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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 June 30, 2001 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
------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer
Identification Number) incorporation or organization)
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.
50,571,248 shares of Common Stock at August 7, 2001
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infoUSA INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets as of June 30, 2001 and
December 31, 2000
Consolidated Statements of Operations for the three months
and six months ended June 30, 2001 and 2000
Consolidated Statements of Cash Flows for the six months ended
June 30, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature
Index to Exhibits
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infoUSA INC.
FORM 10-Q
FOR THE QUARTER ENDED
JUNE 30, 2001
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)
JUNE 30, 2001 DECEMBER 31, 2000
------------- -----------------
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents ............................ $ 26,246 $ 21,693
Marketable securities ................................ 1,134 102
Trade accounts receivable, net of allowances of
$1,116 and $4,724, respectively .................... 51,545 58,501
List brokerage trade accounts receivable ............. 14,395 13,499
Income taxes receivable .............................. 467 4,267
Prepaid expenses ..................................... 3,979 6,067
Deferred marketing costs ............................. 2,224 2,469
--------- ---------
Total current assets ......................... 99,990 106,598
--------- ---------
Property and equipment, net ............................ 51,360 54,709
Intangible assets, net ................................. 277,751 296,060
Other assets ........................................... 6,194 6,178
--------- ---------
$ 435,295 $ 463,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt .................... $ 18,146 $ 17,779
Accounts payable ..................................... 6,139 11,484
List brokerage trade accounts payable ................ 14,055 13,981
Accrued payroll expenses ............................. 7,263 7,458
Accrued expenses ..................................... 7,618 14,828
Deferred income taxes ................................ 4,846 1,688
Deferred revenues .................................... 20,772 19,437
--------- ---------
Total current liabilities .................... 78,839 86,655
--------- ---------
Long-term debt, net of current portion ................. 223,788 240,873
Deferred income taxes .................................. 25,660 29,955
Deferred revenue ....................................... 9,000 12,000
Minority interest ...................................... 3,419 3,092
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; 51,530,339 shares issued and 50,571,248
outstanding at June 30, 2001 and 51,519,872 shares
issued and 50,520,620 outstanding
at December 31, 2000 ............................... 129 129
Paid-in capital ...................................... 94,128 96,539
Retained earnings .................................... 10,896 6,837
Treasury stock, at cost, 959,091 shares held at
June 30, 2001 and 999,252 held at December 31,
2000 ............................................... (7,028) (7,271)
Unamortized stock compensation expense ............... (1,932) (4,543)
Accumulated other comprehensive loss ................. (1,604) (721)
--------- ---------
Total stockholders' equity ................... 94,589 90,970
--------- ---------
$ 435,295 $ 463,545
========= =========
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 SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(UNAUDITED) (UNAUDITED)
Net sales ............................ $ 70,909 $ 77,669 $ 144,762 $ 159,190
Costs and expenses:
Database and production costs
(excluding non-cash stock
compensation expense of $44 and $78
for the periods ended June 30,
2000, respectively) ............... 19,526 25,676 40,913 51,359
Selling, general and administrative
(excluding non-cash stock
compensation expense of $225 and
$302 for the periods ended June 30,
2001 and $1,641 and $2,829 for the
periods ended June 30, 2000,
respectively) ...................... 26,682 40,039 53,943 77,283
Depreciation and amortization ........ 12,189 13,490 24,922 25,648
Non-cash stock compensation expense .. 225 1,685 302 2,907
Restructuring charges ................ 767 -- 1,643 --
Acquisition costs .................... -- 821 -- 2,201
--------- --------- --------- ---------
Total operating costs and expenses ... 59,389 81,711 121,723 159,398
--------- --------- --------- ---------
Operating income (loss) .............. 11,520 (4,042) 23,039 (208)
Other income (expense):
Investment income .................. 428 233 673 437
Gain on issuance of subsidiary
stock ............................ -- 12,205 -- 14,634
Minority interest in (gain) loss of
subsidiary ....................... (267) 1,426 (327) 1,700
Interest expense ................... (6,429) (6,468) (13,343) (13,252)
--------- --------- --------- ---------
Income from continuing operations
before income taxes and cumulative
effect of change in accounting
principle ........................ 5,252 3,354 10,042 3,311
Income taxes ......................... 3,047 1,364 5,983 1,611
--------- --------- --------- ---------
Income from continuing operations
before cumulative effect of change
in accounting principle .......... 2,205 1,990 4,059 1,700
Discontinued operations, net of tax .. -- (611) -- (1,615)
Cumulative effect of change in
accounting principle, net of tax . -- -- -- (10,266)
--------- --------- --------- ---------
Net income (loss) .................... $ 2,205 $ 1,379 $ 4,059 $ (10,181)
========= ========= ========= =========
BASIC EARNINGS PER SHARE:
Income from continuing operations .. $ 0.04 $ 0.04 $ 0.08 $ 0.03
Loss on discontinued operations .... -- (0.01) -- (0.03)
Cumulative effect of change in
accounting principle ............. -- -- -- (0.20)
--------- --------- --------- ---------
Net income (loss) .................. $ 0.04 $ 0.03 $ 0.08 $ (0.20)
========= ========= ========= =========
Weighted average shares outstanding. 50,571 49,900 50,569 49,674
========= ========= ========= =========
DILUTED EARNINGS PER SHARE:
Income from continuing operations .. $ 0.04 $ 0.04 $ 0.08 $ 0.03
Loss on discontinued operations .... -- (0.01) -- (0.03)
Cumulative effect of change in
accounting principle ............. -- -- -- (0.20)
--------- --------- --------- ---------
Net income (loss) .................. $ 0.04 $ 0.03 $ 0.08 $ (0.20)
========= ========= ========= =========
Weighted average shares outstanding. 50,571 49,928 50,569 49,674
========= ========= ========= =========
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)
SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................ $ 4,059 $(10,181)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization .............. 24,922 25,648
Amortization of deferred financing costs ... 578 578
Deferred income taxes ...................... (6,450) (2,122)
Gain on issuance of subsidiary stock ....... -- (14,634)
Non-cash marketing costs ................... -- 183
Non-cash stock option compensation expense . 302 2,907
Non-cash 401(k) contribution in common
stock .................................... 120 --
Acquisition costs .......................... -- 1,266
Minority interest in gain (loss) of
subsidiary ............................... 327 (1,700)
Cumulative change in accounting principle .. -- 10,266
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable ................ 6,236 2,007
List brokerage trade accounts receivable . (896) 4,528
Prepaid expenses and other assets ........ 2,792 (1,941)
Deferred marketing costs ................. 245 (551)
Accounts payable ......................... (5,346) 4,452
List brokerage trade accounts payable .... 74 (4,539)
Income taxes receivable and payable, net . 9,113 (3,661)
Accrued expenses and deferred revenue .... (10,820) 14,630
-------- --------
Net cash provided by operating activities 25,256 27,136
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities ........... (1,032) (32)
Purchases of other investments ............... -- (1,124)
Purchases of property and equipment .......... (1,860) (6,482)
Acquisitions of businesses ................... -- (8,642)
Software and database development costs ...... (1,094) (6,951)
-------- --------
Net cash used in investing activities ........ (3,986) (23,231)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt .................. (16,717) (17,047)
Proceeds from sale of subsidiary common stock. -- 22,845
Deferred financing costs ..................... -- (42)
Proceeds from exercise of stock options ...... -- 4,200
-------- --------
Net cash provided by (used in) financing ..... (16,717) 9,956
activities
Net increase in cash and cash equivalents ..... 4,553 13,861
Cash and cash equivalents, beginning .......... 21,693 10,846
-------- --------
Cash and cash equivalents, ending ............. $ 26,246 $ 24,707
======== ========
Supplemental cash flow information:
Interest paid ................................ $ 13,572 $ 13,512
======== ========
Income taxes paid ............................ $ 2,723 $ 6,363
======== ========
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, 2000 included in the Company's 2000 Annual Report on Form 10-K,
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.
Effective January 1, 2000, the Company changed its revenue recognition method
for data licensing revenue and began to recognize revenue on data license
arrangements on a straight-line basis. This change in method was made because a
growing proportion of such license revenue is from long-term and continuous
access agreements. The Company believes the newly adopted method better reflects
the service commitment inherent in its various license agreements. The
cumulative effect of the change in method of $10.3 million is net of income tax
benefit of $3.5 million.
The Company uses derivative financial instruments to manage the risk of a change
in interest rates on $60.5 million of the debt incurred for the acquisition of
Donnelley Marketing in July 1999. The Company does not enter into derivative
financial instruments for trading or speculative purposes. The Company adopted
SFAS No. 133 effective January 1, 2001. Upon adoption, the Company's interest
rate swap agreement was designated as a cash flow hedge. The Company recorded a
transition adjustment at January 1, 2001 of $0.3 million, net of tax, as an
accumulated other comprehensive loss to record the derivative financial
instrument on the Company's financial statements. During the quarter ended June
30, 2001, the Company recorded an unrealized gain on the above derivative
financial instrument of $38 thousand, net of tax, as an accumulated other
comprehensive income in the stockholders equity section of the Consolidated
Balance Sheet. In addition, a charge of $0.1 million was recorded as interest
expense in the other income (expense) section of the Consolidated Statement of
Operations. For the six months ended June 30, 2001, the Company recorded an
unrealized loss on the above derivative financial instrument of $0.6 million,
net of tax, as an accumulated other comprehensive loss in the stockholders
equity section of the Consolidated Balance Sheet. In addition, a charge of $0.3
million was recorded as interest expense in the other income (expense) section
of the Consolidated Statement of Operations.
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. For the quarter ended June 30, 2001, the average market price of the
Company's common stock was greater than the exercise price of all the Company's
outstanding common stock subject to option. Therefore, the Company excluded 3.6
million shares in computing diluted earnings per share for the six months ended
June 30, 2001. Options on 0.8 million shares of common stock were not included
in computing diluted earnings per share for the six months ended June 30, 2000,
because their effects were antidilutive as the Company recorded a net loss for
the period.
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
(IN THOUSAND S) (IN THOUSAND S)
2001 2000 2001 2000
------ ------ ------ ------
Weighted average number of shares
outstanding used in basic EPS ......... 50,571 49,900 50,569 49,674
Net additional common stock equivalent
shares outstanding after assumed
exercise of stock options ............. -- 28 -- --
------ ------ ------ ------
Weighted average number of shares
outstanding used in diluted EPS ....... 50,571 49,928 50,569 49,674
====== ====== ====== ======
3. SEGMENT INFORMATION
The Company currently manages existing operations utilizing financial
information accumulated and reported for two business segments.
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The small business segment principally engages in the selling of sales lead
generation and consumer DVD 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, 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 (gain) 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.
The following table summarizes segment information:
FOR THE THREE MONTHS ENDED JUNE 30, 2001
-----------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales ............. $ 31,095 $ 39,814 $ -- $ 70,909
Non-cash stock
compensation ........ -- -- 225 225
Operating income (loss) 14,639 21,428 (24,547) 11,520
Investment income ..... -- -- 428 428
Interest expense ...... -- -- 6,429 6,429
Income (loss) from
continuing operations
before income
taxes and cumulative
effect of change in
accounting principle. 14,639 21,428 (30,815) 5,252
FOR THE THREE MONTHS ENDED JUNE 30, 2000
-----------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales ............... $ 35,499 $ 42,170 $ -- $ 77,669
Non-cash stock
compensation .......... -- -- 1,685 1,685
Acquisition costs ....... -- -- 821 821
Operating income (loss) . 6,520 21,232 (31,794) (4,042)
Investment income ....... -- -- 233 233
Interest expense ........ -- -- 6,468 6,468
Income (loss) from
continuing operations
before income taxes
and cumulative effect
of change in accounting
principle ............. 6,520 21,232 (24,398) 3,354
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FOR THE SIX MONTHS ENDED JUNE 30, 2001
-----------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales ............. $ 65,664 $ 79,098 $ -- $144,762
Non-cash stock
compensation ........ -- -- 302 302
Operating income (loss) 33,591 42,643 (53,195) 23,039
Investment income ..... -- -- 673 673
Interest expense ...... -- -- 13,343 13,343
Income (loss) from
continuing operations
before income
taxes and cumulative
effect of change in
accounting principle. 33,591 42,643 (66,192) 10,042
FOR THE SIX MONTHS ENDED JUNE 30, 2000
--------------------------------------------------------------
SMALL LARGE CORPORATE CONSOLIDATED
BUSINESS BUSINESS ACTIVITIES TOTAL
-------- -------- ---------- ------------
(IN THOUSANDS)
Net sales ............. $ 74,782 $ 84,408 $ -- $ 159,190
Non-cash stock
compensation ........ -- -- 2,907 2,907
Acquisition costs ..... -- -- 2,201 2,201
Operating income (loss) 21,400 40,604 (62,212) (208)
Investment income ..... -- -- 437 437
Interest expense ...... -- -- 13,252 13,252
Income (loss) from
continuing operations
before income taxes
and cumulative effect
of change in
accounting principle. 21,400 40,604 (58,693) 3,311
4. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss), including the components of other comprehensive
income (loss), is as follows:
FOR THE THREE FOR THE SIX
MONTHS ENDED MONTHS ENDED
------------------------- -------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Net income ................... $ 2,205 $ 1,379 $ 4,059 $(10,181)
Other comprehensive income
(loss):
Unrealized gain (loss) from
investments:
Unrealized gains (losses). -- -- (24) --
Related tax expense ...... -- -- 9 --
-------- -------- -------- --------
Net ...................... -- -- (15) --
-------- -------- -------- --------
Interest rate swap agreement:
Gains (losses) ........... 61 -- (1,400) --
Related tax expense ...... (23) -- 532 --
-------- -------- -------- --------
Net ...................... 38 -- (868) --
-------- -------- -------- --------
Foreign currency translation
adjustments .............. -- (34) -- (27)
-------- -------- -------- --------
Total other comprehensive
income (loss) .............. 38 (34) (883) (27)
-------- -------- -------- --------
Comprehensive income ......... $ 2,243 $ 1,345 $ 3,176 $(10,208)
======== ======== ======== ========
The components of accumulated other comprehensive income (loss) is as
follows:
FOREIGN ACCUMULATED
CURRENCY GAINS/(LOSSES) UNREALIZED OTHER
TRANSLATION ON DERIVATIVE GAINS/(LOSSES) COMPREHENSIVE
ADJUSTMENTS INSTRUMENTS ON SECURITIES INCOME (LOSS)
----------- ------------- -------------- -------------
(IN THOUSANDS)
Balance at June 30, 2001 $ (668) $ (868) $ (68) $(1,604)
======= ======= ====== =======
Balance at June 30, 2000 $ (668) $ -- $ -- $ (668)
======= ======= ====== =======
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5. 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. There were no
subsidiary options granted during the six months ended June 30, 2001. 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 and other related FASB
Interpretations for stock-based compensation to non-employees of the Company. As
such, the Company has recorded a non-cash charge of $0.2 million and $1.7
million, during the quarters ended June 30, 2001 and 2000 respectively, related
to stock options for infoUSA.com. For the six months ended June 30, 2001 and
2000, the Company has recorded non-cash charges of $0.3 million and $2.9
million, respectively, related to stock options for infoUSA.com. The charges
were recorded as an addition to paid-in-capital.
6. RESTRUCTURING CHARGES
During the first six months of 2001, the Company recorded restructuring
charges due to workforce reductions of $1.6 million, as a part of the Company's
overall strategy to reduce costs and continue commitment to its core businesses.
The costs were incurred and paid during the six months ended June 30, 2001. The
workforce reduction charges included involuntary employee separation costs for
approximately 215 employees in administration, sales support and marketing
functions.
During the fourth quarter of 2000, the Company recorded restructuring
charges totaling $5.8 million as a part of the Company's overall strategy to
reduce costs and continue commitment to its core businesses. The cost
containment program included a reduction in the planned investment in the
Company's Internet businesses and plans to reduce total headcount. The Company
recorded an accrual of $3.7 million for lease payments for the abandoned Foster
City, California facility and an accrual of $2.1 million for workforce
reductions of approximately 350 employees. The Company paid $1.5 million of the
lease costs related to the Foster City, California facility during the first six
months of 2001. As of June 30, 2001, employees received cash severance payments
totaling $2.1 million during the first six months of 2001, with no severance
payments remaining deferred and payable as of June 30, 2001. At June 30, 2001,
the deferred payments for the lease buyout costs related to the Foster City,
California facility totaling $2.2 million were classified in the Statement of
Consolidated Financial Position as other liabilities.
7. ACQUISITION COSTS
During the quarter ended June 30, 2000, the Company recorded charges of $821
thousand principally related to the Company's acquisition of American Church
Lists, idEXEC and Getko, representing costs 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. Also, the Company recorded additional
charges associated with the Company's bid to acquire the consumer database
division of R.L. Polk. This entity was acquired by Equifax in May 2000.
For the six months ended June 30, 2000, the Company recorded acquisition
costs of $2.2 million, including $821 thousand of costs described above and $1.4
million associated with the Company's bid to acquire the consumer database
division of R.L. Polk.
8. GAIN ON ISSUANCE OF SUBSIDIARY STOCK
During the quarter ended June 30, 2000, infoUSA.com, a subsidiary of the
Company, completed additional venture capital financing. As a result of the
issuance of common stock of this subsidiary, the Company recorded a non-taxable
gain of $12.2 million on the transaction.
During the six months ended June 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 went
from approximately 83 percent at December 31, 1999 to approximately 67 percent
at June 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.
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9. DISCONTINUED OPERATIONS, NET OF TAX
During December 2000, the Company closed the operations of its
VideoYellowPages.com Internet unit. VideoYellowPages.com recorded a loss from
discontinued operations for the quarter ended June 30, 2000 of $0.6 million, net
of income tax benefit of $0.4 million. For the six months ended June 30, 2000,
the Company recorded a loss from discontinued operations related to
VideoYellowPages.com of $1.6 million, net of income tax benefit of $1.0 million.
10. 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.
11. SUBSEQUENT EVENTS
On July 30, 2001, infoUSA.com, a subsidiary of the Company, negotiated a
lease termination agreement for the abandoned Foster City, California facility,
described above in Note 6, "Restructuring Charges". infoUSA.com paid $4.7
million to satisfy the remaining eight year term of the lease agreement. As of
June 30, 2001, infoUSA.com had a $2.2 million reserve remaining for the lease
obligation and will record an additional restructuring charge of $2.5 million,
during the third quarter of 2001, to record the lease termination agreement.
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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 information, data
processing and database marketing services. The Company's key assets include
proprietary databases of 14 million businesses and 250 million consumers in the
United States and Canada. We believe our proprietary content is the most
comprehensive and accurate data available. We leverage these key assets by
selling through multiple distribution channels to over 3 million customers that
include small and medium-size businesses, Fortune 1000 companies, consumers, and
Internet users.
This discussion and analysis contains forward-looking statements, including
without limitation statements in the discussion of comparative results of
operations, 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 American Church Lists during
March 2000, idEXEC in May 2000 and Getko Direct Response of Canada (Getko) in
May 2000:
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales .................................................... 100% 100% 100% 100%
Costs and expenses:
Database and production costs .............................. 28 33 28 32
Selling, general and administrative ........................ 38 52 37 49
Depreciation and amortization .............................. 17 17 17 16
Non-cash stock compensation expense ........................ -- 2 -- 2
Restructuring charges ...................................... 1 -- 1 --
Acquisition costs .......................................... -- 1 -- 1
--------- --------- --------- ---------
Total costs and expenses ................................ 84 105 84 100
--------- --------- --------- ---------
Operating income (loss) .................................... 16 (5) 16 --
Other income (expense), net ................................ (9) 10 (9) 2
--------- --------- --------- ---------
Income (loss) from continuing operations before
income taxes and cumulative effect of change in accounting
principle ................................................ 7 4 7 2
Income taxes ............................................... 4 1 4 1
--------- --------- --------- ---------
Income (loss) from continuing operations before
cumulative effect of change in accounting principle ..... 3 3 3 1
Discontinued operations, net of tax ........................ -- (1) -- (1)
Cumulative effect of change in accounting principle,
net of tax .............................................. -- -- -- (6)
--------- --------- --------- ---------
Net income (loss) .......................................... 3% 2% 3% (6)%
========= ========= ========= =========
OTHER DATA:
SALES BY SEGMENT:
(in thousands)
Small business ........................................ $ 31,095 $ 35,499 $ 65,664 $ 74,782
Large business ........................................ 39,814 42,170 79,098 84,408
--------- --------- --------- ---------
Total ................................................. $ 70,909 $ 77,669 $ 144,762 $ 159,190
========= ========= ========= =========
SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:
Small business ........................................ 44% 46% 45% 47%
Large business ........................................ 56 54 55 53
--------- --------- --------- ---------
Total ................................................. 100% 100% 100% 100%
========= ========= ========= =========
12
13
THREE MONTHS THREE MONTHS SIX MONTHS SIX MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000 JUNE 30, 2001 JUNE 30, 2000
------------- ------------- ------------- -------------
Amortization expense of goodwill and related
intangibles (1) ......................................... $ 7,526 $ 8,111 $ 15,310 $ 16,070
========= ========= ========= =========
Earnings before, interest, taxes, depreciation and
amortization, (EBITDA), as adjusted (2) ................. $ 23,934 $ 11,133 $ 48,263 $ 28,347
========= ========= ========= =========
EBITDA, as adjusted, as a percentage of net sales ........... 34% 14% 33% 18%
========= ========= ========= =========
Cash Flow Data: (in thousands)
Net cash from operating activities ..................... $ 25,256 $ 27,136
========= =========
Net cash used in investing activities .................. (3,986) (23,231)
========= =========
Net cash used in financing activities .................. (16,717) 9,956
========= =========
(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 and non-cash stock compensation expenses.
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.
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.
As a part of these strategic acquisitions, the Company has 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.
During 1999, operating costs 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.
During the fourth quarter of 2000, the Company reevaluated its Internet
Strategy. The Company realized spending was too high on advertising and brand
activities that were not profitable. The Company cut back on investments in all
four Internet initiatives. The operations of Videoyellowpages.com were
discontinued in December of 2000. The Company realized it did not have the
resources required to make this idea succeed. The Company cut back dramatically
the investment in BusinessCreditUSA.com and ListBazaar.com. businesses and have
rolled them back into the core business. Leveraging off of the high traffic from
the infoUSA.com and our partner's website, we are able to make
BusinessCreditUSA.com and List Bazaar.com profitable and successful distribution
channels for our proprietary content and Business Credit Reports. We also
reduced the staff and infrastructure in infoUSA.com. The issuance of subsidiary
stock to outside investors allowed the Company to execute our planned expansion
of infoUSA.com as an online provider of white and yellow page directory
assistance and an Internet destination for sales and marketing tools and
information without affecting working capital of core business operations. The
dramatic changes in the Internet market required us to focus on preserving the
remaining investment and revise our strategy for turning infoUSA.com into a
profitable subsidiary. infoUSA.com reduced its staff from approximately 85
people to 14 people by the end of June 2001, with most of the administrative,
overhead and support functions being rolled back under the parent company.
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14
In summary, EBITDA, as adjusted, increased from $28.3 million for the six
months ended June 30, 2000 to $48.3 million for the six months ended June 30,
2001, principally due to the following: 1) reducing the investment for the four
Internet initiatives previously described late in 2000 resulting in cost savings
of approximately $12.7 million, and 2) staffing reductions (excluding staffing
reductions related to the Internet initiatives described above) initiated
between December 2000 and April 2001 totaling 21% of the total workforce
resulting in cost savings of approximately $5.7 million.
Net sales
Net sales of the Company for the quarter ended June 30, 2001 were $70.9
million, a decrease of 9% from $77.7 million for the same period of 2000. Net
sales for the six months ended June 30, 2001 were $144.8 million, a decrease of
9% from the $159.2 million for the same period of 2000. The decrease in net
sales is principally due to softer customer demand and a general slow-down in
the United States economy.
Net sales of the small business segment for the quarter ended June 30, 2001
were $31.1 million, a 12% decrease from $35.5 million for the same period of
2000. The decrease in net sales is principally due to softer customer demand and
a general slow-down in the United States economy, with $2.8 million of the
decrease specifically related to the sale of content to list brokers and
resellers. Net sales of the small business segment for the six months ended June
30, 2001 were $65.7 million, a 12% decrease from the $74.8 million for the same
period of 2000. A significant portion of the decrease in net sales for the
period of $5.6 million, is specifically related to the sale of content to list
brokers and resellers. The small business segment principally engages in the
selling of sales lead generation and consumer DVD 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
net sales amounts are not fully comparable due to the acquisition of American
Church Lists in March 2000 and Getko Direct Response of Canada (Getko) in May
2000. The Company immediately integrated the operations of the acquired
companies into existing operations. The Company cannot report 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.
Net sales of the large business segment for the quarter ended June 30, 2001
were $39.8 million, a 6% decline from $42.2 million for the same period of 2000.
Net sales of the large business segment for the six months ended June 30, 2001
were $79.1 million, a 6% decrease from the $84.4 million for the same period of
2000. The decrease in net sales is principally due to softer customer demand
related to the general slow-down in the United States economy and the adverse
impact from a postal rate increase on its customers. These amounts are not fully
comparable due to the acquisition of idEXEC in May 2000. The Company immediately
integrated the operations of idEXEC into existing operations and cannot report
the results of idEXEC separately 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.
Database and production costs
Database and production costs for the quarter ended June 30, 2001 were $19.5
million, or 28% of net sales, compared to $25.7 million, or 33% of net sales for
the same period of 2000. For the six months ended June 30, 2001, database and
production costs were $40.9 million, or 28% of net sales, compared to $51.4
million or 32% of net sales for the same period in 2000. The decrease in
database and production costs as a percentage of net sales is primarily due to
headcount reductions and favorable changes in product sales mix in the large
business segment and reduced costs associated with the Internet businesses
initiated by the Company in December 2000. Database and production costs for the
large business segment were 25% of net sales for the six months ended June 30,
2001, a decrease of $4.2 million, compared to the rate of 29% of net sales, for
the same period of 2000. Database and production costs for corporate activities,
decreased $3.6 million for the six months ended June 30, 2001 compared to the
same period of 2000, due to decreased data compilation and data acquisition
costs. Database and production costs for the Internet businesses decreased $2.4
million to $0.8 million for the six months ended June 30, 2001, compared to $3.2
million for the same period of 2000.
Selling, general and administrative expenses
Selling, general and administrative expenses for the quarter ended June 30,
2001 were $26.7 million, or 38% of net sales, compared to $40.0 million, or 52%
of net sales for the same period of 2000. For the six months ended June 30,
2001, selling, general and administrative expenses were $53.9 million, or 37% of
net sales, compared to $77.3 million, or 49% of net sales, for the same
14
15
period of 2000. The decrease in selling, general and administrative expenses, is
principally due to: 1) reduced marketing and advertising costs, principally
related to the various Internet initiatives, and 2) headcount reductions between
December 2000 and April 2001. Marketing and advertising costs for the six months
ended June 30, 2001, were $6.5 million, or 4% of net sales, compared to $19.4
million, or 12% of net sales, for the same period of 2000. Marketing and
advertising expenses related to the various Internet divisions were $0.2 million
for the six months ended June 30, 2001, reflecting a decrease of $10.3 million,
or 7% of net sales, compared to $10.5 million for the same period of 2000.
Marketing and advertising expenses related to the core businesses were $2.6
million lower for the six months ended June 30, 2001 compared to the same period
of 2000. The Company has reduced total headcount from approximately 2,050 in
June 2000, to approximately 1,550 as of June 30, 2001. Salaries and wages for
marketing and general administration for the six months ended June 30, 2001 were
$30.9 million, or 21% of net sales, a reduction of $8.4 million compared to
$39.3 million, or 25% of net sales, for the same period of 2000.
Depreciation and amortization expenses
Depreciation and amortization expenses for the quarter ended June 30, 2001
were $12.2 million, or 17% of net sales, compared to $13.5 million, or 17% of
net sales for the same period of 2000. For the six months ended June 30, 2001,
depreciation and amortization expenses were $24.9 million, or 17% of net sales,
compared to $25.6 million, or 16% of net sales for the same period in 2000. The
decrease in depreciation and amortization expenses is principally due to certain
intangible assets and website development costs becoming fully amortized.
Non-cash stock compensation expense
During the quarter ended June 30, 2001, the Company recorded a non-cash
charge of $0.2 million, or less than 1% of net sales, compared to $1.7 million,
or 2% of net sales, for the same period of 2000, related to the issuance of
stock options for infoUSA.com, a subsidiary of the Company. For the six months
ended June 30, 2001, non-cash stock compensation expenses were $0.3 million, or
less than 1% of net sales, compared to $2.9 million, or 2% of net sales for the
same period of 2000. The decrease in non-cash stock compensation expense is
principally due to the workforce reduction of infoUSA.com, described above in
the "Overview" section.
Restructuring costs
The Company recorded restructuring charges of $1.6 million for the six
months ended June 30, 2001, due to fiscal year 2001 workforce reductions, as a
part of the Company's overall strategy to reduce costs and focus commitment to
its core businesses. The costs were incurred and paid during the six months
ended June 30, 2001. The fiscal year 2001 workforce reduction charges included
involuntary employee separation costs for approximately 215 employees.
During the fourth quarter of 2000, the Company recorded restructuring
charges totaling $5.8 million as a part of the Company's overall strategy to
reduce costs and continue commitment to its core businesses. The cost
containment program included a reduction in the planned investment in the
Company's Internet businesses and plans to reduce total headcount. The Company
recorded an accrual of $3.7 million for lease payments for the abandoned Foster
City, California facility and an accrual of $2.1 million for workforce
reductions of approximately 350 employees. The Company paid $1.5 million of the
lease costs related to the Foster City, California facility during the first six
months of 2001, as of June 30, 2001. Employees received cash severance payments
totaling $2.1 million during the first six months of 2001, with no severance
payments remaining deferred and payable as of June 30, 2001. At June 30, 2001,
the deferred payments for the lease buyout costs related to the Foster City,
California facility totaling $2.2 million were classified in the Statement of
Consolidated Financial Position as other liabilities.
Acquisition costs
During the quarter ended June 30, 2000, the Company recorded charges of $821
thousand principally related to the Company's acquisition of American Church
Lists, idEXEC and Getko, representing costs 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. Also, the Company recorded additional
charges associated with the Company's bid to acquire the consumer database
division of R.L. Polk. This entity was acquired by Equifax in May 2000.
For the six months ended June 30, 2000, the Company recorded acquisition
costs of $2.2 million, including $821 thousand of costs described above and $1.4
million associated with the Company's bid to acquire the consumer database
division of R.L. Polk.
15
16
Operating income
Including the factors previously described, the Company had operating income
of $11.5 million, or 16% of net sales for the quarter ended June 30, 2001,
compared to an operating loss of $4.0 million, or (5)% of net sales for the same
period in 2000. For the six months ended June 30, 2001, the Company had
operating income of $23.0 million, or 16% of net sales, compared to an operating
loss of $0.2 million, or less than (1)% of net sales for the same period in
2000.
Operating income for the small business segment for the quarter ended June
30, 2001 was $14.6 million, or 47% of net sales, as compared to $6.5 million, or
18% of net sales for the same period in 2000. For the six months ended June 30,
2001, operating income for the small business segment was $33.6 million, or 51%
of net sales, compared to $21.4 million, or 29% of net sales for the same period
of 2000. The increase in operating income as a percentage of net sales is
principally due to staffing reductions previously described and the Company's
cost reduction efforts related to various Internet initiatives. Substantially
all costs related to the Internet divisions are included in the small business
segment. See the sections "Overview" and "Selling, general and administrative
expenses" 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 June
30, 2001 was $21.4 million, or 54% of net sales, as compared to $21.2 million,
or 50% of net sales for the same period in 2000. For the six months ended June
30, 2001, operating income for the large business segment was $42.6 million or
54% of net sales, compared to $40.6 million, or 48% of net sales for the same
period in 2000. The increase in operating income as a percentage of net sales is
principally related to the Company's staffing reductions previously described
and a change in the product sales mix previously described in the section
"Database and production costs."
Other income (expense), net
Other income (expense) net, was $(6.3) million, or (9)% of net sales, and
$7.4 million, or 10% of net sales, for the quarters ended June 31, 2001 and
2000, respectively. For the six months ended June 30, 2001, other income
(expense) net, was $(13.0) million, or (9)% of net sales, compared to $3.5
million, or 2% of net sales for the same period of 2000. 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 $6.4 million and $6.5 million for the quarters ended
June 30, 2001 and 2000, respectively. For the six months ended June 30, 2001 and
2000, interest expense was $13.3 million. Investment income was $0.4 million and
$0.2 million, for the quarters ended June 30, 2001 and 2000, respectively. For
the six months ended June 30, 2001 and 2000, interest income was $0.7 million
and $0.4 million, respectively.
During the quarter ended June 30, 2000, infoUSA.com, a subsidiary of the
Company, completed additional venture capital 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 six months ended June 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 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, without effecting
working capital of existing operations.
Minority interest in (gain) loss of subsidiary of $(0.3) million and $1.4
million for the quarters ended June 30, 2001 and 2000, respectively, represents
the unaffiliated investors' share of infoUSA.com's net loss (gain) for the
period then ended. For the six months ended June 30, 2001 and 2000,
respectively, minority interest in (gain) loss of subsidiary of $(0.3) million
and $1.7 million, represents the unaffiliated investors' share of infoUSA.com's
net loss (gain) for the period then ended.
Income taxes
A provision for income taxes of $3.0 million and $1.4 million was recorded
for the quarters ended June 30, 2001 and 2000, respectively. The gain the
Company recorded on the issuance of subsidiary stock during the second quarter
of 2000 was not subject to income tax expense. For the six months ended June 30,
2001, a provision for income taxes of $6.0 million was recorded compared to $1.6
million recorded for the same period of 2000. The gain the Company recorded on
the issuance of subsidiary stock during the six month period ended June 30, 2000
was not subject to income tax expense. The provisions for income taxes also
reflect the inclusion of amortization of certain intangibles in taxable income
not deductible for tax purposes. The provisions for income taxes in 2001 and
2000 do not include the tax benefit of 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 and recoverability of these assets is uncertain.
16
17
Discontinued operations, net of tax
During December 2000, the Company closed the operations of its
VideoYellowPages.com Internet unit. VideoYellowPages.com recorded revenues of
$0.1 million and operating expenses of $1.1 million, for a pre-tax operating
loss of $1.0 million and an after-tax loss of $0.6 million, during the second
quarter of 2000. VideoYellowPages.com recorded revenues of $0.1 million and
operating expenses of $2.7 million, for a pre-tax operating loss of $2.6 million
and an after-tax loss of $1.6 million, for the six month period ended June 30,
2000.
Cumulative effect of accounting change, net of tax
During 2000, the Company changed its revenue recognition method for data
licensing revenue. Effective January 1, 2000 the Company began to recognize
revenue on data license arrangements on a straight-line basis. This change in
method was made because a growing proportion of such license revenue is from
long-term and continuous access agreements. The Company believes the newly
adopted method better reflects the service commitment inherent in its various
license agreements. The cumulative effect of the change in method of $10.3
million is net of income tax benefit of $3.5 million.
EBITDA, as adjusted
The Company's EBITDA, as adjusted was $23.9 million, or 34% of net sales for
the quarter ended June 30, 2001, and $11.1 million, or 14% of net sales for the
same period in 2000. For the six months ended June 30, 2001, the Company's
EBITDA, as adjusted was $48.3 million, or 33% of net sales, compared to $28.3
million, or 18% of net sales for the same period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
General information:
During 1999 in conjunction with the acquisition of Donnelley, the Company
negotiated a credit arrangement ("Senior Debt Credit Facility") that includes a
Revolving Credit Facility of $25.0 million, as amended. During 2000, the Company
sought and obtained certain modifications to the Credit Facility to permit
continued availability of borrowing under such facility. As of June 30, 2001,
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 $18.3 million.
The Company is subject to certain financial covenants in the Credit
Facilities, including minimum consolidated interest coverage ratio, maximum
consolidated leverage ratio and minimum consolidated EBITDA. Management believes
the Company is in compliance with all restrictive covenants of the Company's
various debt facilities.
The Company believes that its existing sources of liquidity and cash
generated from operations, assuming no significant 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.
Consolidated Statements of Cash Flows Information:
As of June 30, 2001, the Company's principal sources of liquidity included
cash and cash equivalents of $26.2 million. Approximately $19.5 million of this
cash is held by the Company's subsidiary, infoUSA.com, and may only used by this
subsidiary. As of June 30, 2001, the Company had working capital of $23.8
million, with $14.5 million of the working capital held by infoUSA.com. The
Company's access to the working capital of its subsidiary, infoUSA.com, is
restricted.
Net cash provided by operating activities during the six months ended June
30, 2001, totaled $25.3 million compared to $27.1 million during the same period
of 2000. For the six months ended June 30, 2000, the Company recorded the
receipt of $14.0 million which represented a customer prepayment on a long-term
data license agreement. For the six months ended June 30, 2001, the Company made
cash payments of $2.1 million for severance payments and $1.5 million for lease
payments on the abandoned Foster City, California facility, described in the
"Restructuring costs" section above. Therefore, net cash provided by operating
activities, as adjusted for the items described above, totaled $28.9 million,
compared to $13.1 million for the six months ended June 30, 2001 and 2000,
respectively.
17
18
During the six months ended June 30, 2001, the Company spent $1.9 million
for additions of property and equipment, $1.1 million related to software and
database development costs, $1.0 million for the purchase of marketable
securities and $16.7 million on the repayment of long-term debt. The Company
made a voluntary prepayment of $3.0 million on its Senior Debt Credit Facility
during the quarter ended June 30, 2001. During the six months ended June 30,
2001, the Company has made voluntary prepayments of $6.0 million on its Senior
Debt Credit Facility.
During the six months ended June 30, 2000, the Company spent $8.6 million
for the acquisitions of businesses. The Company acquired American Church Lists
in March 2000 for $2.0 million, Getko in May 2000 for $1.6 million and idEXEC in
May 2000 for $5.0 million in cash.
During the six months ended June 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.
Consolidated Balance Sheet Information:
Trade accounts receivable decreased from $58.5 million at December 31, 2000
to $51.5 million at June 30, 2001, with related days sales outstanding ("DSO")
of 71 days compared to 63 days, respectively. The decrease is principally due to
the enforcement of stricter credit policies and the performance of more
aggressive collection practices.
Intangible assets, net of amortization, decreased from $296.1 million at
December 31, 2000 to $277.8 million at June 30, 2001. The decrease is
principally due to the amortization of capitalized software development costs
and assets related to the acquisitions described in the "Overview" section.
Depreciation and amortization expense totaled $24.9 million during the six
months ended June 30, 2001.
Accounts payable decreased from $11.5 million at December 31, 2000 to $6.1
million at June 30, 2001. The decrease is principally due to decreased spending
on marketing and advertising programs for the Internet businesses described in
the "Selling, general and administrative expenses" section, and improved cash
flows generated by operating activities.
Accrued expenses decreased from $14.8 million at December 31, 2000 to
$7.6 million at June 30, 2001. The decrease is principally due to: 1). a
reduction of $3.2 million for prepaid employer 401(k) expenses, and 2). a
reduction of $3.6 million in restructuring charges described in the
"Restructuring costs" section.
Long term debt decreased from $258.7 million at December 31, 2000 to $241.9
million at June 30, 2001. The Company made repayments on long-term debt totaling
$16.8 million during the six months ended June 30, 2001.
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 uses derivative financial instruments to manage the risk of a
change in interest rates on $60.5 million of the debt incurred for the
acquisition of Donnelley Marketing in July 1999. The Company does not enter into
derivative financial instruments for trading or speculative purposes. The
Company adopted SFAS No. 133 effective January 1, 2001. Upon adoption, the
Company's interest rate swap agreement was designated as a cash flow hedge. The
Company recorded a transition adjustment at January 1, 2001 of $0.3 million, net
of tax, as an accumulated other comprehensive loss to record the derivative
financial instrument on the Company's financial statements. During the six
months ended June 30, 2001, the Company recorded an unrealized loss on the above
derivative financial instrument of $0.6 million, net of tax, as an accumulated
other comprehensive loss in the stockholders equity section of the Consolidated
Balance Sheet. In addition, a charge of $0.3 million was recorded as interest
expense in the other income (expense) section of the Consolidated Statement of
Operations.
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On July 20, 2001, the Financial Accounting Standards Board issued SFAS No.
141, Business Combinations and No. 142, Goodwill and Other Intangible Assets.
SFAS 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Business combinations accounted for as
poolings-of-interests and initiated prior to June 30, 2001 are grandfathered.
SFAS 142 replaces the requirement to amortize intangible assets with indefinite
lives and goodwill with a requirement for an impairment test. SFAS 142 also
requires an evaluation of intangible assets and their useful lives and a
transitional impairment test for goodwill and certain tangible assets upon
adoption. After transition, the impairment tests will be performed annually.
SFAS 142 is effective for fiscal years beginning after December 15, 2001, as of
the beginning of the year. The Company has not yet determined the impact of the
new accounting standards on its financial reporting, but considers the probable
impact to be significant. For the six months ended June 30, 2001, the Company
has expensed $15.3 million due to amortization of intangible assets that under
the new accounting rules will not be expensed.
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 -- has been revised to a strategy of
developing more efficient and profitable applications of our content through the
Internet. We cannot guarantee that our customers will choose to have our
products and services delivered to them over the Internet. If we are successful
in developing Internet applications, 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 continue to revise it.
Our markets are highly competitive and many of our competitors have greater
resources than we do.
The business and consumer marketing information industry in which we operate
is highly competitive. Intense competition could harm us by causing, among other
things, price reductions, reduced gross margins, and loss of market share. Our
competition includes:
- In consumer sales lead generation products, Acxiom, Experian (a
subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax, both
directly and through reseller networks.
- In data processing services, Acxiom, May & Speh, Experian, Direct
Marketing Technologies (a subsidiary of GUS), Snyder Communications,
Inc. and Harte-Hanks Communications, Inc.
- In business sales lead generation products, Experian and Dun's Marketing
Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon
information compiled from Dun & Bradstreet's credit database, tends to
focus on marketing to large companies.
- In business directory publishing, from Regional Bell Operating Companies
and many smaller, regional directory publishers.
- In consumer products, certain smaller producers of CD-Rom products.
- Technologies which companies may install and implement in-house as part
of their internal IS functions, instead of purchasing or outsourcing
such functions.
In addition, we may face competition from new entrants to the business and
consumer marketing information industry as a result of the rapid expansion of
the Internet, which creates a substantial new channel for distributing business
information to the market. Many of our competitors have longer operating
histories, better name recognition and greater financial resources than we do,
which may enable them to implement their business strategies more readily than
we can.
We are highly leveraged. If we are unable to service our debt as it becomes due,
our business would be harmed.
As of June 30, 2001, we had total indebtedness of approximately $241.9
million, including $106.0 million of Notes under an indenture (the "Indenture")
and $121.9 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
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connection with our acquisition of Donnelley Marketing in 1999. Our ability to
pay principal and interest on the Notes issued under the Indenture and the
indebtedness under the Credit Agreement and to satisfy our other debt
obligations will depend upon our future operating performance. Our performance
will be affected by prevailing economic conditions and financial, business and
other factors. Certain of these factors are beyond 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 implement any such measures or obtain additional financing.
The terms of our current indebtedness restrict our ability to take certain
actions that fit our business strategy.
Our existing credit facilities contain certain covenants which restrict our
ability to:
- Incur additional indebtedness;
- Pay dividends and make certain other similar payments;
- Guarantee indebtedness of others;
- Enter into certain transactions with affiliates;
- Consummate certain asset sales, certain mergers and consolidations,
sales or other dispositions of all or substantially all of our assets
- Acquire other companies; and
- Obtain dividends or certain other payments from our subsidiaries.
These restrictions may impair our ability to take certain actions that fit
our business strategy. A breach of any of these covenants could result in an
event of default under the terms of our existing credit facilities. Upon the
occurrence of an event of default, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the payment of any such indebtedness is accelerated, our assets may
not be sufficient to repay in full the indebtedness under our credit facilities
and our other indebtedness. Moreover, if we were unable to repay amounts owed to
the lenders under our credit facilities, the lenders could foreclose on our
assets that secure the indebtedness.
Under the terms of our current indebtedness, the occurrence of a change of
control of infoUSA could have serious adverse financial consequences to us.
If a change of control of infoUSA were to occur, we would in certain
circumstances be required to make an offer to purchase all outstanding Notes
under the Indenture at a purchase price equal to 101% of the principal amount of
the Notes, together with accrued and unpaid interest. There can be no guarantee
that, if this were to happen, we would have sufficient funds to purchase the
Notes. In addition, a change of control and any repurchase of the Notes upon a
change of control may constitute an event of default under our other current or
future credit facilities. In that event, our obligations under such credit
facilities could be declared due and payable by the lenders, and the lenders may
also have the right to be paid for all outstanding obligations under such credit
facilities before we repurchase any of the Notes.
Fluctuations in our operating results may result in decreases in the market
price of our common stock.
Our operating results may fluctuate on a quarterly and annual basis. Our
expense levels are relatively fixed and are based, in part, on our expectations
as to future revenues. As a result, unexpected changes in revenue levels may
have a disproportionate effect on operating performance in any given period. In
some period or periods our 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.
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If we do not adapt our products and services to respond to changes in
technology, they could become obsolete.
We provide marketing information and services to our customers in a variety
of formats, including printed formats, electronic formats such as CD-Rom and
DVD, and over the Internet. Advances in information technology may result in
changing customer preferences for products and product delivery formats. If we
do not successfully adapt our products and services to take advantage of changes
in technology and customer preferences, our business, financial condition and
results of operations would be adversely affected.
We have adopted an Internet strategy because we believe that the Internet
represents an important and rapidly evolving market for marketing information
products and services. Our business, financial condition and results of
operations would be adversely affected if we:
- Fail to develop products and services that are well suited to the
Internet market;
- Experience difficulties that delay or prevent the successful
development, introduction and marketing of these products and services;
or
- Fail to achieve sufficient traffic to our Internet sites to generate
significant revenues, or to successfully implement electronic commerce
operations.
Changes in laws and regulations relating to data privacy could adversely affect
our business.
We engage in direct marketing, as do many of our customers. Certain data and
services provided by us are subject to regulation by federal, state and local
authorities in the United States as well as those in Canada and the United
Kingdom. 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 and completed the integration of these acquisitions
into our existing business by the end of 2000. We continue to evaluate strategic
opportunities available to us and intend to pursue opportunities that we believe
fit our business strategy. Acquisitions of companies, products or technologies
may result in the diversion of management's time and attention from day-to-day
operations of our business and may entail numerous other risks, including
difficulties in assimilating and integrating acquired operations, databases,
products, corporate cultures and personnel, potential loss of key employees of
acquired businesses, difficulties in applying our internal controls to acquired
businesses, and particular problems, liabilities or contingencies related to the
businesses being acquired. To the extent our efforts to integrate future
acquisitions fail, our business, financial condition and results of operations
would be adversely affected.
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
JUNE 30, 2001
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 2001 Annual Meeting of Stockholders of the Company held on May 21, 2001,
the stockholders voted and approved the following items:
1. Elected the following directors to the Board of Directors for a term of three
years.
Harold Andersen FOR: 42,568,177
Elliot Kaplan FOR: 42,444,455
2. The stockholders also ratified the appointment of KPMG LLP as the Company's
independent auditors to examine the financial statements of the Company for
the fiscal year 2001.
FOR: 43,071,999 AGAINST: 377,832
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Report on Form 8-K
The Company filed a report on Form 8-K with the Securities and Exchange
Commission on April 19, 2001, related to the earnings release for the
first quarter of 2001.
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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: August 10, 2001 /s/ STORMY L. DEAN
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Stormy L. Dean, Chief Financial Officer
(principal financial officer)
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