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  **UNITED STATES SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C. 20549****FORM 10-Q**   þ **Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934****For the quarterly period ended September 30, 2008****or**   o **Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934****For the transition period from                      to                     ****Commission File Number 0-19598*****info*GROUP Inc.** (Exact name of registrant specified in its charter)   DELAWARE 47-0751545   (State or other jurisdiction of (I.R.S. Employer Identificationincorporation or organization) Number)   5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127   (Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code (402) 593-4500*N/A* (Former name, former address and former fiscal year, if changed since last report)Indicate by check mark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and (2) has beensubject to such filing requirements for at least the past 90 days. Yes þ   No oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company. See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.(Check one):       Large accelerated filer o Accelerated filer þ Non-accelerated filer o Smaller reporting company o    (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 theExchange Act). Yes o   No þIndicate the number of shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date.56,922,001 shares of Common Stock, $0.0025 par value per share, outstanding at November 3, 2008  
 

 
***info*****GROUP Inc.****INDEX**     PART I — FINANCIAL INFORMATION         Item 1. Financial Statements    Consolidated Balance Sheets as of September 30, 2008 and December 31, 2007  3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2008 and 2007  4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2008 and 2007  5 Notes to Consolidated Financial Statements  6 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  16 Item 3. Quantitative and Qualitative Disclosures about Market Risk  25 Item 4. Controls and Procedures  26      PART II — OTHER INFORMATION  27      Item 1. Legal Proceedings  27 Item 1A. Risk Factors  28 Item 6. Exhibits  30 Signature  31 Index to Exhibits  32  EX-10.5 EX-31.1 EX-31.2 EX-32.1 EX-32.2
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**PART I. FINANCIAL INFORMATION****ITEM 1. FINANCIAL STATEMENTS*****info*****GROUP INC. AND SUBSIDIARIES****CONSOLIDATED BALANCE SHEETS****(in thousands, except share and per share amounts)**           **September 30,**  **December 31,**   **2008**  **2007**   **(UNAUDITED)**     **ASSETS**        Current assets:        Cash and cash equivalents $8,908  $9,924 Marketable securities  2,684   2,285 Trade accounts receivable, net of allowances of $1,506 and $2,397, respectively  57,754   78,573 List brokerage trade accounts receivable, net of allowances of $508 and $70,respectively  92,042   68,369 Unbilled services  32,155   25,114 Deferred income taxes  9,708   4,041 Income taxes receivable  4,734   — Prepaid expenses  11,438   9,425 Assets held for sale  2,978   — Deferred marketing costs  1,976   2,234        Total current assets  224,377   199,965        Property and equipment, net  68,458   67,950 Goodwill  420,136   415,075 Intangible assets, net  116,842   118,205 Other assets  5,952   11,446          $835,765  $812,641        **LIABILITIES AND STOCKHOLDERS’ EQUITY**        Current liabilities:        Current portion of long-term debt $3,022  $4,944 Accounts payable  32,631   23,312 List brokerage trade accounts payable  77,867   63,807 Accrued payroll expenses  41,936   39,507 Accrued expenses  29,270   22,158 Income taxes payable  —   3,288 Deferred revenue  59,060   71,922        Total current liabilities  243,786   228,938        Long-term debt, net of current portion  309,794   278,283 Deferred income taxes  26,632   31,046 Other liabilities  6,880   5,848 Stockholders’ equity:        Common stock, $.0025 par value. Authorized 295,000,000 shares; 56,887,378 sharesissued and outstanding at September 30, 2008 and 56,505,668 shares issued andoutstanding at December 31, 2007  142   141 Paid-in capital  146,370   137,106 Retained earnings  112,485   129,908 Note receivable — shareholder  (9,000)  — Accumulated other comprehensive income (loss)  (1,324)  1,371        Total stockholders’ equity  248,673   268,526          $835,765  $812,641        The accompanying notes are an integral part of the consolidated financial statements.
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***info*****GROUP INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF OPERATIONS****(in thousands, except per share amounts)**                   **THREE MONTHS ENDED**  **NINE MONTHS ENDED**   **September 30,**  **September 30,**   **2008**  **2007**  **2008**  **2007**   **(UNAUDITED)**  **(UNAUDITED)** Net sales $181,879  $184,972  $560,214  $502,929 Costs and expenses:                Cost of goods and services  77,567   71,553   237,115   198,733 Selling, general and administrative  102,769   71,357   275,655   212,952 Depreciation and amortization of operating assets  6,059   5,696   17,967   15,613 Amortization of intangible assets  4,367   4,957   13,207   13,354              Total operating costs and expenses  190,762   153,563   543,944   440,652              Operating income (loss)  (8,883)  31,409   16,270   62,277 Other expense, net:                Investment income  134   606   1,758   660 Other income (expense)  325   315   495   (36)Interest expense  (4,318)  (5,591)  (13,623)  (15,807)             Other expense, net  (3,859)  (4,670)  (11,370)  (15,183)             Income (loss) before income taxes  (12,742)  26,739   4,900   47,094 Income taxes  (4,171)  9,708   2,533   17,386              Net income (loss) $(8,571) $17,031  $2,367  $29,708              Basic earnings (loss) per share:                Basic earnings (loss) per share $(0.15) $0.31  $0.04  $0.53              Basic weighted average shares outstanding  57,054   55,837   56,698   55,605              Diluted earnings (loss) per share:                Diluted earnings (loss) per share $(0.15) $0.30  $0.04  $0.53              Diluted weighted average shares outstanding  57,054   56,017   56,700   55,826              The accompanying notes are an integral part of the consolidated financial statements.
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***info*****GROUP INC. AND SUBSIDIARIES****CONSOLIDATED STATEMENTS OF CASH FLOWS****(in thousands)**           **NINE MONTHS ENDED**   **September 30,**   **2008**  **2007**   **(UNAUDITED)** CASH FLOWS FROM OPERATING ACTIVITIES:        Net income $2,367  $29,708 Adjustments to reconcile net income to net cash provided byoperating activities:        Depreciation and amortization of operating assets  17,967   15,613 Amortization of intangible assets  13,207   13,354 Amortization of deferred financing fees  686   459 Deferred income taxes  (5,130)  (10,641)Non-cash stock compensation expense  372   603 Non-cash 401(k) contribution in common stock  2,171   2,122 (Gain) loss on sale of assets and marketable securities  (1,490)  553 Non-cash other charges  —   365 Asset impairment charges  2,280   — Changes in assets and liabilities, net of effect ofacquisitions:        Trade accounts receivable  12,583   17,319 List brokerage trade accounts receivable  12,482   3,131 Prepaid expenses and other assets  (2,257)  (4,472)Deferred marketing costs  258   1,215 Accounts payable  9,354   (1,210)List brokerage trade accounts payable  (18,465)  (8,191)Income taxes receivable and payable, net  (10,400)  3,832 Accrued expenses and other liabilities  8,696   9,522 Deferred revenue  (12,490)  (18,265)       Net cash provided by operating activities  32,191   55,017        CASH FLOWS FROM INVESTING ACTIVITIES:        Proceeds from sale of marketable securities  1,813   1,816 Purchases of marketable securities  (3,255)  (54)Proceeds from sale of property and equipment  4,651   — Purchases of property and equipment  (18,619)  (13,532)Acquisitions of businesses, net of cash acquired  (18,901)  (54,073)Software development costs  (6,355)  (3,823)       Net cash used in investing activities  (40,666)  (69,666)       CASH FLOWS FROM FINANCING ACTIVITIES:        Repayments of long-term debt  (50,540)  (143,342)Proceeds from long-term debt  79,300   181,678 Deferred financing costs paid  (1,283)  (1,171)Dividends paid  (19,793)  (19,425)Proceeds from derivative financial instruments  —   704 Tax benefit related to employee stock options  10   16 Proceeds from exercise of stock options  170   149        Net cash provided by financing activities  7,864   18,609        Effect of exchange rate fluctuations on cash  (405)  (136)       Net increase (decrease) in cash and cash equivalents  (1,016)  3,824 Cash and cash equivalents, beginning  9,924   4,433        Cash and cash equivalents, ending $8,908  $8,257        Supplemental cash flow information:        Interest paid $12,718  $14,163        Income taxes paid $16,980  $17,130        The accompanying notes are an integral part of the consolidated financial statements.
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***info*****GROUP INC. AND SUBSIDIARIES****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****1. GENERAL**     The accompanying unaudited consolidated financial statements have been prepared on the samebasis as the audited consolidated financial statements and, in the opinion of management, containall adjustments, consisting of normal recurring adjustments, necessary to fairly present thefinancial information included therein. The consolidated financial statements have been prepared inaccordance with the instructions to Form 10-Q and do not include all the information and footnotesrequired by accounting principles generally accepted in the United States of America for completefinancial statements.     *info*GROUP Inc. (the “Company”) suggests that this financial data be read in conjunction withthe audited consolidated financial statements and notes thereto for the year ended December 31,2007 included in the Company’s 2007 Annual Report on Form 10-K, filed with the Securities andExchange Commission (the “SEC”). Results for the interim period presented are not necessarilyindicative of results to be expected for the entire year.**2. EARNINGS (LOSS) PER SHARE INFORMATION**     The following table shows the amounts used in computing earnings (loss) per share and theeffect on the weighted average number of shares of dilutive common stock.                   **Three Months Ended**  **Nine Months Ended**   **September 30,**  **September 30,**   **(In thousands)**   **2008**  **2007**  **2008**  **2007** Weighted average number of shares used in basic earnings(loss) per share  57,054   55,837   56,698   55,605 Net additional common stock equivalent shares outstandingafter assumed exercise of stock options  —   180   2   221              Weighted average number of shares outstanding used indiluted earnings (loss) per share  57,054   56,017   56,700   55,826              **3. SEGMENT INFORMATION**     The Company reports results in three segments: the Data Group, the Services Group and theMarketing Research Group. The Company reports administrative functions in Corporate Activities.     The Data Group consists of *info*USA National Accounts, OneSource, Database License, and the*info*USA Group. The Data Group also includes the compilation and verification costs of ourproprietary databases, and corporate technology.     The Services Group consists of subsidiaries providing customer data management, list brokerageand list management services, e-mail marketing services, and catalog marketing services.     The Marketing Research Group was established in 2006 with the Company’s acquisition of OpinionResearch Corporation. The Marketing Research Group provides customer surveys, opinion polling, andother market research services for businesses through its Opinion Research division and forgovernments through its Macro International division. The Marketing Research Group also includesthe results from Guideline, Inc., NWC Research, and Northwest Research Group, all of which areresearch companies acquired by the Company during 2007.     The Data Group, Services Group and Marketing Research Group reflect actual net sales, orderproduction costs, identifiable direct sales and marketing costs, and depreciation and amortizationexpense. The remaining indirect costs are presented in Corporate Activities.     Corporate Activities 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 $256.1 million atSeptember 30, 2008 from $256.5 million at December 31, 2007. The decrease in goodwill for the DataGroup was the result of a purchase entry adjustment to correct
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deferred income taxes related to the acquisition of OneSource. Goodwill for the ServicesGroup increased to $70.4 million at September 30, 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 DirectMedia, Inc. in January 2008. Goodwill for the Marketing Research Group decreased to $93.7 millionat September 30, 2008 from $95.0 million at December 31, 2007. The decrease in goodwill for theMarketing 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 informationabout items that existed as of the acquisition date.     The following table summarizes segment information, which excludes total assets since we donot prepare separate balance sheets by segment and, as a result, assets are not separatelyidentifiable by segment:                       **For the Three Months Ended September 30, 2008**  **Data** **Services** **Research** **Corporate** **Consolidated**  **Group** **Group** **Group** **Activities** **Total**  **(In thousands)**Net sales $74,839  $41,503  $65,537  $—  $181,879 Operating income (loss)  14,660   7,896   4,869   (36,308)  (8,883)Investment income  —   —   —   134   134 Interest expense  —   —   —   (4,318)  (4,318)Other income  —   —   —   325   325 Income (loss) before income taxes  14,660   7,896   4,869   (40,167)  (12,742)Goodwill  256,074   70,391   93,671   —   420,136                        **For the Three Months Ended September 30, 2007**  **Data** **Services** **Research** **Corporate** **Consolidated**  **Group** **Group** **Group** **Activities** **Total**  **(In thousands)**Net sales $92,674  $36,018  $56,280  $—  $184,972 Operating income (loss)  31,375   9,993   2,272   (12,231)  31,409 Investment income  —   —   —   606   606 Interest expense  —   —   —   (5,591)  (5,591)Other income  —   —   —   315   315 Income (loss) before income taxes  31,375   9,993   2,272   (16,901)  26,739 Goodwill  255,797   63,945   98,323   —   418,065                        **Forthe Nine Months Ended September 30, 2008**  **Data** **Services** **Research** **Corporate** **Consolidated**  **Group** **Group** **Group** **Activities** **Total**  **(In thousands)**Net sales $237,854  $121,380  $200,980  $—  $560,214 Operating income (loss)  51,519   21,368   10,014   (66,631)  16,270 Investment income  —   —   —   1,758   1,758 Interest expense  —   —   —   (13,623)  (13,623)Other income  —   —   —   495   495 Income (loss) before income taxes  51,519   21,368   10,014   (78,001)  4,900 Goodwill  256,074   70,391   93,671   —   420,136                        **For the Nine Months Ended September 30, 2007**  **Data** **Services** **Research** **Corporate** **Consolidated**  **Group** **Group** **Group** **Activities** **Total**  **(In thousands)**Net sales $248,941  $99,544  $154,444  $—  $502,929 Operating income (loss)  63,439   23,804   6,528   (31,494)  62,277 Investment income  —   —   —   660   660 Interest expense  —   —   —   (15,807)  (15,807)Other expense  —   —   —   (36)  (36)Income (loss) before income taxes  63,439   23,804   6,528   (46,677)  47,094 Goodwill  255,797   63,945   98,323   —   418,065 
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**4. COMPREHENSIVE INCOME (LOSS)**     Comprehensive income (loss), including the components of other comprehensive income (loss),are as follows:                   **For the Three**  **For the Nine**   **Months Ended**  **Months Ended**   **September 30,**  **September 30,**  **September 30,**  **September 30,**   **2008**  **2007**  **2008**  **2007**   **(In thousands)**  **(In thousands)** Net income (loss) $(8,571) $17,031  $2,367  $29,708 Other comprehensive income (loss):                Unrealized gain (loss) from investments:                Unrealized gains (losses)  (386)  1,778   (2,409)  1,294 Related tax benefit (expense)  139   (640)  867   (466)             Net  (247)  1,138   (1,542)  828              Foreign currency translation adjustments:                Unrealized gains (losses)  (2,144)  (234)  (1,802)  (224)Related tax benefit  772   84   649   80              Net  (1,372)  (150)  (1,153)  (144)             Unrealized gain from pension plan:                Unrealized gains  14   22   41   64 Related tax expense  (5)  (8)  (15)  (23)             Net  9   14   26   41              Unrealized gain (loss) from derivative financial instruments:                Unrealized gains (losses)  (14)  (20)  (41)  1,013 Related tax benefit (expense)  5   7   15   (365)             Net  (9)  (13)  (26)  648              Total other comprehensive income (loss)  (1,619)  989   (2,695)  1,373              Comprehensive income (loss) $(10,190) $18,020  $(328) $31,081                   The components of accumulated other comprehensive income (loss) are as follows:                           **Foreign**  **Unrealized**      **Accumulated**   **Unrealized**  **Currency**  **Gains**  **Derivative**  **Other**   **Losses from**  **Translation**  **From**  **Financial**  **Comprehensive**   **Pension Plan**  **Adjustments**  **Investments**  **Instruments**  **Income (Loss)**   **(In thousands)** Balance at September 30, 2008 $(678) $(683) $(343) $380  $(1,324)                Balance at December 31, 2007 $(704) $470  $1,199  $406  $1,371                 **5. ACQUISITIONS**     Effective January 1, 2008, the Company acquired Direct Media, Inc., a list brokerage and listmanagement company. The total purchase price was $17.6 million, excluding cash acquired of $4.9million, and including acquisition-related costs of $0.6 million. The purchase price for theacquisition has been preliminarily allocated to current assets of $36.7 million, property andequipment of $1.4 million, other assets of $3.2 million, current liabilities of $35.4 million,other liabilities of $1.1 million, and goodwill and otheridentified intangibles of $12.8 million.Goodwill and other identified intangibles include: customerrelationships of $2.5 million (life of11 years), non-compete agreements of $2.3 million (life between 1 to 7 years), trade names of $1.1million (life of 8 years), and goodwill of $6.9 million, which includes $0.6 million of acquisitioncosts, none of which will be deductible for income tax purposes.     Effective October 1, 2007, the Company acquired SECO Financial, a business that specializes infinancial services industry marketing. The total purchase price was $1.1 million. The purchaseprice for the acquisition has been allocated to current assets of $0.3 million, current liabilitiesof $0.2 million, and goodwill and other identified intangibles of $1.0 million. Goodwill and otheridentified 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 willall be deductible for income tax purposes.     Effective October 1, 2007, the Company acquired Northwest Research Group, a marketing researchcompany. The total purchase price was $1.6 million. The purchase price for the acquisition hasbeen allocated to current assets of $0.4 million, property and equipment of $0.1 million, currentliabilities of $0.4 million, and goodwill and other identified intangibles of $1.5 million.Goodwill
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and other identified intangibles include: customer relationships of $0.5 million (life of 10years), non-compete agreements of $0.2 million (life of 5 to 7 years), and goodwill of $0.8million, which will all be deductible for income tax purposes.     On August 20, 2007, the Company acquired Guideline, Inc., a provider of custom business andmarket research and analysis. The total purchase price was $39.1 million, excluding cash acquiredof $0.8 million, and including acquisition-related costs of $1.6 million. The purchase price forthe 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 liabilitiesof $3.7 million, and goodwill and other identified intangiblesof $42.5 million. Goodwill andother 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 1.5to 7 years), and goodwill of $25.8 million, which includes$1.6 million of acquisition costs, none of which will be deductible for income taxpurposes.     On July 27, 2007, the Company acquired NWC Research, an Asia Pacific research company based inAustralia. The total purchase price was $7.8 million, excluding cash acquired of $0.1 million, andincluding acquisition-related costs of $0.2 million. The purchase price for the acquisition hasbeen allocated to current assets of $2.3 million, property and equipment of $0.6 million, currentliabilities of $1.5 million, and goodwill and other identifiedintangibles of $6.4 million.Goodwill and other identified intangibles include: customer relationships of $2.7 million (life of11 years), non-compete agreements of $0.2 million (life of7 years), and goodwill of $3.5 million, which includes$0.2 million of acquisition costs, none of which will be deductible for income tax purposes.     On June 22, 2007, the Company acquired expresscopy.com, a provider of printing and mailingservices 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 $0.6million, property and equipment of $3.8 million, developed technology of $0.9 million, currentliabilities of $1.9 million, other liabilities of $2.9 million, and goodwill and other identifiedintangibles of $7.5 million. Goodwill and other identified intangibles include: customerrelationships of $1.5 million (life of 5 years), trade names of $0.6 million (life of 12 years), anon-compete agreement of $0.3 million (life of 12 years),and goodwill of $5.1 million, which includes $0.2 millionof acquisition costs, which willall be deductible for income tax purposes.     The Company accounted for these acquisitions under the purchase method of accounting and theoperating results for each of these acquisitions are included in the accompanying consolidatedfinancial statements from the respective acquisition dates. All of these acquisitions were assetpurchases, excluding Direct Media, Inc. and Guideline, Inc., which were stock purchases. Theseacquisitions were completed to grow the Company’s market share. The Company believes thatincreasing its market share will enable it to compete over the long term in the databases, directmarketing, e-mail marketing and market research industries.     Assuming the acquisitions described above made during 2007 and 2008 had been acquired onJanuary 1, 2007 and included in the accompanying consolidated statements of operations, unauditedpro forma consolidated net sales, net income (loss) and earnings (loss) per share would have been asfollows:                   **For the Three Months Ended** **For the Nine Months Ended**  **September 30,** **September 30,** **September 30,** **September 30,**  **2008** **2007** **2008** **2007**  **(In thousands, except per share amounts)**  **(unaudited)**Net sales $181,879  $201,786  $560,214  $575,403 Net income (loss) $(8,571) $18,185  $2,367  $30,813 Basic earnings (loss) per share $(0.15) $0.33  $0.04  $0.55 Diluted earnings (loss) per share $(0.15) $0.32  $0.04  $0.55 
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**6. SHARE-BASED PAYMENT ARRANGEMENTS**     Stock options have been issued under the 1997 Stock Option Plan. The shareholders of theCompany also approved the 2007 Omnibus Incentive Plan in June 2007. The Company has issued 50,000options under the 2007 Omnibus Incentive Plan as of September 30, 2008. These options, which wereissued 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 grantdate. Historically, option grants have included those that vest over an eight-year period, expireten years from date of grant and are granted at 125% of the stock’s fair market value on the dateof grant. The Company has also granted options that have exercise prices at the stock’s fairmarket value on the date of grant, vest over a four-year period at 25% per year, and expire fiveyears from the date of grant. In October 2008, the shareholders of the Company approved theAmended and Restated 2007 Omnibus Incentive Plan to clarify the number of shares of the Company’scommon stock available to be granted pursuant to the 2007 Omnibus Incentive Plan.     Compensation expense is recognized only for those options expected to vest, with forfeituresestimated based on the Company’s historical experience and future expectations. The compensationexpense for the quarter ended September 30, 2008 on income before income taxes and net income was$0.1 million, and there was no impact on basic and diluted earnings (loss) per share for the sameperiod. The impact to the nine months ended September 30, 2008 on income before taxes and netincome was $0.4 million, and $0.2 million, respectively, and there was no impact on basic anddiluted earnings (loss) per share for the same period.     The Company granted 50,000 options during the nine-month period ended September 30, 2008, andno options during the nine-month period ended September 30, 2007.     The fair value of stock options granted was estimated using a Black-Scholes valuation modelwith the following assumptions:           **Nine-Months Ended September 30,**  **2008** **2007**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 for the nine-months ended September 30, 2007.The risk-free interest rate assumptions were based on an average of the 3-year and 5-year U.STreasury note yields at the date of grant. The expected volatility was based on historical dailyprice changes of the Company’s common stock since June 2004. The expected term was based on thehistorical exercise behavior and the weighted average of the vesting period and the contractualterm.     The following table summarizes stock option plan activity for the nine months ended September30, 2008:                   **Weighted**     **Weighted**    **Average** **Weighted** **Average** **Aggregate Intrinsic**  **Number of** **Average** **Remaining** **Value at June 30,**  **Options** **Exercise** **Contractual** **2008**  **Shares** **Price** **Term (Year)** **(In thousands)**Outstanding beginning of period  683,818  $11.37         Granted  50,000   6.00         Exercised  (31,564)  5.37         Expired  (132,254)  7.65                          Outstanding end of period  570,000   12.09   6.70  $31                  Options exercisable at end of period  158,999   12.71   6.40  $—                       The total intrinsic value of share options exercised during the nine months ended September30, 2008 and 2007 was $29 thousand and $800 thousand, respectively. As of September 30, 2008, thetotal unrecognized compensation cost related to nonvested stock option awards was approximately$0.8 million, which is expected to be recognized over a remaining weighted average period of 1.55years. As of September 30, 2008, 4.5 million shares were available for additional option grants.
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**7. RESTRUCTURING CHARGES**     During the three months ended September 30, 2008, the Company recorded restructuring chargesof $2.7 million, which are included within selling, general and administrative expenses on theconsolidated statement of operations. This included $0.8 million for a reduction in workforce ofapproximately 47 employees, as a part of the Company’s continuing strategy to reduce costs andfocus on core operations, and $1.9 million in facility closure costs. During the nine months endedSeptember 30, 2008, the Company recorded restructuring charges of $5.6 million. This included $3.7million in costs related to workforce reductions of approximately 181 employees, which included$1.7 million related to the elimination of several management positions for Guideline, Inc., and$1.9 million in facility closure costs.     During the three months ended September 30, 2007, the Company recorded restructuring chargesof $3.7 million. These costs related to workforce reductions as a part of the Company’s continuingstrategy to reduce costs and focus on core operations of $1.4 million and the restructuring of*info*USA National Accounts Division of $2.3 million. During the third quarter of 2007, the totalworkforce reduction charges included involuntary employee separation costs for approximately 168employees. During the nine months ended September 30, 2007, the Company recorded restructuringcosts totaling $8.9 million. These costs related to employee separation costs for total workforcereductions for approximately 300 employees, and included the costs associated with therestructuring of the *info*USA National Accounts Division of $5.5 million, and the Hill-DonnellyDivision of $0.4 million. The remaining costs of $3.0 million are associated with the Company’scontinuing strategy to reduce costs for the nine months ended September 30, 2007.     The following table summarizes activity related to the restructuring charges recorded by theCompany for the nine months ended September 30, 2008, including both the restructuring accrualbalances, and those costs expensed and paid within the same period:                               **Amounts**         **Beginning**  **Amounts**  **From**  **Amounts**  **Ending**   **Accrual**  **Expensed**  **Acquisitions**  **Paid**  **Accrual**   **(In thousands)** **Data Group:**                    Employee separation costs $2,194  $753  $—  $2,633  $314                 Other associated costs $26  $—  $—  $26  $—                 Contract termination costs $—  $414  $—  $247  $167                                      **Services Group:**                    Employee separation costs $505  $568  $—  $763  $310                 Contract termination costs $—  $1,440  $—  $554  $886                                      **Research Group:**                    Employee separation costs $566  $1,775  $—  $1,118  $1,223                 Contract termination costs $2,588  $—  $(1,524) $1,064  $—                                      **Corporate Activities:**                    Employee separation costs $178  $607  $—  $344  $441                 
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**8. GOODWILL AND INTANGIBLE ASSETS**     Goodwill and intangible assets consist of the following:                           **September 30, 2008**  **December 31, 2007**   **(In thousands)**       **Accumulated**          **Accumulated**      **Cost**  **Amortization**  **Net**  **Cost**  **Amortization**  **Net** Goodwill $420,136  $—  $420,136  $415,075  $—  $415,075                          Other intangible assets:                        Non-compete agreements  17,105   14,109   2,996   14,775   13,600   1,175 Core technology  16,121   13,456   2,665   16,004   11,716   4,288 Customer base  99,994   33,744   66,250   97,143   25,173   71,970 Trade names  39,112   15,677   23,435   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  31,402   13,493   17,909   22,751   9,622   13,129 Deferred financing costs  14,488   10,901   3,587   13,203   10,212   2,991                                             Total intangibles $807,807  $270,829  $536,978  $786,442  $253,162  $533,280                         The weighted average remaining amortization periods for the other intangible assets as ofSeptember 30, 2008 were: non-compete agreements (2.69 years), core-technology (1.10 years),customer base (3.84 years), trade names (5.35 years), software and database development costs (1.54years) and deferred financing costs (2.21 years). The weighted average remaining amortizationperiod as of September 30, 2008 for all other intangible assets in total was 3.65 years.     During the three months ended September 30, 2008, the Company recorded an impairment of $0.9million to software development costs for development of an asset that is no longer being pursued.During the three months and nine months ended September 30, 2008, the Company recorded animpairment of $0.3 million and $0.6 million, respectively, to goodwill for acquisition costs foracquisitions that are not longer being pursued.**9. PROPERTY AND EQUIPMENT**     Property and equipment consist of the following:           **September 30,**  **December 31,**   **2008**  **2007**   **(In thousands)** Property and equipment $209,441  $196,042 Less accumulated depreciation  140,983   128,092          $68,458  $67,950             During the three months and nine months ended September 30, 2008, the Company recorded animpairment of $0.4 million to property and equipment for costs previously capitalized fordevelopment of land that is now in the process of being sold.**10. ASSETS HELD FOR SALE**     Included in assets held for sale are assets totaling $3.0 million at September 30, 2008. Theseare measured at the lower of their carrying value or fair market value less costs to sell theassets. The Company is in the process of selling these assets and anticipates that the assets willbe sold within the next twelve months. During the three months ended September 30, 2008, theCompany recorded a loss of $0.3 million related to the reclassification of these assets held forsale. Assets held for sale consist of the following:
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           **September 30,**  **December 31,**   **2008**  **2007**   **(In thousands)** Property and equipment $2,472  $— Other assets  506   —          $2,978  $—        **11. CONTINGENCIES**     In February 2006, Cardinal Value Equity Partners, L.P. (“Cardinal”) filed a derivative lawsuitin 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 forbreach of fiduciary duty. In October 2006, Dolphin Limited Partnership I, L.P., Dolphin FinancialPartners, L.L.C. and Robert Bartow (collectively with Cardinal, the “Plaintiffs”) filed aderivative lawsuit in the Court against certain current and former directors of the Company, andthe Company as a nominal defendant, claiming breach of fiduciary duty and misuse of corporateassets. In January 2007, the Court granted the defendants’ motion to consolidate the actions (asconsolidated, the “Derivative Litigation”).     In November 2007, the Company received a request from the Denver Regional Office of theSecurities and Exchange Commission (“SEC”) asking the Company to produce voluntarily certaindocuments as part of an informal SEC investigation. The requested documents relate to theallegations made in the Derivative Litigation, as well as related party transactions, expensereimbursement, other corporate expenditures, and certain trading in the Company’s securities. TheSpecial Litigation Committee, the formation and activities of which are described in more detailbelow, has reported the results of its investigation to the SEC, and the Company intends tocontinue to cooperate fully with the SEC’s requests. In lateOctober 2008, the Company was advised that the SEC had issued aformal order of investigation. Pursuant to the formal order, the SEChas issued several subpoenas to the Company and certain of itscurrent and former directors and employees. Because the investigation is ongoing, theCompany cannot predict the outcome of the investigation or its impact on the Company’s business.     In December 2007, the Company’s Board of Directors formed a Special Litigation Committee (the“SLC”) in response to the Derivative Litigation and the SEC’s informal investigation and requestfor voluntary production of documents. The SLC, which consisted of five independent Board members,conducted an investigation of the issues in the Derivative Litigation and the SEC’s informalinvestigation, as well as other related matters. Based on its review, the SLC determined, on July16, 2008, that various related party transactions, expense reimbursements and corporateexpenditures were excessive and, in response, approved a series of remedial actions. The remedialactions are set forth in Item 9A, “Controls and Procedures” in the Company’s Annual Report on Form10-K for the year ended December 31, 2007.     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 thePlaintiffs. On August 20, 2008, all relevant parties entered into a Stipulation of Settlement, thematerial terms of which are set forth in the Company’s Current Report on Form 8-K/A filed on August22, 2008. A number of remedial measures were adopted in conjunction with the Stipulation ofSettlement and implementation of these measures has begun.     Under the terms of the Stipulation of Settlement, Vinod Gupta resigned as Chief ExecutiveOfficer of the Company on August 20, 2008. Mr. Gupta and the Company entered into a SeparationAgreement and General Release dated August 20, 2008 (the “Separation Agreement”), under which Mr.Gupta granted a full release of the Company and received the right to severance payments totaling$10.0 million (contingent on Mr. Gupta adhering to certain requirements in the SeparationAgreement). The first severance payment in the amount of $5.0 million, which was due within sixtydays 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 $9.0million incrementally over four years. This receivable was recorded within equity as a notereceivable from shareholder on the consolidated balance sheet. The corresponding contribution wasreduced by $2.5 million for federal and state income taxes and was recorded within paid-in capitalon the consolidated balance sheet. Mr. Gupta’s first payment to the Company, in the amount of $2.2million, is expected to be paid not later than sixty (60) days after the entry of judgment by theCourt on the settlement.
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     On November 7, 2008, the Court entered an Order and Final Judgment approving all the terms ofthe Stipulation of Settlement and dismissing the Derivative Litigation with prejudice. The Court’sorder also awarded Plaintiffs’ counsel fees of $7 million and expenses in the amount of $210,710,all payable by the Company.     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 believethat, individually or in the aggregate, any such lawsuits or claims will have a material effect onits business, financial conditions, results of operations or liquidity.**12. RELATED PARTY TRANSACTIONS**     The Company has retained the law firm of Robins, Kaplan, Miller & Ciresi L.L.P. to providecertain legal services. Elliot Kaplan, a director of the Company, is a named partner and formerChairman of the Executive Board of Robins, Kaplan, Miller & Ciresi L.L.P. The Company paid a totalof $68 thousand and $696 thousand to this law firm during the three months ended September 30, 2008and 2007, respectively. During the nine months ended September 30, 2008 and 2007, the Company paida total of $190 thousand and $962 thousand to this law firm, respectively.     The Company made no rent or association dues payments during the three months ended September30, 2008 for a condominium owned by Jess Gupta, and previously used by the Company. The Companypaid $12 thousand for rent, and $3 thousand for association dues, during the three months endedSeptember 30, 2007. During the nine months ended September 30, 2008 and 2007, the Company paid atotal of $24 thousand and $36 thousand for rent, respectively, and $6 thousand and $9 thousand forassociation dues, respectively, for use of this condominium. Jess Gupta is the son of Vinod Gupta,the Company’s former Chief Executive Officer.     During 2008 and 2007, 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. Thereimbursements received by the Company from Everest Inc. and Everest Investment Management LLCtotaled $5 thousand during the three months ended September 30, 2008 and 2007. During the ninemonths ended September 30, 2008 and 2007, the reimbursements totaled $14 thousand. Additionally,the Company received reimbursements for use of office space from PK Ware, Inc., an entity of whichGeorge Haddix, a director of the Company, is a majority shareholder. Reimbursements received fromDr. Haddix were $2 thousand during the three months ended September 30, 2008 and 2007, and $6thousand and $7 thousand during the nine months ended September 30, 2008 and 2007, respectively.The Company received $1 thousand for reimbursements for use of office space from John Staples, III,who is a director of the Company, during the three months ended September 30, 2008, and $3 thousandduring the nine months ended September 30, 2008. The use of Company office space between theCompany and each of Dr. Haddix and Mr. Staples were terminated in September 2008.     The Company received reimbursements from Everest Inc. for shared personnel services of $4thousand during the three months ended September 30, 2008, and $19 thousand during the nine monthsended September 30, 2008. These shared services were terminated in August 2008. Additionally, theCompany received other miscellaneous expense reimbursements from Everest Inc. of $7 thousand and $1thousand during the three months ended September 30, 2008 and 2007, respectively, and $9 thousandand $1 thousand during the nine months ended September 30, 2008 and 2007, respectively.**13. DEBT**     At September 30, 2008, the term loan of the Senior Secured Credit Facility entered into onFebruary 14, 2006 (as amended, the “2006 Credit Facility”) had a balance of $171.0 million, bearingan average interest rate of 5.77%. The revolving line of credit had a balance of $98.0 million,bearing an interest rate of 5.11%, and $77.0 million was available under the revolving line ofcredit. Substantially all of the assets of the Company are pledged as security under the terms ofthe 2006 Credit Facility.     In light of the Special Litigation Committee’s investigation described in Note 11 in the Notesto Consolidated Financial Statements, the Company was unable to file its Annual Report on Form 10-Kfor the year ended December 31, 2007 (the “2007 Form 10-K”) and the Form 10-Q for the quarter endedMarch 31, 2008 (the “First Quarter 2008 Form 10-Q”) by the SEC’s filing deadline. Failure totimely file the 2007 Form 10-K and the First Quarter 2008 Form 10-Q and provide annual andquarterly financial statements to the lenders to the 2006 Credit Facility would have constituted adefault under the 2006 Credit Facility. Therefore, on March 26, 2008, the Company and the lendersto the 2006 Credit Facility entered into a Third Amendment (the “Third Amendment”) to the 2006Credit Facility which, among other things: (1) extended the deadlines by which the Company mustfile the 2007 Form 10-K and the First Quarter 2008 Form 10-Q and provide certain annual andquarterly financial statements to the lenders; (2) waived any other
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defaults arising from thesefiling delays; and (3) modified the covenant related to operating leases. On June 27, 2008, theCompany and the lenders to the 2006 Credit Facility entered into a Fourth Amendment (the “FourthAmendment”) to the 2006 Credit Facility (as amended by the Third Amendment and the FourthAmendment, the “Amended 2006 Credit Facility”), which extended the deadlines for filing with theSEC the 2007 Form 10-K and the First Quarter 2008 Form 10-Q to August 15, 2008, and the Form 10-Qfor the quarter ended June 30, 2008 (the “Second Quarter 2008 Form 10-Q”) to August 29, 2008. As aresult of the amendments, the Company was in compliance with all restrictive covenants of the 2006Credit Facility as of September 30, 2008. The Company filed the 2007 Form 10-K and the FirstQuarter 2008 Form 10-Q with the SEC on August 8, 2008, and the Second Quarter 2008 Form 10-Q onAugust 21, 2008.**14. SUBSEQUENT EVENTS**     On October 3, 2008, the Company sold its yacht, which was recorded within assets held for saleat September 30, 2008. The sale price of the yacht was $1.5 million. The Company had recorded aloss of $0.1 million during the third quarter of 2008 related to the proposed sale.     On November 7, 2008, the Court in the Derivative Litigation awarded payment of attorneys’ feesin the amount of $7.0 million and reimbursement of costs in the amount of $0.2 million to theplaintiffs. These amounts were recorded in the quarter ended September 30, 2008, within selling,general and administrative expenses in the Company’s Consolidated Statements of Operations.     Asof November 6, 2008, the value of marketable securities hasdeclined by approximately $1.0 million from theSeptember 30, 2008 value, due to the decline in value of onesecurity.
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**ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**     This discussion and analysis contains forward-looking statements, including without limitationstatements in the discussion of comparative results of operations, accounting standards andliquidity and capital resources, within the meaning of Section 21E of the Securities Exchange Actof 1934, as amended (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. In some cases theseforward-looking statements can be identified by the use of words such as “may,” “will,” “should,”“could,” “would,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,”“predicts,” “potential,” “continues” or the negative of these terms or other comparableterminology. Our actual future results could differ materially from those projected in theforward-looking statements. Some factors which could cause future actual results to differmaterially from our recent results or those projected in the forward-looking statements aredescribed below under the heading “Risk Factors” in Item 1A of Part II of this Form 10-Q and inItem 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007.Such factors, among others, may have a material adverse effect upon our business, financialcondition, and results of operations. We assume no obligation to update the forward-lookingstatements or such factors. Accordingly, you are cautioned not to place undue reliance onforward-looking statements, which speak only as of the date on which they are made.**General*****Overview***     On June 1, 2008, we changed our Company name from *info*USA Inc. to *info*GROUP Inc. (the“Company” or “*info*GROUP” or “we”). We are a Delaware corporation incorporated in 1972.     We report results in three segments: the Data Group, the Services Group, and the MarketingResearch Group.     Our initiatives in the first nine months of 2008 included: **•** Announcing the acquisition of Direct Media, Inc., which closed effective January 1,2008. Direct Media, Inc., which became part of the Services Group, is a provider of listbrokerage, list management, analytics, database marketing and data processing services.  **•** Expanding our international business and executive databases by adding content for Chinaand Australia.  **•** Expanding the presence of Yesmail, our e-mail technology company, and makingadvancements in technology and product development processes.  **•** Continuing to invest in merchandising, advertising and branding. The advertisingcampaigns include e-mail, print, television, radio, direct mail, and search wordadvertising, as well as the use of white glove client services. Most notableadvertisements included commercials that aired during the Super Bowl, on February 3, 2008,featuring Salesgenie.com.  **•** Completing the compilation of *info*UK.com’s UK Business Database, which provides contactnames and addresses of businesses in the United Kingdom. We are selling information inthis database to small and large customers in the form of customized list products, onlineaccess, subscription services, and license agreements to value-added resellers.  **•** Significant steps were made towards improving corporate governance and internal controlsover financial reporting as noted in Item 4, “Controls and Procedures.”**Sales & Marketing Strategy**     We employ several media options to grow and increase our market share, including direct mail,print, outbound telemarketing, search marketing, online advertising, event sponsorships, andtelevision, radio and e-mail marketing. In the first nine months of 2008, we continued thesetraditional forms of advertising, as well as national and local radio and television campaigns tofurther build our brand name and drive revenue for our online subscription product,*Salesgenie.com.*We continue to advertise to promote our valuable brand, including televisionadvertisements in the first nine months of 2008 that aired during the Super Bowl, and other highprofile sporting and news coverage events.
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     To monitor the success of our various marketing efforts, we have incorporated data gatheringand tracking systems. These systems enable us to determine the type of advertising that bestappeals to our target market so that we can make future investments in these programs and obtain agreater yield from our marketing. Additionally, through the use of our database tools, we areworking to more efficiently determine the needs of our various client segments and tailor ourservices to their individual needs. With this system, we plan to strengthen relationships andsupport marketing campaigns to attract new clients.**Growth Strategy**     Our growth strategy continues to have multiple components. Our primary growth strategy is toimprove our organic growth. Key to this is our effort to replace revenue from decliningtraditional direct marketing products and services with our digital solutions initiatives includingonline Internet subscription services. Subscription services offer enhanced annual revenue percustomer, assure greater multi-year revenue retention, and, most importantly, provide greater valueto our customers by providing Internet access to our content and customer acquisition and retentionsoftware tools. Delivery of information via the Internet is the method preferred by our customers.We are investing in Internet technology to develop subscription-based new customer developmentservices for businesses and sales people.     We have grown through more than 36 strategic acquisitions in the last ten years. Theseacquisitions have enabled us to acquire the requisite critical mass to compete over the long termin the databases, direct marketing, e-mail marketing and market research industries. During 2007,we acquired Guideline, Inc., NWC Research and Northwest Research Group, which complement ourexisting market research services, and expresscopy.com, a provider of printing and mailing servicesthat specializes in short-run customized direct mail pieces, allowing us to expand our existingdata services. In 2007, we also acquired SECO Financial, a specialist in database marketing to thefinancial services industry. In 2008, we acquired Direct Media, Inc., which provides listbrokerage, list management, analytics, database marketing and data processing services. We arecurrently focusing on organic growth and using any excess cash flow to pay down existing debt.However, in the future, we plan to consider strategic acquisitions that complement our existingbusinesses.     We also are focusing on international growth opportunities. We are now upgrading ourinternational business databases and expanding our own compilation efforts. In late 2005, weopened a database center in India. We have also partnered with content providers worldwide. Ourcomprehensive international database includes information on approximately 1.1 million large publicand private non-U.S. companies in approximately 200 countries. There are over 10.4 millionexecutives represented in our non-U.S. global database, which is constantly updated using severaldaily news sources to track changes such as executive turnover, mergers and acquisitions, andlate-breaking company news. We are also putting emphasis on more comprehensive financialinformation and regulatory filings. Examples include SEC filings, annual reports, analyst andindustry reports, and detailed corporate family structure. Additionally, we believe that theacquisition of Australia-based NWC Research in July 2007 will help us grow in the Asia-Pacificregion.     As we continue to enhance our international databases, we are aggressively pursuing highgrowth, emerging markets in the Asia-Pacific region, Western Europe, Australia, and South America.Using London as our OneSource international headquarters, we have sales offices in Hong Kong, NewDelhi, Sydney and Singapore.     In the third quarter of 2008, we completed the compilation of a business database in theUnited Kingdom. This database, created from a variety of publicly available sources, containsinformation on approximately 3.1 million UK businesses. We also conducted telephone surveys ofbusinesses 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, website address (URL), years established, and whether the business is a single location or part of alarger company. We have now begun to market and sell this database to small and large customers inthe form of customized list products, online access, subscription services, and license agreementsto value-added resellers.
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**RESULTS OF OPERATIONS**     The following table sets forth, for the periods indicated, selected financial information andother data. The amounts and related percentages may not be fully comparable due to acquisitions.**CONSOLIDATED STATEMENT OF OPERATIONS DATA:**                   **Three Months** **Three Months** **Nine Months** **Nine Months**  **Ended** **Ended** **Ended** **Ended**  **September 30, 2008** **September 30, 2007** **September 30, 2008** **September 30, 2007**Net sales  100%  100%  100%  100%Costs and expenses:                Cost of goods and services  43   39   42   40 Selling, general and administrative  57   38   50   42 Depreciation  3   3   3   3 Amortization  2   3   2   3                  Total costs and expenses  105   83   97   88                  Operating income (loss)  (5)  17   3   12 Other expense, net  (2)  (3)  (2)  (3)                 Income (loss) before income taxes  (7)  14   1   9 Income taxes  (2)  5   1   3                  Net income (loss)  (5)%  9%  —%  6%                 **OTHER DATA**:                   **Three Months**  **Three Months**  **Nine Months**  **Nine Months**   **Ended**  **Ended**  **Ended**  **Ended**   **September 30, 2008**  **September 30, 2007**  **September 30, 2008**  **September 30, 2007**   **(dollars in thousands)** SALES BY SEGMENT:                Data Group $74,839  $92,674  $237,854  $248,941 Services Group  41,503   36,018   121,380   99,544 Marketing Research Group  65,537   56,280   200,980   154,444              Total $181,879  $184,972  $560,214  $502,929              SALES BY SEGMENT AS A PERCENTAGE OF NETSALES:                Data Group  41%  50%  42%  49%Services Group  23   20   22   20 Marketing Research Group  36   30   36   31              Total  100%  100%  100%  100%             **Net sales**     Net sales for the quarter ended September 30, 2008 were $181.9 million, a decrease of 2% from$185.0 million for the same period in 2007. Net sales for the nine months ended September 30, 2008were $560.2 million, an increase of 11% from $502.9 million for the same period in 2007.     Netsales of the Data Group for the quarter ended September 30, 2008were $74.8 million, a 19%decrease from $92.7 million for the same period in 2007. Net sales for the nine months endedSeptember 30, 2008 were $237.9 million, a decrease of 4% from $248.9 million for the same period in2007. The third quarter 2007 and nine months ended September 30, 2007 net sales of the Data Groupincluded $9.9 million received from the final settlement in a lawsuit, which was originallycommenced in December 2001, against Naviant, Inc. (now known as BERJ, LLP) in the District Courtfor Douglas County, Nebraska for breach of a database license agreement. Additionally, the thirdquarter of 2007 and nine months ended September 30, 2007 included revenue from a license agreementwith First Data Resources, which was not renewed in 2008, of $3.6 million and $9.6 million,respectively. The remaining decrease for the quarter is principally due to a decline in demand forthe traditional direct marketing products. These decreases were offset partly by an increase inthe Data Group for nine months ended September 30, 2008 due to the acquisitions of expresscopy.com,
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acquired in June 2007, and SECO Financial, acquired in October 2007. The Data Group provides ourproprietary databases anddatabase marketing solutions, and principally engages in the selling of sales lead generationand consumer DVD products to small- to medium-sized companies, small office and home officebusinesses and individual consumers. Customers purchase our information as custom lists or on asubscription basis primarily through the Internet. Sales of subscription-based products require usto recognize revenues over the subscription period instead of at the time of sale. This segmentalso includes the licensing of our databases to value-added resellers.     Net sales of the Services Group for the quarter ended September 30, 2008 were $41.5 million, a15% increase from $36.0 million for the same period in 2007. Net sales of the Services Group forthe nine months ended September 30, 2008 were $121.4 million, a 22% increase from $99.5 million forthe same period in 2007. The majority of the increase in the Services Group is related to theacquisition in January 2008 of Direct Media, Inc., as well as growth in the Yesmail division ase-mail marketing is becoming a bigger part of corporate advertising. The Services Group providese-mail marketing solutions, list brokerage and list management services and online interactivemarketing services to large companies in the United States, Canada and globally.     Net sales of the Marketing Research Group for the quarter ended September 30, 2008 were $65.5million, a 16% increase from $56.3 million for the same period in 2007. Net sales of the MarketingResearch Group for the nine months ended September 30, 2008 were $201.0 million, a 30% increasefrom $154.4 million for the same period in 2007. The majority of the increase in the MarketingResearch Group is related to the acquisitions of NWC Research in July 2007, Guideline, Inc., inAugust 2007 and Northwest Research Group in October 2007, as well as an increase in the MacroInternational division due to an increase in international projects. The Marketing Research Groupprovides diversified market research, which consists of the Opinion Research division, MacroInternational, Guideline, Inc., NWC Research and Northwest Research Group.**Cost of goods and services**     Cost of goods and services for the quarter ended September 30, 2008 was $77.6 million, or 43%of net sales, compared to $71.6 million, or 39% of net sales for the same period in 2007. Cost ofgoods and services for the nine months ended September 30, 2008 was $237.1 million, or 42% of netsales, compared to $198.7 million, or 40% of net sales for the same period in 2007.     Cost of goods and services of the Data Group for the quarter ended September 30, 2008 was$23.1 million, or 31% of net sales, compared to $22.7 million, or 24% of net sales for the sameperiod in 2007. Cost of goods and services of the Data Group for the nine months ended September30, 2008 was $68.4 million, or 29% of net sales, compared to $61.7 million, or 25% of net sales forthe same period in 2007. The majority of the increase in the Data Group for the nine months endedSeptember 30, 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 cost of goods and services as a percentage of net sales is due tothe decrease in net sales for both the quarter ended September 30, 2008 and nine months endedSeptember 30, 2008, as compared to 2007.     Cost of goods and services of the Services Group for the quarter ended September 30, 2008 was$9.5 million, or 23% of net sales, compared to $8.2 million, or 23% of net sales for the sameperiod in 2007. Cost of goods and services of the Services Group for the nine months endedSeptember 30, 2008 was $28.5 million, or 23% of net sales, compared to $24.0 million, or 24% of netsales for the same period in 2007. The majority of the increase in the Services Group is relatedto 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 remainedrelatively 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 the quarter ended September 30,2008 was $43.7 million, or 67% of net sales, compared to $39.9 million, or 71% of net sales for thesame period in 2007. Cost of goods and services of the Marketing Research Group for the ninemonths ended September 30, 2008 was $136.8 million, or 68%of net sales, compared to $110.4 million, or 72% of net sales for the same period in 2007. These costs include subcontract laborcosts, direct sales and labor costs and direct programming costs associated with providing theresearch services performed by the Marketing Research Group. The majority of the increase in theMarketing Research Group is related to the costs associated with Guideline, Inc., NWC Research andNorthwest Research Group, all acquired in the last six months of 2007. The decrease in cost ofgoods and services as a percentage of net sales is the result of an increased focus on higherprofit projects and pricing.     Cost of goods and services of Corporate Activities for the quarter ended September 30, 2008was $1.3 million, compared to $0.8 million for the same period in 2007. Cost of goods and servicesof Corporate Activities for the nine months ended September 30, 2008 was $3.4 million, compared to$2.6 million for the same period in 2007. The majority of theincrease in Corporate Activities is
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related to the transfer of certain personnel and support fees for accounting and finance functionsfrom the Data Group. Total cost ofgoods and services for Corporate Activities includes costs related to services to support theCompany’s network administration, help desk functions and system personnel and support fees foraccounting and finance.**Selling, general and administrative expenses**     Selling, general and administrative expenses for the quarter ended September 30, 2008 were$102.8 million, or 57% of net sales, compared to $71.4 million, or 38% of net sales for the sameperiod in 2007. Selling, general and administrative expenses for the nine months ended September30, 2008 were $275.7 million, or 50% of net sales, compared to $213.0 million, or 42% of net salesfor the same period in 2007.     Selling, general and administrative expenses of the Data Group for the quarter ended September30, 2008 were $32.7 million, or 44% of net sales, compared to $34.6 million, or 37% of net salesfor the same period in 2007. Selling, general and administrative expenses of the Data Group for thenine months ended September 30, 2008 were $105.2 million, or 44% of net sales, compared to $111.1million, or 45% of net sales for the same period in 2007. The decrease in selling, general andadministrative costs is related to the 2007 restructuring of *info*USA National Accounts that wascompleted as of December 31, 2007. See Note 7 in the Notes to Consolidated Financial Statementsfor further detail regarding the restructuring of *info*USA National Accounts. This decrease wasoffset by an increase in advertising spent on the Super Bowl in 2008 of $2.0 million.     Selling, general and administrative expenses of the Services Group for the quarter endedSeptember 30, 2008 were $21.9 million, or 53% of net sales, compared to $15.0 million, or 42% ofnet sales for the same period in 2007. Selling, general and administrative expenses of theServices Group for the nine months ended September 30, 2008 were $64.8 million, or 53% of netsales, compared to $45.4 million, or 46% of net sales for the same period in 2007. The majority ofthe increase in the Services Group is related to the increase in costs associated with e-mailmarketing due to the growth in the Yesmail division, which resulted in higher costs, but a lowerpercentage of net sales for that segment, as well as costs associated with Direct Media, Inc.,which was acquired in January 2008. Additionally, during the quarter ended September 30, 2008, theCompany recorded $1.4 million in costs within the Services Group related to facility closuresprimarily for Direct Media, Inc.     Selling, general and administrative expenses of the Marketing Research Group for the quarterended September 30, 2008 were $13.7 million, or 21% of net sales, compared to $11.4 million, or 20%of net sales for the same period in 2007. Selling, general and administrative expenses of theMarketing Research Group for the nine months ended September 30, 2008 were $44.4 million, or 22% ofnet sales, compared to $29.9 million, or 19% of net sales for the same period in 2007. Themajority of the increase in the Marketing Research Group is related to the costs associated withGuideline, Inc. (with respect to which selling, general and administrative expenses are higher as acost of sales than with respect to the other Marketing Research Group divisions), NWC Research andNorthwest Research Group, all acquired in the last six months of 2007.     Selling, general and administrative expenses of Corporate Activities for the quarter endedSeptember 30, 2008 were $34.5 million, compared to $10.4 million for the same period in 2007.Selling, general and administrative expenses of Corporate Activities for the nine months endedSeptember 30, 2008 were $61.3 million, compared to $26.6 million for the same period in 2007.Corporate Activities includes selling, general and administrative costs that cannot be directlyattributed to the revenue producing segments. The majority of theincrease is for legal expenses and professional fees related to theSpecial Litigation Committee’s investigation related to the Derivative Litigation and the SEC’sinformal investigation of $14.2 million, which includes $7.2 million awarded by the Court to be paid to the plaintiffs forattorneys’ fees and expenses. In addition, part of the increasewas related to severance of $10.0 million to the former Chief Executive Officerin connection with the Stipulation of Settlement. For the nine months ended September 30, 2008, wehave incurred $23.9 million in expenses related to the Derivative Litigation and the SpecialLitigation Committee’s investigation. See Note 11 in the Notes to Consolidated FinancialStatements for further detail regarding the Derivative Litigation and the Special LitigationCommittee investigation.**Depreciation expense**     Depreciationexpense for the quarter ended September 30, 2008 totaled $6.1 million, or 3% ofnet sales, compared to $5.7 million, or 3% of net sales for the same period in 2007. Depreciationexpense for the nine months ended September 30, 2008 totaled $18.0 million, or 3% of net sales,compared to $15.6 million, or 3% of net sales for the same period in 2007.     Depreciationexpense of the Data Group for the quarter ended September 30, 2008 was $3.1million, or 4% of net sales, compared
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to $2.4 million, or 3% of net sales for the same period in2007. Depreciation expense of the Data Group for the nine months endedSeptember 30, 2008 was $8.9 million, or 4% of net sales, compared to $7.1 million, or 3% ofnet sales for the same period in 2007. The increase in depreciation expense is primarilyattributed to recent purchases of equipment to support the subscription business.     Depreciation expense of the Services Group for the quarter ended September 30, 2008 was $1.1million, or 3% of net sales, compared to $1.2 million, or 3% of net sales for the same period in2007. Depreciation expense of the Services Group for the nine months ended September 30, 2008 was$3.4 million, or 3% of net sales, compared to $3.3 million, or 3% of net sales for the same periodin 2007.     Depreciation expense of the Marketing Research Group for the quarter ended September 30, 2008was $1.3 million, or 2% of net sales, compared to $1.1 million, or 2% of net sales for the sameperiod in 2007. Depreciation expense of the Marketing Research Group for the nine months endedSeptember 30, 2008 was $3.8 million, or 2% of net sales, compared to $2.9 million, or 2% of netsales for the same period in 2007. Additional depreciation expense was recorded for the fixedassets from the acquisitions of Guideline, Inc., NWC Research and Northwest Research Group.     Depreciation expense of Corporate Activities for the quarter ended September 30, 2008 was $0.6million, compared to $1.0 million for the same period in 2007. Depreciation expense of CorporateActivities for the nine months ended September 30, 2008 was $1.9 million, compared to $2.3 millionfor the same period in 2007. The decrease in depreciation expense is primarily attributed tocertain equipment that supports the administration department becoming fully depreciated.**Amortization expense**     Amortization expense for the quarter ended September 30, 2008 totaled $4.4 million, or 2% ofnet sales, compared to $5.0 million, or 3% of net sales for the same period in 2007. Amortizationexpense for the nine months ended September 30, 2008 totaled $13.2 million, or 2% of net sales,compared to $13.4 million, or 3% of net sales for the same period in 2007.     Amortization expense of the Data Group for the quarter ended September 30, 2008 was $1.3million, or 2% of net sales, compared to $1.9 million, or 2% of net sales for the same period in2007. Amortization expense of the Data Group for the nine months ended September 30, 2008 was $4.0million, or 2% of net sales, compared to $5.6 million, or 2% of net sales for the same period in2007. The decrease in amortization expense for the Data Group is due to certain identifiableintangible assets from the OneSource and ProCD acquisitions becoming fully amortized.     Amortization expense of the Services Group for the quarter ended September 30, 2008 was $1.1million, or 3% of net sales, compared to $1.5 million, or 4% of net sales for the same period in2007. Amortization expense of the Services Group for the nine months ended September 30, 2008 was$3.3 million, or 3% of net sales, compared to $3.1 million, or 3% of net sales for the same periodin 2007. The decrease in amortization expense for the Services Group for the quarter endedSeptember 30, 2008 is due to the write-off of the value of the trade name for Morkrynskidirectduring the quarter ended September 30, 2007. The increase in amortization expense for the ServicesGroup for the nine months ended September 30, 2008 is due to the additional amortization expensefor the identifiable intangible assets for Direct Media, Inc.     Amortization expense of the Marketing Research Group for the quarter ended September 30, 2008was $2.0 million, or 3% of net sales, compared to $1.6 million, or 3% of net sales for the sameperiod in 2007. Amortization expense of the Marketing Research Group for the nine months endedSeptember 30, 2008 was $5.9 million, or 3% of net sales, compared to $4.7 million, or 3% of netsales for the same period in 2007. This includes additional amortization expense for theidentifiable intangible assets from the acquisition of Guideline, Inc. which was acquired in August2007, 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 an operating loss of $(8.9)million, or (5)% of net sales, during the quarter ended September 30, 2008, compared to operatingincome of $31.4 million, or 17% of net sales for the same period in 2007. The Company hadoperating income of $16.3 million, or 3% of net sales, during the nine months ended September 30,2008, compared to operating income of $62.3 million, or 12% of net sales for the same period in2007.     Operating income for the Data Group for the quarter ended September 30, 2008 was $14.7million, or 20% of net sales, as compared to $31.4 million, or 34% of net sales for the same periodin 2007. Operating income for the Data Group for the nine months
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ended September 30, 2008 was$51.5 million, or 22% of net sales, as compared to $63.4 million, or 25% of net sales for the sameperiod in 2007.     Operating income for the Services Group for the quarter ended September 30, 2008 was $7.9million, or 19% of net sales, as compared to $10.0 million, or 28% of net sales for the same periodin 2007. Operating income for the Services Group for the nine months ended September 30, 2008 was$21.4 million, or 18% of net sales, as compared to $23.8 million, or 24% of net sales for the sameperiod in 2007.     Operating income for the Marketing Research Group for the quarter ended September 30, 2008 was$4.9 million, or 7% of net sales, as compared to $2.3 million, or 4% of net sales for the sameperiod in 2007. Operating income for the Marketing Research Group for the nine months endedSeptember 30, 2008 was $10.0 million, or 5% of net sales, as compared to $6.5 million, or 4% of netsales for the same period in 2007.     Operating loss for Corporate Activities for the quarter ended September 30, 2008 was $(36.3)million, compared to $(12.2) million for the same period in 2007. Operating loss for CorporateActivities for the nine months ended September 30, 2008 was $(66.6) million, compared to $(31.5)million for the same period in 2007.**Other expense, net**     Other expense, net was $(3.9) million, or (2)% of net sales, and $(4.7) million, or (3)% ofnet sales, for the quarters ended September 30, 2008 and 2007, respectively. Other expense, netwas $(11.4) million, or (2)% of net sales, and $(15.2) million, or (3)% of net sales, for the ninemonths ended September 30, 2008 and 2007, respectively. Other expense, net is comprised ofinterest expense, investment income and other income or expense items, which do not representcomponents of operating expense of the Company. The majority of the other expense, net was forinterest expense, which was $4.3 million and $5.6 million for the quarters ended September 30, 2008and 2007, respectively, and $13.6 million and $15.8 million for the nine months ended September 30,2008 and 2007, respectively. The decrease in interest expense is due to the decrease in interestrates for our term loan and revolving line of credit within our Amended 2006 Credit Facility.**Income taxes**     A provision for income taxes of $(4.2) million and $9.7 million was recorded during thequarters ended September 30, 2008 and 2007, respectively. A provision for income taxes of $2.5million and $17.4 million was recorded during the nine months ended September 30, 2008 and 2007,respectively. The estimated tax rate during the nine months ending September 30, 2008 and 2007 wasapproximately 38% and 37%, respectively. However, the actual rate for the nine months endedSeptember 30, 2008 was approximately 52% as a result of discrete items recorded due to theexpiration of the 2004 federal statute of limitations.**Liquidity and Capital Resources***Overview*     At September 30, 2008, the term loan of the Senior Secured Credit Facility entered into onFebruary 14, 2006 (as amended, the “2006 Credit Facility”) had a balance of $171.0 million, bearingan average interest rate of 5.77%. The revolving line of credit had a balance of $98.0 million,bearing an interest rate of 5.11%, and $77.0 million was available under the revolving line ofcredit. Substantially all of the assets of the Company are pledged as security under the terms ofthe 2006 Credit Facility.     The 2006 Credit Facility provides for grid-based interest pricing based upon our consolidatedtotal leverage ratio. Interest rates for use of the revolving line of credit range from base rateplus 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 andLIBOR plus 1.75% to 2.00% for Eurodollar rate loans. Subject to certain limitations set forth inthe credit agreement, we may designate borrowings under the 2006 Credit Facility as base rate loansor Eurodollar loans.     We are subject to certain financial covenants in the 2006 Credit Facility, including a minimumconsolidated fixed charge coverage ratio, maximum consolidated total leverage ratio and minimumconsolidated net worth. The fixed charge coverage ratio and leverage ratio financial covenants arebased on EBITDA (“earnings before interest expense, income taxes, depreciation and amortization”),as adjusted, providing for adjustments to EBITDA for certain agreed upon items includingnon-operating, non-recurring gains (losses), other charges (gains), asset impairments, non-cashstock compensation expense and other items specified in the 2006 Credit Facility.
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     In light of the Special Litigation Committee’s investigation described in Note 11 in the Notesto Consolidated Financial Statements, the Company was unable to file its Annual Report on Form 10-Kfor the year ended December 31, 2007 (the “2007 Form 10-K”) and the Form 10-Q for the quarter endedMarch 31, 2008 (the “First Quarter 2008 Form 10-Q”) by the SEC’s filing deadline. Failure totimely file the 2007 Form 10-K and the First Quarter 2008 Form 10-Q and provide annual andquarterly financial statements to the lenders to the 2006 Credit Facility would have constituted adefault under the 2006 Credit Facility. Therefore, on March 26, 2008, the Company and the lendersto the 2006 Credit Facility entered into a Third Amendment (the “Third Amendment”) to the 2006Credit Facility which, among other things: (1) extended the deadlines by which the Company mustfile the 2007 Form 10-K and the First Quarter 2008 Form 10-Q and provide certain annual andquarterly financial statements to the lenders; (2) waived any other defaults arising from thesefiling delays; and (3) modified the covenant related to operating leases. On June 27, 2008, theCompany and the lenders to the 2006 Credit Facility entered into a Fourth Amendment (the “FourthAmendment”) to the 2006 Credit Facility (as amended by the Third Amendment and the FourthAmendment, the “Amended 2006 Credit Facility”), which extended the deadlines for filing with theSEC the 2007 Form 10-K and the First Quarter 2008 Form 10-Q to August 15, 2008, and the Form 10-Qfor the quarter ended June 30, 2008 (the “Second Quarter 2008 Form 10-Q”) to August 29, 2008. As aresult of the amendments, the Company was in compliance with all restrictive covenants of the 2006Credit Facility as of September 30, 2008. The Company filed the 2007 Form 10-K and the FirstQuarter 2008 Form 10-Q with the SEC on August 8, 2008, and the Second Quarter 2008 Form 10-Q onAugust 21, 2008.     The Amended 2006 Credit Facility provides that we may pay cash dividends on our common stockor repurchase shares of our common stock provided that (1) before and after giving effect to suchdividend 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 leverageratio is not more than 2.75 to 1.00, and (3) the aggregate amount of all cash dividends and stockrepurchases during any loan year does not exceed $20 million, except that there is no cap on theamount of cash dividends or stock repurchases so long as, after giving effect to the dividend orrepurchase, our consolidated total leverage ratio is not more than 2.00 to 1.00.     As of September 30, 2008, the Company has incurred $26.9 million in professional fees andlegal expenses related to the Special Litigation Committee’s investigation related to theDerivative Litigation and the SEC’s informal investigation. This includes $3.0 million incurred in2007 and $23.9 million incurred during the nine months ended September 30, 2008. The Companyexpects to incur additional expenses related to the Derivative Litigation and the SpecialLitigation Committee’s investigation in the remainder of 2008. However, we believe these expenseswill be at a lower run rate than previously incurred.     As of September 30, 2008, we had a working capital deficit of $19.4 million, which included$59.1 million of deferred revenue. We believe that our existing sources of liquidity and cashgenerated from operations will satisfy our projected working capital, debt repayments and othercash requirements for at least the next 12 months. Acquisitions of other technologies, products orcompanies, or internal product development efforts may require us to obtain additional equity ordebt financing, which may not be available or may be dilutive.*Selected Consolidated Statements of Cash Flows Information*     Net cash provided by operating activities during the nine months ended September 30, 2008totaled $32.2 million compared to $55.0 million for the same period in 2007. The decrease in cashprovided was primarily due to the decrease in net income.     Net cash used in investing activities during the nine months ended September 30, 2008 totaled$40.7 million, compared to $69.7 million for the same period in 2007. The current period outflowwas mainly attributed to our spending of $18.6 million for additions of property and equipment, and$6.4 million for software and database development costs. Additionally, we paid $18.9 million forbusiness acquisitions, which was primarily for the acquisition of Direct Media, Inc. in January2008. This was offset partly by the receipt of $4.7 million for the sale of property andequipment, which was primarily for the sale of the Company’s fractional interest in two aircraft.     Net cash provided by financing activities during the nine months ended September 30, 2008totaled $7.9 million, compared to $18.6 million for the same period in 2007. The dividendpayments, totaling $19.8 million, were paid on March 5, 2008, to shareholders of record as of theclose of business on February 18, 2008. Total net proceeds received from long-term debt during thenine months ended September 30, 2008 were $28.8 million. The proceeds were used to fund theacquisition of Direct Media, Inc., and dividend payments to shareholders.
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*Selected Consolidated Balance Sheet Information*     Trade accounts receivable decreased to $57.8 million at September 30, 2008 from $78.6 millionat December 31, 2007. The decrease is the result of collections of invoices that were invoiced inthe fourth quarter of 2007 for several of our contractual customers.     List brokerage trade accounts receivable increased to $92.0 million at September 30, 2008 from$68.4 million at December 31, 2007. The increase is the result of the list brokerage tradeaccounts receivable recorded for the acquisition of Direct Media, Inc. acquired in January 2008, aswell as the seasonality of the list brokerage business.     Unbilled services increased to $32.2 million at September 30, 2008 from $25.1 million atDecember 31, 2007. The increase was primarily the result of an increase in services providedwithin the Macro International division in the Marketing Research Group.     Deferred income taxes within current assets increased to $9.7 million at September 30, 2008from $4.0 million at December 31, 2007. The increase was due to the change in timing of deferredincome tax components.     Assets held for sale at September 30, 2008 was $3.0 million, which included three assets thatthe Company was in the process of selling, compared to zero at December 31, 2007. See Note 10 inthe Notes to Consolidated Financial Statements for further detail regarding assets held for sale.     Goodwill increased to $420.1 million at September 30, 2008 from $415.1 million at December 31,2007. The increase was the result of the allocation of goodwill recorded for the acquisition ofDirect Media, Inc. in January 2008.     Other assets decreased to $6.0 million at September 30, 2008 from $11.4 million at December31, 2007. The decrease was primarily the result of the sale of fractional interest in twoaircraft.     Accounts payable increased to $32.6 million at September 30, 2008 from $23.3 million atDecember 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 theSpecial Litigation Committee’s investigation.     List brokerage trade accounts payable increased to $77.9 million at September 30, 2008 from$63.8 million at December 31, 2007, which is related to the increase in the list brokerage tradeaccounts receivable. The increase is the result of the list brokerage trade accounts payablerecorded for the acquisition in January 2008 of Direct Media, Inc., and the seasonality of the listbrokerage business.     Accrued expenses increased to $29.3 million at September 30, 2008 from $22.2 million atDecember 31, 2007. The increase was primarily due to the accrual of $7.2 million awarded by theCourt to the Plaintiffs for attorneys’ fees and expenses in the Derivative Litigation.     Deferred revenue decreased to $59.1 million at September 30, 2008 from $71.9 million atDecember 31, 2007, which is the result of revenue being recognized from fourth quarter 2007invoices for various customers within the Data Group segment during the first nine months of 2008.     Long-term debt, net of current portion increased to $309.8 million at September 30, 2008 from$278.3 million at December 31, 2007. The increase in long-term debt, net of current portion isprimarily due to the increase in the Amended 2006 Credit Facility to fund the acquisition of DirectMedia, Inc., and dividend payment to shareholders.     Non-current deferred income tax liabilities decreased to $26.6 million at September 30, 2008from $31.0 million at December 31, 2007 due to the change in timing of deferred income taxcomponents. The main components of this change include a decrease in the deferred tax liabilitiesdue to the acquisition of Direct Media, Inc. and an increase in the deferred tax assets due to thechange in the bonus accrual between the two periods.     Paid-in capital increased to $146.4 million at September 30, 2008 from $137.1 million atDecember 31, 2007. The increase is the result of the settlement payment from the former ChiefExecutive Officer pursuant to the Stipulation of Settlement. The corresponding receivable isrecorded in the equity section as a note receivable from shareholder.
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**Off-Balance Sheet Arrangements**     Other than rents associated with facility leasing arrangements, the Company does not engage inoff-balance sheet financing activities. The Company’s operating lease commitments are included inthe contractual obligations table set forth in the Company’s Annual Report on Form 10-K for theyear ended December 31, 2007 under Item 7, “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”**Accounting Standards**     In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, *FairValue Measurements*(“SFAS 157”). SFAS 157 defines fair value, establishes a framework formeasuring fair value and requires enhanced disclosures about fair value measurements. SFAS 157requires companies to disclose the fair value of their financial instruments according to a fairvalue hierarchy as defined in the standard. Additionally, companies are required to provideenhanced disclosure regarding financial instruments in one of the categories (level 3), including areconciliation of the beginning and ending balances separately for each major category of assetsand liabilities. SFAS 157 was effective for the Company on January 1, 2008. However, in February2008, the FASB released FASB Staff Position (FSP FAS 157-2 — Effective Date of FASB StatementNo. 157), which delayed the effective date of SFAS 157 for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in the financialstatements on a recurring basis (at least annually). The adoption of SFAS 157 for our financialassets and liabilities did not have a material impact on our consolidated financial statements. Wedo not believe the adoption of SFAS 157 for our non-financial assets and liabilities, effectiveJanuary 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 andFinancial Liabilities — Including an amendment of FASB Statement No. 115*(“SFAS 159”). SFAS 159permits entities to elect to measure many financial instruments and certain other items at fairvalue. Unrealized gains and losses on items for which the fair value option has been elected willbe recognized in earnings at each subsequent reporting date. SFAS 159 was effective for the Companyon January 1, 2008. The adoption of SFAS 159 did not have a material impact on our consolidatedfinancial statements.     In December 2007, the FASB issued SFAS No. 141R, *Business Combinations*(“SFAS 141R”), arevision to SFAS No. 141, *Business Combinations*. SFAS 141R provides revised guidance forrecognition and measurement of identifiable assets and goodwill acquired, liabilities assumed, andany noncontrolling interest in the acquiree at fair value. SFAS 141R also establishes disclosurerequirements to enable the evaluation of the nature and financial effects of a businesscombination. SFAS 141R is required to be applied prospectively to business combinations for whichthe acquisition date is on or after the beginning of the first annual reporting period beginning onor after December 15, 2008 (January 1, 2009 for the Company). The Company is currently evaluatingthe potential impact of the adoption of SFAS 141R on its consolidated financial statements.     In December 2007, the FASB issued SFAS No. 160, *Noncontrolling Interests in ConsolidatedFinancial Statements — an amendment of ARB No. 51*(“SFAS 160”). SFAS 160 establishes accountingand reporting standards for ownership interests in subsidiaries held by parties other than theparent. Specifically, SFAS 160 requires the presentation of noncontrolling interests as equity inthe Consolidated Statement of Financial Position, and separate identification and presentation inthe Consolidated Statement of Operations of net income attributable to the entity and thenoncontrolling interest. It also establishes accounting and reporting standards regardingdeconsolidation and changes in a parent’s ownership interest. SFAS 160 is effective for fiscalyears, 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 appliedprospectively, except for the presentation and disclosure requirements, which must be appliedretrospectively. The Company is currently evaluating the potential impact, if any, of the adoptionof SFAS 160 on its consolidated financial statements.**Inflation**     We do not believe that the rate of inflation has had a material effect on our operatingresults. However, inflation could adversely affect our future operating results if it were toresult in a substantial weakening of the economic condition.**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**     We have identified interest rate risk as our primary market risk exposure. Because nearly allour debts are at variable rates, any significant changes to interest rates may adversely impact ourearnings and cash flow. If necessary, we could refinance our debt to fixed rates or utilizeinterest rate protection agreements to manage interest rate risk. For example, each 100 basis pointincrease
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(decrease) in the interest rate would cause an annual increase (decrease) in interest expense ofapproximately $2.69 million. At September 30, 2008, we had long-term debt with a carrying value of$312.8 million, which approximates fair value.**ITEM 4. CONTROLS AND PROCEDURES**(a) Evaluation of disclosure controls and procedures     The Company is responsible for maintaining disclosure controls and other procedures that aredesigned so that information required to be disclosed by the Company in the reports it files orsubmits under the Exchange Act is recorded, processed, summarized and communicated to management,including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisionsregarding required disclosure within the time periods specified in the SEC’s rules and forms.     In connection with the preparation of this Form 10-Q, management performed an evaluation ofthe Company’s disclosure controls and procedures. The evaluation was performed, under thesupervision of and with the participation of the Chief Executive Officer and the Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’s disclosure controls andprocedures, as defined in Exchange Act Rule 13a-15(e) as of September 30, 2008. In addition, asdescribed under Item 9A, “Controls and Procedures” in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2007, management identified material weaknesses in the Company’sinternal control over financial reporting, which is an integral component of its disclosurecontrols and procedures. Based on this evaluation, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls and procedures were noteffective as of September 30, 2008.     The Company is in the process of remediating the existing material weaknesses, as described inmore detail below.(b) Changes in internal control over financial reporting     In connection with the conclusion of an internal investigation by the Special LitigationCommittee and the settlement of Derivative Litigation, the Company has taken steps to improve itscorporate governance and to remedy the material weaknesses as described under Item 9A “Controls andProcedures” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007 (the“2007 Form 10-K”). This remedial framework is described in detail in the 2007 Form 10-K, which wasfiled on August 8, 2008, and the Current Report on Form 8-K/A, which was filed on August 22, 2008.     Since the filing of the 2007 Form 10-K, the Company has implemented most of the corporategovernance and expense control measures described therein. In particular: **•** The Company separated the positions of Chairman of the Board and Chief ExecutiveOfficer, both of which had been held by Vinod Gupta, and appointed independent directorBernard Reznicek as Chairman of the Board and former lead independent director Bill L.Fairfield as Chief Executive Officer.  **•** The Company created a new position of Executive Vice President for Business Conduct andGeneral Counsel (“EVP”) and appointed John H. Longwell, the Company’s general counsel andcorporate secretary since November 2006, as Acting EVP. The position reports directly tothe Chairman of the Board and is responsible for oversight of certain corporate expenses.The Company has recently announced the relocation of the position to the Company’s Omahaheadquarters and the appointment of Thomas McCusker, former general counsel of Mutual ofOmaha, to serve as EVP on a permanent basis beginning in December 2008.  **•** The Company has revised its corporate governance and business expense policies under thedirection of the Acting EVP. In October 2008, the Audit Committee adopted new disclosurecontrols and procedures and the Independent Directors of the Company (as that term isdefined in the Stipulation of Settlement) adopted resolutions and policies governingdelegation of authority, reimbursement of expenses, insider trading, related partytransactions and nepotism. The Board of Directors also adopted a new Code of Conduct.Copies of all of the policies described above are available at www.infogroup.com.  **•** The Audit Committee of the Board of Directors, in consultation with the Chief ExecutiveOfficer, has identified a new Chief Financial Officer, who is expected to join the Companyin December 2008.
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     Other than as described above, no other changes were made during the third quarter of 2008 inthe Company’s internal control over financial reporting (as defined in Rule 13a-15(f) under theExchange Act) that materially affected, or are reasonably likely to materially affect, our internalcontrol over financial reporting.**PART II****OTHER INFORMATION****ITEM 1. LEGAL PROCEEDINGS**     In February 2006, Cardinal Value Equity Partners, L.P. (“Cardinal”) filed a derivative lawsuitin 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 forbreach of fiduciary duty. In October 2006, Dolphin Limited Partnership I, L.P., Dolphin FinancialPartners, L.L.C. and Robert Bartow (collectively with Cardinal, the “Plaintiffs”) filed aderivative lawsuit in the Court against certain current and former directors of the Company, andthe Company as a nominal defendant, claiming breach of fiduciary duty and misuse of corporateassets. In January 2007, the Court granted the defendants’ motion to consolidate the actions (asconsolidated, the “Derivative Litigation”).     In November 2007, the Company received a request from the Denver Regional Office of theSecurities and Exchange Commission (“SEC”) asking the Company to produce voluntarily certaindocuments as part of an informal SEC investigation. The requested documents relate to theallegations made in the Derivative Litigation, as well as related party transactions, expensereimbursement, other corporate expenditures, and certain trading in the Company’s securities. TheSpecial Litigation Committee, the formation and activities of which are described in more detailbelow, has reported the results of its investigation to the SEC, and the Company intends tocontinue to cooperate fully with the SEC’s requests. In lateOctober 2008, the Company was advised that the SEC had issued aformal order of investigation. Pursuant to the formal order, the SEChas issued several subpoenas to the Company and certain of itscurrent and former directors and employees. Because the investigation is ongoing, theCompany cannot predict the outcome of the investigation or its impact on the Company’s business.     In December 2007, the Company’s Board of Directors formed a Special Litigation Committee (the“SLC”) in response to the Derivative Litigation and the SEC’s informal investigation and requestfor voluntary production of documents. The SLC, which consisted of five independent Board members,conducted an investigation of the issues in the Derivative Litigation and the SEC’s informalinvestigation, as well as other related matters. Based on its review, the SLC determined, on July16, 2008, that various related party transactions, expense reimbursements and corporateexpenditures were excessive and, in response, approved a series of remedial actions. The remedialactions are set forth in Item 9A, “Controls and Procedures” in the Company’s Annual Report on Form10-K for the year ended December 31, 2007.     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 thePlaintiffs. On August 20, 2008, all relevant parties entered into a Stipulation of Settlement, thematerial terms of which are set forth in the Company’s Current Report on Form 8-K/A filed on August22, 2008. A number of remedial measures were adopted in conjunction with the Stipulation ofSettlement and implementation of these measures has begun.     Under the terms of the Stipulation of Settlement, Vinod Gupta resigned as Chief ExecutiveOfficer of the Company on August 20, 2008. Mr. Gupta and the Company entered into a SeparationAgreement and General Release dated August 20, 2008 (the “Separation Agreement”), under which Mr.Gupta granted a full release of the Company and received the right to severance payments totaling$10.0 million (contingent on Mr. Gupta adhering to certain requirements in the SeparationAgreement). The first severance payment in the amount of $5.0 million, which was due within sixtydays 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 $9.0million incrementally over four years. This receivable was recorded within equity as a notereceivable from shareholder on the consolidated balance sheet. The corresponding contribution wasreduced by $2.5 million for federal and state income taxes and was recorded within paid-in capitalon the consolidated balance sheet. Mr. Gupta’s first payment to the Company, in the amount of $2.2million, is expected to be paid not later than sixty (60) days after the entry of judgment by theCourt on the settlement.     On November 7, 2008, the Court entered an Order and Final Judgment approving all the terms ofthe Stipulation of Settlement and dismissing the Derivative Litigation with prejudice. The Court’sorder also awarded Plaintiffs’ counsel fees of $7 million and expenses in the amount of $210,710,all payable by the Company.
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     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 believethat, individually or in the aggregate, any such lawsuits or claims will have a material effect onits business, financial conditions, results of operations or liquidity.**ITEM 1A. RISK FACTORS**     ***The conditions of the U.S. and international capital and credit markets may adversely affectour ability to draw on our current revolving credit facility or obtain future short-term orlong-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 andavailability of funding for many companies has been and may continue to be adversely affected byilliquid credit markets and wider credit spreads. These forces reached unprecedented levels inSeptember and October 2008, resulting in the bankruptcy or acquisition of, or government assistanceto, several major domestic and international financial institutions. These events havesignificantly diminished overall confidence in the financial and credit markets. There can be noassurance that recent government responses to the disruptions in the financial and credit marketswill restore consumer confidence, stabilize the markets or increase liquidity and the availabilityof credit.     We continue to maintain the Amended 2006 Credit Facility. However, to the extent our businessrequires us to access the credit markets in the future and we are not able to do so, including inthe event that the lenders to the Amended 2006 Credit Facility cease to lend to us, or cease to becapable of lending, for any reason, we could experience a material and adverse impact on ourfinancial condition and ability to borrow additional funds. This might impair our ability toobtain sufficient funds for working capital, capital expenditures, acquisitions and other corporatepurposes.     ***The conditions of the U.S. and international capital and credit markets may adversely affectour interest expense under our existing credit facility.***     At September 30, 2008, the term loan of the Amended 2006 Credit Facility had a balance of$171.0 million, bearing an average interest rate of 5.77%. The revolving line of credit had abalance of $98.0 million, bearing an interest rate of 5.11%, and $77.0 million was available underthe revolving line of credit. Substantially all of the assets of the Company are pledged assecurity under the terms of the Amended 2006 Credit Facility.     The Amended 2006 Credit Facility provides for grid-based interest pricing based upon ourconsolidated total leverage ratio. Interest rates for use of the revolving line of credit rangefrom base rate plus 0.25% to 1.00% for base rate loans and LIBOR plus 1.25% to 2.00% for Eurodollarrate loans. Interest rates for the term loan range from base rate plus 0.75% to 1.00% for base rateloans and LIBOR plus 1.75% to 2.00% for Eurodollar rate loans. Subject to certain limitations setforth in the credit agreement, we may designate borrowings under the Amended 2006 Credit Facilityas base rate loans or Eurodollar loans.     In recent months, LIBOR rates have experienced unprecedented short-term volatility due todisruptions occurring in global financial and credit markets. During this period, LIBOR rates haveexperienced substantial short-term increases. Increases in LIBOR rates increase the interestexpense that we incur under the Amended 2006 Credit Facility. Because nearly all our debts are atvariable rates, any significant changes to interest rates may adversely impact our earnings andcash flow. (See Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” inthis Form 10-Q.)     ***Adverse changes in general economic or credit market conditions in any of the countries inwhich we do significant business could adversely impact our operating results.***     The direction and strength of the U.S. and global economy has recently been increasinglyuncertain due to a turndown in the economy and difficulties in the credit markets. If economicgrowth in the United States and other countries is slowed significantly, or if the credit marketscontinue to be difficult to access, our customers could experience significant disruptions to theirbusinesses and operations which, in turn, could negatively impact our business operations andfinancial performance.
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     ***The accounting treatment of goodwill and other identified intangibles could result in futureasset impairments, which would be recorded as operating losses.***     Goodwill represents the excess of the amounts we paid to acquire subsidiaries and otherbusinesses over the fair value of their net assets at the date of acquisition. We test goodwill atleast annually for impairment. Impairment testing is performed based upon estimates of the fairvalue of the “reporting unit” to which the goodwill relates. The reporting unit is the operatingsegment or a business one level below that operating segment if discrete financial information isprepared and regularly reviewed by management at that level. The fair value of the reporting unitis impacted by the performance of the business. If it is determined that the goodwill has beenimpaired, the Company must write down the goodwill by the amount of the impairment, with acorresponding charge to net income. Such write downs could have a material adverse effect on ourresults of operations or financial position.     Long-lived assets, including assets such as real estate, also require impairment testing todetermine whether changes in circumstances indicate that we will be unable to recover the carryingamount of the asset group through future operations of that asset group or market conditions thatwill impact the value of those assets. Such write downs could have a material adverse effect on ourresults of operations or financial position.     Deferred income tax represents the tax effect of the differences between the book and taxbasis of assets and liabilities. Deferred tax assets are assessed periodically by management todetermine if they are realizable. Factors in management’s determination include the performance ofthe business including the ability to generate capital gains. If based on available information, itis more likely than not that the deferred income tax asset will not be realized then a valuationallowance must be established with a corresponding charge to net income. Such charges could have amaterial adverse effect on our results of operations or financial position.
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**ITEM 6. EXHIBITS**     **Exhibit**    **No.**   **Description**     2.1 — Agreement and Plan of Merger, datedas June 28, 2007, by and among *info*USA Inc., KnickerbockerAcquisition Corp. and Guideline, Inc., incorporated herein by reference to Exhibit 2.1 filed withthe Company’s Current Report on Form 8-K filed July 5, 2007.     3.1 — Certificate of Incorporation, as amended through October 22, 1999, incorporated herein byreference 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 inDelaware on October 22, 1999, incorporated herein by reference to exhibits filed with ourRegistration Statement on Form 8-A, as amended, filed March 20, 2000.     3.3 — Certificate of Ownership and Mergereffecting the name change to *info*GROUP Inc., incorporatedherein by reference to Exhibit 3.1 filed with our Current Report on Form 8-K, filed June 4, 2008     3.4 — Bylaws, incorporated herein by reference to our Annual Report on Form 10-K for the year endedDecember 31, 2007, filed August 8, 2008.     4.1 — Preferred Share Rights Agreement, incorporated herein by reference to our Registration Statementon Form 8-A, as amended, filed March 20, 2000.     4.2 — Specimen of Common Stock Certificate, incorporated herein by reference to the exhibits filedwith our Registration Statement on Form 8-A, as amended, filed March 20, 2000.     10.1 — Agreement, dated July 18, 2008, between Vinod Gupta and the Company, incorporated hereby byreference to Exhibit 10.3 filed with the Company’s Current Report on Form 8-K filed with the SEC onJuly 23, 2008.     10.2 — Stipulation of Settlement, dated as of August 20, 2008 by and among the Company, the SpecialLitigation Committee, the plaintiffs to the Derivative Litigation and the defendants to theDerivative Litigation, incorporated herein by reference to Exhibit 10.1 filed with the Company’sCurrent Report on Form 8-K/A, filed August 22, 2008.     10.3 — Voting Agreement, dated August 20, 2008, by and among the Company, the Special LitigationCommittee and Vinod Gupta, incorporated herein by reference to Exhibit 10.2 filed with the Company’sCurrent Report on Form 8-K/A, filed August 22, 2008.     10.4 — Separation Agreement and General Release dated August 20, 2008, between Vinod Gupta and theCompany, incorporated herein by reference to Exhibit 10.6 filed with the Company’s Current Report onForm 8-K/A, filed August 22, 2008.     10.5* — *info*GROUP Inc. Amended and Restated 2007 Omnibus Incentive Plan.     31.1* — Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002.     31.2* — Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of2002.     32.1* — Certification of Chief Executive Officer pursuant to Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002.     32.2* — Certification of Chief Financial Officer pursuant to Section 1350, as adopted pursuant toSection 906 of the Sarbanes-Oxley Act of 2002. * Filed herewith
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**SIGNATURE**Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned thereunto duly authorized.      *info*GROUP Inc.