SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
- ----- Exchange Act of l934
For the quarterly period ended September 30, 1996 or
- ----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_________ to __________
Commission File Number 0-19598
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AMERICAN BUSINESS INFORMATION, INC.
- ------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
Delaware 47-0751545
- ------------------------------ --------------------------------------
(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
----------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for at least the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
21,259,960 shares of common stock at October 29, 1996
AMERICAN BUSINESS INFORMATION, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION 2
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1996 and 1995 4
Consolidated Statements of Cash Flows for the nine months
ended September 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 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
SEPTEMBER 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 September 30, 1996 and December 31, 1995
(In thousands, except share amounts)
ASSETS Sept. 30, 1996 Dec. 31, 1995
------ -------------- -------------
Current assets:
Cash and cash equivalents........................................... $ 9,676 $11,999
Marketable securities............................................... 22,538 23,350
Trade accounts receivable, net...................................... 25,554 19,215
Income taxes receivable............................................. 64 -
Prepaid expenses.................................................... 3,079 1,733
Deferred marketing costs............................................ 1,600 996
------- -------
Total current assets.............................................. 62,511 57,293
------- -------
Property and equipment, net........................................... 16,962 13,885
Note receivable....................................................... - 2,972
Intangible assets, net of accumulated amortization.................... 11,588 14,642
Deferred income taxes................................................. 5,587 -
Other assets.......................................................... 1,259 1,999
------- -------
$97,907 $90,791
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current portion of long-term debt................. $ 8,402 969
Accounts payable.................................................... 7,309 4,254
Accrued payroll expenses............................................ 1,923 2,205
Accrued expenses.................................................... 2,444 1,891
Income taxes payable................................................ - 143
Deferred income taxes............................................... 568 123
------- -------
Total current liabilities......................................... 20,646 9,585
Long-term debt, net of current portion................................ 549 1,070
Deferred income taxes................................................. - 1,707
Shareholders' 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 21,255,160 shares at September 30, 1996
and 20,776,860 at December 31, 1995............................... 51 51
Treasury stock, at cost............................................. (2,281) -
Paid-in capital..................................................... 29,881 27,342
Net unrealized holding loss, net of tax............................. (698) (246)
Retained earnings................................................... 49,759 51,282
------- -------
Total shareholders' equity........................................ 76,712 78,429
------- -------
$97,907 $90,791
======= =======
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 nine months ended September 30, 1996 and 1995
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales................................................. $27,585 $21,501 $76,695 $63,405
Costs and expenses:
Database and production costs........................... 8,007 6,149 21,459 17,276
Selling, general and administrative..................... 11,409 8,366 31,674 24,856
One-time non-cash items................................. 22,240 - 22,240 -
Depreciation and amortization........................... 700 796 2,505 2,393
-------- ------- ------- -------
42,356 15,311 77,878 44,525
-------- ------- ------- -------
Operating income.......................................... (14,771) 6,190 (1,183) 18,880
Other income (expense):
Investment income....................................... 522 394 1,567 1,052
Interest expense........................................ (20) (60) (53) (148)
-------- ------- ------- -------
Income before income taxes and discontinued operations.... (14,269) 6,524 331 19,784
Income taxes.............................................. (5,389) 2,420 126 7,336
-------- ------- ------- -------
Income from continuing operations......................... (8,880) 4,104 205 12,448
Loss from discontinued operations......................... - - - (484)
Loss on sale of discontinued operations................... (1,728) - (1,728) (1,663)
-------- ------- ------- -------
Net income................................................ $(10,608) $ 4,104 $(1,523) $10,301
======== ======= ======= =======
Earnings per share:
Income from continuing operations....................... $ (0.43) $ 0.20 $ 0.01 $ 0.60
======== ======= ======= =======
Loss on discontinued operations and sale
of subsidiary......................................... $ (0.08) $ 0.00 $ (0.08) $ (0.10)
======== ======= ======= =======
Net income.............................................. $ (0.51) $ 0.20 $ (0.07) $ 0.50
======== ======= ======= =======
Weighted average shares outstanding....................... 20,840 20,768 20,808 20,725
======== ======= ======= =======
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 nine months ended September 30, 1996 and 1995
(In thousands)
Nine Months Ended
September 30
-----------------------------
1996 1995
---- ----
Cash flows from operating activities:
Net income............................................................................ $(1,523) $10,301
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization....................................................... 2,505 2,446
Deferred income taxes............................................................... (5,790) -
One-time non-cash items............................................................. 22,240 -
Impairment of other assets.......................................................... - (630)
Loss on sale of discontinued operations............................................. 1,728 1,663
Other............................................................................... (83) 212
Changes in assets and liabilities, net of effect of acquisitions:
Trade accounts receivable........................................................... (3,813) (2,882)
Prepaid expenses.................................................................... (987) (1,429)
Deferred marketing costs............................................................ (604) -
Accounts payable.................................................................... 987 l,560
Income taxes receivable............................................................. (64) -
Income taxes payable................................................................ (143) 460
Accrued expenses.................................................................... (715) 258
------- -------
Net cash provided by operating activities......................................... 13,738 11,959
Cash flows from investing activities:
Proceeds from sale of marketable securities........................................... 8,274 9,035
Purchases of marketable securities.................................................... (8,634) (18,018)
Purchases of property and equipment................................................... (4,639) (2,834)
Acquisition of businesses, including minority interest................................ (4,000) (900)
Capitalization of software development costs.......................................... (1,345) -
Other................................................................................. 258 (274)
------- -------
Net cash used in investing activities............................................. (10,086) (12,991)
Cash flows from financing activities:
Repayment of long-term debt........................................................... (1,013) (3,040)
Proceeds from long-term debt.......................................................... - 289
Purchase and retirement of common stock............................................... (5,589) -
Proceeds from exercise of stock options............................................... 2,908 766
Purchase of treasury stock............................................................ (2,281) -
------- -------
Net cash used in investing activities............................................. (5,975) (1,985)
Net increase (decrease) in cash and cash equivalents.................................... (2,323) (3,017)
Cash and cash equivalents, beginning.................................................... 11,999 13,491
------- -------
Cash and cash equivalents, ending....................................................... $ 9,676 $10,474
======= =======
Supplemental disclosure of cash flow information:
Interest paid......................................................................... $ 53 $ 148
======= =======
Income taxes paid..................................................................... $ 5,418 $ 7,422
======= =======
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):
September 30, 1996 December 31, 1995
------------------ -----------------
Property and equipment:
Land and improvements $ 1,220 $ 1,032
Building and improvements 8,059 7,157
Furniture and equipment 19,403 15,439
Capitalized equipment leases 1,437 1,437
------- -------
30,119 25,065
Less accumulated depreciation
and amortization 13,157 11,180
------- -------
$16,962 $13,885
======= =======
September 30, 1996 December 31, 1995
------------------ -----------------
Intangible assets:
Goodwill $ 4,998 $ 5,012
Distribution networks 11,871 11,871
Noncompete agreements 278 150
Acquisition costs 19,473 1,319
Software development costs 1,201 431
------- -------
37,821 18,783
Less accumulated amortization 26,233 4,141
------- -------
$11,588 $14,642
======= =======
6
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. DISCONTINUED OPERATIONS
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 provided 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 were $2.9 million from January 1, 1995
through the date of sale.
During the third quarter of 1996, the Company determined that the note
receivable recorded at the time of the sale of ABC was uncollectable, and
incurred a charge to discontinued operations of $1.7 million, net of tax, to
write-off the remaining balance of the promissory note.
4. ACQUISITION
On September 10, 1996, the Company acquired certain assets and assumed certain
liabilities of Digital Directory Assistance, Inc. (DDA), a publisher of Phone
Disc(R) CD-ROM products. The total purchase price was approximately $17 million
of which $4.0 million was paid on September 10, 1996 from the Company's
corporate funds, $7.9 million in the form of a promissory note issued to Seller
due January 1997, and the remaining amount through the issuance of 600,000
shares of the Company's common stock. The acquisition was accounted for under
the purchase method of accounting. Substantially all of the purchase price
consisted of intangibles and resulted in a one time charge of approximately $10
million ($6.3 million after tax) representing purchased research and
development.
5. ONE-TIME NON-CASH ITEMS
One-time non-cash items represent charges for the purchased research and
development of approximately $10 million relating to the acquisition of DDA, the
change in estimated useful lives of approximately $11.5 million due to
management's evaluation of the remaining lives of certain intangibles related to
acquisitions prior to 1995, and the writedown of $740,000 of an equity
investment made prior to 1992.
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 nine month periods indicated,
certain items from the Company's statement of operations data expressed as a
percentage of net sales:
Three Months Ended Nine Months Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
Statement of Operations Data:
Net Sales 100% 100% 100% 100%
Costs and expenses:
Database and production costs 29 28 28 27
Selling, general and administrative 41 39 41 39
One-time non-cash items 81 - 30 -
Depreciation and amortization 3 4 3 4
--- --- --- ---
Operating income (54) 29 (2) 30
Other income (expense) 2 1 2 1
--- --- --- ---
Income before income taxes and
discontinued operations (52) 30 - 31
Income taxes (20) 11 - 12
--- --- --- ---
Income from continuing operations (32) 19 - 19
Loss on discontinued operations and
sale of subsidiary (6) - (2) (3)
--- --- --- ---
Net income (38)% 19% (2)% 16%
=== === === ===
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, CONTINUED
Net Sales
- ---------
Net sales increased 28% to $27.6 million for the three months ended September
30, 1996 from $21.5 million in the third quarter of 1995. For the nine month
period ended September 30, 1996, net sales were $76.7 million, a 21% increase
from $63.4 million in the comparable period in 1995.
Lead generation product net sales increased 25% to $18.5 million for the three
months ended September 30, 1996, from $14.8 million in the third quarter of
1995. For the nine month period ended September 30, 1996, lead generation
products were $52.3 million, a 16% increase from $45.2 million in the comparable
period in 1995. The increases for the comparable three and nine month periods
are largely the result of increased marketing efforts which began late in 1995.
CD-ROM product net sales increased 61% to $5.1 million for the three months
ended September 30, 1996 from $3.2 million in the third quarter of 1995. For the
nine month period ended September 30, 1996, CD-ROM products were $12.6 million,
a 59% increase from $8.0 million in the comparable period in 1995. The increase
is a result of increased demand in consumer retail channels, the introduction of
additional CD-ROM titles in the third quarter of 1996, and the acquisition of
DDA which accounted for approximately $1.1 million in sales during the third
quarter.
Directory product net sales for the three months and nine months ended September
30, 1996, posted modest increases to $2.2 million and $6.2 million,
respectively, or an increase of 7% and 4%, respectively, compared to the same
period in 1995. Voice and on-line service net sales accounted for $370 thousand
in the third quarter of 1996 compared to $350 thousand in the second quarter of
1995. For the nine months ended September 30, 1996, net sales were $1.1 million
compared to $1.0 million in the same period of 1995.
The Company's net sales on a quarterly basis can be affected by the timing of
acquisitions and certain other factors including 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
- -----------------------------
Database and production costs for the third quarter of 1996 were $8.0 million,
or 29% of net sales, compared to $6.1 million, or 28% of net sales, in the prior
year quarter. For the nine months ended September 30, 1996, these costs were
$21.5 million, or 28% of net sales, compared to $17.3 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
- ------------------------------------
Selling, general and administrative expenses in the third quarter of 1996 were
$11.4 million, or 41% of net sales, compared to $8.4 million, or 39% of net
sales, in the prior year quarter. For the nine month period, these costs were
$31.7 million, or 41% of net sales, compared to $24.7 million, or 39% 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.
One-Time Non-Cash Items
- -----------------------
During the third quarter of 1996, the Company recorded one-time, non-cash
charges to continuing operations of $10.0 million for purchased research and
development associated with the September 1996 acquisition of DDA, $11.5 million
associated with a change in the estimated useful lives of certain intangible
assets related to acquisitions prior to 1995, and $740,000 for the writedown of
an equity investment made prior to 1992.
Depreciation and Amortization
- -----------------------------
Depreciation and amortization expense for the three months ended September 30,
1996 decreased to $700,000 from $796,000 in the comparable 1995 period. These
costs during the nine month period of 1996 were $2.5 million, compared to $2.4
million in the comparable 1995 period.
Operating Income
- ----------------
The operating loss for the third quarter of 1996 was $14.8 million, or 54% of
net sales, compared to operating income of $6.2 million, or 29% of net sales in
the third quarter of 1995. For the nine month period of 1996, the operating loss
was $1.2 million, or 2% of net sales, compared with operating income of $18.9
million, or 30% of net sales in the comparable 1995 period.
Excluding the one-time, non-cash items described above, operating income for the
third quarter of 1996 would have been $7.5 million, or 27% of net sales. For the
nine month period of 1996, operating income would have been $21.1 million, or
27% of net sales.
Other Income
- ------------
Net investment income for the 1996 third quarter was $502,000 compared to
$334,000 in the same quarter of 1995. For the nine months ended September 30,
1996, net investment income was $1.5 million compared to $904,000 in the prior
year period. The Company recognized net realized losses of $270,000 on the sale
of marketable securities in the first nine months of 1995. Additionally, the
Company recognized net realized gains of $83,000 on the sale of marketable
securities in the first nine months of 1996.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS, continued
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 September 30, 1996, the Company's principal sources of liquidity included
cash and cash equivalents of $9.7 million and short term investments of $22.5
million. The Company has a revolving line of credit totaling $5.0 million, which
had no outstanding balance at September 30, 1996.
Net cash provided by operating activities for the nine months ended September
30, 1996 totaled $13.7 million compared to $12.0 million in the same period of
1995. The increase is due to the effect of recording the one-time, non-cash
charges, which is partially offset by higher levels of trade accounts
receivable, deferred marketing costs, and other accrued expenses. The Company
spent $2.4 million on upgrades to data processing equipment and $1.1 million for
land and building improvements to its Omaha, Nebraska and Carter Lake, Iowa
facilities. The Company anticipates spending an additional $2.0 million over the
next twelve months for equipment and facility expansion.
The Company paid $4.0 million on September 10, 1996 as part of the estimated
purchase price of $17 million for DDA. A promissory note of $7.9 million is due
the Seller in January 1997, for which management anticipates using its cash
equivalents. The remaining amount due the Seller of approximately $5.0 million
was paid through the issuance of the Company's common stock.
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
SEPTEMBER 30, 1996
PART II
OTHER INFORMATION
12
AMERICAN BUSINESS INFORMATION, INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 1996
PART II
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
Form 8-K dated September 10, 1996, under Item 2, Acquisition or
Disposition of Assets, and under Item 7, Financial Statement,
ProForma Financial Information and Exhibits, was filed with the
Securities and Exchange Commission reporting the acquisition of
substantially all the net assets of Digital Directory Assistance,
Inc.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BUSINESS INFORMATION, INC.
-----------------------------------
Date: 11/11/96 /s/ Jon H. Wellman
------------ --------------------------------------
Jon H. Wellman
Executive Vice President and Chief Financial
Officer
14
INDEX TO EXHIBITS
Sequential
Exhibit No. Description Page No.
- ----------- ----------- ----------
11 Statement regarding computation of per
share earnings
27 Financial Data Schedule
15