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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 1934
For the quarterly period ended September 30, 2000 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
infoUSA INC.
- --------------------------------------------------------------------------------
(exact name of registrant specified in its charter)
DELAWARE 47-0751545
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
- --------------------------------------- -----
(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.
50,385,054 shares of Common Stock at November 3, 2000
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infoUSA INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of September 30, 2000 and December
31, 1999 4
Consolidated Statements of Operations for the Three Months and
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
Signature 24
Index to Exhibits 25
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infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2000
PART I
FINANCIAL INFORMATION AND
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents ...................................... $ 23,071 $ 10,846
Marketable securities .......................................... 102 70
Trade accounts receivable, net of allowances of $4,014 and
$7,068, respectively ......................................... 66,741 65,812
List brokerage trade accounts receivable ....................... 14,015 16,734
Prepaid expenses ............................................... 4,738 2,973
Deferred marketing costs ....................................... 3,614 2,957
-------------- --------------
Total current assets ................................... 112,281 99,392
-------------- --------------
Property and equipment, net ...................................... 56,210 53,569
Intangible assets, net ........................................... 306,147 315,889
Other assets ..................................................... 5,916 4,494
-------------- --------------
$ 480,554 $ 473,344
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .............................. $ 16,351 $ 9,885
Accounts payable ............................................... 14,414 8,370
List brokerage trade accounts payable .......................... 14,895 16,375
Accrued payroll expenses ....................................... 6,328 5,767
Accrued expenses ............................................... 9,678 6,579
Income taxes payable ........................................... 535 3,699
Deferred revenue ............................................... 8,559 7,556
Deferred income taxes .......................................... 836 262
-------------- --------------
Total current liabilities .............................. 71,596 58,493
-------------- --------------
Long-term debt, net of current portion ........................... 242,050 267,637
Deferred income taxes ............................................ 32,329 35,319
Deferred revenue ................................................. 12,000 --
Minority interest ................................................ 6,718 1,084
Commitments and contingencies
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; 51,519,872 shares issued and
50,385,054 outstanding at September 30, 2000 and 50,719,548
shares issued and 49,390,058 outstanding at December 31,
1999 ......................................................... 129 127
Paid-in capital ................................................ 102,266 82,025
Unamortized stock compensation expense ......................... (9,249) --
Retained earnings .............................................. 31,510 38,470
Treasury stock, at cost, 1,134,818 shares held at
September 30, 2000 and 1,329,490 held at
December 31, 1999 ............................................ (8,088) (9,170)
Accumulated other comprehensive loss ........................... (707) (641)
-------------- --------------
Total stockholders' equity ............................. 115,861 110,811
-------------- --------------
$ 480,554 $ 473,344
============== ==============
The accompanying notes are an integral part of the
consolidated financial statements.
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infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
(UNAUDITED)
Net sales ...................................... $ 75,888 $ 75,166 $ 235,801 $ 188,259
Costs and expenses:
Database and production costs
(excluding non-cash stock
compensation expense of $1,162 and
$3,999 for the periods ended September
30, 2000, respectively) ..................... 26,141 22,484 77,530 55,774
Selling, general and administrative
(excluding non-cash stock
compensation expense of $67 and
$137 for the periods ended September 30,
2000, respectively) ......................... 36,835 32,998 116,499 79,096
Depreciation and amortization .................. 13,222 10,826 39,201 22,553
Impairment of assets ........................... -- 5,599 -- 5,599
Non-cash stock compensation expense ............ 1,229 -- 4,136 --
Acquisition costs .............................. 86 3,682 2,287 3,682
------------ ------------ ------------ ------------
77,513 75,589 239,653 166,704
------------ ------------ ------------ ------------
Operating income (loss) ........................ (1,625) (423) (3,852) 21,555
Other income (expense):
Investment income ............................ 403 9,829 840 14,017
Gain on issuance of subsidiary stock ......... -- -- 14,634 --
Minority interest in loss of subsidiary ...... 1,095 -- 2,795 --
Interest expense ............................. (6,685) (5,783) (19,937) (11,831)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item ........................... (6,812) 3,623 (5,520) 23,741
Income taxes ................................... 596 2,571 1,440 10,819
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ........ (7,408) 1,052 (6,960) 12,922
Extraordinary item, net of tax ................. -- -- -- 128
------------ ------------ ------------ ------------
Net income (loss) .............................. $ (7,408) $ 1,052 $ (6,960) $ 13,050
============ ============ ============ ============
BASIC EARNINGS PER SHARE:
Income (loss) before extraordinary item ...... $ (0.15) $ 0.02 $ (0.14) $ 0.27
Extraordinary item ........................... -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ............................ $ (0.15) $ 0.02 $ (0.14) $ 0.27
============ ============ ============ ============
Weighted average shares outstanding .......... 50,751 48,345 49,905 48,401
============ ============ ============ ============
DILUTED EARNINGS PER SHARE:
Income (loss) before extraordinary item ...... $ (0.15) $ 0.02 $ (0.14) $ 0.27
Extraordinary item ........................... -- -- -- --
------------ ------------ ------------ ------------
Net income (loss) ............................ $ (0.15) $ 0.02 $ (0.14) $ 0.27
============ ============ ============ ============
Weighted average shares outstanding .......... 50,751 48,378 49,905 48,444
============ ============ ============ ============
The accompanying notes are an integral part of the
consolidated financial statements.
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infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
SEPTEMBER 30,
2000 1999
---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................... $ (6,960) $ 13,050
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization ...................... 39,201 22,553
Amortization of deferred financing costs ........... 868 --
Deferred income taxes .............................. (2,416) 933
Net realized gains on sale of
marketable securities ............................. -- (12,764)
Non-cash acquisition costs ......................... 615 --
Impairment of assets ............................... -- 5,599
Gain on issuance of subsidiary stock ............... (14,634) --
Non-cash stock compensation expense ................ 4,136 --
Non-cash 401(k) contribution in common stock ...... 1,541 --
Minority interest in loss of subsidiary ............ (2,795) --
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ........................ 1,120 (9,205)
List brokerage trade accounts
Receivable ...................................... 2,719 4,853
Prepaid expenses and other assets ................ (3,172) (412)
Deferred marketing costs ......................... (657) 840
Accounts payable ................................. 5,958 4,054
List brokerage trade accounts payable ............ (1,480) (4,834)
Income taxes receivable and payable .............. (3,164) 7,079
Accrued expenses and other liabilities ........... 13,629 (3,086)
---------- ----------
Net cash provided by operating activities ....... 34,509 28,660
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities ......... -- 31,668
Purchases of marketable securities ................... (32) (4,184)
Purchases of property and equipment .................. (8,215) (8,102)
Acquisitions of businesses ........................... (9,308) (206,080)
Software and database development costs .............. (9,944) (5,540)
Other ................................................ -- (203)
---------- ----------
Net cash used in investing activities ................ (27,499) (192,441)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt .......................... (21,122) (12,473)
Proceeds from long-term debt ......................... -- 165,000
Proceeds from issuance of subsidiary stock ........... 22,845 --
Acquisitions of treasury stock ....................... -- (6,553)
Deferred financing costs ............................. (708) (3,989)
Repurchase of senior subordinated notes .............. -- (8,370)
Proceeds from exercise of stock options .............. 4,200 1,477
---------- ----------
Net cash provided by
financing activities .............................. 5,215 135,092
Effect of exchange rate fluctuations on cash ......... -- (149)
---------- ----------
Net increase (decrease) in cash and cash
equivalents ......................................... 12,225 (28,838)
Cash and cash equivalents, beginning .................. 10,846 29,603
---------- ----------
Cash and cash equivalents, ending ..................... $ 23,071 $ 765
========== ==========
Supplemental cash flow information:
Interest paid ........................................ $ 16,568 $ 9,140
========== ==========
Income taxes paid .................................... $ 8,059 $ 2,918
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements.
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infoUSA 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 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, 1999 included in the Company's 1999 Annual Report on Form 10-K, as
amended, filed with the Securities and Exchange Commission. Results for the
interim period presented are not necessarily indicative of results to be
expected for the entire year.
2. EARNINGS PER SHARE INFORMATION
The following table shows the amounts used in computing earnings per share and
the effect on the weighted average number of shares of dilutive potential common
stock.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Weighted average number of shares outstanding used in
basic EPS ............................................ 50,751 48,345 49,905 48,401
Net additional common stock equivalent shares
outstanding after assumed exercise of stock options .. -- 33 -- 43
---------- ---------- ---------- ----------
Weighted average number of shares outstanding
used in diluted EPS .................................. 50,751 48,378 49,905 48,444
========== ========== ========== ==========
3. 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 and 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.
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 Company records unusual or non-recurring items including
acquisition costs, non-cash stock compensation expense, gain on issuance of
subsidiary stock and minority interest in loss of subsidiary 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.
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The following table summarizes segment information:
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000
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SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------ ------------ ------------ ------------
(IN THOUSANDS)
Net sales ......................... $ 34,340 $ 41,548 $ -- $ 75,888
Non-cash stock compensation ....... -- -- 1,229 1,229
Acquisition costs ................. -- -- 86 86
Operating income (loss) ........... 8,396 18,795 (28,816) (1,625)
Investment income ................. -- -- 403 403
Interest expense .................. -- -- 6,685 6,685
Income (loss) before income
taxes and extraordinary item ... 8,396 18,795 (34,003) (6,812)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------ ------------ ------------ ------------
(IN THOUSANDS)
Net sales ......................... $ 31,737 $ 43,429 $ -- $ 75,166
Impairment of assets .............. -- -- 5,599 5,599
Acquisition and restructuring
charges ......................... -- -- 3,682 3,682
Operating income (loss) ........... 13,201 15,229 (28,853) (423)
Investment income ................. -- -- 9,829 9,829
Interest expense .................. -- -- 5,783 5,783
Income (loss) before income
taxes and extraordinary item ... 13,201 15,229 (24,807) 3,623
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
----------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------ ------------ ------------ ------------
(IN THOUSANDS)
Net sales ......................... $ 110,375 $ 125,426 $ -- $ 235,801
Non-cash stock compensation ....... -- -- 4,136 4,136
Acquisition costs ................. -- -- 2,287 2,287
Operating income (loss) ........... 27,657 56,095 (87,604) (3,852)
Investment income ................. -- -- 840 840
Interest expense .................. -- -- 19,937 19,937
Income (loss) before income taxes
and extraordinary item ......... 27,657 56,095 (89,272) (5,520)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
----------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
------------ ------------ ------------ ------------
(IN THOUSANDS)
Net sales ......................... $ 98,246 $ 90,013 $ -- $ 188,259
Impairment of assets .............. -- -- 5,599 5,599
Acquisition and restructuring
charges ........................ -- -- 3,682 3,682
Operating income (loss) ........... 46,787 35,495 (60,727) 21,555
Investment income ................. -- -- 14,017 14,017
Interest expense .................. -- -- 11,831 11,831
Income (loss) before income taxes
and extraordinary item ......... 46,787 35,495 (58,541) 23,741
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4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), including the components of other comprehensive
income (loss), is as follows:
FOR THE THREE FOR THE NINE
MONTHS ENDED MONTHS ENDED
-------------------------- --------------------------
SEPT 30, SEPT 30, SEPT 30, SEPT 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
(IN THOUSANDS)
Net income ................................... $ (7,408) $ 1,052 $ (6,960) $ 13,050
Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized gains (losses) ................ (39) (9,751) (39) (7,136)
Related tax expense ...................... -- 3,705 -- 2,712
---------- ---------- ---------- ----------
Net ...................................... (39) (6,046) (39) (4,424)
---------- ---------- ---------- ----------
Reclassification adjustment for net gains
(losses) realized on sale of marketable
securities:
Realized gains (losses) .................. -- 48 -- 1,944
Related tax expense ...................... -- (18) -- (739)
---------- ---------- ---------- ----------
Net ...................................... -- 30 -- 1,205
---------- ---------- ---------- ----------
Foreign currency translation adjustments ... -- -- (27) (634)
---------- ---------- ---------- ----------
Total other comprehensive income (loss) ...... (39) (6,016) (66) (3,853)
---------- ---------- ---------- ----------
Comprehensive income ......................... $ (7,447) $ (4,964) $ (7,026) $ 9,197
========== ========== ========== ==========
The components of accumulated other comprehensive income (loss) is as
follows:
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION GAINS/(LOSSES) COMPREHENSIVE
ADJUSTMENTS ON SECURITIES INCOME
----------- ------------- -------------
(IN THOUSANDS)
Balance at September 30, 2000 $ (668) $ (39) $ (707)
====== ======= =======
Balance at September 30, 1999 $ (634) $ 95 $ (539)
====== ======= =======
5. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
During the nine months ended September 30, 2000, infoUSA.com, a subsidiary
of the Company, issued approximately 5.1 million shares of convertible preferred
stock for approximately $22.8 million or $4.47 per share. As a result of the
issuance of the convertible preferred stock, the Company's ownership in
infoUSA.com decreased from approximately 83 percent at December 31, 1999 to
approximately 67 percent at September 30, 2000 and a gain of $14.6 million was
recorded. No deferred income taxes were recorded due to the gain being a
non-taxable transaction. infoUSA.com is an online provider of white and yellow
page directory assistance and an Internet destination for sales and marketing
tools and information.
6. ACQUISITIONS
Effective March 2000, the Company acquired all issued and outstanding common
stock of American Church Lists, a national proprietary database of religious
institutions, organizations and affiliations. Total consideration for the
acquisition was $2.0 million, funded using cash provided by operations. The
acquisition has been accounted for under the purchase method of accounting, and
accordingly, the operating results of American Church Lists have been included
in the Company's financial statements since the date of acquisition. Intangibles
recorded as part of the purchase included goodwill of $2.1 million, which is
being amortized over 15 years. No pro forma operating results have been included
as the Company has determined that the results of operations for American Church
Lists are not material.
Effective May 2000, the Company acquired certain assets and assumed certain
liabilities of idEXEC, a Thomson Financial company. idEXEC provides a worldwide
database of 60,000 large businesses and 400,000 executives for
business-to-business prospecting, marketing, and research applications. Total
consideration for the acquisition was $7.3 million, consisting of $5.1 million
in cash, funded using cash provided by operations, and 391,000 shares of common
stock at a recorded value of $2.2 million, funded using shares of treasury stock
held by the Company. The Company applied the provisions of EITF Issue 95-19 in
determining fair value of its shares issued for the purchase, using the average
share price for the Company's common stock prior to and subsequent to
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the announcement date of May 2, 2000. The acquisition has been accounted for
under the purchase method of accounting, and accordingly, the operating results
of idEXEC have been included in the Company's financial statements since the
date of acquisition. Intangibles recorded as part of the purchase included
goodwill of $8.4 million, which is being amortized over 15 years. No pro forma
operating results have been included as the Company has determined that the
results of operations for idEXEC are not material.
Effective May 2000, the Company acquired certain assets and assumed certain
liabilities of Getko Direct Response of Canada ("Getko"), a Cendant Corporation
company. Getko provides Canadian list and data processing services for the
direct marketing industry. Total consideration for the acquisition was $1.6
million, funded using cash provided by operations. The acquisition has been
accounted for under the purchase method of accounting, and accordingly, the
operating results of Getko have been included in the Company's financial
statements since the date of acquisition. Intangibles recorded as part of the
purchase included goodwill of $1.5 million, which is being amortized over 15
years. No pro forma operating results have been included as the Company has
determined that the results of operations for Getko are not material.
7. ACQUISITION COSTS
During the quarter ended September 30, 2000, the Company recorded charges of
$86 thousand related to the Company's acquisition of American Church Lists,
idEXEC and Getko. These charges represent costs incurred to integrate these
acquired operations into the Company's existing operations. These costs were not
directly related to the acquisition of these companies, and therefore could not
be capitalized as part of the purchase price.
For the nine months ended September 30, 2000, the Company recorded
acquisition costs of $2.3 million. Acquisition costs related to the acquired
companies described above totaled $0.5 million. Additionally, the Company
recorded charges of $1.8 million associated with the Company's unsuccessful bid
to acquire the consumer database division of R.L. Polk.
8. NON-CASH STOCK COMPENSATION EXPENSE
The Company's partially-owned subsidiary, infoUSA.com, sponsors an Equity
Incentive Plan in which shares of common stock are reserved for issuance to
officers, directors, employees and consultants of the subsidiary. Options
granted during the nine months ended September 30, 2000 totaled 3.3 million
options with a weighted average exercise price of $1.61. The Company uses
Accounting Principles Bulletin (APB) Opinion No. 25 to account for stock-based
compensation to employees and directors of the Company and Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation
and FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and
Other Variable Stock Option or Award Plans for stock-based compensation to
non-employees of the Company. As such, the Company has recorded a non cash
charge of $4.1 million during the nine months ended September 30, 2000 related
to the issuance of stock options for infoUSA.com. The charge was recorded as an
addition to paid-in-capital.
9. IMPAIRMENT OF ASSETS
During the quarter ended September 30, 1999, as a direct result of the
acquisition of Donnelley in July 1999 and the addition of the Donnelly consumer
database file, the Company recorded a write-down of $3.9 million 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 the quarter ended September 30, 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 on the remaining net book value of
the impaired assets.
10. EXTRAORDINARY ITEM, NET OF TAX
During the quarter ended March 31, 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.
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11. NON-CASH INVESTING AND FINANCING ACTIVITIES
The Company acquired computer equipment totaling $2.0 million and $4.0
million under capital lease obligations for the nine month periods ended
September 30, 2000 and 1999, respectively.
12. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
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infoUSA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading provider of business and consumer marketing information
and data processing services. The Company's products and services help its
clients generate new customers more effectively at lower cost. The Company's key
assets include proprietary databases of 12 million businesses and 200 million
consumers in the United States and Canada, which the Company believes are among
the most comprehensive and accurate available. The Company leverages these key
assets by selling a broad range of marketing information products and data
processing services through targeted distribution channels to small and medium
size businesses, large corporations and also to consumers.
This discussion and analysis contains forward-looking statements, including
without limitation statements in the discussion of comparative results of
operations, year 2000 readiness disclosure, accounting standards and liquidity
and capital resources, within the meaning of Section 21E of the Securities
Exchange Act of 1934 and Section 27A of the Securities Act of 1933, which are
subject to the "safe harbor" created by those sections. The Company's actual
future results could differ materially from those projected in the
forward-looking statements. Some factors which could cause future actual results
to differ materially from the company's recent results or those projected in the
forward-looking statements are described in "Factors Affecting Operating
Results" below. The Company assumes no obligation to update the forward-looking
statement or such factors.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
financial information and other data. The amounts and related percentages may
not be fully comparable due to the acquisitions of Donnelley Marketing
(Donnelley) during July 1999, American Church Lists during March 2000, idEXEC in
May 2000 and Getko Direct Response of Canada (Getko) in May 2000:
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THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPT 30, 2000 SEPT 30, 1999 SEPT 30, 2000 SEPT 30, 1999
------------- ------------- ------------- -------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales ..................................................... 100% 100% 100% 100%
Costs and expenses:
Database and production costs ............................... 34 30 33 30
Selling, general and administrative ......................... 49 44 49 42
Depreciation and amortization ............................... 17 15 17 12
Non-cash stock compensation expense ......................... 2 -- 2 --
Impairment of assets ........................................ -- 7 -- 3
Acquisition costs ........................................... -- 5 1 2
---------- ---------- ---------- ----------
Total costs and expenses ................................. 102 101 102 89
---------- ---------- ---------- ----------
Operating income (loss) ....................................... (2) (1) (2) 11
Other income (expense), net ................................... (7) 5 (1) 2
---------- ---------- ---------- ----------
Income before income taxes and extraordinary item ............. (9) 4 (2) 13
Income taxes .................................................. 1 3 1 6
---------- ---------- ---------- ----------
Income before extraordinary item .............................. (10) 1 (3) 7
Extraordinary item, net of tax ................................ -- -- -- --
---------- ---------- ---------- ----------
Net income .................................................... (10)% 1% (3)% 7%
========== ========== ========== ==========
OTHER DATA:
SALES BY SEGMENT:
(in thousands)
Small business ......................................... $ 34,340 $ 31,737 $ 110,375 $ 98,246
Large business ......................................... 41,548 43,429 125,426 90,013
---------- ---------- ---------- ----------
Total .................................................. $ 75,888 $ 75,166 $ 235,801 $ 188,259
========== ========== ========== ==========
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business ......................................... 45% 42% 47% 52%
Large business ......................................... 55 58 53 48
---------- ---------- ---------- ----------
Total .................................................. 100% 100% 100% 100%
========== ========== ========== ==========
(in thousands)
Amortization expense of goodwill and related intangibles (1) .... $ 8,238 $ 7,544 $ 24,308 $ 13,513
========== ========== ========== ==========
Earnings before, interest, taxes, depreciation and
amortization, (EBITDA), as adjusted (2) ..................... $ 12,826 $ 16,002 $ 40,100 $ 49,707
========== ========== ========== ==========
EBITDA, as adjusted, as a percentage of net sales ............... 17% 21% 17% 26%
========== ========== ========== ==========
Cash Flow Data:
(in thousands)
Net cash from operating activities ......................... $ 34,509 $ 28,660
========== ==========
Net cash used in investing activities ...................... (27,499) (192,441)
========== ==========
Net cash from financing activities ......................... 5,215 135,092
========== ==========
(1) This represents amortization expense recorded by the Company on all
intangibles recorded as part of the acquisition of other companies, and excludes
amortization related to deferred financing costs, software development costs,
and other intangible assets not recorded as part of an acquisition of another
company.
(2) "EBITDA, as adjusted" is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets, non-cash stock
compensation expenses, non-cash acquisition costs and impairment of assets.
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.
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Overview
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed thirteen 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 Company has 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, a number of
the 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.
Since the beginning of 1999, operating costs have increased significantly
due to the Company's execution of the planned expansion of certain Internet
initiatives, including infoUSA.com, BusinessCreditUSA.com, VideoYellowPages.com
and ListBazaar.com. Selling, general and administrative expenses have increased
significantly, and to a lesser extent, database and production costs have
increased moderately. For the quarter ended September 30, 2000, net sales for
the four Internet divisions increased $4.0 million, or 101% from the same period
in 1999, although total operating costs for the four Internet divisions
increased $9.3 million or 363% from the same period in 1999. For the nine months
ended September 30, 2000, the Company's net sales for the four Internet
divisions have increased $9.6 million or 89% from the same period in 1999,
although total operating costs for the four Internet divisions have increased
$29.4 million, or 513% from the same period in 1999. Marketing costs specific to
the Internet initiatives represent the principal source for the increase.
The issuance of subsidiary stock to outside investors has allowed the
Company to continue to execute its planned expansion related to infoUSA.com as
an online provider of white and yellow page directory assistance and an Internet
destination for sales and marketing tools and information. The issuance of stock
has allowed the Company to continue expansion without affecting working capital
of existing operations. The Company may continue to issue additional stock to
outside investors, although there can be no assurance that the Company will
issue additional stock and such issuance is dependent upon the results of
operations related to infoUSA.com and its planned expansion.
Net sales
Net sales of the Company for the quarter ended September 30, 2000 were $75.9
million, an increase of 1% from $75.2 million for the same period of 1999. Net
sales for the nine months ended September 30, 2000 were $235.8 million, an
increase of 25% from $188.3 million for the same period of 1999. The increase in
net sales is principally due to the acquisition of Donnelley in July 1999. The
acquisitions of American Church Lists in March 2000 and idEXEC and Getko in May
2000 contributed to the increase, although the sales associated with these
acquired entities were not significant.
Net sales of the small business segment for the quarter ended September 30,
2000 were $34.3 million, an 8% increase from $31.7 million for the same period
of 1999. Net sales of the small business segment for the nine months ended
September 30, 2000 were $110.4 million, a 12% increase from $98.2 million for
the same period in 1999. 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 also includes the sale of content via the Internet. The
overall increase in the net sales of the small business segment is principally
due to the acquisition of Donnelley in July 1999 and the related sale of
Donnelley's
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consumer data by this segment although the amount can not be accurately
quantified for reasons previously described in the section "Overview." These
amounts are not fully comparable as effective January 1, 2000, the operations
related to Donnelley were reorganized and certain operations which were
previously included in the large business segment have been included in the
small business segment from January 1, 2000 forward. The amount of sales
transferred to the small business segment due to the reorganization can not be
accurately quantified for reasons previously described in the section
"Overview." Additionally, the small business segment has experienced growth in
its vertical market groups including the middle markets, government, library,
medical and field sales offices groups. The increase in net sales by the small
business segment described above was partially offset by a decrease in the net
sales of consumer CD-Rom products. The Company recorded net sales of $2.6
million of consumer CD-Rom products during the quarter ended September 30, 2000,
compared to $4.6 million during the same period in 1999. Net sales of consumer
CD-Rom products were $9.8 million for the nine months ended September 30, 2000,
compared to $13.5 million for the same period in 1999. The decline in net sales
of consumer CD-Rom products is the result of the Company's unsatisfactory
execution of merchandising programs with retailers and a change in the timing of
new product releases.
Net sales of the large business segment for the quarter ended September 30,
2000 were $41.5 million, a 4% decline from $43.4 million for the same period of
1999. These amounts are not fully comparable as effective January 1, 2000, the
operations related to Donnelley were reorganized and certain operations which
were previously included in the large business segment have been included in the
small business segment from January 1, 2000 forward. The amount of sales
transferred to the small business segment due to the reorganization can not be
accurately quantified for reasons previously described in the section
"Overview."
Net sales of the large business segment for the nine months ended September
30, 2000 were $125.4 million, a 39% increase from $90.0 million for the same
period in 1999. Net sales of the large business segment increased on a
year-to-date versus year-to-date basis due to the following: 1) acquisition of
Donnelley effective July 1999, 2) increased sales of Internet-based database
licenses, and 3) increased sales of marketing database licenses. A significant
portion of the increase is attributable to the acquisition of Donnelley in July
1999, although the amount can not be accurately quantified for reasons
previously described in the section "Overview."
Additional comparative information related to the large business segment
includes: 1) Net sales of Internet-based database licenses for the quarter ended
September 30, 2000 were $6.3 million, a 74% increase from $3.6 million for the
same period of 1999. For the nine months ended September 30, 2000, net sales of
Internet-based database licenses were $15.2 million, a 72% increase from $8.8
million for the same period in 1999. Since mid-1999, the Company has been
successfully renewing and signing new Internet license agreements using a
variable CPM model, no longer entering into Internet-based license agreements on
a flat fee basis. 2) Net sales of marketing database licenses for the quarter
ended September 30, 2000 were $6.6 million, a 462% increase from $1.2 million
for the same period of 1999. For the nine months ended September 30, 2000, net
sales of marketing database licenses were $24.1 million, a 268% increase from
$6.5 million for the same period in 1999. The increase principally relates to
the addition of several significant license arrangements. 3) The Company
recorded net sales of data processing services of $21.3 million for the quarter
ended September 30, 2000, compared to $23.2 million for the same period of 1999.
For an explanation of the decrease in net sales of data processing services,
refer to the discussion above regarding net sales of the large business segment
on a quarter-versus-quarter basis. For the nine months ended September 30, 2000,
net sales of data processing services were $63.9 million, compared to $51.3
million for the same period in 1999. The increase in net sales of data
processing services is principally due to the acquisition of Donnelley in July
1999.
Database and production costs
Database and production costs for the quarter ended September 30, 2000 were
$26.1 million, or 34% of net sales, compared to $22.5 million, or 30% of net
sales for the same period of 1999. For the nine months ended September 30, 2000,
database and production costs were $77.5 million, or 33% of net sales, compared
to $55.8 million or 30% of net sales for the same period in 1999.
The increase in database and production costs as a percentage of net sales
are primarily due to the acquisition of Donnelley in July 1999. Sales associated
with the Donnelley operations have a larger composition of data processing and
client services than the sales associated with the remainder of the Company's
operations.
Additionally, the increase in database and production costs as a percentage
of net sales is partially due to the execution of the Company's planned
expansion related to various Internet initiatives. Database and production costs
related to the various Internet divisions increased $1.5 million, or 2% of net
sales, from the third quarter of 1999 to the third quarter of 2000, and $3.6
million, or 2% of net sales, for the nine months ended September 30, 1999 to the
nine months ended September 30, 2000. The increase for the Internet divisions is
due to additional information technology and data content costs.
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Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter ended September
30, 2000 were $36.8 million, or 49% of net sales, compared to $33.0 million, or
44% of net sales for the same period of 1999. For the nine months ended
September 30, 2000, selling, general and administrative expenses were $116.5
million, or 49% of net sales, compared to $79.1 million, or 42% of net sales for
the same period in 1999.
The increase in selling, general and administrative expenses as a percentage
of net sales is principally due to the Company's planned expansion related to
various Internet initiatives. Selling, general and administrative expenses
related to the various Internet divisions increased $3.8 million, or 5% of net
sales, from the third quarter of 1999 to the third quarter of 2000, and $18.1
million or 8% of net sales, for the nine months ended September 30, 1999
compared to the nine months ended September 30, 2000.
Depreciation and amortization expenses
Depreciation and amortization expenses for the quarter ended September 30,
2000 were $13.2 million, or 17% of net sales, compared to $10.8 million, or 14%
of net sales for the same period of 1999. For the nine months ended September
30, 2000, depreciation and amortization expenses were $39.2 million, or 17% of
net sales, compared to $22.6 million or 12% of net sales for the same period in
1999. The increase in depreciation and amortization expenses is principally due
to the acquisition of Donnelley in July 1999.
Impairment of assets
The Company recorded asset impairment charges totaling $5.6 million, or 7%
of net sales, during the quarter ended September 30, 1999. 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.
Non-cash stock compensation expense
During the quarter ended September 30, 2000, the Company recorded a non-cash
charge of $1.2 million, or 2% of net sales, related to the issuance of stock
options for infoUSA.com, a subsidiary of the Company. For the nine months ended
September 30, 2000, the Company recorded a charge of $4.1 million, or 2% of net
sales, related to these stock options.
Acquisition costs
During the quarter ended September 30, 2000, the Company recorded charges
totaling $86 thousand, or less than 1% of net sales, related to the Company's
acquisition of American Church Lists, idEXEC and Getko. These charges represent
costs incurred to integrate these acquired operations into the Company's
existing operations.
For the nine months ended September 30, 2000, the Company recorded
acquisition costs of $2.3 million, including $0.5 thousand of integration costs
described above and $1.8 million associated with the Company's unsuccessful bid
to acquire the consumer database division of R.L. Polk.
Operating income (loss)
Including the factors previously described, the Company had an operating
loss of $1.6 million, or (2)% of net sales for the quarter ended September 30,
2000, compared to operating loss of $0.4 million, or (1)% of net sales for the
same period in 1999. For the nine months ended September 30, 2000, the Company
had an operating loss of $3.9 million, or (2)% of net sales, compared to
operating income of $21.6 million or 11% of net sales for the same period in
1999.
Operating income for the small business segment for the quarter ended
September 30, 2000 was $8.4 million, or 24% of net sales, as compared to $13.2
million, or 42% of net sales for the same period in 1999. For the nine months
ended September 30, 2000, operating income for the small business segment was
$27.7 million, or 25% of net sales, compared to operating income of $46.8
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million or 48% of net sales for the same period in 1999. The decrease in
operating income as a percentage of net sales is principally due to the
Company's execution of the planned expansion related to various Internet
initiatives. Substantially all costs related to the Internet divisions are
included in the small business segment. See the sections "Overview," "Selling,
general and administrative expenses" and "database and production costs" for
additional information describing the Internet divisions and the effects on the
results of operations.
Operating income for the large business segment for the quarter ended
September 30, 2000 was $18.8 million, or 45% of net sales, as compared to $15.2
million, or 35% of net sales for the same period in 1999. For the nine months
ended September 30, 2000, operating income for the large business segment was
$56.1 million, or 45% of net sales, compared to $35.5 million, or 39% of net
sales for the same period in 1999. The increase in operating income as a
percentage of net sales directly relates to the overall increase in sales of
marketing database licenses and Internet-based database licenses, as described
in the section "Net sales", as the cost margins associated with these products
are lower than the cost margins associated with the remainder of the large
business segment's products.
Other income (expense), net
Other income (expense), net was $(5.2) million, or (7)% of net sales, and
$4.0 million, or 5% of net sales, for the quarters ended September 30, 2000 and
1999, respectively. For the nine months ended September 30, 2000, other income
(expense), net was $(1.7) million, or (1)% of net sales, compared to $2.2
million or 1% for the same period in 1999. Other income (expense) is comprised
of interest expense, investment income, minority interest in subsidiary and
other income or expense items which do not represent components of operating
income (expense) of the Company.
Interest expense was $6.7 million and $5.8 million for the quarters ended
September 30, 2000 and 1999, respectively. For the nine months ended September
30, 2000, interest expense was $19.9 million compared to $11.8 million for the
same period in 1999. The increase in interest expense is principally the result
of the addition of the Deutsche Bank Credit Facilities used to finance the
acquisition of Donnelley in July 1999.
Investment income was $0.4 million and $9.8 million for the quarters ended
September 30, 2000 and 1999, respectively. For the nine months ended September
30, 2000, investment income was $0.8 million compared to $14.0 million for the
same period in 1999. The Company recorded realized gains on the sale of
marketable securities totaling $9.4 million for the quarter ended September 30,
1999, and $12.8 million for the nine months ended September 30,1999. During the
third quarter of 1999, the Company realized a gain of $8.8 million on the
disposition of its holdings in InfoSpace.com common stock, the proceeds of which
were used to reduce the debt outstanding incurred as part of the acquisition of
Donnelley.
During the quarter ended June 30, 2000, infoUSA.com, a subsidiary of the
Company, completed additional private equity financing. As a result of the
issuance of stock of this subsidiary, the Company recorded a gain of $12.2
million on the transaction. For the nine months ended September 30, 2000, the
Company recorded a gain of $14.6 million on the issuance of stock of this
subsidiary. The issuance of subsidiary stock to outside investors has allowed
the Company to continue to execute its planned expansion related to infoUSA.com
as an online provider of white and yellow page directory assistance and an
internet destination for sales and marketing tools and information. The issuance
of stock has allowed the Company to continue the expansion without affecting
working capital of existing operations. The Company may continue to issue
additional stock to outside investors, although there can be no assurances that
the Company will issue additional stock and is dependent upon the results of
operations related to infoUSA.com and its planned expansion.
Minority interest in subsidiary of $1.1 million for the quarter ended
September 30, 2000 and $2.8 million for the nine month period ended September
30, 2000, represents the unaffiliated investors' share of infoUSA.com's net loss
for the period then ended.
Income taxes
A provision for income taxes of $0.6 million and $2.6 million was recorded
for the quarters ended September 30, 2000 and 1999, respectively. For the nine
months ended September 30, 2000, a provision for income taxes of $1.4 million
was recorded compared to $10.8 million recorded for the same period in 1999. The
gain the Company recorded on the issuance of subsidiary stock is not subject to
income tax expense. The provisions for these periods also reflect the inclusion
of amortization of certain intangibles in taxable income not deductible for tax
purposes. The provisions for the periods beginning January 1, 2000 do not
include the net losses associated with infoUSA.com, as this entity is not
included in the Company's consolidated federal income tax return from this date
forward.
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Extraordinary item, net of tax
During the nine months ended September 30, 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 non-cash stock compensation expense previously described, the
Company's EBITDA, as adjusted, was $12.8 million, or 17% of net sales for the
quarter ended September 30, 2000, and $16.0 million, or 21% of net sales for the
same period in 1999. For the nine months ended September 30, 2000, EBITDA, as
adjusted, was $40.1 million, or 17% of net sales, compared to $49.7 million or
26% of net sales for the same period in 1999.
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-Q, 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.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Company's principal sources of liquidity
included cash and cash equivalents of $23.1 million. Substantially all of this
cash is held by the Company's subsidiary, infoUSA.com, and may only used by this
subsidiary. Proceeds on the issuance of subsidiary stock totaled $22.8 million
for the nine months ended September 30, 2000. As of September 30, 2000, the
Company had working capital of $40.7 million, although the Company's access to
the working capital of its subsidiary, infoUSA.com, is restricted.
During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a credit arrangement which includes a Revolving Credit Facility of
$30.0 million. In the second and third quarters of 2000, the Company sought and
obtained certain modifications to the Credit Facility to permit continued
availability of borrowing under such facility. As of September 30, 2000, the
Company had no borrowings under the Revolving Credit Facility, with the
exception of two outstanding letters of credit in the amount of $6.7 million
reducing the availability under the Revolving Credit Facility to $23.3 million.
Net cash provided by operating activities during the nine months ended
September 30, 2000, totaled $34.5 million compared to
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$28.7 million during the same period of 1999. The increase is principally the
result of the receipt of $12.0 million during 2000 which represented a customer
deposit on a long-term data license arrangement.
During the nine months ended September 30, 2000, the Company spent $8.2
million for additions of property and equipment and $9.9 million related to
software and database development costs.
During the nine months ended September 30, 2000, the Company spent $9.3
million for the acquisitions of businesses. The Company acquired American Church
Lists in March 2000 for $2.1 million, Getko in May 2000 for $1.7 million and
idEXEC in May 2000 for $5.5 million in cash. The amounts paid reflect the
inclusion of capitalized acquisition costs.
During the nine months ended September 30, 2000, the Company received cash
proceeds of $22.8 million on the issuance of stock in its subsidiary infoUSA.com
and $4.2 million from the exercise of stock options.
The Company made repayments on long-term debt totaling $21.1 million during
the nine months ended September 30, 2000.
Deferred revenue at September 30, 2000 of $12.0 million represent a customer
deposit on a long-term data license arrangement.
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 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.
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.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101") - SAB 101 summarizes certain of the SEC staff's view in applying generally
accepted accounting principles to revenue recognition in financial statements
and affects a broad range of industries. The effective date of SAB 101 for the
Company is the quarter ended December 31, 2000. The Company is currently
evaluating the effects of SAB 101 on its methods of recognizing revenue and
will recognize the impact as a change in accounting principle for the fourth
quarter 2000.
FACTORS THAT MAY AFFECT OPERATING RESULTS
Our Internet strategy is subject to review and revision.
Our Internet strategy is to leverage our proprietary content into multiple
vertical market applications and provide marketing solutions for electronic
commerce applications. The strategy we introduced in fiscal 2000 -- of being an
incubator of Internet database companies -- is relatively untested. We cannot
guarantee that each of our Internet ventures will attract the number of visitors
or advertisers that we project or the financial resources necessary to support
their operations, 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. We will review our Internet strategy from time to time and may revise
the strategy with respect to some or all of our Internet ventures.
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:
o In consumer sales lead generation products, Acxiom, Experian (a
subsidiary of Great Universal Stores, P.L.C. ("GUS")) and Equifax,
both directly and through reseller networks.
o In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications,
Inc. and Harte-Hanks Communications, Inc.
o 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.
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o In business directory publishing, Regional Bell Operating Companies
and many smaller, regional directory publishers.
o In consumer products, certain smaller producers of CD-Rom products.
o 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 September 30, 2000, we had total indebtedness of approximately $258.4
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $136.8 million under a $195 million Senior 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 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 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:
o Incur additional indebtedness;
o Pay dividends and make certain other similar payments;
o Guarantee indebtedness of others;
o Enter into certain transactions with affiliates;
o Consummate certain asset sales, certain mergers and consolidations,
sales or other dispositions of all or substantially all of our assets;
and
o 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.
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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 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:
o Fail to develop products and services that are well suited to the
Internet market;
o Experience difficulties that delay or prevent the successful
development, introduction and marketing of these products and services;
or
o 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 thirteen
acquisitions since mid-1996. 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
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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.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not exposed to significant future earnings or cash flow
exposures from changes in interest rates on long-term debt as a significant
portion of the Company's debt is at fixed interest rates and the Company has
entered into long-term interest rate swap agreements used to reduce the
potential impact of changes in interest rates on floating rate debt. The Company
is not exposed to material future earnings or cash flow exposures from
fluctuations in foreign currency exchange rates as operating results related to
foreign operations are not material.
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infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
SEPTEMBER 30, 2000
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Fifth Amendment dated November 13, 2000
to Credit Agreement by and among the
Company, various lenders (as defined
therein) and Bankers Trust Company,
filed herewith
27 Financial Data Schedule, filed herewith
(b) Report on Form 8-K
No reports on Form 8-K have been filed during the quarter ended September
30, 2000
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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.
infoUSA INC.
Date: November 14, 2000 /s/ STORMY L. DEAN
---------------------------------------
Stormy L. Dean, Chief Financial Officer
(principal financial officer)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
4.1 Fifth Amendment dated November 13, 2000 to Credit
Agreement by and among the Company, various lenders (as
defined therein) and Bankers Trust Company, filed
herewith
27 Financial Data Schedule, filed herewith
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