company's Year 2000
remediation plan were $5.0 million. As of the date of this Form 10-K, the
Company has not experienced any material business disruptions as a result of
Year 2000 issues arising from its information systems, nor is it aware of any
material Year 2000 related business interruptions impacting its clients or
service providers. However, the Company cannot be certain that it will not
suffer business interruptions, either due to its own Year 2000 issues that may
develop or those of third parties. Accordingly, there can be no assurance the
Company or third parties will not have ongoing Year 2000 issues that may have a
material adverse effect on the Company.
ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS 133"). SFAS 133 requires that all derivatives be
recognized as either assets or liabilities in the balance sheet and measured at
their fair value. If certain conditions are met, a derivative may be
specifically designated as (i) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment,
(ii) a hedge of the exposure to variable cash flows of a forecasted transaction
or (iii) a hedge of the foreign currency exposure of a net investment in a
foreign operation, an unrecognized firm commitment, an available-for-sale
security or a foreign-currency denominated forecasted transaction. SFAS 133, as
amended by Statement of Financial Accounting Standards No. 137, is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
does not expect the effect of SFAS 133 to be significant to its financial
reporting.
LIQUIDITY AND CAPITAL RESOURCES
"Consolidated Statements of Cash Flows Information'
As of December 31, 1999, the Company had working capital of $41.1 million.
During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a new credit facilities arrangement which provides for a Revolving
Credit Facility of $30.0 million. As of December 31, 1999, the Company had no
borrowings under the Revolving Credit Facility, with the exception of one
outstanding letter of credit in the amount of $5.0 million reducing the
availability under the Revolving Credit Facility to $25.0 million.
Net cash provided by operating activities during 1999 totaled $29.4
million, compared to net cash provided by operating activities of $16.7 million
during 1998.
During 1999, the Company spent $9.0 million for additions of property and
equipment, $10.4 million related to internal software development costs and $577
thousand related to database development costs.
The Company acquired Donnelley effective July 1999. The Company has paid
$206.4 million related to the acquisition, including consideration paid for the
acquisition of $200.0 million and $6.4 million for capitalized acquisition
costs. As part of the acquisition, the Company borrowed $165.0 million under the
new credit facilities arrangement. The Company paid financing costs of $4.0
million to secure the financing arrangement. The
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Company also utilized existing cash and marketable securities of approximately
$45.0 million to purchase Donnelley.
During 1999, the Company spent $6.6 million to repurchase common stock of
the Company and $8.4 million to repurchase outstanding Senior Subordinated Notes
of the Company.
During 1999, the Company's subsidiary received $10.0 million on the
issuance of common stock of a subsidiary and $7.8 million on proceeds from the
exercise of stock options.
"Consolidated Balance Sheets Information'
Cash and cash equivalents decreased from $29.6 million at December 31, 1998
to $10.8 million at December 31, 1999 and marketable securities decreased from
$20.6 million at December 31, 1998 to $70 thousand at December 31, 1999. The
Company utilized existing cash and cash equivalents and marketable securities of
approximately $45.0 million to purchase Donnelley in July 1999.
Trade accounts receivable increased from $40.1 million at December 31, 1998
to $65.8 million at December 31, 1999 principally due to the acquisition of
Donnelley in July 1999. The Company recorded trade accounts receivable of $14.5
million as part of the acquisition.
Property and equipment, net increased from $40.3 million at December 31,
1998 to $53.6 million at December, 1999 principally due to the following: 1)
$6.2 million recorded as part of the acquisition of Donnelley in July 1999, and
2) the Company recorded capital leases totaling $6.8 million during 1999,
primarily related to the acquisition of new computer equipment.
List brokerage trade accounts receivable decreased from $17.8 million at
December 31, 1998 to $16.7 million at December 31, 1999. List brokerage trade
accounts payable decreased from $18.8 million at December 31, 1998 to $16.4
million at December 31, 1999. The balance of list brokerage trade accounts
receivable and list brokerage trade accounts payable may fluctuate significantly
and is dependent on the specific timing of cash receipts and disbursements. The
Company customarily pays the selling broker shortly after being paid by the
buying broker.
Intangible assets, net increased from $109.4 million at December 31, 1998
to $315.9 million at December 31, 1999. Goodwill and other intangibles recorded
as part of the acquisition of Donnelley based on management's preliminary
estimates totaled $228.2 million, and included goodwill of $150.3 million,
purchased data processing software of $64.1 million, trade names of $7.7
million, and non-compete agreements of $6.1 million.
Total accrued expenses decreased from $12.5 million at December 31, 1998 to
$6.4 million at December 31, 1999 principally due to the following: 1) payment
of $4.6 million to Experian Information Solutions, Inc. during 1999 in
connection with arbitration of a contractual dispute, 2) purchase price
adjustment of $1.3 million, recorded as a reduction to goodwill, of an accrual
related to the buy-out of a lease recorded in connection with the acquisition of
Walter Karl.
Long-term debt increased from $126.7 million at December 31, 1998 to $267.6
million at December 31, 1999 principally due to the borrowing of $165.0 million
under the new credit facilities arrangement to purchase Donnelley. Additionally,
the Company recorded capital leases totaling $6.8 million during 1999, primarily
related to the acquisition of new computer equipment. This increase was offset
by the Company's repurchase of $9.0 million of its infoUSA 9 1/2% Senior
Subordinated Notes as previously described and repayments totaling $10.2 million
on the Credit Facilities during 1999.
Treasury stock increased from $3.0 million at December 31, 1998 to $9.2
million at December 31, 1999 principally due to the purchase in the open market
of 1.1 million shares of common stock during 1999 at a total cost of $6.6
million.
The Company believes that its existing sources of liquidity and cash
generated from operations, assuming no major acquisitions, will satisfy the
Company's projected working capital and other cash requirements for at least the
next 12 months. To the extent the Company experiences growth in the future, the
Company anticipates that its
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operating and investing activities may use cash. Any such future growth and any
acquisitions of other technologies, products or companies may require the
Company to obtain additional equity or debt financing, which may not be
available or may be dilutive.
FACTORS THAT MAY AFFECT OPERATING RESULTS
Our Internet strategy -- to be an incubator of Internet database
companies -- is untested.
Our Internet strategy is to be an incubator of Internet database companies.
With this strategy, we are seeking to leverage our proprietary content into
multiple vertical market applications and provide marketing solutions for
electronic commerce applications. We recently introduced this strategy and it is
relatively untested. We cannot guarantee that our Internet ventures will attract
the number of visitors or advertisers that we project, or that our customers
will choose to have our products and services delivered to them over the
Internet. If we are successful in these ventures, we may face strong competition
from current and potential competitors, including other Internet companies and
other providers of business and consumer databases.
Implementation of our Internet strategy is dependent on our ability to attract
and retain senior management.
The demand for senior management for Internet companies currently exceeds
the supply of qualified candidates. The management team for our Internet
ventures will include senior managers who have been with us for many years as
well as newly hired senior managers. If we are unable to retain these managers
or to attract other qualified senior management, the implementation of our
Internet strategy may be delayed or impaired.
Our markets are highly competitive and many of our competitors have greater
resources than we do.
The business and consumer marketing information industry in which we
operate is highly competitive. Intense competition could harm us by causing,
among other things, price reductions, reduced gross margins, and loss of market
share. Our competition includes:
- In consumer sales lead generation products, Acxiom, R.L. Polk, Experian
(a subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax,
both directly and through reseller networks.
- In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications, Inc.
and Harte-Hanks Communications, Inc.
- In business sales lead generation products, Experian and Dun's Marketing
Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon
information compiled from Dun & Bradstreet's credit database, tends to
focus on marketing to large companies.
- In business directory publishing, from Regional Bell Operating Companies
and many smaller, regional directory publishers.
- In consumer products, certain smaller producers of CD-Rom products.
- Technologies which companies may install and implement in-house as part
of their internal IS functions, instead of purchasing or outsourcing such
functions.
In addition, we may face competition from new entrants to the business and
consumer marketing information industry as a result of the rapid expansion of
the Internet, which creates a substantial new channel for distributing business
information to the market. Many of our competitors have longer operating
histories, better name recognition and greater financial resources than we do,
which may enable them to implement their business strategies more readily than
we can.
We are highly leveraged. If we are unable to service our debt as it becomes
due, our business would be harmed.
As of December 31, 1999, we had total indebtedness of approximately $277.5
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $154.8 million under a $195 million Senior
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Secured Credit Agreement. Substantially all of our assets are pledged as
security under the terms of the Credit Agreement. The indebtedness under the
Credit Agreement was incurred in connection with our acquisition of Donnelley
Marketing in 1999. Our ability to pay principal and interest on the Notes issued
under the Indenture and the indebtedness under the Credit Agreement and to
satisfy our other debt obligations will depend upon our future operating
performance. Our performance will be affected by prevailing economic conditions
and financial, business and other factors. Certain of these factors are beyond
the our control. The future availability of revolving credit under the Credit
Agreement will depend on, among other things, our ability to meet certain
specified financial ratios and maintenance tests. We expect that our operating
cash flow should be sufficient to meet our operating expenses, to make necessary
capital expenditures and to service our debt requirements as they become due. If
we are unable to service our indebtedness, however, we will be forced to take
actions such as reducing or delaying acquisitions and/or capital expenditures,
selling assets, restructuring or refinancing our indebtedness (including the
Notes issued under the Indenture and the Credit Agreement) or seeking additional
equity capital. We may not be able to obtain any such remedies on terms that are
favorable or satisfactory to us, if at all.
The terms of our current indebtedness restrict our ability to take certain
actions that fit our business strategy.
Our existing credit facilities contain certain covenants which restrict our
ability to:
- Incur additional indebtedness;
- Pay dividends and make certain other similar payments;
- Guarantee indebtedness of others;
- Enter into certain transactions with affiliates;
- Consummate certain asset sales, certain mergers and consolidations, sales
or other dispositions of all or substantially all of our assets; and
- Obtain dividends or certain other payments from our subsidiaries.
These restrictions may impair our ability to take certain actions that fit
our business strategy. A breach of any of these covenants could result in an
event of default under the terms of our existing credit facilities. Upon the
occurrence of an event of default, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the payment of any such indebtedness is accelerated, our assets may
not be sufficient to repay in full the indebtedness under our credit facilities
and our other indebtedness. Moreover, if we were unable to repay amounts owed to
the lenders under our credit facilities, the lenders could foreclose on our
assets that secure the indebtedness.
Under the terms of our current indebtedness, the occurrence of a change of
control of infoUSA could have serious adverse financial consequences to us.
If a change of control of infoUSA were to occur, we would in certain
circumstances be required to make an offer to purchase all outstanding Notes
under the Indenture at a purchase price equal to 101% of the principal amount of
the Notes, together with accrued and unpaid interest. There can be no guarantee
that, if this were to happen, we would have sufficient funds to purchase the
Notes. In addition, a change of control and any repurchase of the Notes upon a
change of control may constitute an event of default under our other current or
future credit facilities. In that event, our obligations under such credit
facilities could be declared due and payable by the lenders, and the lenders may
also have the right to be paid for all outstanding obligations under such credit
facilities before we repurchase any of the Notes.
Fluctuations in our operating results may result in decreases in the market
price of our common stock.
Our operating results may fluctuate on a quarterly and annual basis. Our
expense levels are relatively fixed and are based, in part, on our expectations
as to future revenues. As a result, unexpected changes in revenue levels may
have a disproportionate effect on operating performance in any given period. In
some period or periods our
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operating results may be below the expectations of public market analysts and
investors. Our failure to meet analyst or investor expectations could result in
a decrease in the market price of our common stock.
If we do not adapt our products and services to respond to changes in
technology, they could become obsolete.
We provide marketing information and services to our customers in a variety
of formats, including printed formats, electronic formats such as CD-Rom and
DVD, and over the Internet. Advances in information technology may result in
changing customer preferences for products and product delivery formats. If we
do not successfully adapt our products and services to take advantage of changes
in technology and customer preferences, our business, financial condition and
results of operations would be adversely affected.
We have adopted an Internet strategy because we believe that the Internet
represents an important and rapidly evolving market for marketing information
products and services. Our business, financial condition and results of
operations would be adversely affected if we:
- Fail to develop products and services that are well suited to the
Internet market;
- Experience difficulties that delay or prevent the successful development,
introduction and marketing of these products and services; or
- Fail to achieve sufficient traffic to our Internet sites to generate
significant revenues, or to successfully implement electronic commerce
operations.
Changes in laws and regulations relating to data privacy could adversely
affect our business.
We engage in direct marketing, as do many of our customers. Certain data
and services provided by us are subject to regulation by federal, state and
local authorities. In addition, growing concerns about individual privacy and
the collection, distribution and use of information about individuals have led
to self-regulation of such practices by the direct marketing industry through
guidelines suggested by the Direct Marketing Association and to increased
federal and state regulation. There is increasing awareness and concern among
the general public regarding marketing and privacy concerns, particularly as it
relates to the Internet. This concern is likely to result in new laws and
regulations. Compliance with existing federal, state and local laws and
regulations and industry self-regulation has not to date seriously affected our
business, financial condition or results of operations. Nonetheless, federal,
state and local laws and regulations designed to protect the public from the
misuse of personal information in the marketplace and adverse publicity or
potential litigation concerning the commercial use of such information may
increasingly affect our operations. This could result in substantial regulatory
compliance or litigation expense or a loss of revenue.
Our business would be harmed if we do not successfully integrate future
acquisitions.
Our business strategy includes continued growth through acquisitions of
complementary products, technologies or businesses. We have made ten
acquisitions since mid-1996 and completed the integration of these acquisitions
into our existing business by the end of 1999. We continue to evaluate strategic
opportunities available to us and intend to pursue opportunities that we believe
fit our business strategy. Acquisitions of companies, products or technologies
may result in the diversion of management's time and attention from day-to-day
operations of our business and may entail numerous other risks, including
difficulties in assimilating and integrating acquired operations, databases,
products, corporate cultures and personnel, potential loss of key employees of
acquired businesses, difficulties in applying our internal controls to acquired
businesses, and particular problems, liabilities or contingencies related to the
businesses being acquired. To the extent our efforts to integrate future
acquisitions fail, our business, financial condition and results of operations
would be adversely affected.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to material future earnings or cash flow
exposures from changes in interest rates on long-term debt as the majority of
the Company's debt is at fixed rates. At December 31, 1999, the fair value of
the Company's long-term debt is based on quoted market prices at the reporting
date or is estimated by discounting the future cash flows of each instrument at
rates currently offered to the Company for similar debt instruments of
comparable maturities. At December 31, 1999, the Company had long-term debt with
a carrying value of $277.5 million and estimated fair value of approximately
$241.1 million. The market risk is estimated as the potential decrease in fair
value of the Company's long-term debt resulting from a hypothetical increase of
10% in the rates currently offered to the Company. An increase in interest rates
would result in approximately a $10.6 million decrease in fair value of the
Company's long-term debt.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item (other than selected quarterly
financial data which is set forth below) is incorporated by reference to the
Consolidated Financial Statements set forth on pages F-1 through F-25 of this
Form 10-K. The following table sets forth selected financial information for
each of the eight quarters in the two-year period ended December 31, 1999. This
information has been prepared by the Company on the same basis as the
consolidated financial statements and includes all normal recurring adjustments
necessary to present fairly this information when read in conjunction with the
Company's audited consolidated financial statements and the notes thereto.
1999 1998
QUARTER ENDED QUARTER ENDED
----------------------------------------------- -----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ ----------- -------- ------- ------------ -----------
STATEMENT OF OPERATIONS DATA:
Net sales..................... $55,520 $57,573 $75,166 $77,814 $55,380 $62,076 $ 55,072 $56,150
Costs and expenses:
Database and production
costs...................... 16,176 17,114 22,484 22,986 15,405 16,086 17,978 16,850
Selling, general and
administrative............. 22,336 23,762 32,998 31,644 23,394 27,103 41,199 26,028
Depreciation and
amortization............... 6,033 5,694 10,826 12,556 6,870 6,384 7,824 6,394
Provision for litigation
settlement(1).............. -- -- -- -- -- -- 4,500 --
Impairment of assets(2)...... -- -- 5,599 -- -- -- -- --
Acquisition costs(3)......... -- -- 3,682 484 3,243 400 -- --
In-process research and
development(4)............. -- -- -- -- 3,834 -- -- --
Restructuring costs(5)....... -- -- -- -- 1,400 -- 1,216 --
------- ------- ------- ------- ------- ------- -------- -------
Operating income (loss)....... 10,975 11,003 (423) 10,144 1,234 12,103 (17,645) 6,878
Other income (expense), net... (630) (1,230) 4,046 2,317 (283) 13,233 (2,869) (4,613)
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before income
taxes and extraordinary
item......................... 10,345 9,773 3,623 12,461 951 25,336 (20,514) 2,265
Income taxes.................. 4,160 4,088 2,571 2,325 2,058 9,964 (7,115) 973
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before
extraordinary
item......................... 6,185 5,685 1,052 10,136 (1,107) 15,372 (13,399) 1,292
Extraordinary item, net of
tax(6)....................... 128 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------- -------
Net income (loss)............. $ 6,313 $ 5,685 $ 1,052 $10,136 $(1,107) $15,372 $(13,399) $ 1,292
======= ======= ======= ======= ======= ======= ======== =======
Basic earnings (loss) per
share........................ $ 0.13 $ 0.12 $ 0.02 $ 0.21 $ (0.02) $ 0.31 $ (0.27) $ 0.03
======= ======= ======= ======= ======= ======= ======== =======
Weighted average shares
outstanding.................. 48,602 48,233 48,345 48,646 49,395 49,607 49,360 49,301
======= ======= ======= ======= ======= ======= ======== =======
Diluted earnings (loss) per
share........................ $ 0.13 $ 0.12 $ 0.02 $ 0.21 $ (0.02) $ 0.30 $ (0.27) $ 0.03
======= ======= ======= ======= ======= ======= ======== =======
Weighted average shares
outstanding.................. 48,662 48,307 48,378 48,994 49,395 51,226 49,360 49,334
======= ======= ======= ======= ======= ======= ======== =======
AS A PERCENTAGE OF NET SALES:
Net sales..................... 100% 100% 100% 100% 100% 100% 100% 100%
Costs and expenses:
Database and production
costs...................... 29 30 30 30 28 26 33 30
Selling, general and
administrative............. 40 41 44 41 42 44 75 46
Depreciation and
amortization............... 11 10 15 16 12 10 14 11
Provision for litigation
settlement................. -- -- -- -- -- -- 8 --
Impairment of assets......... -- -- 7 -- -- -- -- --
Acquisition costs............ -- -- 5 1 6 1 -- --
In-process research and
development................ -- -- -- -- 7 -- -- --
Restructuring charges........ -- -- -- -- 2 -- 2 --
------- ------- ------- ------- ------- ------- -------- -------
Operating income (loss)...... 20 19 (1) 13 2 19 (32) 12
Other income (expense), net... (1) (2) 5 3 (1) 21 (5) (8)
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before income
taxes and extraordinary
item......................... 19 17 4 16 2 41 (37) 4
Income taxes.................. 8 7 3 3 4 16 (13) 2
------- ------- ------- ------- ------- ------- -------- -------
Income (loss) before
extraordinary
item......................... 11 10 1 13 (2) 25 (24) 2
Extraordinary item, net of
tax.......................... -- -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------- -------
Net income (loss)............. 11% 10% 1% 13% (2)% 25% (24)% 2%
======= ======= ======= ======= ======= ======= ======== =======
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- ---------------
(1) During 1998, includes $4.6 million in damages awarded to Experian
Information Solutions, Inc. in connection with arbitration of a contractual
dispute.
(2) During 1999, the Company recorded a write-down of $3.9 million on the
Company's existing consumer database due to the acquisition of Donnelley
Marketing, and a write-down of $1.7 million on leasehold improvements and
in-process construction projects due to the move of the Company's data
processing operations from Montvale, NY to Greenwich, CT.
(3) Includes the following acquisition costs: 1) $4.2 million associated with
the acquisition and integration of Donnelley Marketing (1999), 2) $3.0
million of costs associated with the Company's bid to acquire Metromail
Corporation (1998), and 3) $0.6 million associated with the Company's
offering to sell Common Stock which was not completed (1998).
(4) During 1998, includes a charge of $3.8 million for purchased in-process
research and development costs associated with the acquisition of Walter
Karl, Inc.
(5) During 1998, includes the following restructuring charges: 1) $1.4 million
related to the Company's compilation and sales activities for new
businesses, and 2) $1.2 million related to certain cost reduction measures
enacted by the Company.
(6) During 1999, the Company repurchased $9.0 million of its Senior Subordinated
Notes. As part of the repurchase, the Company recorded a net gain of $0.1
million.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On October 1, 1998, PricewaterhouseCoopers LLP, the Company's independent
accountants (the "Former Accountants") resigned from their engagement as
principal accountants for the Company due to their inability to satisfy the
"independence" requirement. The Former Accountants' resignation was required
because of the promotion of the son-in-law of one of the Company's directors to
an officer position at PricewaterhouseCoopers' Omaha office. On October 12,
1998, the Company engaged the services of KPMG LLP (the "New Accountants") to
serve as the Company's principal accountants for the fiscal year ending December
31, 1998. The decision to change accountants was not recommended or approved by
the Company's board of directors, nor by its audit committee. The Company's
stockholders ratified the appointment of the New Accountants at the Company's
Annual Meeting of Stockholders on May 2, 1999.
The reports of the Former Accountants for the fiscal year 1997 contained no
adverse opinion, disclaimer of opinion or opinion that was qualified or modified
as to uncertainty, audit scope or accounting principles. The report of the New
Accountants for the fiscal year 1999 also did not contain an adverse opinion,
disclaimer of opinion or opinion that was qualified or modified as to
uncertainty, audit scope or accounting principles.
From January 1, 1998 through October 1, 1998, there were no disagreements
with the Former Accountants on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which, if not
resolved to the satisfaction of the Former Accountants, would have caused them
to make reference thereto in their report on the financial statements of such
years.
From January 1, 1998 through October 1, 1998, none of the events listed in
paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K occurred
except as follows. The Form 10-Q, filed by the Company for the period ended June
30, 1998, disclosed that the Company was in the process of performing a
valuation analysis of its acquisition of JAMI and any changes to its preliminary
estimates of the assets acquired, liabilities assumed and goodwill and other
intangibles recorded as part of the purchase, including an assessment of
purchased in-process research and development costs would be recorded in the
third quarter of 1998. The Former Accountants indicated that if such in-process
research and development charge was material, the financial statements for the
period ended June 30, 1998 would require restatement. Consistent with its
quarterly report on Form 10-Q for the quarter ended June 30, 1998, the Company
does not expect that any such in-process research and development costs will be
material. In addition, as a result of recent financial management resignations,
the Former Accountants advised the Company that it intended to expand the scope
of its audit testing for the fiscal year 1998 audit, and management is in
agreement with this advice.
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In September 1998, the Company engaged the New Accountants for purposes of
allocating the cost of the acquisition to certain assets and liabilities
acquired by the Company from JAMI Marketing in May 1998. The Company
subsequently determined that there was no in-process research and development
charge in connection with the acquisition. The New Accountants had expressed in
writing their preliminary view that there should not be a material charge for in
process research and development costs as a result of the JAMI Marketing
transaction. The Company's Former Accountants, were not consulted by the Company
regarding the allocation of the acquisition costs. Other than as described
above, during the past two fiscal years and through the filing hereof, the
Company has not consulted with the New Accountants on either the application of
accounting principles to a specified transaction, or any matter that was the
subject of a reportable event discussed above.
The Company requested that PricewaterhouseCoopers LLP and KPMG LLP furnish
it with letters stating any disagreements that either firm had with the above
statements. Such letter from the Former Accountants was filed as an exhibit to
the Company's amended current report on Form 8-K filed with the SEC on October
14, 1998. No such letter was submitted by the New Accountants.
35
37
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The required information regarding Directors of the registrant is
incorporated by reference to the information under the caption "Nominees for
Election at the Annual Meeting" and "Incumbent Directors whose Terms of Office
Continue After the Annual Meeting" in the Company's definitive proxy statement
for the Annual Meeting of Stockholders to be held on April 28, 2000.
The required information regarding Executive Officers of the registrant is
contained in Part I of this Form 10-K.
The required information regarding compliance with Section 16(a) of the
Securities Exchange Act is incorporated by reference to the information under
the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the
Company's definitive proxy statement for the Annual Meeting of Stockholders to
be held on April 28, 2000.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the information under the captions "Executive
Compensation," "Performance Graph," "Report of the Compensation Committee," and
"Certain Transactions" in the Company's definitive proxy statement for the
Annual Meeting of Stockholders to be held on April 28, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the information under the caption "Security
Ownership" in the Company's definitive proxy statement for the Annual Meeting of
Stockholders to be held on April 28, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the information under the captions "Certain
Transactions" in the Company's definitive proxy statement for the Annual Meeting
of Stockholders to be held on April 28, 2000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the Report:
1. Financial Statements. The following Consolidated Financial
Statements of infoUSA Inc. and Subsidiaries and Report of Independent
Accountants are included at pages F-1 through F-25 of this Form 10-K:
DESCRIPTION PAGE NO.
- ----------- --------
Independent Auditors' Reports............................... F-2, F-3
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-4
Consolidated Statements of Operations for the Year Ended
December 31, 1999, 1998, and 1997......................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998, and 1997............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998, and 1997......................... F-7
Notes to Consolidated Financial Statements.................. F-8
36
38
2. Financial Statement Schedule. The following consolidated financial
statement schedule of infoUSA Inc. and Subsidiaries for the years ended
December 31, 1999, 1998, and 1997 is filed as part of this Report and
should be read in conjunction with the Consolidated Financial Statements.
DESCRIPTION PAGE NO.
- ----------- --------
Schedule II Valuation and Qualifying Accounts............... S-1
Schedules not listed above have been omitted because they are not
applicable or are not required or the information required to be set forth
therein is included in the consolidated financial statements or notes
thereto.
3. Exhibits. The following Exhibits are filed as part of, or
incorporated by reference into, this report:
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 (File No. 000-19598).
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 (File No. 000-19598).
2.4 -- Agreement and Plan of Reorganization between the Company
and the Shareholders of Marketing Data Systems, Inc. is
incorporated herein by reference to exhibits filed with
the Company's Registration Statement on Form S-3 (File
No. 333-36669) filed 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 exhibits filed with the Company's Current
Report on Form 8-K dated February 24, 1998.
2.8 -- Asset Purchase Agreement between the Company and JAMI
Marketing Services, Inc. is incorporated herein by
reference to exhibits filed with the Company's Annual
Report on Form 10-K for the Fiscal Year ended December
31, 1998 (File No. 000-19598).
2.9 -- Agreement and Plan of Reorganization by and among the
Company, Hugo Acquisition Corporation, First Data
Corporation, First Data Information Management Group,
Inc., DM Holdings, Inc., Donnelley Marketing Holdings,
Inc., and Donnelley Marketing, Inc. is incorporated
herein by reference to exhibits filed with the Company's
Current Report on Form 8-K dated May 28, 1999.
3.1 -- Certificate of Incorporation, as amended through October
22, 1999, is Incorporated herein by reference to exhibits
filed with Company's Registration Statement on Form 8-A,
as amended, filed March 20, 2000.
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.
37
39
3.3 -- Amended and Restated Certificate of Designation of
Participating Preferred Stock, filed in Delaware on
October 22,1999, is incorporated herein by reference to
exhibits filed with the Company's Registration Statement
on Form 8-A, as amended, filed March 20, 2000.
4.1 -- Preferred Share Rights Agreement is incorporated herein
by reference to the Company's Registration Statement on
Form 8-A, as amended, filed March 20, 2000.
4.2 -- Specimen of Common Stock Certificate is incorporated
herein by reference to the exhibits filed with the
Company's Registration Statement on Form 8-A, as
amended), filed March 20, 2000.
4.3 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 hereof.
4.4 -- Purchase Agreement dated June 12, 1998 between the
Company, BT Alex. Brown Incorporated, Goldman, Sachs &
Co. and Hambrecht & Quist LLC is incorporated herein by
reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1998
(File No. 000-19598).
4.5 -- Indenture dated as of June 18, 1998 (the "Indenture") by
and between the Company and State Street Bank and Trust
Company of California, N.A., as Trustee is incorporated
herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June
30, 1998 (File No. 000-19598).
4.6 -- Exchange and Registration Rights Agreement dated as of
June 18, 1998 by and among the Company and BT Alex. Brown
Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist
LLC as the Initial Purchasers is incorporated herein by
reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1998
(File No. 000-19598).
4.7 -- Form of New 9 1/2% Senior Subordinated Note due 2008 is
incorporated herein by reference to exhibits filed with
the Company's Registration Statement on Form S-4 (File
No. 333-61645), filed December 15, 1999.
4.8 -- Credit Agreement by and among infoUSA, Inc., various
Lenders (as defined therein) and Bankers Trust Company
dated as of July 23, 1999 is incorporated herein by
reference to exhibits filed with the Company's Current
Report on Form 8-K dated July 23, 1999.
4.9 -- First Amendment dated October 29, 1999 and Second
Amendment dated December 15, 1999 to Credit Agreement by
and among the Company, various Lenders (as defined
therein) and Bankers Trust Company, filed herewith.
10.1 -- Form of Indemnification Agreement with Officers and
Directors is incorporated herein by reference to exhibits
filed with the Company's Registration Statement on Form
S-1 (File No. 33-51352), filed August 28, 1992.
10.2 -- 1992 Stock Option Plan as amended is incorporated herein
by reference to exhibits filed with the Company's
Registration Statement on Form S-8 (File No. 333-37865),
filed October 14, 1997.
10.3 -- 1997 Stock Option Plan as amended is incorporated herein
by reference to exhibits filed with the Company's
Registration Statement on Form S-8 (File No. 333-82933),
filed July 15, 1999.
10.4 -- Employment Agreement dated July 5, 1999 between the
Company and Susan Henricks, filed herewith.
10.5 -- Amended and Restated Database License Agreement between
Donnelley Marketing, Inc. and First Data Resources, Inc.
dated as of July 23, 1999 is incorporated herein by
reference to exhibits filed with the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 1999
(File No. 000-19598).
38
40
10.6 -- Covenant not to compete by First Data Corporation to
infoUSA Inc. dated as of July 23, 1999 is incorporated
herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June
30, 1999 (File No. 000-19598).
10.7 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5,
2.6, 2.7, 2.8, 2.9, 4.5, 4.8 and 4.9 hereof.
21.1 -- Subsidiaries and State of Incorporation, filed herewith.
23.1 -- Consent of Independent Accountants, filed herewith.
23.2 -- Consent of Independent Accountants, filed herewith.
24.1 -- Power of Attorney, filed herewith
27.1 -- Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K:
On October 6, 1999, the Company filed a Current Report on Form 8-K/A dated
July 23, 1999, pursuant to Item 7 of that form, to report required pro forma and
audited financial information related to the acquisition of Donnelley Marketing
effective July 1, 1999.
39
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
infoUSA INC.
By: /s/ STORMY L. DEAN
----------------------------------
Stormy L. Dean
Controller and Acting Chief
Financial Officer
(principal accounting and
financial officer)
Dated: March 17, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ VINOD GUPTA Chairman of the Board and Chief March 17, 2000
- ----------------------------------------------------- Executive Officer (principal
Vinod Gupta executive officer)
/s/ STORMY L. DEAN Controller and Acting Chief March 17, 2000
- ----------------------------------------------------- Financial Officer (principal
Stormy L. Dean accounting officer and principal
financial officer)
/s/ E. BENJAMIN NELSON Director March 17, 2000
- -----------------------------------------------------
E. Benjamin Nelson
/s/ CHARLES T. FOTE Director March 17, 2000
- -----------------------------------------------------
Charles T. Fote
/s/ GEORGE F. HADDIX Director March 17, 2000
- -----------------------------------------------------
George F. Haddix
/s/ ELLIOT S. KAPLAN Director March 17, 2000
- -----------------------------------------------------
Elliot S. Kaplan
/s/ HAROLD ANDERSEN Director March 17, 2000
- -----------------------------------------------------
Harold Andersen
/s/ PAUL A. GOLDNER Director March 17, 2000
- -----------------------------------------------------
Paul A. Goldner
By: /s/ STORMY L. DEAN
-------------------------------------------------
Stormy L. Dean
Attorney-in-fact
40
42
infoUSA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
infoUSA Inc. and Subsidiaries:
Independent Auditors' Reports............................... F-2, F-3
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-7
Notes to Consolidated Financial Statements.................. F-8 to F-25
Schedule II -- Valuation and Qualifying Accounts............ S-1
F-1
43
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
infoUSA Inc.:
We have audited the accompanying consolidated balance sheets of infoUSA
Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for the years ended December 31, 1999 and 1998. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule as listed in the accompanying
index. These consolidated financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of infoUSA Inc.
and subsidiaries as of December 31, 1999 and 1998, and the results of its
operations and its cash flows for the years ended December 31, 1999 and 1998, in
conformity with generally accepted accounting principles. Also in our opinion,
the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
------------------------------------
KPMG LLP
Omaha, Nebraska
January 24, 2000
F-2
44
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
infoUSA Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and comprehensive income, and cash flows of infoUSA Inc.
and subsidiaries (formerly American Business Information, Inc.) for the year
ended December 31, 1997. We have also audited the financial statement schedule
listed in Item 14 in this Form 10-K for the year ended December 31, 1997. These
consolidated financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of infoUSA Inc. and subsidiaries (formerly American Business Information,
Inc.) for the year ended December 31, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/ PRICEWATERHOUSECOOPERS LLP
------------------------------------
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
January 23, 1998
F-3
45
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
Current assets:
Cash and cash equivalents................................. $ 10,846 $ 29,603
Marketable securities..................................... 70 20,620
Trade accounts receivable, net of allowances of $7,068 and
$7,289, respectively................................... 65,812 40,126
List brokerage trade accounts receivable.................. 16,734 17,831
Income taxes receivable................................... -- 3,387
Prepaid expenses.......................................... 2,973 2,371
Deferred marketing costs.................................. 2,957 4,365
-------- --------
Total current assets.............................. 99,392 118,303
-------- --------
Property and equipment, net................................. 53,569 40,264
Intangible assets, net...................................... 315,889 109,378
Other assets................................................ 4,494 2,828
-------- --------
$473,344 $270,773
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 9,885 $ 1,580
Accounts payable.......................................... 8,370 7,226
List brokerage trade accounts payable..................... 16,375 18,847
Accrued payroll expenses.................................. 5,767 2,830
Accrued expenses.......................................... 6,579 12,465
Income taxes payable...................................... 3,699 --
Deferred revenue.......................................... 7,556 4,534
Deferred income taxes..................................... 262 664
-------- --------
Total current liabilities......................... 58,493 48,146
-------- --------
Long-term debt, net of current portion...................... 267,637 126,679
Deferred income taxes....................................... 35,319 7,701
Minority interest........................................... 1,084 --
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; none issued or outstanding..................... -- --
Common stock, $.0025 par value. Authorized 295,000,000
shares; 50,719,548 shares issued and 49,390,058 shares
outstanding at December 31, 1999 and 49,544,750 shares
issued and 49,236,750 outstanding at December 31,
1998................................................... 127 124
Paid-in capital........................................... 82,025 72,476
Retained earnings......................................... 38,470 15,284
Treasury stock, at cost, 1,329,490 shares held at December
31, 1999 and 308,000 shares held at December 31,
1998................................................... (9,170) (2,951)
Accumulated other comprehensive income (loss)............. (641) 3,314
-------- --------
Total stockholders' equity........................ 110,811 88,247
Commitments and contingencies
-------- --------
$473,344 $270,773
======== ========
See accompanying notes to consolidated financial statements.
F-4
46
infoUSA INC. SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
Net sales............................................. $266,073 $228,678 $193,327
-------- -------- --------
Costs and expenses:
Database and production costs....................... 78,760 66,319 55,090
Selling, general and administrative................. 110,740 117,724 80,203
Depreciation and amortization....................... 35,109 27,472 34,415
Provision for litigation settlement................. -- 4,500 --
Impairment of assets................................ 5,599 -- --
Acquisition costs................................... 4,166 3,643 2,598
In-process research and development................. -- 3,834 53,500
Restructuring charges............................... -- 2,616 --
-------- -------- --------
234,374 226,108 225,806
-------- -------- --------
Operating income (loss)............................... 31,699 2,570 (32,479)
Other income (expense):
Investment income................................... 14,196 16,628 3,748
Interest expense.................................... (18,579) (9,160) (4,098)
Gain on issuance of subsidiary stock................ 8,886 -- --
Other............................................... -- (2,000) --
-------- -------- --------
Income (loss) before income taxes and extraordinary
item................................................ 36,202 8,038 (32,829)
Income taxes.......................................... 13,144 5,880 6,987
-------- -------- --------
Income (loss) before extraordinary items.............. 23,058 2,158 (39,816)
Extraordinary item, net of tax........................ 128 -- --
-------- -------- --------
Net income (loss)..................................... $ 23,186 $ 2,158 $(39,816)
======== ======== ========
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary item............. $ 0.48 $ 0.04 $ (0.82)
Extraordinary item.................................. -- -- --
-------- -------- --------
Net income (loss)..................................... $ 0.48 $ 0.04 $ (0.82)
======== ======== ========
Weighted average shares outstanding................... 48,470 49,314 48,432
======== ======== ========
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item............. $ 0.48 $ 0.04 $ (0.82)
Extraordinary item.................................. -- -- --
-------- -------- --------
Net income (loss)..................................... $ 0.48 $ 0.04 $ (0.82)
======== ======== ========
Weighted average shares outstanding................... 48,613 50,215 48,432
======== ======== ========
See accompanying notes to consolidated financial statements.
F-5
47
INFOUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ACCUMULATED
OTHER TOTAL
COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK INCOME (LOSS) EQUITY
------ ------- -------- -------- ------------- -------------
Balances, December 31, 1996................. $ 55 $37,268 $52,942 $(2,281) $ (379) $ 87,605
Comprehensive loss:
Net loss................................ -- -- (39,816) -- -- (39,816)
Change in unrealized gain, net of tax... -- -- -- -- 592 592
---- ------- -------- ------- ------- --------
Total comprehensive loss............ -- -- -- -- -- (39,224)
---- ------- -------- ------- ------- --------
Issuance of 4,718,744 shares of common
stock................................... 7 31,261 -- -- -- 31,268
2 for 1 stock dividend.................... 61 (61) -- -- -- --
Tax benefit related to employee stock
options................................. -- 587 -- -- -- 587
---- ------- -------- ------- ------- --------
Balances, December 31, 1997................. 123 69,055 13,126 (2,281) 213 80,236
Comprehensive income:
Net income.............................. -- -- 2,158 -- -- 2,158
Change in unrealized gain, net of tax... -- -- -- -- 3,101 3,101
---- ------- -------- ------- ------- --------
Total comprehensive income.......... -- -- -- -- -- 5,259
---- ------- -------- ------- ------- --------
Issuance of 459,086 shares of common
stock................................... 1 3,020 -- -- -- 3,021
Tax benefit related to employee stock
options................................. -- 401 -- -- -- 401
Acquisition of treasury stock............. -- -- -- (670) -- (670)
---- ------- -------- ------- ------- --------
Balances, December 31, 1998................. 124 72,476 15,284 (2,951) 3,314 88,247
Comprehensive income:
Net income.............................. -- -- 23,186 -- -- 23,186
Foreign currency translation
adjustments........................... -- -- -- -- (641) (641)
Change in unrealized gain, net of tax... -- -- -- -- (3,314) (3,314)
---- ------- -------- ------- ------- --------
Total comprehensive income.......... -- -- -- -- -- 19,231
---- ------- -------- ------- ------- --------
Issuance of 1,096,288 shares of common
stock................................... 3 7,771 -- -- -- 7,774
Issuance of 78,510 shares of treasury
stock for Company's match of 401(k) plan
contribution............................ -- 160 -- 334 -- 494
Tax benefit related to employee stock
options................................. -- 1,618 -- -- -- 1,618
Acquisition of treasury stock............. -- -- -- (6,553) -- (6,553)
---- ------- -------- ------- ------- --------
Balances, December 31, 1999................. $127 $82,025 $38,470 $(9,170) $ (641) $110,811
==== ======= ======== ======= ======= ========
See accompanying notes to consolidated financial statements.
F-6
48
infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss)......................................... $ 23,186 $ 2,158 $(39,816)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 35,109 27,472 34,415
Amortization of deferred financing fees................. 1,362 -- --
Deferred income taxes................................... (2,528) (1,019) (2,787)
Net realized gains on sale of marketable securities and
other investments..................................... (12,920) (15,511) (2,560)
Gain on issuance of subsidiary stock.................... (8,886) -- --
Provision for litigation settlement..................... -- 4,500 --
Impairment of other assets.............................. 5,599 2,000 --
In-process research and development..................... -- 3,834 53,500
Changes in assets and liabilities, net of effect of
acquisitions:
Trade accounts receivable............................. (13,224) 9,324 (7,445)
List brokerage trade accounts receivable.............. 1,097 (4,463) --
Prepaid expenses...................................... (3) (1,233) 287
Deferred marketing costs.............................. 1,408 (948) (2,154)
Accounts payable...................................... (1,850) (2,861) (4,854)
List brokerage trade accounts payable................. (2,193) 752 --
Income taxes receivable and payable................... 7,086 (3,042) 7,283
Accrued expenses...................................... (3,866) (4,221) (5,613)
--------- --------- --------
Net cash provided by operating activities.......... 29,377 16,742 30,256
--------- --------- --------
Cash flows from investing activities:
Proceeds from sales of marketable securities.............. 32,106 41,114 19,596
Purchases of marketable securities........................ (4,184) (17,177) (17,448)
Purchase of other investments............................. (1,000) (2,000) (2,000)
Purchases of property and equipment....................... (9,048) (20,582) (8,882)
Acquisitions of businesses, net of cash acquired.......... (206,968) (31,654) (84,224)
Database development costs................................ (577) (603) (3,398)
Software development costs................................ (10,400) (5,724) (2,898)
Other..................................................... -- -- (678)
--------- --------- --------
Net cash used in investing activities.............. (200,071) (36,626) (99,932)
--------- --------- --------
Cash flows from financing activities:
Repayment of long-term debt............................... (13,540) (110,876) (7,193)
Proceeds from long-term debt.............................. 165,000 154,800 86,000
Proceeds from sale of subsidiary common stock............. 10,000 -- --
Deferred financing costs.................................. (3,989) (5,969) (388)
Repayment of note payable to shareholders................. -- -- (7,925)
Acquisition of treasury stock............................. (6,553) (670) --
Repurchase of Senior Subordinated Notes................... (8,370) -- --
Deferred offering costs................................... -- -- (339)
Proceeds from exercise of stock options................... 7,771 1,148 2,090
Tax benefit related to employee stock options............. 1,618 401 587
--------- --------- --------
Net cash provided by financing activities.......... 152,142 38,834 72,832
--------- --------- --------
Net increase (decrease) in cash and cash equivalents........ (18,757) 18,950 3,156
Cash and cash equivalents, beginning........................ 29,603 10,653 7,497
--------- --------- --------
Cash and cash equivalents, ending........................... $ 10,846 $ 29,603 $ 10,653
========= ========= ========
Supplemental cash flow information:
Interest paid............................................. $ 18,299 $ 8,902 $ 3,616
========= ========= ========
Income taxes paid......................................... $ 7,047 $ 9,637 $ 7,443
========= ========= ========
See accompanying notes to consolidated financial statements.
F-7
49
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
infoUSA Inc. and its subsidiaries (the Company), provides business and
consumer marketing information products and data processing services throughout
the United States and Canada. These products include customized business lists,
business directories and other information services. During 1998, the Company
changed names from American Business Information, Inc. to infoUSA Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash Equivalents. Cash equivalents, consisting of highly liquid debt
instruments that are readily convertible to known amounts of cash and when
purchased have an original maturity of three months or less, are carried at cost
which approximates fair value.
Marketable Securities. Marketable securities have been classified as
available-for-sale and are therefore carried at fair value, which are estimated
based on quoted market prices. Unrealized gains and losses, net of related tax
effects, are reported as a separate component of stockholders' equity until
realized. Unrealized and realized gains and losses are determined by specific
identification.
List brokerage trade accounts receivable and trade accounts payable. The
Company acquired Walter Karl, Inc. in March 1998 and JAMI Marketing Services,
Inc. in June 1998. A significant business line of these two entities is list
brokerage services, whereby the entities serve as a broker between unrelated
parties who wish to purchase a certain list and unrelated parties who have the
desired list for sale. Accordingly, Walter Karl and Jami Marketing each
recognize trade accounts receivable and trade accounts payable, reflecting a
"gross-up" of the two concurrent transactions. The transactions are not
structured providing for the right of offset. List brokerage sales are reflected
net of costs on the accompanying consolidated statement of operations.
Advertising Costs. Direct marketing costs associated with the mailing and
printing of brochures and catalogs are capitalized and amortized over a period
of six months which corresponds to the estimated revenue stream of the
individual advertising activities. All other advertising costs are expensed as
the advertising takes place. Total unamortized marketing costs at December 31,
1999 and 1998, was $3.0 million and $4.4 million, respectively. Total
advertising expense for the years ended December 31, 1999, 1998, and 1997 was
$21.0 million, $19.7 million, and $15.9 million, respectively.
Property and Equipment. Property and equipment (including equipment
acquired under capital leases) are stated at cost and are depreciated or
amortized primarily using straight-line methods over the estimated useful lives
of the assets, as follows:
Building and improvements................................. 30 years
Office furniture and equipment............................ 7 years
Computer equipment........................................ 5 years
Capitalized equipment leases.............................. 5 years
F-8
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
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......................................... 7 to 20 years
Distribution networks............................ 2 years
Noncompete agreements............................ Term of agreements
Purchased data processing software............... 2 to 7 years
Acquired database costs.......................... 1 year
Core technology costs............................ 3 years
Customer base costs.............................. 3 to 15 years
Tradename costs.................................. 10 to 20 years
Perpetual software license agreement............. 10 years
Software development costs....................... 1 to 5 years
Workforce costs.................................. 5 to 8 years
Software Capitalization. Until technological feasibility is established,
software development costs are expensed as incurred. After that time, direct
costs are capitalized and amortized equal to the greater of the ratio of current
revenues to the estimated total revenues for each product or the straight-line
method, generally over one year for software developed for external use and over
two to five years for software developed for internal use. Unamortized software
costs included in intangible assets at December 31, 1999 and 1998, were $9.3
million and $4.0 million, respectively. Amortization of capitalized costs during
the years ended December 31, 1999, 1998 and 1997, totaled approximately $5.1
million, $3.6 million, and $2.5 million, respectively.
Database Development Costs. Costs to maintain and enhance the Company's
existing business and consumer databases are expensed as incurred. Costs to
develop new databases, which primarily represent direct external costs, are
capitalized with amortization beginning upon successful completion of the
compilation project. Database development costs are amortized straight-line over
the expected lives of the databases generally ranging from one to five years.
Unamortized database development costs included in intangible assets at December
31, 1999 and 1998, were $577 thousand and $4.7 million, respectively.
Amortization of capitalized costs during the years ended December 31, 1999, and
1998 totaled approximately $796 thousand, $619 thousand, respectively. During
1999, as a direct result of the acquisition of Donnelley Marketing in July 1999
and the addition of the Donnelly consumer database file (see Note 3), the
Company recorded a write-down of $3.9 million (see Note 18) on the unamortized
balance of the Company's existing consumer database white pages file which was
impaired due to the addition of the more complete Donnelley consumer file.
Long-lived assets. All of the Company's long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. If the sum of the expected future cash
flows is less than the carrying amount of the asset, an impairment loss is
recognized in operating results. The impairment loss is measured using
discounted cash flows or quoted market prices, when available. The Company also
periodically reevaluates the remaining useful lives of its long-lived assets
based on the original intended and expected future use or benefit to be derived
from the assets. Changes in estimated useful lives are reflected prospectively
by amortizing the remaining book value at the date of the change over the
adjusted remaining estimated useful life. During 1999, the Company transferred
its data processing services function from Montvale, NJ to an existing Company
location in Greenwich, CT. As a direct result of this move and the abandonment
of certain leasehold improvements and in-process construction projects, the
Company recorded a write-down of $1.7 million (see Note 18) on the remaining net
book value of the impaired assets. During 1998, the Company wrote-off an
investment in an other entity of $2.0 million, which was accounted for using the
cost method.
Revenue Recognition. The Company's revenue is primarily generated from the
sale of its products and services and the licensing of its data to third
parties. Revenue from the sale of products and services is recognized
F-9
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
when the product is delivered or the services are performed. Data licensing
revenue is recognized giving consideration to whether the Company retains
service commitments to periodically provide updates, the incremental costs
associated with providing continuing service, and the fair value of the initial
set of data and subsequent updates based upon prices charged to customers who
purchase elements on a separate basis. Revenue related to future updates is
recorded as deferred revenue. Reserves are established for estimated returns and
uncollectible amounts.
Stock-based compensation. The Company recognizes stock-based compensation
expense using the intrinsic value method. Under that method, no compensation
expense is recorded if the exercise price of the employee stock options equals
or exceeds the market price of the underlying stock on the date of grant. For
disclosure purposes, pro forma net income (loss) and income (loss) per share are
provided as if the fair value method had been applied.
Income Taxes. Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. Valuation allowances, if any, are established when necessary to
reduce deferred tax assets to the amount that is more likely than not to be
realized.
Earnings (Loss) Per Share. Basic earnings per share are based on the
weighted average number of common shares outstanding, including contingently
issuable shares, which have been restated to account for the stock combination
(See Note 19). 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.
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Weighted average number of shares outstanding
used in basic EPS............................ 48,470 49,314 48,432
Net additional common equivalent shares
outstanding after assumed exercise of stock
options...................................... 143 901 --
------ ------ ------
Weighted average number of shares outstanding
used in diluted EPS.......................... 48,613 50,215 48,432
====== ====== ======
Use of Estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Reclassifications. Certain reclassifications were made to the 1998 and 1997
financial statements to conform to the 1999 presentation.
F-10
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
3. ACQUISITIONS
Effective February 1997, the Company acquired all issued and outstanding
common stock of DBA Holdings, Inc. and Subsidiaries (operating as Database
America Companies, or DBA), a provider of data processing and analytical
services for marketing applications, and compiler of information on consumers
and businesses in the United States. Total consideration, as adjusted, for the
acquisition was approximately $103.5 million, consisting of $51.5 million in
cash, partially funded using a revolving credit facility, and approximately 4.6
million unregistered shares of the Company's Common Stock at a recorded value of
$31.0 million. 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 17), 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. At the time of the acquisition of Pro
CD, the Company entered into two separate contracts with Acxiom whereby the
Company agreed to license its complete business database to Acxiom in exchange
for a perpetual license agreement allowing the Company the use of a CD-Rom
search engine technology developed by Acxiom for the Pro CD product line. The
Company's agreement with Acxiom licensed the Company's complete business
database to Acxiom for a two year period for $8.0 million to be recognized on a
straight-line basis over the period of the agreement. The Company also entered
into an agreement which provided the Company with a perpetual license to use
Acxiom's CD-Rom search engine technology for a fee of $8.0 million. The total
cost is being amortized over the 10 year estimated economic life of the
perpetual license. In addition to purchased in-process research and development
costs of $4.3 million (See Note 17), intangibles and goodwill recorded as part
of the purchase included core technology, customer base, and tradename costs
totaling $5.9 million, noncompete agreements of $5.2 million and goodwill of
$6.2 million. Goodwill is being amortized over 10 years.
Effective March 1998, the Company acquired all issued and outstanding
common stock of Walter Karl, Inc. (Walter Karl), a national direct marketing
service firm that provides list management, list brokerage, and database
marketing and direct marketing services to a wide array of customers. Total
consideration for the acquisition was $19.4 million in cash, as adjusted, funded
using a revolving credit facility. The acquisition has been accounted for under
the purchase method of accounting, and accordingly, the operating results of
Walter Karl have been included in the Company's financial statements since the
date of acquisition. In addition to purchased in-process research and
development costs of $3.8 million (See Note 17), intangibles and goodwill
recorded estimates included goodwill of $16.7 million, core technology of $3.7
million, trade names of $4.2 million, customer base of $2.2 million, and
workforce costs of $0.8 million. In addition, the Company recorded as part of
the purchase of Walter Karl an accrual related to closure of a facility and
relocating or terminating the employees from this facility totaling $6.8
million, of which a balance of $4.4 million remained at December 31, 1998.
Goodwill is being amortized over 15 years. The amount of intangibles recorded by
the Company exceeded the purchase price due to the Company recording an accrual
related to costs associated with the integration of acquired operations into
existing operations, deferred taxes established for certain intangibles not
currently deductible for tax purposes, and the excess of liabilities over assets
assumed.
Effective June 1998, the Company acquired certain assets and assumed
certain liabilities of JAMI Marketing Services, Inc. (JAMI), a list brokerage,
list management, data processing and marketing consulting firm. Total
consideration for the acquisition was $12.8 million in cash, as adjusted, funded
with the proceeds from the disposition of the Company's holdings of Metromail
Corporation common stock. The acquisition has been accounted for under the
purchase method of accounting, and accordingly, the operating results of JAMI
have
F-11
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
been included in the Company's financial statements since the date of
acquisition. Intangibles and goodwill recorded included goodwill of $7.3
million, trade names of $0.2 million, customer base of $5.1 million, noncompete
agreements of $0.2 million, and workforce costs of $0.5 million. Goodwill is
being amortized over 15 years. During the fourth quarter of 1998, a purchase
price adjustment of $0.3 million was made due to the final calculation of
purchase price based on the acquisition agreement and amounts were reallocated
based on the purchase price allocation finalized in the fourth quarter of 1998.
Effective July 1998, the Company acquired certain assets and assumed
certain liabilities of Contacts Target Marketing (CTM), a regional business
marketing database company, based in Vancouver, Canada. Total consideration for
the acquisition was $0.4 million in cash. The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of CTM have been included in the Company's financial statements since the date
of acquisition. Intangibles and goodwill recorded included goodwill of $0.5
million. Goodwill is being amortized over 8 years.
Effective July 1999, the Company acquired all issued and outstanding common
stock of Donnelley Marketing, Inc. (Donnelley), a division of First Data
Corporation. Donnelley is a national consumer database and database marketing
company. Total consideration for the acquisition was $200.0 million in cash,
funded using a combination of existing cash and borrowings under new senior
secured credit facilities (see Note 8). The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of Donnelley have been included in the Company's financial statements since the
date of acquisition. Goodwill and other intangibles recorded included goodwill
of $150.3 million, non-compete agreements of $6.1 million, trade names of $7.7
million, and purchased data processing software of $64.1 million, which are
being amortized over lives of 20 years, 5 years, 20 years, and 7 years,
respectively. The amount of intangibles recorded by the Company exceeded the
purchase price due to the Company recording deferred taxes established for
certain intangibles not currently deductible for tax purposes and an accrual
related to costs associated with the integration of acquired operations into
existing operations.
For each of the acquisitions above, the Company recorded each purchase
reflecting the issuance of restricted stock at a calculated discount, based on
stock valuations performed by investment bankers.
All purchase price adjustments recorded by the Company subsequent to the
acquisition date were in accordance with the provisions of the related purchase
agreements.
Operating results for each of these acquisitions are included in the
accompanying consolidated statements of operations from the respective
acquisition dates. Assuming the above described companies had been acquired on
January 1, 1998, and excluding the write-offs of in-process research and
development costs included in acquisition-related and restructuring charges in
the accompanying consolidated statements of operations, unaudited pro forma
consolidated net sales, net income (loss) and net income (loss) per share would
have been as follows:
FOR THE YEARS ENDED
---------------------------
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
Net sales................................................... $308,608 $331,864
Net income (loss)........................................... $ 13,850 $(14,876)
Basic earnings (loss) per share............................. $ 0.29 $ (0.30)
Diluted earnings (loss) per share........................... $ 0.28 $ (0.30)
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-12
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infoUSA 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, 1999:
Municipal bonds.......................... $ -- $ -- $ -- $ --
Corporate bonds.......................... -- -- -- --
Common stock............................. 70 -- -- 70
Preferred stock.......................... -- -- -- --
------- ------ ---- -------
$ 70 $ -- $ -- $ 70
======= ====== ==== =======
At December 31, 1998:
Municipal bonds.......................... $ 1,304 $ 3 $ (1) $ 1,306
Corporate bonds.......................... 4,718 3 (28) 4,693
Common stock............................. 9,056 5,357 -- 14,413
Preferred stock.......................... 197 11 -- 208
------- ------ ---- -------
$15,275 $5,374 $(29) $20,620
======= ====== ==== =======
For the year ended December 31, 1999 proceeds from sales of marketable
securities were $32.1 million while realized gains totaled $13.1 million and
realized losses totaled $0.2 million. For the year ended December 31, 1998,
proceeds were $41.1 million while realized gains totaled $17.9 million and
realized losses totaled $2.4 million.
5. COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) were as follows:
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Unrealized holding losses arising during the
period:
Unrealized net losses........................ $(7,448) $(10,162) $(1,261)
Related tax benefit.......................... 2,830 3,861 479
------- -------- -------
Net.................................. (4,618) (6,301) (782)
------- -------- -------
Less: Reclassification adjustment for net gains
realized on sale of marketable securities
during the period:
Realized net gains........................... 2,103 15,164 2,216
Related tax expense.......................... (799) (5,762) (842)
------- -------- -------
Net.................................. 1,304 9,402 1,374
------- -------- -------
Foreign currency translation adjustments..... (641) -- --
------- -------- -------
Total other comprehensive income
(loss)............................. $(3,955) $ 3,101 $ 592
======= ======== =======
F-13
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
6. PROPERTY AND EQUIPMENT
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Land and improvements....................................... $ 3,205 $ 4,274
Buildings and improvements.................................. 25,398 19,537
Furniture and equipment..................................... 50,543 41,626
Capitalized equipment leases................................ 11,879 5,050
------- -------
91,025 70,487
Less accumulated depreciation and amortization:
Owned property............................................ 35,388 29,020
Capitalized equipment leases.............................. 2,068 1,203
------- -------
Property and equipment, net....................... $53,569 $40,264
======= =======
7. INTANGIBLE ASSETS
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Goodwill.................................................... $216,548 $ 70,456
Noncompete agreements....................................... 13,534 7,420
Core technology............................................. 4,800 4,800
Customer base............................................... 8,372 8,372
Trade names................................................. 15,802 8,108
Purchased data processing software.......................... 73,478 9,400
Acquired database costs..................................... 19,000 19,000
Work force costs............................................ 1,338 1,338
Perpetual software license agreement........................ 8,000 8,000
Software development costs.................................. 9,295 4,038
Database costs.............................................. 577 5,309
Deferred financing costs.................................... 9,958 5,970
-------- --------
380,702 152,211
Less accumulated amortization............................... 64,813 42,833
-------- --------
$315,889 $109,378
======== ========
F-14
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
8. FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
9 1/2% Senior Subordinated Notes............................ $106,000 $115,000
Senior Secured Credit Facilities -- Term A Loan............. 60,977 --
Senior Secured Credit Facilities -- Term B Loan............. 93,810 --
Senior Secured Credit Facilities -- Revolving Credit
Facility.................................................. -- --
Mortgage note, collateralized by deed of trust. Note bears a
fixed interest rate of 7.4% through July 2003, and then
will be adjusted to a designated Federal Reserve rate plus
1.75%. Principal is due August 2008. Interest is payable
monthly................................................... 9,776 10,553
State of Connecticut Department of Economic Development note
payable................................................... -- 450
Uncollateralized note payable for leasehold improvements.
Note bears a fixed interest rate of 5.0%. Principal is due
September 2003. Interest is payable monthly............... 433 478
Capital lease obligations (See Note 16)..................... 6,526 1,778
-------- --------
277,522 128,259
Less current portion........................................ 9,885 1,580
-------- --------
Long-term debt.............................................. $267,637 $126,679
======== ========
Future maturities by calendar year of long-term debt as of December 31,
1999 are as follows (in thousands):
1999..................................................... $ 9,885
2000..................................................... $ 17,299
2001..................................................... $ 17,760
2002..................................................... $ 18,258
2003..................................................... $ 33,714
Thereafter............................................... $180,606
On June 18, 1998, the Company completed a private placement of 9 1/2%
Senior Subordinated Notes due June 15, 2008 in the aggregate principal amount of
$115.0 million. The Notes are subject to various covenants, including among
other things, limiting additional indebtedness and the ability to pay dividends.
In January 1999, the Company exchanged registered 9 1/2% Senior Subordinated
Notes (the "Notes") for the unregistered notes pursuant to a Registration
Statement on Form S-4 declared effective by the Securities & Exchange
Commission. Interest on the Notes will accrue from the original issuance date of
the unregistered notes and will be payable semi-annually in arrears on June 15
and December 15 of each year, commencing on December 15, 1998, at the rate of
9 1/2% per annum. The Notes are redeemable, in whole or in part, at the option
of the Company, on or after June 15, 2003, at designated redemption prices
outlined in the Indenture governing the Notes, plus any accrued interest to the
date of redemption. In addition, at any time on or prior to June 15, 2001, the
Company, at its option, may redeem up to 35% of the aggregate principal amount
of the Notes originally issued with the net cash proceeds of one or more equity
offerings, at the redemption price equal to 109.5% of the principal amount
thereof, plus any accrued interest to the date of redemption. In the event of a
change in control, each holder of Notes will have the right to require the
Company to repurchase such holder's Notes at a price equal to 101% of the
principal amount thereof, plus any accrued interest to the repurchase date.
During May 1998 in connection with the sale of the Notes, the Company
entered into a Treasury yield collar agreement (the "treasury collar") with a
bank, to hedge against the movement in interest rates on the Notes. The
F-15
57
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
treasury collar was in the notional amount of $100.0 million. During June 1998,
the Company terminated the treasury collar and, in connection therewith, made a
payment of approximately $1.6 million to the bank which was recorded as deferred
financing costs included in intangible assets in the accompanying consolidated
balance sheets. The termination fee will be amortized over the 10 year life of
the Notes.
During 1999, the Company negotiated a $195.0 million Senior Secured Credit
Facilities ("Credit Facilities") borrowing arrangement with Deutsche Bank,
comprised of: Term Loan A Facility in the amount of $65.0 million which provides
for grid-based interest pricing based upon the Company's consolidated leverage
ratio and ranges from base rate + 1.25% to 2.00% for base rate loans and from
LIBOR + 2.25% to 3.00% for LIBOR loans with a maturity of 5 years; a Term Loan B
Facility in the amount of $100.0 million which provides interest at base rate
+ 2.50% for base rate loans and LIBOR + 3.50% for LIBOR loans with a maturity of
7 years; and a Revolving Credit Facility in the amount of $30.0 million which
provides the same interest pricing as the Term Loan A Facility with a maturity
of 5 years. Substantially all assets of the Company are pledged as security
under the terms of the Credit Facilities.
In connection with the acquisition of Donnelley during July 1999, the
Company borrowed $165.0 million under the Credit Facilities. The Company has
subsequently made repayments of $10.2 million of the Credit Facilities utilizing
proceeds received from the sales of marketable securities.
As of December 31, 1999, the Company had no borrowings under the Revolving
Credit Facility, with the exception of one outstanding letter of credit in the
amount of $5.0 million reducing the availability under the Revolving Credit
Facility to $25.0 million. There were no outstanding short-term borrowings at
December 31, 1998.
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
(See Note 15).
The Company is subject to certain financial covenants in the Credit
Facilities, including minimum consolidated interest coverage ratio, maximum
consolidated leverage ratio and minimum consolidated EBITDA. Additionally, the
Company is required to pay a commitment fee of 0.5% on the average unused amount
of the Revolving Credit Facility.
9. INCOME TAXES
The provision for income taxes before extraordinary items consists of the
following:
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Current:
Federal...................................... $14,401 $4,469 $ 9,163
State........................................ 1,271 556 742
------- ------ -------
15,672 5,025 9,905
------- ------ -------
Deferred:
Federal...................................... (2,308) 742 (2,688)
State........................................ (220) 113 (230)
------- ------ -------
(2,528) 855 (2,918)
------- ------ -------
$13,144 $5,880 $ 6,987
======= ====== =======
F-16
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infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The effective income tax rate varied from the Federal statutory rate as
follows:
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS)
Expected Federal income taxes at statutory rate
of 35%......................................... $12,671 $2,813 $(11,490)
State taxes, net of Federal effects.............. 683 435 424
Amortization of nondeductible intangibles........ 2,619 1,260 637
Gain on of subsidiary common stock............... (3,110) -- --
In-process research and development.............. -- 1,342 17,220
Other............................................ 281 30 196
------- ------ --------
$13,144 $5,880 $ 6,987
======= ====== ========
The components of the net deferred tax asset (liabilities) were as follows:
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
Deferred tax assets:
Accrued vacation.......................................... $ 929 $ 507
Accrued expenses.......................................... 121 1,710
-------- --------
1,050 2,217
-------- --------
Deferred tax liabilities:
Intangible assets......................................... (31,894) (3,996)
Accounts receivable....................................... (1,310) (1,667)
Marketable securities..................................... -- (2,031)
Depreciation.............................................. (1,173) (1,088)
Deferred marketing costs.................................. (1,124) (1,659)
Prepaid expenses and other assets......................... (1,130) (141)
-------- --------
(36,631) (10,582)
-------- --------
Net deferred tax liabilities...................... $(35,581) $ (8,365)
======== ========
In conjunction with the acquisition of Donnelley, the Company recorded a
deferred tax liability of approximately $30 million related to intangibles which
were not currently deductible for tax purposes.
The Company had no valuation allowance in 1999 and 1998.
10. STOCK INCENTIVES
As of December 31, 1999, a total of 10.0 million shares of the Company's
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, 1999, a total of 5.0 million shares of the Company's Common
Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1997 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
F-17
59
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
from grant date. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for
Stock-Based Compensation." Accordingly, no compensation cost has been recognized
for the stock option plan. Had compensation cost for the Company's stock option
plan been determined based on the fair value at the grant date for awards issued
in or subsequent to 1996 consistent with the provisions of SFAS No. 123, the
Company's net income (loss) and earnings (loss) per share would have been
reduced to the pro forma amounts indicated below:
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Net income (loss) -- as reported............... $23,186 $2,158 $(39,816)
Net income (loss) -- pro forma................. $20,176 $ (788) $(41,503)
Basic earnings (loss) per share -- as
reported..................................... $ 0.48 $ 0.04 $ (0.82)
Diluted earnings (loss) per share -- as
reported..................................... $ 0.48 $ 0.04 $ (0.82)
Basic earnings (loss) per share -- pro forma... $ 0.42 $(0.02) $ (0.86)
Diluted earnings (loss) per share -- pro
forma........................................ $ 0.42 $(0.02) $ (0.86)
The above pro forma results are not likely to be representative of the
effects on reported net income for future years since options vest over several
years and additional awards generally are made each year.
The fair value of the weighted average of each year's option grants is
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following assumptions used for grants in 1999, 1998 and 1997: expected
volatility of 9.51% (1999), 17.33% (1998) and 19.16% (1997); risk free interest
rate based on the U.S. Treasury strip yield at the date of grant; and expected
lives of 4 to 6 years.
The following information has been restated to reflect the stock
combination (See Note 19).
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------- ------------------- ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE
------------------- ------------------- ------------------
SHARES PRICE SHARES PRICE SHARES PRICE
---------- ------ ---------- ------ --------- ------
Outstanding beginning of
period......................... 7,094,036 $ 9.37 7,478,050 $ 9.22 5,203,800 $ 7.58
Granted.......................... 2,697,335 6.57 1,160,000 11.49 2,799,250 11.81
Exercised........................ (1,322,298) 6.84 (179,428) 6.40 (357,250) 5.87
Forfeited/expired................ (547,939) 10.57 (1,364,586) 10.91 (167,750) 8.95
---------- ------ ---------- ------ --------- ------
Outstanding end of period........ 7,921,134 $ 8.74 7,094,036 $ 9.33 7,478,050 $ 9.22
========== ====== ========== ====== ========= ======
Options exercisable at end of
period......................... 3,453,689 $ 9.13 2,809,439 $ 8.20 1,344,550 $ 7.10
========== ====== ========== ====== ========= ======
Shares available for options that
may be granted................. 1,139,938 777,834 1,660,000
========== ========== =========
Weighted-average grant date fair
value of options, granted
during the period -- exercise
price equals stock market price
at grant....................... $ 1.66 $ 3.34 $ 3.30
====== ====== ======
F-18
60
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- -----------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ----------- ----------- --------- ----------- ---------
$4.28 to $5.70................. 142,000 4.7 years $ 5.08 -- $ --
$5.70 to $7.13................. 2,822,335 3.8 years 6.62 762,500 6.38
$7.13 to $8.55................. 2,040,500 1.8 years 8.42 1,155,500 8.48
$8.55 to $9.98................. 365,572 1.3 years 9.05 306,570 9.01
$9.98 to $11.40................ 1,632,395 2.4 years 10.73 768,402 10.72
$11.40 to $12.83............... 333,332 2.2 years 11.95 206,762 11.89
$12.83 to $14.25............... 585,000 2.9 years 13.38 253,955 13.42
--------- --------- ------ --------- ------
$4.28 to $14.25................ 7,921,134 2.8 years $ 8.74 3,453,689 $ 9.13
========= ========= ====== ========= ======
11. SAVINGS PLAN
Employees who meet certain eligibility requirements can participate in the
Companys' 401(k) Savings and Investment Plans. Under the plans, the Company may,
at its discretion, match a percentage of the employee contributions. The Company
recorded expenses related to its matching contributions of $1.1 million, $1.1
million and $782 thousand in the years ended December 31, 1999, 1998 and 1997,
respectively.
During 1999, the Company began making matching contributions to its 401(k)
Plan in the form of treasury stock. The Company contributed 78,510 shares at a
recorded value of $494 thousand.
12. RELATED PARTY TRANSACTIONS
The Company paid a total of $4.0 million, $1.4 million, and $364 thousand
in 1999, 1998 and 1997, respectively, to Annapurna Corporation and Everest
Investment Management for consulting services and related expenses in connection
with investment and acquisition activity conducted by the Company. Annapurna
Corporation is wholly owned and Everest Investment Management is 40% owned by a
significant stockholder and officer of the Company. The Company also paid $200
thousand and $145 thousand in the years ended December 31, 1998 and 1997,
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 $540
thousand, $370 thousand, and $146 thousand in the years ended December 31, 1999,
1998 and 1997, respectively.
13. SUPPLEMENTAL CASH FLOW INFORMATION
The Company made certain acquisitions during 1999, 1998 and 1997 (See Note
3) and assumed liabilities as follows:
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
Fair value of assets................................. $ 247,201 $ 58,552 $134,555
Cash paid............................................ (206,968) (31,654) (84,224)
Common stock issued.................................. -- -- (29,178)
--------- -------- --------
Liabilities assumed.................................. $ 40,233 $ 26,898 $ 21,153
========= ======== ========
F-19
61
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
During 1999, the Company acquired computer equipment totaling $6.8 million
under capital lease obligations (See Note 16).
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, 1999 and 1998. The fair
value of a financial instrument is defined as the amount at which the instrument
could be exchanged in a current transaction between willing parties.
The carrying amounts shown in the following table are included in the
consolidated balance sheets under the indicated captions.
DECEMBER 31, 1999 DECEMBER 31, 1998
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
(AMOUNTS IN THOUSANDS)
Financial assets:
Cash and cash equivalents................ $ 10,846 $ 10,846 $ 29,603 $ 29,603
Marketable securities.................... 70 70 15,275 20,620
Other assets............................. 3,000 3,000 2,000 2,000
Financial liabilities:
Long-term debt........................... 277,522 241,088 128,259 105,935
Derivatives:
Interest rate swaps...................... -- 540 -- --
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents. The carrying amounts approximate fair value
because of the short maturity of those instruments.
Marketable securities. The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for those or
similar investments.
Other assets, including investments in other companies. Investments in
companies not traded on organized exchanges are valued on the basis of
comparisons with similar companies whose shares are publicly traded.
Long-term debt. The 9 1/2% Senior Subordinated Notes due June 2008 are
valued based on quoted market prices at the reporting date. All other debt
obligations are valued at the discounted amount of future cash flows.
Interest rate swap. The fair value of the interest rate swap was calculated
based on discounted cash flows of the difference between the swap rate and the
estimated market rate for similar terms.
15. DERIVATIVES
The Company may use interest rate swap agreements to reduce the potential
impact of increases in interest rates on floating-rate long-term debt. The
original cost of the swap is amortized to interest expense over its term. The
amounts paid or received under the agreement are recorded as an adjustment to
interest expense. Neither the Company nor the counterparties are required to
collateralize their obligations under these agreements. Therefore, the swap
agreements expose the Company to credit losses to the extent of counterparty
nonperformance, but does not anticipate any losses from its agreements, which
are with major financial institutions.
At December 31, 1999, the Company was a party to one interest rate swap
agreement which expires in September 2002. The agreement entitles the Company to
receive from counterparties on a semi-annual basis the amounts, if any, by which
the Company's interest payments on $60.5 million of outstanding debt under the
Credit
F-20
62
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Facilities exceed 6.385%, and to pay counterparties on a semi-annual basis the
amounts, if any, by which the Company's interest payments on $60.5 million of
outstanding debt under the Credit Facilities are less than 6.385%.
16. COMMITMENTS AND CONTINGENCIES
The Company is committed to pay various individuals under consulting and
non-compete agreements in future periods.
Future payments by calendar year under consulting and non-compete
agreements as of December 31, 1999 are as follows (in thousands):
2000........................................................ $1,437
2001........................................................ $ 626
2002........................................................ $ 320
2003........................................................ $ 320
2004........................................................ $ 160
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
April 2008. Certain of these leases contain renewal options. Rent expense was
$4.6 million, $3.1 million, and $2.6 million in the years ended December 31,
1999, 1998 and 1997, respectively.
Following is a schedule of the future minimum lease payments as of December
31, 1999:
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
2000........................................................ $3,213 $ 4,319
2001........................................................ 2,665 3,925
2002........................................................ 1,263 3,721
2003........................................................ -- 3,104
2004........................................................ -- 1,899
------ -------
Total future minimum lease payments......................... 7,141 $16,968
=======
Less amounts representing interest.......................... 615
------
Present value of net minimum lease payments................. $6,526
======
During October, 1998, the Company announced a decision in its year-long
arbitration dispute with Experian Information Solutions, Inc. (Experian). The
dispute centered around a license agreement between the Database America
Companies (DBA) and Experian prior to the Company's acquisition of DBA. In
October 1998 an arbitrator from the American Arbitration Association found DBA
to have breached the contract and awarded damages to Experian for approximately
$4.6 million.
The Company and its subsidiaries are involved in other legal proceedings,
claims and litigation arising in the ordinary course of business. Management
believes that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
17. ACQUISITION COSTS, IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D") AND
RESTRUCTURING CHARGES
As part of the acquisition of DBA in February 1997 (See Note 3), the
Company recorded charges totaling $49.2 million for write-offs in conjunction
with the merger of DBA for purchased IPR&D which related to projects that had
not met technological feasibility. The projects under development involve data
processing
F-21
63
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
technologies including merge/purge and update and maintenance capabilities of
the relational databases and interactive media technology to allow DBA to
provide existing services via the Internet. The value of the data processing
technologies was $2.3 million and the value of the interactive media technology
was $46.9 million.
As part of the acquisition of Pro CD in August 1997 (See Note 3), the
Company recorded charges totaling $4.3 million for write-offs in conjunction
with the merger of Pro CD for purchased IPR&D which related to projects that had
not met technological feasibility. The projects under development involve
graphical user interface technology, data enhancements, DVD capability and Year
2000 compliance for the Select Phone product line. The value of these projects
was $4.3 million.
During 1997, the Company recorded $2.6 million of acquisition costs related
to integrating acquired operations into the Company's existing operations. These
expenses consisted primarily of costs such as travel between the Company and the
new operations, consulting, payroll and other expenses related to implementing
Company policies and information systems at the new locations. All costs had
been incurred by December 31, 1997.
As part of the acquisition of Walter Karl in March 1998 (See Note 3), the
Company recorded charges totaling $3.8 million for write-offs in conjunction
with the merger of Walter Karl for purchased IPR&D which related to projects
that had not met technological feasibility. The purchased IPR&D recorded in
connection with the acquisition of Walter Karl consisted of various projects, of
which none were individually significant, related to areas including: Internet
capabilities, automated job cards and shipping information, database and
merge/purge processing enhancements, list brokerage and management order and
data entry systems. There were a total of 12 separately identified projects. The
total amount allocated to the above IPR&D projects was $3.8 million after
retroactive application of the Securities and Exchange Commission's new
guidelines for valuing purchased IPR&D.
During 1998, the Company recorded acquisition costs of $3.0 million
associated with the Company's bid to acquire Metromail Corporation and $0.6
million associated with the Company's offering to sell Common Stock which was
not completed.
During 1998, the Company recorded a restructuring charge of $1.4 million
related to the closing of the County Data Corporation (CDC) new business
compilation and sales center and moving these operations from Vermont to
Nebraska. All 45 of the CDC employees were terminated, and severance recorded
totaled $0.6 million. The restructuring charges also included lease termination
costs of $0.3 million and a write-off of $0.5 million of leasehold improvement
costs associated with the closed Vermont facility. The restructuring, including
recording the payments and write-downs described, was completed by September 30,
1998.
During 1998, the Company recorded a restructuring charge of $1.2 million
which included $0.6 million in severance for 244 employees terminated as a
result of the implementation of certain cost reduction measures. These employees
were primarily in support and administration positions but some under-performing
sales personnel were also terminated. The restructuring charges also included a
charge of $0.4 million related to the planned closing of four field sales
offices. Additionally, the Company recorded a write-down of $0.2 million related
to leasehold improvement costs at facilities leased by the Company which were
being closed. The restructuring, including recording the payments and
write-downs described, was completed as of December 31, 1998, with the exception
of the costs totaling $0.5 million related to the exit of certain field sales
offices was completed by June 30, 1999.
As part of the acquisition of Donnelley Marketing in July 1999 (See Note
3), the Company recorded acquisition costs which included consulting costs,
management bonuses, direct travel and entertainment costs and other direct
integration-related charges.
F-22
64
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
18. IMPAIRMENT OF ASSETS
During 1999, as a direct result of the acquisition of Donnelley in July
1999 (See Note 3) and the addition of the Donnelly consumer database file, the
Company recorded a write-down of $3.9 million (See Note 2) on the unamortized
balance of the Company's existing consumer database white pages file which was
impaired due to the addition of the more complete Donnelley consumer file.
During 1999, the Company transferred its data processing services function
from Montvale, NJ to an existing Company location in Greenwich, CT. As a direct
result of this move and the abandonment of certain leasehold improvements and
in-process construction projects, the Company recorded a write-down of $1.7
million (See Note 2) on the remaining net book value of the impaired assets.
19. STOCK COMBINATION AND STOCKHOLDERS RIGHTS PLAN
On October 21, 1999, the Company received shareholder approval to combine
and reclassify its then outstanding Class A common stock and Class B common
stock into a single class of common stock. The combination had no effect on the
total number of shares outstanding, with each of the Company's Class A and Class
B shares converted on a one-for-one basis for the reclassified single class of
common stock. Each share of stock is entitled to a single vote. Accordingly, all
share information included in the accompanying consolidated financial statements
has been restated to reflect the combination of Class A common stock and Class B
common stock into one class of common stock.
In connection with the combination and reclassification of its Class A
common stock and Class B common stock into a single class of common stock, the
Company also combined the stockholder rights plans with respect to its Class A
common stock and Class B common stock into a single plan. The rights are not
exercisable until ten days after a person or group announces the acquisition of
15% or more of the Company's voting stock or announces a tender offer for 15% or
more of the Company's outstanding common stock. Each right entitles the holder
to purchase common stock at one half the stock's market value. The rights are
redeemable at the Company's option for $0.001 per Right at any time on or prior
to public announcement that a person has acquired 15% or more of the Company's
voting stock. The rights are automatically attached to and trade with each share
of common stock.
20. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
During 1999, infoUSA.com, a wholly owned subsidiary of the Company,
completed its first round of venture capital financing. As a result of the
issuance of common stock of this subsidiary, the Company recorded a gain of $8.9
million on the transaction.
21. SEGMENT INFORMATION
The Company currently manages existing operations utilizing financial
information accumulated and reported for two business segments.
The small business segment principally engages in the selling of sales lead
generation and consumer CD-Rom products to small to medium sized companies,
small office and home office businesses and individual consumers. This segment
includes the sale of content via the Internet.
The large business segment principally engages in the selling of data
processing services, licensed databases, database marketing solutions and list
brokerage and list management services to large companies. This segment includes
the licensing of databases for Internet directory assistance services.
The small business and large business segments reflect actual net sales,
direct order production, and identifiable direct sales and marketing costs
related to their operations. The remaining indirect costs are presented as a
reconciling item in Corporate Activities.
F-23
65
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
Corporate activities principally represent the information systems
technology, database compilation, database verification, and administrative
functions of the Company. Investment income (loss), interest expense, income
taxes, amortization of intangibles, and depreciation expense are only recorded
in corporate activities. The Company does not allocate these costs to the two
business segments. The small business and large business segments reflect actual
net sales, direct order production, and identifiable direct sales and
marketing-related costs related to their operations. The Company records unusual
or non-recurring items including acquisition-related and restructuring charges
and provisions for litigation settlement in corporate activities to allow for
the analysis of the sales business segments excluding such unusual or
non-recurring charges.
The Company accounts for property and equipment on a consolidated basis.
The Company's property and equipment is shared by the Company's business
segments. Depreciation expense is recorded in corporate activities.
The Company has no intercompany sales or intercompany expense transactions.
Accordingly, there are no adjustments necessary to eliminate amounts between the
Company's segments.
The following tables summarizes certain segment information:
FOR THE YEAR ENDED DECEMBER 31, 1999
-----------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales................................. $130,117 $135,956 $ -- $266,073
Impairment of assets...................... -- -- 5,599 5,599
Acquisition costs......................... -- -- 4,166 4,166
Operating income (loss)................... 59,291 55,898 (83,490) 31,699
Investment income......................... -- -- 23,082 23,082
Interest expense.......................... -- -- 18,579 18,579
Income (loss) before income taxes and
discontinued operations................. 59,291 55,898 (78,987) 36,202
FOR THE YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales.................................. $129,973 $98,705 $ -- $228,678
Provision for litigation settlement........ -- -- 4,500 4,500
Acquisition costs.......................... -- -- 3,643 3,643
In-process research and development........ -- -- 3,834 3,834
Restructuring charges...................... -- -- 2,616 2,616
Operating income (loss).................... 54,660 39,671 (91,761) 2,570
Investment income.......................... -- -- 16,628 16,628
Interest expense........................... -- -- 9,160 9,160
Income (loss) before income taxes and
discontinued operations.................. 54,660 39,671 (86,293) 8,038
F-24
66
infoUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --(CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales......................................... $116,333 $76,994 $ -- $193,327
Acquisition costs................................. -- -- 2,598 2,598
In-process research and development............... -- -- 53,500 53,500
Operating income (loss)........................... 50,462 35,688 (118,629) (32,479)
Investment income................................. -- -- 3,748 3,748
Interest expense.................................. -- -- 4,098 4,098
Income (loss) before income taxes and discontinued
operations...................................... 50,462 35,688 (118,979) (32,829)
F-25
67
INFOUSA INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
Allowance for doubtful accounts
receivable:........................... (A)
December 31, 1997..................... $1,589 $ 1,272 $ 961* $ 2,387 $1,435
December 31, 1998..................... $1,435 $ 4,388 $ 578* $ 3,701 $2,700
December 31, 1999..................... $2,700 $ 1,839 $1,586* $ 3,543 $2,582
Allowance for sales returns:............ (B)
December 31, 1997..................... $1,135 $ 7,748 $2,477* $ 6,782 $4,578
December 31, 1998..................... $4,578 $15,693 $ -- $15,682 $4,589
December 31, 1999..................... $4,589 $ 6,506 $ -- $ 6,609 $4,486
- ---------------
* Recorded as a result of acquisitions
(A) Charge-offs during the period indicated
(B) Returns processed during the period indicated
S-1
68
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 (File No. 000-19598).
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 (File No. 000-19598).
2.4 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of Marketing Data Systems, Inc. is incorporated herein by
reference to exhibits filed with the Company's Registration Statement
on Form S-3 (File No. 333-36669) filed 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 exhibits filed with
the Company's Current Report on Form 8-K dated February 24, 1998.
2.8 -- Asset Purchase Agreement between the Company and JAMI Marketing
Services, Inc. is incorporated herein by reference to exhibits filed with
the Company's Annual Report on Form 10-K for the Fiscal Year ended
December 31, 1998 (File No. 000-19598).
2.9 -- Agreement and Plan of Reorganization by and among the Company, Hugo
Acquisition Corporation, First Data Corporation, First Data Information
Management Group, Inc., DM Holdings, Inc., Donnelley Marketing Holdings,
Inc., and Donnelley Marketing, Inc. is incorporated herein by reference to
exhibits filed with the Company's Current Report on Form 8-K dated
May 28, 1999.
3.1 -- Certificate of Incorporation, as amended through October 22, 1999, is
Incorporated herein by reference to exhibits filed with Company's
Registration Statement on Form 8-A, as amended, filed March 20, 2000.
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 Designation of Participating
Preferred Stock, filed in Delaware on October 22,1999, is incorporated
herein by reference to exhibits filed with the Company's Registration
Statement on Form 8-A, as amended, filed March 20, 2000.
4.1 -- Preferred Share Rights Agreement is incorporated herein by reference to
the Company's Registration Statement on Form 8-A, as amended, filed
March 20, 2000.
69
4.2 -- Specimen of Common Stock Certificate is incorporated herein by
reference to the exhibits filed with the Company's Registration
Statement on Form 8-A, as amended), filed March 20, 2000.
4.3 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 hereof.
4.4 -- Purchase Agreement dated June 12, 1998 between the Company, BT
Alex. Brown Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist
LLC is incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File
No. 000-19598).
4.5 -- Indenture dated as of June 18, 1998 (the "Indenture") by and between
the Company and State Street Bank and Trust Company of California,
N.A., as Trustee is incorporated herein by reference to exhibits filed with the
Company's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1998 (File No. 000-19598).
4.6 -- Exchange and Registration Rights Agreement dated as of June 18, 1998
by and among the Company and BT Alex. Brown Incorporated, Goldman,
Sachs & Co. and Hambrecht & Quist LLC as the Initial Purchasers is
incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File
No. 000-19598).
4.7 -- Form of New 9 1/2% Senior Subordinated Note due 2008 is incorporated
herein by reference to exhibits filed with the Company's Registration
Statement on Form S-4 (File No. 333-61645), filed December 15, 1999.
4.8 -- Credit Agreement by and among infoUSA, Inc., various Lenders (as defined
therein) and Bankers Trust Company dated as of July 23, 1999 is incorporated
herein by reference to exhibits filed with the Company's Current Report
on Form 8-K dated July 23, 1999.
4.9 -- First Amendment dated October 29, 1999 and Second Amendment dated
December 15, 1999 to Credit Agreement by and among the Company,
various Lenders (as defined therein) and Bankers Trust Company, filed
herewith.
10.1 -- Form of Indemnification Agreement with Officers and Directors is
incorporated herein by reference to exhibits filed with the Company's
Registration Statement on Form S-1 (File No. 33-51352), filed
August 28, 1992.
10.2 -- 1992 Stock Option Plan as amended is incorporated herein by reference
to exhibits filed with the Company's Registration Statement on Form S-8
(File No. 333-37865), filed October 14, 1997.
10.3 -- 1997 Stock Option Plan as amended is incorporated herein by reference
to exhibits filed with the Company's Registration Statement on Form S-8
(File No. 333-82933), filed July 15, 1999.
10.4 -- Employment Agreement dated July 5, 1999 between the Company and
Susan Henricks, filed herewith.
10.5 -- Amended and Restated Database License Agreement between Donnelley
Marketing, Inc. and First Data Resources, Inc. dated as of July 23, 1999 is
incorporated herein by reference to exhibits filed with the Company's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (File
No. 000-19598).
10.6 -- Covenant not to compete by First Data Corporation to infoUSA Inc.
dated as of July 23, 1999 is incorporated herein by reference to exhibits
filed with the Company's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 1999 (File No. 000-19598).
10.7 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9,
4.5, 4.8 and 4.9 hereof.
21.1 -- Subsidiaries and State of Incorporation, filed herewith.
23.1 -- Consent of Independent Accountants, filed herewith.
23.2 -- Consent of Independent Accountants, filed herewith.
24.1 -- Power of Attorney, filed herewith
27.1 -- Financial Data Schedule, filed herewith.