FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 1-13069
CHOICEPOINT INC.
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(Exact name of registrant as specified in its charter)
Georgia 58-2309650
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1000 Alderman Drive, Alpharetta, Georgia 30005
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(Address of principal executive offices) (Zip Code)
(770) 752-6000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 30, 2002
- ---------------------------- -----------------------------
Common Stock, $.10 Par Value 63,935,727
CHOICEPOINT INC.
FORM 10-Q
QUARTER ENDED MARCH 31, 2002
INDEX
Page No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income (unaudited) -
Three Months Ended March 31, 2002 and 2001.......................................... 3
Consolidated Balance Sheets (unaudited) -
March 31, 2002 and December 31, 2001 .......................................... 4
Consolidated Statement of Shareholders' Equity (unaudited)-
Three months Ended March 31, 2002 ............................................. 5
Consolidated Statements of Cash Flows (unaudited) -
Three months Ended March 31, 2002 and 2001..................................... 6
Notes to Consolidated Financial Statements ......................................... 7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition .............................. 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk ................. 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................................... 19
Item 2. Changes in Securities and Use of Proceeds .................................. 19
Item 3. Defaults Upon Senior Securities ............................................ 19
Item 4. Submission of Matters to a Vote of Security Holders......................... 19
Item 5. Other Information........................................................... 19
Item 6. Exhibits and Reports on Form 8-K............................................ 19
Signatures.......................................................................... 20
Exhibit Index....................................................................... 21
2
CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
March 31,
(In thousands, except per share data) 2002 2001
===============================================================================
Revenue $173,657 $155,681
Costs and expenses:
Cost of services 95,379 91,280
Selling, general and administrative 31,489 30,956
Merger-related costs & unusual items -- 18,009
-------- --------
Total costs and expenses 126,868 140,245
Operating income 46,789 15,436
Interest expense, net 2,286 2,555
-------- --------
Income before income taxes 44,503 12,881
Provision for income taxes 17,089 5,668
-------- --------
Net income $ 27,414 $ 7,213
======== ========
Earnings per share (Notes 5 & 6)
Basic earnings per share $ 0.44 $ 0.12
Weighted average shares - basic 62,948 61,208
Diluted earnings per share $ 0.41 $ 0.11
Weighted average shares - diluted 66,727 64,698
Pro forma earnings per share, adjusted for announced stock split (Note 6)
Basic earnings per share $ 0.33 $ 0.09
Weighted average shares - basic 83,931 81,611
Diluted earnings per share $ 0.31 $ 0.08
Weighted average shares - diluted 88,969 86,264
The accompanying notes are an integral part of these consolidated statements.
3
CHOICEPOINT INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands, except par values) March 31, 2002 December 31, 2001
===================================================================================================================
ASSETS
Current assets:
Cash and cash equivalents $ 28,588 $ 53,033
Accounts receivable, net of allowance for doubtful accounts
of $5,518 in 2002 and $4,634 in 2001 141,683 128,307
Deferred income tax assets 7,333 7,266
Other current assets 20,841 24,064
-------------- --------------
Total current assets 198,445 212,670
Property and equipment, net 64,121 64,929
Goodwill 464,566 450,912
Deferred income tax assets 10,700 9,183
Other 100,943 94,698
-------------- --------------
Total Assets $ 838,775 $ 832,392
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current maturities of long-term debt $ 1,067 $ 156,426
Accounts payable 34,597 34,251
Accrued salaries and bonuses 19,939 33,697
Other current liabilities 68,712 60,315
-------------- --------------
Total current liabilities 124,315 284,689
Long-term debt, less current maturities 127,268 2,390
Postretirement benefit obligations 44,105 43,976
Other long-term liabilities 15,364 16,516
-------------- --------------
Total liabilities 311,052 347,571
-------------- --------------
Shareholders' equity:
Preferred stock, $.01 par value; 10,000 shares authorized, no
shares issued or outstanding -- --
Common stock, $.10 par value; shares authorized - 100,000;
issued - 63,920 in 2002 and 63,371 in 2001 6,392 6,337
Paid-in capital 314,948 299,725
Retained earnings 225,374 197,960
Cumulative other comprehensive loss, net (2,567) (3,635)
Treasury stock, at cost, 812 shares in 2002 and 794 shares
in 2001 (16,424) (15,566)
-------------- --------------
Total shareholders' equity 527,723 484,821
-------------- --------------
Total Liabilities and Shareholders' Equity $ 838,775 $ 832,392
============== ==============
The accompanying notes are an integral part of
these consolidated balance sheets.
4
CHOICEPOINT INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
Cumulative Other
Comprehensive Common Paid-in Retained Comprehensive Treasury
(In thousands) Income Stock Capital Earnings Loss, net Stock Total
------------- -------- -------- -------- ---------------- -------- ----------
Balance, December 31, 2001 $ 6,337 $299,725 $197,960 $ (3,635) $(15,566) $ 484,821
Net Income $ 27,414 -- -- 27,414 -- -- 27,414
Unrealized derivative gain on
cash flow hedges (net of taxes
of $712) 1,068 -- -- -- 1,068 -- 1,068
--------
Comprehensive income $ 28,482
========
Restricted stock plans, net 3 575 -- -- -- 578
Common stock redeemed -- -- -- -- (858) (858)
Stock options exercised 52 9,793 -- -- -- 9,845
Tax benefit of stock options exercised -- 4,855 -- -- -- 4,855
-------- -------- -------- -------- -------- ----------
Balance, March 31, 2002 $ 6,392 $314,948 $225,374 $ (2,567) $(16,424) $ 527,723
======== ======== ======== ======== ======== ==========
The accompanying notes are an integral part of this consolidated statement.
5
CHOICEPOINT INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31,
(In thousands) 2002 2001
- -----------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 27,414 $ 7,213
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 10,807 14,120
Merger-related costs and unusual items -- 18,009
Compensation recognized under employee stock plans 578 422
Tax benefit of stock options exercised 4,855 4,080
Changes in assets and liabilities,
excluding effects of acquisitions:
Accounts receivable, net (13,376) (17,515)
Deferred income taxes (2,296) 280
Other current assets 1,552 (1,147)
Current liabilities, excluding debt (6,082) (27,066)
Other long-term liabilities, excluding debt 757 (10)
---------- ----------
Net cash provided (used) by operating activities 24,209 (1,614)
Cash flows from investing activities:
Acquisitions, net of cash acquired (15,000) (29,494)
Additions to property and equipment, net (4,225) (2,733)
Additions to other assets, net (7,935) (9,625)
---------- ----------
Net cash used by investing activities (27,160) (41,852)
Cash flows from financing activities:
Payments on Credit Facility (30,000) --
Net other debt (481) 2,865
Redemption of common stock (858) --
Proceeds from exercise of stock options 9,845 6,781
---------- ----------
Net cash (used) provided by financing activities (21,494) 9,646
---------- ----------
Effect of foreign currency exchange rates on cash -- (110)
---------- ----------
Net decrease in cash and cash equivalents (24,445) (33,930)
Cash and cash equivalents, beginning of period 53,033 44,909
---------- ----------
Cash and cash equivalents, end of period $ 28,588 $ 10,979
========== ==========
The accompanying notes are an integral part of these consolidated statements.
6
CHOICEPOINT INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
1. ORGANIZATION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company"), is the
leading provider of identification and credential verification services, which
transform data into Actionable Intelligence(TM). ChoicePoint is committed to the
responsible use of information and the protection of personal privacy as
fundamental planks of the Company's business model. ChoicePoint's businesses are
focused on two primary markets - Insurance Services and Business & Government
Services.
The Insurance Services group provides information products and services
used in the underwriting and claims processes by property and casualty
insurers. Major offerings to the personal lines property and casualty
market include claims history data, motor vehicle records, credit
information and modeling services. Additionally, ChoicePoint provides
customized policy rating and issuance software and property inspections
and audits to the commercial insurance market. Prior to the
divestitures in August 2001 and February 2002 (see Note 11),
ChoicePoint also provided laboratory testing services and related
technology solutions to the life and health insurance market.
The Business & Government Services group provides information products
and services and direct marketing to Fortune 1000 corporations,
consumer finance companies, asset-based lenders, legal and professional
service providers, health care service providers and federal, state and
local government agencies. Major offerings include pre-employment
background screenings and drug testing administration services, public
record searches, credential verification, due diligence information,
Uniform Commercial Code searches and filings, DNA identification
services, database marketing services and people and shareholder
locator information searches.
2. BASIS OF PRESENTATION
ChoicePoint Inc. was established through the combination of the businesses that
comprised the Insurance Services Group of Equifax Inc. ("Equifax") within a
separate company and the subsequent spinoff on August 8, 1997 (the "Spinoff") of
the Company's outstanding stock by Equifax as a stock dividend to the
shareholders of Equifax.
The consolidated financial statements include the accounts of ChoicePoint and
its subsidiaries. All material transactions between entities included in the
consolidated financial statements have been eliminated. The consolidated
financial statements have been prepared on the historical cost basis, and
reflect all adjustments which are, in the opinion of management, necessary for a
fair statement of the financial position of ChoicePoint as of March 31, 2002 and
the results of operations and cash flows for the three months ended March 31,
2002 and 2001. The adjustments have been of a normal recurring nature. Certain
prior period amounts have been reclassified to conform with the current period
presentation. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting principles generally
accepted in the United States have been condensed or omitted. These financial
statements should be read in conjunction with the notes to the financial
statements included in ChoicePoint's Consolidated Financial Statements for the
year ended December 31, 2001 as filed with the Securities and Exchange
Commission in the Annual Report on Form 10-K (File No. 1-13069). The current
period's results are not necessarily indicative of results to be expected for a
full year.
7
On May 16, 2000, ChoicePoint completed a merger with DBT Online, Inc. ("DBT").
During the first quarter of 2001, the Company recorded merger-related costs and
unusual items of $18.0 million primarily related to the integration of the
Company's and DBT's public records platforms and sales and marketing
departments. The categories of costs incurred and the accrued balances at March
31, 2002 are summarized below:
Remaining March 31,
(In thousands) Accrual at 2001
March 31, 2002 Expense
-------------- ----------
Personnel-related costs $ -- $ 1,832
Other merger integration costs 247 2,433
Asset impairments -- 12,693
Non-merger severance 198 982
Other one-time charges 55 69
------- -------
$ 500 $18,009
======= =======
The personnel-related costs of $1.8 million consisted primarily of stay bonuses
for services rendered through March 31, 2001 and severance and termination
benefit costs primarily related to the integration of the two public records
platforms and related sales and marketing departments. Other merger integration
costs of $2.4 million consisted primarily of duplicate data and lease exit
costs. Asset impairments of $12.7 million primarily reflected the write-down of
equipment and other long-lived assets deemed to be impaired based on the
integration plan for the two public records platforms which was finalized in the
first quarter of 2001.
3. USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements as well as reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
4. REVENUE AND EXPENSE RECOGNITION
ChoicePoint recognizes revenue when an agreement exists, prices are
determinable, service and products are delivered and collectibility is
reasonably assured. Revenues for the majority of information products and
services is generally billed on a transactional basis determined by customer
usage with some fixed elements. Direct marketing revenues are generally
recognized when projects are completed and delivered and are billed in
accordance with contractual terms. Revenues from software license and
maintenance agreements are recognized in accordance with Statement of Position
97-2, "Software Revenue Recognition." Motor vehicle records registry revenue
(the fee charged by states for motor vehicle records), material, shipping and
postage charges in the Company's direct marketing business and other costs that
are passed on by ChoicePoint to its customers ("pass-through revenue") are
excluded from revenue and recorded as a reduction to cost of services in the
consolidated financial statements. For the three months ended March 31,
pass-through revenue was $125.3 million in 2002 and $109.2 million in 2001.
5. EARNINGS PER SHARE
The income amount used in the numerator of the Company's earnings per share
("EPS") calculations is the same for both basic and diluted earnings per share.
The average outstanding shares used in the denominator of the calculation for
diluted earnings per share includes the dilutive effect of stock options.
6. STOCK SPLIT
On April 25, 2002, ChoicePoint announced a four-for-three stock split in the
form of a stock dividend effective June 6, 2002 for shareholders of record as of
May 16, 2002.
8
7. DEBT AND OTHER FINANCING
ChoicePoint has a $250 million unsecured revolving credit facility (the "Credit
Facility") with a group of banks that bears interest at variable rates based on
LIBOR plus an applicable margin as determined by certain debt covenants. Total
borrowings under the Credit Facility were $125 million at March 31, 2002.
Subsequent to March 31, 2002, the Company has replaced the Credit Facility with
a new revolving credit facility which provides for borrowings up to $325 million
(the "New Credit Facility"). The New Credit Facility extends through a
termination date of May 2005 and bears interest at variable rates based on LIBOR
plus an applicable margin. In addition, there was $3.3 million of other
long-term debt outstanding at March 31, 2002. There were no short-term
borrowings at March 31, 2002.
In 1997, the Company entered into a $25 million synthetic lease agreement for
the Company's headquarters building. Under the synthetic lease agreement, a
third-party lessor purchased the property, paid for the construction and leased
the building to the Company. In 2001, the Company entered into another synthetic
lease agreement for up to $52 million to finance the expansion of its
headquarters facilities which will be constructed in 2002. Both leases expire in
2007, at which time the Company has the following options for each lease: renew
the lease for an additional five years, purchase the building for the original
cost or remarket the property. If the Company elects to remarket the properties,
ChoicePoint must guarantee the lessor 80% to 85% of the original cost.
The Company has accounted for the synthetic leases as operating leases and has
recorded rent expense. The Financial Standards Accounting Board is currently
working on a new standard that might change current generally accepted
accounting principles in the United States to require the Company to consolidate
the synthetic leases. If the Company had elected to purchase the properties
instead of entering into the synthetic leases or if the Company was required to
change its accounting for the synthetic leases based on a new accounting
principle, total assets and debt would have increased by $28 million at March
31, 2002 and the Company would have recorded additional depreciation expense of
approximately $200,000 related to the completed facility in the first quarter of
2002.
In July 2001, the Company and certain of its subsidiaries entered into an
agreement (the "Receivables Facility") with a financial institution whereby it
may sell on a continuous basis and, without recourse, an undivided interest in
all eligible trade accounts receivable subject to limitations. The Company will
maintain the balance in the designated pool of accounts receivable sold by
selling undivided interests in new receivables as existing receivables are
collected. The Receivables Facility permits the advance of up to $100 million on
the sale of accounts receivable. There were no sales of accounts receivable
under the Receivables Facility during the period ended March 31, 2002.
8. DERIVATIVE FINANCIAL INSTRUMENTS
ChoicePoint has entered into two interest rate swap agreements (the "Swap
Agreements") to reduce the impact of changes in interest rates on its floating
rate long-term obligations. The interest rate swap agreement hedging the
Company's floating rate long-term obligations has a notional amount of $125
million at March 31, 2002 and December 31, 2001, and matures in August 2002. The
other interest rate swap agreement has a notional amount of $25 million, hedges
the synthetic lease agreement entered into in 1997 for the Company's
headquarters building, and matures in August 2007 when the lease expires.
Effective January 1, 2001, ChoicePoint adopted Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"), and its corresponding amendments under SFAS No. 138. SFAS 133
requires the Company to measure all derivatives at fair value and to recognize
them in the Consolidated Balance Sheet as an asset or liability, depending on
ChoicePoint's rights or obligations under the applicable derivative contract.
ChoicePoint's derivative instruments include the Swap Agreements which have been
designated as cash flow hedges to hedge the variability of cash flows to be paid
related to the Company's floating rate long-term obligations and the 1997
synthetic lease agreement and, as such, the effective portions of changes in
fair value are reported in cumulative other comprehensive loss ("OCL") and are
subsequently reclassified into earnings when the
9
hedged item affects earnings. Changes in the fair value of derivative
instruments not designated as hedging instruments and ineffective portions of
hedges are recognized in earnings in the current period. The adoption of SFAS
133 as of January 1, 2001, resulted in a charge to OCL of $2.8 million, net of
taxes. As of March 31, 2002, the cumulative change in OCL related to these
derivatives is $2.6 million, net of taxes. The fair value of the interest rate
swap agreements, estimated by the bank based on its internal valuation models,
was a liability of $4.3 million at March 31, 2002. For the three months ended
March 31, 2002, there was no ineffectiveness related to these cash flow hedges.
9. STOCK OPTIONS
During the first three months of 2002, stock options to purchase approximately
1.3 million shares of ChoicePoint common stock were granted under the
ChoicePoint Inc. 1997 Omnibus Stock Incentive Plan. Exercise prices of these
options are equal to the fair market value on the date of grant.
10. COMPREHENSIVE INCOME
Total comprehensive income for the three months ended March 31, 2002 and 2001
was as follows (in thousands):
Three Months Ended
March 31,
------------------------
2002 2001
------- -------
Net income $27,414 $ 7,213
Translation adjustments -- (110)
Unrealized derivative gain (loss) on
cash flow hedges (net of taxes) 1,068 (2,779)
------- -------
Comprehensive income $28,482 $ 4,324
======= =======
11. ACQUISITIONS & DIVESTITURES
In January 2002, the Company acquired the insurance market on-line consumer
credit reporting, marketing and pre-screen list extract services business of
Experian Information Solutions, Inc., based in Chicago, Illinois. The results of
its operations from the date of acquisition are included in the Consolidated
Statements of Income. The total purchase price of the acquisition, which was
accounted for using the purchase method, was approximately $15.0 million.
Goodwill of $12.5 million was allocated to Business & Government Services. The
allocation of purchase price to the assets and liabilities of certain
acquisitions is preliminary and subject to change based on the resolutions of
pre-acquisition contingencies. As of March 31, 2002, ChoicePoint has
approximately $4.3 million accrued for transaction-related costs including lease
terminations and personnel-related costs related to this and prior acquisitions.
In August 2001 and February 2002, the Company sold its two components of the
laboratory services business. The results of this business historically have
been included in the Insurance Services business segment. Operating segment
results have been restated for all periods to reflect the sale of this line of
business (see Note 13 to the Consolidated Financial Statements). There was no
material gain or loss on the sale of the operating unit sold in February 2002.
Subsequent to March 31, 2002, the Company acquired Total eData Corporation, an
e-mail database company based in Little Rock, Arkansas. This transaction is not
material to the Consolidated Financial Statements of the Company.
12. NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") effective July 1, 2001 and SFAS No.
142, effective for the Company on January 1, 2002. SFAS No. 141 prohibits
pooling of interests accounting for acquisitions initiated after June 30, 2001.
SFAS No. 142 required companies to cease amortizing goodwill that existed at
June 30, 2001 on December
10
31, 2001. Any goodwill resulting from acquisitions completed after June 30, 2001
is no longer amortized. SFAS No. 142 also broadens the criteria for recording
intangible assets separate from goodwill and establishes a new method of testing
goodwill for impairment on an annual basis or on an interim basis if an event
occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value. The provisions of SFAS No. 142 which apply to
goodwill and intangible assets acquired prior to June 30, 2001 were adopted by
ChoicePoint on January 1, 2002. As a result of the adoption of these accounting
standards certain intangibles were subsumed into goodwill and amortization of
these assets and goodwill was discontinued effective January 1, 2002. The impact
of intangible asset amortization that would not have been amortized pursuant to
SFAS No. 142 during the three months ended March 31, 2001 on net income and a
diluted earnings per share basis was as follows:
Three Months Ended
March 31,
------------------------------
(In thousands, except per share data) 2002 2001
---------- ----------
Reported net income $ 27,414 $ 7,213
Goodwill and other acquisition intangibles
amortization, net of taxes -- 3,152
---------- ----------
Adjusted net income $ 27,414 $ 10,365
========== ==========
Basic earnings per share $ 0.44 $ 0.12
Goodwill amortization -- 0.05
---------- ----------
Adjusted basic earnings per share $ 0.44 $ 0.17
========== ==========
Weighted average shares - basic
62,948 61,208
Diluted earnings per share $ 0.41 $ 0.11
Goodwill amortization -- 0.05
---------- ----------
Adjusted diluted earnings per share $ 0.41 $ 0.16
========== ==========
Weighted average shares - diluted
66,727 64,698
In accordance with SFAS No. 142, the Company will complete its initial goodwill
impairment tests by June 30, 2002 and will record any impairment loss as a
cumulative change in accounting principle in accordance with SFAS No. 142
retroactive to January 1, 2002. The Company expects that this analysis could
result in a goodwill impairment of not more than 10% of the Company's goodwill
as of March 31, 2002.
13. SEGMENT DISCLOSURES
ChoicePoint operates primarily in two reportable segments: Insurance Services
("Insurance") and Business & Government Services ("B&G"). See Note 1 for a
description of each segment. Revenues and operating income for the three months
ended March 31, 2002 and 2001 for the two segments, laser technology patents
held by the Company ("Royalty") and the divested and discontinued lines were as
follows:
11
Three months ended
March 31, 2002 Three months ended March 31, 2001
---------------------- --------------------------------------
Pro forma
Operating Operating Operating
Income Income Income
(In thousands) Revenue (Loss) Revenue (Loss) (a) (Loss)
-------- -------- -------- -------- --------
Insurance $ 79,155 $ 37,591 $ 66,615 $ 29,070 $ 28,706
B&G 92,833 19,925 78,507 18,713 15,111
Royalty 1,597 997 1,657 1,051 1,051
Divested & Discontinued (b) 72 (206) 8,902 (279) (580)
Corporate and Shared Expenses (c) -- (11,518) -- (10,843) (10,843)
Merger-related Costs and
Unusual Items (Note 2) -- -- -- (18,009) (18,009)
-------- -------- -------- -------- --------
Total $173,657 $ 46,789 $155,681 $ 19,703 $ 15,436
======== ======== ======== ======== ========
Divested & Unallocated &
(In thousands) Insurance B&G Royalty Discontinued Other (d) Total
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
March 31, 2002 $166,151 $606,116 $6,085 $ -- $60,423 $838,775
December 31, 2001 156,673 583,807 5,902 1,860 84,150 832,392
- -----------------------------------------------------------------------------------------------------------------------
GOODWILL
March 31, 2002 $ 35,258 $429,308 $ -- $ -- $ -- $464,566
December 31, 2001 (net) 35,220 415,692 -- -- -- 450,912
- -----------------------------------------------------------------------------------------------------------------------
DEPRECIATION & AMORTIZATION
Three Months Ended:
March 31, 2002 $ 2,037 $ 7,377 $ 424 $ 11 $ 958 $ 10,807
March 31, 2001 2,308 9,318 425 1,196 873 14,120
March 31, 2001 - Pro forma(a) 1,944 5,716 425 895 873 9,853
- -----------------------------------------------------------------------------------------------------------------------
(a) Pro forma represents operating results and depreciation and amortization, as
applicable, as if SFAS No. 142 was effective January 1, 2001.
(b) Divested and discontinued product lines include the operating results from
the laboratory services business sold in August 2001 and February 2002.
(c) Corporate and shared expenses represent costs of support functions, research
and development initiatives, incentives and profit sharing that benefit both
segments.
(d) Unallocated and Other includes certain corporate items and eliminations that
are not allocated to the segments.
Substantially all of the Company's operations are located in the United States
and no customer represents more than 10% of total operating revenue.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
INTRODUCTION
ChoicePoint Inc., a Georgia corporation ("ChoicePoint" or the "Company"), is the
leading provider of identification and credential verification services, which
transform data into Actionable Intelligence. ChoicePoint is committed to the
responsible use of information and the protection of personal privacy as
fundamental planks of the Company's business model. ChoicePoint's businesses are
focused on two primary markets - Insurance Services and Business & Government
Services. See Note 1 to the Consolidated Financial Statements for a description
of each market.
On April 25, 2002, ChoicePoint announced a four-for-three stock split in the
form of a stock dividend effective June 6, 2002 for shareholders of record as of
May 16, 2002. On March 7, 2001, ChoicePoint effected a three-for-two stock split
in the form of a stock dividend payable to shareholders of record as of February
16, 2001. Unless otherwise stated, share and per share data for all periods
presented have been adjusted to reflect the March 7, 2001 stock split. Share and
per share data have not been adjusted for the stock split announced April 25,
2002 which will be effective June 6, 2002.
RESULTS OF OPERATIONS
REVENUE
The Company's total revenue for the first quarter of 2002 was $173.7 million, an
increase of 12% over the first quarter of 2001. Consolidated internal revenue
growth, which excludes the effect of revenue from purchased acquisitions and
divestitures, was approximately 7% for the first quarter of 2002. Our revenue
growth was driven primarily from continued strong unit performances in all of
the Insurance Services' product lines and the acquisitions in Business &
Government Services.
SEGMENT REVENUE
Insurance Services' major offerings include claims history data, motor vehicle
records, credit information and modeling services to the personal lines property
and casualty market; and customized policy rating and issuance software and
property inspections and audits to the commercial insurance market. In August
2001 and February 2002, the Company sold its two components of the laboratory
services business. The results of this business historically have been included
in the Insurance Services business segment. Operating segment results discussed
below have been restated for all periods to reflect the sale of this line of
business (see Notes 11 and 13 to the Consolidated Financial Statements).
In the first quarter of 2002, Insurance Services revenue was $79.2 million, up
19%, or $12.6 million, from $66.6 million in 2001. This growth was driven by
strong unit performance across all businesses led by increases in CLUE(R)
Property, NCF(TM) - National Credit File and CLUE Auto volumes.
During the three months ended March 31, 2001, the Company acquired Insurity
Solutions Inc. Excluding this acquisition and the dispositions discussed above,
internal revenue growth in Insurance Services was 18% from the three months
ended March 31, 2001 to the three months ended March 31, 2002.
Business & Government Services' major offerings include pre-employment
background screenings and drug testing administration services, public record
searches, credential verification, due diligence information, Uniform Commercial
Code searches and filings, DNA identification services, database marketing
services and people and shareholder locator information services.
Business & Government Services' revenue for the first quarter of 2002 increased
$14.3 million, or 18%, to $92.8 million from $78.5 million in the first quarter
of 2001. This growth was driven primarily by the integration of recent
acquisitions in workplace solutions and direct marketing and improved
performance in our marketing fulfillment operations, offset by slower growth in
public records and existing workplace solutions businesses due to economic
conditions. During the first three months of 2002, the Company acquired the
insurance market on-line consumer credit reporting, marketing and pre-screen
list extract services business of Experian Information Solutions, Inc., and in
2001, the pre-employment and drug
13
testing businesses of Pinkerton Services Corporation, a unit of Securitas AB of
Sweden, Marketing Information and Technology, Inc., a provider of large-scale
direct marketing systems for Fortune 500 clients, BTi Employee Screening
Services, Inc., ABI Consulting, Inc., The Bode Technology Group, Inc., and
certain assets of National Medical Review Offices, Inc. Excluding acquisitions,
internal revenue for Business & Government Services declined 2% for the first
quarter of 2002 primarily as a result of unit decreases in workplace solutions
and public records.
First quarter royalty revenue from laser technology patents held by the Company
decreased slightly from $1.7 million in 2001 to $1.6 million in 2002. The
remaining patents underlying this revenue expire between November 2004 and May
2005.
Divested and discontinued product lines include the operating results from the
two components of the laboratory services business sold in August 2001 and
February 2002 (see Note 11 to the Consolidated Financial Statements).
MERGER-RELATED COSTS AND UNUSUAL ITEMS
Merger-related costs and unusual items of $18.0 million in the first quarter of
2001 primarily related to the DBT merger in May 2000 and related integration of
the Company's two public records businesses in connection with this merger, the
plan for which was finalized in the first quarter of 2001. Merger-related costs
and unusual items include asset impairments, stay bonuses, severance and
termination benefits, and duplicate data and lease exit costs (See Note 2 to the
Consolidated Financial Statements).
OPERATING INCOME
The Company's operating income was $46.8 million or 26.9% as a percent of
revenue in the first quarter of 2002, up from $33.4 million, excluding
merger-related costs and unusual items, in the first quarter of the prior year.
Including the $18.0 million merger-related costs and unusual items in the first
quarter of 2001, operating income was $15.4 million. Included in the first
quarter 2001 operating income, reported as cost of services in the Consolidated
Statements of Income, was $4.3 million of goodwill amortization. Excluding this
goodwill amortization as if SFAS No. 142 had been adopted January 1, 2001 ("pro
forma"), operating income for the first quarter of 2001 excluding merger-related
costs and unusual items was $37.7 million, or 24.2% of revenue. The improvement
in operating margins from pro forma 2001 to 2002 was primarily as a result of
the revenue growth in Insurance Services discussed above, cost synergies
realized in the integration of the Company's acquisitions and our continued
focus on improving cost efficiencies.
SEGMENT OPERATING INCOME
Insurance Services had first quarter 2002 operating income of $37.6 million,
resulting in an operating margin of 47.5%, compared with 43.1% in the first
quarter of 2001. Excluding goodwill amortization, first quarter pro forma
operating margins were 43.6% in 2001. The margin increase from pro forma 2001 is
primarily a result of the revenue growth discussed above and continued focus on
improving cost efficiencies.
Business & Government Services had first quarter 2002 operating income of $19.9
million, resulting in an operating margin of 21.5% compared with 19.2% in the
first quarter of 2001. Excluding goodwill amortization, first quarter pro forma
operating margins were 23.8% in 2001. The margin decrease from pro forma 2001 is
primarily due to revenue pressures in our workplace solutions business and the
lower than average margins of 2001 acquisitions.
Corporate and shared expenses represent costs of support functions, research and
development initiatives, incentives and profit sharing that benefit both
Insurance Services and Business & Government Services. Corporate and shared
expenses were $11.5 million for the first quarter of 2002, up from $10.8 million
in 2001. The increase in corporate and shared expenses is primarily due to the
increase in compensation expense recognized under employee stock plans and
incentives and additional resources to support the growth of the Company.
14
INTEREST EXPENSE, NET
Interest expense, net was $2.3 million for the first quarter of 2002 down from
$2.6 million in 2001 due to slightly lower average debt outstanding and lower
interest rates.
INCOME TAXES
ChoicePoint's overall effective tax rate was 38.4% for the first quarter of 2002
and 39.7% (44.0% including merger-related costs and unusual items) for the three
months ended March 31, 2001. Excluding goodwill amortization and merger-related
costs and unusual items, our effective tax rate for the first three months of
2001 was 38.0%.
FINANCIAL CONDITION AND LIQUIDITY, INCLUDING OFF-BALANCE SHEET ITEMS
The Company's sources of cash liquidity include cash and cash equivalents, cash
from operations, amounts available under credit facilities, and other external
sources of funds. The Company's short-term and long-term liquidity depends
primarily upon its level of net income, working capital management (accounts
receivable, accounts payable and accrued expenses), and long-term debt.
ChoicePoint has a $250.0 million unsecured revolving credit facility (the
"Credit Facility") with a group of banks (see Note 7 to the Consolidated
Financial Statements). Borrowings under the Credit Facility were $125.0 million
at March 31, 2002, and $155.0 million at December 31, 2001. The Company entered
into a new credit facility in May 2002 which provides for borrowings up to $325
million (the "New Credit Facility") to replace the current Credit Facility that
was scheduled to mature in August 2002. The New Credit Facility extends through
a termination date of May 2005 and bears interest at variable rates based on
LIBOR plus an applicable margin.
In July 2001, to obtain an additional source of financing, the Company and
certain of its subsidiaries entered into an agreement (the "Receivables
Facility") with a financial institution whereby the Company may sell on a
continuous basis, and without recourse, an undivided interest in all eligible
trade accounts receivable subject to limitations. The Company will maintain the
balance in the designated pool of accounts receivable sold by selling undivided
interests in new receivables as existing receivables are collected. The
Receivables Facility is an off-balance sheet financial instrument which permits
the advance of up to $100 million on the sale of accounts receivable. There were
no sales of accounts receivable under the Receivables Facility during 2001 or
the first quarter of 2002.
In 1997, the Company entered into a $25 million synthetic lease agreement for
the Company's headquarters building. Under the synthetic lease agreement, a
third-party lessor purchased the property, paid for the construction and leased
the building to the Company. In 2001, the Company entered into another synthetic
lease agreement for up to $52 million to finance the expansion of its
headquarters facilities which will be constructed in 2002. Both leases expire in
2007, at which time the Company has the following options for each lease: renew
the lease for an additional five years, purchase the building for the original
cost or remarket the property. If the Company elects to remarket the property,
ChoicePoint must guarantee the lessor 80% to 85% of the original cost.
The Company has accounted for the synthetic leases as operating leases and has
recorded rent expense. The Financial Standards Accounting Board is currently
working on a new standard that might change current generally accepted
accounting principles in the United States to require the Company to consolidate
the synthetic leases. If the Company had elected to purchase the properties
instead of entering into the synthetic leases or if the Company was required to
change its accounting for the synthetic leases based on a new accounting
principle, our assets and debt would have increased by $28 million at March 31,
2002 and the Company would have recorded additional depreciation expense of
approximately $200,000 in the first quarter of 2002.
15
Contractual obligations and the related future payments at March 31, 2002 are as
follow:
Payments Due by Period
(In thousands) Total 2002 2003 2004 Thereafter
- --------------------------------------------------------------------------------------------------------
Debt $127,225 $ 125 $ 130 $ 140 $126,830
Capital Lease Obligations 1,110 829 281 -- --
Operating Leases and Other
Commitments 76,930 12,231 16,192 14,392 34,115
- -------------------------------------------------------------------------------------------------------
Total Contractual Cash
Obligations $205,265 $13,185 $16,603 $14,532 $160,945
=======================================================================================================
Derivative financial instruments at March 31, 2002 and December 31, 2001 consist
of two interest rate swap agreements (see Note 8 to the Consolidated Financial
Statements) entered into to limit the effect of changes in interest rates on the
Company's floating rate long-term obligations and 1997 synthetic lease
agreement. At March 31, 2002, the total notional amount under these swap
agreements was $150 million and the Company paid a weighted average fixed rate
of 6.0% during the first quarter of 2002. Amounts currently due to or from
interest rate swap counterparties are recorded as expense in the period in which
they accrue. The Company does not enter into derivative financial instruments
for trading or speculative purposes. The fair value of the interest rate swap
agreements, estimated by the bank based on its internal valuation models, was a
liability of $4.3 million at March 31, 2002 and is accounted for in accordance
with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities."
We believe that our existing cash balance, available debt, and cash flows from
operations will be sufficient to meet our working capital and capital
expenditure requirements for the next twelve months. However, any material
variance of our operating results from our projections or the investments in or
acquisitions of businesses, products, or technologies could require us to obtain
additional equity or debt financing.
Cash and cash equivalents totaled $28.6 million as of March 31, 2002. Cash
provided by operations was $24.2 million for the first three months of 2002
compared to cash used by operating activities of $1.6 million for the first
three months of 2001. The increase in cash provided by operations was primarily
attributable to increased net income and working capital as compared to March
31, 2001. During the first three months of 2002, ChoicePoint continued to invest
in future growth. Cash used by investing activities was $27.2 million,
consisting of $15.0 million for acquisitions, $4.2 million for property and
equipment and $7.9 million for other asset additions, primarily purchased data
files and internally developed and externally purchased software. In the first
three months of 2001, cash used by investing activities was $41.9 million,
including $29.5 million for acquisitions, $2.7 million for additions to property
and equipment and $9.6 million for additions to other assets. Excluding the
headquarters facility expansion discussed above, the Company anticipates
full-year capital expenditures to be in the range of $50 million to $60 million
for 2002, which will be used primarily for the development of a new public
records technology platform, new product development, system upgrades, and other
assets, including purchased data files and internally developed and externally
purchased software. Cash used by financing activities of $21.5 million in the
first three months of 2002 included $30.0 million of payments on the Credit
Facility offset by $9.8 million of proceeds from the exercise of stock options.
Cash provided by financing activities of $9.6 million in the first three months
of 2001 included $6.8 million of proceeds from the exercise of stock options and
$2.8 million of net borrowings of other debt.
Earnings before interest, taxes, depreciation and amortization ("EBITDA"),
excluding merger-related costs and unusual items in 2001, increased $10.0
million in the first quarter of 2002, or 21%, from the first quarter of 2001, to
$57.6 million. EBITDA margins increased from 30.6% for the first quarter of 2001
to 33.2% for the first quarter of 2002 due to ChoicePoint's strong operating
performance. The Company has included EBITDA data (which is not a measure of
financial performance under generally accepted accounting principles) because
such data is used by certain investors to analyze and compare companies on the
basis of operating performance, leverage and liquidity and to determine a
company's ability to service debt. EBITDA is not presented as a substitute for
income from operations, net income or cash flows from operating activities.
16
Economic Value Added ("EVA") measures the value created in excess of the cost of
capital used to run the business. The Company uses EVA as a performance measure
to make operational, capital and compensation decisions. EVA increased $2.6
million in the first quarter of 2002 due primarily to strong operating results
and capital management.
The Company uses cash generated to invest in growing the business and to fund
acquisitions and operations. Therefore, no cash dividends have been paid and the
Company does not anticipate paying any cash dividends on its common stock in the
near future.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations" ("SFAS No. 141") effective July 1, 2001 and SFAS No.
142, effective for the Company on January 1, 2002. SFAS No. 141 prohibits
pooling of interests accounting for acquisitions initiated after June 30, 2001.
SFAS No. 142 required companies to cease amortizing goodwill that existed at
June 30, 2001 on December 31, 2001. Any goodwill resulting from acquisitions
completed after June 30, 2001 is no longer amortized. SFAS No. 142 also broadens
the criteria for recording intangible assets separate from goodwill and
establishes a new method of testing goodwill for impairment on an annual basis
or on an interim basis if an event occurs or circumstances change that would
reduce the fair value of a reporting unit below its carrying value. The
provisions of SFAS No. 142 which apply to goodwill and intangible assets
acquired prior to June 30, 2001 were adopted by ChoicePoint on January 1, 2002.
As a result of the adoption of these accounting standards certain of our
intangibles were subsumed into goodwill and amortization of these assets and
goodwill was discontinued effective January 1, 2002. The impact of intangible
asset amortization that would not have been amortized pursuant to SFAS No. 142
during the three months ended March 31, 2001 on a diluted earnings per share
basis was $0.05.
In accordance with SFAS No. 142, the Company will complete its initial goodwill
impairment tests by June 30, 2002 and will record any impairment loss as a
cumulative change in accounting principle in accordance with SFAS No. 142
retroactive to January 1, 2002. The Company expects that this analysis could
result in a goodwill impairment of not more than 10% of the Company's goodwill
as of March 31, 2002.
CRITICAL ACCOUNTING POLICIES
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the Company to
make estimates and assumptions (see Note 3 to the Consolidated Financial
Statements). The Company believes that of its significant accounting policies,
the following may involve a higher degree of judgment and complexity:
Purchase price allocation: Over its history, the Company's growth has been
partly driven by acquisitions. The application of the purchase method of
accounting requires companies to assign values to acquired assets and
liabilities, including intangible assets acquired based on their fair value. The
determination of fair value for acquired assets, particularly intangible assets,
requires a high degree of judgment, and estimates often involve significant
subjectivity due to the lack of transparent market data or listed market prices.
The Company generally uses internal cash flow models and other evaluations as
well as third-party appraisals in determining the fair value of assets acquired;
however, the use of different valuation models or assumptions could produce
different financial results.
Intangible assets: On January 1, 2002, ChoicePoint adopted SFAS No. 142 and is
required to assess its intangible assets for impairment during the six months
ending June 30, 2002 and on at least an annual basis thereafter. The Company's
intangible assets are primarily made up of goodwill, software, customer
relationships, data files and noncompete agreements related to acquisitions. In
assessing the recoverability of ChoicePoint's intangible assets, the Company
must make assumptions regarding the estimated future cash flows to determine
fair value of the respective assets. If these estimates or their related
assumptions change in the future, ChoicePoint may be required to record
impairment charges for these assets.
Impairment and other exit activities: As discussed in Note 11 to the
Consolidated Financial Statements, in connection with selling and integrating
certain business operations, the Company has incurred certain exit costs,
17
generally for the accrual of remaining leasehold obligations, data contract
obligations and targeted terminated employee separation costs, and asset
impairment charges for data and software assets that will no longer be used.
Inherent in the accruals for exit costs and the assumptions used in impairment
analyses are certain significant management judgments and estimates. The Company
periodically reviews and reevaluates the assumptions used for the accrual of
exit costs and adjusts the accrual as necessary.
Software developed for internal use: The Company capitalizes certain direct
costs incurred in the development of internal use software. Amortization of such
costs as cost of sales is done on a straight-line basis generally over three to
five years. The Company periodically evaluates the recoverability of capitalized
costs or as changes in circumstance suggest a possible impairment may exist.
Primarily in connection with the DBT Merger and integration of the Company's
public records businesses, capitalized software costs were written down by $2.7
million in 2001. No capitalized software costs were written down in first
quarter of 2002. Amortization of capitalized software costs amounted to $2.0
million and $1.5 million for the three months ended March 31, 2002 and 2001.
FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by or on behalf of the Company may
constitute "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995. Words or phrases such as "should result," "are
expected to," "we anticipate," "we estimate," "we project," or similar
expressions are intended to identify forward-looking statements. These
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in any forward-looking
statements. These risks and uncertainties include, but are not limited to, the
following important factors: demand for the Company's services, product
development, maintaining acceptable margins, maintaining secure systems, ability
to control costs, the impact of federal, state and local regulatory requirements
on the Company's business, specifically the public records market and privacy
matters affecting the Company, the impact of competition and customer
consolidations, ability to continue our long-term business strategy including
growth through acquisitions, ability to attract and retain qualified personnel
and the uncertainty of economic conditions in general. Additional information
concerning these risks and uncertainties is contained in the Company's filings
with the Securities and Exchange Commission, including the Company's Annual
Report on Form 10-K for the year ended December 31, 2001. Readers are cautioned
not to place undue reliance on forward-looking statements, since the statements
speak only as of the date that they are made, and the Company undertakes no
obligation to publicly update these statements based on events that may occur
after the date of this report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates. The
information below summarizes the Company's market risk associated with its debt
obligations as of March 31, 2002. The information below should be read in
conjunction with Note 7 to the Consolidated Financial Statements.
As of March 31, 2002, $125 million was outstanding under the Credit Facility.
The Company has also entered into an interest rate swap agreement (the "Swap
Agreement") to reduce the impact of changes in interest rates on its floating
rate long-term obligations. The Swap Agreement had a notional amount of $125
million at March 31, 2002 and matures in August 2002. The Swap Agreement
involves the exchange of variable rate for fixed rate payments and effectively
changes the Company's interest rate exposure to a weighted average fixed rate of
approximately 6.0%.
Based on the Company's overall interest rate exposure at March 31, 2002, a
near-term change in interest rates would not materially affect the consolidated
financial position, results of operations or cash flows of the Company. As noted
above, as of March 2002, $125 million is outstanding under the Credit Facility,
all of which is hedged with interest rate swaps. A one percent change in
interest rates would not result in any change in annual interest expense based
on this level of borrowing.
18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ChoicePoint is involved in litigation from time to time in the ordinary course
of its business. The Company does not believe that the outcome of any pending or
threatened litigation will have a material adverse effect on the financial
position or results of operations of ChoicePoint. However, as is inherent in
legal proceedings where issues may be decided by finders of fact, there is a
risk that unpredictable decisions adverse to the Company could be reached.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 25, 2002, ChoicePoint announced a four-for-three stock split in the
form of a stock dividend effective June 6, 2002 for shareholders of record as of
May 16, 2002.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Revolving Credit Agreement, dated as of May 10, 2002, among ChoicePoint
Inc., the Lenders listed therein, SunTrust Bank, as Administrative
Agent, Wachovia Bank, National Association, as Syndication Agent, U.S.
Bank National Association and BNP Paribas, as Documentation Agents, and
First Union Securities, Inc. (d/b/a Wachovia Securities) and SunTrust
Capital Markets, Inc., as Co-Lead Arrangers.
(b) Reports on Form 8-K
As previously disclosed in the Annual Report on Form 10-K filed on
March 29, 2002, on March 22, 2002, the Company filed a Current Report
on Form 8-K, reporting the change in registrant's certifying accountant
from Arthur Andersen LLP to Deloitte & Touche LLP.
19
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.
CHOICEPOINT INC.
------------------
(Registrant)
May 13, 2001 /s/ Derek V. Smith
- ---------------------------- --------------------------------
Date Derek V. Smith, Chairman and
Chief Executive Officer
May 13, 2001 /s/ David E. Trine
- ---------------------------- --------------------------------
Date David E. Trine, Treasurer and
Corporate Controller
20
EXHIBIT INDEX
Exhibit Description of Exhibit
10.1 Revolving Credit Agreement, dated as of May 10, 2002, among ChoicePoint
Inc., the Lenders listed therein, SunTrust Bank, as Administrative
Agent, Wachovia Bank, National Association, as Syndication Agent, U.S.
Bank National Association and BNP Paribas, as Documentation Agents, and
First Union Securities, Inc. (d/b/a Wachovia Securities) and SunTrust
Capital Markets, Inc., as Co-Lead Arrangers.
21