10-K405/A 1 d88314a1e10-k405a.txt AMENDMENT NO. 1 TO FORM 10-K - FISCAL END 12/31/00 1 ================================================================================ 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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER: 0-19598 ---------- INFOUSA 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) (402) 593-4500 (Registrant's telephone number, including area code) ---------- 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 SERIES A PREFERRED SHARE PURCHASE RIGHTS ---------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate 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] 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 23, 2001 as reported on the NASDAQ National Market System, was approximately $99 million. 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 23, 2001 registrant had outstanding 50,520,620 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 21, 2001, which will be filed within 120 days of the end of fiscal year 2000, are incorporated into Part III hereof by reference. ================================================================================ 2 EXPLANATORY NOTE InfoUSA, Inc. (the "Company"), in accordance with Rule 12b-15 of the Securities Exchange Act of 1934, hereby amends its Annual Report on Form 10-K for the fiscal year ended December 31, 2000 (the "2000 Form 10-K") to revise Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" to include the Liquidity and Capital Resources section that was inadvertently excluded from the document that was originally filed on the Company's 2000 Form 10-K. Additionally, a change in Financial Statements Footnote #8, "Financing Arrangements", the amount stated as available for the Revolving Credit Facility of $30 million was reduced to $25 million, to reflect the amount available as of December 31, 2000, per the current terms of the Credit Facilities agreement. No other changes to the Company's 2000 Form 10-K have been made. The undersigned registrant hereby amends the following section of its Report for the year ended December 31, 2000 on Form 10-K as set forth in the pages attached hereto: 2 3 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW infoUSA 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 which include small and medium-size businesses, Fortune 1000 companies, consumers, and Internet users. Historically, our revenue has been derived predominantly through the sale of customized sales lead generation products. We estimate that no customer represented greater than approximately 4% of net sales in 2000. As our company has expanded product and service offerings, we have successfully capitalized on new markets and applications for our proprietary databases. We began to recognize significant revenue from data processing services in 1997 following the acquisition of Database America and continued expanding our data processing revenue with the acquisition of Donnelley Marketing in July of 1999. The acquisition of Donnelley Marketing enhanced our proprietary consumer database and database marketing services. The merger made us the only company in our industry offering proprietary business and consumer data, data processing, and database marketing services and gave us the ability to offer complete solutions and fulfill substantially all the database, data processing, and database marketing needs of our Fortune 1000 customers. With the expansion of our Consumer Products Division, and the acquisition of Pro CD and Digital Directory Assistance, revenue from consumer CD-Rom products increased substantially between 1993 and 1997. Retail sales of consumer products generate leads for our subscription sales department which is highly profitable. Walter Karl continued showing strong List Brokerage and List Management revenue growth during 2000. Walter Karl was acquired in 1998 and combined with JAMI Marketing Services to form what is now know as Walter Karl. Finally, the company has recognized strong Internet license revenue and Internet content sales since 1999 and believes there is significant opportunity to expand the market for our products and services over the Internet. Since the beginning of 1999, operating costs have increased significantly due to our execution of the planned expansion of certain Internet initiatives, including infoUSA.com, BusinessCreditUSA.com, Videoyellowpages.com and ListBazaar.com. Selling, general and administrative expenses have increased significantly, and database and production costs have increased moderately. For the year ended December 31, 2000, net sales for the four Internet divisions increased $10.0 million, or 64% from the year ended December 31, 1999, although total operating costs for the Internet divisions increased $33.9 million or 457% from the year ended December 31, 1999. Marketing costs specific to the Internet initiatives represent the principal source of the increase. 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 ListBazaar.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 15 people by the end of December, with most of the administrative, overhead and support functions being rolled back under the parent company. During the fourth quarter of 2000, the large business segment experienced softer customer demand due to the macroeconomic downturn. As a result, some of its Fortune 1000 customers were impacted by budgetary constraints and forced to postpone capital spending decisions. Beginning in December, the large business segment cut costs to be in line with reduced revenue expectations. The large business segment is now well positioned to increase its profitability during 2001, and will 3 4 continue to focus on expense control and profitable revenue growth through the introduction of innovative new products. These include the recently introduced Database-One(TM), a premier e-CRM solution that integrates the entire suite of Donnelley products to create a real-time customer content integration and decision support tool. The Company's net sales are generated from the sale of its products and services and the licensing of its data to third parties. Revenue from the sale of products and services is generally recognized when the product is delivered or the services are performed. During 2000, the Company changed its method of accounting for data licensing arrangements sold with updates to record revenue on a straight-line basis over the license term. This newly adopted method of accounting better reflects the service commitments inherent in the Company's licensing arrangements in light of the growing proportion of such licensing revenue from long-term and continuous access agreements. Previously, the majority of revenue from data licensing with updates was recognized at the time the initial set of data is delivered, with the remaining portion being deferred and recognized over the license term as the Company provided updated information. The Company's operating expenses are determined in part based on the Company's expectations of future revenue growth and are substantially fixed in the short term. As a result, unexpected changes in revenue will have a disproportionate effect on financial performance in any given period. The Company's database and production costs are generally charged to expense as incurred and relate principally to maintaining, verifying and updating its databases, fulfilling customer orders and the producing of DVD titles. Costs to develop new databases are capitalized by the Company and amortized upon the successful completion of the databases over a period ranging from one to five years. Selling, general and administrative expenses consist principally of salaries and benefits associated with the Company's sales force as well as costs associated with its catalogs and other promotional materials. The Company had previously made certain disclosures relative to the continuing results of operations of acquired companies where appropriate and possible, although the Company has in the case of all acquisitions since 1996, immediately integrated the operations of the acquired companies into existing operations of the Company. Generally, the results of operations for these acquired activities are no longer separately accounted for from existing activities. The Company cannot report on the results of operations of acquired companies upon completion of the integration as the results are "commingled" with existing results. Additionally, upon integration of acquired operations, the Company frequently combines acquired products or features with existing products, and experiences significant cross-selling of products between business units, including sales of acquired products by existing business units and sales by acquired business units of existing products. Due to recent and potential future acquisitions, future results of operations will not be comparable to historical data. While the results cannot be accurately quantified, acquisitions have had a significant impact on net sales. Since 1996, database and production costs have increased as a percentage of net sales as a result of higher costs associated with data processing services and DVD production. To the extent that data processing and DVD sales constitute a greater percentage of net sales, the Company expects database and production costs to increase as a percentage of net sales. Since 1996, database and production costs have increased as a percentage of net sales as a result of higher costs associated with data processing services and CD-Rom production. To the extent that data processing and CD-Rom sales constitute a greater percentage of net sales, the Company expects database and production costs to increase as a percentage of nets sales in the future. Since 1997, net sales of the Company's large business segment have increased as a percentage of the Company's total net sales, due to the acquisition of the Database America Companies, Walter Karl, JAMI Marketing and Donnelley Marketing. 4 5 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 and consumer marketing information. The following table summarizes these acquisitions:
TRANSACTION PRINCIPAL TYPE OF VALUE ACQUIRED COMPANY KEY ASSET BUSINESS SEGMENT ACQUISITION DATE ACQUIRED (IN MILLIONS)(1) ---------------- --------- ---------------- ----------- ------------- ---------------- Digital Directory Assistance............. Consumer CD-Rom Products Small business Asset purchase August 1996 $ 17 County Data Corporation............ New Businesses Database Small business Pooling-of-interests November 1996 $ 11 Marketing Data Systems................ Data Processing Services Large business Asset purchase November 1996 $ 3 BJ Hunter................ Canadian Business Database Small business Stock purchase December 1996 $ 3 Database America Consumer Database and Data Companies.............. Processing Services Large business Stock purchase February 1997 $ 105 Pro CD................... Consumer CD-Rom Products Small business Asset purchase August 1997 $ 18 Walter Karl.............. Data Processing and List Large business Stock purchase March 1998 $ 19 Management Services JAMI Marketing........... List Management Services Large business Asset purchase June 1998 $ 13 Contacts Target Marketing.............. Canadian Business Database Small business Asset purchase July 1998 $ 1 Donnelley Marketing...... Consumer Database and Large business Stock purchase July 1999 $ 200 Data Processing Services American Church Lists.... Religious Institution Database Small Business Stock purchase March 2000 $ 2 IdEXEC................... Executives Database Large Business Asset purchase May 2000 $ 7 Getko Direct Response.... Canadian Consumer Database and Data Processing Services Small Business Asset Purchase May 2000 $ 2
---------- (1) Transaction value includes total consideration paid including cash paid, debt and stock issued plus long-term debt repaid or assumed at the date of acquisition plus, in the case of DBA, a subsequent purchase price adjustment in October 1997. As part of these strategic acquisitions, the Company has incurred various acquisition-related charges to operations, consisting of: 1) $2.3 million in 2000, for the attempted acquisition of the consumer database division of R.L. Polk and the acquisitions of idEXEC, American Church Lists and Getko Direct Response, 2) $9.8 million in 1999 in connection with the acquisition of Donnelley Marketing, 3) $10.1 million in 1998 in connection with the acquisitions of Walter Karl and JAMI Marketing and for certain internal restructuring charges, 4) $56.1 million in 1997 in connection with the acquisitions of DBA and Pro CD, and 5) $10.0 million in 1996 in connection with the acquisition of Digital Directory Assistance. In addition, the Company expects to amortize goodwill and other intangibles over periods of up to 20 years in connection with acquisitions completed since mid-1996. The Company's results for 1998 do not include the operations of Donnelley Marketing, and the results for 1999 and 1998 do not include the operations of American Church Lists, idEXEC and Getko Response. In connection with future acquisitions, the Company expects that it will be required to incur additional acquisition-related charges to operations and to amortize additional amounts of goodwill and other intangibles over future periods. While there are currently no binding commitments with respect to any particular future acquisitions, the Company frequently evaluates the strategic opportunities available and intends to pursue strategic acquisitions of complementary products, technologies or businesses that it believes fit its business strategy. Associated with the acquisitions previously described, the Company has recorded amortization expense on goodwill and other purchased intangibles as summarized in the following table (amounts in thousands):
FISCAL YEAR AMOUNT ----------- ------ 1996................. $ 1,312 1997................. 27,661 1998................. 18,147 1999................. 22,237 2000................. 32,190
5 6 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. The amounts and related percentages may not be fully comparable due to the acquisition of Walter Karl in March 1998, JAMI Marketing Services (JAMI) in June 1998, Donnelley Marketing (Donnelley) in July 1999, American Church Lists in March 2000 and idEXEC and Getko Direct Response in May 2000:
YEAR ENDED DECEMBER 31, ------------------------------------------- 2000 1999 1998 ---------- ---------- ---------- CONSOLIDATED STATEMENT OF OPERATIONS DATA: Net sales ............................................ 100% 100% 100% Costs and expenses: Database and production costs ...................... 33 30 29 Selling, general and administrative ................ 49 41 51 Depreciation and amortization ...................... 17 13 12 Impairment of assets ............................... 1 2 -- Acquisition costs .................................. 1 2 2 Non-cash stock compensation ........................ 1 -- -- Restructuring charges .............................. 2 -- 1 Provision for litigation settlement ................ -- -- 2 In-process research and development ................ -- -- 2 ---------- ---------- ---------- Total costs and expenses ................... 104 88 99 ---------- ---------- ---------- Operating income (loss) .............................. (4) 12 1 Other income, net .................................... (1) 2 2 ---------- ---------- ---------- Income (loss) before income taxes from continuing operations ................................ (5) 14 4 Income tax expense ................................... -- 5 3 ---------- ---------- ---------- Income (loss) from continuing operations ............. (5) 9 1 Discontinued operations, net of tax .................. (2) -- -- ---------- ---------- ---------- Income (loss) before cumulative effect of a change in accounting principle ....................... (7) 9 1 Cumulative effect of a change in accounting principle, net of tax ................................ (3) -- -- ---------- ---------- ---------- Net income (loss) .................................... (10)% 9% 1% ========== ========== ========== EBITDA, as adjusted(1) ............................... 15% 28% 15% ========== ========== ========== OTHER DATA: SALES BY SEGMENT: Small business ..................................... $ 140.2 $ 129.9 $ 130.0 Large business ..................................... 165.5 136.0 98.7 ---------- ---------- ---------- Total ...................................... $ 305.7 $ 265.9 $ 228.7 ========== ========== ========== SALES BY SEGMENT AS A PERCENTAGE OF NET SALES: Small business ..................................... 46% 49% 57% Large business ..................................... 54 51 43 ---------- ---------- ---------- Total ...................................... 100% 100% 100% ========== ========== ==========
---------- (1) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to exclude depreciation and amortization, impairment of assets, non-cash stock compensation expense and in-process research and development charges. EBITDA, as adjusted, 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. 6 7 2000 COMPARED TO 1999 Net sales Net sales for 2000 were $305.7 million, a 15% increase from $265.9 million in 1999. Net sales of the small business segment were $140.2 million, an 8% increase from $129.9 million in 1999. The small business segment principally engages in the selling of sales lead generation and consumer CD-Rom and 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 acquisitions of American Church Lists in March 2000, idEXEC and Getko in May 2000 contributed to the increase, although the sales associated with these acquired entities were not significant. The overall increase in the net sales of the small business segment is principally due to the acquisition of Donnelley in July 1999 and the related sale of Donnelley's consumer data by this segment although the amount can not be accurately quantified. Generally, upon integration of an acquired business, 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 of existing products by acquired business units. Additionally, effective January 1, 2000, the operations related to Donnelley were reorganized and certain operations that were previously included in the large business segment have been included in the small business segment from January 1, 2000 forward. The small business segment has experienced growth in its vertical market groups including the middle markets, government, library, medical and field sales offices groups. Additionally, the Company recorded Internet content sales of $3.9 million in 2000, an 18% increase from $3.3 million in 1999. The increase in net sales by the small business segment described above was partially offset by a decrease in the net sales of consumer CD-Rom products. The Company recorded net sales of $10.8 million of consumer CD-Rom products during 2000, compared to $19.0 million in 1999. The decline in net sales of consumer CD-Rom products is the result general market conditions and the Company's unsatisfactory execution of merchandising programs with retailers and a change in the timing of new product releases. Net sales of the large business segment were $165.5 million, a 22% increase from $136.0 million in 1999. Included in the large business segment are sales of data processing services and Internet-based database licenses. The increase in net sales for the large business segment is due to the following: 1) acquisition of Donnelley in July 1999 and idEXEC in May 2000, 2) increased sales of Internet-based database licenses, and 3) increased sales of marketing database licenses due to the addition of certain significant license arrangements. Additionally, the amounts are not fully comparable as effective January 1, 2000, the operations related to Donnelley were reorganized and certain operations that were previously included in the large business segment have been included in the small business segment from January 1, 2000 forward. The amount of sales transferred to the small business segment due to the reorganization can not be accurately quantified for reasons previously described. Certain comparative information related to the large business segment includes: 1) net sales of Internet-based database licenses for 2000 were $20.2 million, a 62% increase from $12.5 million in 1999, and 2) net sales of data processing services were $77.1 million, a 3% increase from $74.8 million in 1999. Database and production costs Database and production costs for 2000 were $101.8 million, or 33% of net sales, an increase of 3% of net sales compared to $78.6 million, or 30% of net sales for 1999. The increase in database and production costs as a percentage of net sales is partially due to the acquisition of Donnelley in July 1999. Sales associated with the Donnelley operations have a larger composition of data processing and client services than the sales associated with the remainder of the Company's operations. The increase in database and production costs as a percentage of net sales is principally due to the execution of the Company's planned expansion related to various Internet initiatives. Database and production costs related to the various Internet divisions increased $4.6 million to $5.6 million, or 2% of net sales for 2000, compared to $1.0 million, or less than 1% of net sales for 1999. The increase for the Internet divisions is due to additional information technology and data content costs. Selling, general and administrative expenses Selling, general and administrative expenses for 2000 were $149.7 million, or 49% of net sales, an increase of 8% of net sales compared to $108.4 million, or 41% of net sales for 1999. The increase in selling, general and administrative expenses as a percentage of net sales is principally due to the execution of the Company's planned expansion related to various Internet initiatives. Selling, general and administrative costs related to the various Internet divisions increased $19.1 million, to $25.5 7 8 million, or 8% of net sales for 2000, compared to $6.4 million, or 2% of net sales for 1999. The increase in selling, general and administrative expenses related to the Internet divisions included the following items: 1) increase in advertising costs of $8.6 million for a total of $11.9 million for 2000, 2) increase in salaries and wages of $6.7 million for a total of $8.8 million for 2000, 3) increase in bad debt of $1.1 million for a total of $1.3 million for 2000, 4) increase in building lease, taxes and maintenance expenses of $1.2 million for a total of $1.4 million for 2000 and, 5) increase of travel and entertainment costs of $0.8 million for a total of $1.0 million for 2000. Depreciation and amortization expenses Depreciation and amortization expenses for 2000 were $52.2 million, or 17% of net sales, compared to $34.9 million, or 13% of net sales for 1999. The increase in depreciation and amortization expenses is primarily due to the acquisition of Donnelley in July 1999. Impairment of assets During 2000, the Company recorded asset impairment charges totaling $2.1 million, or 1% of net sales. The impairment charges included: 1) $1.0 million for the infoPix business photograph database and related equipment, 2) $0.9 million for infoUSA.com public offering costs and certain leasehold improvements for the Foster City, CA facility, and 3) $0.2 million for capitalized software costs related to the Company's data warehousing project which was discontinued due to the Company's cost containment plans previously described. During 1999, the Company recorded asset impairment charges totaling $5.6 million, or 2% of net sales. The impairment charges included: 1) a write-down of $3.9 million on the Company's existing consumer database white pages file which was impaired due to the addition of the more complete Donnelley consumer file with the acquisition of Donnelley in July 1999, and 2) a write-down of $1.7 million on certain leasehold improvements and in-process construction projects which were abandoned due to the move of data processing services operations from Montvale, NJ to Greenwich, CT. Acquisition costs During 2000, the Company recorded various integration-related charges of $2.3 million, or 1% of net sales. These costs included $0.5 million related to the integration of American Church Lists, idEXEC and Getko into the Company's existing operations and $1.8 million associated with the Company's unsuccessful bid to acquire the consumer database division of R.L. Polk. During 1999, the Company recorded various integration-related charges of $4.2 million, or 2% of net sales. The integration-related charges included consulting costs, management bonuses, direct travel and entertainment costs and other direct integration-related charges. These costs were not directly related to the acquisition of Donnelley, and therefore could not be capitalized, but were costs associated with the integration of Donnelley operations into the Company's existing operations. Non-cash stock compensation expense During 2000, the Company recorded a non-cash charge of $3.1 million, or 1% of net sales, related to the issuance of stock options for infoUSA.com, a subsidiary of the Company. The non-cash charges represent compensation in the form of stock option and warrant grants by the subsidiary to non-employees and vendors. To the extent the fair value of the subsidiary's awards increase during the vesting period, additional compensation charges may emerge. Restructuring charges During 2000, the Company recorded restructuring charges of $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 from 2,200 to 1,841. The Company recorded a $3.7 million accrual for the lease buyout of the Foster City, California facility and $2.1 million for workforce reduction charges. The workforce reduction charges included involuntary employee separation costs for approximately 350 employees that included charges of $0.8 million for employees in the Company's Internet businesses, $0.7 million for employees of the large business segment, $0.4 million for employees of the small business segment and $0.2 for administrative employees. As of December 31, 2000, employees received cash severance payments totaling $0.3 million during 2000 with $1.8 million 8 9 deferred and scheduled to be paid in 2001. At December 31, 2000, these deferred payments were classified in the Statement of Consolidated Financial Position as other liabilities. Operating income (loss) Including the factors previously described, the Company had an operating loss of $11.4 million, or (4)% of net sales for 2000, compared to operating income of $34.1 million, or 12% of net sales for 1999. Excluding acquisition-related, integration, restructuring and asset impairment charges previously described, the Company would have had an operating loss of $1.2 million, or less than 1% of net sales for 2000, compared to $43.8 million, or 16% of net sales for 1999. Operating income for the small business segment for 2000 was $32.4 million, or 23% of net sales, as compared to $61.7 million, or 48% of net sales for 1999. The decrease in operating income as a percentage of net sales is principally due to the Company's execution of the planned expansion related to various Internet initiatives. Substantially all costs related to the Internet divisions are included in the small business segment. See the sections "Selling, general and administrative expenses" and "database and production costs" previously described, for additional information describing the Internet divisions, the effects on the results of operations and expected trend for 2001. Operating income for the large business segment for 2000 was $75.5 million, or 46% of net sales, as compared to $55.9 million, or 41% of net sales for 1999. The increase in operating income as a percentage of net sales is partially due to the overall increase in sales of marketing database licenses and Internet-based database licenses, as the cost margins associated with these products are lower than the cost margins associated with the remainder of the large business segment's products. Additionally, the Company implemented a cost reduction program as part of the acquisition of Donnelley in July 1999. Subsequent to the acquisition of Donnelley, the Company was successful in reducing operating costs related to the acquired operations and achieved its desired cost reduction levels by the end of 1999. Other income (expense), net Other income (expense), net was $(4.5) million, or (1)% of net sales, and $4.5 million, or 2% of net sales, 2000 and 1999, respectively. 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. Investment income was $1.3 million and $14.2 million for 2000 and 1999, respectively. During 1999, the Company realized a gain of $10.3 million on the disposition of its holdings in InfoSpace.com common stock, the proceeds of which were used to reduce the debt outstanding incurred as part of the acquisition of Donnelley. Interest expense was $26.7 million and $18.6 million for 2000 and 1999, respectively. The increase in interest expense is primarily the result of the addition of the Deutsche Bank Credit Facilities used to finance the acquisition of Donnelley in July 1999. Minority interest in subsidiary of $6.3 million for 2000, represents the unaffiliated investors' share of infoUSA.com's net loss for the period then ended. During 2000, infoUSA.com, a subsidiary of the Company, completed additional private equity financing. As a result of the issuance of stock of this subsidiary, the Company recorded a gain of $14.6 million. The issuance of subsidiary stock to outside investors has allowed the Company to continue to execute its planned expansion related to infoUSA.com as an online provider of white and yellow page directory assistance and an Internet destination for sales and marketing tools and information without affecting working capital of existing operations. The dramatic changes in the Internet market during the fourth quarter 2000 and the first quarter of 2001 has required the Company to focus on preserving the remaining investment and revise its strategy for turning infoUSA.com into a profitable subsidiary. The Company has initiated cost reduction plans, as described above, for infoUSA.com and the other Internet businesses to achieve profitable operations during fiscal year 2001. Income taxes A provision for income taxes of $1.3 million and $14.0 million was recorded for 2000 and 1999, respectively. The gain the Company recorded on the issuance of subsidiary stock is not subject to income tax expense. The provisions for these periods also reflect the inclusion of amortization of certain intangibles in taxable income not deductible for tax purposes. The provisions for 9 10 the periods beginning January 1, 2000 do not include the net losses associated with infoUSA.com, as this entity is not included in the Company's consolidated federal income tax return from this date forward. The income tax expense is higher (or benefit is lower) than expected principally due to significant nondeductible expenses related to the amortization of intangible assets arising from acquisitions and valuation reserves recognized for deferred tax assets related to net operating losses generated by the Company's subsidiary infoUSA.com. These items are offset in part by the gains on issuance of subsidiary stock by infoUSA.com, which is not subject to income tax expense. Loss from discontinued operations, net of tax During December 2000, the Company closed the operations of its VideoYellowPages.com Internet unit and recorded a loss from discontinued operations of $4.2 million, net of income tax benefit. The loss is comprised of two components: 1) the loss of $3.4 million, net of tax, for the full fiscal year, and 2) charges totaling $0.8 million, net of tax, for assets to be disposed of or abandoned by the Company related to the discontinued operations. Extraordinary item, net of tax During the first quarter of 1999, the Company repurchased $9.0 million of its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection with the repurchase of the Notes, the Company recorded a gain of $0.1 million, net of deferred financing costs of $0.4 million written-off in proportion to the face amount of Notes purchased and retired. Cumulative effect of accounting changes, net of tax During 2000, the Company changed its method of accounting for data licensing arrangements sold with updates to record revenue on a straight-line basis over the license term. This new adopted method of accounting was made because it better reflects the service commitment inherent in the Company's licensing agreements in light of the growing proportion of such license revenue resulting from long-term and continuous access agreements. The Company believes the new 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 Excluding the non-cash stock compensation expense and non-cash portion of the acquisition costs and restructuring charges, the Company's EBITDA, as adjusted, was $46.0 million, or 15% of net sales for 2000, and $74.6 million, or 28% of net sales for 1999. 1999 COMPARED TO 1998 Net sales Net sales for 1999 were $265.9 million, an increase of 16% from $228.7 million for 1998. Net sales of the small business segment for 1999 were $129.9 million, compared to $130.0 million for 1998. Net sales of consumer CD-Rom products were $19.0 million, a 3% decrease from $19.5 million for 1998. Internet content sales were $3.3 million, an 83% increase from $1.8 million for 1998, led by growth in net sales of mailing lists, sales leads and business credit reports. Net sales for the small business segment were flat principally due to the implementation of stricter credit practices during late 1998. The Company adhered to these new credit-extension practices throughout 1999, effectively slowing the growth of sales within the small business segment, but improving the profitability of the segment. In 1999, the Company also improved the product mix within its small business segment resulting in improved profit margins. The Company aggressively targeted mid-size customers since mid-1999. Net sales of the large business segment for 1999 were $136.0 million, a 38% increase from $98.7 million for 1998. The Company recorded net sales of data processing services of $74.8 million during 1999, compared to $62.3 million during 1998. Net sales of Internet-based database licenses were $13.4 million, a 72% increase from $7.8 million for 1998. Since mid-1999, the Company has been successfully renewing and signing new Internet license agreements using a variable CPM model, no longer entering into license agreements on a flat fee basis. The increase in net sales for the large business segment and in data processing services is principally due to the following factors: 1) an increase in sales of Internet-based database licenses 10 11 accounted for $5.6 million of the increase, 2) increased sales of data processing services by the Company's National Accounts sale force accounted for $7.1 million of the increase, and 3) the remainder of the increase is attributed to the acquisition of Donnelley effective July 1999, although the amount can not be accurately quantified for the reason that Donnelly products or features were combined with existing products or features. During late 1998, a significant data processing services customer notified the Company that it intended to perform the same processing in-house. The customer represented 6% of total net sales during 1998. In early 1999, the customer transferred a significant portion of the business in-house. The overall increase in the large business segment net sales was partially offset by the loss of this customer. Database and production costs Database and production costs for 1999 were $78.6 million, or 30% of net sales, compared to $66.3 million, or 29% of net sales for 1998. Since 1996, database and production costs have increased as a percentage of net sales as a result of higher cost margins associated with data processing services, CD-Rom production, and list brokerage services. Factors contributing to the increase in database and production costs as a percentage of net sales include: 1) an overall increase in list brokerage and data processing services sales due to the acquisitions of Walter Karl and JAMI Marketing during 1998, and 2) the acquisition of Donnelley in July 1999 which internally has significant sales of data processing services. The overall increase in database and production costs of 2% of net sales was offset by a decrease in the cost of production of consumer CD-Rom titles of $2.6 million, representing a decrease of 1% of net sales. Selling, general and administrative expenses Selling, general and administrative expenses for 1999 were $108.4 million, or 41% of net sales, compared to $117.7 million, or 51% of net sales for 1998. The decrease in selling, general and administrative expenses for 1999 from 1998, represented as a percentage of net sales, is partially the result of the following items recorded during 1998: 1) increase in estimates for reserves for bad debts of $3.5 million, 2) increase in estimates for reserves related to price protection and cooperative advertising for consumer CD-Rom products of $5.3 million, 3) decrease in estimated benefit period related to deferred advertising costs of $2.7 million, and 4) $0.6 million related to executive severance costs. During late 1997 and early 1998, the Company ramped-up its sales force anticipating a targeted incremental increase in net sales. The Company subsequently did not achieve the targeted incremental increase in net sales. During the third quarter of 1998, the Company enacted certain cost reduction measures, represented principally by staffing reductions, as described in the section "Restructuring Charges" to counter prior measures taken. During the period from the fourth quarter of 1998 through the second quarter of 1999, the Company focused on the reduction of operating expenses, successfully completing during mid-1999 the cost reduction program implemented during the third quarter of 1998. In addition to the items previously described, the decrease in selling, general and administrative expenses in total and as a percentage of net sales is partially the result of the staffing reductions, excluding the effects of the addition of staff related to the acquisition of Donnelley in July 1999. Depreciation and amortization expenses Depreciation and amortization expenses for 1999 were $34.9 million, or 13% of net sales, compared to $27.5 million, or 12% of net sales for 1998. The increase in depreciation and amortization expenses is due to the acquisition of Donnelley in July 1999. Provision for litigation settlement During 1998, the Company recorded a provision for litigation settlement of $4.5 million, or 2% of net sales, related to a dispute centered around a license agreement between DBA and Experian Information Solutions, Inc. prior to the Company's acquisition of DBA in February 1997. Impairment of assets During 1999, the Company recorded asset impairment charges totaling $5.6 million, or 2% of net sales. The impairment charges included: 1) a write-down of $3.9 million on the Company's existing consumer database white pages file which was impaired due to the addition of the more complete Donnelley consumer file with the acquisition of Donnelley in July 1999, and 2) a write-down of $1.7 million on certain leasehold improvements and in-process construction projects which were abandoned due to the move of data processing services operations from Montvale, NJ to Greenwich, CT. 11 12 Acquisition costs During 1999, the Company recorded various integration-related charges of $4.2 million, or 2% of net sales. The integration-related charges included consulting costs, management bonuses, direct travel and entertainment costs and other direct integration-related charges. These costs were not directly related to the acquisition of Donnelley, and therefore could not be capitalized, but were costs associated with the integration of Donnelley operations into the Company's existing operations. During 1998, the Company recorded charges totaling $3.6 million, or 2% of net sales, consisting of $3.0 million of costs associated with the Company's bid to acquire Metromail Corporation and $0.6 million associated with the Company's offering to sell Common Stock which was not completed. In-process research and development During 1998, the Company recorded a write-off of acquired in-process research and development of $3.8 million, or 2% of net sales, in connection with the acquisition of Walter Karl. A portion of the purchase price for this acquisition was attributed to the value of the IPR&D projects and was expensed in accordance with Statement of Financial Accounting Standards (SFAS) No. 2, "Accounting for Research and Development Costs." The Company believes its accounting for purchased IPR&D was made in accordance with generally accepted accounting principles and valuation practices at the time of the related acquisitions. The total amount allocated to the purchased IPR&D recorded in connection with the acquisition of Walter Karl was $3.8 million after retroactive application of the Securities and Exchange Commission's new guidelines for valuing purchased IPR&D. The Company obtained an independent valuation of the purchased IPR&D. The income valuation approach was used to determine the fair value of the IPR&D projects acquired from Walter Karl. Under the income approach, the fair value reflects the present value of the projected cash flow that will be generated by the IPR&D projects if successfully completed. The income approach focuses on the income producing capability of the acquired IPR&D, which the Company believes it represents the present value of the future economic benefits expected to be potentially derived from these projects. As of the valuation dates, the acquired IPR&D projects had not demonstrated technological nor economic feasibility. As a result, the attainability of the income projections is subject to three risk factors: project risk, product risk, and market risk. Project risk reflects the degree to which the project can be feasibly completed and will perform upon its completion in the manner specified. Project risk is dependent upon the development phase of the project as of the acquisition date. Under this premise, the closer the project is to completion, the more likely that the project will reach a successful conclusion. Product risk refers to the concept that these products will be able to produce commercially viable products and services. This factor can be assessed based upon past management experience in the development of new products or services and success of those past ventures. Whether the development required a significant technological or process change was also considered. For a product or service which is similar to other products or services, the risk factor associated is low. Market risk refers to the concept that these products will be demanded by the market upon their completion. Market risk is based upon information that indicates the degree to which the market will demand a product or service that provides the functionality specified. Without the successful completion of the remaining development efforts, the end result would be to fail to introduce new products. A discount of 30% was applied to reflect these risks associated with the projected cash flow to be generated by the acquired IPR & D projects. The descriptions of the projects related to Walter Karl are as follows: o Internet F/E to M204 is a list fulfillment system which interfaces with the Internet to request orders. o M204 Shipping Interface automates shipping and generates the ability to setup shipping destination information as well as allow for the tracking of shipments throughout out its journey to the final destination. o List Brokerage & Management Order is a new order entry system for list fulfillment. o Global Database Update refers to a project that will create a new updated database for the client, Global. o Arandel System Postal/Inkjet allows for postal information to be formatted for Inkjet specifications. o Paul Fredrick/Garden Botanika Reporting provides new reporting and database retrieval for the client Paul Fredrick/Garden Botanika. 12 13 o Chilean Database is a project for a Chilean organization which consists of creating a new database with additional information. o Datacard System allows for the integration with the List Brokerage & Management Order System for rental lists. o Inkjet Utilities will generate a different layout for Inkjet specifications and the project will also allow for new audit reporting. o Flowers Response Analysis is a project that will attempt to increase the database response time of the client, Flowers. o Data Entry System will allow for LAN data entry of additional information. Research and Development costs of each Walter Karl project are directly proportional to the amount of labor (i.e. technicians and engineers) required to complete the project. It was estimated that the average annual cost per technical worker at Walter Karl is $48 thousand. As a result, the R&D incurred on each project prior to the acquisition and the total amount of research and development cost estimated to complete each project are listed below.
R & D COSTS R & D COSTS PRIOR TO THE EXPECTED POST TOTAL R & D IPR & D PROJECT ACQUISITION ACQUISITION COSTS --------------- ------------ ------------- ----------- (IN THOUSANDS) Internet F/E to M204 ............ $ 12 $ 24 $ 36 M204 Shipping Interface ......... 24 12 36 List Brokerage & Mgt. Order ..... 24 48 71 Global Database Update .......... 5 24 29 ArandalSystem Postal/InkJet ..... 12 24 36 Paul Fredrick ................... 36 24 59 Chilean Database ................ 5 24 29 Datacard System ................. 48 10 57 InkJet Utilities ................ 24 10 33 Flowers Response Analysis ....... 5 5 10 Data Entry System ............... 24 5 29 ---------- ---------- ---------- TOTAL ........................... $ 228 $ 207 $ 435 ========== ========== ==========
A description of the stage of completion as well as the methodology employed is listed below for each IPR&D project related to Walter Karl; the stage of completion of each project was determined by examining the ratio of R&D expenses as of the acquisition date to total R&D costs (incurred and projected).
IPR&D PROJECTS STAGE OF COMPLETION SCHEDULED BETA TEST DATE -------------- ------------------- ------------------------ Internet F/E to M204........... Middle of the Design Phase June 1998 M204 Shipping Interface........ Design Phase Unknown - Delayed List Brokerage & Mgt. Order.... Early Design Phase December 1998 Global Database Update......... Early Design Phase August 1998 ArandalSystem Postal/InkJet.... Design Phase Unknown - Delayed Paul Fredrick.................. Design Phase Unknown - Delayed Chilean Database............... Design Phase October 1998 Datacard System................ Design Phase April 1998 InkJet Utilities............... Late Stages of Design Phase May 1998 Flowers Response analysis...... Late Stages of Design Phase April 1998 Data Entry System.............. Late Stages of Design Phase April 1998
13 14 The stage of completion for each project was determined by using the formula: person years completed on R&D/Total person years of R&D effort. Below is a chart outlining the stage of completion for each project.
R&D PERSON YEARS COMPLETED AS OF PERSON YEARS TOTAL R&D PERCENTAGE OF IPR&D PROJECT VALUATION DATE REMAINING PERSON YEARS COMPLETION ------------- ---------------- ------------ ------------ ------------- Internet F/E to M204 ............ .25 .50 .75 33% M204 Shipping Interface ......... .50 .25 .75 67% List Brokerage & Mgt. Order ..... .50 1.0 1.5 33% Global Database Update .......... .10 .50 .60 17% ArandalSystem Postal/InkJet ..... .25 .50 .75 33% Paul Fredrick ................... .75 .50 1.25 60% Chilean Database ................ .10 .50 .60 17% Datacard System ................. 1.0 .20 1.2 83% InkJet Utilities ................ .50 .20 .70 71% Flowers Response Analysis ....... .10 .10 .20 50% Data Entry System ............... .50 .10 .60 83% Total ................. 4.80 4.35 9.15 52%
In regards to Walter Karl, product and market risks for each project are outlined in the following table:
IPR & D PROJECT PROJECT RISK PRODUCT RISK MARKET RISK --------------- ------------ ------------ ----------- Internet F/E to M204............ Low Low Medium M204 Shipping Interface......... Low to Medium Low to Medium Low List Brokerage & Mgt. Order..... Low Low Medium Global Database Update.......... Medium Low High ArandalSystem Postal/InkJet..... Medium Low High Paul Fredrick................... Low to Medium Low High Chilean Database................ Medium Low High Datacard System................. Low Low to Medium Low InkJet Utilities................ Low Low Medium Flowers Response Analysis....... Low Low High Data Entry System............... Low Low Low
Restructuring charges During 1998, the Company recorded restructuring charges totaling $2.6 million, or 1% of net sales. A restructuring charge of $1.4 million was recorded related to the closing of the County Data Corp. new business compilation and sales center and moving these operations from Vermont to Nebraska. All 45 of the County Data Corp. employees were terminated, and severance charges recorded totaled $0.6 million. The restructuring charges also included lease termination costs of $0.3 million and a write-off of $0.5 million of leasehold improvement costs associated with the closed Vermont facility. The restructuring, including recording the payments and write-downs described, was completed by September 30, 1998. Also during 1998, the Company recorded a restructuring charge of $1.2 million which included $0.6 million in severance for 244 employees terminated as a result of the implementation of certain cost reduction measures. These employees were primarily in support and administration positions but some under-performing sales personnel were also terminated. The restructuring charges also included $0.4 million related to the closing of four field sales offices. Additionally, the Company recorded a write-down of $0.2 million related to leasehold improvement costs at facilities leased by the Company which were being closed. The restructuring, including recording the payments and write-downs described, was completed by June 30, 1999. Operating income Including the factors previously described, the Company had operating income of $34.1 million, or 12% of net sales for 1999, as compared to operating income of $2.6 million, or 1% of net sales for 1998. Excluding acquisition-related and restructuring, provision for litigation settlement and asset impairment charges previously described, the Company would have had operating income of $43.8 million, or 16% of net sales for 1999, as compared to operating income of $17.2 million, or 8% of net sales for 1998. Small business segment - Operating income for the small business segment for 1999 was $61.7 million, or 48% of net sales, as compared to $54.7 million, or 42% of net sales for 1998. The increase in operating income as a percentage of net sales of 4% directly relates to certain costs incurred during 1998 which were not incurred during 1999, including: 1) an increase in the 14 15 estimated reserves for bad debts of $3.5 million, 2) an increase in the estimates for reserves for consumer CD-Rom products of $5.3 million, and 3) a charge of $2.7 million related to the change in estimated lives for deferred advertising costs. These adjustments principally related to the small business segment. The incremental costs incurred during 1998 described above were offset by cost reductions performed by the Company during 1998. During late 1998, the Company enacted certain cost reduction measures described in selling, general and administrative expenses. Specifically, the Company reduced staffing for this segment by approximately 175 staff. The staffing reduction caused no material deterioration in sales, improving profitability of this segment. Large business segment - Operating income for the large business segment for 1999 was $55.9 million, or 41% of net sales, as compared to $39.7 million, or 40% of net sales for 1998. The increase in operating income as a percentage of net sales of 1% directly relates to the cost reduction measures described in selling, general and administrative expenses. Specifically, the Company reduced staffing for this segment by approximately 70 staff. The staffing reduction caused no material deterioration in sales, improving profitability of this segment. Other income (expense), net Other income (expense), net was $4.5 million, or 2% of net sales, and $5.5 million, or 2% of net sales, for 1999 and 1998, respectively. Other income (expense) is comprised of interest expense, investment income and other income or expense items which do not represent components of operating income (expense) of the Company. Interest expense was $18.6 million and $9.2 million for 1999 and 1998, respectively. The increase in interest expense is principally the result of servicing debt under the Company's 9 1/2% Senior Subordinated Notes Due 2008 which were issued in June 1998 and the addition of the Deutsche Bank Credit Facilities used to finance the acquisition of Donnelley in July 1999. Investment income was $14.2 million and $16.6 million for 1999 and 1998, respectively. The Company recorded realized gains on the sale of marketable securities totaling $12.9 million and $15.5 million for 1999 and 1998, respectively. During 1999, the Company realized a gain of $8.8 million on the disposition of its holdings in InfoSpace.com common stock. During 1998, the Company realized a gain of $16.5 million on the disposition of its holdings in Metromail Corporation common stock. During 1999, infoUSA.com, a subsidiary of the Company, completed its first round of venture capital financing. As a result of the issuance of common stock of this subsidiary, the Company recorded a gain of $8.9 million on the transaction. During 1998, the Company recorded a loss of $2.0 million on the write-off of an investment. During 1997, the Company made an investment of $2.0 million in preferred stock of an issuer, representing less than 20% of the issuer's outstanding stock. During 1998, the issuer commenced a reorganization and sought funding from other outside investors, diluting the Company's investment in this entity to a nominal value. Additionally, the Company obtained knowledge that the issuer was incurring significant losses and the intended line of business of this start-up entity had significantly changed. Accordingly, the Company wrote-off this investment, which was accounted for on a cost basis. Income taxes A provision for income taxes of $14.0 million and $5.9 million was recorded for 1999 and 1998, respectively. Acquisition-related charges of $3.8 million, representing purchased in-process research and development charges for Walter Karl, were included in income before income taxes for 1998, but are not deductible for tax purposes. The provisions for these periods also reflect the inclusion of amortization of certain intangibles in taxable income not deductible for tax purposes. Amortization expense of $7.5 million and $3.3 million were not deductible for tax purposes for 1999 and 1998, respectively. Extraordinary item, net of tax During the first quarter of 1999, the Company repurchased $9.0 million of its 9 1/2% Senior Subordinated Notes (the "Notes"). In connection with the repurchase of the Notes, the Company recorded a gain of $0.1 million, net of deferred financing costs of $0.4 million written-off in proportion to the face amount of Notes purchased and retired. 15 16 EBITDA, as adjusted Excluding the purchased in-process research and development and asset impairment charges previously described, the Company's EBITDA, as adjusted, was $74.6 million, or 28% of net sales for 1999, and $33.9 million, or 15% of net sales for 1998. 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 December 31, 2000, the Company had no borrowings under the Revolving Credit Facility, with the exception of two outstanding letters of credit in the amount of $6.7 million reducing the availability under the Revolving Credit Facility to $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 or has obtained waivers for 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 December 31, 2000, the Company's principal sources of liquidity included cash and cash equivalents of $21.7 million. Substantially all of this cash is held by the Company's subsidiary, infoUSA.com, and may only be used by this subsidiary. As of December 31, 2000, the Company had working capital of $19.9 million, with substantially all 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 2000 totaled $36.2 million compared to net cash provided by operating activities of $31.0 million during 1999. During 2000, the Company spent $9.2 million for additions of property and equipment, $8.8 million for acquisitions of businesses, net of cash acquired, $11.6 million related to software and database development costs. During 2000, the Company used $22.3 million on the repayment of long-term debt, and 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 $65.8 million at December 31, 1999 to $58.5 million at December 31, 2000. The Company's related days sales outstanding ("DSO") calculation for the fiscal year 2000 was 69 days, compared to 89 days for the fiscal year 1999. DSO for the fiscal year 1999, assuming annualized sales for the acquisition of Donnelley Marketing in July 1999, is calculated to be 76 days. The decrease is principally due to the enforcement of stricter credit policies and the implementation of more aggressive collection practices. Intangible assets, net of amortization, decreased from $315.9 million at December 31, 1999 to $296.1 million at December 31, 2000. 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 $52.2 million during 2000. Accrued expenses increased from $6.6 million at December 31, 1999 to $14.8 million at December 31, 2000 principally due 16 17 to the following: 1) restructuring charges and allowances of $4.7 million related to the cost reduction program initiated in December 2000, as described in the "Overview" and "Restructuring charges" sections above, and 2) reserve of $3.2 million for the Company's employment savings plan for 2001. Deferred revenue included in current liabilities increased from $7.6 million at December 31, 1999 to $19.4 million at December 31, 2000. During 2000, the Company changed its revenue recognition method for data licensing with updates. Effective January 1, 2000, the Company began to recognize revenue on data license arrangements with updates 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. This change in method increased deferred revenues $13.1 million as of December 31, 2000. Long term debt decreased from $277.5 million at December 31, 1999 to $258.7 million at December 31, 2000. The Company made repayments on long-term debt totaling $22.3 million during 2000. Long term deferred revenue at December 31, 2000 of $12.0 million represent a customer prepayment on a long-term data license arrangement. 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. Management believes that the effect of adopting SFAS 133 will not be material to the financial position, results of operations and cash flows of the Company. 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: o In consumer sales lead generation products, Acxiom, R.L. Polk, Experian (a subsidiary of Great Universal Stores, P.L.C. ("GUS")), and Equifax, both directly and through reseller networks. o In data processing services, Acxiom, May & Speh, Experian, Direct Marketing Technologies (a subsidiary of GUS), Snyder Communications, Inc. and Harte-Hanks Communications, Inc. o In business sales lead generation products, Experian and Dun's Marketing Services ("DMS"), a division of Dun & Bradstreet. DMS, which relies upon information compiled from Dun & Bradstreet's credit database, tends to focus on marketing to large companies. 17 18 o In business directory publishing, from Regional Bell Operating Companies and many smaller, regional directory publishers. o In consumer products, certain smaller producers of CD-Rom products. o Technologies which companies may install and implement in-house as part of their internal IS functions, instead of purchasing or outsourcing such functions. In addition, we may face competition from new entrants to the business and consumer marketing information industry as a result of the rapid expansion of the Internet, which creates a substantial new channel for distributing business information to the market. Many of our competitors have longer operating histories, better name recognition and greater financial resources than we do, which may enable them to implement their business strategies more readily than we can. We are highly leveraged. If we are unable to service our debt as it becomes due, our business would be harmed. As of December 31, 2000, we had total indebtedness of approximately $258.7 million, including $106.0 million of Notes under an indenture (the "Indenture") and $136.8 million under a $195 million Senior Secured Credit Agreement. Substantially all of our assets are pledged as security under the terms of the Credit Agreement. The indebtedness under the Credit Agreement was incurred in connection with our acquisition of Donnelley 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: o Incur additional indebtedness; o Pay dividends and make certain other similar payments; o Guarantee indebtedness of others; o Enter into certain transactions with affiliates; o Consummate certain asset sales, certain mergers and consolidations, sales or other dispositions of all or substantially all of our assets o Acquire other companies; and o Obtain dividends or certain other payments from our subsidiaries. These restrictions may impair our ability to take certain actions that fit our business strategy. A breach of any of these covenants could result in an event of default under the terms of our existing credit facilities. Upon the occurrence of an event of default, the lenders could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If the payment of any such indebtedness is accelerated, our assets may not be sufficient to repay in full the indebtedness under our credit facilities and our other indebtedness. Moreover, if we were unable to repay amounts owed to the lenders under our credit facilities, the lenders could foreclose on our assets that secure the indebtedness. 18 19 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. If we do not adapt our products and services to respond to changes in technology, they could become obsolete. We provide marketing information and services to our customers in a variety of formats, including printed formats, electronic formats such as CD-Rom and DVD, and over the Internet. Advances in information technology may result in changing customer preferences for products and product delivery formats. If we do not successfully adapt our products and services to take advantage of changes in technology and customer preferences, our business, financial condition and results of operations would be adversely affected. We have adopted an Internet strategy because we believe that the Internet represents an important and rapidly evolving market for marketing information products and services. Our business, financial condition and results of operations would be adversely affected if we: o Fail to develop products and services that are well suited to the Internet market; o Experience difficulties that delay or prevent the successful development, introduction and marketing of these products and services; or o Fail to achieve sufficient traffic to our Internet sites to generate significant revenues, or to successfully implement electronic commerce operations. Changes in laws and regulations relating to data privacy could adversely affect our business. We engage in direct marketing, as do many of our customers. Certain data and services provided by us are subject to regulation by federal, state and local authorities in 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. 19 20 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. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of the Report: 1. Financial Statements. The following Consolidated Financial Statements of infoUSA Inc. and Subsidiaries and Report of Independent Accountants are included elsewhere in this Form 10-K:
DESCRIPTION PAGE NO. ----------- -------- Independent Auditors' Report.................................... Consolidated Balance Sheets as of December 31, 2000 and 1999.... Consolidated Statements of Operations for the Year Ended December 31, 2000, 1999, and 1998............................. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998................. Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998............................. Independent Auditors' Report on Financial Statement Schedule.... Notes to Consolidated Financial Statements......................
2. Financial Statement Schedule. The following consolidated financial statement schedule of infoUSA Inc. and Subsidiaries for the years ended December 31, 2000, 1999, and 1998 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.....
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. 3. Exhibits. The following Exhibits are filed as part of, or incorporated by reference into, this report: 2.1 -- Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated September 10, 1996. 2.2 -- Agreement and Plan of Reorganization between the Company and the Shareholders of County Data Corporation is incorporated herein by reference to Exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 (File No. 000-19598). 2.3 -- Agreement and Plan of Reorganization between the Company and the Shareholders of 3319971 Canada Inc. is incorporated herein by reference to Exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 (File No. 000-19598). 20 21 2.4 -- Agreement and Plan of Reorganization between the Company and the Shareholders of Marketing Data Systems, Inc. is incorporated herein by reference to exhibits filed with the Company's Registration Statement on Form S-3 (File No. 333-36669) filed October 23, 1997. 2.5 -- Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated February 28, 1997. 2.6 -- Agreement and Plan of Reorganization between the Company and the Shareholders of Pro CD, Inc. is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated September 8, 1997. 2.7 -- Stock Purchase Agreement between the Company and the Shareholders of Walter Karl, Inc. is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated February 24, 1998. 2.8 -- Asset Purchase Agreement between the Company and JAMI Marketing Services, Inc. is incorporated herein by reference to exhibits filed with the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1998 (File No. 000-19598). 2.9 -- Agreement and Plan of Reorganization by and among the Company, Hugo Acquisition Corporation, First Data Corporation, First Data Information Management Group, Inc., DM Holdings, Inc., Donnelley Marketing Holdings, Inc., and Donnelley Marketing, Inc. is incorporated herein by Reference to exhibits filed with the Company's Current Report on Form 8-K dated May 28, 1999. 3.1 -- Certificate of Incorporation, as amended through October 22, 1999, is Incorporated herein by Reference to exhibits filed with Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 3.2 -- Bylaws are incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-42887), which became effective February 18, 1992. 3.3 -- Amended and Restated Certificate of Designation of Participating Preferred Stock, filed in Delaware on October 22,1999, is incorporated herein by Reference to exhibits filed with the Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 4.1 -- Preferred Share Rights Agreement is incorporated herein by reference to the Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 4.2 -- Specimen of Common Stock Certificate is Incorporated herein by reference to the exhibits filed with the Company's Registration Statement on Form 8-A, as amended), filed March 20, 2000. 4.3 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 Hereof. 4.4 -- Purchase Agreement dated June 12, 1998 between the Company, BT Alex. Brown Incorporated, Goldman, 21 22 Sachs & Co. and Hambrecht & Quist LLC is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.5 -- Indenture dated as of June 18, 1998 (the "Indenture") by and between the Company and State Street Bank and Trust Company of California, N.A., as Trustee is incorporated herein by reference to Exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.6 -- Exchange and Registration Rights Agreement dated as of June 18, 1998 by and among the Company and BT Alex. Brown Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist LLC as the Initial Purchasers is incorporated herein by reference to Exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.7 -- Form of New 9 1/2% Senior Subordinated Note due 2008 is incorporated herein by reference to Exhibits filed with the Company's Registration Statement on Form S-4 (File No. 333-61645), filed December 15, 1999. 4.8 -- Credit Agreement by and among infoUSA, Inc., Various Lenders (as defined therein) and Bankers Trust Company dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated July 23, 1999. 4.9 -- First Amendment dated October 29, 1999 and Second Amendment dated December 15, 1999 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-K for the Year ended December 31, 1999, filed March 21, 2000. 4.10 -- Third Amendment dated April 12, 2000 and Fourth Amendment dated June 8, 2000 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-Q for the Quarter ended June 30, 2000, filed August 11, 2000. 4.11 -- Fifth Amendment dated November 13, 2000 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-Q for the Quarter ended September 30, 2000, filed November 14, 2000. 10.1 -- Form of Indemnification Agreement with Officers And Directors is incorporated herein by reference To exhibits filed with the Company's Registration Statement on Form S-1 (File No. 33-51352), filed August 28, 1992. 10.2 -- 1992 Stock Option Plan as amended is incorporated Herein by reference to exhibits filed with the Company's Registration Statement on Form S-8 (File No. 333-37865), filed October 14, 1997. 10.3 -- 1997 Stock Option Plan as amended is incorporated Herein by reference to exhibits filed with the Company's Registration Statement on Form S-8 (File No. 333-82933), filed July 15, 1999. 22 23 10.4 * -- Employment Agreement dated February 11, 1997 between the Company and Allen F. Ambrosino, filed herewith 10.5 -- Amended and Restated Database License Agreement Between Donnelley Marketing, Inc. and First Data Resources, Inc. dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (File No. 000-19598). 10.6 -- Covenant not to compete by First Data Corporation to infoUSA Inc. dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (File No. 000-19598). 10.7 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 4.5, 4.8 and 4.9 hereof. 18.1 * -- Preferability Letter from KPMG to the Company dated March 30, 2001, filed herewith 21.1 * -- Subsidiaries and State of Incorporation, filed Herewith. 23.1 -- Consent of Independent Accountants, filed Herewith. 24.1 * -- Power of Attorney, filed herewith * Previously filed (b) Reports on Form 8-K: No reports on Form 8-K have been filed during the quarter ended December 31, 2000 23 24 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. infoUSA INC. By: /s/ STORMY L. DEAN ------------------------------- Stormy L. Dean Chief Financial Officer (principal accounting and financial officer) Dated: June 11, 2001 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this Annual Report on Form 10-K 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 and Chief June 11, 2001 ------------------------------ Executive Officer (principal Vinod Gupta executive officer) /s/ STORMY L. DEAN Chief Financial Officer June 11, 2001 ------------------------------ (principal accounting officer Stormy L. Dean and principal financial officer) /s/ J. ROBERT KERREY Director June 11, 2001 ------------------------------ J. Robert Kerrey /s/ ROB S. CHANDRA Director June 11, 2001 ------------------------------ Rob S. Chandra /s/ CYNTHIA H. MILLIGAN Director June 11, 2001 ------------------------------ Cynthia H. Milligan /s/ GEORGE F. HADDIX Director June 11, 2001 ------------------------------ George F. Haddix /s/ ELLIOT S. KAPLAN Director June 11, 2001 ------------------------------ Elliot S. Kaplan /s/ HAROLD ANDERSEN Director June 11, 2001 ------------------------------ Harold Andersen /s/ PAUL A. GOLDNER Director June 11, 2001 ------------------------------ Paul A. Goldner By: /s/ STORMY L. DEAN ------------------------------ Stormy L. Dean Attorney-in-fact
24 25 INFOUSA INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- infoUSA Inc. and Subsidiaries: Independent Auditors' Report.................................. Consolidated Balance Sheets as of December 31, 2000 and 1999.. Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999 and 1998............................ Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999 and 1998................ Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998............................ Notes to Consolidated Financial Statements.................... Independent Auditors' Report on Financial Statement Schedule.. Schedule II -- Valuation and Qualifying Accounts..............
25 26 INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors infoUSA Inc.: We have audited the accompanying consolidated balance sheets of infoUSA Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of infoUSA Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for data licensing arrangements sold with updates. /s/ KPMG LLP ------------ KPMG LLP Omaha, Nebraska January 26, 2001 26 27 INFOUSA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ Current assets: Cash and cash equivalents ...................................... $ 21,693 $ 10,846 Marketable securities .......................................... 102 70 Trade accounts receivable, net of allowances of $4,724 and $7,068, respectively ........................................ 58,501 65,812 List brokerage trade accounts receivable ....................... 13,499 16,734 Income taxes receivable ........................................ 4,267 -- Prepaid expenses ............................................... 6,067 2,973 Deferred marketing costs ....................................... 2,469 2,957 ------------ ------------ Total current assets ................................... 106,598 99,392 ------------ ------------ Property and equipment, net ...................................... 54,709 53,569 Intangible assets, net ........................................... 296,060 315,889 Other assets ..................................................... 6,178 4,494 ------------ ------------ $ 463,545 $ 473,344 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt .............................. $ 17,779 $ 9,885 Accounts payable ............................................... 11,484 8,370 List brokerage trade accounts payable .......................... 13,981 16,375 Accrued payroll expenses ....................................... 7,458 5,767 Accrued expenses ............................................... 14,828 6,579 Income taxes payable ........................................... -- 3,699 Deferred revenue ............................................... 19,437 7,556 Deferred income taxes .......................................... 1,688 262 ------------ ------------ Total current liabilities .............................. 86,655 58,493 ------------ ------------ Long-term debt, net of current portion ........................... 240,873 267,637 Deferred income taxes ............................................ 29,955 35,319 Deferred revenue ................................................. 12,000 -- Minority interest ................................................ 3,092 1,084 Stockholders' equity: Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding .......................... -- -- Common stock, $.0025 par value. Authorized 295,000,000 shares; 51,519,872 shares issued and 50,520,620 shares outstanding at December 31, 2000 and 50,719,548 shares issued and 49,390,058 outstanding at December 31, 1999 ...... 129 127 Paid-in capital ................................................ 96,539 82,025 Retained earnings .............................................. 6,837 38,470 Treasury stock, at cost, 999,252 shares held at December 31, 2000 and 1,329,490 shares held at December 31, 1999 ..... (7,271) (9,170) Unamortized stock compensation ................................. (4,543) -- Accumulated other comprehensive loss ........................... (721) (641) ------------ ------------ Total stockholders' equity ............................. 90,970 110,811 Commitments and contingencies ------------ ------------ $ 463,545 $ 473,344 ============ ============
See accompanying notes to consolidated financial statements. 27 28 INFOUSA INC. SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FOR THE YEARS ENDED ------------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Net sales ......................................................... $ 305,668 $ 265,853 $ 228,678 Costs and expenses: Database and production costs (excluding non-cash stock compensation expense of $19 for year ended December 31, 2000) ............................................ 101,831 78,644 66,319 Selling, general and administrative (excluding non-cash stock compensation expense of $3,094 for year ended December 31, 2000) ................... 149,721 108,435 117,724 Depreciation and amortization ................................... 52,195 34,933 27,472 Impairment of assets ............................................ 2,135 5,599 -- Acquisition costs ............................................... 2,287 4,166 3,643 Non-cash stock compensation ..................................... 3,113 -- -- Restructuring charges ........................................... 5,800 -- 2,616 Provision for litigation settlement ............................. -- -- 4,500 In-process research and development ............................. -- -- 3,834 ------------ ------------ ------------ 317,082 231,777 226,108 ------------ ------------ ------------ Operating income (loss) ........................................... (11,414) 34,076 2,570 Other income (expense): Investment income ............................................... 1,250 14,196 16,628 Interest expense ................................................ (26,651) (18,579) (9,160) Minority interest ............................................... 6,294 -- -- Gain on issuance of subsidiary stock ............................ 14,634 8,886 -- Other ........................................................... -- -- (2,000) ------------ ------------ ------------ Income (loss) from continuing operations before income taxes, extraordinary item and cumulative effect of change in accounting principle ........................ (15,887) 38,579 8,038 Income tax expense ................................................ 1,320 14,047 5,880 ------------ ------------ ------------ Income (loss) from continuing operations before extraordinary item and cumulative effect of a change in accounting principle ................................ (17,207) 24,532 2,158 Discontinued operation: Loss from discontinued operations, net of tax ................... (3,389) (1,474) -- Loss on disposal of discontinued operations, net of tax .......................................................... (771) -- -- Extraordinary item, net of tax .................................... -- 128 -- Cumulative effect of a change in accounting principle, net of tax ........................................... (10,266) -- -- ------------ ------------ ------------ Net income (loss) ................................................. $ (31,633) $ 23,186 $ 2,158 ============ ============ ============ BASIC EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations ....................... $ (0.34) $ 0.51 $ 0.04 Loss on discontinued operation and abandonment of subsidiary ................................. (0.08) (0.03) 0.04 Change in accounting principle .................................. (0.21) -- -- Extraordinary item .............................................. -- -- -- ------------ ------------ ------------ Net income (loss) ............................................... $ (0.63) $ 0.48 $ 0.04 ============ ============ ============ Weighted average shares outstanding ............................. 50,304 48,470 49,314 ============ ============ ============ DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations ........................ $ (0.34) $ 0.51 $ 0.04 Loss on discontinued operation and abandonment of subsidiary ................................... (0.08) (0.03) 0.04 Change in accounting principle .................................. (0.21) -- -- Extraordinary item .............................................. -- -- -- ------------ ------------ ------------ Net income (loss) ............................................... $ (0.63) $ 0.48 $ 0.04 ============ ============ ============ Weighted average shares outstanding ............................. 50,304 48,613 50,215 ============ ============ ============ PRO FORMA AMOUNTS ASSUMING THE NEW REVENUE RECOGNITION METHOD IS APPLIED RETROACTIVELY FOR NET INCOME (LOSS) FROM CONTINUING OPERATIONS: Basic earnings (loss) per share ........................... $ (0.34) $ 0.45 $ 0.02 Diluted earnings (loss) per share ......................... (0.34) 0.45 0.02 ============ ============ ============
See accompanying notes to consolidated financial statements. 28 29 INFOUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 1998, 1999, AND 2000 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
UNAMORTIZED COMMON PAID-IN RETAINED TREASURY STOCK STOCK CAPITAL EARNINGS STOCK COMPENSATION ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1997 ...................... $ 123 $ 69,055 $ 13,126 $ (2,281) -- Comprehensive loss: Net income ................................... -- -- 2,158 -- -- Change in unrealized gain, net of tax ........ -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Total comprehensive income ............... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Issuance of 459,086 shares of common stock ........................................ 1 3,020 -- -- -- Tax benefit related to employee stock options ...................................... -- 401 -- -- -- Acquisition of treasury stock .................. -- -- -- (670) -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1998 ...................... 124 72,476 15,284 (2,951) -- Comprehensive income: Net income ................................... -- -- 23,186 -- -- Foreign currency translation adjustments ................................ -- -- -- -- -- Change in unrealized gain, net of tax ........ -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Total comprehensive income ............... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Issuance of 1,096,288 shares of common stock ........................................ 3 7,771 -- -- -- Issuance of 78,510 shares of treasury stock for Company's match of 401(k) plan contribution ................................. -- 160 -- 334 -- Tax benefit related to employee stock options ...................................... -- 1,618 -- -- -- Acquisition of treasury stock .................. -- -- -- (6,553) -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 1999 ...................... 127 82,025 38,470 (9,170) -- Comprehensive loss: Net loss ..................................... -- -- (31,633) -- -- Foreign currency translation adjustments ..... -- -- -- -- -- Change in unrealized gain, net of tax ........ -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Total comprehensive income ............... -- -- -- -- -- ------------ ------------ ------------ ------------ ------------ Issuance of 800,324 shares of common stock ........................................ 2 6,227 -- -- -- Issuance of 330,238 shares of treasury stock for Company's match of 401(k) plan contribution ................................. -- 66 -- 1,899 -- Tax benefit related to employee stock options ...................................... -- 221 -- -- -- Unamortized stock compensation ................. -- -- -- (7,102) -- Capital contribution by principal stockholder .. -- -- -- -- -- Amortization of stock compensation ............. -- -- -- -- 2,559 Other stock-based compensation ................. -- 758 -- -- -- ------------ ------------ ------------ ------------ ------------ Balances, December 31, 2000 ...................... $ 129 $ 96,539 $ 6,837 $ (7,271) $ (4,543) ============ ============ ============ ============ ============ ACCUMULATED OTHER TOTAL COMPREHENSIVE STOCKHOLDERS' INCOME (LOSS) EQUITY ------------- ------------- Balances, December 31, 1997 ...................... $ 213 $ 80,236 Comprehensive loss: Net income ................................... -- 2,158 Change in unrealized gain, net of tax ........ 3,101 3,101 ------------ ------------ Total comprehensive income ............... -- 5,259 ------------ ------------ Issuance of 459,086 shares of common stock ........................................ -- 3,021 Tax benefit related to employee stock options ...................................... -- 401 Acquisition of treasury stock .................. -- (670) ------------ ------------ Balances, December 31, 1998 ...................... 3,314 88,247 Comprehensive income: Net income ................................... -- 23,186 Foreign currency translation adjustments ................................ (641) (641) Change in unrealized gain, net of tax ........ (3,314) (3,314) ------------ ------------ Total comprehensive income ............... -- 19,231 ------------ ------------ Issuance of 1,096,288 shares of common stock ........................................ -- 7,774 Issuance of 78,510 shares of treasury stock for Company's match of 401(k) plan contribution ................................. -- 494 Tax benefit related to employee stock options ...................................... -- 1,618 Acquisition of treasury stock .................. -- (6,553) ------------ ------------ Balances, December 31, 1999 ...................... (641) 110,811 Comprehensive loss: Net loss ..................................... -- (31,633) Foreign currency translation adjustments ..... (27) (27) Change in unrealized gain, net of tax ........ (53) (53) ------------ ------------ Total comprehensive income ............... -- (31,713) ------------ ------------ Issuance of 800,324 shares of common stock ........................................ -- 6,229 Issuance of 330,238 shares of treasury stock for Company's match of 401(k) plan contribution ................................. -- 1,965 Tax benefit related to employee stock options ...................................... -- 221 Unamortized stock compensation ................. -- 7,102 Capital contribution by principal stockholder .. 140 140 Amortization of stock compensation ............. -- 2,559 Other stock-based compensation ................. -- 758 ------------ ------------ Balances, December 31, 2000 ...................... $ (721) $ 90,970 ============ ============
See accompanying notes to consolidated financial statements. 29 30 INFOUSA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED ------------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net income (loss) ............................................. $ (31,633) $ 23,186 $ 2,158 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ............................... 52,195 35,109 27,472 Amortization of deferred financing fees ..................... 1,285 1,362 -- Deferred income taxes ....................................... (5,938) (2,528) (1,019) Net realized gains on sale of marketable securities and other investments ......................................... -- (12,920) (15,511) Gain on issuance of subsidiary stock ........................ (14,634) (8,886) -- Non-cash stock option compensation expense .................. 3,113 -- -- Non-cash 401(k) contribution in common stock ................ 1,965 -- -- Tax benefit related to employee stock options ............... 221 1,618 401 Non-cash acquisition costs .................................. 615 -- -- Minority interest in income (loss) of consolidated subsidiary ................................ (6,294) -- -- Impairment of other assets .................................. 2,135 5,599 2,000 Provision for litigation settlement ......................... -- -- 4,500 In-process research and development ......................... -- -- 3,834 Cumulative effect of accounting change ...................... 13,709 -- -- Changes in assets and liabilities, net of effect of acquisitions: Trade accounts receivable ................................. 8,706 (13,224) 9,324 List brokerage trade accounts receivable .................. 3,235 1,097 (4,463) Prepaid expenses .......................................... (4,763) (3) (1,233) Deferred marketing costs .................................. 488 1,408 (948) Accounts payable .......................................... 3,028 (1,850) (2,861) List brokerage trade accounts payable ..................... (2,394) (2,193) 752 Income taxes receivable and payable, net .................. (5,966) 7,086 (3,042) Accrued expenses and deferred revenue ..................... 17,078 (3,866) (4,221) ------------ ------------ ------------ Net cash provided by operating activities .............. 36,151 30,995 17,143 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sales of marketable securities .................. -- 32,106 41,114 Purchases of marketable securities ............................ (32) (4,184) (17,177) Purchase of other investments ................................. -- (1,000) (2,000) Purchases of property and equipment ........................... (9,150) (9,048) (20,582) Acquisitions of businesses, net of cash acquired ............. (8,751) (206,968) (31,654) Database development costs .................................... (99) (577) (603) Software development costs .................................... (11,459) (10,400) (5,724) ------------ ------------ ------------ Net cash used in investing activities .................. (29,491) (200,071) (36,626) ------------ ------------ ------------ Cash flows from financing activities: Repayment of long-term debt ................................... (22,299) (13,540) (110,876) Proceeds from long-term debt .................................. -- 165,000 154,800 Proceeds from sale of subsidiary common stock ................. 22,845 10,000 -- Deferred financing costs ...................................... (559) (3,989) (5,969) Acquisition of treasury stock ................................. -- (6,553) (670) Repurchase of Senior Subordinated Notes ....................... -- (8,370) -- Proceeds from exercise of stock options ....................... 4,200 7,771 1,148 ------------ ------------ ------------ Net cash provided by financing activities .............. 4,187 150,319 38,433 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents ............ 10,847 (18,757) 18,950 Cash and cash equivalents, beginning of year .................... 10,846 29,603 10,653 ------------ ------------ ------------ Cash and cash equivalents, end of year .......................... $ 21,693 $ 10,846 $ 29,603 ============ ============ ============ Supplemental cash flow information: Interest paid ................................................. $ 25,939 $ 18,299 $ 8,902 ============ ============ ============ Income taxes paid ............................................. $ 8,116 $ 7,047 $ 9,637 ============ ============ ============
See accompanying notes to consolidated financial statements. 30 31 INFOUSA INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL infoUSA Inc. and its subsidiaries (the Company) provide business and consumer marketing information products and data processing services throughout the United States, Canada and the United Kingdom. These products include customized business lists, business directories and other information services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash Equivalents. Cash equivalents, consisting of highly liquid debt instruments that are readily convertible to known amounts of cash and when purchased have an original maturity of three months or less, are carried at cost which approximates fair value. Marketable Securities. Marketable securities have been classified as available-for-sale and are therefore carried at fair value, which are estimated based on quoted market prices. Unrealized gains and losses, net of related tax effects, are reported as other comprehensive income within the statement of stockholders' equity until realized. Unrealized and realized gains and losses are determined by specific identification. List brokerage trade accounts receivable and trade accounts payable. For all list brokerage services, the Company serves as a broker between unrelated parties who wish to purchase a certain list and unrelated parties who have the desired list for sale. Accordingly, the Company recognizes trade accounts receivable and trade accounts payable, reflecting a "gross-up" of the two concurrent transactions. The transactions are not structured providing for the right of offset. List brokerage sales are reflected net of costs on the accompanying consolidated statement of operations. Advertising Costs. Direct marketing costs associated with the mailing and printing of brochures and catalogs are capitalized and amortized over a period of six months which corresponds to the estimated revenue stream of the individual advertising activities. All other advertising costs are expensed as the advertising takes place. Total unamortized marketing costs at December 31, 2000 and 1999, was $2.5 million and $3.0 million, respectively. Total advertising expense for the years ended December 31, 2000, 1999, and 1998 was $31.8 million, $21.0 million, and $19.7 million, respectively. Property and Equipment. Property and equipment (including equipment acquired under capital leases) are stated at cost and are depreciated or amortized primarily using straight-line methods over the estimated useful lives of the assets, as follows: Building and improvements.................. 30 years Office furniture and equipment............. 7 years Computer equipment......................... 3 years Capitalized equipment leases............... 5 years
Intangibles. Intangible assets are stated at cost and are amortized using the straight-line method over the estimated useful lives of the assets, as follows: Goodwill................................... 7 to 20 years Distribution networks...................... 2 years Noncompete agreements...................... Term of agreements Purchased data processing software......... 2 to 7 years Database costs............................. 1 to 5 years Core technology costs...................... 3 years Customer base costs........................ 3 to 15 years Tradename costs............................ 10 to 20 years Perpetual software license agreement....... 10 years Software development costs................ 1 to 5 years Workforce costs........................... 5 to 8 years
31 32 Software Capitalization. Until technological feasibility is established, software development costs are expensed as incurred. After that time, direct costs are capitalized and amortized equal to the greater of the ratio of current revenues to the estimated total revenues for each product or the straight-line method, generally over one year for software developed for external use and over two to five years for software developed for internal use. Unamortized software costs included in intangible assets at December 31, 2000 and 1999, were $10.2 million and $9.3 million, respectively. Amortization of capitalized costs during the years ended December 31, 2000, 1999 and 1998, totaled approximately $10.6 million, $5.1 million, and $3.6 million, respectively. During 2000, the Company recorded an impairment of $0.2 million (see Note 17) on the unamortized balance of certain data warehousing project costs. Database Development Costs. Costs to maintain and enhance the Company's existing business and consumer databases are expensed as incurred. Costs to develop new databases, which primarily represent direct external costs, are capitalized with amortization beginning upon successful completion of the compilation project. Database development costs are amortized straight-line over the expected lives of the databases generally ranging from one to five years. Unamortized database development costs included in intangible assets at December 31, 2000 and 1999, were $73 thousand and $577 thousand, respectively. Amortization of capitalized costs during the years ended December 31, 2000, and 1999 totaled approximately $151 thousand and $796 thousand, respectively. During 2000, the Company recorded an impairment of $0.8 million (see Note 17) on the unamortized balance of the Company's infoPix database. During 1999, as a direct result of the acquisition of Donnelley Marketing in July 1999 and the addition of the Donnelly consumer database file (see Note 3), the Company recorded a write-down of $3.9 (see Note 17) million on the unamortized balance of the Company's existing consumer database white pages file which was impaired due to the addition of the more complete Donnelley consumer file. Long-lived assets. 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, an impairment loss is recognized in operating results. The impairment loss is measured using discounted cash flows or quoted market prices, when available. The Company also periodically reevaluates the remaining useful lives of its long-lived assets based on the original intended and expected future use or benefit to be derived from the assets. Changes in estimated useful lives are reflected prospectively by amortizing the remaining book value at the date of the change over the adjusted remaining estimated useful life. During 2000, the Company recorded impairments totaling $1.1 million (see Note 17) for certain infoUSA.com leasehold improvements, infoUSA.com capitalized public offering costs, and for certain equipment related to the infoPix business photograph project. During 1999, the Company transferred its data processing services function from Montvale, NJ to an existing Company location in Greenwich, CT. As a direct result of this move and the abandonment of certain leasehold improvements and in-process construction projects, the Company recorded a write-down of $1.7 million (see Note 17) on the remaining net book value of the impaired assets. Revenue Recognition. The Company's revenue is primarily generated from the sale of its products and services and the licensing of its data to third parties. Revenue from the sale of products and services is recognized when the product is delivered or the services are performed. During 2000, the Company changed its method of accounting for data licensing arrangements sold with updates to record revenue on a straight-line basis over the license term. This newly adopted method of accounting better reflects the service commitment inherent in the Company's licensing agreements in light of the growing proportion of such licensing revenue is from long-term and continuous access agreements. The cumulative effect of the change in method for periods prior to January 1, 2000 of $10.3 million (net of income taxes of $3.5 million), or $.21 per share, is shown as the cumulative effect of a change in accounting principle in the accompanying Consolidated Statements of Operations. The change to a more preferable revenue recognition method increased fiscal year 2000 revenues by $609 thousand. The quarterly supplemental data for 2000 has been restated to recognize revenues according to the newly adopted method as of January 1, 2000. Assuming the above described revenue recognition policy had been implemented on January 1, 1998, pro forma net sales and pro forma net income from continuing operations would have been decreased by $4.4 million and $2.7 million and $1.9 million and $1.2 million for the years 1999 and 1998, respectively. Reserves are established for estimated returns and uncollectible amounts on sales of product where the customer has the right of return. Royalty revenue is recognized at the time it is earned under the Company's license agreement. Advertising revenue is typically derived from advertising agreements in which the Company receives a fixed fee or a fee based on a per impression or click through basis and is recognized as the Company fulfills the terms of the agreement. Revenue from revenue-sharing agreements is recognized after the transaction has occurred and in the period the obligation to pay is reported by the product or service provider. 32 33 Change in Ownership Interest - Gains or losses from a change in ownership of a consolidated subsidiary or an unconsolidated affiliate are recognized in the consolidated statements of operations in the period of change. Stock-based compensation. The Company and its subsidiaries account for its employee stock options using the intrinsic value method. When both the number of shares that an individual employee is entitled to receive and the option price are known at the grant date, total compensation cost for the Company's grant of stock options to employees is measured at the grant date. Compensation cost is recognized as expense over the periods in which the employee performs the related services, which is generally presumed to be the vesting period. Compensation cost for stock options and warrants granted to non-employees and vendors is measured based upon the fair value of the stock option or warrant granted. When the performance commitment of the non-employee or vendor is not complete as of the grant date, the Company estimates the total compensation cost using a fair value method at the end of each period. Generally, the final measurement of compensation cost occurs when the non-employee or vendors related performance commitment is complete. Changes, either increases or decreases, in the estimated fair value of the options between the date of the grant and the final vesting of the options result in a change in the measure of compensation cost for the stock options or warrants. Compensation cost is recognized as expense over the periods in which the benefit is received. Income Taxes. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances, if any, are established when necessary to reduce deferred tax assets to the amount that is more likely than not to be realized. Interest Rate Agreements. The Company does not invest in derivatives for trading purposes. The Company uses interest rate swaps to hedge exposures to interest rate risk on debt obligations. The Company currently does not recognize the fair value or change in fair value of the interest rate swaps. Interest rate swap settlements are recognized as adjustments to interest expense in the consolidated statements of operations when paid or received. Earnings (Loss) Per Share. Basic earnings per share are based on the weighted average number of common shares outstanding, including contingently issuable shares, which have been restated to account for the stock combination (See Note 19). Diluted earnings per share are based on the weighted number of common shares outstanding, including contingently issuable shares, plus dilutive potential common shares outstanding (representing outstanding stock options). The following data show the amounts used in computing earnings per share and the effect on the weighted average number of shares of dilutive potential common stock. Options on 242 thousand shares of common stock were not included in computing diluted earnings per share for 2000 because their effects were antidilutive.
FOR THE YEARS ENDED ---------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS) Weighted average number of shares outstanding used in basic EPS ................................... 50,304 48,470 49,314 Net additional common equivalent shares outstanding after assumed exercise of stock options ............................................. -- 143 901 ------------ ------------ ------------ Weighted average number of shares outstanding used in diluted EPS ................................. 50,304 48,613 50,215 ============ ============ ============
Use of Estimates. The preparation of consolidated 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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, effective for all fiscal quarters of fiscal years beginning after June 15, 2000, establishes standards for reporting and display of derivative 33 34 instruments and for hedging activities. As of December 31, 2000, the Company's only derivative financial instruments included an interest rate swap. The Company does not expect the effect of SFAS 133 to be significant to its financial reporting. 3. ACQUISITIONS Effective May 2000, the Company acquired certain assets and assumed certain liabilities of Getko Direct Response of Canada ("Getko"), a Cendant Corporation company. Getko provides Canadian list and data processing services for the direct marketing industry. Total consideration for the acquisition was $1.6 million, funded using cash provided by operations. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of Getko have been included in the Company's financial statements since the date of acquisition. Intangibles recorded as part of the purchase included goodwill of $1.5 million, which is being amortized over 15 years. Effective May 2000, the Company acquired certain assets and assumed certain liabilities of idEXEC, a Thomson Financial company. idEXEC provides a worldwide database of 60,000 large businesses and 400,000 executives for business-to-business prospecting, marketing, and research applications. Total consideration for the acquisition was $7.3 million, consisting of $5.1 million in cash, funded using cash provided by operations, and 391,000 shares of common stock at a recorded value of $2.2 million, funded using shares of treasury stock held by the Company. The Company determined the fair value of its shares issued for the purchase using the average share price for the Company's common stock prior to and subsequent to the announcement date of May 2, 2000. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of idEXEC have been included in the Company's financial statements since the date of acquisition. Intangibles recorded as part of the purchase included goodwill of $8.4 million, which is being amortized over 15 years. Effective March 2000, the Company acquired all issued and outstanding common stock of American Church Lists, a national proprietary database of religious institutions, organizations and affiliations. Total consideration for the acquisition was $2.0 million, funded using cash provided by operations. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of American Church Lists have been included in the Company's financial statements since the date of acquisition. Intangibles recorded as part of the purchase included goodwill of $1.9 million, which is being amortized over 15 years. Effective July 1999, the Company acquired all issued and outstanding common stock of Donnelley Marketing, Inc. (Donnelley), a division of First Data Corporation. Donnelley is a national consumer database and database marketing company. Total consideration for the acquisition was $200.0 million in cash, funded using a combination of existing cash and borrowings under new senior secured credit facilities (see Note 8). The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of Donnelley have been included in the Company's financial statements since the date of acquisition. Goodwill and other intangibles recorded included goodwill of $144.5 million, non-compete agreements of $6.1 million, trade names of $7.7 million, and purchased data processing software of $64.1 million, which are being amortized over lives of 20 years, 5 years, 20 years, and 7 years, respectively. In addition, as part of the purchase of Donnelley, the Company recorded accruals related to acquisition costs and facility closure costs totaling $2.3 million. The Company subsequently paid all $2.3 million of these costs. The amount of intangibles recorded by the Company exceeded the purchase price due to the Company recording deferred taxes established for certain intangibles not currently deductible for tax purposes and an accrual related to costs associated with the integration of acquired operations into existing operations. Effective July 1998, the Company acquired certain assets and assumed certain liabilities of Contacts Target Marketing (CTM), a regional business marketing database company, based in Vancouver, Canada. Total consideration for the acquisition was $0.4 million in cash. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of CTM have been included in the Company's financial statements since the date of acquisition. Intangibles and goodwill recorded included goodwill of $0.5 million. Goodwill is being amortized over 8 years. Effective June 1998, the Company acquired certain assets and assumed certain liabilities of JAMI Marketing Services, Inc. (JAMI), a list brokerage, list management, data processing and marketing consulting firm. Total consideration for the acquisition was $12.8 million in cash, as adjusted, funded with the proceeds from the disposition of the Company's holdings of Metromail Corporation common stock. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of JAMI have been included in the Company's financial statements since the date of acquisition. A purchase 34 35 price adjustment of $0.3 million was made due to the final calculation of purchase price based on the terms of the acquisition agreement and amounts were reallocated based on the purchase price allocation finalized in the fourth quarter of 1998. Intangibles and goodwill recorded included goodwill of $7.3 million, trade names of $0.2 million, customer base of $5.1 million, non-compete agreements of $0.2 million, and workforce costs of $0.5 million. Goodwill is being amortized over 15 years. Effective March 1998, the Company acquired all issued and outstanding common stock of Walter Karl, Inc. (Walter Karl), a national direct marketing service firm that provides list management, list brokerage, and database marketing and direct marketing services to a wide array of customers. Total consideration for the acquisition was $19.4 million in cash, as adjusted, funded using a revolving credit facility. The acquisition has been accounted for under the purchase method of accounting, and accordingly, the operating results of Walter Karl have been included in the Company's financial statements since the date of acquisition. In addition to purchased in-process research and development costs of $3.8 million (See Note 17), intangibles and goodwill recorded estimates included goodwill of $16.7 million, core technology of $3.7 million, trade names of $4.2 million, customer base of $2.2 million, and workforce costs of $0.8 million. In addition, as part of the purchase of Walter Karl, the Company recorded an accrual related to closure of a facility and relocating or terminating the employees from this facility totaling $6.8 million. The Company subsequently recognized $1.7 million of employee relocation and severance costs and $2.8 million of facility closure costs. During 1999, the Company reduced $2.3 million of the accrual that remained which resulted in a reduction of goodwill associated with the purchase. Goodwill is being amortized over 15 years. The amount of intangibles recorded by the Company exceeded the purchase price due to the Company recording an accrual related to costs associated with the integration of acquired operations into existing operations, deferred taxes established for certain intangibles not currently deductible for tax purposes, and the excess of liabilities over assets assumed. 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, 1999, and excluding the write-offs of in-process research and development costs, included in the accompanying consolidated statements of operations, unaudited pro forma consolidated net sales, net income (loss) and net income (loss) per share would have been as follows:
FOR THE YEARS ENDED ----------------------------------- DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales .............................. $ 308,958 $ 316,497 Net income (loss) from continuing operations ........................... $ (31,319) $ 14,818 Basic earnings (loss) per share ........ $ (0.62) $ 0.31 Diluted earnings (loss) per share ...... $ (0.62) $ 0.30
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. 4. MARKETABLE SECURITIES At December 31, 2000 and 1999, marketable securities consist of common stock, which the Company believes cost approximates fair market value. For the year ended December 31, 2000 there were no proceeds or realized gains (losses) from the sale of marketable securities. Proceeds from sales of marketable securities were $32.1 million and $41.1 million, while realized gains totaled $13.1 million and $17.9 million and realized losses totaled $0.2 million and $2.4 million, for the years ended December 31, 1999 and 1998, respectively. 35 36 5. COMPREHENSIVE INCOME (LOSS) The components of other comprehensive income (loss) were as follows:
FOR THE YEARS ENDED ------------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS) Unrealized holding losses arising during the period: Unrealized net losses .................................... $ (85) $ (7,448) $ (10,162) Related tax benefit ...................................... 32 2,830 3,861 ------------ ------------ ------------ Net .............................................. (53) (4,618) (6,301) ------------ ------------ ------------ Less: Reclassification adjustment for net gains realized on sale of marketable securities during the period: Realized net gains ....................................... -- 2,103 15,164 Related tax expense ...................................... -- (799) (5,762) ------------ ------------ ------------ Net .............................................. -- 1,304 9,402 ------------ ------------ ------------ Foreign currency translation adjustments ................. (668) (641) -- ------------ ------------ ------------ Total other comprehensive income (loss) .................. $ (721) $ (3,955) $ 3,101 ============ ============ ============
6. PROPERTY AND EQUIPMENT
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) Land and improvements ................................. $ 3,334 $ 3,205 Buildings and improvements ............................ 26,571 25,398 Furniture and equipment ............................... 58,028 50,543 Capitalized equipment leases .......................... 15,080 11,879 ------------ ------------ 103,013 91,025 Less accumulated depreciation and amortization: Owned property ...................................... 44,311 35,388 Capitalized equipment leases ........................ 3,993 2,068 ------------ ------------ Property and equipment, net ................. $ 54,709 $ 53,569 ============ ============
7. INTANGIBLE ASSETS Intangible assets consist of the following:
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) Goodwill ................................... $ 233,144 $ 220,848 Noncompete agreements ...................... 13,534 13,534 Core technology ............................ 4,800 4,800 Customer base .............................. 8,372 8,372 Trade names ................................ 15,802 15,802 Purchased data processing software ......... 73,478 73,478 Acquired database costs .................... 19,000 19,000 Work force costs ........................... 1,338 1,338 Perpetual software license agreement ....... 8,000 8,000 Software development costs ................. 10,152 9,295 Database costs ............................. 73 577 Deferred financing costs ................... 10,557 9,958 ------------ ------------ 398,250 385,002 Less accumulated amortization .............. 102,190 69,113 ------------ ------------ $ 296,060 $ 315,889 ============ ============
36 37 8. FINANCING ARRANGEMENTS Long-term debt consists of the following:
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) 9 1/2% Senior Subordinated Notes ................................. $ 106,000 $ 106,000 Senior Secured Credit Facilities -- Term A Loan .................. 52,314 60,977 Senior Secured Credit Facilities -- Term B Loan .................. 84,455 93,810 Senior Secured Credit Facilities -- Revolving Credit Facility ....................................................... -- -- Mortgage note, collateralized by deed of trust. Note bears a fixed interest rate of 7.4% through July 2003, and then will be adjusted to a designated Federal Reserve rate plus 1.75%. Principal is due August 2008. Interest is payable monthly ........................................................ 8,940 9,776 Uncollateralized note payable for leasehold improvements ......... Note bears a fixed interest rate of 5.0%. Principal is due September 2003. Interest is payable monthly .................... 433 433 Capital lease obligations (See Note 16) .......................... 6,510 6,526 ------------ ------------ 258,652 277,522 Less current portion ............................................. 17,779 9,885 ------------ ------------ Long-term debt ................................................... $ 240,873 $ 267,637 ============ ============
Future maturities by calendar year of long-term debt as of December 31, 2000 are as follows (in thousands): 2001 ................. $ 17,779 2002 ................. $ 18,062 2003 ................. $ 18,393 2004 ................. $ 22,826 2005 ................. $ 51,511 Thereafter ........... $ 130,081
On June 18, 1998, the Company completed a private placement of 9 1/2% Senior Subordinated Notes due June 15, 2008 with an aggregate principal balance of $106.0 million. The Notes are subject to various covenants, including among other things, limiting additional indebtedness and the ability to pay dividends. In January 1999, the Company exchanged registered 9 1/2% Senior Subordinated Notes (the "Notes") for the unregistered notes pursuant to a Registration Statement on Form S-4 declared effective by the Securities & Exchange Commission. Interest on the Notes will accrue from the original issuance date of the unregistered notes and will be payable semi-annually in arrears on June 15 and December 15 of each year, commencing on December 15, 1998, at the rate of 9 1/2% per annum. The Notes are redeemable, in whole or in part, at the option of the Company, on or after June 15, 2003, at designated redemption prices outlined in the Indenture governing the Notes, plus any accrued interest to the date of redemption. In addition, at any time on or prior to June 15, 2001, the Company, at its option, may redeem up to 35% of the aggregate principal amount of the Notes originally issued with the net cash proceeds of one or more equity offerings, at the redemption price equal to 109.5% of the principal amount thereof, plus any accrued interest to the date of redemption. In the event of a change in control, each holder of Notes will have the right to require the Company to repurchase such holder's Notes at a price equal to 101% of the principal amount thereof, plus any accrued interest to the repurchase date. During 1999, the Company negotiated a $195.0 million Senior Secured Credit Facilities ("Credit Facilities") borrowing arrangement with Deutsche Bank, comprised of: Term Loan A Facility in the amount of $65.0 million which provides for grid-based interest pricing based upon the Company's consolidated leverage ratio and ranges from base rate + 1.75% to 2.25% for base rate loans and from LIBOR + 2.75% to 3.25% for LIBOR loans with a maturity of 5 years; a Term Loan B Facility in the amount of $100.0 million which provides interest at base rate + 3.00% for base rate loans and LIBOR + 4.00% for LIBOR loans with a maturity of 7 years; and a Revolving Credit Facility in the amount of $25.0 million which provides the same interest pricing as the Term Loan A Facility with a maturity of 5 years. Substantially all assets of the Company are pledged as security under the terms of the Credit Facilities. As of December 31, 2000, the Term Loan A Facility had balance of $52.3 million, with an interest rate of 9.9% and a Term Loan B balance of $84.4 million, with an interest rate of 10.7%. As of December 31, 2000, the Company had no borrowings under the Revolving Credit Facility, with the exception of two outstanding letters of credit totaling $6.7 million reducing the availability under the Revolving Credit Facility to $18.3 million. Additionally, the Company is required to pay a commitment fee of 0.5% on the average unused amount of the Revolving Credit Facility. 37 38 Interest rate swap agreements are used by the Company to reduce the potential impact of increases in interest rates on floating-rate long term debt (See Note 15). 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 or has obtained waivers for all restrictive covenants of the Company's various debt facilities. 9. INCOME TAXES The provision for income taxes before extraordinary items consists of the following:
FOR THE YEARS ENDED ------------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS) Current: Federal ............ $ 4,843 $ 14,401 $ 4,469 State .............. 415 1,271 556 ------------ ------------ ------------ 5,258 15,672 5,025 ------------ ------------ ------------ Deferred: Federal ............ (3,627) (2,308) 742 State .............. (311) (220) 113 ------------ ------------ ------------ (3,938) (2,528) 855 ------------ ------------ ------------ $ 1,320 $ 13,144 $ 5,880 ============ ============ ============
The effective income tax rate for continuing operations varied from the Federal statutory rate as follows:
FOR THE YEARS ENDED ------------------------------------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS) Expected Federal income taxes at statutory rate of 35% .............................................. $ (5,560) $ 12,671 $ 2,813 State taxes, net of Federal effects ................... 68 683 435 Amortization of nondeductible intangibles ............. 4,595 2,619 1,260 Gain on of subsidiary common stock .................... (5,122) (3,110) -- In-process research and development ................... -- -- 1,342 Change in valuation allowance ......................... 6,805 -- -- Other ................................................. 534 281 30 ------------ ------------ ------------ $ 1,320 $ 13,144 $ 5,880 ============ ============ ============
The components of the net deferred tax assets (liabilities) were as follows:
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ (IN THOUSANDS) Deferred tax assets: Accrued vacation ......................... $ 1,066 $ 929 Accrued expenses ......................... 1,472 121 Net operating losses ..................... 6,805 -- ------------ ------------ 9,343 1,050 Less valuation allowance ................. (6,805) -- ------------ ------------ 2,538 1,050 ------------ ------------ Deferred tax liabilities: Intangible assets ........................ (30,074) (31,894) Accounts receivable ...................... (293) (1,310) Depreciation ............................. (1,133) (1,173) Deferred marketing costs ................. (938) (1,124) Prepaid expenses and other assets ........ (1,743) (1,130) ------------ ------------ (34,181) (36,631) ------------ ------------ Net deferred tax liabilities ..... $ (31,643) $ (35,581) ============ ============
In conjunction with the acquisition of Donnelley, the Company recorded a deferred tax liability in 1999 of approximately $30 million related to intangible assets that were not currently deductible for tax purposes. 38 39 Loss on discontinued operations and cumulative effect of accounting change are presented net of income tax benefits of $6.0 million for the year ended December 31, 2000. The Company had a valuation allowance for deferred tax assets at December 31, 2000 of $6,805 and a change in the valuation allowance of $6,805 for the year ended December 31, 2000. The Company had no valuation allowance at December 31, 1999. The entire valuation allowance relates to net operating losses generated by a majority owned subsidiary which is not included in the Company's consolidated group for tax purposes. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, carryback opportunities, and tax planning strategies in making this assessment. In order to fully realize the deferred tax asset, the Company's subsidiary will need to generate future taxable income prior to the expiration of the net operating loss carryforwards. Based upon the level of historical taxable income and projections for future taxable income over the periods which the deferred tax assets are deductible, management believes a valuation allowance of $6,805 as of December 31, 2000 and an increase in the valuation allowance of $6,805 for the year ended December 31, 2000 is appropriate. Net operating loss carryforwards, which originated in 2000, will begin to expire in 2020. 10. STOCK OPTION PLANS As of December 31, 2000, a total of 10.0 million and 5.0 million shares of the Company's Common Stock have been reserved for issuance to officers, key employees and non-employee directors under the Company's 1992 Stock Option Plan and the Company's 1997 Common Stock Option Plan, respectively. Options are generally granted at the stock's fair market value on the date of grant, vest generally over a four or five year period and expire five or six years, respectively, 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's partially-owned subsidiary, infoUSA.com, sponsors an Equity Incentive Plan in which shares of common stock are reserved for issuance to officers, directors, employees and consultants of the subsidiary. Options granted during 2000 totaled 3.3 million options, with a weighted average exercise price of $1.61. The Company uses Accounting Principles Bulletin (APB) Opinion No. 25 to account for stock-based compensation to employees and directors of the Company and Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation and FASB Interpretation No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option or Award Plans for stock-based compensation to non-employees of the Company. As such, the Company has recorded a non-cash charge of $3.1 million during 2000 related to the issuance of stock options and warrants of infoUSA.com common stock. The non-cash charge was calculated based on an appraised fair value for the common stock of the subsidiary of $.96 per share as of December 31, 2000. The charge was recorded as an addition to paid-in-capital. 39 40 The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standard (SFAS) 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, the Company's net income (loss) and earnings (loss) per share would have been reduced to the pro forma amounts indicated below:
FOR THE YEARS ENDED ----------------------------------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income (loss) -- as reported ...................... $ (31,633) $ 23,186 $ 2,158 Net income (loss) -- pro forma ........................ $ (34,220) $ 20,176 $ (788) Basic earnings (loss) per share -- as reported ........ $ (0.63) $ 0.48 $ 0.04 Basic earnings (loss) per share -- pro forma .......... $ (0.68) $ 0.42 $ (0.02) Diluted earnings (loss) per share -- as reported ...... $ (0.63) $ 0.48 $ 0.04 Diluted earnings (loss) per share -- pro forma ........ $ (0.68) $ 0.42 $ (0.02)
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 assumptions used for grants in 2000, 1999 and 1998: expected volatility of 10.26% (2000), 9.51% (1999) and 17.33% (1998); risk free interest rate based on the U.S. Treasury strip yield at the date of grant; and expected lives of 4 to 6 years. The following information has been restated to reflect the stock combination (See Note 19).
DECEMBER 31, 2000 DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------------------- ----------------------------- ----------------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE ----------------------------- ----------------------------- ----------------------------- SHARES PRICE SHARES PRICE SHARE PRICE ------------ ------------ ------------ ------------ ------------ ------------ Outstanding beginning of period ........................ 7,921,134 $ 8.74 7,094,036 $ 9.33 7,478,050 $ 9.22 Granted ......................... 852,100 6.85 2,697,335 6.57 1,160,000 11.49 Exercised ....................... (409,224) 10.32 (1,322,298) 6.84 (179,428) 6.40 Forfeited/expired ............... (1,234,629) 7.97 (547,939) 10.57 (1,364,586) 10.91 ------------ ------------ ------------ ------------ ------------ ------------ Outstanding end of period ....... 7,129,381 $ 8.66 7,921,134 $ 8.74 7,094,036 $ 9.33 ============ ============ ============ ============ ============ ============ Options exercisable at end of period ........................ 4,389,852 $ 9.03 3,453,689 $ 9.13 2,809,439 $ 8.20 ============ ============ ============ ============ ============ ============ Shares available for options that may be granted ........... 1,146,395 1,139,938 777,834 ============ ============ ============ Weighted-average grant date fair value of options, granted during the period -- exercise price equals stock price at grant .......... $ -- $ 1.66 $ 3.34 ============ ============ ============
The following table summarizes information about stock options outstanding at December 31, 2000:
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 ------------------------ ------------ ------------ ------------ ------------ ------------ $4.28 to $5.70 ....... 243,000 3.7 years $ 5.10 41,766 $ 5.07 $5.70 to $7.13 ....... 2,464,362 3.4 years 6.48 1,080,221 6.48 $7.13 to $8.55 ....... 1,935,541 0.7 years 8.47 1,516,787 8.49 $8.55 to $9.98 ....... 224,000 0.8 years 9.22 223,000 9.22 $9.98 to $11.40 ...... 1,494,478 1.4 years 10.71 1,045,691 10.70 $11.40 to $12.83 ..... 185,000 1.8 years 12.08 120,306 12.05 $12.83 to $14.25 ..... 583,000 2.2 years 13.36 362,081 13.41 ------------ ------------ ------------ ------------ ------------ $4.28 to $14.25 ...... 7,129,381 2.0 years $ 8.66 4,389,852 $ 9.03 ============ ============ ============ ============ ============
40 41 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 administration expenses and matching contributions totaling $2.4 million, $1.1 million and $1.1 million in the years ended December 31, 2000, 1999 and 1998, respectively. During 1999, the Company began making matching contributions to its 401(k) Plan in the form of treasury stock. During 2000, the Company contributed 335,999 shares at a recorded value of $2.0 million. During 1999, the Company contributed 78,510 shares at a recorded value of $494 thousand. In 2000, the Company made a change allowing the matching contributions to be made in either cash or stock. 12. RELATED PARTY TRANSACTIONS The Company paid a total of $2.0 million, $3.5 million and $1.4 million in 2000, 1999 and 1998, respectively, to Annapurna Corporation, which is 100% owned by Mr. Gupta, for reimbursement of employee related travel expenses. The Company also paid $0.5 million to Everest Investment Management in 1999, which is 40% owned by Mr. Gupta, for investment advisory fees on transactions for which the Company recorded gains of over $11.0 million. Mr. Gupta also paid for Company expenses totaling $140 thousand related to entertainment and investment management services which have been recorded as a contribution of capital in 2000. During 1999, Mr. Gupta received a loan for $2.6 million, which was repaid with interest shortly after the borrowing. The Company utilizes a law firm of which one member of the Board of Directors is a partner to the firm. Legal fees paid to the law firm totaled $1.1 million, $540 thousand, and $370 thousand in the years ended December 31, 2000, 1999 and 1998, respectively. 13. SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain acquisitions during 2000, 1999 and 1998 (See Note 3) and assumed liabilities as follows:
2000 1999 1998 ------------ ------------ ------------ (IN THOUSANDS) Fair value of assets .... $ 14,460 $ 247,201 $ 58,552 Cash paid ............... (8,751) (206,968) (31,654) Common stock issued ..... (2,248) -- -- ------------ ------------ ------------ Liabilities assumed ..... $ 3,461 $ 40,233 $ 26,898 ============ ============ ============
The Company acquired computer equipment under capital lease obligations totaling $3.2 million and $6.8 million, in the years ended December 31, 2000 and 1999, respectively. (See Note 16) 14. FAIR VALUE OF FINANCIAL INSTRUMENTS The following table presents the carrying amounts and estimated fair values of the Company's financial instruments at December 31, 2000 and 1999. The fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying amounts shown in the following table are included in the consolidated balance sheets under the indicated captions.
DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------------------- ----------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE ------------ ------------ ------------ ------------ (AMOUNTS IN THOUSANDS) Financial assets: Cash and cash equivalents ...... $ 21,693 $ 21,693 $ 10,846 $ 10,846 Marketable securities ......... 102 102 70 70 Other assets .................. 3,000 3,000 3,000 3,000 Financial liabilities: Long-term debt ................ 258,652 203,498 277,522 241,088 Derivatives: Interest rate swaps ........... -- (522) -- 540
41 42 The following methods and assumptions were used to estimate the fair value of each class of financial instruments: Cash and cash equivalents. The carrying amounts approximate fair value because of the short maturity of those instruments. Marketable securities. The fair values of debt securities and equity investments are based on quoted market prices at the reporting date for those or similar investments. Other assets, including investments in other companies. Investments in companies not traded on organized exchanges are valued on the basis of comparisons with similar companies whose shares are publicly traded. Values for companies not publicly traded on organized exchanges may also be based on analysis and review of valuations performed by others independent of the Company. Long-term debt. The 9 1/2% Senior Subordinated Notes due June 2008 are valued based on quoted market prices at the reporting date. All other debt obligations are valued at the discounted amount of future cash flows. Interest rate swap. The fair value of the interest rate swap was calculated based on discounted cash flows of the difference between the swap rate and the estimated market rate for similar terms. 15. DERIVATIVES The Company may use interest rate swap agreements to reduce the potential impact of increases in interest rates on floating-rate long-term debt. The original cost of the swap is amortized to interest expense over its term. The amounts paid or received under the agreement are recorded as an adjustment to interest expense. Neither the Company nor the counterparties are required to collateralize their obligations under these agreements. Therefore, the swap agreements expose the Company to credit losses to the extent of counterparty nonperformance, but does not anticipate any losses from its agreements, which are with major financial institutions. At December 31, 2000, the Company was a party to one interest rate swap agreement which expires in September 2002. The agreement entitles the Company to receive from counterparties on a semi-annual basis the amounts, if any, by which the Company's interest payments on $60.5 million of outstanding debt under the Credit Facilities exceed 6.385%, and to pay counterparties on a semi-annual basis the amounts, if any, by which the Company's interest payments on $60.5 million of outstanding debt under the Credit Facilities are less than 6.385%. 16. COMMITMENTS AND CONTINGENCIES 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 June 2010. Certain of these leases contain renewal options. Rent expense on operating lease agreements was $6.5 million, $4.6 million, and $3.1 million in the years ended December 31, 2000, 1999 and 1998, respectively. Following is a schedule of the future minimum lease payments as of December 31, 2000:
CAPITAL OPERATING ------------ ------------ (IN THOUSANDS) 2001 ............................................. $ 3,775 $ 7,133 2002 ............................................. 2,424 6,846 2003 ............................................. 878 6,151 2004 ............................................. -- 5,154 2005 ............................................. -- 4,528 ------------ ------------ Total future minimum lease payments .............. 7,077 $ 29,812 ============ Less amounts representing interest ............... 567 ------------ Present value of net minimum lease payments ...... $ 6,510 ============
The Company is committed to make future payments under consulting and non-compete agreements as of December 31, 2000, of $306 thousand payable during 2001. During October, 1998, the Company announced a decision in its year-long arbitration dispute with Experian Information 42 43 Solutions, Inc. (Experian). The dispute centered around a license agreement between the Database America Companies (DBA) and Experian prior to the Company's acquisition of DBA. In October 1998 an arbitrator from the American Arbitration Association found DBA to have breached the contract and awarded damages to Experian for approximately $4.6 million. The Company and its subsidiaries are involved in other 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. 17. NON-RECURRING CHARGES INCLUDING ACQUISITION COSTS, IN-PROCESS RESEARCH AND DEVELOPMENT ("IPR&D"), ASSET IMPAIRMENT AND RESTRUCTURING CHARGES During 2000, the Company recorded acquisition costs totaling $2.3 million. The Company recorded charges of $0.5 million related to the Company's acquisition of American Church Lists, idEXEC and Getko (see Note 3). These charges represent costs incurred to integrate these acquired operations into the Company's existing operations. These costs were not directly related to the acquisition of these companies, and therefore could not be capitalized as part of the purchase price. Additionally, the Company recorded charges of $1.8 million associated with the Company's unsuccessful bid to acquire the consumer database division of R.L. Polk. During 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 commitment to its core businesses program included a reduction in the planned investment in the Company's Internet businesses and a reduction in total headcount from 2,200 to 1,841. The Company recorded a $3.7 million lease buy-out accrual for abandoned space at the Foster City, California facility and $2.1 million for workforce reduction accruals. The workforce reduction charges included involuntary employee separation costs for approximately 350 employees that included charges of $0.8 million for employees in the Company's Internet businesses, $0.7 million for employees of the large business segment, $0.4 million for employees of the small business segment and $0.2 for administrative employees. As of December 31, 2000, employees received cash severance payments totaling $0.3 million during 2000 with $1.8 million deferred and planned to be paid in 2001. At December 31, 2000, these deferred payments were classified in the accompanying Consolidated Balance Sheets as accrued expenses. During 2000, as a result of the Company's strategy to increase the commitment to the core businesses and the reduction in the investment to the Company's Internet businesses, the Company recorded asset impairment charges totaling $2.1 million. The impairment charges included $0.2 million (see Note 2) of capitalized software costs, $0.8 million (see Note 2) of capitalized database costs, and $1.1 million (see Note 2) for long-lived assets including photography equipment, leasehold improvements and capitalized public offering costs. As part of the acquisition of Donnelley Marketing in July 1999 (See Note 3), the Company recorded acquisition costs of $4.2 million, which included consulting costs, management bonuses, direct travel and entertainment costs and other direct integration-related charges. During 1999, the Company recorded asset impairment charges totaling $5.6 million. As a direct result of the acquisition of Donnelley in July 1999 (See Note 3) and the addition of the Donnelly consumer database file, the Company recorded a write-down of $3.9 million (See Note 2) on the unamortized balance of the Company's existing consumer database white pages file which was impaired due to the addition of the more complete Donnelley consumer file. Additionally, the Company transferred its data processing services function from Montvale, NJ to an existing Company location in Greenwich, CT. As a direct result of this move and the abandonment of certain leasehold improvements and in-process construction projects, the Company recorded a write-down of $1.7 million (See Note 2) on the remaining net book value of the impaired assets. During 1998, the Company recorded acquisition costs totaling $3.6 million, including $3.0 million associated with the Company's bid to acquire Metromail Corporation and $0.6 million associated with the Company's offering to sell Common Stock which was not completed. Also during 1998, the Company recorded a restructuring charge of $1.4 million related to the closing of the County Data Corporation (CDC) new business compilation and sales center and moving these operations from Vermont to Nebraska. All 45 of the CDC employees were terminated, and severance recorded totaled $0.6 million. The restructuring charges also included lease termination costs of $0.3 million and a write-off of $0.5 million of leasehold improvement costs associated with the closed Vermont facility. The restructuring, including recording the payments and write-downs described, was completed by September 30, 1998. Additionally, the Company recorded charges totaling $3.6 million, including a charge of $1.2 million which included $0.6 million in severance for 244 employees terminated as a result of the 43 44 implementation of certain cost reduction measures in 1998. These employees were primarily in support and administration positions but some under-performing sales personnel were also terminated. The restructuring charges also included a charge of $0.4 million related to the planned closing of four field sales offices. Additionally, the Company recorded a write-down of $0.2 million related to leasehold improvement costs at facilities leased by the Company which were being closed. The restructuring, including recording the payments and write-downs described, was completed as of December 31, 1998, with the exception of the costs totaling $0.5 million related to the exit of certain field sales offices was completed by June 30, 1999. As part of the acquisition of Walter Karl in March 1998 (See Note 3), the Company recorded charges totaling $3.8 million for write-offs in conjunction with the merger of Walter Karl for purchased IPR&D which related to projects that had not met technological feasibility. The purchased IPR&D recorded in connection with the acquisition of Walter Karl consisted of various projects, of which none were individually significant, related to areas including: Internet capabilities, automated job cards and shipping information, database and merge/purge processing enhancements, list brokerage and management order and data entry systems. There were a total of 12 separately identified projects. The total amount allocated to the above IPR&D projects was $3.8 million after retroactive application of the Securities and Exchange Commission's new guidelines for valuing purchased IPR&D. 18. DISCONTINUED OPERATIONS During December 2000, the Company shut down the operations of its VideoYellowPages.com Internet unit and recorded a loss from discontinued operations in the year ended December 31, 2000 of $4.2 million, net of income tax benefit of $3.5 million. The loss is comprised of two components: 1) the loss from operations of $3.4 million net of tax, for the full fiscal year, and 2) charges totaling $0.8 million net of tax, for assets to be disposed of or abandoned by the Company related to the discontinued operation. For the year ended December 31, 1999, the Company recorded a loss from discontinued operations for VideoYellowPages.com of $1.5 million, net of income tax benefit of $0.9 million. The Company began its operations of VideoYellowPages.com in late 1998. 19. STOCK COMBINATION AND STOCKHOLDERS RIGHTS PLAN On October 21, 1999, the Company received shareholder approval to combine and reclassify its then outstanding Class A common stock and Class B common stock into a single class of common stock. The combination had no effect on the total number of shares outstanding, with each of the Company's Class A and Class B shares converted on a one-for-one basis for the reclassified single class of common stock. Each share of stock is entitled to a single vote. Accordingly, all share information included in the accompanying consolidated financial statements has been restated to reflect the combination of Class A common stock and Class B common stock into one class of common stock. In connection with the combination and reclassification of its Class A common stock and Class B common stock into a single class of common stock, the Company also combined the stockholder rights plans with respect to its Class A common stock and Class B common stock into a single plan. The rights are not exercisable until ten days after a person or group announces the acquisition of 15% or more of the Company's voting stock or announces a tender offer for 15% or more of the Company's outstanding common stock. Each right entitles the holder to purchase common stock at one half the stock's market value. The rights are redeemable at the Company's option for $0.001 per Right at any time on or prior to public announcement that a person has acquired 15% or more of the Company's voting stock. The rights are automatically attached to and trade with each share of common stock. 20. GAIN ON ISSUANCE OF SUBSIDIARY STOCK During 2000, infoUSA.com, a subsidiary of the Company, completed additional private equity financing. The Company issued approximately 776 thousand shares of convertible preferred stock for approximately $2.7 million or $3.42 per share. The Company also issued approximately 4.3 million shares of convertible preferred stock for approximately $20.2 million or $4.66 per share. As a result of the issuance of the convertible preferred stock of this subsidiary, the Company ownership in infoUSA.com went from 83% at December 31, 1999 to approximately 67% at December 31, 2000, which resulted in a gain of $14.6 million. During December 1999, infoUSA.com issued approximately 2.9 million shares of convertible preferred stock for approximately $10 million or $3.42 per share. As a result of the issuance of the convertible preferred stock, the Company's ownership in infoUSA.com went from 100% to approximately 83% and a gain of $8.9 million was recorded. There were no deferred income taxes recorded due to the gain being a non-taxable transaction. 44 45 21. SEGMENT INFORMATION The Company currently manages existing operations utilizing financial information accumulated and reported for two business segments. The small business segment principally engages in the selling of sales lead generation and consumer CD-Rom products to small to medium sized companies, small office and home office businesses and individual consumers. This segment includes the sale of content via the Internet. The large business segment principally engages in the selling of data processing services, licensed databases, database marketing solutions and list brokerage and list management services to large companies. This segment includes the licensing of databases for Internet directory assistance services. The small business and large business segments reflect actual net sales, direct order production, and identifiable direct sales and marketing costs related to their operations. The remaining indirect costs are presented as a reconciling item in Corporate Activities. Corporate activities principally represent the information systems technology, database compilation, database verification, and administrative functions of the Company. Investment income (loss), interest expense, income taxes, amortization of intangibles, and depreciation expense are only recorded in corporate activities. The Company does not allocate these costs to the two business segments. The small business and large business segments reflect actual net sales, direct order production, and identifiable direct sales and marketing-related costs related to their operations. The Company records unusual or non-recurring items including acquisition-related and restructuring charges and provisions for litigation settlement 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 tables summarizes certain segment information:
FOR THE YEAR ENDED DECEMBER 31, 2000 ---------------------------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL ------------ ------------ ------------ ------------ (IN THOUSANDS) Net sales .................................. $ 140,242 $ 165,426 $ -- $ 305,668 Non-cash stock compensation ................ -- -- 3,113 3,113 Impairment of assets ....................... -- -- 2,135 2,135 Acquisition costs .......................... -- -- 2,287 2,287 Operating income (loss) .................... 32,397 75,527 (119,338) (11,414) Investment income .......................... -- -- 12,250 12,250 Interest expense ........................... -- -- 26,651 26,651 Income (loss) before income taxes and discontinued operations .................. 32,397 75,527 (123,811) (15,887)
FOR THE YEAR ENDED DECEMBER 31, 1999 ---------------------------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL ------------ ------------ ------------ ------------ (IN THOUSANDS) Net sales .................................. $ 129,897 $ 135,956 $ -- $ 265,853 Impairment of assets ....................... -- -- 5,599 5,599 Acquisition costs .......................... -- -- 4,166 4,166 Operating income (loss) .................... 61,668 55,898 (83,490) 34,076 Investment income .......................... -- -- 23,082 23,082 Interest expense ........................... -- -- 18,579 18,579 Income (loss) before income taxes and discontinued operations .................. 61,668 55,898 (78,987) 38,579
45 46
FOR THE YEAR ENDED DECEMBER 31, 1998 ---------------------------------------------------------------- SMALL LARGE CORPORATE CONSOLIDATED BUSINESS BUSINESS ACTIVITIES TOTAL ------------ ------------ ------------ ------------ (IN THOUSANDS) Net sales .................................. $ 129,973 $ 98,705 $ -- $ 228,678 Provision for litigation settlement ........ -- -- 4,500 4,500 Acquisition costs .......................... -- -- 3,643 3,643 In-process research and development ........ -- -- 3,834 3,834 Restructuring charges ...................... -- -- 2,616 2,616 Operating income (loss) .................... 54,660 39,671 (91,761) 2,570 Investment income .......................... -- -- 16,628 16,628 Interest expense ........................... -- -- 9,160 9,160 Income (loss) before income taxes and discontinued operations .................. 54,660 39,671 (86,293) 8,038
46 47 INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE The Stockholders and Board of Directors infoUSA Inc.: Under date of January 26, 2001, we reported on the consolidated balance sheets of infoUSA Inc. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three-year period ended December 31, 2000, which are included in the Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule in the Form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for data licensing arrangements sold with updates. /s/ KPMG LLP ------------ KPMG LLP Omaha, Nebraska January 26, 2001 47 48 INFOUSA INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ----------------------------- BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ------------ ------------ ------------ ------------ ------------ Allowance for doubtful accounts receivable: ....................... (A) December 31, 1998 ................. $ 1,435 $ 4,388 $ 578* $ 3,701 $ 2,700 December 31, 1999 ................. $ 2,700 $ 1,839 $ 1,586* $ 3,543 $ 2,582 December 31, 2000 ................. $ 2,582 $ 2,371 $ 98* $ 2,860 $ 2,191 Allowance for sales returns: ....... (B) December 31, 1998 ................. $ 4,578 $ 15,693 $ -- $ 15,682 $ 4,589 December 31, 1999 ................. $ 4,589 $ 6,506 $ -- $ 6,609 $ 4,486 December 31, 2000 ................. $ 4,486 $ 7,752 $ -- $ 9,705 $ 2,533
---------- * Recorded as a result of acquisitions (A) Charge-offs during the period indicated (B) Returns processed during the period indicated 48 49 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 2.1 -- Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated September 10, 1996. 2.2 -- Agreement and Plan of Reorganization between the Company and the Shareholders of County Data Corporation is incorporated herein by reference to Exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 (File No. 000-19598). 2.3 -- Agreement and Plan of Reorganization between the Company and the Shareholders of 3319971 Canada Inc. is incorporated herein by reference to Exhibits filed with Company's Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1996 (File No. 000-19598). 2.4 -- Agreement and Plan of Reorganization between the Company and the Shareholders of Marketing Data Systems, Inc. is incorporated herein by reference to exhibits filed with the Company's Registration Statement on Form S-3 (File No. 333-36669) filed October 23, 1997. 2.5 -- Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. is incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated February 28, 1997. 2.6 -- Agreement and Plan of Reorganization between the Company and the Shareholders of Pro CD, Inc. is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated September 8, 1997. 2.7 -- Stock Purchase Agreement between the Company and the Shareholders of Walter Karl, Inc. is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated February 24, 1998. 2.8 -- Asset Purchase Agreement between the Company and JAMI Marketing Services, Inc. is incorporated herein by reference to exhibits filed with the Company's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1998 (File No. 000-19598). 2.9 -- Agreement and Plan of Reorganization by and among the Company, Hugo Acquisition Corporation, First Data Corporation, First Data Information Management Group, Inc., DM Holdings, Inc., Donnelley Marketing Holdings, Inc., and Donnelley Marketing, Inc. is incorporated herein by Reference to exhibits filed with the Company's Current Report on Form 8-K dated May 28, 1999. 3.1 -- Certificate of Incorporation, as amended through October 22, 1999, is Incorporated herein by Reference to exhibits filed with Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 3.2 -- Bylaws are incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-42887), which became effective February 18, 1992. 3.3 -- Amended and Restated Certificate of Designation of Participating Preferred Stock, filed in Delaware on October 22,1999, is incorporated herein by Reference to exhibits filed with the Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 4.1 -- Preferred Share Rights Agreement is incorporated herein by reference to the Company's Registration Statement on Form 8-A, as amended, filed March 20, 2000. 4.2 -- Specimen of Common Stock Certificate is Incorporated herein by reference to the exhibits filed with the Company's Registration Statement on Form 8-A, as amended), filed March 20, 2000. 4.3 -- Reference is made to Exhibits 3.1, 3.2, and 3.3 Hereof. 4.4 -- Purchase Agreement dated June 12, 1998 between the Company, BT Alex. Brown Incorporated, Goldman,
49 50
EXHIBIT NUMBER DESCRIPTION ------- ----------- Sachs & Co. and Hambrecht & Quist LLC is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.5 -- Indenture dated as of June 18, 1998 (the "Indenture") by and between the Company and State Street Bank and Trust Company of California, N.A., as Trustee is incorporated herein by reference to Exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.6 -- Exchange and Registration Rights Agreement dated as of June 18, 1998 by and among the Company and BT Alex. Brown Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist LLC as the Initial Purchasers is incorporated herein by reference to Exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998 (File No. 000-19598). 4.7 -- Form of New 9 1/2% Senior Subordinated Note due 2008 is incorporated herein by reference to Exhibits filed with the Company's Registration Statement on Form S-4 (File No. 333-61645), filed December 15, 1999. 4.8 -- Credit Agreement by and among infoUSA, Inc., Various Lenders (as defined therein) and Bankers Trust Company dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Current Report on Form 8-K dated July 23, 1999. 4.9 -- First Amendment dated October 29, 1999 and Second Amendment dated December 15, 1999 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-K for the Year ended December 31, 1999, filed March 21, 2000. 4.10 -- Third Amendment dated April 12, 2000 and Fourth Amendment dated June 8, 2000 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-Q for the Quarter ended June 30, 2000, filed August 11, 2000. 4.11 -- Fifth Amendment dated November 13, 2000 to Credit Agreement by and among the Company, various Lenders (as defined therein) and Bankers Trust Company, is incorporated herein by reference to exhibits filed with the Company's Report on Form 10-Q for the Quarter ended September 30, 2000, filed November 14, 2000. 10.1 -- Form of Indemnification Agreement with Officers And Directors is incorporated herein by reference To exhibits filed with the Company's Registration Statement on Form S-1 (File No. 33-51352), filed August 28, 1992. 10.2 -- 1992 Stock Option Plan as amended is incorporated Herein by reference to exhibits filed with the Company's Registration Statement on Form S-8 (File No. 333-37865), filed October 14, 1997. 10.3 -- 1997 Stock Option Plan as amended is incorporated Herein by reference to exhibits filed with the Company's Registration Statement on Form S-8 (File No. 333-82933), filed July 15, 1999.
50 51
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.4 * -- Employment Agreement dated February 11, 1997 between the Company and Allen F. Ambrosino, filed herewith 10.5 -- Amended and Restated Database License Agreement Between Donnelley Marketing, Inc. and First Data Resources, Inc. dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (File No. 000-19598). 10.6 -- Covenant not to compete by First Data Corporation to infoUSA Inc. dated as of July 23, 1999 is Incorporated herein by reference to exhibits filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1999 (File No. 000-19598). 10.7 -- Reference is made to Exhibits 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.7, 2.8, 2.9, 4.5, 4.8 and 4.9 hereof. 18.1 * -- Preferability Letter from KPMG to the Company dated March 30, 2001, filed herewith 21.1 * -- Subsidiaries and State of Incorporation, filed Herewith. 23.1 -- Consent of Independent Accountants, filed Herewith. 24.1 * -- Power of Attorney, filed herewith
* Previously filed 51