-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JELGiAF0TQ3WoWu4e9t7QUhfkqHtyIM9B/8+Bj1oyjX/xh0pP9b+8IMC602DC0ql O1oZoBlhI9ioKRLrRBPJ3A== 0000950131-97-005395.txt : 19970912 0000950131-97-005395.hdr.sgml : 19970912 ACCESSION NUMBER: 0000950131-97-005395 CONFORMED SUBMISSION TYPE: 10-K405/A PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970904 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BUSINESS INFORMATION INC /DE CENTRAL INDEX KEY: 0000879437 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-DIRECT MAIL ADVERTISING SERVICES [7331] IRS NUMBER: 470751545 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405/A SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 97675240 BUSINESS ADDRESS: STREET 1: 5711 S 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4025934500 MAIL ADDRESS: STREET 1: 5711 SOUTH 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 10-K405/A 1 FORM 10-K405/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Act of 1934 [No Fee Required] For the fiscal year ended December 31, 1996 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Act of 1934 [No Fee Required] For the transition period from ________ to ________ Commission file number: 0-19598 AMERICAN BUSINESS INFORMATION, INC. (Exact name of registrant as specified in its charter) Delaware 47-0751545 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5711 South 86th Circle, Omaha, Nebraska 68127 (Address of principal executive offices) Registrant's telephone number, including area code: (402) 593-4500 __________________________________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0025 par value __________________________________________________ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] 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 ----- ----- The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on March 7, 1997 as reported on the NASDAQ National Market System, was approximately $203,975,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 7, 1997 registrant had outstanding 24,314,007 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997, which will be filed within 120 days of the end of fiscal year 1996, is incorporated into Part III hereof by reference. PART I American Business Information, Inc. (the "Company") hereby amends Items 6, 7, 8 and 14, Schedule II, and Exhibits 11, 23 and 27 of its Form 10-K filed for the fiscal year ended December 31, 1996 for the purposes described in Note (1) "General" in the Notes to Consolidated Financial Statements on page F-7. -2- ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data below have been derived from the Company's Consolidated Financial Statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Consolidated Financial Statements and related notes appearing elsewhere herein. Year Ended December 31, ---------------------------------------------------- 1996 1995 1994 1993 1992 ---- ---- ---- ---- ---- (in thousands, except per share data) Statement of Operations Data: Net sales...................................... $108,298 $86,766 $69,603 $55,752 $48,517 Costs and expenses: Database and production costs........................................ 29,272 23,999 18,321 13,973 11,774 Selling, general and administrative............................... 45,766 37,724 28,249 23,072 20,051 Depreciation and amortization................................. 4,855 3,469 2,957 2,651 - One-time, non-cash items (1).................. 21,500 - - - - -------- ------- ------- ------- ------- Total costs and expenses....................... 101,393 65,192 49,527 39,696 34,235 -------- ------- ------- ------- ------- Operating income............................... 6,905 21,574 20,076 16,056 14,282 Other income (expense): Investment income............................. 3,194 1,322 1,109 1,172 607 Interest expense.............................. (209) (157) (247) (298) (605) Other......................................... (943) - - - 58 -------- ------- ------- ------- ------- Income before income taxes and discontinued operation................................... 8,947 22,739 20,938 16,930 14,342 Income taxes................................... 3,400 8,421 7,710 5,941 4,435 -------- ------- ------- ------- ------- Income from continuing operations.................................... 5,547 14,318 13,228 10,989 9,907 Loss on discontinued operation..................................... (355) (2,317) (404) (214) - Loss from abandonment of subsidiary.................................... (1,373) - - - - -------- ------- ------- ------- ------- Net income..................................... $ 3,819 $12,001 $12,824 $10,775 $ 9,907 ======== ======= ======= ======= ======= Historical and pro forma information(2) Net income.................................... $ 3,819 $12,001 $12,824 $10,775 $ 9,162 ======== ======= ======= ======= ======= Earnings per share: Income from continuing operations.................................. $ 0.26 $ 0.69 $ 0.64 $ 0.53 $ 0.45 Loss on discontinued operation and abandonment of subsidiary................................ (0.08) (0.11) (0.02) (0.01) - -------- ------- ------- ------- ------- Net income.................................... $ 0.18 $ 0.58 $ 0.62 $ 0.52 $ 0.45 ======== ======= ======= ======= ======= Weighted average shares outstanding................................... 21,033 20,738 20,678 20,658 20,165 ======== ======= ======= ======= ======= December 31, ----------------------------------------------------- 1996 1995 1994 1993 1992 -------- ------- ------- ------- ------- (in thousands) Balance Sheet Data: Working capital............................... $ 46,221 $45,363 $35,411 $30,765 $23,465 Total assets.................................. 107,877 91,241 77,783 61,027 47,807 Long-term debt, including current portion.............................. 1,135 2,039 3,821 4,587 5,306 Shareholders' equity.......................... 87,605 76,084 63,326 50,665 39,508 - ------------- (1) Represents charges for purchased in-process research and development costs of approximately $10 million relating to the acquisition of Digital Directory Assistance, Inc. in August 1996, and the change in estimated useful lives of approximately $11.5 million due to management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995. (2) Prior to February 1992, the Company was taxed as an S corporation. Accordingly, net income prior to February 1992 contained no provision for federal and state income taxes. Pro forma net income reflects a pro forma tax provision at a combined federal and state income tax rate of 36% in 1992. The Company ceased being taxed as an S corporation February 1992.
-3- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. --------------------- Overview The Company is a leading provider of business-to-business marketing information which it supplies from its proprietary database containing information on approximately 10 million businesses in the United States and 1 million businesses in Canada. The Company generally recognizes revenues from sales of its products and services at the time the product is delivered or the service is performed. The pricing of the products and services varies according to the number of names supplied, the type of information purchased, the medium through which the information is delivered, and the channel of distribution. In 1996, over 100,000 customers purchased the Company's products and services. The Company's primary expenses relate to maintaining, updating, and telephone verifying its database and the direct marketing costs associated with selling its products and services. The Company has been profitable on an operating basis in each year since its inception in 1972. The Company believes inflation has not had a significant impact on its operations. The Company's net sales on a quarterly basis can be affected by seasonal characteristics, the timing of acquisitions, and certain other factors including the timing and extent of the Company's own direct marketing activity. The Company completed five acquisitions in the second half of 1996 and the first quarter of 1997. As a result of the acquisitions in 1996, the Company wrote-off $10 million of in-process research and development costs. The company will be taking a significant write-off in the first quarter of 1997 as a result of its acquisition of Database America Companies, Inc. (DBA). The write off will amount to roughly $70 million and will result in a net loss for the Company in 1997. In addition, the Company entered into a $65 million credit facility to finance a portion of the DBA acquisition, which prohibits the company from declaration of dividends without prior approval from the lenders. Borrowings under the facility will result in a significant increase in interest expense. This discussion and analysis contains forward-looking statements 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 that section. 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 statements or such factors. -4- Results of Operations The following table sets forth, for the periods indicated, certain items from the Company's statement of operations data expressed as a percentage of net sales:
Year Ended December 31 ------------------------ 1996 1995 1994 ---- ---- ---- Net sales........................................................... 100% 100% 100% Costs and expenses: Database and production costs..................................... 27 28 26 Selling, general and administrative............................... 42 43 41 Depreciation and amortization..................................... 5 4 4 One-time, non-cash items.......................................... 20 - - ---- ---- ---- Total costs and expenses............................................ 94 75 71 ---- ---- ---- Operating income.................................................... 6 25 29 Other income (expense).............................................. 2 1 1 ---- ---- ---- Income before income taxes and discontinued operation............... 8 26 30 Income taxes........................................................ 3 9 11 ---- ---- ---- Income from continuing operations................................... 5 17 19 Loss on discontinued operation and abandonment of subsidiary...... -1 -3 1 ---- ---- ---- Net income.......................................................... 4% 14% 18% ==== ==== ====
- -------------- 1996 Compared to 1995 Net sales increased 25% to $108.3 million in 1996 from $86.8 million in 1995. The Company's sales lead and directory products accounted for $10.0 million of this increase while sales from CD-ROM products increased $7.3 million from the prior year. Database and production costs for 1996 increased to $29.3 million, or 27% of net sales, from $24.0 million, or 28% of net sales, in 1995. These amounts primarily represent the costs of compiling and telephone verifying information in the database, fulfilling customer orders, the direct costs associated with the production of CD-ROM titles, and royalty costs. Selling, general and administrative expenses increased in 1996 to $45.8 million, or 42% of net sales, from $37.7 million, or 43% of net sales in 1995. Excluding a charge of $3.1 million in 1995 for compensation expense related to the repurchase of common stock from a former officer of the Company, selling, general and administrative expenses were 40% of net sales in 1995. The increased spending as a percentage of net sales was primarily attributable to an overall increase in direct marketing activities for all of the Company's products and services, continued investment in a field sales organization and promotional marketing of CD-ROM products. Depreciation and amortization expense increased to $4.9 million in 1996 from $3.5 million in 1995, primarily due to the increased amortization related to acquisitions. During the third quarter of 1996, the Company recorded one-time, non-cash charges to continuing operation of $10.0 million for purchased in-process research and development associated with the August 1996 acquisition of Digital Directory Assistance, Inc. and $11.5 million associated with a change in the estimated useful lives of certain intangible assets related to acquisitions prior to 1995. -5- Operating income in 1996 was $6.9 million, or 6% of net sales, compared to $21.6 million, or 25% of net sales, in 1995. Excluding the one-time, non-cash items described above, operating income for 1996 would have been $28.4 million, or 26% of net sales. Investment income during 1996 increased to $3.2 million from $1.3 million in 1995, due to net realized gains of $1.3 million on the sale of marketable securities during 1996 compared to net realized losses of $339 thousand on the sale of marketable securities during 1995. Interest expense increased slightly to $209 thousand in 1996 from $157 thousand in 1995 due to the addition of capitalized equipment leases during early 1996. Other expenses consists of a $740 thousand permanent write-down on an equity investment included in other assets of the consolidated balance sheet and $203 thousand of costs associated with the pooling-of-interests transaction. 1995 Compared to 1994 Net sales increased 25% to $86.8 million in 1995 from $69.6 million in 1994. The Company's sales lead and directory products accounted for $9.6 million of this increase with the remaining $7.6 million increase coming from CD-ROM products. Revenue increases for all products were the result of an increase in both the number and average size of orders placed by customers. There were no significant price increases for the Company's products and services during the year. Database and production costs for 1995 increased to $24.0 million, or 28% of net sales, from $18.3 million, or 26% of net sales, in 1994. These amounts primarily represent the costs of compiling and telephone verifying information in the database and fulfilling customer orders, the direct costs associated with the production of CD-ROM titles, and royalty costs. The increase in database and production costs as a percentage of net sales was primarily attributable to increased sales of CD-ROM products which bear a slightly higher level of costs then the Company's traditional lead generation products. Selling, general and administrative expenses increased in 1995 to $37.7 million from $28.2 million in 1994. Excluding a charge of $3.1 million in 1995 for compensation expense related to the repurchase of common stock from a former officer of the Company, selling, general and administrative expenses were proportionate with revenue recognition and were 40% of net sales in 1995 compared to 41% of net sales in 1994. The increased spending was primarily attributable to an overall increase in direct marketing activities for all of the Company's products and services, continued investment in a field sales organization and promotional marketing of CD- ROM products. Depreciation and amortization expense increased to $3.5 million in 1995 from $3.0 million in 1994, primarily due to the increased amortization related to acquisitions. Operating income in 1995 was $21.6 million, or 25% of net sales, compared to $20.1 million, or 29% of net sales, in 1994. Investment income during 1995 increased to $1.3 million compared to $1.1 in 1994 due to the increase in cash and cash equivalents and investments. Interest expense decreased to $157 thousand in 1995 from $247 thousand in 1994 due to lower outstanding debt balances during 1995. -6- Liquidity and Capital Resources As of December 31, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $7.5 million and short term investments of $22.8 million. The Company has revolving lines of credit totaling $10.0 million, which had no outstanding balance at December 31, 1996. Net cash provided by operating activities for 1996 totaled $13.7 million compared to $15.8 million in the same period of 1995. The decrease is due primarily to a higher level of outstanding trade accounts receivable. The Company spent $2.9 million on upgrades to data processing equipment and $1.8 million for land and building improvements to its Omaha, Nebraska and Carter Lake, Iowa facilities. The Company anticipates spending an additional $4.0 million over the next twelve months for equipment and facility expansion. The Company paid $4.0 million in September 1996 as part of the estimated purchase price of $17.1 million for Digital Directory Assistance, Inc. A promissory note of $7.9 million was paid the Seller in January 1997, which was funded using the Company's cash equivalents. The remaining amount due the Seller of approximately $5.2 million was paid through the issuance of the Company's common stock. Subsequent to December 31, 1996, the Company entered into a $65 million Credit Facility with First Union Bank. The purpose of the facility was to finance a portion of the acquisition of Database America Companies, Inc. In addition, the bank syndicate led by First Union Bank recently approved an additional $10 million of availability under the Credit Facility. This will increase the Credit Facility to $75 million and provide the Company with additional access to working capital. The Company believes that cash flows from operations and its cash and short term investments will be sufficient to fund its foreseeable operating and capital expenditure needs for at least the next twelve months. Additional financing may be required in the event that other capital investment, business expansion or acquisition opportunities arise. Factors That May Affect Operating Results. Fluctuations in Operating Results. The Company believes that future operating results may be subject to quarterly and annual fluctuations based on numerous factors. The Company's net sales on a quarterly basis can be affected by seasonal characteristics and certain other factors including the timing and extent of the Company's own direct marketing activity. In addition, the expenses associated with acquiring data, direct marketing campaigns and the timing of acquisitions and the costs and expenses associated therewith may also affect operating results. Risks Associated With Recent and Future Acquisitions. During the past year, the Company has made a number of strategic acquisitions. Acquisitions may result in the diversion of management's attention from day-to-day operations and may include numerous other risks and costs, including risks and costs relating to difficulties in the integration of operations, products and -7- personnel. To the extent that efforts to pursue acquisition opportunities have in the past resulted, or may in the future result, in a diversion of resources or that efforts to integrate recent and future acquisitions fail, there could be a material adverse effect on the Company's business, results of operations and financial condition. Acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, and amortization expenses related to goodwill and other intangible assets. While there are currently no commitments with respect to any particular material acquisitions, the Company's management has historically evaluated on an ongoing basis the strategic opportunities available to the Company. The Company may in the near- or long- term future pursue acquisitions of complementary products, technologies or businesses. Competition. The business information industry is highly competitive. In particular, the rapid expansion of the Internet creates a substantial new channel for distributing business information to the market, and a new avenue for future entrants to the business information industry. There is no guarantee that the Company will be successful in this new market. Many of the Company's principal competitors have substantially greater resources than the Company. In addition, the Company has no control over the possible future entry into the marketplace of other potential competitors, some of which may be much larger than the Company and may have much larger capital bases from which to develop and compete with the Company. Direct Marketing Regulation and Postal Rates. The Company and many of its customers engage in direct marketing. Any negative impact on direct marketing, including changes to existing laws or regulations or future laws and regulations, may adversely affect the Company's operating results. The direct mail industry depends and will continue to depend upon the services of the United States Postal Service and other private mail carriers. Any modification by the Postal Service of its rate structure or any increase in public or private postal rates generally could have a negative impact on the demand for business information, direct mail activities and the cost of the Company's direct mail activities. In addition to the risk of rate increases, the direct mail industry, and thus the Company's operating results, could be adversely affected by postal strikes. Loss of Data Centers. The Company's business depends on computer systems contained in the Company's two data centers. The Company's disaster recovery program is based upon maintaining redundant computer equipment at each of its data centers. The data centers are protected by Halon fire suppression systems, designed to extinguish a fire without damaging the computer equipment. The centers are further protected by uninterrupted power supply backup systems. There can be no guarantee that a fire or other disaster affecting one or both of its data centers would not disable the Company's computer systems. Any significant damage to either or both of the data centers could have a material adverse affect on the Company. Limited Protection of Intellectual Property and Proprietary Rights. The Company relies on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect its proprietary rights. Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of the company's products or reverse engineer or obtain and use information that the Company regards as proprietary. The Company generally licenses its software products to end-users on a "right to use" basis pursuant to a perpetual license. The Company licenses some of its products under "shrink-wrap" licenses (i.e., licenses included as part of the product packaging). Shrink-wrap licenses are not negotiated with or signed by individual licensees, and purport to take effect upon the opening of the product package. Certain -8- license provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed program may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the foregoing measures will be adequate to protect the Company's intellectual property. -9- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The information required by this item (other than selected quarterly financial data which is set forth below) is incorporated by reference to the Consolidated Financial Statements set forth on pages F-1 through F-17 hereof. The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, 1996. This information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with the Company's audited consolidated financial statements and the notes thereto.
1996 Quarter Ended 1995 Quarter Ended ---------------------------------------- ---------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 -------- --------- --------- -------- --------- --------- -------- ------- (in thousands, except per share data) Net sales..................... $24,785 $24,325 $ 27,585 $31,603 $20,696 $21,209 $21,501 $23,360 Costs and expenses: Database and production costs..................... 6,274 6,654 7,745 8,599 5,141 5,986 6,149 6,723 Selling, general and administrative.............. 10,152 10,113 11,409 14,092 8,255 8,103 8,366 13,000 Depreciation and amortization 1,164 1,165 962 1,564 790 807 796 1,076 One-time, non-cash items... - - 21,500 - - - - - ------- ------- -------- ------- ------- ------- ------- ------- Total costs and expenses... 17,590 17,932 41,616 24,255 14,186 14,896 15,311 20,799 ------- ------- -------- ------- ------- ------- ------- ------- Operating income (loss)....... 7,195 6,393 (14,031) 7,348 6,510 6,313 6,190 2,561 Other income (expense), net... 399 613 (238) 1,268 (25) 430 334 426 ------- ------- -------- ------- ------- ------- ------- ------- Income before income taxes and discontinued operation...... 7,594 7,006 (14,269) 8,616 6,485 6,743 6,524 2,987 Income taxes.................. 2,885 2,630 (5,389) 3,274 2,420 2,465 2,420 1,116 ------- ------- -------- ------- ------- ------- ------- ------- Income (loss) from continuing operations................... 4,709 4,376 (8,880) 5,342 4,065 4,278 4,104 1,871 Loss on discontinued operation................. - - (355) - (251) (1,896) - (170) Loss from abandonment of subsidiary................ - - (1,373) - - - - - ------- ------- -------- ------- ------- ------- ------- ------- Net income (loss)............. $ 4,709 $ 4,376 $(10,608) $ 5,342 $ 3,814 $ 2,382 $ 4,104 $ 1,701 ======= ======= ======== ======= ======= ======= ======= ======= Earnings (loss) per share: Income (loss) from continuing operations................... $ 0.23 $ 0.21 $ (0.43) $ 0.25 $ 0.20 $ 0.20 $ 0.20 $ 0.09 Loss on discontinued operation and abandonment of subsidiary............... - - (.08) - (0.01) (0.09) - (0.01) ------- ------- -------- ------- ------- ------- ------- ------- Net income (loss)............. $ 0.23 $ 0.21 $ (0.51) $ 0.25 $ 0.19 $ 0.11 $ 0.20 $ 0.08 ======= ======= ======== ======= ======= ======= ======= ======= Weighted average shares outstanding................. 20,783 20,801 20,840 21,701 20,685 20,719 20,768 20,775 ======= ======= ======== ======= ======= ======= ======= =======
1996 Quarter Ended 1995 Quarter Ended --------------------------------------- --------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 --------- ------- -------- ------- -------- ------- -------- ------- As a Percentage of Net Sales: Net sales............................... 100% 100% 100% 100% 100% 100% 100% 100% Costs and expenses: Database and production costs.......... 25 27 28 27 25 28 29 29 Selling, general and administrative.... 41 42 41 45 40 38 39 56 Depreciation and amortization.......... 5 5 4 5 4 4 4 5 One-time, non-cash items............... - - 78 - - - - - --- --- --- --- --- --- --- --- Operating income (loss)................ 29 26 (51) 23 31 30 29 11 - ---------------------
-10- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) The following documents are filed as a part of this Report: 1. Financial Statements. The following Consolidated Financial Statements of American Business Information, Inc. and Report of Independent Accountants are included at pages F-1 through F-17 of this Form 10-K:
DESCRIPTION PAGE NO. ----------------------------- -------- Report of Independent Accountants.................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995............................................. F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994.............. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994.... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994.............. F-6 Notes to Consolidated Financial Statements........... F-7
2. Financial Statement Schedule. The following consolidated financial statement schedule of American Business Information, Inc. and Subsidiaries for the years ended December 31, 1996, 1995 and 1994 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements. DESCRIPTION PAGE NO. ----------------------------- -------- Schedule II Valuation and Qualifying Accounts....... S-1 Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. -11- 3. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this report:
Exhibit No. Description ------- ------------------------------------------------------------ 3.1 Certificate of Incorporation, Amended as of September, 1996 3.2 (1) By-laws 4.1 (1) Specimen Certificate representing the Common Stock 10.1 1992 Stock Option Plan, Amended as of March, 1997 10.2 (2) Form of Indemnification Agreement with Officers and Directors 10.8 (4) Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. 10.9 (5) Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. 10.10 (5) Agreement and Plan of Merger between the Company and DBA Holdings, Inc. 10.11 (5) Loan Agreement between the Company and First Union National Bank of North Carolina 10.1 Registration Rights Agreement between the Company and 3319977 Canada Inc. 10.12 Registration Rights Agreement between the Company and the Shareholders of Digital Directory Assistance, Inc. 10.1 Registration Rights Agreement between the Company and the Shareholders of County Data Corporation. 11 Statement re: computation of per share earnings 21 Subsidiaries and State of Incorporation
-12- 23 Consent of Independent Accountants 24 Power of Attorney (included on signature page) 27 Financial Data Schedule
- -------------------- (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-42887) which became effective February 18, 1992. (2) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-51352) which became effective September 16, 1992. (3) Incorporated by reference to exhibits filed with Registrant's year end report on Form 10-K for the year ended December 31, 1993. (4) Incorporated by Reference to exhibits filed with registrant's current report on Form 8-K dated September 10, 1996. (5) Incorporated by reference to exhibits filed with Registrant's report on Form 8-K dated February 28, 1997. (b) Reports on Form 8-K: On September 10, 1996, the Company filed a current report on Form 8-K, which was subsequently amended by a Form 8-K/A, related to the acquisition of Digital Directory Assistance, Inc. On February 28, 1997, the Company filed a current report on Form 8-K related to the acquisition of DBA Holdings, Inc. -13- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICAN BUSINESS INFORMATION, INC. By: /s/ Vinod Gupta ----------------------- Vinod Gupta Chairman of the Board, Chief Executive Officer (principal executive officer) /s/ Jon H. Wellman -------------------------- Jon H. Wellman President and Chief Operating Officer /s/ Steven Purcell -------------------------- Steven Purcell Chief Financial Officer (principal financial officer) Dated: August 13, 1997 -14- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vinod Gupta and Jon Wellman, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - ---------------- --------- --------- /s/ Vinod Gupta Chairman of the Board, Chief July 21, 1997 - ---------------------- Executive Officer (principal Vinod Gupta executive officer) /s/ Jon H. Wellman President and Chief Operating July 21, 1997 - ---------------------- Officer Jon H. Wellman /s/ Steven Purcell Chief Financial Officer July 21, 1997 - ---------------------- (principal financial officer) Steven Purcell /s/ Jon D. Hoffmaster Director July 21, 1997 - ---------------------- Jon D. Hoffmaster /s/ Gautam Gupta Director July 21, 1997 - ---------------------- Gautam Gupta /s/ Elliot S. Kaplan Director July 21, 1997 - ---------------------- Elliot S. Kaplan /s/ Harold Andersen Director July 21, 1997 - ---------------------- Harold Andersen /s/ George F. Haddix Director July 21, 1997 - ---------------------- George F. Haddix /s/ Paul A. Goldner Director July 21, 1997 - ---------------------- Paul A. Goldner /s/ George J. Kubat Director July 21, 1997 - ---------------------- George J. Kubat
-15- AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page ---- American Business Information, Inc. and Subsidiaries: Report of Independent Accountants................................................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995........................ F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994.................................................. F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994............................................ F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994.................................................. F-6 Notes to Consolidated Financial Statements.......................................... F-7
REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of American Business Information, Inc.: We have audited the consolidated financial statements and the financial statement schedule of American Business Information, Inc. and subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Business Information, Inc. and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note 18, the accompanying financial statements have been restated. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Omaha, Nebraska January 24, 1997, except for Notes 17 and 18, for which the dates are February 15, 1997 and July 31, 1997, respectively F-2 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS __________________________________________ as of December 31, 1996 and 1995 (In thousands, except share amounts)
ASSETS 1996 1995 ------ ---- ---- Restated Restated Current assets: Cash and cash equivalents..................................................... $ 7,497 $11,999 Marketable securities......................................................... 22,810 23,350 Trade accounts receivable, net of allowances of $2,724 and $1,824, respectively........................................................ 29,630 18,552 Income taxes receivable....................................................... 1,105 984 Prepaid expenses.............................................................. 3,761 1,733 Deferred marketing costs...................................................... 1,263 996 Deferred income taxes......................................................... - 129 -------- ------- Total current assets........................................................ 66,066 57,743 -------- ------- Property and equipment, net.................................................... 18,886 13,885 Net assets of business transferred under contractual arrangement............... - 2,972 Intangible assets, net of accumulated amortization............................. 16,916 14,642 Deferred income taxes.......................................................... 5,388 - Other assets................................................................... 621 1,999 -------- ------- $107,877 $91,241 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt............................................. $ 708 $ 969 Note payable to shareholders.................................................. 7,925 - Accounts payable.............................................................. 5,520 4,255 Accrued payroll expenses...................................................... 2,352 5,267 Accrued expenses.............................................................. 711 239 Deferred revenue.............................................................. 2,117 1,650 Deferred income taxes......................................................... 512 - -------- ------- Total current liabilities................................................... 19,845 12,380 -------- ------- Long-term debt, net of current portion......................................... 427 1,070 Deferred income taxes.......................................................... - 1,707 Commitments and contingencies Stockholders' equity: Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding.................................................. - - Common stock, $.0025 par value. Authorized 25,000,000 shares; 22,265,960 shares issued and 22,100,960 shares outstanding at December 31, 1996, and 20,776,860 shares issued and outstanding at December 31, 1995........................................................ 55 51 Paid-in capital............................................................... 37,268 27,342 Retained earnings............................................................. 52,942 48,937 Treasury stock, at cost, 165,000 shares held at December 31, 1996, and 0 shares held at December 31, 1995...................................... (2,281) - Unrealized holding loss, net of tax........................................... (379) (246) -------- ------- Total stockholders' equity.................................................. 87,605 76,084 -------- ------- $107,877 $91,241 ======== =======
The accompanying notes are an integral part of the consolidated financial statements. F-3 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS __________________________________________ for the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share amounts)
1996 1995 1994 --------- -------- -------- Restated Net sales........................................................ $108,298 $86,766 $69,603 Costs and expenses: Database and production costs.................................. 29,272 23,999 18,321 Selling, general and administrative............................ 45,766 37,724 28,249 Depreciation and amortization.................................. 4,855 3,469 2,957 One-time, non-cash items....................................... 21,500 - - -------- ------- ------- 101,393 65,192 49,527 -------- ------- ------- Operating income................................................. 6,905 21,574 20,076 Other income (expense): Investment income.............................................. 3,194 1,322 1,109 Interest expense............................................... (209) (157) (247) Other.......................................................... (943) - - -------- ------- ------- Income before income taxes and discontinued operation............ 8,947 22,739 20,938 Income taxes..................................................... 3,400 8,421 7,710 -------- ------- ------- Income from continuing operations................................ 5,547 14,318 13,228 Loss on discontinued operation................................. (355) (2,317) (404) Loss from abandonment of subsidiary............................ (1,373) - - -------- ------- ------- Net income....................................................... $ 3,819 $12,001 $12,824 ======== ======= ======= Earnings per share: Income from continuing operations............................... $ 0.26 $ 0.69 $ 0.64 Loss on discontinued operation and abandonment of subsidiary.. (0.08) (0.11) (0.02) -------- ------- ------- Net income...................................................... $ 0.18 $ 0.58 $ 0.62 ======== ======= ======= Weighted average shares outstanding.............................. 21,033 20,738 20,678 ======== ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY __________________________________________ for the years ended December 31, 1996, 1995 and 1994 (In thousands, except share amounts)
Net Total Common Paid-In Retained Treasury Unrealized Stockholders' Stock Capital Earnings Stock Holding Loss Equity ------ ------- -------- -------- ------------ -------------- Balances, December 31, 1993................................ $ 34 $26,519 $24,112 $ - $ - $50,665 Issuance of 6,750 shares of common stock................... - 54 - - - 54 Unrealized holding loss, net of tax........................ - - - - (217) (217) Net income................................................. - - 12,824 - - 12,824 ----- ------- ------- ------- ------- ------- Balances, December 31, 1994................................ 34 26,573 36,936 - (217) 63,326 Issuance of 94,125 shares of common stock.................. - 786 - - - 786 Unrealized holding loss, net of tax........................ - - - - (29) (29) 3 for 2 stock split........................................ 17 (17) - - - - Net income................................................. - - 12,001 - - 12,001 ----- ------- ------- ------- ------- ------- Balances, December 31, 1995-Restated....................... 51 27,342 48,937 - (246) 76,084 Issuance of 1,220,975 shares of common stock............... 3 9,628 - - - 9,631 Issuance of 560,000 shares of common stock in pooling-of-interests transaction .................... 1 86 186 - - 273 Tax benefit related to employee stock options.............. - 212 - - - 212 Acquisition of treasury stock.............................. - - - (2,281) - (2,281) Unrealized holding loss, net of tax........................ - - - - (133) (133) Net income................................................. - - 3,819 - - 3,819 ----- ------- ------- ------- ----- ------- Balances, December 31, 1996-Restated....................... $ 55 $37,268 $52,942 $(2,281) $(379) $87,605 ===== ======= ======= ======= ===== ======= The accompanying notes are an integral part of the consolidated financial statements.
F-5 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------- for the years ended December 31, 1996, 1995 and 1994 (In thousands)
1996 1995 1994 ---- ---- ---- Restated Restated Cash flows from operating activities: Net income..................................................................... $ 3,819 $ 12,001 $ 12,824 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization................................................ 4,855 3,469 3,125 Deferred income taxes........................................................ (6,307) 662 574 Impairment of other assets................................................... 740 630 - One-time non-cash items...................................................... 21,500 - - Loss on discontinued operation and abandonment of subsidiary................. 2,788 1,833 - Net realized (gains) losses on sale of marketable securities................. (1,267) 339 - Changes in assets and liabilities, net of effect of acquisitions and disposals: Trade accounts receivable.................................................... (7,762) (4,108) (2,166) Prepaid expenses............................................................. (1,611) (796) 211 Deferred marketing costs..................................................... (267) (996) - Accounts payable............................................................. (1,422) 2,480 615 Income taxes receivable and payable.......................................... (128) (1,330) 573 Accrued expenses............................................................. (3,111) 1,635 2,330 -------- -------- -------- Net cash provided by operating activities.............................. 11,827 15,819 18,086 Cash flows from investing activities: Proceeds from sales of marketable securities................................. 18,865 15,787 15,248 Purchases of marketable securities........................................... (17,348) (24,792) (15,316) Purchases of property and equipment.......................................... (6,755) (3,554) (3,580) Acquisitions of businesses, including minority interest...................... (6,484) (1,174) (8,246) Software development costs................................................... (1,955) (512) - Other........................................................................ 347 (660) (500) -------- -------- -------- Net cash used in investing activities.................................. (13,330) (14,905) (12,394) Cash flows from financing activities: Repayment of long-term debt.................................................. (1,450) (3,192) (5,566) Proceeds from long-term debt................................................. - - 4,800 Issuance of common stock..................................................... 520 786 54 Tax benefit related to employee stock options................................ 212 - - Acquisition of treasury stock................................................ (2,281) - - -------- -------- -------- Net cash used in financing activities.................................. (2,999) (2,406) (712) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............................. (4,502) (1,492) 4,980 Cash and cash equivalents, beginning............................................. 11,999 13,491 8,511 -------- -------- -------- Cash and cash equivalents, ending................................................ $ 7,497 $ 11,999 $ 13,491 ======== ======== ======== Supplemental cash flow information: Interest paid................................................................ $ 78 $ 165 $ 259 ======== ======== ======== Income taxes paid............................................................ $ 8,280 $ 8,226 $ 6,328 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-6 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL American Business Information, Inc. ("ABI") and its subsidiaries, ("the Company"), provide business information to organizations engaged in business-to- business marketing through products and services derived from the Company's database. These products include customized business lists, business directories and other information services. This amendment is being filed to reflect the presentation of a charge to compensation expense in 1995 related to the Company's acquisition of 291,875 shares of common stock from a former officer of the Company, and to adjust asset valuation reserves by approximately $660,000. The transaction had been previously reported as a charge to paid-in-capital during the first quarter of 1996. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates and Assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include the accounts of ABI and its subsidiaries. Intercompany accounts and transactions have been eliminated. Revenue Recognition: The Company recognizes revenue from the sale of product or license of information at the time of delivery. A portion of the revenue is deferred and recognized over the license term when the Company is required to provide updated information. Allowance is made currently for estimated returns and for estimated uncollectable amounts. Actual experience has been within management's expectations. Database Costs: Costs to maintain and enhance the Company's database are expensed as incurred. Advertising Costs: Certain direct-response advertising costs are capitalized and amortized over periods that correspond to the estimated revenue stream of the individual advertising activity. All other advertising costs are expensed as the advertising takes place. Total unamortized marketing costs at December 31, 1996 and 1995, was $1.3 million and $1.0 million, respectively. Total advertising expense included in net income for the years ending December 31, 1996, 1995, and 1994 was $11.0 million, $10.8 million and $8.6 million, respectively. Software Capitalization: Until technological feasibility is established, software development costs are expensed as incurred. After that time, direct costs are capitalized and amortized using the straight-line method over the estimated economic life, generally one to three years. Unamortized software costs included in intangible assets at December 31, 1996 and 1995, was $1.4 million and $431 thousand, respectively. Amortization of capitalized costs during 1996 and 1995 totaled approximately $1.0 million and $81 thousand, respectively. F-7 Income taxes: The Company recognizes income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the difference between financial and tax bases of assets and liabilities using enacted tax rates. Earnings Per Share: Earnings per share are based on the weighted average number of common shares outstanding. Common equivalent shares arise as a result of stock options and have not been included in the calculation since their dilutive effect is less than 3%. Financial Accounting Standards No. 128, Earnings Per Share, (FASB 128) was issued in February 1997 and is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The standard revises the calculation and presentation of earnings per share and requires the presentation of "basic earnings per share" and "diluted earnings per share." Management believes the amount reported as earnings per share in the accompanying income statement would approximate basic earnings per share under FASB 128. Management has not calculated diluted earnings per share under FASB 128, which requires the assumption that options, including those that expired or are canceled during the period, were exercised at the beginning of the period, using the treasury stock method. Invested Cash: Cash equivalents consist of highly liquid debt instruments purchased with an original maturity of three months or less and are carried at cost which approximates fair value. Marketable securities have been classified as available-for-sale and therefore net unrealized gains and losses are reported as a separate component of stockholders' equity. Unrealized and realized gains and losses are determined by specific identification and fair values are estimated based on quoted market prices. Long-Lived Assets: Property and equipment are stated at cost. Depreciation and amortization are computed using primarily the straight-line method, based on the following estimated useful lives: buildings and improvements - 30 years; office furniture and equipment - 5 to 7 years; and capitalized equipment leases- 5 years. Intangible assets are stated at cost and are amortized over the periods benefited on a straight-line basis. Prior to 1996, goodwill, distribution networks, and noncompete agreements were amortized on a straight-line basis over 30 years, 15 years, and the terms of the agreements, respectively. In 1996, the Company shortened the lives for goodwill and distribution networks in recognition of more rapid changes in the businesses acquired to 8 years and 2 years, respectively. All of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the asset, a loss is recognized. Reclassifications: Certain reclassifications were made to the 1994 and 1995 financial statements to conform to the 1996 presentation. F-8 (3) ACQUISITIONS Effective August 1996, the Company acquired certain assets and assumed certain liabilities of Digital Directory Assistance, Inc. ("DDA"), a publisher of PhoneDisc CD-ROM products. The total purchase price, subject to adjustment, was estimated to be approximately $17.1 million of which $4.0 million was paid in September 1996, $7.9 million in the form of a promissory note issued to the sellers due January 1997, and the remaining amount through the issuance of 600,000 unregistered shares of the Company's common stock in September 1996. The acquisition was accounted for under the purchase method of accounting. Substantially all of the purchase price consisted of intangibles and resulted in a one-time charge of approximately $10 million ($6.2 million after tax) representing purchased in-process research and development costs which relates to projects that have not met technological feasibility and that management believes has no alternative future use. The Company has allocated substantially all of the remaining purchase price to goodwill which is being amortized over its useful life of 8 years. Subsequent to December 31, 1996, the purchase price was adjusted to be $13.3 million pursuant to the purchase price calculation, and is subject to additional re-valuation at future determination dates. The next determination date is as of March 31, 1997. Adjustments to the purchase price will be reflected as adjustments to goodwill. The $7.9 million promissory note due in January 1997 was used to fund an escrow account for holding funds potentially due the sellers, of which $2.3 million was paid to the sellers in February 1997 based on the first determination date of December 31, 1996. Effective November 1996, the Company acquired the common stock of County Data Corporation (CDC), the leading national new business database compiler. Total consideration for the acquisition was 560,000 unregistered shares of the Company's common stock. The acquisition was accounted for under the pooling-of- interests method of accounting. The accompanying consolidated financial statements have not been restated to reflect this acquisition, as the net sales and net income of CDC were not significant for the periods presented. Effective November 1996, the Company acquired certain assets and assumed certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data warehousing, research and analysis services for target marketing applications to Fortune 1000 companies. Total consideration for the acquisition was $2.4 million, consisting of $1.0 million in cash and 118,000 unregistered shares of the Company's common stock. The acquisition has been accounted for under the purchase method of accounting. The Company has allocated substantially all of the purchase price to goodwill which is being amortized over its useful life of 8 years. Effective December 1996, the Company acquired certain assets and assumed certain liabilities of BJ Hunter, the Canadian leader in the sale of lead generation products. Total consideration for the acquisition was $3.1 million, consisting of $876 thousand in cash and 150,000 unregistered shares of the Company's common stock. The acquisition has been accounted for under the purchase method of accounting. The Company has allocated substantially all of the purchase price to goodwill which is being amortized over its useful life of 8 years. Effective August 1994, the Company acquired certain assets of Zeller & Letica ("Z&L") and Nationwide Mail Marketing ("NMM") for total consideration of $2.4 million which was accounted for under the purchase method. The Company has allocated substantially all of the purchase price to a distribution network which is being amortized over its estimated useful life of 2 years. Effective March 1994, the Company acquired certain assets from Business Mailers, Inc. ("BMI") for total consideration of $5.8 million which was accounted for under the purchase method. The Company has allocated substantially all of the purchase price to a distribution network which is being amortized over its estimated useful life of 2 years. F-9 Operating results for each of these acquisitions are included in the accompanying consolidated statements of operations from the respective acquisition dates. Assuming the above described companies had been acquired on January 1, 1995, unaudited pro forma consolidated revenues, net income and net income per share would have been as follows:
Years Ended December 31, 1996 1995 ---- ---- (In thousands except per share amounts) Net sales................... $120,111 $101,404 Net income.................. $ 3,131 $ 11,577 Net income per share........ $ 0.14 $ 0.52
The pro forma information provided above does not purport to be indicative of the results of operations that would actually have resulted if the acquisitions were made as of those dates or of results which may occur in the future. The Company paid $48 thousand, $148 thousand, and $280 thousand in 1996, 1995 and 1994, respectively, to Annapurna Corporation for consulting services and related expenses in connection with acquisition activity conducted by the Company. Annapurna Corporation is 100% owned by a significant stockholder. The Company also paid $156 thousand in 1996 to a Director of the Company for consulting services in connection with acquisition activity conducted by the Company. (4) MARKETABLE SECURITIES
Amortized Unrealized Unrealized Fair Cost Gross Gain Gross Loss Value --------- ---------- ---------- ----- At December 31, 1996 (In thousands) Municipal bonds $11,450 $ 35 $(132) $11,354 U.S. government and agency 808 7 (5) 811 Corporate bonds 5,751 17 (58) 5,709 Common stock 5,365 18 (496) 4,886 Preferred stock 47 3 - 50 ------- ---- ----- ------- $23,421 $ 80 $(691) $22,810 ======= ==== ===== ======= Gross Gross Amortized Unrealized Unrealized Fair Cost Holding Gain Holding Loss Value --------- ------------ ------------ ----- At December 31, 1995 (In thousands) Municipal bonds $12,027 $ 68 $ (55) $12,040 U.S. government and agency 1,513 46 - 1,559 Corporate bonds 7,189 114 (5) 7,298 Common stock 1,148 11 (248) 911 Preferred stock 1,804 4 (266) 1,542 ------- ---- ----- ------- $23,681 $243 $(574) $23,350 ======= ==== ===== =======
F-10 Scheduled maturities of marketable debt securities at December 31, 1996, are as follows:
Less Than One to Five to More than 1 Year 5 Years 10 Years 10 Years --------- ------- -------- --------- (In thousands) Municipal bonds $1,738 $ 6,294 $732 $2,589 U.S. government and agency - 811 - - Corporate bonds 1,869 3,840 - - ------ ------- ---- ------ $3,607 $10,945 $732 $2,589 ====== ======= ==== ======
During 1996, proceeds from sales of available-for-sale securities approximated $18.9 million with realized gains of $1.6 million and realized losses of $343 thousand. In 1995, proceeds approximated $15.8 million with realized gains of $747 thousand and realized losses of $1.1 million. (5) PROPERTY AND EQUIPMENT
December 31, 1996 1995 ------- ------- (In thousands) Land and improvements................... $ 1,220 $ 1,032 Buildings and improvements.............. 9,084 7,157 Furniture and equipment................. 21,597 15,439 Capitalized equipment leases............ 1,437 1,437 ------- ------- 33,338 25,065 Less accumulated depreciation and amortization: Owned property...................... 14,188 11,036 Capitalized equipment leases........ 264 144 ------- ------- Property and equipment, net....... $18,886 $13,885 ======= =======
Under the terms of its capital lease agreements, the Company is required to pay ownership costs, including taxes, licenses and maintenance. The Company also leases office space under operating leases expiring at various dates through February, 2005. Certain of these leases contain renewal options. Rent expense was $952 thousand in 1996, $593 thousand in 1995, and $603 thousand in 1994. Following is a schedule of the future minimum lease payments under these leases as of December 31, 1996.
Capital Operating ------- --------- (In thousands) 1997.......................................... $516 $1,009 1998.......................................... 438 784 1999.......................................... 35 551 2000.......................................... -- 358 2001.......................................... -- 238 ---- ------ Total future minimum lease payments........... 989 $2,940 ====== Less amounts representing interest............ 79 ---- Present value of net minimum lease payments... $910 ====
F-11 (6) OTHER INVESTMENTS Included in other assets at December 31, 1996 and 1995, are investments of $571 thousand and $1.3 million, respectively, in two companies that are partially owned by certain members of the Board of Directors of the Company. At December 31, 1996, the investments include $500 thousand in Trident Capital Partners CSG Acquisition Fund, L.P. and $71 thousand in IDE Corporation. The Company owns less than 10% of either company and accounts for these investments on the cost method. No dividends have been received from these investments. (7) INTANGIBLE ASSETS
December 31, 1996 1995 ------- ------- (In thousands) Goodwill....................... $18,188 $ 6,331 Distribution networks.......... - 11,871 Noncompete agreements.......... - 150 Software development costs..... 1,955 512 ------- ------- 20,143 18,864 Less accumulated amortization.. 3,227 4,222 ------- ------- $16,916 $14,642 ======= =======
(8) FINANCING ARRANGEMENTS The Company has two secured revolving lines of credit totaling $10.0 million, none of which was outstanding at December 31, 1996. One $5.0 million line of credit expires in May 1997. A second line of credit of $5.0 million expires in January 2000. Any borrowings would accrue interest at the bank's base rate and would be payable upon demand. Long-term debt consisted of the following:
December 31, 1996 1995 ------ ------ (In thousands) Bank note, repaid in March 1996.............................. $ -- $ 687 Bank note assumed in acquisition, repaid in January 1997..... 225 -- Computer lease obligations, discounted at 4.9% (See Note 5).. 910 1,352 ------ ------ 1,135 2,039 Less current portion......................................... 708 969 ------ ------ Long-term debt.............................................. $ 427 $1,070 ====== ======
The maturities of long-term debt are as follows: 1997.................................. $ 708 1998.................................. 427 ------ $1,135 ====== F-12 (9) INCOME TAXES The provision for income taxes on continuing operations consists of the following:
Years ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Current: Federal.............. $ 8,782 $7,101 $6,559 State................ 925 658 577 ------- ------ ------ 9,707 7,759 7,136 ------- ------ ------ Deferred: Federal.............. (6,159) 615 443 State................ (148) 47 131 ------- ------ ------ (6,307) 662 574 ------- ------ ------ $ 3,400 $8,421 $7,710 ======= ====== ======
Loss on discontinued operation and abandonment of subsidiary is presented net of income tax benefits of $1.1 million in 1996, $1.3 million in 1995 and $235 thousand in 1994. The effective income tax rate varied from the federal statutory rate as follows:
Years ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Tax provision computed at statutory rate of 35%............................ $3,131 $7,959 $7,328 State taxes, net........................................................... 530 401 418 Nondeductible expense, nontaxable income and other......................... (261) 61 (36) ------ ------ ------ $3,400 $8,421 $7,710 ====== ====== ======
The components of the net deferred tax asset (liability) were as follows:
Years ended December 31, 1996 1995 ---- ---- (in thousands) Deferred tax assets: Marketable securities..................................................... $ 232 $ 85 Intangible assets......................................................... 5,758 - Accrued vacation.......................................................... 291 185 Accrued expenses.......................................................... 369 409 Accounts receivable....................................................... 317 389 Other assets.............................................................. 521 239 Other..................................................................... - 208 ------- ------- 7,488 1,515 ------- ------- Deferred tax liabilities: Intangible assets......................................................... - (1,439) Depreciation.............................................................. (824) (801) Prepaid expenses and other................................................ (1,788) (853) ------- ------- (2,612) (3,093) ------- ------- Net deferred tax asset (liability)......................................... $ 4,876 $(1,578) ======= =======
F-13 (10) STOCK INCENTIVES The Company has a stock option plan under which a total of 4.0 million (1.9 million prior to 1996) shares of the Company's common stock have been reserved for issuance to officers, key employees and non-employee directors. Options are generally granted at the stock's fair market value on the date of grant, vest generally over a four year period and expire five years from date of grant. Options issued to shareholders holding 10% or more of the Company's stock are generally issued at 110% of the stock's fair market value on the date of grant and vest over periods ranging from five to six years with early vesting if certain financial goals are met. Certain options issued to directors at the stock's fair market value vested immediately and expire five years from grant date. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Year Ended December 31, 1996 1995 ----------------------------- ---- ---- (In thousands, expect per share amounts) Net income-as reported $3,819 $12,001 Net income-pro forma $3,103 $11,779 Earnings per share-as reported $ 0.18 $ 0.58 Earnings per share-pro forma $ 0.15 $ 0.57
The above pro forma results are not likely to be representative of the effects on reported net income for future years since options vest over several years and additional awards generally are made each year. The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0%; expected volatility of 15.52%; risk free interest rate based on the U.S. Treasury strip yield at the date of grant; and expected lives of 4.0 years for options other than those issued to 10% or more shareholders for which the expected lives were equal to the vesting periods of 5 to 6 years. F-14
1996 1995 1994 ------------------- --------------------- --------------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding on January 1, 1,456,875 $10.97 1,094,250 $ 8.65 694,500 $ 8.28 Granted 1,937,000 $16.34 498,000 $15.38 436,500 $ 9.18 Exercised (352,975) $ 8.63 (94,125) $ 8.36 (6,750) $ 7.94 Forfeited / Expired (484,000) $12.00 (41,250) $ 8.45 (30,000) $ 8.13 ---------- ------ ---------- ------ --------- ------ Outstanding on December 31, 2,556,900 $15.16 1,456,875 $10.97 1,094,250 $ 8.65 ========== ====== ========== ====== ========= ====== Options exercisable at end of year 292,525 $11.07 378,750 $10.99 189,000 $12.54 ========== ====== ========== ====== ========= ====== Shares available on December 31, for options that may be granted 1,443,100 443,125 805,750 ========== ========== ========= Weighted-average grant date fair value of options, granted during the year - exercise price equals stock market price at grant $ 3.94 $ 3.82 ========== ========== Weighted-average grant date fair value of options granted during the year - exercise price exceeds stock market price at grant $ 4.19 $ - ========= ==========
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ----------------------------------------------- ----------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price - ------------------------ ----------- ----------- ----- ----------- ------ $8.00 36,500 0.3 years $ 8.00 36,500 $ 8.00 $7.59 71,375 1.3 years $ 7.77 46,250 $ 7.79 $8.66 to $9.50 197,025 2.5 years $ 9.03 87,525 $ 8.98 $11.00 to $11.50 157,500 3.1 years $11.48 39,375 $11.48 $15.50 to $17.50 157,500 3.5 years $17.12 61,875 $16.53 $13.25 to $18.50 1,937,000 4.4 years $16.34 21,000 $15.50 --------- ------ ------- ------ $7.59 to $18.50 2,556,900 $15.16 292,525 $11.07 ========= ====== ======= ======
F-15 (11) SAVINGS PLAN Employees who meet certain eligibility requirements can participate in the Company's 401(k) Savings and Investment Plan. Under the plan, the Company may, at its discretion, match a percentage of the employee contributions. The Company recorded expenses related to its matching contributions of $115 thousand, $80 thousand and $71 thousand in 1996, 1995 and 1994, respectively. (12) DISCONTINUED OPERATIONS On June 1, 1995, the Company transferred substantially all of the assets and liabilities of its wholly-owned subsidiary, American Business Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University. The Company received $3.0 million in the form of a 7.52% non-recourse promissory note, due in equal monthly installments through 2005. The note is listed as "net assets of business transferred under contractual arrangement" on the accompanying consolidated balance sheet since it is non-recourse to Baker University. ABC recorded net sales of $2.9 million and $6.7 million during 1995 and 1994, respectively. During 1996, Baker University defaulted on the note and the Company abandoned any remaining net assets of the business. As a result, the Company recorded a loss from abandonment of subsidiary of $1.4 million, net of tax. The Company originally reported the transfer of assets in 1995 as a loss on sale of discontinued operations. However, the prior year amount has been reclassified in accordance with Staff Accounting Bulletins 5-E and 5-Z, as an impairment of net assets transferred under contractual arrangement. Since the remaining net assets have been abandoned in 1996, all 1995 amounts related to ABC have been reclassified as discontinued operations. (13) SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain acquisitions in 1996 and 1994 (See Note 3) and assumed liabilities as follows:
1996 1994 ------- ------- (In thousands) Fair value of assets $28,107 $ 9,333 Cash paid (5,910) (8,200) Promissory note issued (7,925) - Common stock issued (9,382) - ------- ------- Liabilities assumed $ 4,890 $ 1,133 ======= =======
In conjunction with the transfer of ABC in 1995, approximately $6.8 million of assets, less liabilities of $1.0 million, were exchanged for a $3.0 million note receivable. As a result, the Company recognized an impairment of $1.8 million net of a tax benefits, which is included in loss on discontinued operations. F-16 (14) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments approximates their estimated fair value at December 31, 1996. The fair value of cash and cash equivalents was based on the carrying value of such assets. The estimated fair value of marketable securities were based on quoted market prices. The fair value of notes receivable and long-term debt, including capital lease obligations, were estimated based on discounted cash flows using market rates at the balance sheet date. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. (15) 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. (16) ONE-TIME, NON-CASH ITEMS One-time, non-cash items represent charges for the purchased in-process research and development of approximately $10 million relating to the acquisition of DDA (See Note 3) and the change in estimated useful lives of approximately $11.5 million due to management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995. (17) SUBSEQUENT EVENT Effective February 15, 1997, the Company acquired all issued and outstanding common stock of DBA Holdings, Inc., the parent company of Database America Companies, Inc. (DBA), a leading provider of data processing and analytical services for marketing applications, and compiler of information on consumers and businesses in the United States. Total consideration for the acquisition was approximately $100 million, consisting of approximately $50 million in cash and approximately 2.2 million shares of the Company's common stock. The acquisition will be accounted for as a purchase. The Company expects to immediately write-off a significant portion of the purchase price in the first quarter of 1997. The remaining intangibles and goodwill will be written off over 8 years. (18) RESTATEMENT During 1995, the Company agreed to repurchase, at fair market value, 291,875 shares of common stock from a former officer of the Company for $3.1 million. The charge of $3.1 million is reflected as selling, general and administrative expense on the accompanying 1995 consolidated statement of operations. The Company originally reported the transaction as a charge to paid- in-capital during the first quarter of 1996. Consequently, the accompanying financial statements have been restated to properly account for the repurchase as compensation expense. The accompanying financial statements have also been restated to reflect an increase to receivable reserves of $0.6 million. The charge of $0.6 million is reflected as selling, general and administrative expense on the accompanying 1995 consolidated statement of operations. The restatements decreased net income for 1995 by $2.3 million. Additionally, as of December 31, 1996, paid-in capital increased by $1.9 million, accounts receivable decreased by $0.6 million, retained earnings decreased by $2.3 million, and total stockholders' equity decreased by $0.4 million. Earnings per share for December 31, 1995 decreased by $0.11 as a result of the restatement. F-17 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Additions -------------------------- Balance at Charged to Balance at Beginning Costs and Charged to End of Description of Period Expenses Other Accounts Deductions Period - ------------- ---------- ---------- -------------- ---------- ---------- Allowance for doubtful accounts receivable: (A) December 31, 1994.. $ 250 $ 936 $ - $ 782 $ 404 December 31, 1995.. $ 404 $1,585 $ - $ 965 $1,024 December 31, 1996.. $1,024 $1,485 $ 364* $1,284 $1,589 Allowance for sales returns: (B) December 31, 1994.. $ - $ - $ - $ - $ - December 31, 1995.. $ - $ 800 $ - $ - $ 800 December 31, 1996.. $ 800 $3,401 $ 929* $3,995 $1,135
* Recorded as a result of acquisitions (A) Charge-offs during the period indicated (B) Returns processed during the period indicated S-1 INDEX TO EXHIBITS AMERICAN BUSINESS INFORMATION, INC. ANNUAL REPORT ON FORM 10-K
Exhibit Sequentially No. Description Numbered Page ------- ------------------------------------------------- ------------- 3.1 Certificate of Incorporation, Amended as of September, 1996 3.2 (1) By-laws 4.1 (1) Specimen Certificate representing the Common Stock 10.1 1992 Stock Option Plan, Amended as of March, 1997 10.2 (2) Form of Indemnification Agreement with Officers and Directors 10.8 (4) Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. 10.9 (5) Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. 10.10 (5) Agreement and Plan of Merger between the Company and DBA Holdings, Inc. 10.11 (5) Loan Agreement between the Company and First Union National Bank of North Carolina 10.12 Registration Rights Agreement between the Company and 3319977 Canada Inc. 10.13 Registration Rights Agreement between the Company and the Shareholders of Digital Directory Assistance, Inc. 10.14 Registration Rights Agreement between the Company and the Shareholders of County Data Corporation. 11 Statement re: computation of per share earnings 21 Subsidiaries and State of Incorporation 23 Consent of Independent Accountants 24 Power of Attorney (included on signature page) 27 Financial Data Schedule
- ----------- (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-42887) which became effective February 18, 1992. (2) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-51352) which became effective September 16, 1992. (3) Incorporated by reference to exhibits filed with Registrant's year end report on Form 10-K for the year ended December 31, 1993. (4) Incorporated by reference to exhibits filed with Registrant's current report on Form 8-K dated September 10, 1997. (5) Incorporated by reference to exhibits filed with Registrant's current report on Form 8-K dated February 28, 1997. (b) Reports on Form 8-K: On September 10, 1996, the Company filed a current report on Form 8-K, which was subsequently amended by a Form 8-K/A, related to the acquisition of Digital Directory Assistance, Inc. On February 28,1997, the Company filed a current report on Form 8-K related to the acquisition of DBA Holdings, Inc. EX-11 2 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 AMERICAN BUSINESS INFORMATION, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS For the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share amounts)
1996 1995 1994 ------- ------- ------- Average shares outstanding...................... 21,033 20,738 20,678 Net additional common equivalent shares (1)..... 341 632 174 ------- ------- ------- Average number of common and common equivalent shares outstanding............................. 21,374 21,370 20,852 ======= ======= ======= Net income for per share computation (1)........ $ 3,819 $12,001 $12,824 ======= ======= ======= Net income per average common and common equivalent share outstanding................... $ 0.18 $ 0.56 $ 0.62 ======= ======= =======
______________________________ (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3 percent. EX-23 3 CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-59256) of American Business Information, Inc. of our report dated January 24, 1997, February 15, 1997 and July 31, 1997 on our audits of the consolidated financial statements and financial statement schedule of American Business Information, Inc. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Omaha, Nebraska September 4, 1997 EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1996 DEC-31-1996 7,497 22,810 29,630 0 0 66,066 33,338 14,452 107,877 19,845 427 0 0 55 87,550 107,877 0 108,298 0 101,393 943 0 209 8,947 3,400 5,547 1,728 0 0 3,819 .18 .18
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