e10vk
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
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For the fiscal year ended
December 31, 2008
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Or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
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For the transition period
from to
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Commission file
number: 0-19598
infoGROUP
Inc.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or Other Jurisdiction
of
Incorporation or Organization)
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47-0751545
(I.R.S. Employer
Identification No.)
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5711 South 86th Circle, Omaha, Nebraska 68127
(Address of principal executive
offices)
(402) 593-4500
(Registrants telephone
number, including area code)
Securities Registered Pursuant to Section 12(b) of the
Act:
Common stock, $0.0025 par value
Securities Registered Pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or 15(d) of the
Act. Yes o No þ
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 þ No o
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 registrants 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. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large
accelerated
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller
reporting company
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting and non-voting common
stock held by non-affiliates computed by reference to the last
reported sales price of the common stock on June 30, 2008
(the last business day of the registrants most recently
completed second fiscal quarter) was $134.4 million.
As of March 6, 2009 the registrant had outstanding
57,162,188 shares of Common stock.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive proxy statement for
the 2009 Annual Meeting of Stockholders are incorporated into
Part III (Items 10, 11, 12, 13 and 14) hereof by
reference.
PART I
This Annual Report on
Form 10-K,
the documents incorporated by reference into the Companys
Annual Report to stockholders, and press releases (as well as
oral statements and other written statements made or to be made
by the Company) contain forward-looking statements that are made
pursuant to the provisions of the Private Securities Litigation
Reform Act of 1995. These forward-looking statements include,
without limitation, statements related to potential future
acquisitions and our strategy and plans for our business
contained in Item 1 Business, Item 2
Properties, Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and other parts of this Annual Report. Such
forward-looking statements are based on our current
expectations, estimates and projections about our industry,
managements beliefs, and certain assumptions made by our
management. These statements are not guarantees of future
performance and are subject to certain risks, uncertainties and
assumptions that are difficult to predict; therefore, actual
results may differ materially from those expressed or forecasted
in any such forward-looking statements. Such risks and
uncertainties include those set forth in this Annual Report
under Item 1A Risk Factors, as well as those
noted in the documents incorporated by reference into this
Annual Report. You are cautioned not to place undue reliance on
these forward looking statements, which speak only as of the
date on which they were made. Unless required by law, we
undertake no obligation to update publicly any forward-looking
statements, whether as a result of new information, future
events or otherwise. However, readers should carefully review
the risk factors set forth in other reports or documents we file
from time to time with the SEC, particularly the Quarterly
Reports on
Form 10-Q
and any Current Reports on
Form 8-K.
Company
Profile
On June 1, 2008, we changed our Company name from
infoUSA Inc. to infoGROUP Inc. We are a Delaware
corporation incorporated in 1972.
infoGROUP Inc. (the Company or
infoGROUP or we) is a leading
provider of sales leads, mailing lists, direct marketing,
database marketing,
e-mail
marketing and market research solutions to help our clients grow
their sales and increase their profits. We operate three
principal business groups or segments.
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The Data Group maintains several proprietary databases of
information relating to U.S. and international businesses
and consumers.
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The Services Group consists of subsidiaries providing
list brokerage and list management, direct mail, database
marketing services and
e-mail
marketing services to large customers.
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The Marketing Research Group, established in 2006 with
our acquisition of Opinion Research Corporation, provides
customer satisfaction surveys, employee surveys, opinion
polling, and other market research services for businesses and
for government.
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Data
Group
Our database operations are combined into a single business
unit, the Data Group. The Data Group is responsible for
maintaining our proprietary databases and for developing and
marketing products and services stemming from those databases.
Our
Proprietary Databases
Business
Databases
Our proprietary business databases contain information on nearly
16 million businesses in the United States and Canada,
compiled through our proprietary compilation and phone
verification processes in Omaha, Nebraska. The business database
contains information such as name, address, telephone number,
SIC codes, number of employees, business owner and key executive
names, credit score and sales volume. We also provide fax and
toll
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free numbers, website addresses, headline news, and public
filings including liens, judgments, bankruptcies, and UCC
filings. The primary segments within our business database file
are:
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15.5 Million U.S. and Canadian Businesses
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1.6 Million Bankruptcy Filers
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12.3 Million Executives and Professionals
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17.4 Million Global Businesses and 23.4 Million Executives
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5.5 Million Small Business Owners
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670,000 Manufacturers
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2.7 Million Business Addresses with Color Photos
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284,000 Big Businesses
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2.3 Million Brand New Businesses
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365,000 U.S. Houses of Worship
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2.6 Million Business
E-mail
Addresses
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49 Million UCC Filings
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945,000 Medical Professionals
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1.3 Million UK Businesses
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Our data can be further categorized in a number of other
segments such as Executives at Home, Big Businesses and their
Corporate Affiliations, Growing Businesses, Places of Interest,
Schools and Female Business Owners.
Consumer
Databases
Our consumer database contains approximately 220 million
individuals and 140 million households and includes
hundreds of data elements. Key elements in our database include:
name, address, phone number, age, estimated household income,
marital status, religion, ethnicity, dwelling type and size,
home value, length of residence, and dozens of lifestyle
elements. Key segments within our consumer database include:
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220 Million Consumers
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16 Million New Movers Per Year
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2.1 Million New Homeowners Per Year
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1.6 Million Bankruptcies Per Year
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140 Million Households
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67 Million Homeowners
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143 Million Occupants
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209 Million Consumer
E-mail
Addresses
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We also maintain a file of Public Filings containing
49 million households and businesses that have filed for
bankruptcy, or have tax liens or judgments recorded against them.
Expanding
our Databases and Keeping Them Current
We compile and update information from many sources. Most of
these sources fall within the following categories:
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Yellow Page and White Page Directories
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Annual Reports
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SEC Filings
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Public Filings (UCC and other public filings)
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Nearly 24 million phone calls to verify and collect
additional information
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Newspaper articles
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In addition, we use information licensed from the United States
Postal Services National Change of Address (NCOA) system
and Delivery Sequence File (DSF) to update and maintain our
business database.
We have over 600 individuals in the United States compiling and
updating our databases from these sources. As a result, the
databases change by roughly 65% per year. We spend over
$40 million annually to update the databases and related
database management systems.
In the United States, we have staff updating the
U.S. business database by making nearly 24 million
phone calls a year to verify the name of the owner or key
executive, address, number of employees, fax numbers,
e-mail
addresses, hours of operation, credit cards accepted, URL
address and other information.
Products
and Services Derived from Our Databases
We create many products and services from our databases to meet
the needs of current and potential customers. We offer access to
our databases over the Internet through our various websites,
such as infoUSA.com, Salesgenie.com, onesource.com, and
others. We create products and services such as prospect lists,
mailing labels, 3 × 5 cards, printed directories, DVDs,
business credit reports, and many other online and offline
applications. Our products and data processing services are used
by clients for identifying and qualifying prospective customers,
initiating direct mail and
e-mail
campaigns, telemarketing, analyzing and assessing market
potential, and surveying competitive markets in order to find
new customers and increase sales. Our data also enables
extensive data hygiene and enhancement services.
Internet-Based
Subscription Services for Sales Leads and New Customer
Development
Salesgenie.com. Provides targeted lead
generation for sales professionals. Salesgenie offers fast,
targeted online access to our databases with advanced filtering,
mapping, and scoring capabilities that enable users to zero in
on more prospects like their best customers. Salesgenie is
available on demand from a laptop or mobile device. Currently
subscriptions start at $180 per month per user, with multi-seat
packages based on a tiered-pricing structure serving the needs
of both small business owners and the sales organizations of
large enterprises. The pricing information of our products set
forth in this Annual Report reflects current prices and may be
subject to future fluctuations and negotiations.
Salesgenie.com/Lite. This service offers a
subset of the full databases with limited search criteria for
$90 per month per user.
Marketzone®
Gold Marketing Edition. Provides
on-demand, online access to our database of approximately
14 million businesses combined with the hygiene and data
enhancement of existing customer files. Designed for marketing
departments who support distributed or large sales forces (50 or
more sales representatives), Marketzone Gold combines
point-and-click
selection of targeted prospects from any web-browser with
suppression of existing customers to improve the effectiveness
of and cost efficiency of direct marketing campaigns. Direct
marketers can use Marketzone Gold to analyze existing customers,
identify target markets and develop more successful targeted
marketing programs.
MarketZone®
Platinum. An
e-CRM
(customer relationship management) solution that integrates the
entire suite of our services to create real-time customer
content integration. MarketZone Platinum is an extremely
flexible, full function marketing database, campaign management
and
e-campaign
solution which incorporates an engine to support analytic tools
for extracting customer insight from todays expanding data
sets. MarketZone Platinum enables us to quickly build and deploy
custom analytic solutions to meet the evolving demands of our
largest customers with the most sophisticated marketing
requirements. MarketZone Platinums multiple platform
applications, modules, and campaign management/e-campaign
management components can be leveraged to deliver
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high-performance analytic applications rapidly. We believe that
these capabilities, along with our ability to provide
data-processing, data and consultative services under one roof,
make MarketZone Platinum a comprehensive and compelling solution.
infoConnect ONE PASS. Provides online,
real-time data enhancement and file cleansing services which
allow our clients to access key data and model scores to build
customer relationships at the point of contact. Composed of four
targeted web services BusinessConnect, ScoreConnect,
ConsumerConnect, and AddressConnect infoConnect
offers immediate response capabilities that can yield impressive
direct marketing results. Our infoConnect services allow our
clients to upsell, cross-sell and provide more targeted offers
to grow their sales in real-time environments such as call
centers and online stores.
OneSource Global Corporate and Executive
Database. Provides business and financial
information to professionals who need quick access to timely and
reliable company, industry, and market intelligence.
OneSources primary products, the OneSource Business
Browsersm
products, are password-protected, subscription-based products
that provide sales, marketing, finance, and management
professionals and consultants with industry and company
profiles, research reports, media accounts, executive listings
and biographies, and financial information. Our international
database spans 200 countries and provides information on
approximately 17 million companies and 23 million key
decision makers at these companies. The companies featured in
our international database include not only large public
companies but also well-known private companies.
Credit.net Business Credit
Reports. Provides access to an unlimited number
of business credit reports via the internet. The product is used
by customers for making credit decisions, verifying company
information, assisting in collection support, and identifying
potential new customers. Customers can purchase individual
business credit reports for a current price of $14.95 from the
Internet or they may select a subscription-based plan offering
unlimited access to our business credit reports for a current
flat fee of $180 per month per user.
Polk City Directories (formerly infoUSA City Directories and
Hill-Donnelly Directories). Two of our directory
divisions, Polk City Directories (CityDirectory.com) and
infoUSA City Directories (infousacity.com), now offer
bundled subscription packages for under $125 per month per user.
These bundled packages include a printed directory on a
customers immediate region, a DVD on the entire state, and
Internet access for all of the U.S.
Non-Subscription
Products and Services Customized Sales Leads and
Databases
Printed Prospect Lists, Mailing Labels, and Sales Lead
Cards. Our databases can be sliced and
diced to create customized sales leads and mailing lists
for our customers. Our small business consultants work with a
business to select the right criteria such as geography, type of
business and size of business to generate the most revenue. The
custom list can then be delivered in electronic format, printed
format, put on mailing labels, provided on 3 x 5 index cards, or
customers may place the order themselves using the
infoUSA.com website.
Licensing
We license our data to a variety of value-added resellers and
original equipment manufacturers in several key vertical
industries, including directory assistance, GIS/mapping,
navigation, local search, Internet directories, site location
analysis, sales leads, marketing, demographic modeling and fraud
prevention.
Services
Group
The Services Group consists of subsidiaries whose primary focus
is helping customers enhance the value of their own customer
data or providing full-service marketing solutions. The Services
Group consists of the following divisions: List Brokerage and
List Management, Donnelley Marketing, Triplex and Yesmail. In
January 2008, the Company acquired Direct Media, Inc. which is
part of the Services Group.
List
Brokerage and List Management Divisions
These divisions includes subsidiaries Walter Karl, Edith Roman,
Direct Media, and Millard Group, whose combined operations make
them the largest list brokerage/list management providers in the
industry for both
Business-to-Business
and
Business-to-Consumer
marketers. We provide list brokerage and list management
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services and an array of database services to a broad range of
direct marketing clients. These divisions also specialize in
e-mail list
management and brokerage, co-registration, lead generation and
mobile messaging for an array of off-line and on-line marketers.
Our specialized list brokerage services, combined with
state-of-the-art
technology, allows us to deliver specialized client acquisition
solutions and multi-channel marketing strategies.
Donnelley
Marketing
Donnelley Marketing is a leading provider of data processing
services to the catalog direct marketing industry, with a
heritage of over 40 years. Our clients are integrated
multi-channel direct marketers who utilize our suite of
merge/purge, address hygiene, database management, and data
products to reduce promotion expenses and improve response
performance. A heavy emphasis on modeling and analytical tools
combined with business intelligence reporting are integrated
into Donnelleys suite of products. Donnelley Marketing
provides integrated solutions that help our clients gain insight
into their customer base and turn that insight into actionable,
measurable means of targeting the best audience and increasing
profitability.
Triplex
Non-Profit Group
The Triplex division provides data processing services and
database management for high-profile political and non-profit
organizations. Using infoGROUPs vast data assets,
Triplex is building on its core services by introducing enhanced
address hygiene, list rental fulfillment, demographic data,
appends, and digital solutions to their specialized clients. The
Triplex staff brings a unique knowledge and understanding of
this defined vertical.
Yesmail
Yesmail specializes in providing
e-mail
solutions for a wide range of industries including retail,
travel, entertainment, financial, healthcare and consumer
packaged goods. The Yesmail product suite, a combination of
technology and service solutions, enables marketers to develop
highly personalized customer communications programs that drive
return on investment through increased sales
and/or cost
reductions.
E-mail
marketing has become a critical component of modern marketing
and is utilized on a stand-alone basis or as part of an
integrated marketing effort. Yesmail stands out as one of the
leading, innovative brands in the digital space.
The Yesmail online marketing suite includes a comprehensive mix
of technology and service components including:
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Yesmail Enterprise A database and
e-mail
campaign management application for large enterprises with
complex data, personalization and integration needs
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Yesmail Express A robust, self-serve
e-mail
campaign management tool for mid-market companies
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Yesmail Direct A small-business
e-mail
campaign management tool
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Yesmail Database Integrated marketing
database management utilizing infoGROUPs MarketZone
suite of products
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Yesmail Media Database enhancement and list
growth utilizing infoGROUP data, co-registration, search,
list rental and append products
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Yesmail Consulting Consulting in the areas of
strategic marketing,
e-mail
creative, data analysis, privacy and deliverability, and best
practices
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In addition, Yesmail owns patented predictive modeling tools
that are embedded into certain of its
e-mail
campaign management tools and utilized by the Yesmail
professional services team.
Marketing
Research Group
On December 4, 2006, we completed our acquisition of
Opinion Research Corporation, a diversified market research
company with two principal divisions. These divisions consist of
Opinion Research and Macro International. We continued to expand
our Marketing Research Group during 2007 with the acquisitions
of Guideline, Inc., NWC Research and Northwest Research Group.
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Opinion
Research
Opinion Research Corporation (ORC) has its worldwide
headquarters in Princeton, N.J, and offices across the U.S.,
Europe and the Asia Pacific region. Founded in 1938, ORC offers
a comprehensive portfolio of research products and services
which provide insight into the attitudes and needs of both
consumers and business executives across a range of industries.
ORC offers the unique ability to integrate primary research,
secondary research, competitive intelligence and expert insight
to address clients strategic issues. The companys
expertise is focused in the areas of Customer Strategies, Market
Planning & Development, Employee Engagement, Corporate
Brand & Reputation, Competitive Intelligence and
On-Demand Business Intelligence. Although ORC serves all
industries, it specializes in the financial services,
pharmaceuticals, healthcare, information technology and
telecommunications and public services sectors.
Globally, ORC operates in Asia, as NWC Opinion Research, with
offices in Australia, Singapore, China and Kuala Lumpur; in
Europe as ORC International with offices in London and
Manchester; and in the Unites States as Opinion Research
Corporation and ORC Guideline with offices in Princeton, New
York, Chicago, Boston, Washington DC, Minneapolis, Seattle,
Toledo and Boise.
ORC is a founding member of the Council of American Survey
Research Organizations (CASRO), a member of the European Society
for Opinion and Marketing Research (ESOMAR), a member of the
Association of Market and Social Research Organizations (AMSRO)
in Australia, and a member of the MRS Company Partner Service, a
UK-based association for the promotion of professional
standards. The Companys research is seen around the world
through the CNN/Opinion Research Corporation
Poll®
and through its partnership with NYSE Euronext on the annual
NYSE Euronext CEO Report which surveys CEOs of the New York
Stock Exchanges listing companies on topics ranging from
globalization and governance to strategy and human resources.
Macro
International
Macro International Inc. (Macro) is an applied
social research company that has been operating for
40 years. Macros primary customers are agencies and
departments within the federal government, the largest being the
U.S. Departments of State and Health and Human Services.
Macro research and evaluation projects, both within the United
States and around the world, support federal, state, and
international programs relating to health, housing, education,
science, energy, nutrition, and related areas.
Macros research experts provide governments, policy makers
and health care providers with the most
up-to-date,
scientifically reliable data on a wide variety of health issues.
Macro has a global reputation for providing accurate
measurements of the incidence and prevalence of deadly diseases
such as HIV/AIDS, malaria and tuberculosis. It has also
implemented complex, large-scale population surveys which often
include the collection and analysis of thousands of blood
samples. Macro is currently providing technical assistance to
the national health care organizations of more than 30
countries, helping them create and sustain programs to promote
the health and safety of their citizens.
Macro is also a leading provider of public education and social
marketing services to the federal government. Macros
health communications experts make use of impressive internal
technical capabilities, including large-scale printing and
publishing facilities, website design, development and hosting,
and
state-of-the-art
video production facilities, to create health promotion
campaigns. For example, Macro is currently implementing a global
smoking cessation campaign for the Department of Defense. Macro
offers government policy makers and program managers a full
range of services from program design, primary and secondary
data collection related to key program issues and objectives,
program execution, monitoring and evaluation.
Macro also conducts complex, large-scale telephone, web-based
and in-person surveys. Macro conducts several very large
telephone surveys, conducting several hundred thousand
interviews annually. In 2007, Macro launched MacroPoll Wireless,
the first national cell phone omnibus survey. Macro also
maintains a large national field force to conduct in-person
interviews, and specializes in collecting health risk behavioral
data from school-aged children, teens and young adults in the
school setting.
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Sales &
Marketing Strategy
We utilized several media options to grow and increase our
market share, including direct mail, print, outbound
telemarketing, search marketing, online advertising, event
sponsorships and television, radio and email marketing. In 2008
we continued these traditional forms of advertising, as well as
national and local radio and television campaigns to further
build our brand name and drive revenue for our online
subscription product, Salesgenie.com. We introduced a long
format TV spot, an infomercial, which we tested during the last
three months of 2008 for Salesgenie.com. We continue to
advertise to promote all our valuable brands through all types
of advertising.
To monitor the success of our various marketing efforts, we have
incorporated data gathering and tracking systems. These systems
enable us to determine which types of advertising brings in the
best return, so we can make future investments in these areas
and obtain a greater yield from our marketing. Additionally
through the use of our database tools, we are working to more
efficiently determine the needs of our various client segments
and tailor our services to their individual needs. With this
system, we plan to strengthen our current customer relationships
and continue to support marketing campaigns to attract new
clients.
Growth
Strategy
Our growth strategy continues to have multiple components. Our
primary growth strategy is to improve our organic growth. Key to
this is our effort to replace revenue from declining traditional
direct marketing products and services with our on-line Internet
subscription services. Subscription services offer enhanced
annual revenue per customer, assure greater multi-year revenue
retention, and, most importantly, provide greater value to our
customers by providing Internet access to our content and
customer acquisition and retention software tools. Delivery of
information via the Internet is the preferred method by our
customers. We are investing in Internet technology to develop
subscription-based new customer development services for
businesses and sales people.
We also intend to continue to grow through strategic
acquisitions when presented with appropriate opportunities. We
have grown through more than 35 strategic acquisitions in the
last eleven years. These acquisitions have enabled us to acquire
the requisite critical mass to compete over the long term in the
database, direct marketing,
e-mail
marketing and market research industries.
We also are focusing on international growth opportunities. We
are now upgrading our international business databases and
expanding our own compilation efforts. We have also partnered
with content providers worldwide. Our comprehensive
international database includes information on approximately
1.1 million large public and private
non-U.S. companies
in approximately 200 countries. There are over 10.4 million
executives represented in our
non-U.S. global
database, which is constantly updated using several daily news
sources to track changes such as executive turnover, mergers and
acquisitions, and late breaking company news. We are also
putting emphasis on more comprehensive financial information and
regulatory filings. Examples include SEC filings, annual
reports, analyst and industry reports, and detailed corporate
family structure. Additionally, the acquisition of
Australia-based NWC Research in July 2007 is helping us grow in
the Asia-Pacific region.
As we continue to enhance our international databases, we are
aggressively pursuing high growth, emerging markets in the
Asia-Pacific region, Western Europe, Australia, and South
America. Using London as our international headquarters, we have
sales offices in Hong Kong, New Delhi, Sydney and Singapore.
In 2007, we announced our plan to compile a business database in
the United Kingdom. This database, created from a variety of
publicly available sources, currently contains information on
approximately 1.3 million UK businesses, with growth
expected to an eventual total of 2.2 million. We are also
conducting telephone surveys to businesses in the database to
augment the file with a variety of proprietary information,
including: trading address, name of the owner or manager, number
of employees per location, web site address (URL), email
addresses, years established, and whether the business is a
single location or part of a larger company. We plan to market
this database to small and large customers in the form of
customized list products, online access, subscription services,
and license agreements to value added resellers.
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Competition
The business and consumer marketing information industry is
highly competitive. We believe that the ability to provide
highly accurate proprietary consumer and business databases
along with data processing, database marketing,
e-mail
marketing and market research services under one roof is a key
competitive advantage. We compete with several companies in each
segment of our business. Our competitors include: Acxiom,
Experian,
Harte-Hanks
Communications, Inc., Dun & Bradstreet, and a variety
of companies in the market research industry. 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 may not be able to compete
successfully against current and future competitors.
Employees
As of December 31, 2008, we employed 4,771 persons on
a full-time equivalent basis. None of our employees is
represented by a labor union or is the subject of a collective
bargaining agreement. We have never experienced a work stoppage
and believe that our employee relations are good.
Executive
Officers of the Registrant
The executive officers of infoGROUP (including each of
their titles, business experience for the past five years and
ages) are set forth below.
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Name
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Age
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Position
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Bill L. Fairfield
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62
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Chief Executive Officer (Principal Executive Officer)
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Thomas Oberdorf
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Executive Vice President and Chief Financial Officer (Principal
Financial Officer; Principal Accounting Officer)
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Thomas J. McCusker
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Secretary and Executive Vice President for Business Conduct and
General Counsel
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Stormy L. Dean
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Executive Vice President/General Manager, Database Group Sales
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Edward C. Mallin
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President, Services Group
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Gerard Miodus
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President, Opinion Research
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Dr. Greg Mahnke
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President, Macro International
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Bill L. Fairfield was appointed Chief Executive Officer
of the Company on August 20, 2008 and served as Chairman of
the Board from July 16, 2008 to August 20, 2008. He
has served as a director of the Company since November 2005.
Mr. Fairfield currently serves on the Board of Directors
and is Chairman of the Audit Committee of The Buckle, Inc., a
retailer of casual apparel, footwear and accessories for young
men and women based in Kearney, Nebraska. From 2002 to 2004,
Mr. Fairfield was the Executive Vice President of Sitel
Corporation, a global provider of outsourced customer support
services based in Omaha, Nebraska, and from 1991 to 2000,
Mr. Fairfield was President and Chief Executive Officer of
Inacom Corp., an Omaha-based technology management services
company. Prior to 1991 Mr. Fairfield was Chief Executive
Officer of Valcom, the predecessor company to Inacom Corp.
Mr. Fairfield holds a B.S. in Industrial Engineering from
Bradley University and an M.B.A. from the Harvard Graduate
School of Business.
Thomas Oberdorf was hired as Executive Vice President and
Chief Financial Officer in December 2008. Mr. Oberdorf
previously served as Chief Financial Officer and Treasurer for
Getty Images, Inc. from 2006 to 2008. He held the position of
Senior Vice President, Chief Financial Officer, and Treasurer of
CMGI, Inc. from 2002 to 2006 and the position of Senior Vice
President and Chief Financial Officer of BeMusic Direct of
Bertelsmann Music Group (BMG Music) from 1999 to 2001. Prior to
his work at BMG Music, Mr. Oberdorf served in a number of
leadership roles at Readers Digest Association, Inc. from
1981 to 1999, last serving as the Vice President, Global
8
Books and Home Entertainment Finance.
Mr. Oberdorf holds a B.S. in Accounting from Boston College
and an E.M.B.A. from the University of New Haven. Since 2004,
Mr. Oberdorf has served on the Board of Directors of UFP
Technologies, a public company which specializes in fabricating
specialty forms, plastics, and natural fiber materials into
packaging, components, and end products.
Thomas J. McCusker was hired as Executive Vice President
for Business Conduct and General Counsel in December 2008 and
was appointed Secretary in January 2009. Mr. McCusker
previously served for fourteen years as Executive Vice President
and General Counsel for Mutual of Omaha Insurance Company. Prior
to joining Mutual of Omaha Insurance Company, he was a partner
with the law firm of Kutak Rock LLP. He began his legal career
with Cravath, Swaine & Moore LLP in New York City.
Mr. McCusker is a Cum Laude graduate of the University of
Notre Dame and a Cum Laude graduate of the University of Notre
Dame School of Law.
Stormy L. Dean is currently serving as Executive Vice
President/General Manager of Database Group Sales, a position to
which he was appointed effective in December 2008. He previously
served as Chief Financial Officer from February 2006 and as the
Principal Accounting Officer of the Company since December 2005.
Mr. Dean has been employed by the Company since 1995,
except during the period from October 2003 to August 2004. He
served as Chief Financial Officer of the Company from January
2000 through October 2003, as the Corporate Controller from
September 1998 until January 2000 and as the acting Chief
Financial Officer from January 1999 to August 1999. From August
1995 to September 1998, Mr. Dean served as the
Companys tax director. Mr. Dean holds a B.S. in
Accounting from the University of Nebraska at Omaha, an M.B.A.
from the University of Nebraska at Omaha, and a Certified Public
Accountant certificate.
Edward C. Mallin has served as President of the Services
Group since January 2007. Prior to that Mr. Mallin served
as President of The Donnelley Group since August 2005, as
President of Walter Karl since June 1998, as Executive Vice
President of the National Accounts Division from January 1997 to
June 1998 and as President of Compilers Plus from January 1990
to May 1998. In addition, he was President and partner of
Compilers Plus prior to its acquisition by the Company in
January 1990. Mr. Mallin holds a B.A. in History with a
minor in Economics from the University of Bridgeport and a
Masters in Business Administration and Planning from New York
University.
Gerard Miodus has served as President of Opinion Research
Corporation (ORC) since its acquisition by infoGROUP in
December 2006. Mr. Miodus has been with Opinion Research
since 1982, serving in a wide variety of management positions.
Prior to his appointment as President, he served as Managing
Director, Executive Vice President for the U.S. Region.
Before that, Mr. Miodus held the positions of Managing
Director of Research Services and Managing Director of
Information Services. Mr. Miodus holds a B.S. in Economics
from Michigan State University.
Dr. Greg Mahnke has served as President of Macro
International since November 2005. Dr. Mahnke has been with
Macro International since 1988. He has a B.A. in Cultural
Anthropology from the University of Montana, completed an M.A.
in Cultural Anthropology at McGill University in 1981 and
received his doctoral degree in Cultural Anthropology from
Indiana University in 1987. Prior to assuming the role of
President, Dr. Mahnke served as Executive Vice President
and Managing Director of Macros Survey Research Division.
He is a well-known survey methodologist and serves as Principal
Investigator on a number of Macros key survey projects.
Website
Information
We maintain websites at www.infoGROUP.com and
www.infoUSA.com. Contents of the websites are not
part of, or incorporated by reference, into this Annual Report.
We have made available free of charge on our
www.infoGROUP.com website all annual and quarterly
reports, current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act) as soon as
reasonably practicable after we have filed such material with,
or furnished it to, the SEC.
9
Described below and throughout this Annual Report are certain
risks that our management believes are applicable to our
business and the industry in which we operate. There may be
additional risks that are not presently material or known. There
are also risks related to the economy, the industry and the
capital markets that affect business generally, and us as well,
which have not been described. If any of the described events
occur, our business, results of operations, financial condition,
liquidity or access to the capital markets could be materially
adversely affected.
The
Special Litigation Committees investigation, the
SECs investigation and the Derivative Litigation have
resulted in significant fees, costs and expenses, diverted
management time and resources, and could have a material adverse
effect on our business, financial condition and results of
operations.
We have incurred significant professional fees, expenses and
other costs in connection with the Special Litigation
Committees investigation, responding to and cooperating
with the SECs investigation, and in defending against and
settling the Derivative Litigation, each of which is described
in Item 3, Legal Proceedings of this Annual
Report. As of December 31, 2008, the Company has incurred
approximately $26.6 million in expenses related to these
matters (including advancement of legal fees to individuals
pursuant to our indemnification obligations). These expenses
include approximately $3.0 million in 2007 and
approximately $23.6 million in 2008. In addition, our Board
of Directors, management and employees have expended a
substantial amount of time in connection with these matters,
diverting resources and attention that would otherwise have been
directed toward our operations and implementation of our
business strategy. We expect to continue to spend additional
time and incur additional professional fees, expenses and other
costs in responding to and cooperating with the SECs
investigation. In addition, if the SEC were to conclude that an
enforcement action is appropriate as a result of its
investigation, we may divert even greater amounts of time from
our management, Board of Directors and employees, and incur even
greater fees, expenses and costs, any of which could have a
material adverse effect on our business, financial condition and
results of operations.
Our
potential indemnification obligations and limitations of our
director and officer liability insurance may have a material
adverse impact on our financial condition and results of
operations.
Under Delaware law, our charter and bylaws and certain
indemnification agreements between us and certain of our current
and former directors and officers, we have an obligation to
advance legal expenses and may have an obligation to indemnify
our current and former directors and officers with respect to
the SEC investigation. As the Companys bylaws provide for
indemnification to the fullest extent permitted by applicable
law, the Companys indemnification obligations of former or
current directors and officers who are found to have committed
securities violations will remain in effect, to the extent
current or future applicable law permits indemnification. We
have already exceeded our coverage limits under our directors
and officers liability policy for matters relating to the SEC
investigation and therefore we will not be reimbursed by our
insurers for any remaining related indemnification obligations.
We have purchased directors and officers liability insurance.
Our directors and officers liability insurance covers events for
which payment obligations and the timing of payments are only
determined in the future. The insurers could become insolvent
and unable to fulfill their obligation to defend, pay or
reimburse us for insured claims.
Under our directors and officers liability insurance policy, we
are responsible for the cost of claims up to a self-insured
limit. In addition, we cannot be sure that claims will not arise
that are in excess of the limits of our insurance or that are
not covered by the terms of our insurance policy. Due to these
coverage limitations, we may incur significant unreimbursed
costs to satisfy our indemnification obligations, which may have
a material adverse effect on our financial condition and results
of operations.
Our
business would be harmed if we do not continue successfully to
implement our Internet strategy.
We use the Internet as our primary vehicle to provide sales
leads and database information to our customers. The Internet is
widely accepted by businesses worldwide and is a very powerful
distribution channel for
10
information. Our Salesgenie, Salesgenie/Lite and other products
are now being offered on the Internet on a subscription basis.
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:
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fail to develop products and services that are well suited to
the Internet market;
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experience difficulties that delay or prevent the successful
development, introduction and marketing of these products and
services; or
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fail to achieve sufficient traffic to our Internet sites to
generate significant revenues, or successfully to implement
electronic commerce operations.
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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 competitors
include: Acxiom, Experian,
Harte-Hanks
Communications, Inc., Dun & Bradstreet, and other
companies in research. 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
may not be able to compete successfully against current and
future competitors.
Changes
in the direct marketing industry and in the industries in which
our customers operate may adversely affect our
business.
Many large companies are reducing their use of direct mail
advertising and increasing their use of on-line advertising,
including
e-mail,
search words, and banner advertisements. As a result of this
change in the direct marketing industry, such customers are
purchasing less data for direct mail applications. In addition,
several of our customers operate in industries, in particular
the financial and telecommunications industries, that are
undergoing consolidation. Such consolidation reduces the number
of companies in those industries, and therefore may reduce the
number of customers we serve. We are addressing these changes by
offering products that integrate our data, data processing,
database marketing and
e-mail
resources, and pursuing industries that are experiencing growth
rather than consolidation. We cannot guarantee that the
marketplace will accept these new products, or that we will be
successful in entering new markets. If we do not gain acceptance
for our new products or successfully enter new markets, our
business, financial condition and results of operations would be
adversely affected.
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, DVD, and
electronic media via 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
must identify customer preferences and develop and offer
products to meet their preferences to replace declining revenue
from traditional direct marketing products and
services.
One of our primary growth strategies is to improve our organic
growth. We believe that much of our future growth prospects will
rest on our ability to identify customer preferences and to
continue to expand into newer products and services. For
example, key to this is our effort to replace declining revenue
from traditional direct marketing products and services with
revenue from our on-line Internet subscription services. In the
past 2 years we
11
invested approximately $14 million on capital related to
Internet technology to develop subscription-based new customer
development services for businesses and sales people. We believe
delivery of information via the Internet is or will be the
preferred method by our customers. If we miss customer
preference trends or customers are not willing to switch to or
adopt our new products and services, such as our Internet
subscription services, our ability to increase revenues or
replace declining revenues of older products will be impaired.
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. For example, in
2003 the Federal Trade Commission amended its rules to establish
a national do not call registry that permits
consumers to protect themselves from unsolicited telemarketing
telephone calls. Various states also have established similar
do not call lists. And although do not
call list regulations do not currently apply to market
research phone calls, such as the type performed by us, new
legislation or regulation could eliminate the current market
research exemption. 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 collection,
management or commercial use of such information may
increasingly affect our operations. This could result in
substantial regulatory compliance or litigation expense or a
loss of revenue.
Our
strategy to continue to grow through strategic acquisitions may
result in unsuccessful integration of future acquired businesses
and harm to our financial results.
We have been an acquisitive company, growing through more than
35 strategic acquisitions in the last eleven years. We believe
these acquisitions have enabled us to acquire the requisite
critical mass to compete over the long term in the database,
direct marketing,
e-mail
marketing and market research industries. Each of these
acquisitions presented challenges in financing the purchase and
integrating the acquired businesses on a profitable basis. We
intend to continue to pursue strategic acquisitions when
presented with appropriate opportunities. Any acquisitions we
undertake increases the risks of unsuccessful integration of the
acquired businesses, increasing the potential of harm to our
financial results from this growth strategy.
Future
acquisitions may also harm our operating results, dilute our
stockholders equity and create other financial
difficulties for us.
We may in the future pursue acquisitions that we believe could
provide us with new technologies, products or service offerings,
or enable us to obtain other competitive advantages.
Acquisitions by us may involve some or all of the following
financial risks:
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use of significant amounts of cash;
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potential dilutive issuances of equity securities;
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incurrence of debt or amortization expenses related to certain
intangible assets; and
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future impairment charges related to diminished fair value of
businesses acquired as compared to the price we pay for them.
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We may not be successful in overcoming the risks described above
or any other problems associated with future acquisitions. Any
of these risks and problems could materially harm our business,
prospects and financial
12
condition. Additionally, we cannot guarantee that any companies
we may acquire will achieve anticipated revenues or operating
results.
A
failure in the integrity of our database could harm our brand
and result in a loss of sales and an increase in legal
claims.
The reliability of our products and services is dependent upon
the integrity of the data in our databases. We have in the past
been subject to customer and third-party complaints and lawsuits
regarding our data, which have occasionally been resolved by the
payment of money damages. A failure in the integrity of our
database could harm us by exposing us to customer or third-party
claims or by causing a loss of customer confidence in our
products and services.
We also license proprietary rights to third parties. While we
attempt to ensure that the quality of our brand is maintained by
the business partners to whom we grant non-exclusive licenses
and by customers, they may take actions that could materially
and adversely affect the value of our proprietary rights or our
reputation. In addition, it cannot be assured that these
licensees and customers will take the same steps we have taken
to prevent misappropriation of our data solutions or
technologies.
We may
lose key business assets, including loss of data center capacity
or the interruption of telecommunications links, the Internet,
or power sources, which could significantly impede our ability
to operate our business.
Our operations depend on our ability, as well as that of
third-party service providers to whom we have outsourced several
critical functions, to protect data centers and related
technology against damage from hardware failure, fire, power
loss, telecommunications failure, impacts of terrorism, breaches
in security (such as the actions of computer hackers), natural
disasters, or other disasters. The on-line services we provide
are dependent on links to telecommunications providers. In
addition, we generate a significant amount of our revenue
through telesales centers and websites that we utilize in the
acquisition of new customers, fulfillment of solutions and
services and responding to customer inquiries. We may not have
sufficient redundant operations to cover a loss or failure in
all of these areas in a timely manner. Any damage to our data
centers, failure of our telecommunications links or inability to
access these telesales centers or websites could cause
interruptions in operations that materially adversely affect our
ability to meet customers requirements, resulting in
decreased revenue, operating income and earnings per share.
Our
ability to increase our revenues will depend in part on the
success of the expansion of our international
business.
We have begun expanding internationally, and plan to expand in
high growth, emerging international markets. We have focused on
upgrading our international business databases, expanding our
own compilation efforts and aggressively pursuing markets in the
Asia-Pacific region.
International operations subject us to additional risks and
challenges, including:
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the need to develop new customer relationships;
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difficulties and costs of staffing and managing foreign
operations;
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changes in and differences between domestic and foreign
regulatory requirements;
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price controls;
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reduced protection for intellectual property rights in some
countries;
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potentially adverse tax consequences;
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lower per capita Internet usage and lack of appropriate
infrastructure to support widespread Internet usage;
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political and economic instability;
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foreign currency fluctuations; and
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tariffs and other trade barriers.
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During 2008, we received approximately $69 million of our
revenues from our international operations. If we do not
implement the expansion of our international business
successfully, these international revenues may not grow
meaningfully, thereby impairing our ability to increase our
overall revenues. Some of the above factors may cause our
international costs to exceed our domestic costs of doing
business. Failure to adequately address these risks could
decrease our profitability and operating results.
Our
contracts with the U.S. federal government grant the government
rights that are typically not found in commercial contracts and
that could adversely affect our revenues and
income.
We have approximately 200 active contracts and task orders with
the U.S. federal government. There are inherent risks in
contracting with the U.S. federal government which could
have an adverse effect on our business. All contracts with the
U.S. federal government contain provisions,
and/or are
subject to laws and regulations, that give the government rights
and remedies not typically found in our commercial contracts,
including rights that allow the government to:
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claim rights in and ownership of products and systems that we
produce;
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adjust contract costs and fees on the basis of audits completed
by its agencies;
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suspend or debar us from doing business with the
U.S. federal government; and
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release information obtained from us in response to a Freedom of
Information Act request.
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Government contractors are often subject to enhanced scrutiny
with respect to corporate governance and other measures of
business conduct. Matters arising from the Derivative Litigation
and the SEC investigation may adversely effect the
Companys reputation in this regard, which in turn could
jeopardize our government-contracting business.
The
U.S. federal government has the right to terminate its contracts
with us at any time and such terminations could adversely affect
our revenues and income.
The U.S. federal government has the right to terminate its
contracts with us at any time. If the U.S. federal
government terminates a contract, we may recover only our
incurred or committed costs, settlement expenses and profit on
work completed before the termination. If the government
terminates a contract for default, we may not recover even those
amounts, and instead may be liable for excess costs incurred by
the government in procuring undelivered items and services from
another source. Additionally, most of our backlog could be
reduced by any modification or termination of contracts that we
have with the U.S. federal government or, in cases where we
are a subcontractor, contracts that our prime contractors have
with the U.S. federal government.
As a
contractor to the U.S. federal government, we are subject to
restrictions and compliance requirements that could divert the
attention of our management, drain our resources and/or result
in additional costs, fines or other penalties.
As a contractor to the U.S. federal government, we are
subject to various laws and regulations that are more
restrictive than those applicable to non-government contractors.
We are required to obtain and maintain material governmental
authorizations and approvals to conduct our business as it is
currently conducted. New or more stringent laws or governmental
regulations concerning government contracts could hurt our
business by limiting our flexibility and by potentially causing
us to incur additional expenses.
We also must comply with and are affected by laws and
regulations relating to the formation, administration and
performance of U.S. federal government contracts. These
laws and regulations affect how we do business with our
U.S. federal government clients and may result in added
costs for our business. For example, we are required to comply
with the Federal Acquisition Regulations and all supplements,
which comprehensively regulate the formation, administration and
performance of U.S. federal government contracts, and the
Truth in Negotiations Act, which requires certification and
disclosure of cost and pricing data in connection with contract
negotiations. If
14
a government review or investigation uncovers improper or
illegal activities, we may be subject to civil and criminal
penalties and administrative sanctions, including:
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termination of contracts;
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forfeiture of profits;
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suspension of payments;
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fines; and
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suspension or debarment from doing business with
U.S. federal government agencies.
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Any of the sanctions could adversely affect our business,
prospects, financial condition, or operating results.
Our
government contracts are subject to audits and cost adjustments
by the U.S. federal government, which could hurt our operating
results.
Our government contracts are subject to audits and reviews by
the U.S. federal government of our performance on
contracts, pricing practices, cost structure, and compliance
with applicable laws, regulations and standards. Responding to
governmental audits, inquiries or investigations may involve
significant expense and divert the attention of our management.
An audit of our work, including an audit of work performed by
companies we have acquired or may acquire, could result in a
substantial adjustment to our revenues because any costs
determined by the government to be improperly allocated to a
specific contract will not be reimbursed, and revenues we have
already recognized may need to be refunded. If a
U.S. federal government audit results in allegations of
improper or illegal activities by us or our employees and if we
are unable to successfully defend against those allegations, we
may be subject to civil and criminal penalties and
administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and
suspension, and / or debarment from doing business
with U.S. federal government agencies. In addition, we
could suffer serious harm to our reputation if allegations of
impropriety were made against us regardless of the merits of any
such allegation. In addition, the U.S. federal government
may conduct non-audit reviews on a majority of our government
contracts, which in turn could lead to full audit reviews by the
government.
We are
leveraged. If we are unable to service our debt as it becomes
due or if we violate the covenants contained in our existing
Credit Facility, our business would be harmed.
As of December 31, 2008, we had total indebtedness of
approximately $300.6 million. Substantially all of our
assets are pledged as security under the terms of our existing
Credit Facility.
Our ability to pay principal and interest on the indebtedness
under the Credit Facility and our ability 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 Facility 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 Credit Facility) or
seeking additional equity capital. We may not be able to
implement any such measures or obtain additional financing on
terms that are favorable or satisfactory to us, if at all.
The Credit Facility contains several financial covenants with
which we must comply. If our assets are determined to be
impaired to a sufficient degree, or if our operating performance
deteriorates significantly, we might be in default under the
Credit Facility. There is no assurance that in such a situation
we would be able to amend the Credit Facility or be able to
secure alternate financing.
In 2008, we asked and received waivers of events of default from
the lenders because we were delayed in filing our Annual Report
on
Form 10-K
for the year ended December 31, 2007 and our 2007 first and
second quarter
15
Form 10-Qs.
The covenants in the Credit Facility require us to be current on
our SEC filings and deliver certain financial statements to the
lenders. If we are unable to do so in the future, there is no
assurance that we can amend the Credit Facility to avoid having
to meet this requirement or receive a waiver from lenders, and
the Credit Facility may become immediately due and payable.
The
conditions of the U.S. and international capital and credit
markets may adversely affect our ability to draw on our current
revolving credit facility or obtain future short-term or
long-term lending.
Global market and economic conditions have been, and continue to
be, disrupted and volatile, and in recent months the volatility
has reached unprecedented levels. In particular, the cost and
availability of funding for many companies has been and may
continue to be adversely affected by illiquid credit markets and
wider credit spreads. These forces reached unprecedented levels
in September and October 2008, resulting in the bankruptcy or
acquisition of, or government assistance to, several major
domestic and international financial institutions. These events
have significantly diminished overall confidence in the
financial and credit markets. There can be no assurance that
recent government responses to the disruptions in the financial
and credit markets will restore consumer confidence, stabilize
the markets or increase liquidity and the availability of credit.
We continue to maintain the Amended 2006 Credit Facility.
However, to the extent our business requires us to access the
credit markets in the future and we are not able to do so,
including in the event that the lenders to the Amended 2006
Credit Facility cease to lend to us, or cease to be capable of
lending, for any reason, we could experience a material and
adverse impact on our financial condition and ability to borrow
additional funds. This might impair our ability to obtain
sufficient funds for working capital, capital expenditures,
acquisitions and other corporate purposes.
The
conditions of the U.S. and international capital and credit
markets may adversely affect our interest expense under our
existing credit facility.
At December 31, 2008, the term loan of the Amended 2006
Credit Facility had a balance of $170.5 million, bearing an
average interest rate of 3.46%. The revolving line of credit had
a balance of $86.5 million, bearing an interest rate of
4.81%, and $88.5 million was available under the revolving
line of credit. Substantially all of the assets of the Company
are pledged as security under the terms of the Amended 2006
Credit Facility.
The Amended 2006 Credit Facility provides for grid-based
interest pricing based upon our consolidated total leverage
ratio. Interest rates for use of the revolving line of credit
range from base rate plus 0.25% to 1.00% for base rate loans and
LIBOR plus 1.25% to 2.00% for Eurodollar rate loans. Interest
rates for the term loan range from base rate plus 0.75% to 1.00%
for base rate loans and LIBOR plus 1.75% to 2.00% for Eurodollar
rate loans. Subject to certain limitations set forth in the
credit agreement, we may designate borrowings under the Amended
2006 Credit Facility as base rate loans or Eurodollar loans.
In recent months, LIBOR rates have experienced unprecedented
short-term volatility due to disruptions occurring in global
financial and credit markets. During this period, LIBOR rates
have experienced substantial short-term increases. Increases in
LIBOR rates increase the interest expense that we incur under
the Amended 2006 Credit Facility. Because nearly all our debts
are at variable rates, any significant changes to interest rates
may adversely impact our earnings and cash flow. (See
Part II, Item 7A, Quantitative and Qualitative
Disclosures About Market Risk in this
Form 10-K.)
Further, the Company has executed four amendments to the Amended
2006 Credit Facility. In the current market environment,
financial institutions are using the request for an amendment or
waiver as an opening to renegotiate terms, including pricing, to
reflect what the institutions consider to be market conditions.
If the Company finds it necessary to seek an amendment or
waiver, we may be required to consent to higher pricing margins
and/or more
restrictive financial or operating covenants in order to obtain
approval of the amendment or waiver. Such amended terms could
have an adverse effect on our financial or operational
performance.
16
Adverse
changes in general economic or credit market conditions in any
of the countries in which we do significant business could
adversely impact our operating results.
The direction and strength of the U.S. and global economy
has recently been increasingly uncertain due to a turndown in
the economy and difficulties in the credit markets. If economic
growth in the United States and other countries is slowed
significantly, or if the credit markets continue to be difficult
to access, our customers could experience significant
disruptions to their businesses and operations which, in turn,
could negatively impact our business operations and financial
performance.
The
accounting treatment of goodwill and other identified
intangibles could result in future asset impairments, which
would be recorded as operating losses.
Goodwill represents the excess of the amounts we paid to acquire
subsidiaries and other businesses over the fair value of their
net assets at the date of acquisition. We test goodwill at least
annually for impairment. Impairment testing is performed based
upon estimates of the fair value of the reporting
unit to which the goodwill relates. The reporting units
are the Companys reporting segments. The fair value of the
reporting unit is impacted by the performance of the business.
If it is determined that the goodwill has been impaired, the
Company must write down the goodwill by the amount of the
impairment, with a corresponding charge to earnings. Such write
downs could have a material adverse effect on our results of
operations or financial position.
Long-lived assets, including assets such as real estate, also
require impairment testing to determine whether changes in
circumstances indicate that we will be unable to recover the
carrying amount of the asset group through future operations of
that asset group or market conditions that will impact the value
of those assets. Such write downs could have a material adverse
effect on our results of operations or financial position.
Deferred income taxes represents the tax effect of the
differences between the book and tax basis of assets and
liabilities. Deferred tax assets are assessed periodically by
management to determine if they are realizable. Factors in
managements determination include the performance of the
business including the ability to generate capital gains. If
based on available information, it is more likely than not that
deferred income tax assets will not be realized a valuation
allowance must be established with a corresponding charge to net
income. Such charges could have a material adverse effect on our
results of operations or financial position.
|
|
Item 1B.
|
Unresolved
Staff Comments
|
Not applicable
Our headquarters are located in a 157,000 square foot
facility in Omaha, Nebraska, where we perform sales and
administrative activities. Administration and management
personnel are also located in a 24,000 square foot facility
in Omaha, Nebraska, which is adjacent to our headquarters. In
2006, we completed a 8,750 square foot training facility
within walking distance of our headquarters. We have three
locations in Carter Lake, Iowa. Our order fulfillment and
printing operations are located within our 27,000 square
foot building, shipping is conducted at our 18,500 square
foot warehouse, and data center operations are split between our
27,000 square foot facility and our adjacent
32,000 square foot building; all of which are located
within 15 miles of our headquarters. Data compilation,
telephone verification, data and product development, and
information technology services are conducted at our recently
expanded 176,000 square foot Papillion, Nebraska facility
which is located within 5 miles of our headquarters.
Donnelley Marketing sales operations are performed in a
30,000 square foot location in Marshfield, Wisconsin. We
own these facilities, as well as adjacent land at certain
locations for possible future expansion.
We lease sales office space and research facilities at over 85
different locations in the United States, Canada, the United
Kingdom, Australia and other countries.
17
|
|
Item 3.
|
Legal
Proceedings
|
In February 2006, Cardinal Value Equity Partners, L.P.
(Cardinal) filed a derivative lawsuit in the Court
of Chancery for the State of Delaware in and for New Castle
County (the Court), against certain current and
former directors of the Company, and the Company, asserting
claims for breach of fiduciary duty. In October 2006, Dolphin
Limited Partnership I, L.P., Dolphin Financial Partners,
L.L.C. and Robert Bartow (collectively with Cardinal, the
Plaintiffs) filed a derivative lawsuit in the Court
against certain current and former directors of the Company, and
the Company as a nominal defendant, claiming breach of fiduciary
duty and misuse of corporate assets. In January 2007, the Court
granted the defendants motion to consolidate the actions
(as consolidated, the Derivative Litigation).
In November 2007, the Company received a request from the Denver
Regional Office of the Securities and Exchange Commission
(SEC) asking the Company to produce voluntarily
certain documents as part of an SEC investigation. The requested
documents relate to the allegations made in the Derivative
Litigation, as well as related party transactions, expense
reimbursement, other corporate expenditures, and certain trading
in the Companys securities. The Special Litigation
Committee, the formation and activities of which are described
in more detail below, has reported the results of its
investigation to the SEC. The SEC has issued subpoenas to the
Company and a number of its current and former directors and
officers, and the Company intends to continue to cooperate fully
with the SECs requests. Because the investigation is
ongoing, the Company cannot predict the outcome of the
investigation or its impact on the Companys business.
In December 2007, the Companys Board of Directors formed a
Special Litigation Committee (the SLC) in response
to the Derivative Litigation and the SECs investigation.
The SLC, which consisted of five independent Board members,
conducted an investigation of the issues in the Derivative
Litigation and the SECs informal investigation, as well as
other related matters. Based on its review, the SLC determined,
on July 16, 2008, that various related party transactions,
expense reimbursements and corporate expenditures were excessive
and, in response, approved a series of remedial actions. The
remedial actions are set forth in Item 9A, Controls
and Procedures in the Companys Annual Report on
Form 10-K/A
for the year ended December 31, 2007, which was filed on
March 16, 2009.
The SLC conducted settlement discussions on behalf of the
Company with all relevant parties, including the current and
former directors of the Company named in the suit, Vinod Gupta
and the Plaintiffs. On August 20, 2008, all relevant
parties entered into a Stipulation of Settlement, the material
terms of which are set forth in the Companys Current
Report on
Form 8-K/A
filed on August 22, 2008. A number of remedial measures
were adopted and implemented in conjunction with the Stipulation
of Settlement.
Under the terms of the Stipulation of Settlement, Vinod Gupta
resigned as Chief Executive Officer of the Company on
August 20, 2008. Mr. Gupta and the Company entered
into a Separation Agreement and General Release dated
August 20, 2008 (the Separation Agreement),
under which Mr. Gupta granted a release of certain claims
against the Company related to the Derivative Litigation and the
SLCs investigation and received the right to severance
payments totaling $10.0 million (contingent on
Mr. Gupta adhering to certain requirements in the
Separation Agreement and Stipulation of Settlement). The Company
also granted a release of certain claims against Mr. Gupta
related to the Derivative Litigation and the SLCs
investigation. The first severance payment in the amount of
$5.0 million, which was due within sixty days of execution
of the Separation Agreement, was paid by the Company to
Mr. Gupta on October 17, 2008.
Pursuant to the Stipulation of Settlement, Mr. Gupta has
agreed to pay the Company $9.0 million incrementally over
four years. This receivable was recorded within equity as a note
receivable from shareholder on the consolidated balance sheet.
The corresponding contribution was reduced by $2.5 million
for federal and state income taxes and was recorded within
paid-in capital on the consolidated balance sheet.
Mr. Guptas first payment to the Company, in the
amount of $2.2 million, was received on January 6,
2009.
On November 7, 2008, the Court entered an Order and Final
Judgment approving all the terms of the Stipulation of
Settlement and dismissing the Derivative Litigation with
prejudice. The Courts order also awarded Plaintiffs
counsel fees of $7 million and expenses in the amount of
$210,710, all paid by the Company in December 2008.
The Company is subject to legal claims and assertions in the
ordinary course of business. Although the outcomes of any other
lawsuits and claims are uncertain, the Company does not believe
that, individually or in the
18
aggregate, any such lawsuits or claims will have a material
effect on its business, financial conditions, results of
operations or liquidity.
|
|
Item 4.
|
Submission
of Matters to a Vote of Security Holders
|
The 2008 Annual Meeting of Stockholders of the Company was held
on October 23, 2008. At the Annual Meeting, the
stockholders voted on the following matters:
1. The stockholders elected the following persons to serve
as directors of the Company for a term of three years, expiring
in 2011 (by the following share votes):
|
|
|
|
|
Bernard W. Reznicek
|
|
FOR: 50,609,040
|
|
WITHHELD: 1,450,275
|
John N. Staples III
|
|
FOR: 47,103,045
|
|
WITHHELD: 4,956,270
|
Clifton T. Weatherford
|
|
FOR: 50,068,093
|
|
WITHHELD: 1,991,222
|
2. The stockholders voted on the approval of an amendment
to the infoUSA 2007 Omnibus Incentive Plan. The amendment
to the plan was approved. The voting was as follows:
FOR: 47,530,846 AGAINST: 432,443 ABSTAIN:
820,178 BROKER NON-VOTE 3,275,848
PART II
|
|
Item 5.
|
Market
for the Registrants Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
|
Our common stock, $0.0025 par value, is traded on the
NASDAQ Global Select Market under the symbol IUSA.
The following table sets forth the high and low sales prices for
our common stock during each quarter of 2008 and 2007. These
prices do not include retail
mark-up,
mark-down or commissions and may not represent actual
transactions.
Common
stock
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
2008
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
6.66
|
|
|
$
|
2.30
|
|
Third Quarter
|
|
$
|
7.70
|
|
|
$
|
3.80
|
|
Second Quarter
|
|
$
|
6.29
|
|
|
$
|
3.78
|
|
First Quarter
|
|
$
|
9.52
|
|
|
$
|
6.04
|
|
2007
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
10.66
|
|
|
$
|
8.45
|
|
Third Quarter
|
|
$
|
10.65
|
|
|
$
|
9.05
|
|
Second Quarter
|
|
$
|
11.30
|
|
|
$
|
9.11
|
|
First Quarter
|
|
$
|
12.30
|
|
|
$
|
9.01
|
|
On March 6, 2009, the last reported sale price in the
NASDAQ National Market for our Common stock was $2.61 per share.
As of March 6, 2009, there were 107 stockholders of record
of the Common stock, and an estimated additional 3,200
stockholders who held beneficial interests in shares of common
stock registered in nominee names of banks and brokerage houses.
On March 5, 2007, we paid a cash dividend of $0.25 per
common share and a special dividend of $0.10 per common share to
stockholders of record on February 16, 2007. On
March 5, 2008, we paid a cash dividend of $0.35 per common
share to stockholders of record on February 18, 2008.
On January 30, 2009, the Board of Directors voted to
eliminate the dividend that is typically paid at the beginning
of our fiscal year. Any decision to pay future dividends will be
made by the Board of Directors. No assurance can be given that
dividends will be paid in the future since they are dependent on
our earnings, cash flows from operations and financial condition
and other factors. The Credit Facility has certain restrictions
on the ability to declare dividends on our common stock.
19
PERFORMANCE
GRAPH
The following Performance Graph compares the cumulative total
return to stockholders of the Companys common stock from
December 31, 2003 to December 31, 2008 to the
cumulative total return over such period of (i) The Nasdaq
Stock Market (U.S. Companies) Index, and (ii) the
S&P Data Processing & Outsourced Services Index.
The performance graph is not necessarily indicative of future
investment performance.
COMPARISON
OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG INFOGROUP INC., NASDAQ STOCK MARKET INDEX, AND
S&P DATA PROCESSING OUTSOURCED SERVICES INDEX
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31-Dec-03
|
|
|
31-Dec-04
|
|
|
31-Dec-05
|
|
|
31-Dec-06
|
|
|
31-Dec-07
|
|
|
31-Dec-08
|
infoGROUP common stock
|
|
|
$
|
100.00
|
|
|
|
$
|
151.01
|
|
|
|
$
|
150.36
|
|
|
|
$
|
167.04
|
|
|
|
$
|
129.52
|
|
|
|
$
|
71.91
|
|
NASDAQ (U.S. Companies)
|
|
|
$
|
100.00
|
|
|
|
$
|
108.84
|
|
|
|
$
|
111.16
|
|
|
|
$
|
122.11
|
|
|
|
$
|
132.42
|
|
|
|
$
|
63.80
|
|
S&P Data Processing & Outsourced Services Index
|
|
|
$
|
100.00
|
|
|
|
$
|
105.44
|
|
|
|
$
|
111.25
|
|
|
|
$
|
122.77
|
|
|
|
$
|
125.36
|
|
|
|
$
|
87.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Assumes $100 invested on December 31, 2003 in
infoGROUP Inc. common stock, Nasdaq Stock Market (U.S.
Companies) Index, and S&P Data Processing &
Outsourced Services Index. |
The information contained in this Item 5 of this Annual
Report is not deemed to be soliciting material or to
be filed with the SEC or subject to
Regulation 14A or 14C under the Exchange Act or to the
liabilities of Section 18 of the Exchange Act, and will not
be deemed to be incorporated by reference into any filing under
the Securities Act of 1933, as amended, or the Exchange Act,
except to the extent we specifically incorporate it by reference
into such a filing.
20
|
|
Item 6.
|
Selected
Consolidated Financial Data
|
The following selected consolidated financial data as of the end
of, and for each of the years in the five-year period ended,
December 31, 2008 are drawn from our audited Consolidated
Financial Statements and should be read in conjunction with
Item 7, Managements Discussion and Analysis of
Financial Condition and Results of Operations and the
Consolidated Financial Statements and related notes included
elsewhere in this Annual Report. We have made several
acquisitions since 2003 that would affect the comparability of
historical data. See Item 7, Managements
Discussion and Analysis of Financial Condition and Results of
Operations. The audited Consolidated Financial Statements
as of December 31, 2008 and 2007, and for each of the years
in the three-year period ended December 31, 2008, are
included elsewhere in this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
738,270
|
|
|
$
|
688,773
|
|
|
$
|
434,876
|
|
|
$
|
383,158
|
|
|
$
|
344,859
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services
|
|
|
311,653
|
|
|
|
276,165
|
|
|
|
116,485
|
|
|
|
108,106
|
|
|
|
102,838
|
|
Selling, general and administrative(1)
|
|
|
356,520
|
|
|
|
287,084
|
|
|
|
224,918
|
|
|
|
183,458
|
|
|
|
171,306
|
|
Depreciation and amortization of operating assets
|
|
|
24,389
|
|
|
|
21,502
|
|
|
|
14,020
|
|
|
|
12,818
|
|
|
|
14,062
|
|
Amortization of intangible assets
|
|
|
17,524
|
|
|
|
17,495
|
|
|
|
14,909
|
|
|
|
18,098
|
|
|
|
15,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
710,086
|
|
|
|
602,246
|
|
|
|
370,332
|
|
|
|
322,480
|
|
|
|
304,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,184
|
|
|
|
86,527
|
|
|
|
64,544
|
|
|
|
60,678
|
|
|
|
40,778
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income (loss)(2)
|
|
|
1,660
|
|
|
|
617
|
|
|
|
(7
|
)
|
|
|
(75
|
)
|
|
|
66
|
|
Interest expense
|
|
|
(18,143
|
)
|
|
|
(20,995
|
)
|
|
|
(11,410
|
)
|
|
|
(11,552
|
)
|
|
|
(9,137
|
)
|
Other income (charges)(3)
|
|
|
(1,434
|
)
|
|
|
599
|
|
|
|
112
|
|
|
|
115
|
|
|
|
(2,935
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,267
|
|
|
|
66,748
|
|
|
|
53,239
|
|
|
|
49,166
|
|
|
|
28,772
|
|
Income tax expense
|
|
|
5,456
|
|
|
|
25,806
|
|
|
|
19,939
|
|
|
|
17,659
|
|
|
|
10,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,811
|
|
|
$
|
40,942
|
|
|
$
|
33,300
|
|
|
$
|
31,507
|
|
|
$
|
17,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.73
|
|
|
$
|
0.61
|
|
|
$
|
0.59
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.73
|
|
|
$
|
0.60
|
|
|
$
|
0.58
|
|
|
$
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
$
|
0.35
|
|
|
$
|
0.35
|
|
|
$
|
0.23
|
|
|
$
|
0.20
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
56,760
|
|
|
|
55,809
|
|
|
|
54,974
|
|
|
|
53,850
|
|
|
|
52,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
56,774
|
|
|
|
55,976
|
|
|
|
55,340
|
|
|
|
54,040
|
|
|
|
53,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
2004
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working deficit
|
|
$
|
(15,249
|
)
|
|
$
|
(28,973
|
)
|
|
$
|
(34,949
|
)
|
|
$
|
(63,108
|
)
|
|
$
|
(56,737
|
)
|
Total assets
|
|
|
815,283
|
|
|
|
812,641
|
|
|
|
749,575
|
|
|
|
543,767
|
|
|
|
509,436
|
|
Long-term debt, including current portion
|
|
|
300,644
|
|
|
|
283,227
|
|
|
|
259,890
|
|
|
|
148,006
|
|
|
|
196,226
|
|
Stockholders equity
|
|
|
248,873
|
|
|
|
268,526
|
|
|
|
234,158
|
|
|
|
197,867
|
|
|
|
171,475
|
|
|
|
|
(1) |
|
During 2008 and 2007, we recorded $34.3 million and
$3.0 million, respectively in charges related to the
Derivative Litigation and the Special Litigation
Committees investigation. |
|
(2) |
|
During 2008, we recorded investment income totaling
$1.6 million which primarily included a gain on sale of a
marketable security. |
21
|
|
|
(3) |
|
During 2008, we recorded other charges totaling
$1.4 million which primarily included: (a) charges of
$2.4 million for an other-than-temporary decline in the
value of marketable and non-marketable equity investments,
offset by (b) income of $1.0 million primarily for
foreign currency gains. |
During 2004, we recorded other charges totaling
$2.9 million which primarily included:
(a) $0.6 million for
non-amortized
debt issue costs and a $1.5 million premium to purchase
$30.0 million of our
91/2% Senior
Subordinated Notes, (b) $0.1 million for
non-amortized
debt issue costs for a prior credit facility as a result of the
financing of a new credit facility in March 2004, and
(c) $1.0 million for an other-than-temporary decline
in the value of a non-marketable equity investment.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This discussion and analysis contains forward-looking
statements, including without limitation statements in the
discussion of comparative results of operations, accounting
standards and liquidity and capital resources, within the
meaning of Section 21E of the Exchange Act and
Section 27A of the Securities Act of 1933, as amended,
which are subject to the safe harbor created by
those sections. Our actual future results could differ
materially from those projected in the forward-looking
statements. Some factors which could cause future actual results
to differ materially from our recent results or those projected
in the forward-looking statements are described in Item 1A
Risk Factors above. We assume no obligation to
update the forward-looking statements or such factors.
General
Overview
We report results in three segments: the Data Group, the
Services Group, and the Marketing Research Group. We believe
that by organizing all of our businesses that sell proprietary
content into a single segment, we can effectively deploy sales
and marketing resources. We also believe that this organization
creates opportunities for cross selling proprietary databases
under one brand name.
On June 1, 2008, we changed our Company name from
infoUSA Inc. to infoGROUP Inc. (the
Company or infoGROUP or
we). We are a Delaware corporation incorporated in
1972.
Our key strategic initiatives for 2009 include:
|
|
|
|
|
Continuing our focus on improved corporate governance, including
operating under our recently revamped formal policies,
functioning under the guidance of our restructured majority
independent Board and working with our new management team.
|
|
|
|
Continuing and expanding our initiatives of outreach,
transparency and communications with our shareholders and the
entire investment community.
|
|
|
|
Accelerating our organic, profitable growth by leveraging our
leadership position as a data provider across our subsidiaries,
creating both internal and external strategic alliances to add
value to new and existing customers, and capitalizing on our
existing cross selling opportunities among subsidiaries. We
anticipate concentrating our efforts on these opportunities for
internal growth, instead of pursuing revenue growth primarily
through acquisitions.
|
|
|
|
Reinvesting in the business to expand our product offerings,
particularly in the integrated digital realm. We plan to provide
our customers new products and services, including more internet
based and interactive marketing solutions.
|
|
|
|
Improving our financial foundation, by taking costs out of the
business (without jeopardizing service to our customers),
continuing to aggressively reduce our debt levels and leveraging
our high margin products to increase profitability.
|
Financial
Performance
Operating income for 2008 was $28.2 million, or 4% of net
sales, down from $86.5 million, or 13% of net sales, for
2007. The primary reason for the decrease in operating income
was the result of $34.3 million in non-
22
recurring charges incurred during 2008 related to the Derivative
Litigation and the Special Litigation Committees
investigation, as described in Item 3, Legal
Proceedings. These charges included $23.6 million in
legal expenses and professional fees and $10.7 million in
severance payments primarily to the former CEO of the Company,
Vinod Gupta, in connection with the Stipulation of Settlement
entered into on August 20, 2008 by the parties to the
Derivative Litigation. The Company also incurred
$16.7 million in charges during 2008 for the impairment,
write-down and loss on sale of assets of $11.5 million,
facility closure costs of $2.0 million and severance costs
associated with the restructuring of Guideline and Direct Media
of $1.7 million and $1.5 million, respectively.
Mergers
and Acquisitions
Internal revenue growth is our primary objective. However, we
still pursue opportunities for strategic acquisitions when
presented with appropriate opportunities. As described in the
notes to the accompanying consolidated financial statements, we
acquired Direct Media, Inc. in 2008, a provider of list
brokerage and list management services, and the following
entities in 2007: (1) expresscopy.com, a provider of
printing and mailing services (2) Guideline, Inc., a
provider of customer business and market research and analysis
(3) NWC Research, a provider of research services,
(4) SECO Financial, a provider of financial services
industry marketing, and (5) Northwest Research Group, a
provider of research services.
We work to integrate the operations of the acquired companies
into existing operations as resources and business constraints
permit. Due to recent and potential future acquisitions, future
results of operations may vary from and may not be directly
comparable to historical data.
Summary
of Acquisitions
Through acquisitions, we have increased our presence in the
consumer marketing information industry, greatly increased our
ability to provide data processing and
e-mail
marketing solutions, increased our presence in list management
and list brokerage services and broadened our offerings of
business and consumer marketing
23
information. Additionally, most recently we have added research
businesses to complement our existing services. The following
table summarizes the more significant acquisitions since
January 1, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
Business
|
|
Type of
|
|
|
|
Transaction
|
Acquired Company
|
|
Key Asset
|
|
Segment
|
|
Acquisition
|
|
Date Acquired
|
|
Value(1)
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
|
Triplex
|
|
Data processing services
|
|
Services Group
|
|
Stock purchase
|
|
February 2004
|
|
|
8
|
|
Edith Roman
|
|
List brokerage and management services
|
|
Services Group
|
|
Stock purchase
|
|
June 2004
|
|
|
14
|
|
OneSource
|
|
International database and Internet browser applications
|
|
Data Group
|
|
Stock purchase
|
|
June 2004
|
|
|
109
|
|
@Once
|
|
E-mail solutions provider and e-mail list business
|
|
Services Group
|
|
Asset purchase
|
|
January 2005
|
|
|
8
|
|
Millard Group
|
|
List brokerage and management services
|
|
Services Group
|
|
Stock purchase
|
|
November 2005
|
|
|
14
|
|
Mokrynskidirect
|
|
List brokerage and management services
|
|
Services Group
|
|
Asset purchase
|
|
June 2006
|
|
|
7
|
|
Digital Connexxions Corp.
|
|
E-mail solutions provider and e-mail list business
|
|
Services Group
|
|
Asset purchase
|
|
October 2006
|
|
|
4
|
|
Rubin Response Services, Inc.
|
|
List brokerage and management services
|
|
Services Group
|
|
Asset purchase
|
|
November 2006
|
|
|
2
|
|
Opinion Research Corporation
|
|
Social and market research services
|
|
Research Group
|
|
Stock purchase
|
|
December 2006
|
|
|
132
|
|
expresscopy.com
|
|
Printing and mailing services
|
|
Data Group
|
|
Asset purchase
|
|
June 2007
|
|
|
8
|
|
NWC Research
|
|
Social and market research services
|
|
Research Group
|
|
Asset purchase
|
|
July 2007
|
|
|
8
|
|
Guideline, Inc.
|
|
Market research services
|
|
Research Group
|
|
Stock purchase
|
|
August 2007
|
|
|
39
|
|
Northwest Research Group
|
|
Market research services
|
|
Research Group
|
|
Asset purchase
|
|
October 2007
|
|
|
2
|
|
SECO Financial
|
|
Financial services industry marketing
|
|
Data Group
|
|
Asset purchase
|
|
October 2007
|
|
|
1
|
|
Direct Media, Inc.
|
|
List brokerage and management services
|
|
Services Group
|
|
Asset purchase
|
|
January 2008
|
|
|
18
|
|
|
|
|
(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 as well as subsequent
purchase price adjustments. |
We frequently evaluate the strategic opportunities available and
intend to pursue strategic acquisitions of complementary
products, technologies or businesses that we believe fit our
business strategy. In connection with future acquisitions, we
expect that we will be required to incur additional
acquisition-related charges to operations.
Associated with the acquisitions previously described, we
recorded amortization expense on other purchased intangibles as
summarized in the following table (amounts in thousands):
|
|
|
|
|
Fiscal Year
|
|
Amount
|
|
|
2004
|
|
$
|
15,875
|
|
2005
|
|
|
18,098
|
|
2006
|
|
|
14,909
|
|
2007
|
|
|
17,495
|
|
2008
|
|
|
17,524
|
|
Critical
Accounting Policies and Estimates
Our significant accounting policies are described in Note 2
to the audited consolidated financial statements. Of those
policies, we have identified the following to be the most
critical because they are the most important to our
24
portrayal of our results of operations and financial condition
and they require subjective or complex management judgments:
|
|
|
|
|
revenue recognition and related estimates of valuation
allowances for doubtful accounts, sales returns and other
allowances;
|
|
|
|
database acquisition, development and maintenance expenses;
|
|
|
|
valuation of long-lived and intangible assets and
goodwill; and
|
|
|
|
income taxes.
|
Revenue recognition. Revenue from the sale of
prospect lists (paper form or electronic), mailing labels,
published directories, other sales lead products and DVD
information products are recognized upon shipment. These product
sales are typically evidenced by a written purchase order or by
credit card authorization.
List management revenue is recognized net of costs upon shipment
of the list to the third party. List brokerage revenue is
recognized net of costs upon verification from third party of
the actual list used and shipped. List brokerage revenue is
recognized on a net basis because the Company acts as an agent
or broker (including performing services, in substance, as an
agent or broker) with compensation on a commission or fee basis.
Data processing and
e-mail
customer retention solution revenues are billed on a time and
materials basis, with the recognition of revenue occurring as
the services are rendered to the customer.
Revenue from the licensing of the Companys data to third
parties and the sale of the Companys subscription-based
products are recognized on a straight-line basis over the life
of the agreement, when the Company commits to provide the
customer either continuous data access (i.e. 24/7
access via the Internet) or updates of data files over a period
of time. Licenses and subscriptions are evidenced by written
contracts. The Company also licenses data to customers with no
such commitments. In those cases, the Company recognizes revenue
when the data is shipped to the customer, provided all revenue
recognition criteria have been met.
Services performed in the Marketing Research Group vary from
contract to contract and are not uniformly performed over the
term of the arrangement.
Revenues under fixed-price contracts are recognized on a
proportional performance basis. Performance is based on the
ratio of costs incurred to total estimated costs where the costs
incurred represent a reasonable surrogate for output measures of
contract performance, including survey design, data collection,
survey analysis and presentation of deliverables to the client.
Progress on a contract is matched against project costs and
costs to complete on a periodic basis. Provision for estimated
contract losses, if any, is made in the period such losses are
determined. Customers are obligated to pay as services are
performed, and in the event that a client cancels the contract,
the client is responsible for payment for services performed
through the date of cancellation.
Revenues under cost-reimbursement contracts are recognized as
costs are incurred. Applicable estimated profits are included in
earnings in the proportion that incurred costs bear to total
estimated costs. Incentives, award fees or penalties related to
performance are also considered in estimating revenues and
profit rates based on actual and anticipated awards.
Revenues under
time-and-materials
contracts are recognized as costs are incurred.
Revenue for our retainer contracts are charged to customers on a
fixed monthly subscription fee basis to access On-Demand
Business Research services, and revenues are recognized ratably
over the term of each subscription. Retainer fees are required
to be paid in advance by customers on either a monthly,
quarterly or annual basis, and all billed amounts relating to
future periods are recorded as deferred revenue on the
Companys balance sheet.
Revenue for our deposit contracts are charged to customers on a
fixed annual fee basis, which entitles them to access any of the
Companys service offerings throughout the contract period,
up to the total amount of the annual deposit fee. Since deposit
account customers can spend their contract fee at
any time within the annual contract period, deposit account
revenues are only recognized within the contract period as
services are actually provided to customers, with any unused
deposit amounts recognized as revenue in the final month of the
contract. As with
25
retainer fees, deposit contract fees are required to be paid in
advance, primarily annually, and any billed amounts relating to
future periods are recorded as deferred revenue on the
Companys balance sheet.
Unbilled receivables are invoiced based upon the achievement of
specific events as defined by each contract including
deliverables, timetables and incurrence of certain costs.
Unbilled receivables are classified as a current asset.
Reimbursements of out-of-pocket expenses are included in
revenues with corresponding costs incurred by the Company
included in cost of revenues.
The Company assesses collectibility of revenues and the
Companys allowance for doubtful accounts based on a number
of factors, including past transaction history with the customer
and the credit-worthiness of the customer. The Company does not
request collateral from the Companys customers. An
allowance for doubtful accounts is established to record the
Companys trade accounts receivable at estimated net
realizable value. If the Company determines that collection of
revenues are not reasonably assured at or prior to the delivery
of the Companys products, the Company recognizes revenue
upon the receipt of cash. Cash-basis revenue recognition
periodically occurs in those cases where the Company sells or
licenses its information products to a poorly capitalized
company. However, sales recognized on this basis are not a
significant portion of the Companys total revenues.
Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net basis and
therefore are excluded from revenues in the consolidated
statements of operations.
Database Costs. Our database and production
costs are generally charged to expense as incurred and relate
principally to maintaining, verifying and updating our
databases, fulfilling customer orders and the production of DVD
titles. Costs to develop new databases are capitalized and
amortized upon the successful completion of the databases, over
a period ranging from one to five years. Our cost of maintaining
consumer and business databases does not necessarily vary
directly with revenues since a significant portion of the cost
is the maintenance and verification of our existing data.
Consequently, operating income may vary significantly with
changes in revenue from period-to-period, as our ability to
adjust certain elements of our cost structure is limited in the
short-run.
Because we expense the costs of maintaining and verifying our
existing database, we believe that our balance sheet does not
include an asset for the value of our database. We believe that
our databases of consumer and business information are valuable
intellectual property assets. Our success in marketing our
products and services depends, in large part, on our ability to
maintain an accurate and reliable database of business and
consumer information.
Valuation of long-lived and intangible assets and
goodwill. We assess the impairment of
identifiable intangibles, long-lived assets and related goodwill
and enterprise level goodwill whenever events or changes in
circumstances indicate that the carrying value may not be
recoverable. Factors we considered important, which could
trigger an impairment review, included the following:
|
|
|
|
|
significant underperformance relative to historical or projected
future operating results;
|
|
|
|
significant changes in the manner or use of the acquired assets
or the strategy for our overall business;
|
|
|
|
significant negative industry or economic trends;
|
|
|
|
significant decline in our stock price; and
|
|
|
|
our market capitalization relative to net book value.
|
When we determine that the carrying value of intangibles,
long-lived assets and related goodwill and enterprise level
goodwill may not be recoverable based upon the existence of one
or more of the above indicators of impairment, we measure
impairment based on estimated fair value of the assets. Net
property and equipment, net intangible assets, long-lived
assets, and goodwill amounted to $594.2 million as of
December 31, 2008.
Impairment of Goodwill
The goodwill impairment test is a two-step process. The first
step compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered to not be impaired, and the second
step of the impairment test is not necessary. However, if the
carrying amount of a reporting unit exceeds its fair value, the
second step of the goodwill impairment test is performed to
measure the amount of impairment loss. The second step is
essentially a purchase
26
price allocation exercise, which allocates the newly determined
fair value of the reporting unit to the assets. For purposes of
the allocation, the fair values of all assets, including both
recognized and unrecognized intangible assets, are determined.
The residual goodwill value is then compared to the carrying
value of goodwill to determine the impairment charge.
We completed a goodwill impairment test as of October 31,
2008 and 2007, respectively. Additionally, in accordance with
Statement of Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS 142), we concluded that events had
occurred and circumstances had changed during the fourth quarter
of 2008, which required us to perform an interim period goodwill
impairment test as of December 31, 2008. During the fourth
quarter of 2008, we experienced a significant decline in market
capitalization due to an overall decline in economic conditions.
At December 31, 2008, we had three reporting units that had
goodwill and therefore required testing pursuant to
SFAS 142. The three reporting units represent the
Companys reporting segments.
We considered both the income approach and the market approach
in assessing the fair value of each reporting unit. Under the
income approach, the fair value of the reporting unit is based
on the present value of estimated future cash flows. The income
approach requires assumptions and estimates of many critical
factors, including revenue and market growth, operating cash
flows, and discount rates. As a result of the deterioration of
the economic conditions in the United States in the second half
of 2008, the projections used took into account current economic
factors and the effect on future revenue and operating income.
We used the Gordon growth model to calculate residual values.
The Gordon growth model refers to the concept of taking the
residual year cash flow and determining the value of a growing,
perpetual annuity. The long-term growth rate used for each
reporting unit ranged between 2.5% and 3.0%. The Company used
weighted-average costs of capital ranging between 12.7% and
15.8% in its discounted cash flows analyses. Under the market
approach, several relative pricing measures for comparable
companies are examined to determine a fair value for each
reporting unit. We determined that the fair value of the
reporting units under both approaches as of December 31,
2008, October 31, 2008 and October 31, 2007 exceeded
its carrying amount. Thus, the goodwill of these reporting units
was not impaired. Future adverse changes in expected operating
results
and/or
unfavorable changes in other economic factors used to estimate
fair values could result in non-cash impairment charges in
future periods under SFAS 142.
Impairment of Intangible and Other Assets
We assessed the impairment of long-lived assets and intangible
assets as of December 31, 2008 as required pursuant to
Statement of Financial Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144). As a result of the
declining profitability of expresscopy.com, SECO Financial and
infoUK, recoverability tests were performed for these
asset groups. These tests included comparisons of undiscounted
cash flows to the current carrying values of the each asset
group. Since the carrying values exceeded the undiscounted cash
flows, an impairment was recognized and allocated between all
long-lived assets within each asset group. Impairments for the
year ended December 31, 2008 for expresscopy.com, SECO
Financial and infoUK were $2.5 million, which
included $1.1 million for impairments of property and
equipment, $0.2 million and $2.7 million,
respectively. In addition, the Company recorded an impairment of
$0.6 million for a OneSource database and $0.9 million
for development costs for a Salesgenie product no longer being
utilized.
Income Taxes. Accounting for income taxes
requires significant judgments in the development of estimates
used in income tax calculations. Such judgments include, but
would not be limited to, the likelihood we would realize the
benefits of net operating loss carryforwards, the adequacy of
valuation allowances, and the rates used to measure transactions
with foreign subsidiaries. As part of the process of preparing
our consolidated financial statements, we are required to
estimate our income taxes in each of the jurisdictions in which
we operate. The judgments and estimates used are subject to
challenge by domestic and foreign taxing authorities. It is
possible that either domestic or foreign taxing authorities
could challenge those judgments and estimates and draw
conclusions that would cause us to incur tax liabilities in
excess of those currently recorded. Changes in the geographical
mix or estimated amount of annual pretax income could impact our
overall effective tax rate.
To the extent recovery of deferred tax assets is not likely
based on estimation of future taxable income in each
jurisdiction, we record a valuation allowance to reduce our
deferred tax assets to the amount that is more likely than
27
not to be realized. Although we have considered future taxable
income along with prudent and feasible tax planning strategies
in assessing the need for the valuation allowance, should we
determine that we would not be able to realize all or part of
our deferred tax assets in the future, an adjustment to deferred
tax assets would be charged to income in the period any such
determination was made. Likewise, in the event we were able to
realize our deferred tax assets in the future in excess of the
net recorded amount, an adjustment to deferred tax assets would
increase income in the period any such determination was made.
Results
of Operations
The following table sets forth, for the periods indicated,
certain items from the statement of operations data expressed as
a percentage of net sales. The amounts and related percentages
may not be fully comparable due to our acquisitions in 2006,
2007 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services
|
|
|
42
|
|
|
|
40
|
|
|
|
27
|
|
Selling, general and administrative
|
|
|
48
|
|
|
|
41
|
|
|
|
52
|
|
Depreciation and amortization of operating assets
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Amortization of intangible assets
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
96
|
|
|
|
87
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
4
|
|
|
|
13
|
|
|
|
15
|
|
Other expense, net
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
2
|
|
|
|
10
|
|
|
|
12
|
|
Income tax expense
|
|
|
1
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
1
|
%
|
|
|
6
|
%
|
|
|
8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
($
|
in millions
|
)
|
|
|
|
|
Sales by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Group
|
|
$
|
309.5
|
|
|
$
|
330.5
|
|
|
$
|
299.4
|
|
Services Group
|
|
|
163.3
|
|
|
|
136.8
|
|
|
|
120.9
|
|
Marketing Research Group
|
|
|
265.5
|
|
|
|
221.5
|
|
|
|
14.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
738.3
|
|
|
$
|
688.8
|
|
|
$
|
434.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Segment as a Percentage of Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Group
|
|
|
42
|
%
|
|
|
48
|
%
|
|
|
69
|
%
|
Services Group
|
|
|
22
|
|
|
|
20
|
|
|
|
28
|
|
Marketing Research Group
|
|
|
36
|
|
|
|
32
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
Compared to 2007
Net
sales
Net sales for 2008 were $738.3 million, an increase of 7%
from $688.8 million for 2007.
Net sales of the Data Group for 2008 were $309.5 million, a
6% decrease from $330.5 million for 2007. 2007 net
sales of the Data Group included $9.9 million received from
the final settlement in a lawsuit, which was originally
commenced in December 2001, against Naviant, Inc. (now known as
BERJ, LLP) in the District Court for Douglas County, Nebraska
for breach of a database license agreement. Additionally, 2007
included revenue from two license agreements with First Data
Resources, which were not renewed in 2008, of
$13.3 million. An additional decrease occurred in 2008 due
to a decline in demand for the traditional direct marketing
products. These decreases were offset partly by an increase in
the Data Group due to the acquisitions of expresscopy.com,
acquired in June 2007, and SECO Financial, acquired in October
2007. The Data Group provides our proprietary databases and
28
database marketing solutions, and principally engages in the
selling of sales lead generation and consumer DVD products to
small- to medium-sized companies, small office and home office
businesses and individual consumers. Customers purchase our
information as custom lists or on a subscription basis primarily
through the Internet. Sales of subscription-based products
require us to recognize revenues over the subscription period
instead of at the time of sale. This segment also includes the
licensing of our databases to value-added resellers.
Net sales of the Services Group for 2008 were
$163.3 million, a 19% increase from $136.8 million for
2007. The majority of the increase in the Services Group is
related to the acquisition in January 2008 of Direct Media,
Inc., as well as growth in the Yesmail division as
e-mail
marketing is becoming a bigger part of corporate advertising.
The Services Group provides
e-mail
marketing solutions, list brokerage and list management services
and online interactive marketing services to large companies in
the United States, Canada and globally.
Net sales of the Marketing Research Group for 2008 were
$265.5 million, a 20% increase from $221.5 million for
2007. The majority of the increase in the Marketing Research
Group is related to the acquisitions of NWC Research in July
2007, Guideline Inc., in August 2007 and Northwest Research
Group in October 2007, as well as an increase in net sales of
the Macro International division as a result of increases in
direct labor and other direct costs from new business
generation. The Marketing Research Group provides diversified
market research, which consists of the Opinion Research
division, Macro International, Guideline, Inc., NWC Research and
Northwest Research Group.
Cost of
goods and services
Cost of goods and services for 2008 were $311.7 million, or
42% of net sales, compared to $276.2 million, or 40% of net
sales for 2007.
Cost of goods and services of the Data Group were
$89.1 million, or 29% of net sales, compared to
$84.1 million, or 25% of net sales for 2007. The majority
of the increase in the Data Group for 2008 is related to the
costs associated with expresscopy.com, acquired in June 2007,
which costs are higher as a percentage of net sales than the
other divisions within the segment. Additionally, the increase
in the cost of goods and services as a percentage of net sales
is due to the decrease in net sales for 2008 as compared to 2007.
Cost of goods and services of the Services Group for 2008 were
$38.0 million, or 23% of net sales, compared to
$32.8 million, or 24% of net sales for 2007. The majority
of the increase in the Services Group is related to an increase
in costs associated with
e-mail
marketing due to the growth in the Yesmail division, which
resulted in higher costs, while the percentage of net sales for
that segment remained relatively level. Additionally, this
increase included costs associated with Direct Media, Inc.,
which was acquired in January 2008.
Cost of goods and services of the Marketing Research Group for
2008 were $180.4 million, or 68% of net sales, compared to
$156.1 million, or 70% of net sales for 2007. These costs
include subcontract labor costs, direct sales and labor costs
and direct programming costs associated with providing the
research services performed by the Marketing Research Group. The
majority of the increase in the Marketing Research Group is
related to the costs associated with Guideline, Inc., NWC
Research and Northwest Research Group, all acquired in the last
six months of 2007. The decrease in cost of goods and services
as a percentage of net sales is the result of an increased focus
on higher profit projects and pricing.
Cost of goods and services of Corporate Activities for 2008 were
$4.2 million, compared to $3.2 million for 2007. The
majority of the increase in Corporate Activities is related to
the transfer of certain personnel and support fees for
accounting and finance functions from the Data Group. Total cost
of goods and services for Corporate Activities includes costs
related to services to support the Companys network
administration, help desk functions and system personnel and
support fees for accounting and finance.
Selling,
general and administrative expenses
Selling, general and administrative expenses for 2008 were
$356.5 million, or 48% of net sales, compared to
$287.1 million, or 42% of net sales for 2007.
29
Selling, general and administrative expenses of the Data Group
for 2008 were $137.7 million, or 44% of net sales, compared
to $141.4 million, or 43% of net sales for 2007. The
decrease in selling, general and administrative costs is related
to the 2007 restructuring of infoUSA National Accounts
that was completed as of December 31, 2007. See
Note 17 in the Notes to Consolidated Financial Statements
for further detail regarding the restructuring of infoUSA
National Accounts. This decrease was offset by an increase in
costs of $2.0 million associated with television
advertisements that aired during the Super Bowl in 2008.
Selling, general and administrative expenses of the Services
Group for 2008 were $86.9 million, or 53% of net sales,
compared to $61.9 million, or 45% of net sales for 2007.
The majority of the increase in the Services Group is related to
the increase in costs associated with
e-mail
marketing due to the growth in the Yesmail division, which
resulted in higher costs, but a lower percentage of net sales
for that segment, as well as costs associated with Direct Media,
Inc., which was acquired in January 2008. Additionally, during
2008, the Company recorded $1.5 million in costs within the
Services Group related to facility closures primarily for Direct
Media, Inc.
Selling, general and administrative expenses of the Marketing
Research Group for 2008 were $57.2 million, or 22% of net
sales, compared to $44.5 million, or 20% of net sales for
2007. The majority of the increase in the Marketing Research
Group is related to the costs associated with Guideline, Inc.
(with respect to which selling, general and administrative
expenses are higher as a cost of sales than with respect to the
other Marketing Research Group divisions), NWC Research and
Northwest Research Group, all acquired in the last six months of
2007.
Selling, general and administrative expenses of Corporate
Activities for 2008 were $74.7 million, compared to
$39.3 million for 2007. Corporate Activities includes
selling, general and administrative costs that cannot be
directly attributed to the revenue producing segments. The
majority of the increase is related to the Special Litigation
Committees investigation, the Derivative Litigation and
the SECs investigation and related remediation efforts as
outlined in the Stipulation of Settlement. The expenses related
to those activities totaled $34.3 million, which includes
severance of $10.7 million primarily to the former Chief
Executive Officer and $7.2 million awarded by the Court to
be paid to the plaintiffs for attorneys fees and expenses.
See Note 16 in the Notes to Consolidated Financial
Statements for further detail regarding the Derivative
Litigation and the Special Litigation Committee investigation.
In 2009 the Company will be initiating cost reductions
throughout the organization that will primarily affect selling,
general and administrative expenses. However, to achieve these
permanent savings, 2009 will reflect certain restructuring costs.
Depreciation
expense
Depreciation expense for 2008 totaled $24.4 million, or 3%
of net sales, compared to $21.5 million, or 3% of net sales
for 2007.
Depreciation expense of the Data Group for 2008 was
$12.1 million, or 4% of net sales, compared to
$9.6 million, or 3% of net sales for 2007. The increase in
depreciation expense is primarily attributed to recent purchases
of equipment to support the subscription business.
Depreciation expense of the Services Group for 2008 was
$4.6 million, or 3% of net sales compared to
$4.8 million, or 4% of net sales for 2007. The decrease in
depreciation expense is primarily attributed to certain computer
equipment becoming fully depreciated.
Depreciation expense of the Marketing Research Group for 2008
was $5.1 million, or 2% of net sales compared to
$4.1 million, or 2% of net sales for 2007. Additional
depreciation expense was recorded for the fixed assets from the
acquisitions of Guideline, Inc., NWC Research and Northwest
Research Group.
Depreciation expense of Corporate Activities for 2008 was
$2.6 million, compared to $3.0 million for 2007. The
decrease in depreciation expense is primarily attributed to
certain equipment that supports the administration department
becoming fully depreciated.
30
Amortization
expense
Amortization expense for 2008 totaled $17.5 million, or 3%
of net sales, compared to $17.5 million, or 3% of net sales
for 2007.
Amortization expense of the Data Group for 2008 was
$5.3 million, or 2% of net sales, compared to
$6.9 million, or 2% of net sales for 2007. The decrease in
amortization expense for the Data Group is due to certain
identifiable intangible assets from the OneSource and ProCD
acquisitions becoming fully amortized.
Amortization expense of the Services Group for 2008 was
$4.3 million, or 3% of net sales, compared to
$3.9 million, or 3% of net sales for 2007. The increase in
amortization expense for the Services Group for 2008 is due to
the additional amortization expense for the identifiable
intangible assets for Direct Media, Inc.
Amortization expense of the Marketing Research Group for 2008
was $7.9 million, or 3% of net sales, compared to
$6.7 million, or 3% of net sales for 2007. This includes
additional amortization expense for the identifiable intangible
assets from the acquisition of Guideline, Inc. which was
acquired in August 2007, and NWC Research and Northwest Research
Group which were both acquired in October 2007.
Operating
income
As a result of the factors previously described, the Company had
operating income of $28.2 million, or 4% of net sales,
during 2008 compared to operating income of $86.5 million,
or 13% of net sales for 2007.
Operating income for the Data Group for 2008 was
$65.2 million, or 21% of net sales, as compared to
$88.4 million, or 27% of net sales for 2007. Operating
income for the Data Group for 2007 included $9.2 million,
which is net of related expenses, from the Naviant lawsuit
settlement.
Operating income for the Services Group for 2008 was
$29.6 million, or 18% of net sales, as compared to
$33.4 million, or 24% of net sales for 2007.
Operating income for the Marketing Research Group for 2008 was
$14.9 million, or 6% of net sales, as compared to
$10.2 million, or 5% of net sales for 2007.
Operating loss for Corporate Activities for 2008 was
$81.6 million, compared to $45.4 million for 2007.
Other
expense, net
Other expense, net was $17.9 million, or 2% of net sales,
and $19.8 million, or 3% of net sales, for 2008 and 2007,
respectively. Other expense, net is comprised of interest
expense, investment income and other income or expense items,
which do not represent components of operating expense of the
Company. The majority of the other expense, net was for interest
expense, which was $18.1 million and $21.0 million for
2008 and 2007, respectively. The decrease in interest expense is
due to the decrease in interest rates for our term loan and
revolving line of credit within our Amended 2006 Credit
Facility. Investment income was $1.7 million in 2008, as
compared to $0.6 million in 2007. Investment income in 2008
includes a gain on sale of a marketable security. Other charges
was $1.4 million in 2008, as compared to other income of
$0.6 million in 2007. Other charges in 2008 includes the
impairment of marketable and non-marketable securities of
$2.4 million for an other-than-temporary decline in their
values which was offset by income of $1.0 million primarily
for foreign currency gains.
Income
taxes
A provision for income taxes of $5.5 million and
$25.8 million was recorded during 2008 and 2007,
respectively. The tax rate during 2008 and 2007 was
approximately 53% and 37%, respectively. The tax rate for 2008
increased over the tax rate for 2007 because income before taxes
decrease substantially, while normal non deductible
items remained the same and for discrete items. The discrete
items that increased the effective rate were related to
acquisition adjustments. The effective rate for 2009 is
projected to be in an approximate range of 38% to 42%.
31
2007
Compared to 2006
Net
sales
Net sales for 2007 were $688.8 million, an increase of 58%
from $434.9 million for 2006.
Net sales of the Data Group for 2007 were $330.5 million, a
10% increase from $299.4 million for 2006. 2007 net
sales of the Data Group included $9.9 million received from
the final settlement in the Naviant Inc. lawsuit. Additionally,
2007 net sales of the Data Group included the results of
expresscopy.com, acquired in June 2007 and SECO Financial,
acquired in October 2007. The remaining increase is principally
due to the growth of the segments subscription revenues,
which includes Salesgenie.com, Salesgenie.com/Lite,
SalesLeadsUSA.info and Credit.net.
Net sales of the Services Group for 2007 were
$136.8 million, a 13% increase from $120.9 million for
2006. The majority of the increase in the Services Group is
related to the acquisitions of Digital Connexxions Corp. in
October 2006 and Rubin Response Services, Inc. in November 2006,
as well as growth in the Yesmail division as
e-mail
marketing is becoming a bigger part of corporate advertising.
Net sales of the Marketing Research Group for 2007 were
$221.5 million, an increase from $14.6 million for
2006. The Marketing Research Group was established in 2006 and
the net sales for 2006 reflect the revenue of Opinion Research
Corporation since its acquisition date on December 4, 2006.
The primary reason for the increase in net sales of the
Marketing Research Group is related to the acquisitions of
Guideline, Inc., NWC Research and Northwest Research Group
during 2007, and reporting a full year of results for Opinion
Research Corporation.
Cost
of goods and services
Cost of goods and services for 2007 were $276.2 million, or
40% of net sales, compared to $116.5 million, or 27% of net
sales for 2006.
Cost of goods and services of the Data Group remained relatively
level as a percentage of net sales. For 2007, cost of goods and
services of the Data Group were $84.2 million, or 25% of
net sales, compared to $74.7 million, or 25% of net sales
for 2006.
Cost of goods and services of the Services Group for 2007 were
$32.8 million, or 24% of net sales, compared to
$28.0 million, or 23% of net sales for 2006. The majority
of the increase in the Services Group is related to an increase
in costs associated with
e-mail
marketing due to the growth in the Yesmail division, which
resulted in higher costs, while keeping the percentage of net
sales relatively level.
Cost of goods and services of the Marketing Research Group for
2007 were $156.1 million, or 70% of net sales, compared to
$10.7 million, or 73% of net sales for 2006. The primary
reason for the increase in cost of goods and services of the
Marketing Research Group is related to the acquisitions of
Guideline, Inc., NWC Research and Northwest Research Group
during 2007, and reporting a full year of results for Opinion
Research Corporation. These costs include subcontract labor
costs, direct sales and labor costs and direct programming costs
associated with providing the research services performed by the
Marketing Research Group.
Cost of goods and services of Corporate Activities for 2007 and
2006 were $3.1 million. These costs related to services to
support the Companys network administration and help desk
functions.
Selling,
general and administrative expenses
Selling, general and administrative expenses for 2007 were
$287.1 million, or 42% of net sales, compared to
$224.9 million, or 52% of net sales for 2006.
Selling, general and administrative expenses of the Data Group
for 2007 were $141.4 million, or 43% of net sales, compared
to $139.1 million, or 46% of net sales for 2006. During
2007, we recorded an immaterial correction of an error to
decrease the liability related to marketing expenses of
$1.5 million for years 2005 and 2006 because the amounts
were no longer owed. This decrease to direct mail expense was
offset by an increase in advertising related to television
advertisements that aired during the year, including
advertisements during the U.S. Open Tennis Championship and
the National Football League and college football games. The
majority of the increase for 2007 is due to $4.6 million in
costs associated with the television advertisements that aired
during the Super Bowl in
32
February 2007, as well as television advertisements that aired
during other sporting events, and costs related to the
restructuring of infoUSA National Accounts. See
Note 17 to Notes to consolidated financial statements for
further detail regarding the restructuring of infoUSA
National Accounts.
Selling, general and administrative expenses of the Services
Group for 2007 were $61.9 million, or 45% of net sales,
compared to $57.9 million, or 48% of net sales for 2006.
The majority of the increase in the Services Group is related to
the acquisitions of Digital Connexxions Corp. in October 2006
and Rubin Response Services, Inc. in November 2006, as well as
an increase in costs associated with
e-mail
marketing due to the growth in the Yesmail division, which
resulted in higher costs, but a lower percentage of net sales.
Selling, general and administrative expenses of the Marketing
Research Group for 2007 were $44.5 million, or 20% of net
sales, compared to $2.7 million, or 19% of net sales for
2006. The primary reason for the increase in selling, general
and administrative expenses of the Marketing Research Group is
related to the acquisitions of Guideline, Inc., NWC Research and
Northwest Research Group during 2007, and reporting a full year
of results for Opinion Research Corporation.
Selling, general and administrative expenses of Corporate
Activities for 2007 were $39.3 million, compared to
$25.2 million for 2006. This includes selling, general and
administrative costs that cannot be directly attributed to the
revenue producing segments. The majority of the increase is
related to an increase in headcount for our corporate
headquarters, accounting and finance, legal and administration
groups as required to support our recent acquisitions, including
our acquisition of Opinion Research Corporation in December of
2006. Additionally, we incurred an increase in professional fees
and business development expenses, which included legal fees
related to the Derivative Litigation. See Note 16 to Notes
to consolidated financial statements for further detail
regarding the Derivative Litigation.
The Company adopted SFAS 123R, Share-Based
Payment (SFAS 123R), in January 2006,
which requires measurement of compensation cost for all
share-based payment awards at fair value on the date of grant
and recognition of compensation over the service period for
awards expected to vest. The adoption of SFAS 123R resulted
in a charge of $0.8 million for 2007, compared to
$1.2 million for 2006. See Note 11 to Notes to
consolidated financial statements for further detail regarding
accounting for share-based payments.
Depreciation
expense
Depreciation expense for 2007 totaled $21.5 million, or 3%
of net sales, compared to $14.0 million, or 3% of net sales
for 2006.
Depreciation expense of the Data Group for 2007 was
$9.6 million, or 3% of net sales, compared to
$7.1 million, or 3% of net sales for 2006. The increase in
depreciation expense is attributed to facility expansions and
remodeling, a full year of depreciation expense for hardware
purchases associated with our disaster recovery plan, as well as
depreciation expense associated with equipment purchased to
support the increased demand from the Companys
advertisements.
Depreciation expense of the Services Group for 2007 was
$4.8 million, or 4% of net sales compared to
$3.7 million, or 3% of net sales for 2006. The increase in
depreciation expense for the Services Group is due to the
addition of fixed assets from the acquisitions of Digital
Connexxions Corp. and Rubin Response Services, Inc., as well
depreciation expense for additional hardware, purchased to
support our Yesmail
e-mail
technology platform.
Depreciation expense of the Marketing Research Group for 2007
was $4.1 million, or 2% of net sales compared to
$0.3 million, or 2% of net sales for 2006. The primary
reason for the increase in depreciation expense of the Marketing
Research Group is related to the acquisitions of Guideline,
Inc., NWC Research and Northwest Research Group during 2007, and
reporting a full year of results for Opinion Research
Corporation.
Depreciation expense of Corporate Activities for 2007 was
$3.0 million, compared to $2.9 million for 2006. The
increase in depreciation expense is attributed to a full year of
depreciation expense for hardware purchases associated with our
disaster recovery plan.
33
Amortization
expense
Amortization expense for 2007 totaled $17.5 million, or 3%
of net sales, compared to $14.9 million, or 3% of net sales
for 2006.
Amortization expense of the Data Group for 2007 was
$6.9 million, or 2% of net sales, compared to
$12.4 million, or 4% of net sales for 2006. The decrease in
amortization expense for the Data Group is due to certain
identifiable intangible assets from the Donnelley Marketing,
OneSource, Database America and ProCD acquisitions becoming
fully amortized since June 2006.
Amortization expense of the Services Group for 2007 was
$3.9 million, or 3% of net sales, compared to
$2.1 million, or 2% of net sales for 2006. The increase in
amortization expense for the Services Group is due to the
addition of identifiable intangible assets from the acquisitions
of Mokrynskidirect, Digital Connexxions Corp. and Rubin Response
Services, Inc.
Amortization expense of the Marketing Research Group for 2007
was $6.7 million, or 3% of net sales, compared to
$0.4 million, or 3% of net sales for 2006. The primary
reason for the increase in net sales of the Marketing Research
Group is related to the additional amortization expense for the
intangible assets from the acquisitions of Opinion Research
Corporation, Macro International, Guideline, Inc., NWC Research
and Northwest Research Group.
Operating
income
As a result of the factors previously described, the Company had
operating income of $86.5 million, or 13% of net sales,
during 2007, compared to operating income of $64.5 million,
or 15% of net sales for 2006.
Operating income for the Data Group for 2007 was
$88.4 million, or 27% of net sales, as compared to
$66.0 million, or 22% of net sales for 2006. Operating
income for the Data Group for 2007 included $9.2 million,
which is net of related expenses, from the Naviant lawsuit
settlement.
Operating income for the Services Group for 2007 was
$33.4 million, or 24% of net sales, as compared to
$29.2 million, or 24% of net sales for the segment, for
2006.
Operating income for the Marketing Research Group for 2007 was
$10.2 million, or 5% of net sales, as compared to
$0.5 million, or 3% of net sales for 2006.
Operating loss for Corporate Activities for 2007 was
$45.4 million, compared to $31.1 million for 2006.
Other
expense, net
Other expense, net was $19.8 million, or 3% of net sales,
and $11.3 million, or 2% of net sales, for 2007 and 2006,
respectively. Other expense, net is comprised of interest
expense, investment income and other income or expense items,
which do not represent components of operating expense of the
Company. The majority of the other expense, net was for interest
expense, which was $21.0 million and $11.4 million for
2007 and 2006, respectively. The increase in interest expense is
due to the increase in debt in December 2006 to fund the
acquisition of Opinion Research Corporation for
$131.5 million, and the increase in debt in August 2007 to
fund the Guideline, Inc. acquisition for which we borrowed
$28.0 million.
Income
taxes
A provision for income taxes of $25.8 million and
$19.9 million was recorded during 2007 and 2006,
respectively. The effective income tax rate for 2007 was 37%,
compared to 36% for 2006.
Liquidity
and Capital Resources
Overview
At December 31, 2008, the term loan of the Senior Secured
Credit Facility entered into on February 14, 2006 (as
amended, the 2006 Credit Facility) had a balance of
$170.5 million, bearing an average interest rate of 3.46%.
34
The revolving line of credit had a balance of
$86.5 million, bearing an interest rate of 4.81%, and
$88.5 million was available under the revolving line of
credit. Substantially all of the assets of the Company are
pledged as security under the terms of the 2006 Credit Facility.
The 2006 Credit Facility provides for grid-based interest
pricing based upon our consolidated total leverage ratio.
Interest rates for use of the revolving line of credit range
from base rate plus 0.25% to 1.00% for base rate loans and LIBOR
plus 1.25% to 2.00% for Eurodollar rate loans. Interest rates
for the term loan range from base rate plus 0.75% to 1.00% for
base rate loans and LIBOR plus 1.75% to 2.00% for Eurodollar
rate loans. Subject to certain limitations set forth in the
credit agreement, we may designate borrowings under the 2006
Credit Facility as base rate loans or Eurodollar loans.
We are subject to certain financial covenants in the 2006 Credit
Facility, including a minimum consolidated fixed charge coverage
ratio, maximum consolidated total leverage ratio and minimum
consolidated net worth. The fixed charge coverage ratio and
leverage ratio financial covenants are based on EBITDA
(earnings before interest expense, income taxes,
depreciation and amortization), as adjusted, providing for
adjustments to EBITDA for certain agreed upon items including
non-operating, non-recurring gains (losses), other charges
(gains), asset impairments, non-cash stock compensation expense
and other items specified in the 2006 Credit Facility. See
Note 9 in the Notes to Consolidated Financial Statements
for further detail regarding financial statements. For the year
ended December 31, 2008 our financial covenants were as
follows: our consolidated fixed charge coverage ratio was 1.92,
compared to a minimum required of 1.15; our consolidated total
leverage ratio was 2.51, compared to a maximum allowed of 2.75;
and our consolidated net worth was $248.9 million, compared
to a minimum required of $216.4 million.
On May 23, 2007, the Company entered into mortgage loan
transactions with Suburban Capital. As part of the transactions,
the Company transferred the titles to the Companys
headquarters in Ralston, Nebraska, and its data compilation
facility in Papillion, Nebraska, to newly formed limited
liability companies, and these properties will serve as
collateral for the transactions. The Company entered into
long-term lease agreements with these subsidiaries for the
continued and sole use of the properties. The Company also
entered into guaranty agreements wherein it guarantees the
payment and performance of various obligations as defined in the
agreements including, under certain circumstances, the mortgage
debt. In late July 2007, the loans were sold on the secondary
market as part of a collateralized mortgage-backed
securitization transaction. Midland Loan Services became the
loan servicer for the mortgage loans, but terms of the notes and
deeds of trust were otherwise unchanged by this transaction. The
loans have an effective term of ten years and were priced with a
fixed coupon rate of 6.082%. Payments will be interest only for
the first five years; for years six through ten, payments will
be comprised of principal and interest based upon a thirty year
amortization. Proceeds from this transaction were approximately
$41.1 million before fees and expenses. The proceeds were
used to retire the existing debt for the Papillion and Ralston
facilities of approximately $12.8 million and the remaining
net proceeds of $26.7 million were used to reduce amounts
outstanding under the Companys revolving credit facility.
In light of the Special Litigation Committees
investigation described in Note 16 in the Notes to
Consolidated Financial Statements, the Company was unable to
file its Annual Report on
Form 10-K
for the year ended December 31, 2007 (the 2007
Form 10-K)
and the
Form 10-Q
for the quarter ended March 31, 2008 (the First
Quarter 2008
Form 10-Q)
by the SECs filing deadline. Failure to timely file the
2007
Form 10-K
and the First Quarter 2008
Form 10-Q
and provide annual and quarterly financial statements to the
lenders to the 2006 Credit Facility would have constituted a
default under the 2006 Credit Facility. Therefore, on
March 26, 2008, the Company and the lenders to the 2006
Credit Facility entered into a Third Amendment (the Third
Amendment) to the 2006 Credit Facility which, among other
things: (1) extended the deadlines by which the Company was
required to file the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
and provide certain annual and quarterly financial statements to
the lenders; (2) waived any other defaults arising from
these filing delays; and (3) modified the covenant related
to operating leases. On June 27, 2008, the Company and the
lenders to the 2006 Credit Facility entered into a Fourth
Amendment (the Fourth Amendment) to the 2006 Credit
Facility (as amended by the Third Amendment and the Fourth
Amendment, the Amended 2006 Credit Facility), which
extended the deadlines for filing with the SEC the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
to August 15, 2008, and the
Form 10-Q
for the quarter ended June 30, 2008 (the Second
Quarter 2008
Form 10-Q)
to August 29, 2008. As a result of the amendments, the
Company was in compliance with all restrictive covenants of the
2006 Credit Facility
35
as of December 31, 2008. The Company filed the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
with the SEC on August 8, 2008, the Second Quarter 2008
Form 10-Q
on August 21, 2008 and timely filed its
Form 10-Q
for the quarter ended September 30, 2008 on
November 10, 2008.
The Amended 2006 Credit Facility provides that we may pay cash
dividends on our common stock or repurchase shares of our common
stock provided that (1) before and after giving effect to
such dividend or repurchase, no event of default exists or would
exist under the credit agreement, (2) before and after
giving effect to such dividend or repurchase, our consolidated
total leverage ratio is not more than 2.75 to 1.00, and
(3) the aggregate amount of all cash dividends and stock
repurchases during any loan year does not exceed
$20 million, except that there is no cap on the amount of
cash dividends or stock repurchases so long as, after giving
effect to the dividend or repurchase, our consolidated total
leverage ratio is not more than 2.00 to 1.00.
As of December 31, 2008, the Company has incurred
$26.6 million in professional fees and legal expenses
related to the Special Litigation Committees investigation
related to the Derivative Litigation and the SECs
investigation. This includes $3.0 million incurred in 2007
and $23.6 million incurred in 2008. The Company expects to
incur additional expenses related to SEC investigation in 2009.
However, we believe these expenses will be at a lower run rate
than previously incurred.
As of December 31, 2008, we had a working capital deficit
of $15.3 million, which included $62.3 million of
deferred revenue. We believe that our existing sources of
liquidity and cash generated from operations will satisfy our
projected working capital, debt repayments and other cash
requirements for at least the next 12 months. Acquisitions
of other technologies, products or companies, or internal
product development efforts may require us to obtain additional
equity or debt financing, which may not be available or may be
dilutive.
Selected
Consolidated Statements of Cash Flows Information
Net cash provided by operating activities during 2008 totaled
$44.6 million compared to $73.7 million for 2007. The
decrease in operating cash flow is mainly due to the decline in
net income in 2008.
Net cash used in investing activities during 2008 totaled
$44.2 million, compared to $75.0 million for 2007. The
2008 outflow was mainly attributed to our spending of
$22.3 million for additions of property and equipment,
which included facility expansions, remodeling and computer
equipment upgrades, and $7.9 million for software and
database development costs which included costs to move from a
mainframe platform to a server based environment for our
database. Additionally, we paid approximately $19 million
for business acquisitions, which was primarily for the
acquisition of Direct Media, Inc. in January 2008.
Net cash used in financing activities during 2008 totaled
$4.3 million, compared to net cash provided of
$7.1 million for 2007. The dividend payments, totaling
$19.8 million, were paid on March 5, 2008, to
shareholders of record as of the close of business on
February 18, 2008. Total net proceeds received from
long-term debt during 2008 were $16.6 million. The proceeds
were used to fund the acquisition of Direct Media, Inc., and
dividend payments to shareholders.
Selected
Consolidated Balance Sheet Information
Marketable securities decreased to $1.0 million at
December 31, 2008 from $2.3 million at
December 31, 2007. The decrease was the result of an
impairment of $2.2 million due to the decline in value of
its securities that was determined to be other-than temporary.
List brokerage trade accounts receivable increased to
$86.8 million at December 31, 2008 from
$68.4 million at December 31, 2007. The increase is
the result of the list brokerage trade accounts receivable
recorded for the acquisition of Direct Media, Inc. acquired in
January 2008.
Assets held for sale at December 31, 2008 was
$4.0 million, compared to zero at December 31, 2007.
The balance at December 31, 2008 included the following
assets: three aircraft, land and a condominium. The Company in
the process of selling these assets and anticipates that they
will be sold within the next twelve months. See Note 7 in
the Notes to Consolidated Financial Statements for further
detail regarding assets held for sale.
36
Deferred income taxes within current assets increased to
$7.9 million at December 31, 2008 from
$4.0 million at December 31, 2007. The increase was
due to the change in timing of deferred income tax components.
Income taxes receivable increased to $3.3 million at
December 31, 2008 as compared to income taxes payable of
$3.3 million at December 31, 2007. The increase was
due to fluctuations in income during 2008 causing payments of
estimated corporate income taxes during the year to exceed
accrual balances.
Deferred marketing costs decreased to $1.0 million at
December 31, 2008 from $2.2 million at
December 31, 2007. The decrease was due to decline in
direct mail costs in 2008.
Intangibles, net decreased to $108.2 million at
December 31, 2008 from $118.2 million at
December 31, 2007. The decrease was the result of
$5.8 million in impairments related to the SECO Financial
and expresscopy.com purchased intangibles, the infoUK database,
a database for OneSource, development costs related to a
Salesgenie product, and annual amortization expense, which was
offset by increased intangibles as a result of the Direct Media,
Inc. acquisition in 2008.
Other assets decreased to $2.5 million at December 31,
2008 from $11.4 million at December 31, 2007. The
decrease was primarily the result of the sale of a fractional
interest in two aircraft, and the transfer to assets held for
sale of three aircraft and a condominium.
Current portion of long-term debt decreased to $2.9 million
at December 31, 2008 from $4.9 million at
December 31, 2007. The decrease was the result of the
pay-off of several capital leases.
Accounts payable increased to $33.4 million at
December 31, 2008 from $23.3 million at
December 31, 2007. The increase was primarily due to the
timing of accounts payable disbursements, as well as an increase
in accruals for expenses related to the Derivative Litigation
and the Special Litigation Committees investigation.
List brokerage trade accounts payable increased to
$79.8 million at December 31, 2008 from
$63.8 million at December 31, 2007, which is related
to the increase in the list brokerage trade accounts receivable,
as well as the result of the list brokerage trade accounts
payable recorded for the acquisition in January 2008 of Direct
Media, Inc.
Accrued expenses decreased to $17.7 million at
December 31, 2008 from $22.2 million at
December 31, 2007. The decrease was primarily the result of
a decline in accrued expenses for the Marketing Research Group
for costs associated with projects.
Deferred revenue decreased to $62.3 million at
December 31, 2008 from $71.9 million at
December 31, 2007. This decrease was a result of a decline
in both the number of new contracts and the value of existing
contracts billed in advance to customers for subscriptions,
License and OneSource divisions.
Our long-term debt increased to $297.7 million at
December 31, 2008 from $278.3 million at
December 31, 2007. The increase in long-term debt, net of
current portion is primarily due to the increase in the Amended
2006 Credit Facility to fund the acquisition of Direct Media,
Inc., and the dividend payment to shareholders.
Non-current deferred income tax liabilities decreased to
$25.8 million at December 31, 2008 from
$31.0 million at December 31, 2007, due to the change
in timing of deferred income tax components. The main components
of this change include a decrease in the deferred tax
liabilities due to the acquisition of Direct Media, Inc. and an
increase in the deferred tax assets due to the change in the
bonus accrual between the two periods.
Paid-in capital increased to $147.0 million at
December 31, 2008 from $137.1 at December 31, 2007.
The increase is the result of the settlement payment from the
former Chief Executive Officer pursuant to the Stipulation of
Settlement. The corresponding receivable is recorded in the
equity section as a note receivable from shareholder.
37
The following table summarizes our contractual obligations as of
December 31, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
1 to
|
|
|
4 to
|
|
|
After
|
|
|
|
Total
|
|
|
1 Year
|
|
|
3 Years
|
|
|
5 Years
|
|
|
5 Years
|
|
|
Long-term debt
|
|
$
|
298,174
|
|
|
$
|
1,769
|
|
|
$
|
89,980
|
|
|
$
|
166,037
|
|
|
$
|
40,388
|
|
Capital lease obligations
|
|
|
2,469
|
|
|
|
1,125
|
|
|
|
1,321
|
|
|
|
23
|
|
|
|
|
|
Operating leases
|
|
|
60,641
|
|
|
|
16,593
|
|
|
|
23,794
|
|
|
|
15,717
|
|
|
|
4,537
|
|
Purchase obligations
|
|
|
30,800
|
|
|
|
17,256
|
|
|
|
10,622
|
|
|
|
2,922
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash contractual obligations
|
|
$
|
392,084
|
|
|
$
|
36,743
|
|
|
$
|
125,717
|
|
|
$
|
184,699
|
|
|
$
|
44,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase obligations include service contracts for Internet,
phone and data communication services, software and hardware
maintenance services, consulting agreements, data processing
services and data center hosting agreements.
The contractual obligations table above does not include any
reserves for income taxes under FIN 48, as the Company is
unable to reasonably estimate the ultimate timing of settlement
of its reserves for income taxes. The liability for gross
unrecognized tax benefits at December 31, 2008, was
$1.8 million.
Other than for long-term debt arrangements, we have historically
not entered into significant long-term contractual commitments,
and do not anticipate doing so in the foreseeable future. We
principally negotiate longer-term contracts that bear terms of
one year or less, although some contracts may bear terms of up
to three years.
Off-Balance
Sheet Arrangements
Other than rents associated with facility leasing arrangements,
we do not engage in off-balance sheet financing activities.
Operating lease commitments are included in the contractual
obligations table above.
Accounting
Standards
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the
fair value of their financial instruments according to a fair
value hierarchy as defined in the standard. Additionally,
companies are required to provide enhanced disclosure regarding
financial instruments in one of the categories (level 3),
including a reconciliation of the beginning and ending balances
separately for each major category of assets and liabilities.
SFAS 157 was effective for the Company on January 1,
2008. However, in February 2008, the FASB released FASB Staff
Position (FSP
FAS 157-2
Effective Date of FASB Statement No. 157), which delayed
the effective date of SFAS 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption of
SFAS 157 for our financial assets and liabilities did not
have a material impact on our consolidated financial statements.
We do not believe the adoption of SFAS 157 for our
non-financial assets and liabilities, effective January 1,
2009, will have a material impact on our consolidated financial
statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to elect to measure many financial instruments
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
will be recognized in earnings at each subsequent reporting
date. SFAS 159 was effective for the Company on
January 1, 2008. The adoption of SFAS 159 did not have
a material impact on our consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (SFAS 141R), a
revision to SFAS No. 141, Business
Combinations. SFAS 141R provides revised guidance for
recognition and measurement of identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest
in the acquiree at fair value. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of a business combination. SFAS 141R
is required to be applied prospectively to business combinations
for
38
which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after
December 15, 2008 (January 1, 2009 for the Company).
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent.
Specifically, SFAS 160 requires the presentation of
noncontrolling interests as equity in the consolidated statement
of financial position, and separate identification and
presentation in the consolidated statement of operations of net
income attributable to the entity and the noncontrolling
interest. It also establishes accounting and reporting standards
regarding deconsolidation and changes in a parents
ownership interest. SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or
after December 15, 2008 (January 1, 2009 for the
Company). The provisions of SFAS 160 are generally required
to be applied prospectively, except for the presentation and
disclosure requirements, which must be applied retrospectively.
We do not believe the adoption of SFAS 160 will have a
material impact on our consolidated financial statements.
Inflation
We do not believe that the rate of inflation has had a material
effect on our operating results. However, inflation could
adversely affect our future operating results if it were to
result in a substantial weakening of the economic condition.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
We have identified interest rate risk as our primary market risk
exposure. We are exposed to significant future earnings and cash
flow exposures from significant changes in interest rates as
nearly all of our debt is at variable rates. If necessary, we
could refinance our debt to fixed rates or utilize interest rate
protection agreements to manage interest rate risk. For example,
each 100 basis point increase (decrease) in the interest
rate would cause an annual increase (decrease) in interest
expense of approximately $2.6 million. At December 31,
2008, the fair value of our long-term debt is based on quoted
market prices at the reporting date or is estimated by
discounting the future cash flows of each instrument at market
Treasury rates for similar debt instruments of comparable
maturities. At December 31, 2008, we had long-term debt
with a carrying value of $300.6 million and estimated fair
value of $309.2 million.
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
The information required by this item (other than selected
quarterly financial data which is set forth below) is
incorporated by reference to the consolidated financial
statements included elsewhere in this Annual Report.
The following table sets forth selected financial information
for each of the eight quarters in the two-year period ended
December 31, 2008. This unaudited information has been
prepared by us on the same basis as the consolidated financial
statements and includes all normal recurring adjustments
necessary to present fairly this information when read in
conjunction with the our audited consolidated financial
statements and the notes thereto. Our quarterly net sales and
operating results may vary in the future. The operating results
for any quarter are not necessarily indicative of the operating
results for any future period or for a full year. You should not
rely on period-to-period comparisons of our operating results as
an indication of our future performance. Factors that may cause
39
our net sales and operating results to vary or fluctuate include
those discussed in Item I, Part 1A Risk
Factors section of this Annual Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended
|
|
|
2007 Quarter Ended
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
191,109
|
|
|
$
|
187,226
|
|
|
$
|
181,879
|
|
|
$
|
178,056
|
|
|
$
|
157,882
|
|
|
$
|
160,075
|
|
|
$
|
184,972
|
|
|
$
|
185,844
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services
|
|
|
78,637
|
|
|
|
80,911
|
|
|
|
76,638
|
|
|
|
75,467
|
|
|
|
62,328
|
|
|
|
64,852
|
|
|
|
71,553
|
|
|
|
77,432
|
|
Selling, general and administrative(1)
|
|
|
87,704
|
|
|
|
85,149
|
|
|
|
103,947
|
|
|
|
79,720
|
|
|
|
71,716
|
|
|
|
70,152
|
|
|
|
71,580
|
|
|
|
73,636
|
|
Depreciation
|
|
|
5,947
|
|
|
|
5,961
|
|
|
|
6,059
|
|
|
|
6,422
|
|
|
|
4,803
|
|
|
|
5,114
|
|
|
|
5,696
|
|
|
|
5,889
|
|
Amortization of intangible assets
|
|
|
4,369
|
|
|
|
4,471
|
|
|
|
4,367
|
|
|
|
4,317
|
|
|
|
4,323
|
|
|
|
4,074
|
|
|
|
4,957
|
|
|
|
4,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
14,452
|
|
|
|
10,734
|
|
|
|
(9,132
|
)
|
|
|
12,130
|
|
|
|
14,712
|
|
|
|
15,883
|
|
|
|
31,186
|
|
|
|
24,746
|
|
Other expense, net
|
|
|
(3,807
|
)
|
|
|
(3,737
|
)
|
|
|
(3,610
|
)
|
|
|
(6,763
|
)
|
|
|
(4,681
|
)
|
|
|
(5,559
|
)
|
|
|
(4,447
|
)
|
|
|
(5,092
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
10,645
|
|
|
|
6,997
|
|
|
|
(12,742
|
)
|
|
|
5,367
|
|
|
|
10,031
|
|
|
|
10,324
|
|
|
|
26,739
|
|
|
|
19,654
|
|
Income tax expense
|
|
|
4,044
|
|
|
|
2,660
|
|
|
|
(4,171
|
)
|
|
|
2,923
|
|
|
|
3,701
|
|
|
|
3,977
|
|
|
|
9,708
|
|
|
|
8,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,601
|
|
|
$
|
4,337
|
|
|
$
|
(8,571
|
)
|
|
$
|
2,444
|
|
|
$
|
6,330
|
|
|
$
|
6,347
|
|
|
$
|
17,031
|
|
|
$
|
11,234
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.12
|
|
|
$
|
0.08
|
|
|
$
|
(0.15
|
)
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.31
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.12
|
|
|
$
|
0.08
|
|
|
$
|
(0.15
|
)
|
|
$
|
0.04
|
|
|
$
|
0.11
|
|
|
$
|
0.11
|
|
|
$
|
0.30
|
|
|
$
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding basic
|
|
|
56,563
|
|
|
|
56,798
|
|
|
|
57,054
|
|
|
|
57,295
|
|
|
|
55,521
|
|
|
|
55,674
|
|
|
|
55,837
|
|
|
|
56,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding diluted
|
|
|
56,576
|
|
|
|
56,799
|
|
|
|
57.054
|
|
|
|
57,349
|
|
|
|
55,819
|
|
|
|
55,889
|
|
|
|
56,017
|
|
|
|
56,670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended
|
|
|
2007 Quarter Ended
|
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
March
|
|
|
June
|
|
|
September
|
|
|
December
|
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
31
|
|
|
30
|
|
|
30
|
|
|
31
|
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As a Percentage of Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services
|
|
|
41
|
|
|
|
43
|
|
|
|
42
|
|
|
|
42
|
|
|
|
39
|
|
|
|
41
|
|
|
|
39
|
|
|
|
42
|
|
Selling, general and administrative(1)
|
|
|
46
|
|
|
|
46
|
|
|
|
58
|
|
|
|
45
|
|
|
|
46
|
|
|
|
43
|
|
|
|
38
|
|
|
|
40
|
|
Depreciation
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Amortization of intangible assets
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and expenses
|
|
|
92
|
|
|
|
94
|
|
|
|
105
|
|
|
|
93
|
|
|
|
91
|
|
|
|
90
|
|
|
|
83
|
|
|
|
87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
8
|
|
|
|
6
|
|
|
|
(5
|
)
|
|
|
7
|
|
|
|
9
|
|
|
|
10
|
|
|
|
17
|
|
|
|
13
|
|
Other expense, net
|
|
|
(2
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
5
|
|
|
|
3
|
|
|
|
(7
|
)
|
|
|
3
|
|
|
|
6
|
|
|
|
6
|
|
|
|
14
|
|
|
|
10
|
|
Income taxes
|
|
|
2
|
|
|
|
1
|
|
|
|
(2
|
)
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
3
|
%
|
|
|
2
|
%
|
|
|
(5
|
)%
|
|
|
1
|
%
|
|
|
4
|
%
|
|
|
4
|
%
|
|
|
9
|
%
|
|
|
6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
|
(1) |
|
During the third and fourth quarters of 2007, the Company
recorded immaterial adjustments to correct errors related to
marketing expenses, which are reported in selling, general and
administrative expenses. The adjustment booked in the third
quarter of 2007 was a reduction to expense of $1.5 million,
which related to $0.3 million in 2005 and $1.2 million
in 2006. The adjustment booked in the fourth quarter of 2007 was
a reduction to expense of $2.0 million, which related to
$0.7 million, $0.7 million and $0.6 million in
the first, second and third quarter of 2007, respectively.
During the fourth quarter of 2007, the Company also recorded an
immaterial adjustment to reduce expense by $0.5 million to
correct errors related to the restructuring costs of
infoUSA National Accounts, which related to
$0.1 million, and $0.4 million in the second and third
quarter of 2007, respectively. If these adjustments would have
been booked in the correct periods the impact to basic earnings
per share would have been $0.01, $0.01, $0.00, and $(0.02) for
the first, second, third and fourth quarters of 2007,
respectively. The impact to basic earnings per share would have
been $0.02, $0.01 and $(0.02) for 2005, 2006, and 2007,
respectively. |
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
|
None.
|
|
Item 9A.
|
Controls
and Procedures
|
|
|
A.
|
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
|
Management of infoGROUP is responsible for establishing
and maintaining adequate internal control over financial
reporting and for the assessment of the effectiveness of
internal control over financial reporting. As defined by rules
of the SEC, internal control over financial reporting is a
process designed by, or under the supervision of, the
Companys principal executive and principal financial
officers and effected by the Companys Board of Directors,
management and other personnel, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in
accordance with U.S. generally accepted accounting
principles.
Internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, should accurately and
fairly reflect the Companys transactions and dispositions
of the Companys assets; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of the consolidated financial statements in
accordance with generally accepted accounting principles, and
that receipts and expenditures of the Company are being made
only in accordance with authorizations of the Companys
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on the
consolidated financial statements.
A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of annual or interim financial statements would not
be prevented or detected on a timely basis.
In connection with the preparation of the Companys annual
consolidated financial statements, management undertook an
evaluation of the effectiveness of the Companys internal
control over financial reporting as of December 31, 2008,
based on criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (the COSO
Framework). Managements evaluation included the
design of the Companys internal control over financial
reporting and testing of the operational effectiveness of those
controls. As a result of this evaluation, management identified
the following material weakness in the Companys internal
control over financial reporting as of December 31, 2008:
The Company did not maintain a sufficient complement of
personnel with the appropriate level of accounting knowledge,
experience, and training in the application of
U.S. generally accepted accounting principles
(U.S. GAAP) to analyze, review, and monitor
accounting for transactions that are non-routine. In addition,
the Company did not prepare adequate contemporaneous
documentation that would provide a sufficient basis for an
effective evaluation and review of the accounting for
non-routine transactions. This deficiency resulted in errors in
the preliminary December 31, 2008 consolidated financial
statements and a reasonable possibility
41
that a material misstatement of the Companys annual or
interim financial statements would not be prevented or detected.
Because of the material weakness in internal control over
financial reporting described above, management, with the
participation of infoGROUPs Chief Executive Officer
and Executive Vice President and Chief Financial Officer, has
concluded that, as of December 31, 2008, the Company did
not maintain effective internal control over financial reporting.
KPMG LLP, our independent registered public accounting firm that
audited the financial statements included in our annual report
on
Form 10-K,
has issued an Audit Report on the effectiveness of the
Companys internal control over financial reporting as of
December 31, 2008.
|
|
B.
|
EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
|
The Company is responsible for maintaining disclosure controls
and other procedures that are designed so that information
required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed,
summarized and communicated to management, including the Chief
Executive Officer and the Executive Vice President and Chief
Financial Officer, to allow timely decisions regarding required
disclosure within the time periods specified in the SECs
rules and forms.
In connection with the preparation of this
Form 10-K,
management performed an evaluation of the Companys
disclosure controls and procedures. The evaluation was
performed, under the supervision of and with the participation
of the Chief Executive Officer and the Executive Vice President
and Chief Financial Officer, of the effectiveness of the design
and operation of the Companys disclosure controls and
procedures, as defined in Exchange Act
Rule 13a-15(e),
as of December 31, 2008. Based on that evaluation and the
material weakness described above, the Companys Chief
Executive Officer and Executive Vice President and Chief
Financial Officer have concluded that the Companys
disclosure controls and procedures were not effective as of
December 31, 2008.
In the fourth quarter of 2008, the Company implemented the
remedial measures described under Changes in Internal
Control Over Financial Reporting below. There were no
other changes in the Companys internal control over
financial reporting during the quarter covered by this report
that have materially affected, or are reasonably likely to
materially affect, the Companys internal control over
financial reporting.
|
|
C.
|
CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
|
Remediation
Steps to Address Material Weakness in Internal Control over
Financial Reporting as of December 31, 2008
Our management continues to engage in substantial efforts to
remediate the material weakness noted above. The following
remedial actions are intended both to address the identified
material weakness and to enhance our overall internal control
over financial reporting.
The following remedial actions have been implemented through
December 31, 2008:
|
|
|
|
|
On December 5, 2008, the Company appointed a new Executive
Vice President and Chief Financial Officer.
|
|
|
|
On December 12, 2008, the Company hired a new Director of
GAAP Analysis to assist with accounting for non-routine
transactions.
|
During 2009 the following reporting changes will be made to
adequately allocate responsibilities among the accounting and
finance functions to ensure that all functions are staffed with
the sufficient level of depth and expertise:
|
|
|
|
|
The SEC external reporting position will report directly to the
Executive Vice President and Chief Financial Officer.
|
|
|
|
The Director of Financial Reporting will report directly to the
Corporate Controller.
|
|
|
|
All Group Controllers will report directly to the Corporate
Controller.
|
42
During 2009 we will continue our on-going review of the
accounting and finance functions. We believe that these steps in
addition to strengthening and increasing our GAAP expertise will
address the material weakness in internal control over financial
reporting as of December 31, 2008.
Material
Weaknesses in Internal Control over Financial Reporting as of
December 31, 2007
Effective December 24, 2007, the Board of Directors of the
Company formed the Special Litigation Committee in response to
the consolidated complaint in In re infoUSA, Inc.
Shareholders Litigation, Consol. Civil Action
No. 1956-CC
(Del. Ch.) (the Derivative Litigation), and in
response to an investigation of the Company by the SEC and the
related SEC request for the voluntary production of documents
concerning related party transactions, expense reimbursement,
other corporate expenditures and certain trading in the
Companys securities.
In connection with the conclusion of an internal investigation
by the Special Litigation Committee and the settlement of
Derivative Litigation, the Company has taken steps to improve
its corporate governance and to remedy the material weaknesses
as described under Item 9A(C) Controls and
Procedures in the Companys amended Annual Report on
Form 10-K/A
for the year ended December 31, 2007 (the 2007
Form 10-K/A).
This remedial framework is described in detail in the 2007
Form 10-K/A,
which was filed on March 16, 2009.
In connection with managements evaluation of the
Companys internal control over financial reporting,
management identified the following material weaknesses in the
Companys internal control over financial reporting as of
December 31, 2007:
|
|
|
|
|
The Board of Directors and Management did not maintain an
effective control environment as a result of ineffective
oversight of internal control over financial reporting.
|
|
|
|
The Company did not maintain adequate policies and procedures to
ensure that disbursements of the Company were made in accordance
with authorizations of management and the directors of the
Company. Contributing to this material weakness was inadequate
segregation of duties and ineffective policies and procedures to
ensure that the processing of payments requires appropriate
supporting documentation and authorization. The nature of
transactions subject to this material weakness included expense
reimbursements, corporate expenditures, personal utilization of
Company assets by the Chief Executive Officer, issuance of stock
options, and payments to related parties.
|
|
|
|
The Company did not maintain effective procedures to monitor its
disbursement-related controls and whether such controls remain
adequately designed, specifically procedures to ensure that the
Board of Directors is provided sufficient information to enable
it to appropriately monitor the activities of senior management,
including the Chief Executive Officer.
|
Because of the material weaknesses in internal control over
financial reporting described above, management concluded that
the Company did not maintain effective internal control over
financial reporting as of December 31, 2007 based on
Internal Control Integrated Framework
published by COSO. During the third and fourth quarter of
2008, the Company implemented the remedial measures described
below, which remedied the material weaknesses in internal
control over financial reporting identified as of
December 31, 2007.
Remediation
Steps to Address Material Weaknesses in Internal Control over
Financial Reporting as of December 31, 2007
The Company, with oversight from the Special Litigation
Committee and the Audit Committee and Compensation Committee of
the Companys Board of Directors, has dedicated significant
resources, including the use of outside legal counsel, to
support the Companys efforts to improve the control
environment and to remedy the identified material weaknesses.
The full implementation of the remedial measures set forth
herein took significant effort, due to the complexity and
extensive nature of some of the remediation required, a need to
coordinate remedial efforts within the organization, and the
Special Litigation Committee mandate that such remedial measures
be reviewed and approved by the independent members of the Board
of Directors.
43
Of the various remedial actions adopted by the Special
Litigation Committee, the following were intended to remedy the
identified material weaknesses in internal controls and to
improve the control environment. The Company implemented all of
these remedial actions during the third and fourth quarters of
2008.
Executive Vice President for Business Conduct and General
Counsel. The Special Litigation Committee
approved the creation of a new position of Executive Vice
President for Business Conduct and General Counsel that will
report directly to the Chairman of the Board under terms and
conditions of employment determined exclusively by the
independent directors of the Board. This individual, retained by
the independent members of the Board, will, among other things:
|
|
|
|
|
supervise all legal and compliance functions and have
responsibility for coordinating with internal auditors regarding
the review of related party transactions;
|
|
|
|
develop and administer business conduct and ethics policies for
the Company (relating to insider trading, conflicts of interest,
related party transactions and other matters) and monitor
compliance with such policies;
|
|
|
|
approve certain expense reimbursement requests at or above
specified dollar amounts, as determined by the independent
directors to the Board; and
|
|
|
|
serve on the Companys Disclosure Committee.
|
On July 16, 2008, John H. Longwell, the Companys
General Counsel and Secretary, was appointed to serve as the
acting EVP for Business Conduct and General Counsel. The Company
appointed Thomas McCusker, former general counsel of Mutual of
Omaha Insurance Company, to serve as EVP for Business Conduct
and General Counsel on a permanent basis beginning in December
2008.
Audit Committee Concurrence Required for Hiring and
Replacement of the Chief Financial Officer. The
Audit Committee, in consultation with the Chief Executive
Officer, identified and hired Thomas Oberdorf as our new
Executive Vice President and Chief Financial Officer. The
termination or replacement of the new Executive Vice President
and Chief Financial Officer (or any successor) will require the
concurrence of the Audit Committee.
New Delegation of Authority Protocol. The
independent directors of the Board developed and approved a new
delegation of authority protocol to specify the size of
transactions each officer is permitted to enter into on behalf
of the Company. The protocol requires the sale of the Company
yacht and prohibits the future ownership or leasing of yachts.
Pursuant to the protocol, the following will require prior
approval by the EVP for Business Conduct and General Counsel:
consulting agreements in excess of specified dollar amounts as
determined by the independent directors of the Board; charitable
contributions in excess of a specified per-gift or aggregate
annual amount; the purchase or lease of motor vehicles (not
including conventional car rentals); mortgage or rental payments
on offices, homes, apartments or any other real property not
used exclusively for business purposes; and club membership
fees. The EVP for Business Conduct and General Counsel will also
report to the Audit Committee on the above transactions. The
delegation of authority protocol is available on our webpage
Corporate Governance through www.infogroup.com.
Policy on Company Reimbursement of
Expenses. All company reimbursements for expenses
are subject to uniform, company-wide policies and procedures.
New Business Expense Policy. The independent
directors of the Board, in the Delegation of Authority, mandated
a business expense policy applicable to all employees of the
Company. Under the mandate, any such policy shall prohibit the
reimbursement of any expense that is not authorized under the
Companys business expense policy. The mandate also
requires that the policy prohibits the use of Company resources
for personal expenses and requires restitution of any
expenditure later deemed personal. Copies of the Delegation of
Authority are available on our webpage Corporate
Governance through www.info.GROUP.com.
New Policies Regarding Perquisites. The
independent directors of the Board approved and implemented
policies governing all employees regarding perquisites. Such
policies prohibit home office allowances.
New Related Party Transactions. The
independent directors of the Board approved and implemented a
new related party transaction policy. Among other measures, the
new policy:
(i) requires pre-approval by the disinterested members of
the Audit Committee (or, if necessary to reach a decision, the
disinterested, independent directors of the Board) for all
transactions with amounts in excess of $120,000 involving the
Company and a director or executive officer (or family member of
such person), a
44
stockholder owning more than 5% of any class of Company voting
securities or an entity in which a related party is an executive
officer or in which a related party owns beneficially more than
10% of the outstanding voting securities;
(ii) eliminated the exception in the prior policy
permitting management to enter into related party transactions
when circumstances require, subject to later
ratification;
(iii) requires the Audit Committee to make a finding, as a
condition to its pre-approval of a covered related party
transaction, that the transaction has a legitimate business
purpose;
(iv) requires the Audit Committee to make a finding, as a
condition to its pre-approval of a covered related party
transaction (other than a charitable contribution), that either
the terms of the transaction were determined through a
competitive bidding process or that the terms are no less
favorable than those generally available to unaffiliated third
parties under the same or similar circumstances;
(v) requires the Audit Committee to pre-approve any related
party transaction that would result in the aggregate amount of
transactions for that related party exceeding $120,000 in a
fiscal year and for all additional related party transactions
for the remainder of the fiscal year and to condition such
pre-approval on a finding by the Audit Committee that the
transaction has a legitimate business purpose and that either
the terms of the transaction were determined through a
competitive bidding process or that the terms are no less
favorable than those generally available to unaffiliated third
parties under the same or similar circumstances;
(vi) requires pre-approval of any proposed related party
transaction by the EVP for Business Conduct and General Counsel
(or, in appropriate circumstances, his delegee) in circumstances
where no pre-approvals or findings of the Audit Committee are
required; and
(vii) requires implementation of procedures for monitoring
the interests of related parties that are subject to
transactions with the Company on a regular basis (for example,
through the use of director and officer questionnaires),
including requiring all officers and directors of the Company to
provide the Company with a complete list of any affiliated
entities that have a relationship with the Company and the
nature of such relationship.
A copy of the related party transactions policy is available on
our webpage Corporate Governance through
www.infoGROUP.com.
Family Members. The family members of the
Chief Executive Officer or any director of the Company are
prohibited by the new related party policy from serving as a
director, officer or employee of, or a consultant to, the
Company. Pre-approval by the EVP for Business Conduct and
General Counsel, the Audit Committee or the Board, as
appropriate, will be required before a family member of an
officer of the Company (who is not a director of the Company or
the Chief Executive Officer of the Company) may serve as
director, officer or employee of, or as a consultant to, the
Company. Any such approval will be reported to the Audit
Committee.
New Training Program. The Board has directed
the EVP for Business Conduct and General Counsel to implement a
mandatory director and executive officer training program
addressing fiduciary duties. The EVP for Business Conduct and
General Counsel is in the process of implementing such a
program, which will include an orientation program for new
directors, internal corporate governance tutorials conducted by
outside experts approved by the Special Litigation Committee and
continuing corporate governance education for directors and
officers.
Employment Agreements. Following the entry of
judgment in connection with the Derivative Litigation, the
Compensation Committee of the Board negotiated and approved
employment agreements with some executive officers of the
Company, including compensation terms commensurate with those of
executive officers of similarly situated companies. The
Compensation Committee of the Board retained an independent
compensation consultant to provide advice with respect to
executive officer and director compensation.
Independent Director Approval of Equity
Grants. All future equity grants will be approved
by a majority vote of the disinterested independent directors of
the Board. Further, the Companys 2007 Omnibus Incentive
Plan was amended to clarify the number of shares available to be
granted pursuant to the plan, and the amendment of the plan was
ratified by stockholder vote at the 2008 annual meeting of
stockholders.
45
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
infoGROUP Inc.:
We have audited infoGROUP Inc. and subsidiaries
(formerly infoUSA Inc.) (the Company) internal control
over financial reporting as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). The
Companys management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Managements Report on Internal Control over Financial
Reporting (Item 9A(A)). Our responsibility is to express an
opinion on the Companys internal control over financial
reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our
opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of
deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material
misstatement of the companys annual or interim financial
statements will not be prevented or detected on a timely basis.
A material weakness related to the application and review of the
accounting for non-routine transactions has been identified and
is included in Managements Report on Internal Control over
Financial Reporting (Item 9A(A)).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of the Company as of
December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders equity and
comprehensive income, cash flows, and consolidated financial
statement schedule for each of the years in the three-year
period ended December 31, 2008. This material weakness was
considered in determining the nature, timing, and extent of
audit tests applied in our audit of the 2008 consolidated
financial statements, and this report does not affect our report
dated March 16, 2009, which expressed an unqualified
opinion on those consolidated financial statements.
46
In our opinion, because of the effect of the aforementioned
material weakness on the achievement of the objectives of the
control criteria, the Company has not maintained effective
internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We do not express an opinion or any other form of assurance on
managements statements referring to corrective or remedial
actions taken after December 31, 2008, relative to the
aforementioned material weakness in internal control over
financial reporting.
Omaha, Nebraska
March 16, 2009
47
|
|
Item 9B.
|
Other
Information
|
None.
PART III
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Item 10.
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Directors,
Executive Officers and Corporate Governance
|
The required information regarding our Directors is incorporated
by reference to the information under the caption Nominees
for Election at the Annual Meeting and Incumbent
Directors whose Terms of Office Continue After the Annual
Meeting in our definitive proxy statement for the 2009
Annual Meeting of Stockholders.
The required information regarding our executive officers is
contained in Part I of this
Form 10-K.
The required information regarding corporate governance is
incorporated by reference to the information under the caption
Board Meetings and Committees in our definitive
proxy statement for the 2009 Annual Meeting of Stockholders.
The required information regarding compliance with
Section 16(a) of the Exchange Act is incorporated by
reference to the information under the caption
Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive proxy statement for the 2009
Annual Meeting of Stockholders.
Code of
Ethics
We have adopted a Code of Business Conduct and Ethics that
applies to all of our directors, officers and employees,
including our principal executive officer, principal financial
officer and principal accounting officer. The Code of Business
Conduct and Ethics is posted on our website at
www.infoGROUP.com under the caption Corporate Governance.
If we (i) amend this Code with other than technical,
administrative, or other non-substantive amendments, or
(ii) grant any waivers of this Code, including implicit
waivers, from a provision of this Code to any executive officers
of infoGROUP, we will disclose the nature of the
amendment or waiver, its effective date, and to whom it applies
on our website at www.infoGROUP.com under the caption
Corporate Governance.
|
|
Item 11.
|
Executive
Compensation
|
Incorporated by reference to the information under the captions
Board Compensation, Executive
Compensation, and Certain Transactions in our
definitive proxy statement for the 2009 Annual Meeting of
Stockholders.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
Incorporated by reference to the information under the caption
Security Ownership and Equity Compensation
Plan Table in our definitive proxy statement for the 2009
Annual Meeting of Stockholders.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Incorporated by reference to the information under the captions
Certain Transactions in our definitive proxy
statement for the 2009 Annual Meeting of Stockholders.
The required information regarding corporate governance is
incorporated by reference to the information under the caption
Board Meetings and Committees in our definitive
proxy statement for the 2009 Annual Meeting of Stockholders.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
Incorporated by reference to the information under the caption
Auditors Fees in our definitive proxy
statement for the 2009 Annual Meeting of Stockholders.
48
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules
|
(a) The following documents are filed as a part of this
report:
1. Financial Statements. The following
Consolidated Financial Statements of infoGROUP Inc. and
subsidiaries and Report of Independent Registered Public
Accounting Firm are included elsewhere in this
Form 10-K:
|
|
|
|
|
Description
|
|
Page No.
|
|
infoGROUP Inc. and Subsidiaries:
|
|
|
|
|
|
|
|
55
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|
|
|
|
56
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|
|
|
|
57
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|
|
|
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58
|
|
|
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59
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|
|
|
|
60
|
|
2. Financial Statement Schedule. The
following consolidated financial statement schedule of
infoGROUP Inc. and subsidiaries for the years ended
December 31, 2008, 2007 and 2006 is filed as part of this
report and should be read in conjunction with the Consolidated
Financial Statements.
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:
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
2
|
.1
|
|
|
|
Agreement and Plan of Merger, dated as June 28, 2007, by and
among infoUSA Inc., Knickerbocker Acquisition Corp. and
Guideline, Inc., incorporated herein by reference to Exhibit 2.1
filed with our Current Report on Form 8-K, filed July 5, 2007
|
|
3
|
.1
|
|
|
|
Certificate of Incorporation, as amended through October 22,
1999, incorporated herein by reference to exhibits filed with
our Registration Statement on Form 8-A, as amended, filed March
20, 2000
|
|
3
|
.2
|
|
|
|
Amended and Restated Certificate of Designation of Participating
Preferred Stock, filed in Delaware on October 22, 1999,
incorporated herein by reference to exhibits filed with our
Registration Statement on Form 8-A, as amended, filed March 20,
2000
|
|
3
|
.3
|
|
|
|
Certificate of Ownership and Merger effecting the name change to
infoGROUP Inc., incorporated herein by reference to Exhibit 3.1
filed with our Current Report on Form 8-K, filed June 4, 2008
|
|
3
|
.4
|
|
|
|
Amended and Restated Bylaws incorporated by reference to Exhibit
3.4 filed with our Annual Report on Form 10-K for the fiscal
year ended December 31, 2007, filed August 8, 2008
|
|
4
|
.1
|
|
|
|
Preferred Share Rights Agreement, incorporated herein by
reference to our Registration Statement on Form 8-A, as amended,
filed March 20, 2000
|
|
4
|
.2
|
|
|
|
Specimen of common stock Certificate, incorporated herein by
reference to the exhibits filed with our Registration Statement
on Form 8-A, as amended, filed March 20, 2000
|
|
10
|
.1
|
|
|
|
Second Amended and Restated Credit Agreement among infoUSA Inc.,
various Lenders named therein, LaSalle Bank National Association
and Citibank F.S.B., as syndication agents, Bank of America,
N.A., as documentation agent, and Wells Fargo Bank, National
Association, as administrative agent for the Lenders, dated as
of February 14, 2006, incorporated herein by reference to the
exhibits filed with our Current Report on Form 8-K, filed
February 21, 2006
|
49
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|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
10
|
.2
|
|
|
|
Amended and Restated Security Agreement by and among infoUSA,
Inc. and Affiliates and Wells Fargo Bank, National Association,
as Collateral Agent, dated as of February 14, 2006, incorporated
herein by reference to the exhibits filed with our Current
Report on Form 8-K, filed February 21, 2006
|
|
10
|
.3
|
|
|
|
Amended and Restated Pledge Agreement by and among infoUSA, Inc.
and Affiliates and Wells Fargo Bank, National Association, as
Administrative Agent, dated as of February 14, 2006,
incorporated herein by reference to the exhibits filed with our
Current Report on Form 8-K, filed February 21, 2006
|
|
10
|
.4
|
|
|
|
Amended and Restated Subsidiaries Guaranty by subsidiaries of
infoUSA, Inc. named therein, dated as of February 14, 2006,
incorporated herein by reference to the exhibits filed with our
Current Report on Form 8-K, filed February 21, 2006
|
|
10
|
.5
|
|
|
|
Form of Indemnification Agreement with Officers and Directors is
incorporated herein by reference to exhibits filed with our
Registration Statement on Form S-1(File No. 33-51352), filed
August 28, 1992
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10
|
.6
|
|
|
|
1992 Stock Option Plan as amended is incorporated herein by
reference to exhibits filed with our Registration Statement on
Form S-8 (File No. 333-37865), filed October 14, 1997
|
|
10
|
.7
|
|
|
|
1997 Stock Option Plan as amended is incorporated herein by
reference to exhibits filed with our Registration Statement on
Form S-8 (File No. 333-82933), filed July 15,1999
|
|
10
|
.8
|
|
|
|
Severance Agreement dated February 13, 2006, between infoUSA
Inc. and Edward Mallin, incorporated herein by reference to
Exhibit 10.1 filed with our Current Report on Form 8-K, filed
February 17, 2006
|
|
10
|
.9
|
|
|
|
Severance Agreement dated February 13, 2006, between infoUSA
Inc. and Fred Vakili, incorporated herein by reference to
Exhibit 10.3 filed with our Current Report on Form 8-K, filed
February 17, 2006
|
|
10
|
.10
|
|
|
|
Severance Agreement dated February 13, 2006, between infoUSA
Inc. and Stormy L. Dean, incorporated herein by reference to
Exhibit 10.4 filed with our Current Report on Form 8-K, filed
February 17, 2006
|
|
10
|
.11
|
|
|
|
Standstill Agreement dated July 21, 2006 between Vinod Gupta and
infoUSA Inc, incorporated herein by reference to Exhibit 10.1
filed with the Companys Current Report on Form 8-K, filed
July 25, 2006
|
|
10
|
.12
|
|
|
|
First Amendment to Second Amended and Restated Credit Agreement,
dated as of March 16, 2007, by and among infoUSA Inc., the
financial institutions a party thereto in the capacity of a
Lender, LaSalle Bank National Association and Citibank, N.A.
(f/k/a Citibank, F.S.B.), as syndication agents, Bank of
America, N.A., as documentation agent, and Wells Fargo Bank,
National Association, as sole lead arranger, sole book runner
and administrative agent, incorporated herein by reference to
Exhibit 4.1 filed with our Current Report on Form 8-K, filed
March 21, 2007
|
|
10
|
.13
|
|
|
|
Second Amendment to Second Amended and Restated Credit
Agreement, dated as of May 16, 2007, by and among infoUSA Inc.,
the financial institutions a party thereto in the capacity of a
Lender, LaSalle Bank National Association and Citibank, N.A.
(f/k/a Citibank, F.S.B.), as syndication agents, Bank of
America, N.A., as documentation agent, and Wells Fargo Bank,
National Association, as sole lead arranger, sole book runner
and administrative agent, incorporated herein by reference to
Exhibit 10.1 filed with our Current Report on Form 8-K, filed
May 30, 2007
|
|
10
|
.14
|
|
|
|
Deed of Trust and Security Agreement, dated as of May 23, 2007,
by Ralston Building LLC to Commonwealth Land Title Insurance
Company, as trustee, for the benefit of Suburban Capital
Markets, Inc., incorporated herein by reference to Exhibit 10.2
filed with our Current Report on Form 8-K, filed May 30, 2007
|
|
10
|
.15
|
|
|
|
Deed of Trust and Security Agreement, dated as of May 23, 2007,
by Papillion Building LLC to Commonwealth Land Title Insurance
Company, as trustee, for the benefit of Suburban Capital
Markets, Inc., incorporated herein by reference to Exhibit 10.3
filed with our Current Report on Form 8-K, filed May 30, 2007
|
|
10
|
.16
|
|
|
|
Fixed Rate Note of Ralston Building LLC to the order of Suburban
Capital Markets, Inc., dated May 23, 2007, incorporated herein
by reference to Exhibit 10.4 filed with our Current Report on
Form 8-K, filed May 30, 2007
|
|
10
|
.17
|
|
|
|
Fixed Rate Note of Papillion Building LLC to the order of
Suburban Capital Markets, Inc., dated May 23, 2007, incorporated
herein by reference to Exhibit 10.5 filed with our Current
Report on Form 8-K, filed May 30, 2007
|
50
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|
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|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
10
|
.18
|
|
|
|
Guaranty, dated May 23, 2007, by infoUSA Inc. for the benefit of
Suburban Capital Markets, Inc., with respect to Ralston Building
LLC, incorporated herein by reference to Exhibit 10.6 filed with
our Current Report on Form 8-K, filed May 30, 2007
|
|
10
|
.19
|
|
|
|
Guaranty, dated May 23, 2007, by infoUSA Inc. for the benefit of
Suburban Capital Markets, Inc., with respect to Papillion
Building LLC, incorporated herein by reference to Exhibit 10.7
filed with our Current Report on Form 8-K, filed May 30, 2007
|
|
10
|
.20
|
|
|
|
Net Lease, dated May 23, 2007, by and between Ralston Building
LLC, as lessor, and infoUSA Inc., as lessee, incorporated herein
by reference to Exhibit 10.8 filed with our Current Report on
Form 8-K, filed May 30, 2007
|
|
10
|
.21
|
|
|
|
Net Lease, dated May 23, 2007, by and between Papillion Building
LLC, as lessor, and infoUSA Inc., as lessee, incorporated herein
by reference to Exhibit 10.9 filed with our Current Report on
Form 8-K, filed May 30, 2007
|
|
10
|
.22
|
|
|
|
Agreement, dated July 20, 2007, between Vinod Gupta and infoUSA
Inc., incorporated herein by reference to Exhibit 10.2 filed
with our Current Report on Form 8-K, filed July 26, 2007
|
|
10
|
.23
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|
|
|
Separation and Consulting Agreement, dated October 12, 2007,
between infoUSA Inc. and Monica Messer, incorporated herein
by reference to Exhibit 10.1 filed with our Current Report on
Form 8-K, filed October 17, 2007
|
|
10
|
.24
|
|
|
|
Third Amendment to the Second Amended and Restated Credit
Agreement and Waiver of Default, dated March 26, 2008, among
infoUSA Inc., the financial institutions a party thereto in the
capacity of a Lender, LaSalle Bank National Association and
Citibank, N.A., as syndication agents, Bank of America, N.A., as
documentation agent, and Wells Fargo Bank, National Association,
as sole lead arranger, sole book runner and administrative
agent, incorporated herein by reference to Exhibit 10.1 filed
with our Current Report on Form 8-K, filed March 28, 2008
|
|
10
|
.25
|
|
|
|
Fourth Amendment to the Second Amended and Restated Credit
Agreement and Waiver of Default, dated June 27, 2008, among
infoGROUP Inc., the financial institutions a party thereto in
the capacity of a Lender, LaSalle Bank National Association and
Citibank, N.A., as syndication agents, Bank of America, N.A., as
documentation agent, and Wells Fargo Bank, National Association,
as sole lead arranger, sole book runner and administrative
agent, incorporated herein by reference to Exhibit 10.1 filed
with our Current Report on Form 8-K, filed July 3, 2008
|
|
10
|
.26
|
|
|
|
Agreement, dated July 18, 2008, between Vinod Gupta and
infoGROUP Inc., incorporated herein by reference to Exhibit 10.3
filed with our Current Report on Form 8-K, filed July 23, 2008
|
|
10
|
.27
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|
|
|
Employment Agreement between infoGROUP Inc. and Thomas J.
McCusker, dated December 23, 2008 incorporated by reference to
Exhibit 10.1 filed with our Current Report on Form 8-K (Film No.
081278413), filed December 31, 2008
|
|
10
|
.28
|
|
|
|
Employment Agreement between infoGROUP Inc. and Thomas Oberdorf,
dated December 23, 2008 incorporated by reference to Exhibit
10.1 filed with our Current Report on Form 8-K/A, filed
December 31, 2008
|
|
10
|
.29
|
|
|
|
Employment Agreement between infoGROUP Inc. and Bill L.
Fairfield, dated December 23, 2008 incorporated by reference to
Exhibit 10.1 filed with our Current Report on Form 8-K (Film No.
081278384), filed December 31, 2008
|
|
10
|
.30
|
|
|
|
Form of Restricted Stock Unit Agreement incorporated by
reference to Exhibit 10.1 filed with our Current Report on Form
8-K, filed December 23, 2008
|
|
10
|
.31
|
|
|
|
infoGROUP Inc. Amended and Restated 2007 Omnibus Incentive Plan,
incorporated herein by reference to Exhibit 10.5 filed with our
Quarterly Report on Form 10-Q filed November 10, 2008
|
|
10
|
.32
|
|
|
|
Agreement, dated July 18, 2008, between Vinod Gupta and the
Company, incorporated hereby by reference to Exhibit 10.3 filed
with our Current Report on Form 8-K filed on July 23, 2008
|
|
10
|
.33
|
|
|
|
Voting Agreement, dated August 20, 2008, by and among the
Company, the Special Litigation Committee and Vinod Gupta,
incorporated herein by reference to Exhibit 10.2 filed with our
Current Report on Form 8-K/A, filed August 22, 2008
|
51
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
10
|
.34
|
|
|
|
Separation Agreement and General Release dated August 20, 2008,
between Vinod Gupta and the Company, incorporated herein by
reference to Exhibit 10.6 filed with our Current Report on Form
8-K/A, filed August 22, 2008
|
|
10
|
.35
|
|
|
|
Stipulation of Settlement, dated as of August 20, 2008 by and
among the Company, the Special Litigation Committee, the
plaintiffs to the Derivative Litigation and the defendants to
the Derivative Litigation, incorporated herein by reference to
Exhibit 10.1 filed with the Companys Current Report on
Form 8-K/A,
filed August 22, 2008
|
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*21
|
.1
|
|
|
|
Subsidiaries and Jurisdiction of Establishment, filed herewith
|
|
*23
|
.1
|
|
|
|
Consent of Independent Registered Public Accounting Firm, filed
herewith
|
|
*31
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
|
|
*31
|
.2
|
|
|
|
Certification of Executive Vice President and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*32
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
|
*32
|
.2
|
|
|
|
Certification of Executive Vice President and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
52
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.
infoGROUP Inc.
Thomas Oberdorf
Executive Vice President and Chief Financial Officer
Dated: March 16, 2009
Pursuant to the requirements 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.
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Signature
|
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Title
|
|
Date
|
|
|
|
|
|
|
/s/ BERNARD
W. REZNICEK
Bernard
W. Reznicek
|
|
Chairman of the Board
|
|
March 16, 2009
|
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|
|
|
|
/s/ BILL
L. FAIRFIELD
Bill
L. Fairfield
|
|
Chief Executive Officer
(principal executive officer)
|
|
March 16, 2009
|
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|
|
|
|
/s/ THOMAS
OBERDORF
Thomas
Oberdorf
|
|
Executive Vice President and
Chief Financial Officer
(principal financial and accounting officer)
|
|
March 16, 2009
|
|
|
|
|
|
/s/ VINOD
GUPTA
Vinod
Gupta
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ ELLIOT
S. KAPLAN
Elliot
S. Kaplan
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ GEORGE
KRAUSS
George
Krauss
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ GARY
MORIN
Gary
Morin
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ ROGER
SIBONI
Roger
Siboni
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ JOHN
N. STAPLES III
John
N. Staples III
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ THOMAS
L. THOMAS
Thomas
L. Thomas
|
|
Director
|
|
March 16, 2009
|
|
|
|
|
|
/s/ CLIFTON
T. WEATHERFORD
Clifton
T. Weatherford
|
|
Director
|
|
March 16, 2009
|
53
Report of
Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
infoGROUP Inc.:
We have audited the accompanying consolidated balance sheets of
infoGROUP Inc. and subsidiaries (formerly infoUSA
Inc.) (the Company) as of December 31, 2008 and 2007, 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, 2008. In connection with our audits of the
consolidated financial statements, we also have audited the
related consolidated financial statement schedule for each of
the years in the three-year period ended December 31, 2008,
listed in Item 15(a)(2) of this annual report on
Form 10-K.
These consolidated financial statements and financial statement
schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of infoGROUP Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 2008, in conformity
with U.S. generally accepted accounting principles. Also,
in our opinion, the related consolidated 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 21 to the consolidated financial
statements, the Company changed its method of quantifying errors
in 2006. In addition, as discussed in note 18, the Company
adopted the provisions of FASB Interpretation No. 48,
Accounting for Uncertainty in Income Taxes, in 2007.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
effectiveness of infoGROUP Inc. and subsidiaries
internal control over financial reporting as of
December 31, 2008, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), and our report dated March 16, 2009
expressed an adverse opinion on the effectiveness of the
Companys internal control over financial reporting.
Omaha, Nebraska
March 16, 2009
55
infoGROUP
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except share and per share amounts)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,818
|
|
|
$
|
9,924
|
|
Marketable securities
|
|
|
992
|
|
|
|
2,285
|
|
Trade accounts receivable, net of allowances of $2,214 and
$2,397, respectively
|
|
|
74,569
|
|
|
|
78,573
|
|
List brokerage trade accounts receivable, net of allowances of
$494 and $70, respectively
|
|
|
86,841
|
|
|
|
68,369
|
|
Unbilled services
|
|
|
27,471
|
|
|
|
25,114
|
|
Prepaid expenses
|
|
|
10,155
|
|
|
|
9,425
|
|
Assets held for sale
|
|
|
3,960
|
|
|
|
|
|
Deferred income taxes
|
|
|
7,894
|
|
|
|
4,041
|
|
Income taxes receivable
|
|
|
3,337
|
|
|
|
|
|
Deferred marketing costs
|
|
|
1,004
|
|
|
|
2,234
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
221,041
|
|
|
|
199,965
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
65,108
|
|
|
|
67,950
|
|
Goodwill
|
|
|
418,476
|
|
|
|
415,075
|
|
Intangible assets, net
|
|
|
108,153
|
|
|
|
118,205
|
|
Other assets
|
|
|
2,505
|
|
|
|
11,446
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
815,283
|
|
|
$
|
812,641
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
2,899
|
|
|
$
|
4,944
|
|
Accounts payable
|
|
|
33,426
|
|
|
|
23,312
|
|
List brokerage trade accounts payable
|
|
|
79,827
|
|
|
|
63,807
|
|
Accrued payroll expenses
|
|
|
40,049
|
|
|
|
39,507
|
|
Accrued expenses
|
|
|
17,740
|
|
|
|
22,158
|
|
Income taxes payable
|
|
|
|
|
|
|
3,288
|
|
Deferred revenue
|
|
|
62,349
|
|
|
|
71,922
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
236,290
|
|
|
|
228,938
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
297,745
|
|
|
|
278,283
|
|
Deferred income taxes
|
|
|
25,769
|
|
|
|
31,046
|
|
Other liabilities
|
|
|
6,606
|
|
|
|
5,848
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, $.0025 par value. Authorized
295,000,000 shares; 57,019,030 shares issued and
outstanding at December 31, 2008 and 56,505,668 shares
issued and outstanding at December 31, 2007
|
|
|
142
|
|
|
|
141
|
|
Paid-in capital
|
|
|
147,029
|
|
|
|
137,106
|
|
Retained earnings
|
|
|
114,926
|
|
|
|
129,908
|
|
Note receivable shareholder
|
|
|
(9,000
|
)
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
(4,224
|
)
|
|
|
1,371
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
248,873
|
|
|
|
268,526
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
815,283
|
|
|
$
|
812,641
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
56
infoGROUP
INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net sales
|
|
$
|
738,270
|
|
|
$
|
688,773
|
|
|
$
|
434,876
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods and services
|
|
|
311,653
|
|
|
|
276,165
|
|
|
|
116,485
|
|
Selling, general and administrative
|
|
|
356,520
|
|
|
|
287,084
|
|
|
|
224,918
|
|
Depreciation and amortization of operating assets
|
|
|
24,389
|
|
|
|
21,502
|
|
|
|
14,020
|
|
Amortization of intangible assets
|
|
|
17,524
|
|
|
|
17,495
|
|
|
|
14,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
710,086
|
|
|
|
602,246
|
|
|
|
370,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
28,184
|
|
|
|
86,527
|
|
|
|
64,544
|
|
Other expense, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income (expense)
|
|
|
1,660
|
|
|
|
617
|
|
|
|
(7
|
)
|
Interest expense
|
|
|
(18,143
|
)
|
|
|
(20,995
|
)
|
|
|
(11,410
|
)
|
Other income (charges)
|
|
|
(1,434
|
)
|
|
|
599
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense, net
|
|
|
(17,917
|
)
|
|
|
(19,779
|
)
|
|
|
(11,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
10,267
|
|
|
|
66,748
|
|
|
|
53,239
|
|
Income tax expense
|
|
|
5,456
|
|
|
|
25,806
|
|
|
|
19,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,811
|
|
|
$
|
40,942
|
|
|
$
|
33,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.73
|
|
|
$
|
0.61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
56,760
|
|
|
|
55,809
|
|
|
|
54,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.73
|
|
|
$
|
0.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
56,774
|
|
|
|
55,976
|
|
|
|
55,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivable
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
Comprehensive
|
|
|
Stock-
|
|
|
|
Common
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Treasury
|
|
|
Shareholder /
|
|
|
Income
|
|
|
holders
|
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Stock
|
|
|
Officers
|
|
|
(Loss)
|
|
|
Equity
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Balances, December 31, 2005
|
|
$
|
135
|
|
|
$
|
110,420
|
|
|
$
|
90,631
|
|
|
$
|
(1,297
|
)
|
|
$
|
(339
|
)
|
|
$
|
(1,683
|
)
|
|
$
|
197,867
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adjustment resulting from adoption of
SAB No. 108
|
|
|
|
|
|
|
|
|
|
|
(3,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,154
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
33,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,300
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(196
|
)
|
|
|
(196
|
)
|
Accumulated benefit obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
124
|
|
|
|
124
|
|
Change in unrealized gain (loss) on marketable securities, net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
441
|
|
|
|
441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,669
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 1,484,817 shares of common stock in connection
with stock option exercises
|
|
|
3
|
|
|
|
12,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,220
|
|
Interest on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
Repayments on notes receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
350
|
|
|
|
|
|
|
|
350
|
|
Tax benefit from employee stock options exercised
|
|
|
|
|
|
|
2,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,083
|
|
Issuance of 210,354 shares of treasury stock, and 17,889 of
common stock for Companys match of 401(k) plan contribution
|
|
|
|
|
|
|
1,072
|
|
|
|
|
|
|
|
1,297
|
|
|
|
|
|
|
|
|
|
|
|
2,369
|
|
Dividends on common stock ($0.23 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,386
|
)
|
|
|
|
|
|
|
|
|
|
|
(12,386
|
)
|
Non-cash stock compensation expense
|
|
|
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2006
|
|
$
|
138
|
|
|
$
|
126,943
|
|
|
$
|
108,391
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(1,314
|
)
|
|
$
|
234,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
40,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,942
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,058
|
|
|
|
1,058
|
|
Accumulated benefit obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
190
|
|
Change in unrealized gain (loss) on marketable securities, net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
1,031
|
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
406
|
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 774,893 shares of common stock in connection
with stock option exercises
|
|
|
3
|
|
|
|
6,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,235
|
|
Tax benefit from employee stock options exercised
|
|
|
|
|
|
|
384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
384
|
|
Issuance of 270,461 shares of common stock for
Companys match of 401(k) plan contribution
|
|
|
|
|
|
|
2,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,763
|
|
Dividends on common stock ($0.35 per share)
|
|
|
|
|
|
|
|
|
|
|
(19,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,425
|
)
|
Non-cash stock compensation expense
|
|
|
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2007
|
|
$
|
141
|
|
|
$
|
137,106
|
|
|
$
|
129,908
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,371
|
|
|
$
|
268,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
4,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,811
|
|
Foreign currency translation adjustment, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,850
|
)
|
|
|
(3,850
|
)
|
Accumulated benefit obligation, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(513
|
)
|
|
|
(513
|
)
|
Change in unrealized gain (loss) on marketable securities, net
of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,199
|
)
|
|
|
(1,199
|
)
|
Derivative financial instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(784
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of 31,564 shares of common stock in connection
with stock option exercises
|
|
|
1
|
|
|
|
169
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
170
|
|
Tax benefit from employee stock options exercised
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Issuance of 481,798 shares of common stock for
Companys match of 401(k) plan contribution
|
|
|
|
|
|
|
2,705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,705
|
|
Receivable from shareholder
|
|
|
|
|
|
|
6,540
|
|
|
|
|
|
|
|
|
|
|
|
(9,000
|
)
|
|
|
|
|
|
|
(2,460
|
)
|
Dividends on common stock ($0.35 per share)
|
|
|
|
|
|
|
|
|
|
|
(19,793
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(19,793
|
)
|
Non-cash stock compensation expense
|
|
|
|
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances, December 31, 2008
|
|
$
|
142
|
|
|
$
|
147,029
|
|
|
$
|
114,926
|
|
|
$
|
|
|
|
$
|
(9,000
|
)
|
|
$
|
(4,224
|
)
|
|
$
|
248,873
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
58
infoGROUP
INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,811
|
|
|
$
|
40,942
|
|
|
$
|
33,300
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of operating assets
|
|
|
24,389
|
|
|
|
21,502
|
|
|
|
14,037
|
|
Amortization of intangible assets
|
|
|
17,524
|
|
|
|
17,495
|
|
|
|
14,909
|
|
Amortization of deferred financing fees
|
|
|
963
|
|
|
|
628
|
|
|
|
527
|
|
Deferred income taxes
|
|
|
(5,645
|
)
|
|
|
(8,556
|
)
|
|
|
(2,216
|
)
|
Non-cash stock option compensation expense
|
|
|
499
|
|
|
|
784
|
|
|
|
1,151
|
|
Non-cash 401(k) contribution in common stock
|
|
|
2,705
|
|
|
|
2,763
|
|
|
|
2,369
|
|
Gain on sale of assets and marketable securities
|
|
|
(1,761
|
)
|
|
|
(334
|
)
|
|
|
|
|
Asset impairment charges
|
|
|
11,610
|
|
|
|
|
|
|
|
|
|
Other non-cash charges
|
|
|
|
|
|
|
340
|
|
|
|
164
|
|
Non-cash interest earned on notes from officers
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Changes in assets and liabilities, net of effect of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
|
(2,981
|
)
|
|
|
8,172
|
|
|
|
2,088
|
|
List brokerage trade accounts receivable
|
|
|
17,683
|
|
|
|
(341
|
)
|
|
|
(2,244
|
)
|
Prepaid expenses and other assets
|
|
|
(1,289
|
)
|
|
|
(1,326
|
)
|
|
|
3,751
|
|
Deferred marketing costs
|
|
|
1,230
|
|
|
|
1,250
|
|
|
|
(631
|
)
|
Accounts payable
|
|
|
10,496
|
|
|
|
(9,274
|
)
|
|
|
10,924
|
|
List brokerage trade accounts payable
|
|
|
(16,505
|
)
|
|
|
1,257
|
|
|
|
2,181
|
|
Income taxes receivable and payable, net
|
|
|
(8,636
|
)
|
|
|
(1,254
|
)
|
|
|
(2,328
|
)
|
Accrued expenses and other liabilities
|
|
|
(3,588
|
)
|
|
|
11,836
|
|
|
|
(2,256
|
)
|
Deferred revenue
|
|
|
(6,867
|
)
|
|
|
(12,197
|
)
|
|
|
(14,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
44,638
|
|
|
|
73,687
|
|
|
|
61,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments
|
|
|
(3,261
|
)
|
|
|
(254
|
)
|
|
|
(2,396
|
)
|
Proceeds on sale of investments
|
|
|
2,364
|
|
|
|
3,613
|
|
|
|
536
|
|
Sale of property and equipment
|
|
|
5,991
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment
|
|
|
(22,331
|
)
|
|
|
(16,930
|
)
|
|
|
(13,598
|
)
|
Acquisitions of businesses, net of cash acquired
|
|
|
(19,065
|
)
|
|
|
(57,066
|
)
|
|
|
(146,064
|
)
|
Software development costs
|
|
|
(7,945
|
)
|
|
|
(4,408
|
)
|
|
|
(7,456
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(44,247
|
)
|
|
|
(75,045
|
)
|
|
|
(168,978
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments of long-term debt
|
|
|
(70,702
|
)
|
|
|
(161,331
|
)
|
|
|
(174,371
|
)
|
Proceeds from long-term debt
|
|
|
87,300
|
|
|
|
181,675
|
|
|
|
285,796
|
|
Deferred financing costs paid
|
|
|
(1,283
|
)
|
|
|
(1,171
|
)
|
|
|
(852
|
)
|
Dividends paid
|
|
|
(19,793
|
)
|
|
|
(19,425
|
)
|
|
|
(12,386
|
)
|
Proceeds from repayment of notes receivable from officers
|
|
|
|
|
|
|
|
|
|
|
350
|
|
Proceeds from derivative financial instruments
|
|
|
|
|
|
|
704
|
|
|
|
|
|
Tax benefit related to employee stock options
|
|
|
10
|
|
|
|
384
|
|
|
|
2,083
|
|
Proceeds from exercise of stock options
|
|
|
170
|
|
|
|
6,235
|
|
|
|
12,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
(4,298
|
)
|
|
|
7,071
|
|
|
|
112,840
|
|
Effect of exchange rate fluctuations on cash
|
|
|
(1,199
|
)
|
|
|
(222
|
)
|
|
|
237
|
|
Effect of SAB 108 adjustment on cash
|
|
|
|
|
|
|
|
|
|
|
(2,089
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
(5,106
|
)
|
|
|
5,491
|
|
|
|
3,641
|
|
Cash and cash equivalents, beginning of year
|
|
|
9,924
|
|
|
|
4,433
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
4,818
|
|
|
$
|
9,924
|
|
|
$
|
4,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
17,083
|
|
|
$
|
19,454
|
|
|
$
|
10,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
18,072
|
|
|
$
|
28,071
|
|
|
$
|
22,334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
59
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
infoGROUP Inc. and its subsidiaries (the
Company) is a provider of business and consumer
databases for sales leads and mailing lists, database marketing
services, data processing services and sales and marketing
solutions. The Companys database powers the directory
services of some of the top Internet traffic-generating sites.
Customers use the Companys products and services to find
new customers, grow their sales, and for other direct marketing,
telemarketing, customer analysis and credit reference purposes.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Reclassification. Certain reclassifications
have been made to conform prior year data to the current year
presentation in the consolidated financial statements and
accompanying notes for comparative purposes. The statements of
operations include amounts reclassified for certain items from
other income (expense) to cost of goods and services, selling,
general and administrative, interest income (expense) and
investment income (expense).
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.
Trade Accounts Receivable. Trade accounts
receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is the
Companys best estimate of the amount of probable credit
losses in the Companys existing accounts receivable. The
Company determines the allowance based on historical write-off
experience by industry and national economic data. The Company
reviews its allowance for doubtful accounts monthly. Past due
balances over 90 days and over a specified amount are
reviewed individually for collectibility. All other balances are
reviewed on a pooled basis. Account balances are written off
after all means of collection have been exhausted and the
potential for recovery is considered remote. The Company does
not have any off-balance-sheet credit exposure related to its
customers.
Marketable and Non-Marketable
Investments. 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 (loss) within the
consolidated statements of stockholders equity and
comprehensive income until realized. Realized gains and losses
are determined by the specific identification method. For
non-marketable investment securities in common stock where the
Company has a 20 percent or less ownership interest and
does not have the ability to exercise significant influence over
the investees operating and financial policies, the cost
method is used to account for the investment. Non-Marketable
investment securities are included in other assets within the
consolidated balance sheet.
Management monitors and evaluates the financial performance of
the businesses in which it invests and compares the carrying
value of the investment to quoted market prices (if available),
or the fair values of similar investments. When circumstances
indicate that a decline in the fair value of the investment has
occurred and the decline is other-than-temporary, the Company
records the decline in value as a realized impairment loss and a
reduction in the cost of the investment. The Company recorded
impairment losses from other-than-temporary declines in the fair
value of the Companys investments of $2.4 million,
$0.4 million, and $0.3 million in 2008, 2007, and 2006
respectively, and are included in other income (expense) on the
accompanying consolidated statements of operations.
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
60
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
payable, reflecting a
gross-up
of the two concurrent transactions. List brokerage sales
revenues are recognized net of costs on the accompanying
consolidated statements of operations. The allowance for
doubtful accounts is the Companys best estimate of the
amount of probable credit losses in the Companys existing
list brokerage trade accounts receivable. The Company determines
the allowance based on a monthly review of all past due balances
over 90 days and over a specified amount individually for
collectibility.
Advertising Costs. Direct marketing costs
associated with the mailing and printing of brochures and
catalogs are capitalized and amortized over six months, the
period corresponding 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, 2008 and 2007 were
$1.0 million and $2.2 million, respectively. Total
advertising expense for the years ended December 31, 2008,
2007, and 2006, were $42.6 million, $46.1 million, and
$40.4 million, respectively.
Property and Equipment. Property and equipment
are stated at cost and are depreciated or amortized primarily
using straight-line methods over the estimated useful lives of
the assets, as follows. Assets subject to capital lease are also
amortized based upon the estimated useful lives of the assets as
defined below if the lease transfers ownership of the assets at
the end of the term or contains a bargain purchase option. If
not, the assets subject to capital lease are amortized on a
straight-line basis over the life of the lease.
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Building and improvements
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30 years
Lesser of useful life
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Leasehold improvements
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or term of the agreement
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Office furniture and equipment
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7 years
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Computer equipment
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3 years
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Equipment subject to capitalized leases
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3 to 5 years
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We assessed the impairment of property and equipment costs as of
December 31, 2008 as required pursuant to Statement of
Financial Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets (SFAS 144). The Company
recorded impairments for the year ended December 31, 2008
for property and equipment for expresscopy.com of
$1.1 million, and Salesgenie of $0.1 million.
Goodwill and Intangible Assets. Intangible
assets with estimable useful lives are stated at cost and are
amortized using the straight-line method over the estimated
useful lives of the assets, as follows:
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Noncompete agreements
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Term of agreements
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Database development costs
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|
1 to 3 years
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Core technology
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3 to 5 years
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Customer base
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3 to 11 years
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|
Trade name
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|
|
8 to 20 years
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Software development costs
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1 to 5 years
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|
Goodwill represents the excess of costs over fair value of net
assets of businesses acquired. Goodwill resulting from
acquisitions of businesses and determined to have an indefinite
useful life is not subject to amortization, but instead tested
for impairment annually, or more often if an event or
circumstance indicates that an impairment loss has been
incurred, in accordance with the requirements of Statement of
Financial Accounting Standard (SFAS) No. 142,
Goodwill and Other Intangible Assets
(SFAS 142).
The goodwill impairment test is a two-step process. The first
step compares the fair value of a reporting unit with its
carrying amount, including goodwill. If the fair value of a
reporting unit exceeds its carrying amount, goodwill of the
reporting unit is considered to not be impaired, and the second
step of the impairment test is not necessary. However, if the
carrying amount of a reporting unit exceeds its fair value, the
second step of the goodwill impairment test is performed to
measure the amount of impairment loss. The second step is
essentially a purchase
61
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
price allocation exercise, which allocates the newly determined
fair value of the reporting unit to the assets. For purposes of
the allocation, the fair values of all assets, including both
recognized and unrecognized intangible assets, are determined.
The residual goodwill value is then compared to the carrying
value of goodwill to determine the impairment charge.
We completed a goodwill impairment test as of October 31,
2008 and 2007, respectively. Additionally, in accordance with
SFAS 142, we concluded that events had occurred and
circumstances had changed during the fourth quarter of 2008,
which required us to perform an interim period goodwill
impairment test as of December 31, 2008. During the fourth
quarter of 2008, we experienced a significant decline in market
capitalization due to an overall decline in economic conditions.
At December 31, 2008, we had three reporting units that had
goodwill and therefore required testing pursuant to
SFAS No. 142. The three reporting units represent the
Companys reporting segments.
We considered both the income approach and the market approach
in assessing the fair value of each reporting unit. Under the
income approach, the fair value of the reporting unit is based
on the present value of estimated future cash flows. The income
approach requires assumptions and estimates of many critical
factors, including revenue and market growth, operating cash
flows, and discount rates. As a result of the deterioration of
the economic conditions in the United States in the second half
of 2008, the projections used took into account current economic
factors and the effect on future revenue and operating income.
We used the Gordon growth model to calculate residual values.
The Gordon growth model refers to the concept of taking the
residual year cash flow and determining the value of a growing,
perpetual annuity. The long-term growth rate used for each
reporting unit ranged between 2.5% and 3.0%. The Company used
weighted-average costs of capital ranging between 12.7% and
15.8% in its discounted cash flows analyses. Under the market
approach, several relative pricing measures for comparable
companies are examined to determine a fair value for each
reporting unit. We determined that the fair value of the
reporting units for both approaches as of December 31,
2008, October 31, 2008 and October 31, 2007 exceeded
its carrying amount. Thus, the goodwill of these reporting units
is not impaired. Future adverse changes in expected operating
results
and/or
unfavorable changes in other economic factors used to estimate
fair values could result in non-cash impairment charges in
future periods under SFAS 142.
We assessed the impairment of long-lived assets and intangible
assets as of December 31, 2008 as required pursuant to
SFAS 144. As a result of the declining profitability of
expresscopy.com, SECO Financial and infoUK,
recoverability tests were performed for these asset groups.
These tests included comparisons of undiscounted cash flows to
the current carrying values of each asset group. Since the
carrying values exceeded the undiscounted cash flows, an
impairment was recognized and allocated between all long-lived
assets within each asset group. Total impairments for the year
ended December 31, 2008 for expresscopy.com, SECO Financial
and infoUK were $1.4 million, $0.2 million and
$2.7 million, respectively. In addition, the Company
recorded an impairment of $0.6 million for a OneSource
database and $0.9 million for development costs for a
Salesgenie product no longer being utilized.
Software Capitalization. Until technological
feasibility is established, software development costs are
expensed as incurred. After that time, direct costs are
capitalized and amortized using the straight-line method,
generally ranging from one to five years for software developed
for internal and external use. Unamortized software costs
included in intangible assets at December 31, 2008 and
2007, were $13.3 million and $10.7 million,
respectively. Amortization of capitalized costs during the years
ended December 31, 2008, 2007 and 2006 totaled
approximately $4.0 million, $4.0 million and
$3.0 million, respectively. We assessed the impairment of
capitalized software costs as of December 31, 2008 as
required pursuant to SFAS 144. The Company recorded
impairments for the year ended December 31, 2008 for
capitalized software costs for a Salesgenie product of
$0.9 million, and expresscopy.com of $0.2 million.
Database Development Costs. Costs to maintain
and enhance the Companys existing business and consumer
databases are expensed as incurred. Costs to develop new
databases, which primarily represent direct
62
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
external costs, are capitalized with amortization beginning upon
successful completion of the project. Database development costs
are amortized using the straight-line method over the expected
lives of the databases, generally ranging from two to five
years. Unamortized database development costs were
$2.2 million $2.4 million at December 31, 2008
and 2007, respectively. Amortization of capitalized costs during
the years ended December 31, 2008, 2007 and 2006, totaled
approximately $0.9 million, $0.8 million and
$0.6 million, respectively. We assessed the impairment of
database development costs as of December 31, 2008 as
required pursuant to SFAS 144. The Company recorded
impairments for the year ended December 31, 2008 for
database development costs for infoUK of
$2.7 million and $0.6 million for a OneSource database
no longer being utilized.
Revenue recognition. Revenue from the sale of
prospect lists (paper form or electronic), mailing labels,
published directories, other sales lead products and DVD
information products are recognized upon shipment. These product
sales are typically evidenced by a written purchase order or by
credit card authorization.
List management revenue is recognized net of costs upon shipment
of the list to the third party. List brokerage revenue is
recognized net of costs upon verification from third party of
the actual list used and shipped. List brokerage revenue is
recognized on a net basis because the Company acts as an agent
or broker (including performing services, in substance, as an
agent or broker) with compensation on a commission or fee basis.
Data processing and
e-mail
customer retention solution revenues are billed on a time and
materials basis, with the recognition of revenue occurring as
the services are rendered to the customer.
Revenue from the licensing of the Companys data to third
parties and the sale of the Companys subscription-based
products are recognized on a straight-line basis over the life
of the agreement, when the Company commits to provide the
customer either continuous data access (i.e. 24/7
access via the Internet) or updates of data files over a period
of time. Licenses and subscriptions are evidenced by written
contracts. The Company also licenses data to customers with no
such commitments. In those cases, the Company recognizes revenue
when the data is shipped to the customer, provided all revenue
recognition criteria have been met.
Services performed in the Marketing Research Group vary from
contract to contract and are not uniformly performed over the
term of the arrangement.
Revenues under fixed-price contracts are recognized on a
proportional performance basis. Performance is based on the
ratio of costs incurred to total estimated costs where the costs
incurred represent a reasonable surrogate for output measures of
contract performance, including survey design, data collection,
survey analysis and presentation of deliverables to the client.
Progress on a contract is matched against project costs and
costs to complete on a periodic basis. Provision for estimated
contract losses, if any, is made in the period such losses are
determined. Customers are obligated to pay as services are
performed, and in the event that a client cancels the contract,
the client is responsible for payment for services performed
through the date of cancellation.
Revenues under cost-reimbursement contracts are recognized as
costs are incurred. Applicable estimated profits are included in
earnings in the proportion that incurred costs bear to total
estimated costs. Incentives, award fees or penalties related to
performance are also considered in estimating revenues and
profit rates based on actual and anticipated awards.
Revenues under
time-and-materials
contracts are recognized as costs are incurred.
Revenue for our retainer contracts are charged to customers on a
fixed monthly subscription fee basis to access On-Demand
Business Research services, and revenues are recognized ratably
over the term of each subscription. Retainer fees are required
to be paid in advance by customers on either a monthly,
quarterly or annual basis, and all billed amounts relating to
future periods are recorded as deferred revenue on the
Companys consolidated balance sheets.
Revenue for our deposit contracts are charged to customers on a
fixed annual fee basis, which entitles them to access any of the
Companys service offerings throughout the contract period,
up to the total amount of the annual
63
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
deposit fee. Since deposit account customers can
spend their contract fee at any time within the
annual contract period, deposit account revenues are only
recognized within the contract period as services are actually
provided to customers, with any unused deposit amounts
recognized as revenue in the final month of the contract. As
with retainer fees, deposit contract fees are required to be
paid in advance, primarily annually, and any billed amounts
relating to future periods are recorded as deferred revenue on
the Companys consolidated balance sheets.
Unbilled receivables are invoiced based upon the achievement of
specific events as defined by each contract including
deliverables, timetables and incurrence of certain costs.
Unbilled receivables are classified as a current asset.
Reimbursements of out-of-pocket expenses are included in
revenues with corresponding costs incurred by the Company
included in cost of revenues.
The Company assesses collectibility of revenues and the
allowance for doubtful accounts based on a number of factors,
including past transaction history with the customer and the
credit-worthiness of the customer. The Company does not request
collateral from customers. An allowance for doubtful accounts is
established to record the Companys trade accounts
receivable at estimated net realizable value. If the Company
determines that collection of revenues is not reasonably assured
at or prior to the delivery of the Companys products, the
Company recognizes revenue upon the receipt of cash. Cash-basis
revenue recognition periodically occurs in those cases where the
Company sells or licenses its information products to a poorly
capitalized company. However, sales recognized on this basis are
not a significant portion of the Companys total revenues.
Sales taxes collected from customers and remitted to
governmental authorities are accounted for on a net basis and
therefore are excluded from revenues in the consolidated
statements of operations.
Stock-Based Compensation. The Company accounts
for stock-based compensation in accordance with the requirements
in SFAS No. 123(R), Share-Based Payment
(SFAS 123R). Stock-based compensation is
recognized based on the grant date fair value estimated in
accordance with the provisions of SFAS 123R. The Company
applies the Black-Scholes valuation model in determining the
fair value of share-based payments to employees, which is then
recognized as expense over the requisite service period.
Compensation cost for stock options granted to non-employees and
vendors is measured based upon the fair value of the stock
option 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. Compensation cost is recognized as
expense over the periods in which the benefit is received.
Compensation cost for restricted stock units (RSU) is based on
the fair value of infoGROUP common stock on the date of
grant and is amortized over the vesting period. See Note 11
of the Notes to consolidated financial statements for further
discussion of share-based compensation.
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 are established when necessary to reduce deferred tax
assets to the amount that is more likely than not to be realized.
Accounts Payable. The Company classifies
negative cash balances as a result of recently issued and
outstanding checks within accounts payable in the consolidated
balance sheet, and within accounts payable in operating
activities in the consolidated statement of cash flows. The
amount of the negative cash balance included in
64
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
accounts payable for the year ended December 31, 2008, 2007
and 2006 was $13.6 million, $4.0 million and
$9.7 million, respectively.
Foreign Currency. For international
operations, the local currency is designated as the functional
currency. Accordingly, assets and liabilities are translated
into U.S. Dollars at year-end exchange rates, and revenues
and expenses are translated at average exchange rates prevailing
during the year. Currency translation adjustments from local
functional currency countries resulting from fluctuations in
exchange rates are recorded in other comprehensive income.
Comprehensive income includes currency translation adjustments.
The Company generally deems its foreign investments in Control
Foreign Corporations to be essentially permanent in nature and
it does not provide for taxes on currency translation
adjustments arising from converting these investments in a
foreign currency to U.S. dollars. When the Company
determines that a foreign investment is no longer permanent in
nature, estimated taxes are provided for the related deferred
taxes, if any, resulting from currency translation adjustments.
Contingencies. The Company is involved in
various legal proceedings. Management assesses the probability
of loss for such contingencies and recognizes a liability when a
loss is probable and estimable. See Note 16 of the Notes to
consolidated financial statements for further discussion of
contingencies.
Earnings Per Share. Basic earnings per share
are based on the weighted average number of common shares
outstanding, including contingently issuable shares. Diluted
earnings per share are based on the weighted number of common
shares outstanding, including contingently issuable shares, plus
potentially dilutive common shares outstanding (representing
outstanding stock options and restricted stock units).
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. Certain options on
shares of common stock were not included in computing diluted
earnings because their effects were antidilutive.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Weighted average number of shares outstanding used in basic EPS
|
|
|
56,760
|
|
|
|
55,809
|
|
|
|
54,974
|
|
Net additional common equivalent shares outstanding after
assumed exercise of stock options
|
|
|
14
|
|
|
|
167
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding used in diluted EPS
|
|
|
56,774
|
|
|
|
55,976
|
|
|
|
55,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
New
Accounting Standards.
In September 2006, the Financial Accounting Standards Board
(FASB) issued SFAS No. 157, Fair Value
Measurements (SFAS 157). SFAS 157
defines fair value, establishes a framework for measuring fair
value and requires enhanced disclosures about fair value
measurements. SFAS 157 requires companies to disclose the
fair value of their financial instruments according to a fair
value hierarchy as defined in the standard. Additionally,
companies are required to provide enhanced disclosure regarding
financial instruments in one of the categories (level 3),
including a reconciliation of the beginning and ending balances
separately for each major category of assets and liabilities.
SFAS 157 was effective for the Company on January 1,
2008. However, in February 2008, the FASB released FASB Staff
Position (FSP
FAS 157-2
Effective Date of FASB Statement No. 157), which delayed
65
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
the effective date of SFAS 157 for all nonfinancial assets
and nonfinancial liabilities, except those that are recognized
or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The adoption of
SFAS 157 for financial assets and liabilities did not have
a material impact on the Companys consolidated financial
statements. We do not believe the adoption of SFAS 157 for
our non-financial assets and liabilities, effective
January 1, 2009, will have a material impact on the
Companys consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial
Liabilities Including an amendment of FASB Statement
No. 115 (SFAS 159). SFAS 159
permits entities to elect to measure many financial instruments
and certain other items at fair value. Unrealized gains and
losses on items for which the fair value option has been elected
will be recognized in earnings at each subsequent reporting
date. SFAS 159 was effective for the Company on
January 1, 2008. The adoption of SFAS 159 did not have
a material impact on the Companys consolidated financial
statements.
In December 2007, the FASB issued SFAS No. 141R,
Business Combinations (SFAS 141R), a
revision to SFAS No. 141, Business
Combinations. SFAS 141R provides revised guidance for
recognition and measurement of identifiable assets and goodwill
acquired, liabilities assumed, and any noncontrolling interest
in the acquiree at fair value. SFAS 141R also establishes
disclosure requirements to enable the evaluation of the nature
and financial effects of a business combination. SFAS 141R
is required to be applied prospectively to business combinations
for which the acquisition date is on or after the beginning of
the first annual reporting period beginning on or after
December 15, 2008 (January 1, 2009 for the Company).
In December 2007, the FASB issued SFAS No. 160,
Noncontrolling Interests in Consolidated Financial
Statements an amendment of ARB No. 51
(SFAS 160). SFAS 160 establishes
accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent.
Specifically, SFAS 160 requires the presentation of
noncontrolling interests as equity in the consolidated statement
of financial position, and separate identification and
presentation in the consolidated statement of operations of net
income attributable to the entity and the noncontrolling
interest. It also establishes accounting and reporting standards
regarding deconsolidation and changes in a parents
ownership interest. SFAS 160 is effective for fiscal years,
and interim periods within those fiscal years, beginning on or
after December 15, 2008 (January 1, 2009 for the
Company). The provisions of SFAS 160 are generally required
to be applied prospectively, except for the presentation and
disclosure requirements, which must be applied retrospectively.
The Company does not believe the adoption of SFAS 160 will
have a material impact on the consolidated financial statements.
Effective January 1, 2008, the Company acquired Direct
Media, Inc., a list brokerage and list management company. The
total purchase price was $17.9 million, excluding cash
acquired of $4.7 million, and including acquisition-related
costs of $0.6 million. The purchase price for the
acquisition has been allocated to current assets of
$37.0 million, property and equipment of $1.4 million,
other assets of $2.5 million, current liabilities of
$35.4 million, other liabilities of $1.1 million, and
goodwill and other identified intangibles of $12.9 million.
Goodwill and other identified intangibles include: customer
relationships of $2.8 million (life of 11 years),
non-compete agreements of $2.4 million (life between 1 to
7 years), trade names of $1.1 million (life of
8 years), and goodwill of $6.6 million, which includes
$0.6 million of acquisition costs, none of which will be
deductible for income tax purposes.
Effective October 1, 2007, the Company acquired SECO
Financial, a business that specializes in financial services
industry marketing. The total purchase price was
$1.1 million. The purchase price for the acquisition has
been allocated to current assets of $0.3 million, current
liabilities of $0.2 million, and goodwill and other
identified intangibles of $1.0 million. Goodwill and other
identified intangibles include: customer relationships of
$0.2 million (life of 5 years), non-compete agreements
of $0.1 million (life of 7 years), and goodwill of
$0.7 million, which will all be deductible for income tax
purposes.
66
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Effective October 1, 2007, the Company acquired Northwest
Research Group, a marketing research company. The total purchase
price was $1.6 million. The purchase price for the
acquisition has been allocated to current assets of
$0.4 million, property and equipment of $0.1 million,
current liabilities of $0.4 million, and goodwill and other
identified intangibles of $1.5 million. Goodwill and other
identified intangibles include: customer relationships of
$0.5 million (life of 10 years), non-compete
agreements of $0.2 million (life of 5 to 7 years), and
goodwill of $0.8 million, which will all be deductible for
income tax purposes.
On August 20, 2007, the Company acquired Guideline, Inc., a
provider of custom business and market research and analysis.
The total purchase price was $39.1 million, excluding cash
acquired of $0.8 million, and including acquisition-related
costs of $1.6 million. The purchase price for the
acquisition has been allocated to current assets of
$12.4 million, property and equipment of $1.4 million,
other assets of $0.9 million, current liabilities of
$14.4 million, other liabilities of $3.4 million, and
goodwill and other identified intangibles of $40.6 million.
Goodwill and other identified intangibles include: customer
relationships of $12.0 million (life of 10 years),
trade names of $4.3 million (life of 12 years),
non-compete agreements of $0.4 million (life of 1.5 to
7 years), and goodwill of $23.9 million, none of which
will be deductible for income tax purposes.
On July 27, 2007, the Company acquired NWC Research, an
Asia Pacific research company based in Australia. The total
purchase price was $8.0 million, excluding cash acquired of
$0.1 million, and including acquisition-related costs of
$0.2 million. The purchase price for the acquisition has
been allocated to current assets of $2.5 million, property
and equipment of $0.6 million, current liabilities of
$1.5 million, and goodwill and other identified intangibles
of $6.2 million. Goodwill and other identified intangibles
include: customer relationships of $2.7 million (life of
11 years), non-compete agreements of $0.2 million
(life of 7 years), and goodwill of $3.3 million, none
of which will be deductible for income tax purposes.
On June 22, 2007, the Company acquired expresscopy.com, a
provider of printing and mailing services that specializes in
short-run customized direct mail pieces. The total purchase
price was $8.0 million, excluding cash acquired of
$0.1 million, and including acquisition-related costs of
$0.2 million. The purchase price for the acquisition has
been allocated to current assets of $0.6 million, property
and equipment of $3.8 million, developed technology of
$0.9 million, current liabilities of $1.9 million,
other liabilities of $2.9 million, and goodwill and other
identified intangibles of $7.3 million. Goodwill and other
identified intangibles include: customer relationships of
$1.5 million (life of 5 years), trade name of
$0.6 million (life of 12 years), a non-compete
agreement of $0.3 million (life of 12 years), and
goodwill of $4.9 million, which will all be deductible for
income tax purposes.
On December 4, 2006, the Company acquired Opinion Research
Corporation, a provider of commercial market research, health
and demographic research for government agencies, information
services and consulting. The total purchase price was
$132.0 million, excluding cash acquired of
$0.8 million, and including acquisition related costs of
$4.4 million. The purchase price for the acquisition has
been allocated to current assets of $47.2 million, property
and equipment of $7.9 million, other assets of
$2.2 million, current liabilities of $28.1 million,
other liabilities of $20.2 million, and goodwill and other
identified intangibles of $118.6 million. Goodwill and
other identified intangibles include: customer relationships of
$47.7 million (life of 8 to 10 years), trade names of
$11.5 million (life of 12 years), and goodwill of
$59.4 million, none of which will be deductible for income
tax purposes.
On November 10, 2006, the Company acquired Rubin Response
Services, Inc., a provider of list brokerage and list management
services. The total purchase price was $0.9 million. The
purchase price for the acquisition has been allocated to current
assets of $4.8 million, property and equipment of
$0.1 million, current liabilities of $5.1 million and
goodwill of $1.1 million, which will all be deductible for
income tax purposes.
On October 31, 2006, the Company acquired Digital
Connexxions Corp, an
e-mail
marketing company that specializes in the small-to-medium market
and the publishing industry. The total purchase price was
$5.1 million. The purchase price for the acquisition has
been allocated to property and equipment of $0.8 million,
current liabilities of $0.1 million, other liabilities of
$0.3 million, and goodwill and other identified intangibles
of
67
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
$4.7 million. Goodwill and other identified intangibles
include: customer relationships of $1.6 million (life of
8 years), intellectual property of $1.3 million (life
of 2 years), developed technology of $1.2 million
(life of 5 years), non-compete agreements of
$0.1 million (life of 5 years), and goodwill of
$0.5 million, which will all be deductible for income tax
purposes.
On June 1, 2006, the Company acquired Mokrynskidirect, a
provider of list brokerage and list management services. The
total purchase price, excluding cash acquired of
$1.9 million, and including $0.1 million for
acquisition costs, was $6.5 million. The purchase price for
the acquisition has been allocated to current assets of
$11.4 million, property and equipment of $0.1 million,
current liabilities of $11.8 million, and goodwill and
other identified intangibles of $6.7 million. Goodwill and
other identified intangibles include: customer relationships of
$1.2 million (life of 8 years), trade name of
$0.9 million (life of 1.5 years), and goodwill of
$4.6 million, which will all be deductible for income tax
purposes.
The Company accounted for these acquisitions under the purchase
method of accounting and the operating results for each of these
acquisitions are included in the accompanying consolidated
financial statements from the respective acquisition dates. All
of these acquisitions were asset purchases, excluding Direct
Media, Inc., Guideline, Inc. and Opinion Research Corporation
which were stock purchases. These acquisitions were completed to
grow the Companys market share. The Company believes that
increasing its market share will enable it to compete over the
long term in the databases, direct marketing,
e-mail
marketing and market research industries.
Assuming the acquisitions described above made during 2008 and
2007 had been acquired on January 1, 2007 and included in
the accompanying consolidated statements of operations,
unaudited pro forma consolidated net sales, net income and
earnings per share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except
|
|
|
|
per share amounts)
|
|
|
Net sales
|
|
$
|
738,270
|
|
|
$
|
770,818
|
|
Net income
|
|
$
|
4,811
|
|
|
$
|
44,059
|
|
Basic earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.79
|
|
Diluted earnings per share
|
|
$
|
0.08
|
|
|
$
|
0.79
|
|
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 that may occur in the future.
|
|
4.
|
Marketable
and Non-Marketable Securities
|
At December 31, 2008, marketable securities available
for-sale consists of common stock and mutual funds, which the
Company records at fair market value. Any unrealized holding
gains or losses are excluded from net income and reported as a
component of accumulated other comprehensive income (loss) until
realized. During 2008, the Company recorded proceeds of
$2.4 million and a net realized gain of $1.8 million
for the sale of marketable securities, which is included in
investment income (expense) within the consolidated statement of
operations. During 2008, the Company also recorded an impairment
of $2.4 million due to the other than temporary decline in
value of marketable and non-marketable securities, which is
included in other income (charges) within the consolidated
statement of operations. During 2007, the Company recorded
proceeds of $3.6 million, which included $1.7 million
from the sale of a certain non-marketable security that the
Company had recorded within other assets, and a net realized
gain of $1.4 million, which is included in other income
(charges) within the consolidated statement of operations.
During 2006, the Company recorded proceeds of $0.5 million
and a net realized gain of $0.1 million, is included in
other income (charges) within the consolidated statement of
operations.
68
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
5.
|
Comprehensive
Income (Loss)
|
The components of accumulated other comprehensive income (loss)
were as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Unrealized gain from investments:
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
$
|
|
|
|
$
|
1,873
|
|
Related tax expense
|
|
|
|
|
|
|
(674
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
|
|
|
$
|
1,199
|
|
|
|
|
|
|
|
|
|
|
Unrealized loss from pension plan:
|
|
|
|
|
|
|
|
|
Unrealized losses
|
|
|
(1,963
|
)
|
|
|
(1,100
|
)
|
Related tax benefit
|
|
|
746
|
|
|
|
396
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
(1,217
|
)
|
|
$
|
(704
|
)
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments:
|
|
|
|
|
|
|
|
|
Unrealized gains (losses)
|
|
|
(5,452
|
)
|
|
|
734
|
|
Related tax benefit (expense)
|
|
|
2,072
|
|
|
|
(264
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
(3,380
|
)
|
|
$
|
470
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain from derivative financial instrument:
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
602
|
|
|
|
634
|
|
Related tax expense
|
|
|
(229
|
)
|
|
|
(228
|
)
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
373
|
|
|
$
|
406
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
$
|
(4,224
|
)
|
|
$
|
1,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Foreign
|
|
|
From
|
|
|
|
Gain (Loss)
|
|
|
Gain (Loss)
|
|
|
Currency
|
|
|
Derivative
|
|
|
|
From
|
|
|
From
|
|
|
Translation
|
|
|
Financial
|
|
|
|
Investments
|
|
|
Pension Plan
|
|
|
Adjustments
|
|
|
Instruments
|
|
|
Balance, December 31, 2005
|
|
$
|
(273
|
)
|
|
$
|
(1,018
|
)
|
|
$
|
(392
|
)
|
|
$
|
|
|
Fiscal 2006 activity
|
|
|
466
|
|
|
|
124
|
|
|
|
(196
|
)
|
|
|
|
|
Reclassification adjustment for (gain) included in net income
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
168
|
|
|
$
|
(894
|
)
|
|
$
|
(588
|
)
|
|
$
|
|
|
Fiscal 2007 activity
|
|
|
1,292
|
|
|
|
190
|
|
|
|
1,058
|
|
|
|
406
|
|
Reclassification adjustment for (gain) included in net income
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
1,199
|
|
|
$
|
(704
|
)
|
|
$
|
470
|
|
|
$
|
406
|
|
Fiscal 2008 activity
|
|
|
137
|
|
|
|
(513
|
)
|
|
|
(3,850
|
)
|
|
|
(33
|
)
|
Reclassification adjustment for gain included in net income
|
|
|
(1,336
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
$
|
|
|
|
$
|
(1,217
|
)
|
|
$
|
(3,380
|
)
|
|
$
|
373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
69
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
6.
|
Property
and Equipment
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Land and improvements
|
|
$
|
2,832
|
|
|
$
|
4,317
|
|
Buildings and improvements
|
|
|
43,710
|
|
|
|
47,253
|
|
Furniture and equipment
|
|
|
134,954
|
|
|
|
121,549
|
|
Capitalized equipment leases
|
|
|
26,665
|
|
|
|
22,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
208,161
|
|
|
|
196,042
|
|
Less accumulated depreciation and amortization:
|
|
|
|
|
|
|
|
|
Owned property
|
|
|
124,954
|
|
|
|
113,308
|
|
Capitalized equipment leases
|
|
|
18,099
|
|
|
|
14,784
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
65,108
|
|
|
$
|
67,950
|
|
|
|
|
|
|
|
|
|
|
We assessed the impairment of property and equipment costs as of
December 31, 2008 as required pursuant to SFAS 144.
The Company recorded impairments for the year ended
December 31, 2008 for property and equipment for
expresscopy.com of $1.1 million, and Salesgenie of
$0.1 million.
Included in assets held for sale are assets totaling
$4.0 million at December 31, 2008. These are measured
at the lower of their carrying value or fair market value less
costs to sell the assets. The Company is in the process of
selling these assets and anticipates that the assets will be
sold within the next twelve months. During 2008, the Company
recorded a loss of $0.9 million, which is included in
selling, general and administrative expenses within the
consolidated statement of operations, related to the
reclassification of these assets held for sale. Assets held for
sale consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Property and equipment (land)
|
|
$
|
1,132
|
|
|
$
|
|
|
Other assets (three aircrafts and a condominium)
|
|
|
2,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,960
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
70
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
8.
|
Goodwill
and Intangible Assets
|
Goodwill and intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12/31/2008
|
|
|
12/31/2007
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
|
(In thousands)
|
|
|
Goodwill
|
|
$
|
418,476
|
|
|
$
|
|
|
|
$
|
418,476
|
|
|
$
|
415,075
|
|
|
$
|
|
|
|
$
|
415,075
|
|
Other intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements
|
|
|
16,911
|
|
|
|
14,265
|
|
|
|
2,646
|
|
|
|
14,775
|
|
|
|
13,600
|
|
|
|
1,175
|
|
Core technology
|
|
|
15,323
|
|
|
|
13,665
|
|
|
|
1,658
|
|
|
|
16,004
|
|
|
|
11,716
|
|
|
|
4,288
|
|
Customer base
|
|
|
98,681
|
|
|
|
36,216
|
|
|
|
62,465
|
|
|
|
97,143
|
|
|
|
25,173
|
|
|
|
71,970
|
|
Trade names
|
|
|
38,609
|
|
|
|
16,030
|
|
|
|
22,579
|
|
|
|
38,042
|
|
|
|
13,390
|
|
|
|
24,652
|
|
Purchased data processing software
|
|
|
73,478
|
|
|
|
73,478
|
|
|
|
|
|
|
|
73,478
|
|
|
|
73,478
|
|
|
|
|
|
Acquired database costs
|
|
|
87,971
|
|
|
|
87,971
|
|
|
|
|
|
|
|
87,971
|
|
|
|
87,971
|
|
|
|
|
|
Perpetual software license agreements
|
|
|
8,000
|
|
|
|
8,000
|
|
|
|
|
|
|
|
8,000
|
|
|
|
8,000
|
|
|
|
|
|
Software and database development costs
|
|
|
30,299
|
|
|
|
14,807
|
|
|
|
15,492
|
|
|
|
22,751
|
|
|
|
9,622
|
|
|
|
13,129
|
|
Deferred financing costs
|
|
|
14,488
|
|
|
|
11,175
|
|
|
|
3,313
|
|
|
|
13,203
|
|
|
|
10,212
|
|
|
|
2,991
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
802,236
|
|
|
$
|
275,607
|
|
|
$
|
526,629
|
|
|
$
|
786,442
|
|
|
$
|
253,162
|
|
|
$
|
533,280
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average remaining amortization period for the other
intangible assets as of December 31, 2008 are: non-compete
agreements (1.98 years), core-technology (0.95 years),
customer base (3.77 years), trade names (5.25 years),
software and database development costs (1.68 years) and
deferred financing costs (2.13 years). The weighted average
remaining amortization period as of December 31, 2008 for
all other intangible assets in total is 3.64 years.
We assessed the impairment of intangible assets as of
December 31, 2008 as required pursuant to SFAS 144.
The Company recorded impairments for the year ended
December 31, 2008 for intangible assets of
$5.8 million. Three asset groups were impaired:
expresscopy.com, SECO Financial and infoUK. As a result
of their declining profitability, recoverability tests were
performed for each asset group. These tests included comparisons
of undiscounted cash flows to the current carrying values of
each asset group. Since the carrying values exceeded the
undiscounted cash flows, an impairment was recognized and
allocated between all long-lived assets within each asset group.
Impairments of intangibles for expresscopy.com, SECO Financial
and infoUK were $1.4 million, $0.2 million and
$2.7 million, respectively. In addition, the Company
recorded an impairment of $0.6 million for a OneSource
database and $0.9 million for development costs for a
Salesgenie product no longer being utilized. The impairments
were recorded in the Data Group, and were included within
selling, general and administrative expenses within the
consolidated statement of operations for the year ended
December 31, 2008.
The following table summarizes activity related to goodwill
recorded by the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
|
|
|
Acquisition
|
|
|
Ending
|
|
Fiscal Year
|
|
Balance
|
|
|
Acquisition
|
|
|
Adjustments
|
|
|
Balance
|
|
|
2007
|
|
$
|
381,749
|
|
|
$
|
42,599
|
|
|
$
|
(9,273
|
)
|
|
$
|
415,075
|
|
2008
|
|
$
|
415,075
|
|
|
$
|
7,163
|
|
|
$
|
(3,762
|
)
|
|
$
|
418,476
|
|
During 2008, the Company finalized the purchase price allocation
for acquisitions including expresscopy.com, Guideline Inc., NWC
Research, Northwest Research Group, and SECO Financial. The
Company also recorded initial and subsequent adjustments for
Direct Media Inc. The acquisition adjustments in 2008 are
primarily related to cumulative translation adjustments totaling
$1.5 million and multiple other adjustments including a
$0.6 million
71
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
tax adjustment for the expiration of items related to
FIN 48 and adjustments of other identified intangibles due
to the receipt of the final valuation report from the
Companys third party valuation company for certain
acquisitions.
During 2007, the Company finalized the purchase price allocation
of acquisitions including Opinion Research Corporation,
Mokrynskidirect, Digital Connexxions Corp. and Rubin Response
Services, Inc. and recorded initial and subsequent adjustments
for expresscopy.com, Guideline Inc., NWC Research, Northwest
Research Group and SECO Financial. The acquisition adjustments
in 2007 primarily related to two items: (1) a
$3.9 million reduction in goodwill due to an immaterial
correction of an error related to a purchase price allocation
adjustment for deferred taxes for an acquisition and
(2) the adjustment of other identified intangibles due to
the receipt of the final valuation report from the
Companys third party valuation company for certain
acquisitions.
Future amounts by calendar year for amortization of intangibles,
including amortization of software and database development
costs, as of December 31, 2008 are as follows (in
thousands):
|
|
|
|
|
2009
|
|
$
|
19,792
|
|
2010
|
|
|
17,285
|
|
2011
|
|
|
14,147
|
|
2012
|
|
|
11,881
|
|
2013 and thereafter
|
|
|
41,783
|
|
|
|
9.
|
Financing
Arrangements
|
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Amended 2006 Credit Facility term loan, due February
2012
|
|
$
|
170,520
|
|
|
$
|
172,260
|
|
Amended 2006 Credit Facility revolving line of
credit, due February 2011
|
|
|
86,500
|
|
|
|
59,000
|
|
Mortgage notes collateralized by deeds of trust.
Notes bear a fixed interest rate of 6.082% due June 2017.
Interest is payable monthly
|
|
|
41,126
|
|
|
|
41,125
|
|
Mortgage note collateralized by deed of trust. Note
bears a variable interest rate of Libor plus 2.50%. Interest is
payable monthly
|
|
|
|
|
|
|
1,441
|
|
Economic development loan State of Iowa,
collateralized by deed of trust. Note is interest-free.
Principal is due December 2009
|
|
|
29
|
|
|
|
61
|
|
Capital lease obligations (See Note 16)
|
|
|
2,469
|
|
|
|
9,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
300,644
|
|
|
|
283,227
|
|
Less current portion
|
|
|
2,899
|
|
|
|
4,944
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
$
|
297,745
|
|
|
$
|
278,283
|
|
|
|
|
|
|
|
|
|
|
72
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Future maturities by calendar year of long-term debt as of
December 31, 2008 are as follows (in thousands):
|
|
|
|
|
2009
|
|
$
|
2,899
|
|
2010
|
|
|
2,736
|
|
2011
|
|
|
88,565
|
|
2012
|
|
|
165,582
|
|
2013
|
|
|
479
|
|
Thereafter
|
|
|
40,383
|
|
|
|
|
|
|
Total
|
|
$
|
300,644
|
|
|
|
|
|
|
At December 31, 2008, the term loan had a balance of
$170.5 million, bearing an average interest rate of 3.46%.
The revolving line of credit had a balance of
$86.5 million, bearing an interest rate of 4.81%, and
$88.5 million was available under the revolving line of
credit. Substantially all of the assets of the Company are
pledged as security under the terms of the 2006 Credit Facility.
On March 16, 2007, the Company amended its Senior Secured
Credit Facility that was entered into on February 14, 2006.
The amendment increased the Companys outstanding Term Loan
B by $75 million. Proceeds from this transaction were used
to reduce amounts outstanding under the Companys revolving
credit facility. The pricing, principal amortization and
maturity date of the expanded Term Loan B remain unchanged from
the existing terms. On May 16, 2007, the Company further
amended its Senior Secured Credit Facility (as amended on
March 16, 2007 and May 16, 2007, the 2006 Credit
Facility) in order to (1) allow the mortgage loan
transactions between the Company and Suburban Capital Markets,
Inc. (Suburban Capital), described in further detail
immediately below, and (2) waive any default of the 2006
Credit Facility which might otherwise occur by reason of such
transactions.
On May 23, 2007, the Company entered into mortgage loan
transactions with Suburban Capital. As part of the transactions,
the Company transferred the titles to the Companys
headquarters in Ralston, Nebraska, and its data compilation
facility in Papillion, Nebraska, to newly formed limited
liability companies, and these properties will serve as
collateral for the transactions. The Company entered into
long-term lease agreements with these subsidiaries for the
continued and sole use of the properties. The Company also
entered into guaranty agreements wherein it guarantees the
payment and performance of various obligations as defined in the
agreements including, under certain circumstances, the mortgage
debt. In late July 2007, the loans were sold on the secondary
market as part of a collateralized mortgage-backed
securitization transaction. Midland Loan Services became the
loan servicer for the mortgage loans, but terms of the notes and
deeds of trust were otherwise unchanged by this transaction. The
loans have an effective term of ten years and were priced with a
fixed coupon rate of 6.082%. Payments will be interest only for
the first five years; for years six through ten, payments will
be comprised of principal and interest based upon a thirty year
amortization. Proceeds from this transaction were approximately
$41.1 million before fees and expenses. The proceeds were
used to retire the existing debt for the Papillion and Ralston
facilities of approximately $12.8 million and the remaining
net proceeds of $26.7 million were used to reduce amounts
outstanding under the Companys revolving credit facility.
The 2006 Credit Facility provides for grid-based interest
pricing based upon the Companys consolidated total
leverage ratio. Interest rates for use of the revolving line of
credit range from base rate plus 0.25% to 1.00% for base rate
loans and LIBOR plus 1.25% to 2.00% for Eurodollar rate loans.
Interest rates for the term loan range from base rate plus 0.75%
to 1.00% for base rate loans and LIBOR plus 1.75% to 2.00% for
Eurodollar rate loans. Subject to certain limitations set forth
in the credit agreement, the Company may designate borrowings
under the 2006 Credit Facility as base rate loans or Eurodollar
loans.
The Company is subject to certain financial covenants in the
2006 Credit Facility, including minimum consolidated fixed
charge coverage ratio, maximum consolidated total leverage ratio
and minimum consolidated net worth. The fixed charge coverage
ratio and leverage ratio financial covenants are based on EBITDA
(Earnings
73
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
before interest expense, income taxes, depreciation and
amortization), as adjusted, providing for adjustments to
EBITDA for certain agreed upon items including non-operating
gains (losses), other charges (gains), asset impairments,
non-cash stock compensation expense and other items specified in
the 2006 Credit Facility.
The Amended 2006 Credit Facility provides that the Company may
pay cash dividends on its common stock or repurchase shares of
its common stock provided that (1) before and after giving
effect to such dividend or repurchase, no event of default
exists or would exist under the credit agreement,
(2) before and after giving effect to such dividend or
repurchase, the Companys consolidated total leverage ratio
is not more than 2.75 to 1.0, and (3) the aggregate amount
of all cash dividends and stock repurchases during any loan year
does not exceed $20 million, except that there is no cap on
the amount of cash dividends or stock repurchases so long as,
after giving effect to the dividend or repurchase, our
consolidated total leverage ratio is not more than 2.0 to 1.0.
In light of the Special Litigation Committees
investigation described in Note 16 in the notes to
consolidated financial statements, the Company was unable to
file its Annual Report on
Form 10-K
for the year ended December 31, 2007 (the 2007
Form 10-K)
and the
Form 10-Q
for the quarter ended March 31, 2008 (the First
Quarter 2008
Form 10-Q)
by the SECs filing deadline. Failure to timely file the
2007
Form 10-K
and the First Quarter 2008
Form 10-Q
and provide annual and quarterly financial statements to the
lenders to the 2006 Credit Facility would have constituted a
default under the 2006 Credit Facility. Therefore, on
March 26, 2008, the Company and the lenders to the 2006
Credit Facility entered into a Third Amendment (the Third
Amendment) to the 2006 Credit Facility which, among other
things: (1) extended the deadlines by which the Company
must file the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
and provide certain annual and quarterly financial statements to
the lenders; (2) waived any other defaults arising from
these filing delays; and (3) modified the covenant related
to operating leases. On June 27, 2008, the Company and the
lenders to the 2006 Credit Facility entered into a Fourth
Amendment (the Fourth Amendment) to the 2006 Credit
Facility (as amended by the Third Amendment and the Fourth
Amendment, the Amended 2006 Credit Facility), which
extended the deadlines for filing with the SEC the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
to August 15, 2008, and the
Form 10-Q
for the quarter ended June 30, 2008 (the Second
Quarter 2008
Form 10-Q)
to August 29, 2008. As a result of the amendments, the
Company was in compliance with all restrictive covenants of the
2006 Credit Facility as of December 31, 2008. The Company
filed the 2007
Form 10-K
and the First Quarter 2008
Form 10-Q
with the SEC on August 8, 2008, the Second Quarter 2008
Form 10-Q
on August 21, 2008 and timely filed its
Form 10-Q
for the quarter ended September 30, 2008 on
November 10, 2008.
During 2008 and 2007, the Company incurred costs of
$1.3 million and $1.2 million, respectively, related
to its financing transactions for professional and banking fees.
|
|
10.
|
Derivative
Instruments and Hedging Activities
|
In February 2007, the Company entered into a treasury lock
agreement with a total notional amount of $43.5 million
related to the above mentioned ten-year fixed rate debt issuance
that was closed May 23, 2007. The treasury lock agreement
has been designated as a cash flow hedge as it hedges the
fluctuations in Treasury rates between the execution date of the
treasury lock and the issuance of the fixed rate debt.
Coincident with closing the mortgage transactions described
above, the Company unwound the treasury lock agreement that it
entered into previously to hedge fluctuations in treasury rates
between the execution date of the treasury lock and the issuance
of the mortgage debt described above. As a result of treasury
rate movement, the Company received cash proceeds of
$0.7 million in settlement of the treasury lock.
Substantially all of this amount will be deferred and amortized
over the ten-year term of the mortgages as a reduction to
interest expense. An ineffective portion of $38,415 was recorded
to reduce interest expense on the settlement date since the
actual principal balance of the mortgage loans was
$41.1 million versus the notional amount of
$43.5 million under the treasury lock.
74
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company accounts for derivatives and hedging activities in
accordance with SFAS No. 133, Accounting for
Derivative Instruments and Certain Hedging Activities, as
amended, which requires entities to recognize all derivative
instruments as either assets or liabilities in the balance sheet
at their respective fair values. For derivatives designated as
hedges, changes in the fair value are either offset against the
change in fair value of the assets and liabilities through
earnings, or recognized in accumulated other comprehensive
income until the hedged item is recognized in earnings. As of
December 31, 2008, $0.4 million of deferred gains on
derivative instruments was included in other comprehensive
income.
The Company only enters into derivative contracts that it
intends to designate as a hedge of a forecasted transaction or
the variability of cash flows to be received or paid related to
a recognized asset or liability (cash-flow hedge). For all
hedging relationships, the Company formally documents the
hedging relationship and its risk-management objective and
strategy for undertaking the hedge, the hedging instrument, the
hedged item, the nature of the risk being hedged, how the
hedging instruments effectiveness in offsetting the hedged
risk will be assessed prospectively and retrospectively, and a
description of the method of measuring ineffectiveness. The
Company also formally assesses, both at the hedges
inception and on an ongoing basis, whether the derivatives that
are used in hedging transactions are highly effective in
offsetting cash flows of hedged items. Changes in the fair value
of a derivative that is highly effective and that is designated
and qualifies as a cash-flow hedge are recorded in accumulated
other comprehensive income to the extent that the derivative is
effective as a hedge, until earnings are affected by the
variability in cash flows of the designated hedged item. The
ineffective portion of the change in fair value of a derivative
instrument that qualifies as a cash-flow hedge is reported in
earnings.
|
|
11.
|
Share-Based
Payment Arrangements
|
Share-based payment programs include both the issuance of stock
options, and the issuance of restricted stock units (RSU). Stock
options and RSUs have been granted to employees under the 1997
Stock Option Plan, which was replaced with the 2007 Omnibus
Incentive Plan that shareholders of the Company approved in June
2007 and later amended and restated in October 2008 to clarify
the number of shares of the Companys common stock
available to be granted pursuant to the 2007 Omnibus Incentive
Plan. The Company has issued 50,000 options and 857,080
restricted stock units under the 2007 Omnibus Incentive Plan as
of December 31, 2008. The options, which were issued in
June 2008, have an exercise price of $6.00 (which was 118% of
the fair market price), vest over a four-year period at 25% per
year, and expire in June 2018, ten years from the grant date.
Historically, option grants have either included those that vest
over an eight-year period, expire ten years from date of grant
and are granted at 125% of the stocks fair market value on
the date of grant, or those that have exercise prices at the
stocks fair market value on the date of grant, vest over a
four-year period at 25% per year, and expire five years from the
date of grant. The RSUs, which were issued in December 2008,
vest in four equal annual installments beginning in December
2009.
The Company applies the Black-Scholes valuation model in
determining the fair value of stock option grants to employees,
which is then recognized as expense over the requisite service
period. RSU expense is based on the fair value of
infoGROUP common stock on the date of grant and is
amortized over the vesting period. Compensation expense is
recognized only for those options and restricted stock units
expected to vest, with forfeitures estimated based on the
Companys historical experience and future expectations.
Stock-based employee compensation expense was $0.5 million
in 2008, $0.8 million in 2007 and $1.2 million in 2006
on income before income taxes, and is included in selling,
general and administrative expenses within the consolidated
statement of operations. Related income tax benefits recognized
in earnings were $0.2 million in 2008, $0.3 million in
2007 and $0.4 million in 2006.
The Company granted 50,000 options during 2008, and no options
during 2007 or 2006.
75
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The fair value of stock options granted was estimated using a
Black-Scholes valuation model with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Risk-free interest rate
|
|
|
3.22
|
%
|
|
|
|
*
|
|
|
|
*
|
Expected dividend yield
|
|
|
6.86
|
%
|
|
|
|
*
|
|
|
|
*
|
Expected volatility
|
|
|
40.69
|
%
|
|
|
|
*
|
|
|
|
*
|
Expected term (in years)
|
|
|
4.0
|
|
|
|
|
*
|
|
|
|
*
|
|
|
|
* |
|
Not applicable as there were no grants in 2007 or 2006. |
The risk-free interest rate assumptions were based on an average
of the
3-year and
5-year U.S
Treasury note yields at the date of grant. The expected dividend
yield was based on the dividend rate of $0.35 and the
Companys common stock price of $5.10 on the date of grant.
The expected volatility was based on historical daily price
changes of the Companys common stock since June 2004. The
expected term was based on the historical exercise behavior and
the weighted average of the vesting period and the contractual
term.
The following table summarizes stock option plan activity for
the years ended December 31, 2008, 2007 and 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining
|
|
|
Value at
|
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
December 31,
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (Year)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2005
|
|
|
3,777,969
|
|
|
$
|
9.10
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,434,817
|
)
|
|
|
8.24
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(29,441
|
)
|
|
|
7.42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
2,313,711
|
|
|
|
9.67
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(774,893
|
)
|
|
|
8.04
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(855,000
|
)
|
|
|
9.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
683,818
|
|
|
|
11.37
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
50,000
|
|
|
|
6.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(31,564
|
)
|
|
|
5.37
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(132,254
|
)
|
|
|
7.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
570,000
|
|
|
|
12.09
|
|
|
|
6.45
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at December 31, 2008
|
|
|
158,999
|
|
|
|
12.71
|
|
|
|
6.15
|
|
|
$
|
|
|
The total intrinsic value of share options exercised was $29
thousand for the year ended December 31, 2008,
$1.1 million for the year ended December 31, 2007 and
$6.5 million for the year ended December 31, 2006. As
of December 31, 2008, the total unrecognized compensation
cost related to nonvested stock option awards was approximately
$0.7 million, which is expected to be recognized over a
remaining weighted average period of 1.49 years.
76
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following table summarizes RSU activity for the year ended
December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
Average
|
|
|
Average
|
|
|
Remaining
|
|
|
Value at
|
|
|
|
Number of
|
|
|
Intrinsic
|
|
|
Contractual
|
|
|
December 31,
|
|
|
|
RSUs
|
|
|
Value
|
|
|
Term (Year)
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding at December 31, 2007
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
857,080
|
|
|
|
4.23
|
|
|
|
|
|
|
|
|
|
Converted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008
|
|
|
857,080
|
|
|
|
4.74
|
|
|
|
9.98
|
|
|
$
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
There were no RSUs in 2007 or 2006. |
As of December 31, 2008, the total unrecognized
compensation cost related to nonvested RSU grants was
approximately $3.6 million, which is expected to be
recognized over a remaining weighted average period of
2.11 years.
As of December 31, 2008, 3.6 million shares were
available for additional option grants and RSU grants.
Employees who meet certain eligibility requirements can
participate in the Companys 401(k) savings and investment
plans. Under the plans, the Company may, at its discretion,
match a percentage of the employee contributions. The Company
recorded expenses for matching contributions totaling
$6.2 million, $6.0 million, and $2.4 million in
the years ended December 31, 2008, 2007 and 2006,
respectively.
Under all plans, excluding the Marketing Research plans, the
Company can make matching contributions to a plan by using
Company common stock. Contribution expense is measured as the
fair value of the Companys common stock on the date of the
grant. During 2008, the Company contributed 481,798 shares
at a recorded value of $2.7 million. During 2007, the
Company contributed 270,461 shares at a recorded value of
$2.8 million. During 2006, the Company contributed
228,243 shares at a recorded value of $2.4 million.
The Opinion Research plan is a defined contribution pension
plan. $0.4 million and $0.4 million was contributed to
the Opinion Research plan in 2008 and 2007, respectively. The
Macro International plans are profit sharing plans.
$3.0 million and $2.8 million was contributed to the
Macro International profit sharing plans in 2008 and 2007,
respectively. The Guideline plan is a defined contribution
pension plan. $0.1 million and $0.1 million was
contributed to the Guideline plan in 2008 and 2007, respectively.
|
|
13.
|
Related
Party Transactions
|
The Company has retained the law firm of Robins, Kaplan,
Miller & Ciresi L.L.P. to provide certain legal
services. Elliot Kaplan, a director of the Company, is a name
partner and former Chairman of the Executive Board of Robins,
Kaplan, Miller & Ciresi L.L.P. The Company paid a
total of $0.2 million, $1.7 million and
$1.1 million to this law firm during 2008, 2007 and 2006,
respectively. The 2007 payment included $634,750 for
representation on a contingent fee basis, on a contingent fee
basis, of the Company in the Naviant litigation, the settlement
of which resulted in net proceeds of $9.9 million to the
Company. See Note 16 Commitment and Contingencies for
further discussion of the litigation.
The Company paid $24 thousand for rent and $6 thousand for
association dues during 2008 for a condominium owned by Jess
Gupta, and used by the Company. The Company paid $48 thousand
for rent, and $11 thousand for
77
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
association dues, during 2007 and 2006 for this condominium.
Jess Gupta is the son of Vinod Gupta, the Companys former
Chief Executive Officer. The Companys use of this
condominium was discontinued in August 2008.
During 2008, 2007 and 2006 Everest Inc. (f/k/a Vinod
Gupta & Company, f/k/a Annapurna Corporation) and
Everest Investment Management LLC rented office space in a
building owned by the Company. Everest Inc. and Everest
Investment Management LLC are owned by Mr. Gupta and his
three sons. The reimbursements received by the Company from
Everest Inc. and Everest Investment Management LLC totaled $19
thousand, $21 thousand and $30 thousand during 2008, 2007 and
2006, respectively. Additionally, the Company received
reimbursements for use of office space from PK Ware, Inc., an
entity of which George Haddix, who was a director of the Company
at that time, is a majority shareholder. Reimbursements received
from Dr. Haddix were $6 thousand, $9 thousand and $10
thousand during 2008, 2007 and 2006, respectively. The Company
received $3 thousand for reimbursements for use of office space
from John Staples, III, who is a director of the Company,
during 2008. The use of Company office space between the Company
and each of Dr. Haddix and Mr. Staples was terminated
in September 2008.
The Company received reimbursements from Everest Inc. for shared
personnel services of $19 thousand during 2008. These shared
services were terminated in August 2008. Additionally, the
Company received other miscellaneous expense reimbursements from
Everest Inc. of $14 thousand and $1 thousand during 2008 and
2006, respectively.
The Company paid $8 thousand to Vinod Gupta Charitable
Foundation during 2007 for reimbursement of expenses of an
individuals travel to a Company event. Vinod Gupta
Charitable Foundation is 100% owned by Mr. Gupta.
During 2006, the Company purchased 33,000 shares of Opinion
Research Corporation common stock from the Vinod Gupta Revocable
Trust for $0.2 million. Vinod Gupta Revocable Trust is 100%
owned by Mr. Gupta. In addition, the Company received a
payment for $0.1 million from the Vinod Gupta Revocable
Trust associated with gains he had previously received upon the
sale of Opinion Research Corporation common stock.
During 2006, the Company received a payment from the Vinod Gupta
Revocable Trust for $0.1 million for reimbursement for
short-swing profits Mr. Gupta had previously received upon
the sale of the Companys common stock.
During 2006, the Company paid $22 thousand to Corporate
Avengers, LLC. Corporate Avengers provided marketing services to
the Company for the time period February 2006 through December
2006. Corporate Avengers is owned by Ben Gottesman and Aaron
Gottesman. Ben Gottesman is the son of Mr. Guptas
wife, Laurel Gupta. Aaron Gottesman is Laurel Guptas
ex-husbands son.
|
|
14.
|
Supplemental
Cash Flow Information
|
The Company made certain acquisitions during 2008, 2007 and 2006
(See Note 3) and assumed liabilities as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Fair value of assets acquired
|
|
$
|
51,567
|
|
|
$
|
83,128
|
|
|
$
|
210,569
|
|
Cash paid
|
|
|
(19,065
|
)
|
|
|
(57,066
|
)
|
|
|
(146,064
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities assumed
|
|
$
|
32,502
|
|
|
$
|
26,062
|
|
|
$
|
64,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company acquired property and equipment and other assets
under capital lease obligations or financing arrangements
totaling $1.1 million, $6.0 million and
$3.9 million, in the years ended December 31, 2008,
2007 and 2006, respectively.
78
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
15.
|
Fair
Value of Financial Instruments
|
The following table presents the carrying amounts and estimated
fair values of the Companys financial instruments at
December 31, 2008 and 2007. 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, 2008
|
|
|
December 31, 2007
|
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
Amount
|
|
|
Fair Value
|
|
|
Amount
|
|
|
Fair Value
|
|
|
|
(Amounts in thousands)
|
|
|
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,818
|
|
|
$
|
4,818
|
|
|
$
|
9,924
|
|
|
$
|
9,924
|
|
Marketable securities
|
|
|
992
|
|
|
|
992
|
|
|
|
2,285
|
|
|
|
2,285
|
|
Other assets non-marketable investment securities
|
|
|
116
|
|
|
|
116
|
|
|
|
377
|
|
|
|
377
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
300,644
|
|
|
|
309,248
|
|
|
|
283,227
|
|
|
|
283,865
|
|
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. In accordance with
SFAS 157, the fair values of debt securities and equity
investments are level 1 inputs as the values are based on
quoted market prices at the reporting date for those or similar
investments.
Other assets, including non-marketable investment
securities. 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. All debt obligations are
valued at the discounted amount of future cash flows. At
December 31, 2008, the fair value of our long-term debt is
based on quoted market prices at the reporting date or is
estimated by discounting the future cash flows of each
instrument at market Treasury rates for similar debt instruments
of comparable maturities.
|
|
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 2018. Certain
of these leases contain renewal options. Rent expense on
operating lease agreements was $19.8 million,
$17.8 million and $8.6 million, in the years ended
December 31, 2008, 2007 and 2006, respectively. The
increase in rent expense since 2005 is due to the rent expense
incurred for Companys acquired during 2006, 2007 and 2008.
The balance of deferred rent liabilities as of December 31,
2008 and December 31, 2007 was $3.8 million and
$1.5 million, respectively.
79
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Following is a schedule of the future minimum lease payments as
of December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
Operating
|
|
|
|
(In thousands)
|
|
|
2009
|
|
$
|
1,319
|
|
|
$
|
16,593
|
|
2010
|
|
|
1,069
|
|
|
|
12,897
|
|
2011
|
|
|
314
|
|
|
|
10,897
|
|
2012
|
|
|
24
|
|
|
|
9,698
|
|
2013
|
|
|
|
|
|
|
6,019
|
|
Thereafter
|
|
|
|
|
|
|
4,537
|
|
|
|
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
2,726
|
|
|
$
|
60,641
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
(257
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease payments
|
|
$
|
2,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In February 2006, Cardinal Value Equity Partners, L.P.
(Cardinal) filed a derivative lawsuit in the Court
of Chancery for the State of Delaware in and for New Castle
County (the Court), against certain current and
former directors of the Company, and the Company, asserting
claims for breach of fiduciary duty. In October 2006, Dolphin
Limited Partnership I, L.P., Dolphin Financial Partners,
L.L.C. and Robert Bartow (collectively with Cardinal, the
Plaintiffs) filed a derivative lawsuit in the Court
against certain current and former directors of the Company, and
the Company as a nominal defendant, claiming breach of fiduciary
duty and misuse of corporate assets. In January 2007, the Court
granted the defendants motion to consolidate the actions
(as consolidated, the Derivative Litigation).
In November 2007, the Company received a request from the Denver
Regional Office of the Securities and Exchange Commission
(SEC) asking the Company to produce voluntarily
certain documents as part of an SEC investigation. The requested
documents relate to the allegations made in the Derivative
Litigation, as well as related party transactions, expense
reimbursement, other corporate expenditures, and certain trading
in the Companys securities. The Special Litigation
Committee, the formation and activities of which are described
in more detail below, has reported the results of its
investigation to the SEC. The SEC has issued subpoenas to the
Company and a number of its current and former directors and
officers, and the Company intends to continue to cooperate fully
with the SECs requests. Because the investigation is
ongoing, the Company cannot predict the outcome of the
investigation or its impact on the Companys business.
In December 2007, the Companys Board of Directors formed a
Special Litigation Committee (the SLC) in response
to the Derivative Litigation and the SECs investigation.
The SLC, which consisted of five independent Board members,
conducted an investigation of the issues in the Derivative
Litigation and the SECs informal investigation, as well as
other related matters. Based on its review, the SLC determined,
on July 16, 2008, that various related party transactions,
expense reimbursements and corporate expenditures were excessive
and, in response, approved a series of remedial actions. The
remedial actions are set forth in Item 9A, Controls
and Procedures in the Companys Annual Report on
Form 10-K/A
for the year ended December 31, 2007, which was filed on
March 16, 2009.
The SLC conducted settlement discussions on behalf of the
Company with all relevant parties, including the current and
former directors of the Company named in the suit, Vinod Gupta
and the Plaintiffs. On August 20, 2008, all relevant
parties entered into a Stipulation of Settlement, the material
terms of which are set forth in the Companys Current
Report on
Form 8-K/A
filed on August 22, 2008. A number of remedial measures
were adopted and implemented in conjunction with the Stipulation
of Settlement.
Under the terms of the Stipulation of Settlement, Vinod Gupta
resigned as Chief Executive Officer of the Company on
August 20, 2008. Mr. Gupta and the Company entered
into a Separation Agreement and General
80
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Release dated August 20, 2008 (the Separation
Agreement), under which Mr. Gupta granted a release
of certain claims against the Company related to the Derivative
Litigation and the SLCs investigation and received the
right to severance payments totaling $10.0 million
(contingent on Mr. Gupta adhering to certain requirements
in the Separation Agreement and Stipulation of Settlement). The
Company also granted a release of certain claims against
Mr. Gupta related to the Derivative Litigation and the
SLCs investigation. The first severance payment in the
amount of $5.0 million, which was due within sixty days of
execution of the Separation Agreement, was paid by the Company
to Mr. Gupta on October 17, 2008.
Pursuant to the Stipulation of Settlement, Mr. Gupta has
agreed to pay the Company $9.0 million incrementally over
four years. This receivable was recorded within equity as a note
receivable from shareholder on the consolidated balance sheet.
The corresponding contribution was reduced by $2.5 million
for federal and state income taxes and was recorded within
paid-in capital on the consolidated balance sheet.
Mr. Guptas first payment to the Company, in the
amount of $2.2 million, was received on January 6,
2009.
On November 7, 2008, the Court entered an Order and Final
Judgment approving all the terms of the Stipulation of
Settlement and dismissing the Derivative Litigation with
prejudice. The Courts order also awarded Plaintiffs
counsel fees of $7 million and expenses in the amount of
$210,710, all paid by the Company in December 2008 and included
in selling, general and administrative expenses within the
consolidated statement of operations.
The Company is subject to legal claims and assertions in the
ordinary course of business. Although the outcomes of any other
lawsuits and claims are uncertain, the Company does not believe
that, individually or in the aggregate, any such lawsuits or
claims will have a material effect on its business, financial
conditions, results of operations or liquidity.
|
|
17.
|
Restructuring
Charges
|
The Company recorded restructuring charges during 2008, 2007 and
2006 of $8.3 million, $10.0 million and
$3.7 million, respectively, which are included within
selling, general and administrative expenses on the consolidated
statement of operations. These costs related to workforce
reductions as a part of the Companys continuing strategy
to reduce unnecessary costs and focus on core operations, the
restructuring of the infoUSA National Accounts operations
that occurred in 2007, as well as the restructuring of the
Hill-Donnelly print operations in 2007. 2008 restructuring
charges included workforce reduction charges for involuntary
employee separation costs for approximately 250 employees
for $6.3 million, which included $1.7 million and
$1.5 million related to the elimination of several
management positions for Guideline, Inc. and Direct Media, Inc.,
respectively. Additionally, during 2008 the Company recorded
$2.0 million in facility closure costs. The workforce
reduction charges included involuntary employee separation costs
during 2007 for 325 employees, and during 2006 for
200 employees.
In February 2007, the Company announced the closing of the
Hill-Donnelly printing facility in Tampa, Florida. The facility
was closed in July 2007 and the operations were moved to Omaha,
Nebraska. The total amount incurred in connection with the
restructuring for 2007 was $0.5 million, which included
$0.4 million for employee separation costs for workforce
reductions charges for approximately 33 employees, and
$0.1 million for facility reduction costs.
The Company announced in December 2006 the plan to restructure
the infoUSA National Accounts operations, which included
the closing of the Ames, Iowa client service and technology
facility, and the movement of client services teams and
management personnel from the Woodcliff Lake, New Jersey
facility to Omaha, Nebraska. The infoUSA National
Accounts restructuring was completed by December 31, 2007.
During 2007, $5.8 million was incurred for these
restructuring costs, which included $3.5 million for
contract termination and other related costs and
$2.3 million for workforce reductions charges for
approximately 73 employees.
In December 2006, the Company acquired Opinion Research
Corporation. In accordance with Emerging Issues Task Force
(EITF) Issue
No. 95-3,
Recognition of Liabilities in Connection with a Purchase
Business Combination, the Company identified costs which are
related to the purchase of Opinion Research and have been
81
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
accrued for as of December 31, 2007. The costs included in
the accrual as of December 31, 2007 are for the closure of
the Taiwan office, and the reduction of office space in the
Princeton, New Jersey; Maumee, Ohio; and United Kingdom offices,
as well as employee separation costs in each location.
The following table summarizes activity related to the
restructuring charges recorded by the Company for the year ended
December 31, 2006, 2007 and 2008, including both the
restructuring accrual balances and those costs expensed and paid
within the same period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2005
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
2006
|
|
|
|
Beginning
|
|
|
Amounts
|
|
|
From
|
|
|
Amounts
|
|
|
Ending
|
|
|
|
Accrual
|
|
|
Expensed
|
|
|
Acquisitions
|
|
|
Paid
|
|
|
Accrual
|
|
|
|
(In thousands)
|
|
|
Data Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
1,039
|
|
|
$
|
2,255
|
|
|
$
|
|
|
|
$
|
2,463
|
|
|
$
|
831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
675
|
|
|
$
|
1,287
|
|
|
$
|
103
|
|
|
$
|
1,633
|
|
|
$
|
432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
82
|
|
|
$
|
230
|
|
|
$
|
|
|
|
$
|
282
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2006
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
2007
|
|
|
|
Beginning
|
|
|
Amounts
|
|
|
From
|
|
|
Amounts
|
|
|
Ending
|
|
|
|
Accrual
|
|
|
Expensed
|
|
|
Acquisitions
|
|
|
Paid
|
|
|
Accrual
|
|
|
|
(In thousands)
|
|
|
Data Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
831
|
|
|
$
|
4,592
|
|
|
$
|
5
|
|
|
$
|
3,234
|
|
|
$
|
2,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
$
|
|
|
|
$
|
3,073
|
|
|
$
|
|
|
|
$
|
3,047
|
|
|
$
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
|
|
|
$
|
685
|
|
|
$
|
|
|
|
$
|
685
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
432
|
|
|
$
|
1,378
|
|
|
$
|
|
|
|
$
|
1,305
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,797
|
|
|
$
|
1,231
|
|
|
$
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
|
|
|
$
|
|
|
|
$
|
3,370
|
|
|
$
|
782
|
|
|
$
|
2,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
30
|
|
|
$
|
321
|
|
|
$
|
|
|
|
$
|
173
|
|
|
$
|
178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
82
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
|
|
|
Amounts
|
|
|
|
|
|
2008
|
|
|
|
Beginning
|
|
|
Amounts
|
|
|
From
|
|
|
Amounts
|
|
|
Ending
|
|
|
|
Accrual
|
|
|
Expensed
|
|
|
Acquisitions
|
|
|
Paid
|
|
|
Accrual
|
|
|
|
(In thousands)
|
|
|
Data Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
2,194
|
|
|
$
|
1,217
|
|
|
$
|
|
|
|
$
|
2,936
|
|
|
$
|
475
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other associated costs
|
|
$
|
26
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
26
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
|
|
|
$
|
301
|
|
|
$
|
|
|
|
$
|
158
|
|
|
$
|
143
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
505
|
|
|
$
|
2,330
|
|
|
$
|
|
|
|
$
|
1,004
|
|
|
$
|
1,831
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
|
|
|
$
|
1,335
|
|
|
$
|
|
|
|
$
|
1,335
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research Group:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
566
|
|
|
$
|
1,777
|
|
|
$
|
|
|
|
$
|
1,538
|
|
|
$
|
805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
2,588
|
|
|
$
|
|
|
|
$
|
(1,524
|
)
|
|
$
|
1,064
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee separation costs
|
|
$
|
178
|
|
|
$
|
1,010
|
|
|
$
|
|
|
|
$
|
485
|
|
|
$
|
703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract termination costs
|
|
$
|
|
|
|
$
|
355
|
|
|
$
|
|
|
|
$
|
59
|
|
|
$
|
296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
6,216
|
|
|
$
|
20,547
|
|
|
$
|
20,334
|
|
Foreign
|
|
|
2,027
|
|
|
|
2,379
|
|
|
|
574
|
|
State
|
|
|
835
|
|
|
|
4,339
|
|
|
|
1,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,078
|
|
|
|
27,265
|
|
|
|
22,155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(3,062
|
)
|
|
|
(1,203
|
)
|
|
|
(2,261
|
)
|
Foreign
|
|
|
(354
|
)
|
|
|
323
|
|
|
|
166
|
|
State
|
|
|
(206
|
)
|
|
|
(579
|
)
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,622
|
)
|
|
|
(1,459
|
)
|
|
|
(2,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,456
|
|
|
$
|
25,806
|
|
|
$
|
19,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
83
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The items accounting for the difference between income taxes
computed at the statutory rate and the provision for income
taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(In thousands)
|
|
|
Expected Federal income taxes at statutory rate of 35%
|
|
$
|
3,594
|
|
|
$
|
23,355
|
|
|
$
|
18,634
|
|
State taxes, net of Federal effects
|
|
|
408
|
|
|
|
2,465
|
|
|
|
732
|
|
Foreign income
|
|
|
1,201
|
|
|
|
1,518
|
|
|
|
504
|
|
Foreign tax credit
|
|
|
(1,138
|
)
|
|
|
(1,404
|
)
|
|
|
(347
|
)
|
Acquisition adjustment
|
|
|
353
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,038
|
|
|
|
(128
|
)
|
|
|
416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,456
|
|
|
$
|
25,806
|
|
|
$
|
19,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the deferred tax assets (liabilities) were as
follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Unrealized losses
|
|
$
|
2,569
|
|
|
$
|
360
|
|
Pension plan obligation
|
|
|
572
|
|
|
|
230
|
|
Accounts receivable
|
|
|
1,029
|
|
|
|
968
|
|
Accrued compensation
|
|
|
8,493
|
|
|
|
6,521
|
|
Professional fees
|
|
|
1,769
|
|
|
|
1,142
|
|
Depreciation
|
|
|
3,035
|
|
|
|
4,227
|
|
Net operating losses
|
|
|
8,761
|
|
|
|
4,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,228
|
|
|
|
18,148
|
|
Less: valuation allowance
|
|
|
(3,000
|
)
|
|
|
(3,239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
23,228
|
|
|
|
14,909
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Unrealized gains
|
|
|
(378
|
)
|
|
|
(900
|
)
|
Intangible assets
|
|
|
(38,138
|
)
|
|
|
(38,097
|
)
|
Deferred marketing costs
|
|
|
(356
|
)
|
|
|
(791
|
)
|
Prepaid expense and other
|
|
|
(2,231
|
)
|
|
|
(2,126
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net
|
|
$
|
(17,875
|
)
|
|
$
|
(27,005
|
)
|
|
|
|
|
|
|
|
|
|
The Company has recognized deferred tax assets of
$23.2 million, net of a valuation allowance of
$3.0 million, as of December 31, 2008. 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.
84
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Companys valuation allowance decreased by
$0.2 million during the fiscal year 2008, primarily due to
changes in state apportionment factors and rates.
The Company had Federal net operating loss carryforwards (NOLs)
for tax purposes totaling $2.8 million at December 31,
2008, that expire between 2023 and 2025. The utilization of some
of these NOLs is limited pursuant to Section 382 of the
Internal Revenue Code as a result of prior ownership changes.
The Company had Foreign Tax Credits carry forwards totaling
$1.4 million at December 31, 2008, that expire between
2016 and 2018.
The Company had state NOLs (net of Federal effect) of
$3.4 million as of December 31, 2008, that expire
between 2009 and 2022. A valuation allowance has been provided
for $3.0 million of these deferred tax assets as management
believes these carryforwards are more likely than not to expire
unused due to some subsidiaries with historical or projected
losses.
The Company adopted the provisions of FIN 48 on
January 1, 2007. As a result of adoption, deferred income
tax liabilities decreased by $7.5 million and the liability
for unrecognized tax benefits increased by $7.5 million.
There was no effect on the Companys stockholders
equity upon the Companys adoption of FIN 48.
The net amount of unrecognized tax benefits at December 31,
2008 that, if recognized, would impact the Companys
effective tax rate was $0.7 million. Recognition of these
tax benefits would have a favorable impact on the Companys
effective tax rate.
The Company estimates that it is reasonably possible that the
amount of gross unrecognized tax benefits will decrease by
$0.2 million over the next twelve months due to various
federal, state, and foreign audit settlements and the expiration
of statutes of limitations.
A reconciliation of the beginning and ending amount of
unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
Liability for
|
|
|
|
Unrecognized
|
|
|
|
Tax Benefits
|
|
|
|
(In thousands)
|
|
|
Balance at January 1, 2008
|
|
$
|
2,688
|
|
Increases from positions established during the current period
|
|
|
1,515
|
|
Decreases from positions established during the current period
|
|
|
(1,578
|
)
|
Decreases related to settlement with taxing authorities
|
|
|
(187
|
)
|
Decreases for lapse of statute of limitations
|
|
|
(611
|
)
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
1,827
|
|
|
|
|
|
|
The statute of limitations related to the consolidated Federal
income tax return is closed for all tax years up to and
including 2004. The expiration of the statute of limitations
related to the various state income tax returns that the Company
and subsidiaries file, varies by state.
The Companys policy is to recognize potential interest and
penalties related to unrecognized tax benefits in income tax
expense. For the year ended December 31, 2008, the amount
of penalties and interest recognized as income tax expense was
$341,788.
The Company currently reports results in three segments: the
Data Group, the Services Group and the Marketing Research Group.
The Company continues to report administrative functions in the
Corporate Activities Group.
85
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Services Group consists of subsidiaries providing customer
data management and brokerage services,
e-mail
marketing services, and catalog marketing services.
The Data Group consists of infoUSA National Accounts,
OneSource, Database License, and the Small and Medium Sized
Business Group. The Data Group also includes the compilation and
verification costs of the Companys proprietary databases,
and corporate technology.
The Marketing Research Group was established in 2006 with the
Companys acquisition of Opinion Research Corporation. The
Marketing Research Group provides customer surveys, opinion
polling, and other market research services for business,
through its Opinion Research division, and for government,
through its Macro International division. The Marketing Research
Group also includes the results from Guideline, Inc., NWC
Research, and Northwest Research Group, all of which are
research companies acquired by the Company during 2007.
The Data Group, Services Group and Marketing Research Group
reflect actual net sales, order production costs, identifiable
direct sales and marketing costs, and depreciation and
amortization expense. The remaining indirect costs are presented
in corporate activities.
The Corporate Activities Group includes administrative functions
of the Company and other income (expense), including interest
expense, investment income and other identified gains (losses).
Goodwill for the Data Group remained relatively flat, with a
decrease to $255.1 million at December 31, 2008 from
$256.5 million at December 31, 2007. The decrease in
goodwill for the Data Group was the result of a purchase entry
adjustment to correct deferred income taxes related to the
acquisition of OneSource and adjustment for change in foreign
currency for our Canadian acquisitions. Goodwill for the
Services Group increased to $70.6 million at
December 31, 2008 from $63.5 million at
December 31, 2007. The increase in goodwill for the
Services Group is due to the addition of the acquisition of
Direct Media, Inc. in January 2008. Goodwill for the Marketing
Research Group decreased to $92.8 million at
December 31, 2008 from $95.0 million at
December 31, 2007. The decrease in goodwill for the
Marketing Research Group is due to subsequent purchase
accounting adjustments for the Guideline, Inc. and Opinion
Research Corporation acquisitions made as a result of receiving
new information about items that existed as of the acquisition
date, as well as an adjustment for the change in foreign
currency for the Companys Australian acquisition.
The following table summarizes segment information, which
excludes total assets since we do not prepare separate balance
sheets by segment and, as a result, assets are not separately
identifiable by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
|
|
|
|
|
|
|
|
Data
|
|
|
Services
|
|
|
Research
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
Activities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
309,477
|
|
|
$
|
163,308
|
|
|
$
|
265,485
|
|
|
$
|
|
|
|
$
|
738,270
|
|
Operating income (loss)
|
|
|
65,248
|
|
|
|
29,594
|
|
|
|
14,907
|
|
|
|
(81,565
|
)
|
|
|
28,184
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,660
|
|
|
|
1,660
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,143
|
)
|
|
|
(18,143
|
)
|
Other charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,434
|
)
|
|
|
(1,434
|
)
|
Income (loss) before income taxes
|
|
|
65,248
|
|
|
|
29,594
|
|
|
|
14,907
|
|
|
|
(99,482
|
)
|
|
|
10,267
|
|
Goodwill
|
|
|
255,085
|
|
|
|
70,558
|
|
|
|
92,833
|
|
|
|
|
|
|
|
418,476
|
|
86
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
|
|
|
|
|
|
|
|
Data
|
|
|
Services
|
|
|
Research
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
Activities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
330,488
|
|
|
$
|
136,783
|
|
|
$
|
221,502
|
|
|
$
|
|
|
|
$
|
688,773
|
|
Operating income (loss)
|
|
|
88,395
|
|
|
|
33,363
|
|
|
|
10,160
|
|
|
|
(45,391
|
)
|
|
|
86,527
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
617
|
|
|
|
617
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,995
|
)
|
|
|
(20,995
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
599
|
|
|
|
599
|
|
Income (loss) before income taxes
|
|
|
88,395
|
|
|
|
33,363
|
|
|
|
10,160
|
|
|
|
(65,170
|
)
|
|
|
66,748
|
|
Goodwill
|
|
|
256,526
|
|
|
|
63,510
|
|
|
|
95,039
|
|
|
|
|
|
|
|
415,075
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2006
|
|
|
|
|
|
|
|
|
|
Marketing
|
|
|
|
|
|
|
|
|
|
Data
|
|
|
Services
|
|
|
Research
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
|
Group
|
|
|
Group
|
|
|
Group
|
|
|
Activities
|
|
|
Total
|
|
|
|
(In thousands)
|
|
|
Net sales
|
|
$
|
299,357
|
|
|
$
|
120,892
|
|
|
$
|
14,627
|
|
|
$
|
|
|
|
$
|
434,876
|
|
Operating income (loss)
|
|
|
66,034
|
|
|
|
29,162
|
|
|
|
497
|
|
|
|
(31,149
|
)
|
|
|
64,544
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,410
|
)
|
|
|
(11,410
|
)
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
112
|
|
Income (loss) before income taxes
|
|
|
66,034
|
|
|
|
29,162
|
|
|
|
497
|
|
|
|
(42,454
|
)
|
|
|
53,239
|
|
Goodwill
|
|
|
254,048
|
|
|
|
65,822
|
|
|
|
61,879
|
|
|
|
|
|
|
|
381,749
|
|
On January 6, 2009, pursuant to the Stipulation of
Settlement, Mr. Gupta paid the Company $2.2 million,
which is the first payment of the total $9.0 million that
will be paid incrementally over four years. In 2009 the Company
will record this receipt within equity as an offset to the note
receivable from shareholder previously recorded on the
consolidated balance sheet.
|
|
21.
|
Staff
Accounting Bulletin 108 (SAB 108)
|
In September 2006, the SEC released Staff Accounting
Bulletin 108, (SAB 108). The transition
provisions of SAB 108 permit the Company to adjust for the
cumulative effect on retained earnings of errors relating to
prior years. In accordance with SAB 108, the Company
adjusted beginning retained earnings for fiscal 2006 in the
accompanying consolidated balance sheet for the items described
below which had previously been considered immaterial.
Cash: The Company adjusted its beginning
retained earnings for fiscal 2006 related to a historical
difference between the detail supporting schedules for cash and
cash recorded in the general ledger. It was determined that the
Company had improperly included approximately $2.1 million
in reconciling items resulting from an accounting system
conversion prior to 2001.
Accounts Receivable Adjustment: The Company
adjusted its beginning retained earnings for fiscal 2006 related
to a historical difference between the accounts receivable
reconciliation and the accounts receivable consolidated
subsidiary primarily due to a reconciling item improperly
included in the reconciliation at the time of an accounting
system conversion prior to 2001. This resulted in an adjustment
of $1.8 million.
87
infoGROUP
INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Property and Equipment: The Company adjusted
its beginning retained earnings for fiscal 2006 related to a
historical difference between the detail supporting schedules
for property and equipment and property and equipment recorded
in a consolidated subsidiary. It was determined the Company had
recorded $0.8 million more expense than necessary in prior
years when recording depreciation expense for a particular
asset. This resulted in an adjustment of $0.8 million.
The cumulative effect of each of the items noted above on fiscal
2006 beginning balances are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
Property and
|
|
|
Retained
|
|
Description
|
|
Assets
|
|
|
Equipment
|
|
|
Earnings
|
|
|
|
(Amounts in thousands)
|
|
|
Cash
|
|
$
|
(2,089
|
)
|
|
$
|
|
|
|
$
|
(2,089
|
)
|
Accounts receivable
|
|
|
(1,823
|
)
|
|
|
|
|
|
|
(1,823
|
)
|
Property and equipment
|
|
|
|
|
|
|
758
|
|
|
|
758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(3,912
|
)
|
|
$
|
758
|
|
|
$
|
(3,154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
infoGROUP
INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
Charged to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Other
|
|
|
|
|
|
End of
|
|
Description
|
|
of Period
|
|
|
Expenses
|
|
|
Accounts*
|
|
|
Deductions
|
|
|
Period
|
|
|
|
(In thousands)
|
|
|
Allowance for doubtful accounts receivable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A
|
)
|
|
|
|
|
December 31, 2006
|
|
$
|
1,292
|
|
|
$
|
1,104
|
|
|
$
|
90
|
|
|
$
|
1,608
|
|
|
$
|
878
|
|
December 31, 2007
|
|
$
|
878
|
|
|
$
|
4,615
|
|
|
$
|
34
|
|
|
$
|
3,060
|
|
|
$
|
2,467
|
|
December 31, 2008
|
|
$
|
2,467
|
|
|
$
|
2,636
|
|
|
$
|
352
|
|
|
$
|
2,747
|
|
|
$
|
2,708
|
|
Allowance for sales returns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B
|
)
|
|
|
|
|
December 31, 2006
|
|
$
|
|
|
|
$
|
368
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
368
|
|
December 31, 2007
|
|
$
|
368
|
|
|
$
|
289
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
657
|
|
December 31, 2008
|
|
$
|
657
|
|
|
$
|
(109
|
)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
548
|
|
|
|
|
* |
|
Recorded as a result of acquisitions |
|
(A) |
|
Charge-offs during the period indicated |
|
(B) |
|
Returns processed during the period indicated |
See accompanying independent auditors report.
89
EXHIBIT INDEX
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
2
|
.1
|
|
|
|
Agreement and Plan of Merger, dated as June 28, 2007, by
and among infoUSA Inc., Knickerbocker Acquisition Corp.
and Guideline, Inc., incorporated herein by reference to
Exhibit 2.1 filed with our Current Report on
Form 8-K,
filed July 5, 2007
|
|
3
|
.1
|
|
|
|
Certificate of Incorporation, as amended through
October 22, 1999, incorporated herein by reference to
exhibits filed with our Registration Statement on
Form 8-A,
as amended, filed March 20, 2000
|
|
3
|
.2
|
|
|
|
Amended and Restated Certificate of Designation of Participating
Preferred Stock, filed in Delaware on October 22, 1999,
incorporated herein by reference to exhibits filed with our
Registration Statement on
Form 8-A,
as amended, filed March 20, 2000
|
|
3
|
.3
|
|
|
|
Certificate of Ownership and Merger effecting the name change to
infoGROUP Inc., incorporated herein by reference to
Exhibit 3.1 filed with our Current Report on
Form 8-K,
filed June 4, 2008
|
|
3
|
.4
|
|
|
|
Amended and Restated Bylaws incorporated by reference to
Exhibit 3.4 filed with our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, filed
August 8, 2008
|
|
4
|
.1
|
|
|
|
Preferred Share Rights Agreement, incorporated herein by
reference to our Registration Statement on
Form 8-A,
as amended, filed March 20, 2000
|
|
4
|
.2
|
|
|
|
Specimen of Common stock Certificate, incorporated herein by
reference to the exhibits filed with our Registration Statement
on
Form 8-A,
as amended, filed March 20, 2000
|
|
10
|
.1
|
|
|
|
Second Amended and Restated Credit Agreement among
infoUSA Inc., various Lenders named therein, LaSalle Bank
National Association and Citibank F.S.B., as syndication agents,
Bank of America, N.A., as documentation agent, and Wells Fargo
Bank, National Association, as administrative agent for the
Lenders, dated as of February 14, 2006, incorporated herein
by reference to the exhibits filed with our Current Report on
Form 8-K,
filed February 21, 2006
|
|
10
|
.2
|
|
|
|
Amended and Restated Security Agreement by and among
infoUSA, Inc. and Affiliates and Wells Fargo Bank,
National Association, as Collateral Agent, dated as of
February 14, 2006, incorporated herein by reference to the
exhibits filed with our Current Report on
Form 8-K,
filed February 21, 2006
|
|
10
|
.3
|
|
|
|
Amended and Restated Pledge Agreement by and among
infoUSA, Inc. and Affiliates and Wells Fargo Bank,
National Association, as Administrative Agent, dated as of
February 14, 2006, incorporated herein by reference to the
exhibits filed with our Current Report on
Form 8-K,
filed February 21, 2006
|
|
10
|
.4
|
|
|
|
Amended and Restated Subsidiaries Guaranty by subsidiaries of
infoUSA, Inc. named therein, dated as of
February 14, 2006, incorporated herein by reference to the
exhibits filed with our Current Report on
Form 8-K,
filed February 21, 2006
|
|
10
|
.5
|
|
|
|
Form of Indemnification Agreement with Officers and Directors is
incorporated herein by reference to exhibits filed with our
Registration Statement on
Form S-1(File
No. 33-51352),
filed August 28, 1992
|
|
10
|
.6
|
|
|
|
1992 Stock Option Plan as amended is incorporated herein by
reference to exhibits filed with our Registration Statement on
Form S-8
(File
No. 333-37865),
filed October 14, 1997
|
|
10
|
.7
|
|
|
|
1997 Stock Option Plan as amended is incorporated herein by
reference to exhibits filed with our Registration Statement on
Form S-8
(File
No. 333-82933),
filed July 15,1999
|
|
10
|
.8
|
|
|
|
Severance Agreement dated February 13, 2006, between
infoUSA Inc. and Edward Mallin, incorporated herein by
reference to Exhibit 10.1 filed with our Current Report on
Form 8-K,
filed February 17, 2006
|
|
10
|
.9
|
|
|
|
Severance Agreement dated February 13, 2006, between
infoUSA Inc. and Fred Vakili, incorporated herein by
reference to Exhibit 10.3 filed with our Current Report on
Form 8-K,
filed February 17, 2006
|
|
10
|
.10
|
|
|
|
Severance Agreement dated February 13, 2006, between
infoUSA Inc. and Stormy L. Dean, incorporated herein by
reference to Exhibit 10.4 filed with our Current Report on
Form 8-K,
filed February 17, 2006
|
|
10
|
.11
|
|
|
|
Standstill Agreement dated July 21, 2006 between Vinod
Gupta and infoUSA Inc, incorporated herein by reference
to Exhibit 10.1 filed with the Companys Current
Report on
Form 8-K,
filed July 25, 2006
|
90
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
10
|
.12
|
|
|
|
First Amendment to Second Amended and Restated Credit Agreement,
dated as of March 16, 2007, by and among infoUSA
Inc., the financial institutions a party thereto in the capacity
of a Lender, LaSalle Bank National Association and Citibank,
N.A. (f/k/a Citibank, F.S.B.), as syndication agents, Bank of
America, N.A., as documentation agent, and Wells Fargo Bank,
National Association, as sole lead arranger, sole book runner
and administrative agent, incorporated herein by reference to
Exhibit 4.1 filed with our Current Report on
Form 8-K,
filed March 21, 2007
|
|
10
|
.13
|
|
|
|
Second Amendment to Second Amended and Restated Credit
Agreement, dated as of May 16, 2007, by and among
infoUSA Inc., the financial institutions a party thereto
in the capacity of a Lender, LaSalle Bank National Association
and Citibank, N.A. (f/k/a Citibank, F.S.B.), as syndication
agents, Bank of America, N.A., as documentation agent, and Wells
Fargo Bank, National Association, as sole lead arranger, sole
book runner and administrative agent, incorporated herein by
reference to Exhibit 10.1 filed with our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.14
|
|
|
|
Deed of Trust and Security Agreement, dated as of May 23,
2007, by Ralston Building LLC to Commonwealth Land
Title Insurance Company, as trustee, for the benefit of
Suburban Capital Markets, Inc., incorporated herein by reference
to Exhibit 10.2 filed with our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.15
|
|
|
|
Deed of Trust and Security Agreement, dated as of May 23,
2007, by Papillion Building LLC to Commonwealth Land
Title Insurance Company, as trustee, for the benefit of
Suburban Capital Markets, Inc., incorporated herein by reference
to Exhibit 10.3 filed with our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.16
|
|
|
|
Fixed Rate Note of Ralston Building LLC to the order of Suburban
Capital Markets, Inc., dated May 23, 2007, incorporated
herein by reference to Exhibit 10.4 filed with our Current
Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.17
|
|
|
|
Fixed Rate Note of Papillion Building LLC to the order of
Suburban Capital Markets, Inc., dated May 23, 2007,
incorporated herein by reference to Exhibit 10.5 filed with
our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.18
|
|
|
|
Guaranty, dated May 23, 2007, by infoUSA Inc. for
the benefit of Suburban Capital Markets, Inc., with respect to
Ralston Building LLC, incorporated herein by reference to
Exhibit 10.6 filed with our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.19
|
|
|
|
Guaranty, dated May 23, 2007, by infoUSA Inc. for
the benefit of Suburban Capital Markets, Inc., with respect to
Papillion Building LLC, incorporated herein by reference to
Exhibit 10.7 filed with our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.20
|
|
|
|
Net Lease, dated May 23, 2007, by and between Ralston
Building LLC, as lessor, and infoUSA Inc., as lessee,
incorporated herein by reference to Exhibit 10.8 filed with
our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.21
|
|
|
|
Net Lease, dated May 23, 2007, by and between Papillion
Building LLC, as lessor, and infoUSA Inc., as lessee,
incorporated herein by reference to Exhibit 10.9 filed with
our Current Report on
Form 8-K,
filed May 30, 2007
|
|
10
|
.22
|
|
|
|
Agreement, dated July 20, 2007, between Vinod Gupta and
infoUSA Inc., incorporated herein by reference to
Exhibit 10.2 filed with our Current Report on
Form 8-K,
filed July 26, 2007
|
|
10
|
.23
|
|
|
|
Separation and Consulting Agreement, dated October 12,
2007, between infoUSA Inc. and Monica Messer,
incorporated herein by reference to Exhibit 10.1 filed with
our Current Report on
Form 8-K,
filed October 17, 2007
|
|
10
|
.24
|
|
|
|
Third Amendment to the Second Amended and Restated Credit
Agreement and Waiver of Default, dated March 26, 2008,
among infoUSA Inc., the financial institutions a party
thereto in the capacity of a Lender, LaSalle Bank National
Association and Citibank, N.A., as syndication agents, Bank of
America, N.A., as documentation agent, and Wells Fargo Bank,
National Association, as sole lead arranger, sole book runner
and administrative agent, incorporated herein by reference to
Exhibit 10.1 filed with our Current Report on
Form 8-K,
filed March 28, 2008
|
91
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
No.
|
|
|
|
Description
|
|
|
10
|
.25
|
|
|
|
Fourth Amendment to the Second Amended and Restated Credit
Agreement and Waiver of Default, dated June 27, 2008, among
infoGROUP Inc., the financial institutions a party
thereto in the capacity of a Lender, LaSalle Bank National
Association and Citibank, N.A., as syndication agents, Bank of
America, N.A., as documentation agent, and Wells Fargo Bank,
National Association, as sole lead arranger, sole book runner
and administrative agent, incorporated herein by reference to
Exhibit 10.1 filed with our Current Report on
Form 8-K,
filed July 3, 2008
|
|
10
|
.26
|
|
|
|
Agreement, dated July 18, 2008, between Vinod Gupta and
infoGROUP Inc., incorporated herein by reference to
Exhibit 10.3 filed with our Current Report on
Form 8-K,
filed July 23, 2008
|
|
10
|
.27
|
|
|
|
Employment Agreement between infoGROUP Inc. and Thomas J.
McCusker, dated December 23, 2008 incorporated by reference
to Exhibit 10.1 filed with our Current Report on
Form 8-K
(Film No. 081278413), filed December 31, 2008
|
|
10
|
.28
|
|
|
|
Employment Agreement between infoGROUP Inc. and Thomas
Oberdorf, dated December 23, 2008 incorporated by reference
to Exhibit 10.1 filed with our Current Report on
Form 8-K/A,
filed December 31, 2008
|
|
10
|
.29
|
|
|
|
Employment Agreement between infoGROUP Inc. and Bill L.
Fairfield, dated December 23, 2008 incorporated by
reference to Exhibit 10.1 filed with our Current Report on
Form 8-K
(Film No. 081278384), filed December 31, 2008
|
|
10
|
.30
|
|
|
|
Form of Restricted Stock Unit Agreement incorporated by
reference to Exhibit 10.1 filed with our Current Report on
Form 8-K,
filed December 23, 2008
|
|
10
|
.31
|
|
|
|
infoGROUP Inc. Amended and Restated 2007 Omnibus
Incentive Plan, incorporated herein by reference to
Exhibit 10.5 filed with our Quarterly Report on
Form 10-Q
filed November 10, 2008
|
|
10
|
.32
|
|
|
|
Agreement, dated July 18, 2008, between Vinod Gupta and the
Company, incorporated hereby by reference to Exhibit 10.3
filed with our Current Report on
Form 8-K
filed on July 23, 2008
|
|
10
|
.33
|
|
|
|
Voting Agreement, dated August 20, 2008, by and among the
Company, the Special Litigation Committee and Vinod Gupta,
incorporated herein by reference to Exhibit 10.2 filed with
our Current Report on
Form 8-K/A,
filed August 22, 2008
|
|
10
|
.34
|
|
|
|
Separation Agreement and General Release dated August 20,
2008, between Vinod Gupta and the Company, incorporated herein
by reference to Exhibit 10.6 filed with our Current Report
on
Form 8-K/A,
filed August 22, 2008
|
|
10
|
.35
|
|
|
|
Stipulation of Settlement, dated as of August 20, 2008 by
and among the Company, the Special Litigation Committee, the
plaintiffs to the Derivative Litigation and the defendants to
the Derivative Litigation, incorporated herein by reference to
Exhibit 10.1 filed with the Companys Current Report
on
Form 8-K/A,
filed August 22, 2008
|
|
*21
|
.1
|
|
|
|
Subsidiaries and Jurisdiction of Establishment, filed herewith
|
|
*23
|
.1
|
|
|
|
Consent of Independent Registered Public Accounting Firm, filed
herewith
|
|
*31
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
*31
|
.2
|
|
|
|
Certification of Executive Vice President and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
|
*32
|
.1
|
|
|
|
Certification of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
*32
|
.2
|
|
|
|
Certification of Executive Vice President and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
* Filed herewith
92