SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the quarterly period ended June 30, 1996 or
Transition report pursuant to Section 13 or 15(d) of the Securities
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Exchange Act of 1934
For the transition period from to
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Commission File Number 0-19598
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AMERICAN BUSINESS INFORMATION, INC.
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(exact name of registrant specified in its charter)
Delaware 47-0751545
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
5711 South 86th Circle, Omaha, Nebraska 68127
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (402) 593-4500
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
20,810,935 shares of common stock at August 2, 1996
AMERICAN BUSINESS INFORMATION, INC.
INDEX
PAGE NO.
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PART I - FINANCIAL INFORMATION 2
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the three months and six
months ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the six months ended
June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6 - 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations 8 - 11
PART II - OTHER INFORMATION 12
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
AMERICAN BUSINESS INFORMATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1996
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
2
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
as of June 30, 1996 and December 31, 1995
(In thousands, except share amounts)
ASSETS June 30, 1996 December 31, 1995
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Current assets:
Cash and cash equivalents......................................... $11,361 $11,999
Marketable securities............................................. 24,433 23,350
Trade accounts receivable, net.................................... 19,548 19,215
Prepaid expenses.................................................. 2,899 1,733
Deferred marketing costs.......................................... 2,301 996
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Total current assets............................................. 60,542 57,293
Property and equipment, net........................................ 15,773 13,885
Note receivable.................................................... 2,874 2,972
Intangible assets, net of accumulated amortization................. 14,993 14,642
Other assets....................................................... 1,999 1,999
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$96,181 $90,791
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Current portion of long-term debt................................. $ 469 $ 969
Accounts payable.................................................. 3,342 4,254
Income taxes payable.............................................. 550 143
Accrued payroll expenses.......................................... 1,854 2,205
Accrued expenses.................................................. 1,411 1,891
Deferred income taxes............................................. 885 123
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Total current liabilities........................................ 8,511 9,585
Long-term debt, net of current portion............................. 672 1,070
Deferred income taxes.............................................. 2,483 1,707
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000 shares;
none issued or outstanding....................................... - -
Common stock, $.0025 par value. Authorized 75,000,000 shares;
issued and outstanding 20,810,935 shares at June 30, 1996
and 20,776,860 at December 31, 1995.............................. 52 51
Paid-in capital................................................... 24,574 27,342
Net unrealized holding loss, net of tax........................... (478) (246)
Retained earnings................................................. 60,367 51,282
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Total stockholders' equity....................................... 84,515 78,429
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$96,181 $90,791
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The accompanying notes are an integral part of the consolidated financial
statements.
3
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months and six months ended June 30, 1996 and 1995
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30 June 30
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1996 1995 1996 1995
---- ---- ---- ----
Net sales............................................... $24,325 $21,209 $49,110 $41,905
Costs and expenses:
Database and production costs......................... 6,916 5,986 13,452 11,127
Selling, general and administrative................... 10,113 8,103 20,265 16,358
Depreciation and amortization......................... 903 807 1,805 1,597
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17,932 14,896 35,522 29,082
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Operating income........................................ 6,393 6,313 13,588 12,823
Other income (expense):
Investment income..................................... 635 486 1,045 494
Interest expense...................................... (22) (56) (33) (89)
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Income before income taxes and discontinued operations.. 7,006 6,743 14,600 13,228
Income taxes............................................ 2,630 2,465 5,515 4,885
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Income from continuing operations....................... 4,376 4,278 9,085 8,343
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Loss from discontinued operation........................ - (233) - (484)
Loss on sale of discontinued operation.................. - (1,663) - (1,663)
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Net income.............................................. $ 4,376 $ 2,382 $ 9,085 $ 6,196
======= ======= ======= =======
Earnings per share:
Income from continuing operations...................... $ 0.21 $ 0.21 $ 0.44 $ 0.40
======= ======= ======= =======
Loss on discontinued operation and sale of subsidiary.. $ - $ (0.09) $ - $ (0.10)
======= ======= ======= =======
Net income............................................. $ 0.21 $ 0.12 $ 0.44 $ 0.30
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Weighted average shares outstanding..................... 20,801 20,719 20,792 20,704
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The accompanying notes are an integral part of the consolidated financial
statements.
4
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1996 and 1995
(In thousands)
Six Months Ended
June 30
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1996 1995
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Cash flows from operating activities:
Net income .............................................. $ 9,085 $ 6,196
Adjustments to reconcile net income to cash flows
from operating activities:
Depreciation and amortization ....................... 1,805 1,634
Deferred income taxes ............................... 1,538 (100)
Impairment of other assets .......................... -- (630)
Loss on sale of discontinued operation .............. -- 1,663
Other ............................................... (93) 200
Changes in assets and liabilities
Trade accounts receivable ........................... (333) (1,025)
Prepaid expenses .................................... (1,166) (347)
Deferred marketing costs ............................ (1,305) --
Accounts payable .................................... (912) 806
Income taxes payable ................................ 407 (668)
Accrued expenses .................................... (831) 865
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Net cash provided by operating activities ....... 8,195 8,594
Cash flows from investing activities:
Proceeds from sale of marketable securities ............. 3,230 8,935
Purchases of marketable securities ...................... (4,755) (16,275)
Purchases of property and equipment ..................... (2,787) (1,526)
Acquisition of businesses, including minority interest .. -- (1,150)
Capitalization of software development costs ............ (980) --
Other ................................................... 124 --
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Net cash used in investing activities ........... (5,168) (10,016)
Cash flows from financing activities:
Repayment of long-term debt ............................. (897) (1,983)
Proceeds from long-term debt ............................ -- 289
Repurchase and retirement of common stock ............... (5,589) --
Proceeds from exercise of stock options ................. 2,821 646
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Net cash used in investing activities ............... (3,665) (1,048)
Net increase (decrease) in cash and cash equivalents ........ (638) (2,470)
Cash and cash equivalents, beginning ........................ 11,999 13,491
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Cash and cash equivalents, ending ........................... $11,361 $ 11,021
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Supplemental disclosure of cash flow information:
Interest paid ........................................... $ 33 $ 89
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Income taxes paid ....................................... $ 2,894 $ 5,737
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The accompanying notes are an integral part of the
consolidated financial statements.
5
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited financial statements have been prepared on the same
basis as the audited consolidated financial statements and, in the opinion of
management, contain all adjustments, consisting of normal recurring adjustments,
necessary to fairly present the financial information included therein. The
December 31, 1995 Consolidated Balance Sheet was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
The Company suggests that this financial data be read in conjunction with the
audited consolidated financial statements and notes thereto for the year ended
December 31, 1995 included in the Company's 1995 Annual Report to the Securities
and Exchange Commission on Form 10-K. Results for the interim period presented
are not necessarily indicative of results to be expected for the entire year.
2. CONSOLIDATED BALANCE SHEET DETAIL (IN THOUSANDS):
June 30, 1996 December 31, 1995
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Property and equipment:
Land and improvements $ 1,457 $ 1,032
Building and improvements 7,608 7,157
Furniture and equipment 17,630 15,439
Capitalized equipment leases 1,437 1,437
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28,132 25,065
Less accumulated depreciation
and amortization 12,359 11,180
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$15,773 $13,885
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June 30, 1996 December 31, 1995
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Intangible assets:
Goodwill $ 5,012 $ 5,012
Distribution networks 11,871 11,871
Noncompete agreements 150 150
Acquisition costs 1,369 1,319
Software development costs 1,336 431
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19,738 18,783
Less accumulated amortization 4,745 4,141
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$14,993 $14,642
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6
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATION
On June 1, 1995, the Company sold the majority of its assets and liabilities of
its wholly-owned subsidiary, American Business Communications, Inc. ("ABC") to a
wholly-owned subsidiary of Baker University. ABC provides continuing education
programs and products to small and medium-sized businesses. The Company received
$3.0 million for the sale in the form of a 7.52% promissory note due in equal
monthly installments through 2005.
The loss on disposition of ABC has been accounted for as discontinued operations
and prior period financial statements have been restated to reflect the
discontinuation of ABC. Revenues of ABC from April 1, 1995 through the date of
sale were $1,269 and were $2,929 from January 1, 1995 through the date of sale.
7
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
American Business Information, Inc. ("ABI") and its subsidiaries, ("the
Company"), provide business and consumer information to organizations engaged in
business-to-business and consumer marketing through products and services
derived from the Company's database. These products include customized business
lists, business directories, consumer lists and other information services, such
as CD-ROM directories, Online Access and Internet Access.
In addition, ABI provides business and consumer directories for home use. These
directories are available in a series of CD-ROM titles, which are distributed
through national and local computer software retail outlets.
RESULTS OF OPERATIONS
The following table sets out for the three and six month periods indicated,
certain items from the Company's statement of operations data expressed as a
percentage of net sales:
Three Months Six Months
Ended Ended
June 30 June 30
1996 1995 1996 1995
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Statement of Operations Data:
Net Sales 100% 100% 100% 100%
Costs and expenses:
Database and production costs 28 28 27 27
Selling, general and administrative 42 38 41 38
Depreciation and amortization 4 4 4 4
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Operating income 26 30 28 31
Investment income, net 3 2 2 1
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Income before income taxes and
discontinued operation 29 32 30 32
Income taxes 11 12 11 12
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Income from continuing operations 18 20 19 20
Loss on discontinued operation and
sale of subsidiary - 9 - 5
--- --- --- ---
Net income 18% 11% 19% 15%
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8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net Sales
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Net sales increased 15% to $24.3 million for the three months ended June 30,
1996 from $21.2 million in the second quarter of 1995. For the six month period
ended June 30, 1996, net sales were $49.1 million, a 17% increase from $41.9
million in the comparable period in 1995.
Lead generation product net sales increased 15% to $18.6 million for the three
months ended June 30, 1996, from $16.1 million in the second quarter of 1995.
For the six month period ended June 30, 1996, lead generation products were
$36.9 million, a 13% increase from $32.6 million in the comparable period in
1995. The increases for the comparable three and six month periods are largely
the result of increased marketing efforts which began late in 1995.
CD-ROM product net sales increased 13% to $3.2 for the three months ended June
30, 1996 from $2.8 million in the second quarter of 1995. For the six month
period ended June 30, 1996, CD-ROM products were $7.5 million, a 57% increase
from $4.8 million in the comparable period in 1995. The increase is a result of
increased demand in consumer retail channels and the introduction of additional
CD-ROM titles in the third quarter of 1995.
Directory product net sales for the three months and six months ended June 30,
1996, posted modest increases to $2.2 million and $3.9 million, respectively, or
an increase of 13% and 3%, respectively, compared to the same period in 1995.
Voice and on-line service net sales accounted for $380 thousand in the second
quarter of 1996 compared to $350 thousand in the second quarter of 1995. For the
six months ended June 30, 1996, net sales were $765 thousand compared to $695
thousand in the same period of 1995.
The Company's net sales on a quarterly basis can be affected by the timing and
extent of the Company's own direct marketing activities and the release of new
products. There have been no significant price increases for the majority of the
Company's existing products and services during the period.
Database and Production Costs
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Database and production costs for the second quarter of 1996 were $6.9 million,
or 28% of net sales, compared to $6.0 million, or 28% of net sales, in the prior
year quarter. For the six months ended June 30, 1996, these costs were $13.5
million, or 27% of net sales, compared to $11.1 million, or 27% of net sales in
the comparable prior year period. These amounts primarily represent the costs of
compiling and telephone verifying information in the database, fulfilling
customer orders, the direct costs associated with the production of CD-ROM
titles, and royalty costs.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Selling, General, and Administrative
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Selling, general and administrative expenses in the second quarter of 1996 were
$10.1 million, or 42% of net sales, compared to $8.1 million, or 38% of net
sales, in the prior year quarter. For the six month period, these costs were
$20.3 million, or 41% of net sales, compared to $16.4 million, or 38% in the
comparable 1995 period. The increase is primarily the result of higher levels of
CD-ROM promotions and other direct marketing activities, including catalog and
promotional material mailings, as well as an overall increase in sales
personnel.
Depreciation and Amortization
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Depreciation and amortization expense for the three months ended June 30, 1996
increased to $903,000 from $807,000 in the comparable 1995 period. These costs
during the six month period of 1996 were $1.8 million, up from $1.6 million in
the comparable 1995 period. The increases were due primarily to the addition of
property and upgrades to data processing equipment of $2.8 million during the
six month period of 1996.
Operating Income
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Operating income for the second quarter of 1996 was $6.4 million, or 26% of net
sales, compared to $6.3 million, or 30% of net sales in the second quarter of
1995. For the six month period of 1996, operating income increased to $13.6
million, or 28% of net sales, from $12.8 million, or 31% of net sales in 1995.
The increase in costs as explained above resulted in the decrease in percentage
of operating income as compared to net sales.
Other Income
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Net investment income for the 1996 second quarter was $613,000 compared to
$430,000 in the same quarter of 1995. For the six months ended June 30, 1996,
net investment income was $1,012,000 compared to $405,000 in the prior year
period. The increase is attributable to increased cash and cash equivalents as
well as the realized losses in the amount of $287,000 due to investment
restructuring of the Company's portfolio in the prior year quarter.
Provision for Income Taxes
- --------------------------
A provision for income taxes has been recorded on the Company's 1996 earnings at
a combined effective federal and state tax rate of 38%, compared to the 1995
combined effective rate of 37%. The increase in the effective rate is a result
of state income taxes and the mix of states in which the Company conducts its
business.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal sources of liquidity included cash
and cash equivalents of $11.4 million and short term investments of $24.4
million. The Company has a revolving line of credit totaling $5.0 million, which
had no outstanding balance at June 30, 1996.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net cash provided by operating activities for the six months ended June 30, 1996
totaled $8.2 million compared to $8.6 million in the same period of 1995. The
decrease is due to higher levels of prepaid and deferred marketing costs
associated with the increased direct marketing programs and from the payment of
accrued expenses. The Company spent $1.9 million on upgrades to data processing
equipment and $900 thousand for land and building improvements to its Omaha,
Nebraska and Carter Lake, Iowa facilities. The Company anticipates spending an
additional $2.0 million in 1996 for equipment and facility expansion.
The Company believes that cash flows from operations, its cash and short term
investments, and its borrowing facilities will be sufficient to fund its
operations for at least the next twelve months. However, if the Company acquires
additional companies or products, additional financing may be required.
11
AMERICAN BUSINESS INFORMATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1996
PART II
OTHER INFORMATION
12
AMERICAN BUSINESS INFORMATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 1996
PART II
ITEM 2. CHANGES IN SECURITIES
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At the 1996 Annual Meeting of Stockholders held on May 24, 1996, the
stockholders of the Company approved an amendment to increase the authorized
number of shares of common stock from 25,000,000 to 75,000,000.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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At the 1996 Annual Meeting of Stockholders of the Company held on May 24, 1996,
the stockholders voted and approved the following items:
1. Re-elected Gautam Gupta and George J. Kubat to the Board of Directors for a
term of three years. Incumbent Directors whose terms of office continue
after the annual meeting are Vinod Gupta, Jon D. Hoffmaster, George F.
Haddix, Harold W. Andersen, Donald R. Dixon and Elliot S. Kaplan.
2. Approved an amendment to the Company's Certificate of Incorporation by a
vote of 17,087,271 for, 1,416,565 against, and 46,815 withheld, to increase
the authorized number of shares of common stock from 25,000,000 to
75,000,000.
3. The stockholders voted to increase the number of shares of common stock
reserved for issuance under the Company's 1992 Stock Option Plan from
1,950,000 to 4,000,000 shares. The vote was 16,198,919 for, 1,690,389
against, and 661,343 withheld.
4. The stockholders also ratified the re-appointment of Coopers & Lybrand as
the Company's independent public accountants for the fiscal year ending
December 31, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
11 Statement regarding computation of per share earnings
(b) Report on Form 8-K
None
13
S I G N A T U R E S
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BUSINESS INFORMATION, INC.
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Date: August 9, 1996 /s/ Jon H. Wellman
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Jon H. Wellman
Executive Vice President and Chief
Financial Officer
14
INDEX TO EXHIBITS
Sequential
Exhibit No. Description Page No.
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11 Statement regarding computation of per share earnings
15