ITEM 1. DESCRIPTION OF BUSINESS
American List Corporation (the "Company") develops, maintains and markets one of the largest and most comprehensive databases of high school, college, and pre-school through junior high school students in the United States. The Company rents lists derived from its database for use primarily in direct mail and telemarketing programs. During the fiscal year ended February 29, 1996, the Company rented its lists to approximately 3,600 customers, including list brokers and advertising agencies, financial institutions, retailers and educational institutions.
The Company's computerized database contains information such as name, address, gender and, if available, date of birth and telephone number of the individuals included. From this database, the Company extracts, manipulates and sorts information to create its multiple list products which are available in a variety of formats, including prospect lists, mailing labels, 3" x 5" index cards and computer magnetic tapes, cartridges and disks. The Company's computer processing facility provides it with the ability to customize its lists to best serve each customer's marketing goals.
The information contained in the Company's database is derived from a number of sources which are the result of long-term relationships developed by the Company over the past 30 years, as well as from certain publicly available sources. The Company believes that its relationships with many of its information sources make it difficult for others to obtain comparable data and, accordingly, provide the Company with a competitive advantage.
Statements in this report that are not statements of historical fact may be forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from this anticipated.
PRODUCTS AND SERVICES
The Company markets a variety of products and services, which are created from the information contained in its database. The Company has devoted significant time and effort to developing, maintaining and enhancing its database. The Company utilizes an IBM 4381 mainframe system for data compilation and list production. Data inputting is outsourced to third party vendors. Data is backed up as information is updated and is then stored off site. Sophisticated computer hardware and software enable the rapid compilation, processing, storage, sorting and quality control of inputted data. The Company also utilizes software to check the accuracy of the inputted data, including spelling, zip code information, address and date of birth, as well as to perform the valuable tasks of removing duplication from the Company's list products. Each of the Company's lists is guaranteed to be at least 95% deliverable if the mailing takes place within 30 days after receipt of the list. To date, refunds pursuant to this guarantee arrangement have not been material.
The Company typically will rent its lists for a one-time use unless other arrangements are made. Rental prices for a one-time use generally range from $60 to $120 per thousand names depending upon the criteria selected. Rates for unlimited use of a list for a one year period typically range from $150 to
$250 per thousand names. In order to protect the lists from unauthorized usage, the Company seeds its lists with decoy names.
The Company currently markets lists in the following categories:
High School Students
The Company believes it maintains the most complete and accurate list of high school students available. For fiscal 1996, rentals of high school student lists accounted for approximately 55% of the Company's revenues. The high school student list is used by marketers of credit cards, scholarships, colleges, the armed services, catalogue items, formal wear, magazines, computers, software and accessories. This segment, as well as the college segment of the Company's database, has significant appeal to direct marketing companies, which place a strong emphasis on effectively reaching younger consumers, as they are seen as important first-time buyers who are in a position to form their own long-term buying habits and develop brand loyalties. The Company updates this list as new information becomes available, which is generally on a monthly basis.
College Students
The college student market is attractive to direct marketing companies because of the significant amount of money college students have available for discretionary spending. Additionally, marketers generally wish to cultivate the development of first-time buying habits of this group. Furthermore, the Company's information is extremely valuable to marketers because the transient nature of college students makes them often difficult to reach. The Company offers its customers its college student list segmented by school, class and/or major. Customers purchasing this list include companies marketing automobiles, credit cards, clothing and scholarships. The Company recreates its college student list primarily in the late fall and winter when student addresses become available.
Pre-School Through Junior High School Students
The Company has compiled a database of approximately 35%, or 15 million names, of these children between the ages of two and 13. Applications of this list include the marketing of encyclopedias and books, children's magazines, children's catalogue items, summer camps and amusement parks. The Company updates this list as information becomes available, generally on a monthly basis.
Young Adults
The Company has compiled a database of young adults between the ages of 19 and 36. Applications of this list include the marketing of automobiles, trade schools and the armed services. The Company updates this list as information becomes available which is generally on a monthly basis. Historically, this list has accounted for less than 5% of the Company's revenues.
Other List Products and Services
In order to expand its customer base and increase sales to its existing customers, the Company is focusing on new list products and new applications of its database. The Company has recently introduced the following new list compilations: (i) a list of newly engaged couples which it markets for use by caterers, musicians, photographers and other product and service providers in the wedding market as well as to insurance companies and others seeking to target newlyweds; and (ii) religious and ethnic compilations which it will market for use by religious and ethnic publications and colleges and universities, as well as existing customers. These lists are designed to further a company's ability to distinctly target customers through direct marketing programs.
Additionally, the Company offers its customers a full range of data processing services which enable them to maintain their current customer files and prospect files for ongoing mailings. Among the services offered by the Company are carrier route coding, address standardization, postal presorting, file overlays, back end mailing analysis, tape/diskette conversions, telephone appending, merge/purge and custom programming.
New Products and Services
In June 1995, the Company, through its GeoDemX subsidiary, acquired certain assets and liabilities of an early stage business engaged in the sale of software that incorporates computerized maps and electronic demographic data for the generation of sales leads. The GeoDemX software is designed to permit an organization to selectively target a prospective customer base that is similar to that organization's existing customer base. GeoDemX also resells software manufactured by MapInfo Corp.
As part of the Company's strategy to expand the applications of its database, the Company is contemplating the establishment of a web site on the Internet, which would incorporate programming designed to appeal primarily to high school and college students. Revenues are anticipated to be derived from the sale of advertising space, initially to the existing customers of the Company who wish to employ another medium as part of their overall marketing strategy.
CUSTOMERS
The Company's customer base is comprised of list brokers and advertising agencies which resell the Company's list products as well as end users employing direct mail and telemarketing campaigns as part of their marketing efforts. Among the numerous large and small entities who have utilized the Company's lists over the years are banks and other financial institutions, educational institutions such as colleges and trade schools, the armed forces, record companies, publishers, catalogue companies, retailers and consumer goods marketers. A significant portion of the Company's recent growth has been the result of increased marketing expenditures by financial institutions relating to the promotion of credit cards and other products. List brokers and advertising agencies, which are resellers of the Company's products, generally account for between 40% and 50% of annual revenues. These customers generally receive a 20% brokerage commission on their sales. The Company's revenues are calculated net of such brokerage commissions. In each of the past 10 years, no single customer has accounted for in excess of 5% of the Company's revenues.
To date, the Company's experience has been that customers initially rent only a small portion of the Company's database and generally increase their usage over time. The Company believes this results from customers' increasing familiarity with the effectiveness of the Company's products in their direct marketing programs.
SALES AND MARKETING
The Company markets its products and services to existing and prospective customers through an in-house marketing staff which conducts telemarketing and direct sales, and through third party resellers such as independent list brokers and advertising agencies. The Company also continually seeks to broaden its customer base by attending trade shows and conventions. The Company has recently increased expenditures for in-house advertising and expects that revenues from direct sales as a percentage of total revenues will increase in the future.
COMPETITION
The Company competes with a number of small and large companies, many of which have substantially greater resources and provide a broader array of services than does the Company. These companies include list compilers, list brokers, marketing consultants and advertising agencies and include companies such as MetroMail Corp., a subsidiary of R.R. Donnelley & Sons Co., Donnelley Marketing, Inc., TRW, Inc. and Equifax Inc. The primary competitive factors in the children and student list business are the reliability of the information, the level of service provided and pricing. The Company believes the accuracy and breadth of its database, its service and its prices enable it to remain competitive. The Company maintains long-term relationships with many of its customers and information sources and considers this a competitive advantage, as well as a significant barrier to entry to the student list business. Although Educational Testing Services of Princeton, New Jersey also provides lists of high school students, it does so only for non-profit institutions and, accordingly, competes with the Company solely in this limited market.
RIGHTS TO DATA
The Company attempts to protect its database and certain of its software by relying on trade secret laws and seeding its lists with decoy names to identify unauthorized usage. The Company has not filed for copyright protection of its database or list products. There can be no assurance that the steps taken by the Company will be adequate to deter misappropriation of its data or independent third party development of substantially similar products and technology.
A patent application relating to the GeoDemX software product has been filed with the United States Patent and Trademark Office (the "PTO"). There can be no assurance that this patent application will result in a patent being issued or that any issued patent will afford adequate protection to the Company in the event that the GeoDemX product is successfully commercialized.
EMPLOYEES
At May 16, 1996, the Company had 38 employees, including 11 in marketing and sales, seven in administration, five in data compilation, nine in data processing operations and six in its GeoDemX operations. None of the Company's employees is subject to a collective bargaining agreement nor has the Company ever experienced a work stoppage. The Company believes that its employee relations are good.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices and computer facility are located in approximately 8,300 square feet of space at 330 Old Country Road, Mineola, New York, and are occupied pursuant to a lease which terminates on June 15, 2001. Rent expense was $294,000 during the year ended February 29, 1996. The lease contains an escalation clause relating to increases in real estate taxes.
GeoDemX currently occupies approximately 2,300 square feet of office space at 17117 West Nine Mile Road, Southfield, Michigan pursuant to a lease which terminates on May 31, 1996. The base monthly rental is $2,204. The Company believes it will be able to renew its lease or lease new space at the same building should it determine to do so.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal proceedings to which the Company is a party.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year covered by this report to a vote of the security holders of the Company.
Part II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the American Stock Exchange under the symbol AMZ. The following sets forth the high and low closing prices for the last two fiscal years as reported by the American Stock Exchange.
Closing Prices HIGH LOW YEAR ENDED ---- --- FEBRUARY 29, 1996 - ------------------ First Quarter 25.13 20.13 Second Quarter 30.75 23.63 Third Quarter 29.63 24.50 Fourth Quarter 37.50 25.50
YEAR ENDED FEBRUARY 28, 1995 - ----------------- First Quarter 17.88 16.13 Second Quarter 18.75 17.00 Third Quarter 19.25 17.00 Fourth Quarter 20.25 16.13
The number of holders of record of the Company's Common Stock as of May 16, 1996 was 307.
The Company currently pays regular quarterly dividends to holders of its Common Stock. For the second, third and fourth quarters of fiscal 1996, the Company declared quarterly dividends of $.25 per share. The first quarter dividend of fiscal 1997 was increased to $.30 per share and was declared on April 19, 1996, payable on May 14, 1996 to stockholders of record on May 1, 1996.
On March 22, 1995, the Board of Directors authorized the repurchase of up to 200,000 shares of the Company's Common Stock. In April 1995, the Company purchased 24,600 shares of its Common Stock for an aggregate price of $509,238. An additional 300 shares were repurchased in November 1995 for an aggregate price of $7,634. In May 1996, the Company purchased 100,000 shares of its Common Stock for an aggregate price of $2,518,750. On May 23, 1996, the Board of Directors increased the total number of shares that may be repurchased to 300,000 shares of Common Stock.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its cash flow requirements with funds generated from operations. At February 29, 1996, the Company had cash, cash equivalents and marketable securities of approximately $11.4 million and working capital of approximately $17.0 million.
Net cash flows from operating activities amounted to approximately $6.6 million and $4.7 million during fiscal 1996 and 1995, respectively.
Net cash used in investing activities amounted to approximately $.8 million and $2.6 million during fiscal 1996 and 1995, respectively. Approximately 82% of the 1996 amount reflects the purchase of marketable securities. The remainder reflects expenditures for capital equipment and the purchase of GeoDemX, net of cash acquired.
Net cash used in financing activities amounted to approximately $5.4 million and $3.5 million during fiscal 1996 and 1995, respectively. Approximately 80% of the 1996 amount reflects the payment
of dividends. The remainder reflects the purchase of treasury stock and the payment of long-term debt pursuant to the licensing agreement described below.
In May 1996, the Company purchased 100,000 shares of its Common Stock for an aggregate price of $2,518,750. On May 23, 1996, the Board of Directors increased the number of shares that may be repurchased to 300,000 shares of Common Stock.
Effective July 1, 1994, the Company entered into a licensing agreement pursuant to which it became obligated to pay the licensor a total of $4,200,000 payable in decreasing annual installments through July 2003. See Note E to the Consolidated Financial Statements.
On March 22, 1995, the Board of Directors authorized the repurchase of up to 200,000 shares of the Company's Common Stock. In April 1995, the Company purchased 24,600 shares of its Common Stock for an aggregate price of $509,238. An additional 300 shares were repurchased in November 1995 for an aggregate price of $7,634. The Company may from time to time repurchase additional shares.
On June 22, 1995, the Company consummated an agreement (the "GeoDemX Agreement") pursuant to which it acquired, through GeoDemX, a wholly-owned subsidiary of the Company, a business engaged in the sale of geodemographic software -- an emerging category of software defined by the combination of computerized maps with electronic demographic data -- for use in the generation of sales leads. Pursuant to the GeoDemX Agreement, the Company agreed to advance GeoDemX $750,000 to fund its working capital requirements and other operating expenses, of which $707,000 had been advanced as of February 29, 1996. The Company has not yet determined the extent to which it will continue to invest in the GeoDemX technology beyond the remaining $43,000 commitment and there can be no assurance that the GeoDemX technology will ever be successfully commercialized. Although it is the Company's present position to pursue the marketing and commercialization of the GeoDemX technology, in the event the Company determines not to fund further development of the GeoDemX business, it may be required to recognize certain charges relating to the discontinuation or disposition of the business. Such charges, which management believes would not exceed $445,000 before taxes at February 29, 1996, may have a material adverse effect on the Company's net earnings and earnings per share during the quarter in which such determination is made. Continued investments in GeoDemX, if made, are not expected to have a material effect on the Company's liquidity.
Pursuant to the GeoDemX Agreement, additional consideration for the acquisition will involve the issuance by the Company of shares of its Common Stock having a market value equal to between 40% and 50% of the Pre-Tax Earnings (as defined), if any, of the GeoDemX business during the fiscal years ending February 28 or 29, 1996, 1997, 1998 and 1999. Any payment required during the second year will be reduced in the event the GeoDemX operations generate a Pre-Tax Loss (as defined) during the first year. The GeoDemX Agreement grants the sellers the option to receive a portion of any payments earned in cash.
The Company believes that available cash, together with revenues generated from operations, will be sufficient to fund the Company's continuing operations and the payment of dividends for the foreseeable future. The Company may also from time to time consider the acquisition of complementary businesses, products or technologies which may require the Company to obtain
additional financing. The Company has no present understandings, commitments or agreements, nor is it engaged in any discussions or negotiations, with respect to any such transaction.
RESULTS OF OPERATIONS
On May 17, 1996, the Company announced that preliminary indications are that revenues and earnings for the quarter ended May 31, 1996 are not expected to exceed the results reported for the quarter ended May 31, 1995. Revenues and net earnings were $5,330,609 and $2,335,870 (51 cents per share), respectively, for the quarter ended May 31, 1995. The anticipated results are primarily due to the timing of expected orders from certain customers combined with a decrease in orders from new customers. The Company believes that the results for the first quarter will not be indicative of the results anticipated for the fiscal year ending February 28, 1997.
FISCAL YEAR ENDED FEBRUARY 29, 1996 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28, 1995
Revenues increased by approximately $3.4 million (22%) for the fiscal year ended February 29, 1996 ("fiscal 1996") from the fiscal year ended February 28, 1995 ("fiscal 1995"). The increase in revenues is primarily attributable to increased sales to existing and new customers, price increases which took effect in September 1994 and April 1995 and revenues generated by GeoDemX.
Cost of operations increased by approximately $702,000 (32%) for fiscal 1996 as compared to fiscal 1995 primarily due to the amortization of deferred license costs and costs associated with GeoDemX. As a percentage of sales, cost of operations remained relatively constant during fiscal 1996 and 1995, reflecting the inclusion of sales of lower margin GeoDemX products.
Selling, general and administrative expenses increased by approximately $623,000 (17%) for fiscal 1996 as compared to fiscal 1995 primarily due to expenses associated with GeoDemX and the Company's hiring of additional personnel. As a percentage of sales, such expenses decreased during fiscal 1996 to 22.4% as compared to 23.3% during fiscal 1995.
Investment income increased by approximately $98,000 (26%) for fiscal 1996 from fiscal 1995 primarily due to an increase in interest rates and a greater amount of funds available for investment.
Interest expense increased by approximately 56,000 (43%) for fiscal 1996 as compared to fiscal 1995 as a result of the debt associated with a license agreement entered into in July 1994. See Note E to the Consolidated Financial Statements.
The effective tax rate decreased to 36.8% for fiscal 1996 as compared to 37.8% for fiscal 1995 primarily due to increased non-taxable municipal bond interest income.
FISCAL YEAR ENDED FEBRUARY 28, 1995 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28, 1994
Revenues increased by approximately $2.9 million (23%) for fiscal 1995 from fiscal 1994. The increase in revenues is primarily attributable to increased sales to existing and new customers, price
increases which took effect in January and September 1994 and a license agreement entered into in July 1994. See Note E to the Consolidated Financial Statements.
Cost of operations increased by approximately $209,000 (10%) for fiscal 1995 as compared to fiscal 1994 primarly due to the amortization of deferred license costs. See Note E to the Consolidated Financial Statements. As a percentage of sales, cost of operations decreased from 16% during fiscal 1994 to 14% during fiscal 1995 due to increased sales volume in excess of the growth in cost of operations.
Selling, general and administrative expenses increased by approximately $224,000 (7%) for fiscal 1995 from fiscal 1994 primarily due to an increase in personnel costs and consulting fees related to the upgrade of the Company's computer networking system. As a percentage of revenues, such expenses decreased during fiscal 1995 to 23% as compared to 27% during fiscal 1994. This decrease resulted from changes to an executive officer's compensation agreement which kept such costs constant for fiscal 1995 as compared to fiscal 1994.
Investment income increased by approximately $184,000 (95%) for fiscal 1995 from fiscal 1994 primarily due to an increase in interest rates and to a lesser extent the adoption of Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities" which requires the Company to record any unrealized gains and losses from securities available for sale as a component of stockholders' equity. In contrast, during fiscal 1994, the Company recorded an unrealized loss as a reduction of investment income.
Interest expense of approximately $129,000 for fiscal 1995 resulted from a license agreement entered into in July 1994. See Note E to the Consolidated Financial Statements.
The effective tax rate decreased to 37.8% for fiscal 1995 as compared to 38.6% for fiscal 1994 as a result of an increase of tax-free municipal bond interest earned in fiscal 1995.
FISCAL YEAR ENDED FEBRUARY 28, 1994 COMPARED TO FISCAL YEAR ENDED FEBRUARY 28, 1993
Revenues increased by approximately $2.5 million (25%) for fiscal 1994 from the fiscal year ended February 28, 1993 ("fiscal 1993"). The increase in revenues is primarly attributable to increased sales to existing and new customers. Price increases which took effect in October 1992 and January 1994 also impacted revenues favorably during fiscal 1994.
Cost of operations remained constant during fiscal 1993 and 1994, but decreased as a percentage of revenues from 19.6% during fiscal 1993 to 15.8% during fiscal 1994 due to increased sales volume.
Selling, general and administrative expenses increased by approximately $657,000 (24%) for fiscal 1994 from fiscal 1993 primarily due to an increase in executive compensation which was based upon Company performance.
Investment income decreased by approximately $77,000 (28%) for fiscal 1994 compared to fiscal 1993 primarily due to a decline in the market value of certain investments.
There was no significant change in the effective tax rate during fiscal 1993 and 1994.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information appears in a separate section of this Report following Part III.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS IN ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Item 10
ITEM 14
(a) EXHIBITS, LISTS AND REPORTS ON FORM 8-K
3.1 Articles of Incorporation as amended to August 31, 1983 (1)
3.1a Certificate of Amendment to Articles of Incorporation filed September 19, 1983(2)
3.1b Certificate of Amendment to Articles of Incorporation filed September 9, 1987(3)
3.2 By laws as amended to date (1)
10.1 Profit-sharing Plan (1)
10.2 Pension Plan (1)
10.3 Lease Agreement (4)
10.4 Stock Option Plan (5)
10.5 Employment Agreement between the Registrant and Jan Stumacher (6)
10.6 Employment Agreement, as amended, between the Registrant and Martin Lerner (7)
10.7 Agreement of Sale and Purchase of Assets between the Registrant and GeoDemX Corporation (8)
22 Subsidiaries of the Registrant (9)
--------------------------- (1) Incorporated by reference to the Annual Report on Form 10-K for the year ended February 28, 1981.
(2) Incorporated by reference to the Annual Report on Form 10-K for the year ended February 29, 1984.
(3) Incorporated by reference to the Annual Report on Form 10-K for the year ended February 29, 1988.
(4) Incorporated by reference to the Annual Report on Form 10-K for the year ended February 29, 1992.
(5) Incorporated by reference to the Annual Report on Form 10-K for the year ended February 28, 1993.
(6) Incorporated by reference to the Annual Report on Form 10-KSB for the year ended February 28, 1994.
(7) Incorporated by reference to the Annual Report on Form 10-KSB for the year ended February 28, 1995.
(8) Incorporated by reference to the Annual Report on Form 10-Q for the three months ended May 31, 1995.
(9) Incorporated by reference to the Annual Report on Form 10-Q for the three months ended August 31, 1995.
(b) REPORTS ON FORM 8-K --------------------- No reports on Form 8-K have been filed during the three months ended February 29, 1996.
American List Corporation
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Certified Public Accountants
Consolidated Balance Sheets February 29, 1996 and February 28, 1995
Consolidated Statements of Earnings Year Ended February 29, 1996 and February 28, 1995 and 1994
Consolidated Statement of Stockholders' Equity Year Ended February 29, 1996 and February 28, 1995 and 1994
Consolidated Statements of Cash Flows Year Ended February 29, 1996 and February 28, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants on Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders AMERICAN LIST CORPORATION
We have audited the accompanying consolidated balance sheets of American List Corporation and Subsidiaries as of February 29, 1996 and February 28, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the years in the three-year period ended February 29, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American List Corporation and Subsidiaries as of February 29, 1996 and 1995, and the consolidated results of their operations and their consolidated cash flows for each of the years in the three-year period ended February 29, 1996, in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York April 10, 1996
American List Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements.
American List Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these statements.
American List Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended
The accompanying notes are an integral part of these statements.
American List Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended February 29, 1996 and February 28, 1995 and 1994
The accompanying notes are an integral part of this statement.
**THIS TABLE CONTINUED ON THE FOLLOWING PAGE**
-20 A-
TABLE CONTINUED
-20 B-
American List Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended
American List Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended
The accompanying notes are an integral part of these statements.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 29, 1996 and February 28, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES
American List Corporation ("ALC"), through its wholly owned subsidiary, American Student List Company, Inc. ("ASL"), primarily develops, maintains and markets databases of high school, college and pre-school through junior high school students in the United States. ASL rents lists to its customers derived from its database for use primarily in direct mail and marketing programs. ASL's customers consist mainly of list brokers and advertising agencies, financial institutions, retailers and educational institutions. ALC's wholly-owned subsidiary, GeoDemX Corporation ("GeoDemX"), is engaged in the sale of software that incorporates computerized map and electronic demographic data for the generation of sales leads.
A summary of the significant accounting policies applied on a consistent basis in the preparation of the accompanying consolidated financial statements follows:
1. Principles Applied in Consolidation
The consolidated financial statements include the accounts of American List Corporation and its wholly-owned subsidiaries, American Student List Company, Inc. and GeoDemX Corporation (the "Company"). All significant intercompany balances and transactions have been eliminated.
2. Depreciation and Amortization
Depreciation and amortization of property and equipment are provided primarily on the straight-line basis over the estimated useful lives of the respective assets, generally ranging from 3 to 7 years.
3. Revenue Recognition
Revenues from the sale of lists are recognized upon the shipment to customers of lists on computerized labels, magnetic tape or computer diskettes for a one-time usage. Additional billings are made by the Company for additional usage by the customers. Revenues from the sale of software use recognized upon installation by the Company and acceptance from customers.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
4. Costs of Lists
Costs of purchased lists are amortized on a straight-line basis over their estimated useful lives, generally one to five years. The Company determines the useful lives of its lists based upon the estimated period of time such lists are salable. The Company periodically reviews the salability of its lists and, accordingly, the respective estimated useful lives. Such reviews to date have not resulted in revised estimates of useful lives of the lists.
5. Earnings and Dividends per Share
Earnings per share are based upon the weighted average number of shares of common stock outstanding during the year, as retroactively adjusted for the July 6, 1993 stock-split and the March 16, 1994 stock dividend. Common stock equivalents are not included in the computation as they are not materially dilutive. Dividends per share have been retroactively adjusted for the above stock-split and stock dividend.
6. Income Taxes
Effective March 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Such adoption did not have a material effect on the Company's consolidated financial position or results of operations. In accordance with the provisions of SFAS No. 109, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
7. Marketable Securities
Effective March 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). Such adoption did not have a material effect on the Company's consolidated financial position or results of operations. In accordance with the provisions of SFAS No. 115, investments should be classified into three categories. Those securities classified as "trading" or "available-for-sale" are reported at market value. Debt securities are classified as "held to maturity" which are reported at amortized cost. Cost is determined using the specific identification method. Unrealized gains and losses from securities "available-for-sale" are reported as a separate component of stockholders' equity, net of related tax effects. Prior to the adoption of SFAS No. 115, unrealized losses were charged to operations.
8. Costs in Excess of the Fair Value of Net Assets Acquired
Costs in excess of the fair value of net assets acquired arising from the acquisition of GeoDemX (Note H) are being amortized on a straight-line basis over a period of five years. In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121 ("SFAS No. 121") that established accounting standards for the impairment of long-lived assets, certain intangibles and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. In accordance with SFAS No. 121, it is the Company's policy to periodically review and evaluate whether there has been any permanent impairment in the value of recorded amounts. Factors considered in the valuation include current operating results, trends and anticipated undiscounted future cash flows.
9. Statement of Cash Flows
The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. The Company paid income taxes for the years ended February 29, 1996 and February 28, 1995 and 1994 of $4,832,044, $4,553,686 and $2,065,163, respectively. During fiscal 1995, the Company had noncash investing and financing activities in connection with the acquisition of a licensing agreement of approximately $3,339,000.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE A - DESCRIPTION OF BUSINESS AND SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
10. Financial Instruments and Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents, marketable securities and accounts receivable. The Company places its investments in highly rated financial institutions, United States Treasury bills, investment grade short-term debt instruments and state and local municipalities, while limiting the amount of credit exposure to any one entity. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of customers, generally short payment terms, and their dispersion across geographic areas.
11. Use of Estimates
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the reporting period. Actual results could differ from those estimates.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE B - MARKETABLE SECURITIES
The amortized cost, unrealized gains and losses, and market values of the Company's held-to- maturity and available-for-sale securities held at February 29, 1996 are summarized as follows:
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE B - MARKETABLE SECURITIES (CONTINUED)
The amortized cost, unrealized gains and losses, and market values of the Company's held-to-maturity and available-for-sale securities held at February 28, 1995 are summarized as follows:
The amortized cost, unrealized gains and losses, and market values of the Company's held-to-maturity and available-for-sale securities at February 28, 1994 are summarized as follows:
As a result of changes in market value of the available-for-sale security portfolio, a valuation adjustment of $4,687 and $(11,833), net of deferred taxes, is recorded as a separate component of stockholders' equity at February 29, 1996 and February 28, 1995, respectively.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE C - INCOME TAXES
The Company files a consolidated Federal income tax return.
Income tax expense is comprised of the following elements:
1996 1995 1994 ---- ---- ----
Current Federal $3,817,000 $3,126,000 $2,369,000 State 611,000 625,000 502,000 ---------- ---------- ----------
$4,428,000 $3,751,000 $2,871,000 ========= ========= =========
The difference between these amounts and amounts computed by applying the statutory Federal income tax rate to earnings before taxes is as follows:
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE D - PENSION AND PROFIT-SHARING PLANS
Effective March 1, 1974, the Company adopted both pension and profit-sharing plans covering all full-time employees, as defined, which provide for death and retirement benefits. The noncontributory plans are funded through the purchase of insurance policies and contributions to trust funds.
Contributions and trust earnings of the plans are credited to the account of each employee. The plans are defined contribution plans and, accordingly, individual benefits are limited to the balance of the trust funds and amounts payable under the insurance policies.
Pension and profit-sharing expenses have been charged as follows:
YEAR ENDED YEAR ENDED YEAR ENDED FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, 1996 1995 1994 ---- ---- ----
Pension expense $178,306 $174,222 $171,327 Profit-sharing expense 25,000 23,000 20,000 -------- -------- --------
$203,306 $197,222 $191,327 ======= ======= =======
NOTE E - LICENSE AGREEMENT
Effective July 1, 1994, the Company entered into an exclusive licensing agreement, whereby the Company has obtained a ten-year license to use, reproduce and distribute a defined segment of the licensor's lists and to use their sources and customer list to compile and market the Company's own lists. The licensor will have the nonexclusive right to broker the licensed list to third parties in return for a commission.
As consideration for the granting of the license, the Company will pay a total of $4,200,000. The license fee is payable in three annual installments of $600,000 which began July 1994; three annual installments of $500,000 beginning July 1997; three annual installments of $250,000 beginning July 2000; and a final installment of $150,000 in July 2003.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE E - LICENSE AGREEMENT (CONTINUED)
The Company has recorded the cost and related obligation for the license, net of imputed interest at 7.25%, which approximated $3.3 million. The net cost of the license is being amortized on a straight-line basis over the ten-year term of the license agreement.
NOTE F - COMMITMENTS
The Company currently occupies an office and computer facility under an operating lease which commenced June 15, 1991 and expires June 15, 2001. The lease currently provides for an annual base rent of $235,952 which will increase ratably over the term of the lease to a maximum of $299,191. The lease contains an escalation clause relating to increases in real estate taxes.
The approximate minimum rental commitments under these operating leases are as follows:
Years ending February 28, 1997 $ 266,000 1998 273,000 1999 281,000 2000 289,000 2001 297,000 2002 84,000 -----------
Total minimum payments required $ 1,490,000 ===========
Total rent expense for the years ended February 29, 1996 and February 28, 1995 and 1994 including escalation payments, amounted to approximately $294,000, $288,000, and $268,000, respectively.
Pursuant to an employment agreement expiring in March 2001, the Company is obligated to pay an executive a base annual salary of $425,000, plus an incentive bonus based on increases in operating income (as defined).
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE G - STOCKHOLDERS' EQUITY
In May 1992, the Company adopted the 1992 Stock Option Plan (the "Plan") which provided for the issuance of options to purchase up to 82,500 shares, as adjusted, of common stock. The Plan provides for the issuance of both incentive stock options to purchase the Company's common stock at not less than fair market value on the date of the grant and nonqualified options to purchase shares at exercise prices determined by the Board of Directors. On July 17, 1995, the Company's stockholders approved an amendment to the Plan increasing the number of options available for issuance to 300,000 shares.
A summary of stock option activity related to the Company's 1992 Stock Option Plan is as follows:
On March 22, 1995, the Board of Directors authorized the repurchase of up to 200,000 shares of the Company's common stock. On April 7 and November 16, 1995, the Company purchased 24,600 and 300 shares of its common stock for $509,238 and $7,634, respectively.
American List Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
February 29, 1996 and February 28, 1995 and 1994
NOTE H - ACQUISITION OF GEODEMX
On June 22, 1995, the Company acquired substantially all of the operating assets and liabilities of GeoDemX for nominal considerations. The purchase agreement provides for, among other things, additional consideration to be paid based on a percentage of GeoDemX's annual pretax earnings through February 28, 1999. Such additional consideration shall be paid through the issuance of the Company's common stock. However, the sellers may elect to receive up to 50% of such additional consideration in cash. The excess of the costs over the net assets acquired, approximating $125,000, has been included in other assets. Historical pro forma information is not presented as the pro forma results would not be materially different from those of the Company.
At the date of acquisition, the Company set forth certain conditions and expectations for the GeoDemX business. Ultimately, the Company may decide to dispose of GeoDemX should these conditions and expectations not materialize. Under the Company's current plan, the net assets of GeoDemX (approximately $445,000 at February 29, 1996) are estimated to be fully recoverable.
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
Board of Directors and Stockholders AMERICAN LIST CORPORATION
In connection with our audit of the consolidated financial statements of American List Corporation and Subsidiaries referred to in our report dated April 10, 1996, we have also audited financial statement Schedule II for each of the years in the three-year period ended February 29, 1996. In our opinion, the financial statement schedule presents fairly, in all material respects, the information required to be set forth therein.
GRANT THORNTON LLP
Melville, New York April 10, 1996
American List Corporation and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AMERICAN LIST CORPORATION
Date: May 28, 1996 By: /S/ MARTIN LERNER -------------------- Martin Lerner - Chairman of the Board of Directors, President and Treasurer
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/S/ MARTIN LERNER May 28, 1996 - --------------------------------------- Martin Lerner - Chairman of the Board of Directors, President and Treasurer (Principal Executive and Financial Officer)
/S/ DON DAMORE May 28, 1996 - --------------------------------------- Don Damore - Vice-President of Finance (Principal Accounting Officer)
/S/ J. MORTON DAVIS May 28, 1996 - --------------------------------------- J. Morton Davis - Director
/S/ JAN STUMACHER May 28, 1996 - --------------------------------------- Jan Stumacher - Vice President, Secretary and Director
/S/ KENTON WOOD May 28, 1996 - --------------------------------------- Kenton Wood - Director
/S/ BEN ERMINI May 28, 1996 - --------------------------------------- Ben Ermini - Director
/S/ PHILIP LUBITZ May 28, 1996 - --------------------------------------- Philip Lubitz - Director