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SECURITIES AND EXCHANGE COMMISSION  FORM 10-Q [X] Quarterly Report pursuant to Section 13 or 15(d) of the  Securities Exchange Act of 1934 For the quarterly period ended March 31, 2004 or Transition report pursuant to Section 13 or 15(d) of the  Securities
Exchange Act of 1934 For the transition period from __________ to __________ Commission File Number 0-19598 infoUSA INC. 
  DELAWARE
    
    47-0751545(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification 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 
 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes [X]            No
[   ] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [X] No [   ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. 53,342,738 shares of Common Stock at May 4, 2004




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infoUSA INC. INDEX PART I  FINANCIAL INFORMATION AND MANAGEMENTS DISCUSSION AND ANALYSISItem 1. Consolidated Balance Sheets as of March 31, 2004 and
December 31, 2003Consolidated Statements of Operations for the Three Months
Ended March 31, 2004 and 2003Consolidated Statements of Cash Flows for the Three Months
ended March 31, 2004 and 2003Notes to Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and
Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II  OTHER INFORMATIONItem 4. Submission of matters to a vote of security holdersItem 6. Exhibits and Reports on Form 8-KSignatureIndex to ExhibitsCertification of CEO Pursuant to Section 302Certification of CFO Pursuant to Section 302Certification of CEO Pursuant to Section 906Certification of CFO Pursuant to Section 906
  2




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infoUSA INC. FORM 10-Q FOR THE QUARTER ENDED March 31, 2004 
 PART I FINANCIAL INFORMATION 3




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ITEM 1. FINANCIAL STATEMENTS infoUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts) March 31,
    
    December 31,2004
    
    2003(UNAUDITED)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    44,894
    
    
    $
    2,686Marketable securities
    
    
    3,446
    
    
    
    3,685Trade accounts receivable, net of allowances of $1,818 and
$2,492, respectively
    
    
    36,365
    
    
    
    40,922List brokerage trade accounts receivable
    
    
    10,920
    
    
    
    12,844Income taxes receivable
    
    
    
    
    
    
    1,046Prepaid expenses
    
    
    4,988
    
    
    
    4,985Deferred marketing costs
    
    
    3,833
    
    
    
    5,457Total current assets
    
    
    104,446
    
    
    
    71,625Property and equipment, net
    
    
    40,622
    
    
    
    40,984Intangible assets, net
    
    
    250,271
    
    
    
    247,609Other assets
    
    
    5,939
    
    
    
    6,128$
    401,278
    
    
    $
    366,346LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Current portion of long-term debt
    
    $
    52,264
    
    
    $
    17,280Accounts payable
    
    
    12,361
    
    
    
    16,212List brokerage trade accounts payable
    
    
    7,642
    
    
    
    9,516Accrued payroll expenses
    
    
    12,924
    
    
    
    17,793Accrued expenses
    
    
    3,398
    
    
    
    824Income taxes payable
    
    
    2,545
    
    
    
    Deferred income taxes
    
    
    3,098
    
    
    
    3,241Deferred revenues
    
    
    24,328
    
    
    
    19,824Total current liabilities
    
    
    118,560
    
    
    
    84,690Long-term debt, net of current portion
    
    
    121,221
    
    
    
    122,485Deferred income taxes
    
    
    8,124
    
    
    
    8,553Deferred revenue
    
    
    
    
    
    
    3,000Other liabilities
    
    
    1,397
    
    
    
    1,397Stockholders equity:Common stock, $.0025 par value. Authorized
295,000,000 shares; 52,934,267 shares issued and
52,438,286 outstanding at March 31, 2004 and 52,808,835
shares issued and 52,271,323 outstanding at December 31, 2003
    
    
    132
    
    
    
    132Paid-in capital
    
    
    100,768
    
    
    
    99,447Retained earnings
    
    
    56,305
    
    
    
    51,932Treasury stock, at cost, 495,981 shares held at March 31, 2004
and 537,512 held at December 31, 2003
    
    
    (3,008
    )
    
    
    (3,247
    )Notes receivable from officers
    
    
    (329
    )
    
    
    (325
    )Accumulated other comprehensive loss
    
    
    (1,892
    )
    
    
    (1,718
    )Total stockholders equity
    
    
    151,976
    
    
    
    146,221$
    401,278
    
    
    $
    366,346
 The accompanying notes are an integral part of the
consolidated financial statements. 4




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infoUSA INC. AND
SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
 THREE MONTHS ENDEDMarch 31,2004
    
    2003(UNAUDITED)Net sales
    
    $
    80,811
    
    
    $
    76,080Costs and expenses:Database and production costs
    
    
    23,861
    
    
    
    20,900Selling, general and administrative (excluding non-cash stock option
compensation expense of $182 and $0 for the three months
ended March 31, 2004 and 2003, respectively)
    
    
    40,179
    
    
    
    33,134Depreciation and amortization of operating assets
    
    
    3,314
    
    
    
    3,851Amortization of intangible assets
    
    
    3,446
    
    
    
    3,324Non-cash stock option compensation
    
    
    182
    
    
    
    Restructuring charges
    
    
    615
    
    
    
    555Acquisition costs
    
    
    3
    
    
    
    13Total operating costs and expenses
    
    
    71,600
    
    
    
    61,777Operating income
    
    
    9,211
    
    
    
    14,303Other income (expense):Investment income
    
    
    201
    
    
    
    682Other charges
    
    
    (144
    )
    
    
    (335
    )Interest expense
    
    
    (2,214
    )
    
    
    (3,661
    )Income before income taxes
    
    
    7,054
    
    
    
    10,989Income taxes
    
    
    2,681
    
    
    
    4,134Net income
    
    $
    4,373
    
    
    $
    6,855Basic earnings per share:Net income
    
    $
    0.08
    
    
    $
    0.13Weighted average shares outstanding
    
    
    52,338
    
    
    
    51,144Diluted earnings per share:Net income
    
    $
    0.08
    
    
    $
    0.13Weighted average shares outstanding
    
    
    52,955
    
    
    
    51,144
 The accompanying notes are an integral part of the
consolidated financial statements. 5




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infoUSA INC. AND
SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 THREE MONTHS ENDEDMarch 31,2004
    
    2003(UNAUDITED)CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    4,373
    
    
    $
    6,855Adjustments to reconcile net income
to net cash provided by operating activities:Depreciation and amortization of operating assets
    
    
    3,314
    
    
    
    3,851Amortization of intangible assets
    
    
    3,446
    
    
    
    3,324Amortization of deferred financing costs
    
    
    54
    
    
    
    183Deferred income taxes
    
    
    (1,311
    )
    
    
    1,281Non-cash stock option compensation expense
    
    
    182
    
    
    
    Non-cash 401(k) contribution in common stock
    
    
    384
    
    
    
    359Gain on sale of assets
    
    
    (191
    )
    
    
    (179
    )Non-cash other charges
    
    
    144
    
    
    
    135Changes in assets and liabilities, net of effect of acquisitions:Trade accounts receivable
    
    
    6,508
    
    
    
    (99
    )List brokerage trade accounts receivable
    
    
    1,924
    
    
    
    2,551Prepaid expenses and other assets
    
    
    456
    
    
    
    (2,022
    )Deferred marketing costs
    
    
    1,624
    
    
    
    (635
    )Accounts payable
    
    
    (3,876
    )
    
    
    3,016List brokerage trade accounts payable
    
    
    (2,023
    )
    
    
    (1,870
    )Income taxes receivable and payable, net
    
    
    3,591
    
    
    
    2,613Accrued expenses and other liabilities
    
    
    (2,456
    )
    
    
    2,915Net cash provided by operating activities
    
    
    16,143
    
    
    
    22,278CASH FLOWS FROM INVESTING ACTIVITIES:Sale of other investments
    
    
    377
    
    
    
    Purchase of other investments
    
    
    (223
    )
    
    
    Purchases of property and equipment
    
    
    (1,651
    )
    
    
    (1,820
    )Acquisitions of businesses, net of cash acquired
    
    
    (6,104
    )
    
    
    (5,260
    )Software and database development costs
    
    
    (452
    )
    
    
    (123
    )Net cash used in investing activities
    
    
    (8,053
    )
    
    
    (7,203
    )CASH FLOWS FROM FINANCING ACTIVITIES:Repayment of long-term debt
    
    
    (105,094
    )
    
    
    (15,990
    )Proceeds of long-term debt
    
    
    138,814
    
    
    
    Deferred financing costs paid
    
    
    (436
    )
    
    
    (28
    )Proceeds from exercise of stock options
    
    
    834
    
    
    
    Net cash used in financing activities
    
    
    34,118
    
    
    
    (16,018
    )Net decrease in cash and cash equivalents
    
    
    42,208
    
    
    
    (943
    )Cash and cash equivalents, beginning
    
    
    2,686
    
    
    
    6,285Cash and cash equivalents, ending
    
    $
    44,894
    
    
    $
    5,342Supplemental cash flow information:Interest paid
    
    $
    1,307
    
    
    $
    1,082Income taxes paid
    
    $
    75
    
    
    $
    233
 The accompanying notes are an integral part of the
consolidated financial statements. 6




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infoUSA INC. AND
SUBSIDIARIES 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. GENERAL The accompanying unaudited consolidated financial statements have been
prepared on the same basis as the audited consolidated financial statements
and, in the opinion of management, contain all adjustments, consisting of
normal recurring adjustments, necessary to fairly present the financial
information included therein. The consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not include
all the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. The Company suggests that this financial data be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 2003 included in the Companys 2003 Annual Report on Form
10-K, filed with the Securities and Exchange Commission. Results for the
interim period presented are not necessarily indicative of results to be
expected for the entire year. 2. EARNINGS PER SHARE INFORMATION The following table shows the amounts used in computing earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock. For the quarter ended March 31, 2003, the average market price
of the Companys common stock was less than the exercise price of all the
Companys outstanding common stock subject to option. Three Months EndedMarch 31,2004
    
    2003(In Thousands)Weighted average number of shares
used in basic EPS
    
    
    52,338
    
    
    
    51,144Net additional common stock
equivalent shares outstanding after
assumed exercise of stock options
    
    
    617
    
    
    
    Weighted average number of shares
outstanding used in diluted EPS
    
    
    52,955
    
    
    
    51,144
 3. SEGMENT INFORMATION The Company currently manages existing operations utilizing financial
information accumulated and reported for two business segments. The infoUSA group (formerly known as the small business segment)
principally engages in the selling of sales lead generation and consumer DVD
products to small to medium sized companies, small office and home office
businesses and individual consumers. This segment also includes the sale of
content via the Internet. The Donnelley group (formerly known as the large business segment)
principally engages in the selling of data processing services, licensed
databases, database marketing solutions, e-mail marketing solutions and list
brokerage and list management services to large companies. This segment
includes the licensing of databases for Internet directory assistance services.
The infoUSA group and Donnelley group reflect actual net sales, direct order
production, and identifiable direct sales and marketing costs related to their
operations. The remaining indirect costs are presented as a reconciling item in
Corporate Activities. Corporate activities principally represent the information systems
technology, database compilation, database verification, and administrative
functions of the Company. Investment income (loss), interest expense, income
taxes, amortization of intangibles, and depreciation expense are only recorded
in corporate activities. The Company does not allocate these costs to the two
business segments. The infoUSA group and Donnelley group segments reflect
actual net sales, direct order production, and identifiable direct sales and
marketing-related costs related to their operations. The Company records
unusual or non-recurring items including acquisition-related and restructuring
charges and provisions for litigation settlement in corporate activities to
allow for the analysis of the sales business segments excluding such unusual or
non-recurring charges. 7




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The Company accounts for property and equipment on a consolidated basis.
The Companys property and equipment is shared by the Companys business
segments. Depreciation expense is recorded in corporate activities. The Company has no intercompany sales or intercompany expense
transactions. Accordingly, there are no adjustments necessary to eliminate
amounts between the Companys segments. The following table summarizes segment
information: For The Three Months Ended March 31, 2004infoUSA
    
    Donnelley
    
    Corporate
    
    ConsolidatedGroup
    
    Group
    
    Activities
    
    Total(In thousands)Net sales
    
    $
    40,017
    
    
    $
    40,794
    
    
    $
    
    
    
    $
    80,811Non-cash stock compensation
    
    
    
    
    
    
    
    
    
    
    (182
    )
    
    
    (182
    )Restructuring charges
    
    
    
    
    
    
    
    
    
    
    (615
    )
    
    
    (615
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    (3
    )
    
    
    (3
    )Operating income (loss)
    
    
    12,462
    
    
    
    19,027
    
    
    
    (22,278
    )
    
    
    9,211Investment income
    
    
    
    
    
    
    
    
    
    
    201
    
    
    
    201Other charges
    
    
    
    
    
    
    
    
    
    
    (144
    )
    
    
    (144
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (2,214
    )
    
    
    (2,214
    )Income (loss) before income taxes
    
    
    12,462
    
    
    
    19,027
    
    
    
    (24,435
    )
    
    
    7,054
 For The Three Months Ended March 31, 2003infoUSA
    
    Donnelley
    
    Corporate
    
    ConsolidatedGroup
    
    Group
    
    Activities
    
    Total(In thousands)Net sales
    
    $
    39,566
    
    
    $
    36,514
    
    
    $
    
    
    
    $
    76,080Restructuring charges
    
    
    
    
    
    
    
    
    
    
    (555
    )
    
    
    (555
    )Acquisition costs
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Operating income (loss)
    
    
    15,211
    
    
    
    18,109
    
    
    
    (19,017
    )
    
    
    14,303Investment income
    
    
    
    
    
    
    
    
    
    
    682
    
    
    
    682Other charges
    
    
    
    
    
    
    
    
    
    
    (335
    )
    
    
    (335
    )Interest expense
    
    
    
    
    
    
    
    
    
    
    (3,661
    )
    
    
    (3,661
    )Income (loss) before income taxes
    
    
    15,211
    
    
    
    18,109
    
    
    
    (22,331
    )
    
    
    10,989
 4. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss), including the components of other
comprehensive income (loss), are as follows: For The ThreeMonths EndedMarch 31,
    
    March 31,2004
    
    2003(In thousands)Net income
    
    $
    4,373
    
    
    $
    6,855Other comprehensive income:Unrealized gain from
investments:Unrealized gains (losses)
    
    
    (278
    )
    
    
    24Related tax expense
    
    
    104
    
    
    
    (9
    )Net
    
    
    (174
    )
    
    
    15Total other comprehensive income.
    
    
    (174
    )
    
    
    15Comprehensive income
    
    $
    4,199
    
    
    $
    6,870
 The components of accumulated other comprehensive income (loss) is as
follows: Foreign
    
    
    
    
    
    AccumulatedUnrealized
    
    Currency
    
    Unrealized
    
    OtherGains/(Losses)
    
    Translation
    
    Gains / (Losses)
    
    ComprehensivePension plan
    
    Adjustments
    
    On Securities
    
    Income (Loss)(in thousands)Balance at March 31, 2004
    
    $
    (866
    )
    
    $
    (672
    )
    
    $
    (353
    )
    
    $
    (1,892
    )Balance at December 31, 2003
    
    $
    (866
    )
    
    $
    (672
    )
    
    $
    (180
    )
    
    $
    (1,718
    )
 8




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5. ACQUISITIONS On February 2, 2004, the Company acquired Triplex Direct Marketing Corp.,
a provider of data processing services to nonprofit and catalog customers. The
total purchase price was $7.6 million, of which, $6.1 million was payable in
cash at closing and the remaining $1.5 million will be payable on February 2,
2005 if Triplex satisfies all its representations, warranties, covenants and
agreements. The purchase price for the acquisition has been preliminarily
allocated to current assets of $2.4 million, property and equipment of $0.7
million, current liabilities of $2.4 million and goodwill of $5.4 million. The
acquisition has been accounted for under the purchase method of accounting, and
accordingly, the operating results of Triplex have been included in the
Companys financial statements since the date of acquisition. 6. CREDIT FACILITY On March 25, 2004, the Company financed a new Senior Secured Credit
Facility administered by Wells Fargo Bank, N.A. The new credit facility
provides for a $120.0 million term loan with a maturity date of March 2009 and
a $50.0 million revolving line of credit with a maturity date of March 2007. The Senior Secured Credit Facility provides for grid-based interest
pricing based upon the Companys consolidated total leverage ratio and ranges
from base rate plus 0.75% to 1.50% for base rate loans and from LIBOR plus
1.75% to 2.50% for use of the revolving credit facility. The term loan
interest rate is base rate plus 1.50% to 1.75% or LIBOR plus 2.25% to 2.50%.
Substantially all of the assets of the Company are pledged as security under
the terms of the credit facility. At March 31, 2004, the term loan had a
balance of $120.0 million with an interest rate of 3.59% and $37.9 million was
available under the revolving credit facility. The Company is subject to certain financial covenants in the Credit
Facility, including minimum consolidated fixed charge coverage ratio, maximum
consolidated total leverage ratio and minimum consolidated net worth.
Management believes the Company is in compliance with or has obtained waivers
for all restrictive covenants of the Companys various debt facilities. 7. NON-CASH STOCK COMPENSATION EXPENSE At March 31, 2004, the Company has a nonqualified stock option plan. The
Company applies the intrinsic value based method of Accounting Principles Board
(APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock option plan. No stock-based
employee compensation cost is reflected in net income, as all options granted
under the plan had an exercise price equal to the market value of the
underlying common stock on the date of grant. The Companys pro forma net
income and earnings per share would have been as indicated below had the fair
value of all option grants been charged to salaries, wages, and benefits in
accordance with SFAS No. 123, Accounting for Stock-Based Compensation: Three months endedMarch 31,2004
    
    2003(in thousands, exceptper share amounts)Net income, as reported
    
    $
    4,373
    
    
    $
    6,855Less: Total stock-based employee compensation
expense determined under fair value based
method, net of taxes
    
    
    665
    
    
    
    240Net income, pro forma
    
    $
    3,708
    
    
    $
    6,615Earnings per share:Basic  as reported
    
    $
    0.08
    
    
    $
    0.13Basic  pro forma
    
    $
    0.07
    
    
    $
    0.13Diluted  as reported
    
    $
    0.08
    
    
    $
    0.13Diluted  pro forma
    
    $
    0.07
    
    
    $
    0.13
 The above pro forma results are not likely to be representative of the
effects on reported net income for future years since options vest over several
years and additional awards generally are made each year. The fair value of the weighted average of option grants is estimated as of
the date of grant using the Black-Scholes option-pricing model with the
following assumptions used for grants in 2004: expected volatility of 75.37%,
risk free interest rate of 3.13% based on the U.S. Treasury strip yield at the
date of grant and expected lives of 5 years. 9




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Compensation cost for stock options and warrants granted to non-employees
and vendors is measured based upon the fair value of the stock option or
warrant granted. When the performance commitment of the non-employee or vendor
is not complete as of the grant date, the Company estimates the total
compensation cost using a fair value method at the end of each period.
Generally, the final measurement of compensation cost occurs when the
non-employee or vendors related performance commitment is complete. Changes,
either increases or decreases, in the estimated fair value of the options
between the date of the grant and the final vesting of the options result in a
change in the measure of compensation cost for the stock options or warrants.
Compensation cost is recognized as expense over the periods in which the
benefit is received. During 2002, the Company granted non-qualified stock options to a
non-employee consultant of the Company in connection with a consulting
agreement executed by the Company. The options vest evenly over four years and
have a five-year life. The fair value of the option was estimated, as of the
grant date, using the Black-Scholes option pricing model and is updated at each
balance sheet date. As such, the Company has recorded a non-cash charge of $182
thousand, related to stock options granted to the consultant during the three
months ended March 31, 2004. The charges were recorded as an addition to
paid-in-capital. The consulting agreement commits the Company to make cash
payments of $675 thousand, $775 thousand and $200 thousand in 2003, 2004 and
2005 to the consultant for services rendered. Expense of $175 thousand for
this consulting agreement was recorded during the three months ended March 31,
2004 and 2003, respectively. 8. RESTRUCTURING CHARGES During the three months ended March 31, 2004, the Company recorded
restructuring charges due to workforce reductions of $615 thousand. The
charges included involuntary employee separation costs (severance) for 96
employees in administration, order production and sales. As of March 31, 2004,
an accrual of $216 thousand was included in the accompanying consolidated
balance sheet for severance costs remaining to be paid. During the three months ended March 31, 2003, the Company recorded
restructuring charges due to workforce reductions of $555 thousand. The
charges included involuntary employee separation costs for 56 employees in
administration, sales support and marketing functions. The following table summarizes activity related to the restructuring
charges recorded by the Company, including the liability accrual balances: Beginning
    
    Amounts
    
    Amounts
    
    EndingPeriod End
    
    Accrual
    
    Expensed
    
    Paid
    
    Accrual(In thousands)March 31, 2004
    
    $
    247
    
    
    $
    615
    
    
    $
    646
    
    
    $
    216
 9. ACQUISITION COSTS The Company recorded costs of $3 thousand and $13 thousand during the
three months ended March 31, 2004 and 2003, respectively, for general and
administrative expenses incurred in connection with the integration of acquired
companies. These costs are not direct costs of acquisition and therefore
cannot be capitalized as part of the purchase price. 10. OTHER CHARGES During the quarter ended March 31, 2004, the Company wrote-off deferred
financing costs of $144 thousand related to the prior credit facility as a
result of the financing on March 25, 2004 of the new Senior Secured Credit
Facility described in Note 6. During the quarter ended March 31, 2003, the Company purchased $5.0
million of its Senior Subordinated Notes. As part of these repurchases, the
Company recorded charges of $0.3 million for net unamortized debt issue costs
related to the Senior Subordinated Notes and for amounts paid in excess of
carrying value of the debt. 10




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11. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consist of the following: March 31,
    
    December 31,2004
    
    2003(In thousands)Goodwill
    
    $
    267,241
    
    
    $
    261,398Non-compete agreements
    
    
    13,534
    
    
    
    13,534Core technology
    
    
    4,800
    
    
    
    4,800Customer base
    
    
    8,372
    
    
    
    8,372Trade names
    
    
    15,802
    
    
    
    15,815Purchased data processing software
    
    
    73,478
    
    
    
    73,478Acquired database costs
    
    
    19,000
    
    
    
    19,000Perpetual software license agreement, net
    
    
    2,733
    
    
    
    2,933Software development costs, net
    
    
    1,944
    
    
    
    2,128Database development costs, net
    
    
    373
    
    
    
    149Deferred financing costs
    
    
    8,652
    
    
    
    8,216415,929
    
    
    
    409,823Less accumulated amortization
    
    
    165,658
    
    
    
    162,214$
    250,271
    
    
    $
    247,609
 12. CONTINGENCIES The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Companys
financial position, results of operations, or cash flows. 13. SUBSEQUENT EVENTS On March 26, 2004 the Company provided notice to the trustee of the
Companys 9 1⁄2% Senior Subordinated Notes (the Notes) that it intended to
redeem all of its outstanding Notes on April 26, 2004. As of March 31, 2004,
the Company had Notes outstanding of $30.0 million. On March 25, 2004 and in conjunction with the closing of the new Senior
Credit Facility, the Company borrowed $32.5 million to redeem the Notes and
funds were placed in escrow with the trustee as required under the Notes
Indenture. Accordingly, the Companys accompanying consolidated balance sheet
at March 31, 2004 reflects the cash in escrow of $32.5 million in cash and cash
equivalents and this cash is unavailable for any other use, and $30.0 million
of outstanding Notes in current portion of long-term debt. On April 26, 2004 the Notes were redeemed at a premium of 4.75% to face
amount. The total amount required at the time of redemption was $32.5 million,
which included the cost of the bonds at par ($30.0 million), the premium ($1.5
million) and accrued interest through the redemption date ($1.0 million). The
Company subsequently recorded a loss of $1.5 million on the retirement of the
Notes, equal to the amount of the premium paid at redemption. On April 29, 2004, the Company entered into an agreement to acquire
OneSource Information Services, Inc. (OneSource). Pursuant to the agreement,
the Company will make a cash tender offer of $8.85 per share to acquire all of
the outstanding common stock of OneSource. The offer period is expected to run
for twenty business days, subject to possible extension, and is subject to
regulatory review. Following completion of the offer period, OneSource will be
merged into a subsidiary of the Company. In the merger, all shares not
tendered to the Company will be converted into the right to receive $8.85 per
share. The aggregate cash purchase price for the acquisition is expected to
be approximately $106 million. Completion of the acquisition is dependent on a
number of conditions, including there being tendered at least 51% of the
outstanding shares, on a fully-diluted basis, by OneSource shareholders. If
less than 90% of the shares of the common stock of OneSource are tendered into
the offer, completion of the transaction will require a vote of the
shareholders. In connection with the tender offer, OneSource has granted the Company an
option to acquire up to 19.9% of the issued and outstanding shares of common
stock. The option becomes exercisable only upon the acceptance and payment for
shares of common stock in the tender offer if, after the exercise of the
option, the Company would own 90% or more of the common shares of OneSource. 11




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In connection with the transactions contemplated by the Merger Agreement,
ValueAct Capital Partners, L.P. and certain of its affiliates have entered into
a Tender and Voting Agreement, and Martin Kahn has entered into a Stockholder
Support Agreement, pursuant to which such stockholders have agreed to tender
their Common Shares pursuant to the Offer and vote in favor of the Merger. Such
stockholders currently hold approximately 34.1% of the outstanding Common
Shares of OneSource. 12




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ITEM 2. infoUSA INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS This discussion and analysis contains forward-looking statements,
including without limitation statements in the discussion of comparative
results of operations, accounting standards and liquidity and capital
resources, within the meaning of Section 21E of the Securities Exchange Act
of 1934 and Section 27A of the Securities Act of 1933, which are subject to
the safe harbor created by those sections. The Companys actual future
results could differ materially from those projected in the forward-looking
statements. Some factors which could cause future actual results to differ
materially from the companys recent results or those projected in the
forward-looking statements are described in Factors that May Affect
Operating Results below. The Company assumes no obligation to update the
forward-looking statement or such factors. GENERAL Overview Products and Services infoUSA is a leading provider of business and consumer information, data
processing, and database marketing services. The Companys key assets include
proprietary databases of 14 million businesses in the United States and Canada
and 200 million individuals and 110 million households in the United States.
We believe our proprietary content is the most comprehensive and accurate data
available. We leverage these key assets by selling through multiple
distribution channels to over 4 million customers that include small and
medium-sized businesses, Fortune 1000 companies, consumers, and Internet users. Sales Overview Our revenue has historically been derived predominantly through the sale
of customized sales lead generation products. We have successfully capitalized
on new markets and applications for our proprietary databases, as our Company
expanded product and service offerings. We began to recognize significant
revenue from data processing services in 1997, following the acquisition of
Database America and continued expanding our data processing revenue with the
acquisition of Donnelley Marketing in July of 1999. The acquisition of
Donnelley Marketing enhanced our proprietary consumer database and database
marketing services. The merger made us the only company in our industry to
offer proprietary business and consumer data, data processing, and database
marketing services and gave us the ability to offer complete solutions and
fulfill substantially all the database, data processing, and database marketing
needs of our Fortune 1000 customers. Walter Karl and JAMI Marketing were
acquired in 1998 providing the Companys direct entry into the complimentary
sales list brokerage and list management industries. The Company has
recognized strong Internet license revenue and Internet content sales since
1999 and believes there is significant opportunity to expand the market for our
products and services over the Internet. The Company acquired Polk City
Directories in 2001 and Hill-Donnelly and City Publishing in 2002, expanding
the Companys presence in the published directories markets, specifically the
criss-cross reference directory market. Finally, the Companys acquisitions of
ClickAction, Yesmail and Markado during 2002 and 2003 provided the entrance to
yet another complimentary sales market offering e-mail customer acquisition and
customer retention solutions. We estimate that no customer represented greater
than approximately 5% of our net sales in 2003. Financial Performance Operating income for the quarter ended March 31, 2004 was $9.2 million, or
11% of net sales, down from $14.3 million, or 19% of net sales, for the same
period in 2003, as the Company continued to make extensive investments in
increased sales staff, advertising and marketing to grow revenue internally. EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization),
as adjusted, margins were down from 28% of net sales for the quarter ended
March 31, 2004 to 20% of net sales for the same period in 2003 due to the same
reasons described above for the decrease in operating income. Company
management utilizes the non-GAAP financial disclosure of EBITDA, as adjusted,
as a key financial measure in the analysis of its financial performance, as it
does with similar GAAP financial measures including operating income and cash
flows from operations. The Companys Senior Secured Credit Facility provides
for financial covenants that are based on EBITDA, as adjusted. Additionally,
the Company has historically had a significant amount of recorded goodwill and
purchased intangibles resulting from the acquisition of other companies, and
the amount of non-cash amortization expense associated 13




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with these acquisitions has varied significantly between reporting
periods. The Companys calculation of EBITDA is defined by footnote in the
accompanying financial data table. Mergers and Acquisitions The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed over 20 acquisitions since 1996. The
Company has increased its presence in the consumer marketing information
industry, greatly increased its ability to provide data processing solutions,
increased its presence in list management and list brokerage services and
broadened it offerings for e-mail and business marketing information. During
2002 and 2003, the Company enhanced its presence in e-mail marketing services
and solutions with the acquisition of DoubleClicks email deployment business,
ClickAction, Yesmail and Markado. The Company also continued to consolidate
the printed and online directory industry with its acquisition of Polk City
Directories in 2001 and the Hill-Donnelly and City Publishing directory
companies during 2002. As described in the notes to the accompanying financial
statements, the Company acquired Triplex during 2004 expanding its data
processing solutions in the non-profit and catalog markets. The Company has systematically integrated the operations of the acquired
companies into existing operations of the Company. In most cases, the results
of operations for these acquired activities are no longer separately accounted
for from existing activities. The Company cannot report the results of the
operations of acquired companies upon completion of the integration as the
results are commingled with existing results. Additionally, upon integration
of the acquired operations, the Company frequently combines acquired products
or features with existing products, and experiences significant cross selling
of products between business units, including sales of acquired products by
existing business units and sales by acquired business units of existing
products. Due to recent and potential future acquisitions, future results of
operations will not be comparable to historical data. 14




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RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected
financial information and other data. The amounts and related percentages may
not be fully comparable due to acquisitions. THREE MONTHS
    
    THREE MONTHSENDED
    
    ENDEDMarch 31, 2004
    
    March 31, 2003CONSOLIDATED STATEMENT OF OPERATIONS
DATA:Net sales
    
    
    100
    %
    
    
    100
    %Costs and expenses:Database and production costs
    
    
    30
    
    
    
    27Selling, general and administrative
    
    
    50
    
    
    
    44Depreciation
    
    
    4
    
    
    
    5Amortization
    
    
    4
    
    
    
    4Non-cash stock compensation expense
    
    
    
    
    
    
    Restructuring charges
    
    
    1
    
    
    
    1Acquisition costs
    
    
    
    
    
    
    Total costs and expenses
    
    
    89
    
    
    
    81Operating income
    
    
    11
    
    
    
    19Other expense, net
    
    
    (3
    )
    
    
    (5
    )Income before income taxes
    
    
    8
    
    
    
    14Income taxes
    
    
    3
    
    
    
    5Net income
    
    
    5
    %
    
    
    9
    %
 (in thousands)OTHER DATA:SALES BY SEGMENT:infoUSA Group
    
    $
    40,017
    
    
    $
    39,566Donnelley Group
    
    
    40,794
    
    
    
    36,514Total
    
    $
    80,811
    
    
    $
    76,080SALES BY SEGMENT AS A PERCENTAGE OF NET SALES:infoUSA Group
    
    
    50
    %
    
    
    52
    %Donnelley Group
    
    
    50
    
    
    
    48Total
    
    
    100
    %
    
    
    100
    %
 (in thousands)Amortization expense of intangible assets (1)
    
    $
    3,446
    
    
    $
    3,324Earnings before, interest, taxes, depreciation and
amortization, (EBITDA), as adjusted (2)
    
    $
    16,153
    
    
    $
    21,478EBITDA, as adjusted, as a percentage of net sales
    
    
    20
    %
    
    
    28
    %
 (in thousands)Cash Flow Data:Net cash from operating activities
    
    $
    15,987
    
    
    $
    22,278Net cash used in investing activities
    
    $
    (7,897
    )
    
    $
    (7,203
    )Net cash from (used) in financing activities
    
    $
    34,118
    
    
    $
    (16,018
    )
 (1) This represents amortization expense recorded by the Company on amortizable
intangible assets recorded as part of the acquisition of other companies, and
excludes amortization related to deferred financing costs, software development
costs and other intangible assets not recorded as part of an acquisition of
another company. (2) EBITDA, as adjusted, is defined as net income adjusted to exclude
depreciation and amortization, non-cash impairment of assets, non-operating
other charges (gains), income taxes, interest expense, investment income and
non-cash stock compensation expenses. EBITDA is presented because it is a
widely accepted measure of performance that eliminates the effects of a variety
of methods used for deprecation and amortization that have changed over time.
However, EBITDA, does not purport to represent cash provided by operating
activities as reflected in the Companys consolidated statements of cash flows,
is not a measure of financial performance under generally accepted accounting
principles (GAAP) and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with GAAP. Also,
the measure of EBITDA, may not be comparable to similar measures reported by
other companies. 15




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The following provides a reconciliation of net income to EBITDA, as
adjusted: Three months endedMarch 31,2004
    
    2003(in thousands)Net income
    
    $
    4,373
    
    
    $
    6,855Other charges
    
    
    144
    
    
    
    335Investment income
    
    
    (201
    )
    
    
    (682
    )Interest expense
    
    
    2,214
    
    
    
    3,661Income taxes
    
    
    2,681
    
    
    
    4,134Depreciation
    
    
    3,314
    
    
    
    3,851Amortization
    
    
    3,446
    
    
    
    3,324Non-cash stock compensation
    
    
    182
    
    
    
    EBITDA, as adjusted
    
    $
    16,153
    
    
    $
    21,478
 Net sales Net sales for the quarter ended March 31, 2004 were $80.8 million, an
increase of 6% from $76.1 million for the same period in 2003. Net sales of
the infoUSA Group segment for the quarter ended March 31, 2004 were $40.0
million, a 1% increase from $39.6 million for the same period in 2003.
Excluding the results of the Polk City Directories division included within
this segment, the infoUSA Group segment sales were $33.6 million in 2004, up 6%
from $31.8 million in 2003. The decrease in net sales for the Polk City
Directories division was principally due to changes in the timing of production
and delivery of certain printed directories. The infoUSA Group segment
principally engages in the selling of sales lead generation and consumer DVD
products to small to medium sized companies, small office and home office
businesses and individual consumers. This segment also includes the sale of
content via the Internet. Net sales of the Donnelley Group segment for the quarter ended March 31,
2004 were $40.8 million, a 12% increase from $36.5 million for the same period
in 2003. The increase was principally due to the acquisition of Yesmail in
March 2003 and Triplex in February 2004. The Donnelley Group segment
principally engages in the selling of data processing services, licensed
databases, database marketing solutions, e-mail marketing solutions and list
brokerage and list management services to large companies. This segment
includes the licensing of databases for Internet directory assistance services. Database and production costs Database and production costs for the quarter ended March 31, 2004 were
$23.9 million, or 30% of net sales, compared to $20.9 million, or 27% of net
sales for the same period in 2003. The increase in database and production
costs principally relates to the acquisition of Yesmail In March 2003 and
Triplex in February 2004. These acquired companies historically had higher
database and production costs structures, expressed as a percentage of net
sales, than the Companys existing businesses. Selling, general and administrative expenses Selling, general and administrative expenses for the quarter ended March
31, 2004 were $40.2 million, or 50% of net sales, compared to $33.1 million, or
44% of net sales for the same period in 2003. The increase in selling, general
and administrative expenses principally relates to the Companys planned
increase in direct marketing costs and the addition of approximately 200 sales
staff beginning during the second half of 2003. Additionally, the increase is
partially due to the acquisition of companies during 2003 and 2004, including
Yesmail and Triplex. These acquired companies historically had higher selling,
general and administrative cost structures, expressed as a percentage of net
sales, than the Companys existing businesses. Depreciation expense Depreciation expense for the quarter ended March 31, 2004 totaled $3.3
million, or 4% of net sales, compared to $3.9 million, or 5% of net sales for
the same period in 2003. Amortization expense Amortization expense for the quarter ended March 31, 2004 totaled $3.4
million, or 4% of net sales, compared to $3.3 million, or 4% of net sales for
the same period in 2003. The Company adopted SFAS No. 142, Goodwill and Other
Intangible Assets, as of 16




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January 1, 2002. SFAS No. 142 requires the Company to complete an annual
impairment test on goodwill and other intangible assets with an indefinite life
rather than record amortization expense on those assets. The Company completed
impairment tests as of October 31, 2003, as required by SFAS 142, and
established that no impairment exists. Non-cash stock compensation expense During the quarter ended March 31, 2004, the Company recorded a non-cash
charge of $182 thousand, compared to $0 thousand for the same period in 2003.
The Company recorded non-cash stock compensation expense related to a
non-employee consulting agreement executed during 2002. The Company will incur
additional non-cash compensation expense for the 2002 consultant options during
the vesting period of those options. The amount of compensation expense will
be affected by changes in the fair value of the Companys common stock. Restructuring costs The Company recorded restructuring charges during the quarters ended March
31, 2004 and 2003 of $0.6 million and $0.6 million, respectively, related to
workforce reductions as a part of the Companys continuing strategy to reduce
unnecessary costs and focus on core operations. The workforce reduction charges
included involuntary employee separation costs during 2004 and 2003 for
approximately 96 and 56 employees, respectively. Acquisition costs The Company recorded integration-related costs during the quarters ended
March 31, 2004 and 2003 of $3 thousand and $13 thousand, respectively. The
integration-related costs included general and administrative costs,
information system conversion costs and other direct integration-related
charges. These costs were not directly related to the recent acquisition of
various companies, and therefore could not be capitalized. Operating income Including the factors previously described, the Company had operating
income of $9.2 million, or 11% of net sales during the quarter ended March 31,
2004, compared to operating income of $14.3 million, or 19% of net sales for
the same period in 2003. The decrease in operating income as a percentage of
net sales is a result of the following items: 1) the Companys planned increase
in direct marketing costs and the addition of sales staff, beginning during the
quarter ended September 30, 2003: 2) a decline in net sales for Polk City
Directories, and 3) increased operating expenses represented as percentage of
net sales associated with companies acquired during 2003 and 2004 including
Yesmail and Triplex. Operating income for the infoUSA Group segment for the quarter ended March
31, 2004 was $12.5 million, or 31% of net sales, as compared to $15.2 million,
or 38% of net sales for the same period in 2003. The decrease in operating
income as a percentage of nets sales is principally due to items 1) and 2)
described in the preceding paragraph. Operating income for the Donnelley Group segment for the quarter ended
March 31, 2004 was $19.0 million, or 47% of net sales, as compared to $18.1
million, or 50% of net sales for the same period in 2003. The decrease in
operating income as a percentage of net sales is principally due to increased
operating expenses represented as percentage of net sales associated with
companies acquired during 2003 and 2004 including Yesmail and Triplex. Other income (expense), net Other expense, net was $(2.2) million, or 3% of net sales, and $(3.3)
million, or 5% of net sales, for the quarters ended March 31, 2004 and 2003,
respectively. Other income or (expense), net is comprised of interest expense,
investment income and other income or expense items, which do not represent
components of operating expense of the Company. Interest expense was $2.2 million and $3.7 million for the quarters ended
March 31, 2004 and 2003, respectively. The decrease is principally due to lower
interest rates on a previous Senior Secured Credit Facility refinanced in May
2003, the continued reduction in the amount of 9 1/2 % Senior Subordinated
Notes outstanding and favorable interest rates. Investment income was $0.2
million and $0.7 million, for the quarters ended March 31, 2004 and 2003,
respectively. 17




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Income taxes A provision for income taxes of $2.7 million and $4.1 million was recorded
during the quarters ended March 31, 2004 and 2003, respectively. Upon the
adoption of SFAS No. 142 on January 1, 2002, the Company ceased amortizing
goodwill and certain intangible assets for financial reporting purposes and
consequently, the amortization expense for those assets does not affect either
book or taxable income. EBITDA, as adjusted The Companys EBITDA, as adjusted, was $16.2 million, or 20% of net sales
during the quarter ended March 31, 2004, compared to $21.5 million, or 28% of
net sales for the same period in 2003. The decrease in EBITDA, as adjusted,
represented as a percentage of net sales principally relates to the Companys
planned increase in direct marketing costs and the addition of approximately
200 sales staff during the latter half of 2003. Liquidity and Capital Resources Overview Our principal sources of liquidity are cash flow provided by our operating
activities, our revolving credit facilities, and cash and cash equivalents on
hand. Our ability to generate cash from our operations is one of our
fundamental financial strengths. We use cash flows from operations, along with
borrowings, to fund capital expenditures, growth initiatives, make acquisitions
and retire outstanding indebtedness. General Information- Debt Instruments, Financial Covenants and Sources and
Uses of Cash On March 25, 2004, the Company financed a new Senior Secured Credit
Facility (the Credit Facility) administered by Wells Fargo Bank, N.A. The
new credit facility provides for a $120.0 million term loan with a maturity
date of March 2009 and a $50.0 million revolving line of credit with a maturity
date of March 2007. The Credit Facility provides for grid-based interest pricing based upon
the Companys consolidated total leverage ratio and ranges from base rate plus
0.75% to 1.50% for base rate loans and from LIBOR plus 1.75% to 2.50% for use
of the revolving credit facility. The term loan interest rate is base rate
plus 1.50% to 1.75% or LIBOR plus 2.25% to 2.50%. Substantially all of the
assets of the Company are pledged as security under the terms of the Credit
Facility. At March 31, 2004, the term loan had an outstanding balance of
$120.0 million with an interest rate of 3.59%. At March 31, 2004 the revolving
credit facility had an outstanding balance of $12.1 million with an interest
rate of 3.09% and $37.9 million was available under the revolving credit
facility. The Company is subject to certain financial covenants in the Credit
Facility, including minimum consolidated fixed charge coverage ratio, maximum
consolidated total leverage ratio and minimum consolidated net worth.
Management believes the Company is in compliance with all restrictive covenants
of the Credit Facility. On April 29, 2004, The Company entered into an agreement to acquire
OneSource Information Services, Inc. for approximately $106 million in cash.
In connection with this acquisition, the Company intends to amend the Credit
Facility with Wells Fargo Bank, N.A to obtain an additional $80 million of
financing. Upon consummation of the financing, the Company will have the
ability to borrow up to $250 million, consisting of (i) a five year term note
of $120 million bearing interest at LIBOR plus 2.5%, (ii) a six year term note
of $80 million bearing interest at LIBOR plus 2.75%, and (iii) a revolving
credit facility of $50 million. These loans will be secured by substantially
all of the assets of the Company. The Company believes that its existing sources of liquidity and cash
generated from operations will satisfy the Companys projected working capital,
debt repayments and other cash requirements for at least the next 12 months.
Acquisitions of other technologies, products or companies, or internal product
development efforts may require the Company to obtain additional equity or debt
financing, which may not be available or may be dilutive. Selected Consolidated Statements of Cash Flows Information As of March 31, 2004, the Companys principal sources of liquidity
included $37.9 million available under the Credit Facility. As of March 31,
2004, the Company had a working capital deficit of $14.1 million. 18




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Net cash provided by operating activities during the quarter ended March
31, 2004 totaled $16.1 million compared to $22.3 million for the same period in
2003. During the quarter ended March 31, 2004, the Company spent $1.7 million
for additions of property and equipment and $0.5 million related to software
and database development costs. During the quarter ended March 31, 2004, the Company spent $6.1 million
for acquisitions of businesses, net of cash acquired of $0.2 million. The
Company paid $5.9 million for Triplex (net of cash acquired of $0.2 million)
and capitalized acquisition costs of $0.2 million. Selected Consolidated Balance Sheet Information Trade accounts receivable decreased to $36.4 million at March 31, 2004
from $40.9 million at December 31, 2003. The days sales outstanding (DSO)
ratio for the quarter ended March 31, 2004 was 41 days compared to 49 days for
the same period in 2003. The decrease in the DSO ratio relates to the
continued application of strict credit and collection practices. Deferred marketing costs decreased to $3.8 million at March 31, 2004 from
$5.5 million at December 31, 2003. The decrease is the direct result of the
Companys decreased spending during the quarter ended March 31, 2004 from the
level of spending incurred during the latter half of 2003 on direct marketing
costs that are subject to deferral and amortization. Selected other balance sheet accounts including list brokerage trade
accounts receivable, prepaid expenses, list brokerage trade accounts payable,
accounts payable, accrued expenses and accrued payroll expenses increased
(decreased) moderately from their respective account balances at March 31, 2004
from their respective account balances at December 31, 2003. The increase
(decrease) in these account balances is due to the acquisition of certain
companies during 2003 and 2004 and payment timing differences related to
various general operating expenses. Deferred revenue increased to $24.3 million at March 31, 2004 from $19.8
million at December 31, 2003. The increase is due to increased database
license sales, which are subject to deferral and amortization, during fiscal
year 2004 from fiscal year 2003. Current portion of long-term debt increased to $52.3 million at March 31,
2004 from $17.3 million at December 31, 2003. As described in Note 13 to the
accompanying consolidated financial statements, the Company borrowed on March
26, 2004 the total amount due of $32.5 million for the redemption of the
Companys Senior Subordinated Notes. The funds were placed in escrow with the
Notes trustee as required under the Notes Indenture. The Notes were
subsequently redeemed on April 26, 2004. Long-term debt, net of current portion decreased to $121.2 million at
March 31, 2004 from $122.5 million at December 31, 2003. Other than facility leasing arrangements, the Company does not engage in
off-balance sheet financing activities. Accounting Standards In January 2003, the FASB issued FASB interpretation No. 46 (Revised),
Consolidation of Variable Interest Entities.FIN No. 46(R) address
consolidation by business enterprises of certain variable interest entities.
The provisions of FIN No. 46 are effective immediately for variable interest
entities created after January 31, 2003 and for variable interest entities in
which an enterprise obtains an interest after that date. The provisions are
effective in the first fiscal year of interim period beginning after December
15, 2003, for variable interest entities in which an enterprise hold a variable
interest that it acquired before February 1, 2003. The Company does not
currently have any variable interest entities; therefore FIN No. 46 will not
have a material impact on the financial position, results of operations, and
cash flows of the Company. Inflation We do not believe that the rate of inflation has had a material effect on
our operating results. However, inflation could adversely affect our future
operating results if it were to result in a substantial weakening economic
condition. 19




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##### Table of Contents



Factors That May Affect Operating Results Our Internet strategy is subject to review and revision. Our Internet strategy is to leverage our proprietary content into multiple
vertical market applications and provide marketing solutions for electronic
commerce applications. The strategy of developing more efficient and profitable
applications of our content through the Internet is evolving. We cannot
guarantee that our customers will choose to have our products and services
delivered to them over the Internet. If we are successful in developing
Internet applications, we may face strong competition from current and
potential competitors, including other Internet companies and other providers
of business and consumer databases. We will review our Internet strategy from
time to time and may continue to revise it. Our markets are highly competitive and many of our competitors have
greater resources than we do. The business and consumer marketing information industry in which we
operate is highly competitive. Intense competition could harm us by causing,
among other things, price reductions, reduced gross margins, and loss of market
share. Our competition includes:  In consumer sales lead generation products, Acxiom, Experian (a
subsidiary of Great Universal Stores, P.L.C. (GUS)), and Equifax, both
directly and through reseller networks.  In data processing services, Acxiom, Experian, Direct Marketing
Technologies (a subsidiary of GUS) and Harte-Hanks Communications, Inc.  In business sales lead generation products, Experian and Duns Marketing
Services (DMS), a division of Dun & Bradstreet. DMS, which relies upon
information compiled from Dun & Bradstreets credit database, tends to focus on
marketing to large companies.  In business directory publishing, we compete with Regional Bell
Operating Companies and many smaller, regional directory publishers.  In consumer products, certain smaller producers of CD-Rom products.  Technologies which companies may install and implement in-house as part
of their internal information systems functions, instead of purchasing or
outsourcing such functions. In addition, we may face competition from new entrants to the business and
consumer marketing information industry as a result of the rapid expansion of
the Internet, which creates a substantial new channel for distributing business
information to the market. Many of our competitors have longer operating
histories, better name recognition and greater financial resources than we do,
which may enable them to implement their business strategies more readily than
we can. We are leveraged. If we are unable to service our debt as it becomes due,
our business would be harmed. As of March 31, 2004, we had total indebtedness of approximately $143.5
million, excluding $30.0 million of Notes due under an indenture (the
Indenture) that were subsequently redeemed as of April 26, 2004.
Substantially all of our assets are pledged as security under the terms of the
Credit Facility. Our ability to pay principal and interest on the Notes issued under the
Indenture and the indebtedness under the Credit Facility and our ability to
satisfy our other debt obligations will depend upon our future operating
performance. Our performance will be affected by prevailing economic conditions
and financial, business and other factors. Certain of these factors are beyond
our control. The future availability of revolving credit under the Credit
Facility will depend on, among other things, our ability to meet certain
specified financial ratios and maintenance tests. We expect that our operating
cash flow should be sufficient to meet our operating expenses, to make
necessary capital expenditures and to service our debt requirements as they
become due. If we are unable to service our indebtedness, however, we will be
forced to take actions such as reducing or delaying acquisitions and/or capital
expenditures, selling assets, restructuring or refinancing our indebtedness
(including the Credit Facility) or seeking additional equity capital. We may
not be able to implement any such measures or obtain additional financing or
terms that are favorable or satisfactory to us, if at all. The terms of our current indebtedness may restrict our ability to take
certain actions that fit our business strategy. 20




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Our existing Credit Facility contain certain covenants that restricts our
ability to:  
    
    Incur additional indebtedness;  
    
    Pay dividends and make certain other similar payments;  
    
    Guarantee indebtedness of others;  
    
    Enter into certain transactions with affiliates;  
    
    Consummate certain asset sales, certain mergers and consolidations,
sales or other dispositions of all or substantially all of our assets  
    
    Acquire other companies; and  
    
    Obtain dividends or certain other payments from our subsidiaries. These restrictions may impair our ability to take certain actions that fit
our business strategy. A breach of any of these covenants could result in an
event of default under the terms of our existing Credit Facility. Upon the
occurrence of an event of default, the lenders could elect to declare all
amounts outstanding, together with accrued interest, to be immediately due and
payable. If the payment of any such indebtedness is accelerated, our assets may
not be sufficient to repay in full the indebtedness under our credit facilities
and our other indebtedness. Moreover, if we were unable to repay amounts owed
to the lenders under our Credit Facility, the lenders could foreclose on our
assets that secure the indebtedness. Fluctuations in our operating results may result in decreases in the
market price of our common stock. Our operating results may fluctuate on a quarterly and annual basis. Our
expense levels are relatively fixed and are based, in part, on our expectations
as to future revenues. As a result, unexpected changes in revenue levels may
have a disproportionate effect on operating performance in any given period. In
some period or periods our operating results may be below the expectations of
public market analysts and investors. Our failure to meet analyst or investor
expectations could result in a decrease in the market price of our common
stock. If we do not adapt our products and services to respond to changes in
technology, they could become obsolete. We provide marketing information and services to our customers in a
variety of formats, including printed formats, electronic formats such as
CD-Rom and DVD, and over the Internet. Advances in information technology may
result in changing customer preferences for products and product delivery
formats. If we do not successfully adapt our products and services to take
advantage of changes in technology and customer preferences, our business,
financial condition and results of operations would be adversely affected. We have adopted an Internet strategy because we believe that the Internet
represents an important and rapidly evolving market for marketing information
products and services. Our business, financial condition and results of
operations would be adversely affected if we:  
    
    Fail to develop products and services that are well suited to the
Internet market;  
    
    Experience difficulties that delay or prevent the successful
development, introduction and marketing of these products and services;
or  
    
    Fail to achieve sufficient traffic to our Internet sites to generate
significant revenues, or to successfully implement electronic commerce
operations. Our ability to increase our revenues will depend to some extent upon
introducing new products and services, and if the marketplace does not accept
these new products and services, our revenues may decline. 21




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To increase our revenues, we must enhance and improve existing products
and continue to introduce new products and new versions of existing products
that keep pace with technological developments, satisfy increasingly
sophisticated customer requirements, and achieve market acceptance. We believe
much of our future growth prospects will rest on our ability to continue to
expand into newer products and services. Products and services that we plan to
market in the future are in various stages of development. We cannot assure you
that the marketplace will accept these products. If our current or potential
customers are not willing to switch to or adopt our new products and services,
our ability to increase revenues will be impaired. Changes in laws and regulations relating to data privacy could adversely
affect our business. We engage in direct marketing, as do many of our customers. Certain data
and services provided by us are subject to regulation by federal, state and
local authorities in the United States as well as those in Canada and the
United Kingdom. For instance, some of the data and services that we provide are
subject to regulation under the Fair Credit Reporting Act, which regulates the
use of consumer credit information, and to a lesser extent, the
Gramm-Leach-Bliley Act, which regulates the use of non-public personal
information. We are also subject to the United Kingdoms Data Protection Act
of 1998, which became fully effective on October 24, 2001 and regulates the
manner in which we can use third-party data, and recent regulatory limitations
relating to use of the Electoral Roll, one of our key data sources in the
United Kingdom. In addition, growing concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
self-regulation of such practices by the direct marketing industry through
guidelines suggested by the Direct Marketing Association and to increased
federal and state regulation. There is increasing awareness and concern among
the general public regarding marketing and privacy concerns, particularly as it
relates to the Internet. This concern is likely to result in new laws and
regulations. Compliance with existing federal, state and local laws and
regulations and industry self-regulation has not to date seriously affected our
business, financial condition or results of operations. Nonetheless, federal,
state and local laws and regulations designed to protect the public from the
misuse of personal information in the marketplace and adverse publicity or
potential litigation concerning the collection, management or commercial use of
such information may increasingly affect our operations. This could result in
substantial regulatory compliance or litigation expense or a loss of revenue. Our business would be harmed if we do not successfully integrate future
acquisitions. Our business strategy includes continued growth through acquisitions of
complementary products, technologies or businesses. We have made over 20
acquisitions since 1996 and completed the integration of these acquisitions
into our existing business by the end of 2003, with the exception of Triplex
which was acquired in February 2004. We continue to evaluate strategic
opportunities available to us and intend to pursue opportunities that we
believe fit our business strategy. Acquisitions of companies, products or
technologies may result in the diversion of managements time and attention
from day-to-day operations of our business and may entail numerous other risks,
including difficulties in assimilating and integrating acquired operations,
databases, products, corporate cultures and personnel, potential loss of key
employees of acquired businesses, difficulties in applying our internal
controls to acquired businesses, and particular problems, liabilities or
contingencies related to the businesses being acquired. To the extent our
efforts to integrate future acquisitions fail, our business, financial
condition and results of operations would be adversely affected. 22




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##### Table of Contents



ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to material future earnings or cash flow exposures
from changes in interest rates as nearly all of the Companys debt is not at
fixed rates. At March 31, 2004, the fair value of the Companys long-term debt
is based on quoted market prices at the reporting date or is estimated by
discounting the future cash flows of each instrument at rates currently offered
to the Company for similar debt instruments of comparable maturities. At March
31, 2004, the Company had long-term debt with a carrying value of $143.5
million (excluding $30.0 million of Senior Subordinated Notes redeemed on April
26, 2004) and estimated fair value of the same. The Company has no significant
operations subject to risks of foreign currency fluctuations. 
 ITEM 4.
CONTROLS AND PROCEDURES As of March 31, 2004, the Company carried out an evaluation, under the
supervision and with the participation of the Companys management, including
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures, as defined in Exchange Act Rule 15d-15(e) and Rule 13a-15(e).
Based upon that evaluation, the Companys Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures were effective in enabling the Company to record, process, summarize
and report information required to be included in the Companys periodic SEC
filings within the required time period. There have been no changes in internal
controls over financial reporting that has materially affected, or are
reasonably likely to materially affect, the Companys internal control over
financial reporting, subsequent to the date the Chief Executive Officer and
Chief Financial Officer completed their evaluation. 23




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##### Table of Contents



infoUSA INC.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2004 
 PART II OTHER INFORMATION 
 ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the 2004 Annual Meeting of Stockholders of the Company held on May 4,
2004, the stockholders voted and approved the following items: 1. Elected the following directors to the Board of Directors for a term of
three years. Harold W. Andersen
    
    FOR:
    
    
    47,462,024
    
    
    WITHHELD:
    
    
    2,957,516Elliot S. Kaplan
    
    FOR:
    
    
    40,322,794
    
    
    WITHHELD:
    
    
    10,096,746
 2. The stockholders also ratified the appointment of KPMG LLP as the Companys
independent auditors to examine the financial statements of the Company for the
fiscal year 2004. FOR:
    
    
    49,092,452
    
    
    AGAINST:
    
    
    1,317,119
    
    
    ABSTAIN:
    
    
    9,969
 
 ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K  (a)
    
    Exhibits 31.1*
    
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.31.2*
    
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1*
    
    
    
    Certification of Chief Executive Officer pursuant to
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.32.2*
    
    
    
    Certification of Chief Financial Officer pursuant to
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
  *
    
    Filed herewith  (b)
    
    Reports on Form 8-K The Company filed a Form 8-K under Item 7 and 9 on January 15, 2004
announcing its fiscal year 2003 financial results; a Form 8-K under Item 7 and
9 on March 17, 2004 announcing the temporary suspension of trading of the
Companys common stock due to the pending conversion of the Companys 401(k)
plan to a new recordkeeper; a Form 8-K under Item 9 on March 19, 2004
disclosing selected estimated operating results for the first fiscal quarter of
2004; a Form 8-K under Item 5 and 7 on March 25, 2004 announcing a new Senior
Secured Credit Facility dated March 25, 2004. 24




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##### Table of Contents



SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. infoUSA INC.Date: May 10, 2004
    
    /s/ Tim HoffmanTim Hoffman, Chief Accounting Officer
(principal accounting officer)
 25




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##### Table of Contents



INDEX TO EXHIBITS 31.1*
    
    
    
    Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.31.2*
    
    
    
    Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith.32.1*
    
    
    
    Certification of Chief Executive Officer pursuant to
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.32.2*
    
    
    
    Certification of Chief Financial Officer pursuant to
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, filed herewith.
  *
    
    Filed herewith