ITEM 1. BUSINESS
GENERAL
We are a leading provider of business process outsourcing solutions. We offer customers in information-intensive industries - such as healthcare, law, banking, insurance, retailing, high tech, manufacturing and government - the solutions to manage their information and document intensive business processes, enabling these organizations to concentrate on their core competencies.
As a national, single-source provider, we operate approximately 140 facilities nationwide with over 11,000 employees providing services in 45 states, Washington, D.C., Puerto Rico, Mexico and the Caribbean.
We serve a diverse and high-profile client base, delivering the resources of a strong national company through relationships, on which clients have come to rely. Since multiple document and information management functions can be outsourced to us, companies no longer have to deal with a multitude of vendors. As a full-service alternative, our clients can rely on us to be a single point of accountability.
An estimated four trillion documents are generated annually in the United States. A significant portion of the processing, management and storage of these documents is outsourced to small service companies. Further, we believe that the business process outsourcing solutions market is growing due to several factors, including: (i) government regulations that require lengthy document retention periods and rapid accessibility for many types of records; (ii) increased customer expectations of low cost access to records on short notice and, in many instances, at disparate locations; (iii) the increasing litigiousness of society, necessitating access to relevant documents and records for extended periods; and (iv) continuing advancements in computer, networking, facsimile, printing and other technologies that have greatly facilitated the production and wide distribution of documents.
Our target clients generate large volumes of documents and information that require specialized processing, distribution, storage and retrieval of these documents and the information they contain. We believe that these clients will continue to increase their outsourcing of document and information management needs in order to maintain their focus on core operating competencies and revenue generating activities; reduce fixed costs, including labor and equipment costs; and gain access to new technologies without incurring the expense and risk of near-term obsolescence of technologies.
The business process outsourcing solutions business continues to be fragmented. We believe that many small business process outsourcing solutions businesses: (i) have insufficient capital for expansion; (ii) cannot keep abreast of rapidly changing technologies; (iii) lack effective marketing programs; and (iv) are unable to meet the
needs of large, geographically dispersed clients. In addition, there are a limited number of options for owners of these businesses to obtain liquidity by selling their businesses. As a result, we believe that many owners of these businesses will continue to be receptive to our acquisition program, which will selectively focus on specific companies that we believe will add significant synergies to our existing operating base.
BUSINESS STRATEGY
Our goal is to become a leading national provider of business process outsourcing solutions to information and document intensive industries, including: healthcare, law, banking, insurance, retailing, high tech, manufacturing and government. In order to achieve this goal, we have implemented the following focused business strategy, which we believe will attract and retain clients:
ECONOMIES AND EFFICIENCIES. We intend to deliver better, faster and more cost effective services than our competitors.
SCOPE AND SCALE. We plan to continue to establish a full range of business processing outsourcing operations to meet the diverse needs of customers by implementing a strategy through expansion of existing businesses and selected acquisitions. We intend to continue to handle large volume projects.
FLEXIBLE SERVICE DELIVERY. We intend to continue to provide outsourced service bureaus, on-site facility management and dedicated operations.
INFORMATION AND TECHNOLOGY LIFECYCLES. We intend to continue to be involved during the stages of the information lifecycle from data capture, conversion and storage to analysis and output processing. In addition, we expect to continue to be involved in the technology lifecycles from analog and electronic to web-based technology.
CAPITALIZE ON CROSS-SELLING OPPORTUNITIES. We intend to capitalize on cross-selling opportunities in two primary ways. First, we intend to continue to sell our existing clients additional business process outsourcing solutions provided by our other businesses. Second, we intend to use our knowledge with respect to specific industry segments to sell such services to new clients.
ACHIEVE COST SAVINGS THROUGH CONSOLIDATION AND ECONOMIES OF SCALE. We believe that we will continue to achieve significant savings by combining a number of general and administrative functions at the corporate level, such as accounting, tax, human resources and legal, by reducing or eliminating redundant functions and facilities, and by implementing corporate purchasing programs. For example, we have implemented an insurance plan, employee benefits programs and purchasing plans for certain items, such as paper, microfilm, storage racks, long distance services, computer equipment and overnight delivery for us and our subsidiaries, on a combined basis. To the extent that we are able to expand through the acquisition of additional document and information management businesses, we believe that these cost savings will continue to improve.
INTERNET. We intend to continue to utilize web-based technologies. Our plans include business-to-business e-commerce enabler products to provide critical back office functions to traditional bricks and mortar companies and new e-commerce entities. Our e-business strategy revolves around three areas: (i) order entry and status; (ii) web conversion services; and (iii) web storage and retrieval.
OPERATE WITH BUSINESS SEGMENTS AND LOCAL MANAGEMENT. We have placed all of operations into four divisions. Under these divisions, we are organized around business segments focused on providing common services to common customer bases and achieving synergies and cross-selling opportunities. We believe that the experienced local management teams of our operating companies have a valuable understanding of their respective markets and businesses and can capitalize on their existing client relationships. Accordingly, we are operating and expect to continue to operate with business segments and local management, subject to certain corporate approval and oversight guidelines. Because it is important to maintain a balance between professional leadership and creative entrepreneurial business, during the past few years we have hired or promoted experienced executives to manage the business segments. Multiple business segments are led by Division Presidents, each of which is an outside hire with experience in leading organizations. Division Presidents report to our Chief Operating Officer.
ACQUISITION STRATEGY
We have transitioned to an operating company supported by a strategic acquisition program. Since our inception, we have acquired 66 companies. We believe that there are significant opportunities to continue to add the capabilities and resources of selected additional business process outsourcing solutions businesses with the intent of providing customers with a single solution. Accordingly, we are screening companies in conjunction with our operating management team to acquire those candidates that meet certain strategic requirements. These criteria include geographic need, additional technology, added management strength, industry expertise, service expansion to broaden service offerings and expansion of our customer base.
We believe that we will continue to be a successful acquirer of other business process outsourcing solution companies due to our strategy of retaining selected owners and management of acquired companies, our access to growth capital and our ability to offer sellers cash for their business as well as an ongoing equity stake in our company. Nevertheless, there are numerous risks associated with our acquisition program. See "Risk Factors."
SERVICES OFFERED
We provide a wide variety of business process outsourcing solutions and draw upon our available services to develop solutions for our clients based on their specific needs. The current business process outsourcing solutions that we provide are generally divided into the following divisions: F.Y.I. HealthSERVE/Government Services; F.Y.I. LEGAL; F.Y.I. IMAGE; and F.Y.I. DIRECT.
F.Y.I. HEALTHSERVE/GOVERNMENT SERVICES. Our services include medical records release services or processing a request for a patient's medical records from a physician, insurance company, attorney, healthcare institution or individual. The medical records release service provider initially verifies that the release is properly authorized, coordinates the retrieval of the record, determines the relevant parts of the record to be copied and delivers the copied records (or portions thereof) to the requesting party. Medical records release services are provided on-site and off-site pursuant to contracts with hospitals, other large healthcare institutions and insurance companies. The medical records release service provider bills the recipient directly and sometimes pays a fee to the hospital.
Additional services include archival records storage and management, document and data conversion, archiving and imaging services to hospital radiology departments, temporary staffing services for hospital information management departments, coding and abstracting of medical records, and managed care payment compliance reviews.
We also provide services for retrieval of attending physician statements (APS) for life and health insurance underwriting, which includes the capability of receiving internet requests. Additionally, services are offered to state governments to generate digital images of medical record information and facilitate image processing for several state agencies.
Our record management services consist primarily of active or open shelf storage. Active or open shelf storage services involve the storage, processing (i.e., indexing and formatting), retrieval, delivery and return to storage of documents on a rapid time frame. Many of these services are provided electronically. Service fees generally include a monthly fee based on activity levels and volumes stored, with extra billing for specialized requests. To a smaller extent, we store inactive documents.
We have contracts with a large governmental agency and a private hospital in which we combine many of our services to provide medical records management, release of information, coding, abstracting, and electronic patient records services.
F.Y.I. LEGAL. We supply a broad range of services to the legal industry. Litigation often involves the production and management of thousands of pages of documents, extracted in their original working form from the offices and files of litigating parties and their experts, advisors and legal counsel. Legal services include managing the logistics of high volume document production, microfilming and/or electronic imaging, document coding, computer indexing, automated document retrieval and high speed, multiple-set reproduction of documents, as well
as high level consulting services ranging from labor discrimination, mortgage discrimination and forensic analysis to trial support for law firms, corporations, and utility companies.
Additional legal services include subpoena of business documents and service of process, deposition reporting services, discovery assistance, and other trial support services to law firms, corporations and regulated entities. These clients typically look to legal services companies to supplement their internal operations and capabilities on an as-needed, job-by-job basis.
Also included in F.Y.I. LEGAL is employee and investor services, which provides administration, record-keeping and information processing services. We maintain detailed employee and/or investor records on behalf of: (i) general partners to service their investors in limited partnerships, REITs and master limited partnerships; (ii) corporations to provide turnkey outsourced administration of employee stock purchase plans and employee stock option plans; and (iii) banks and broker/dealers to provide complete record-keeping and administrative services for additional brokerage and IRA accounts.
F.Y.I. IMAGE. We offer comprehensive information solutions including electronic imaging, analog services, data capture and database management, claims processing, as well as integrated solutions to customers in a wide range of industries, including financial services, retail, insurance and government.
Electronic Imaging Services involve the conversion of paper or microfilm documents into digitized information through optical scanners. Digitized information can be stored as an image or converted to code through optical character recognition (OCR) or digital imaging storage and retrieval technologies. Conversion to code provides additional processing capabilities, such as manipulation of data. In both cases, the digitized information can be stored on either a magnetic medium, such as a computer diskette, or on optical laser discs, such as compact discs. Electronic imaging is generally used because of the storage media's high speed of retrieval, its multiple indexing and text search formatting capabilities and its ability to be used to distribute output to multiple locations. Additionally, images may be stored and accessed via internet-based repositories. Electronic imaging services are typically billed on a job-by-job basis, based on the number of images and complexity of the retrieval applications.
Analog Services involve: (i) the conversion of paper documents into microfilm images; (ii) film processing; and (iii) computer-based indexing and formatting. Typically, customers select micrographic services as a cost-competitive technology to reduce the physical size of stored records, for their long-term (over 100 years) archival capabilities and as an intermediate step in certain imaging or reprographic applications. We also act as distributor of a wide range of microfilm and business imaging supplies.
Data Capture and Database Management Services involve data capture (manually or through scanning or other electronic media), data consolidation and elimination, storage, maintenance, formatting and report creation. Data capture includes the conversion of text and handwritten paper media into digital files. An advantage of digital files is the ability to manipulate large amounts of data quickly and efficiently. In some cases, database services include statistical analysis of data.
Claims Processing Services include the compiling of databases, mail campaigns and call centers. We identify and notify members of class action lawsuits or other groups, answer questions, track and record contact with class action or other group members, process claims and distribute settlement funds. This specialized service gives us the ability to extend relationships beyond legal settlements.
Integrated Solutions offer technical services with a specific focus on document imaging, work flow, COLD (Computer Output to Laser Disk) and document and information management systems using third party imaging systems.
Our newest service offering is fyidocs.com, which adds electronic object storage and Internet-based retrieval capabilities to compliment our document capture and conversion services. Through this combination of technology and services, customers can look to us for secure and timely access to digital documents.
F.Y.I. DIRECT. We provide direct mail and fulfillment services and statement processing services. Direct Mail and Fulfillment Services provide customers with rapid, reliable and cost-effective methods for making large-scale distributions of items such as corporate advertising, political campaign literature, consumer notices and annual reports for its customers. The direct mail service also includes the ability to deliver efficient postal routing to fulfill consumer requests for specific information. In addition, we have the ability to send blast e-mail services, including high-level graphics and sound, to supplement our existing services. Statement Processing Services involve sending out millions of bills or statements each month.
SALES AND MARKETING
We have a broad customer base. No customer with recurring revenue accounted for more than 3% of revenue for the year ended December 31, 2000. Only two clients' projects accounted for more than 3% (but less than 5%) of revenue for the year ended December 31, 2000. Historically, our sales efforts have been implemented on a location-by-location basis and typically have been coordinated through sales personnel as part of the local management's responsibilities. Our existing local sales efforts are carried out through local sales representatives who are in the process of regional and/or national sales training. We continue to strive to increase our client base by attracting clients away from small, single business operators as a result of our ability to offer a broader range of solutions for our clients' needs. In addition, we intend to continue to focus on increasing revenue from our existing clients by cross-selling our services and broadening our product offerings. We will continue to augment local sales and marketing efforts through the implementation of a regional and national sales/account program.
COMPETITION
The business process outsourcing solution businesses in which we compete and expect to compete are highly competitive. A significant source of competition is the in-house document handling capability of our target client base. There can be no assurance that these businesses will outsource more of their document management needs or that they will not bring in-house services that they currently outsource. In addition, certain of our competitors are larger businesses and have greater financial resources than we do. Certain of these competitors operate in broader geographic areas than we do, and others may choose to enter our areas of operation in the future. In addition, we intend to continue to enter new geographic areas through internal growth and acquisition and expect to encounter significant competition from established competitors in each of such areas. As a result of this highly competitive environment, we may lose clients or have difficulty in acquiring new customers and new companies and our results of operations may be adversely affected.
We believe that the principal competitive factors in business process outsourcing solution services include accuracy, reliability and security of service, client segment specific knowledge and price. We compete primarily on the basis of quality of service and client segment specific knowledge as well as our ability to handle large volumes and projects, and believe that we compete favorably with respect to these factors.
EMPLOYEES
As of December 31, 2000, we had over 9,000 full-time and 2,000 part-time employees. As of such date, we had approximately 65 employees represented by labor unions. We consider our relations with our employees to be good.
OUR EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of our executive officers:
Thomas C. Walker has been our Chairman of the Board since our inception in September 1994 and has been our Chief Development Officer since November 1995. From September 1994 until November 1995, Mr. Walker held the positions of President and Chief Executive Officer. From August 1991 to December 1994, Mr. Walker was Vice President, Corporate Development, of Laidlaw Waste Systems, Inc., a subsidiary of Laidlaw, Inc., a waste management company, where he was responsible for its acquisition and divestiture program in the United States and Mexico. Mr. Walker has been responsible for the acquisition or divestiture of several hundred businesses over a 30-year period. Mr. Walker holds a B.S. in Industrial Engineering from Lafayette College.
Ed H. Bowman, Jr. has been our President and Chief Executive Officer and a Director since November 1995. From 1993 to 1995, Mr. Bowman was Executive Vice President and Chief Operating Officer of the Health Systems Group for First Data Corporation, a financial services company. Mr. Bowman was responsible for the day-to-day operations of research and development, marketing and customer service. From 1983 to 1993, Mr. Bowman served in a number of executive positions with a leading healthcare information systems company; responsibilities included VP - International, VP - Marketing, Senior VP - Customer Services, Group Senior VP - Research and Development, and last serving as Executive Vice President and Chief Operating Officer with responsibility for domestic operations. Prior to 1983, Mr. Bowman was with Andersen Consulting for 10 years, where he was elected a Partner. Mr. Bowman became a C.P.A. in 1973 and holds an M.S. degree from Georgia Institute of Technology and a B.B.A. from Georgia State University. Mr. Bowman is an investor and former board member of several early-stage, privately held high technology companies and has served on the Board of the Advanced Technology Development Center at Georgia Tech. Mr. Bowman currently serves on the Advisory Board to the President of Georgia Tech and on the Advisory Board of the Robinson School of Business at Georgia State University.
Barry L. Edwards has been an Executive Vice President and our Chief Financial Officer since August 2000. From November 1994 to March 2000, Mr. Edwards was Executive Vice President and Chief Financial Officer for AMRESCO, a nationwide financial services company. From December 1978 to November 1994, Mr. Edwards was Vice President and Treasurer of Liberty Corporation, an insurance and broadcasting holding company based in Greenville, South Carolina. Mr. Edwards received a Bachelor of Science in Finance and Economics from Lehigh University in 1969, and an MBA from the University of Virginia Darton School of Business in 1972. Mr. Edwards is a board member for Ryan's Family Steakhouses and Robert Harris Homes.
Joe A. Rose has been our Chief Operating Officer since January 2000 and a Director since March 2000. From August 1999 through December 1999, Mr. Rose was an Executive Vice President. From June 1997 through August 1999, Mr. Rose was a Senior Vice President. From May 1995 through January 1997, Mr. Rose was President and CEO of FormMaker Software, Inc., a document technology company which merged with Image Sciences Corp. to form DocuCorp International. From May 1993 through May 1995, Mr. Rose was Corporate Vice President of John H. Harland Company, a financial services company, and President and CEO of its subsidiary, Formation Technology, Inc. From July 1988 through May 1993, Mr. Rose served as Executive Vice President of National Data Corporation, where he was responsible for the credit card and cash management divisions. Mr. Rose began his information services career at EDS in sales. Mr. Rose holds a B.A. from Texas Tech University.
David M. Byerley has been our Senior Vice President - Corporate Development since November 1998. From August 1996 until October 1998, Mr. Byerley was Executive Vice President of IKON's Business Information Services Division. From February 1995 until August 1996, Mr. Byerley was Senior Vice President of Product Development and Marketing with Dataplex Corporation, a wholly-owned subsidiary of Affiliated Computer Services. From August 1994 until February 1995, Mr. Byerley was employed by Eastman Kodak. Mr. Byerley holds a B.S. degree from Dickinson College, an M.S. degree from Temple University, and a J.D. from Temple University Law School.
Charles S. Gilbert has been a Vice President, Secretary and General Counsel since August 2000, our Secretary and acting General Counsel since July 2000 and corporate counsel since April 2000. From 1991 until joining us he practiced law in the corporate securities section of Jackson Walker LLP, Dallas, where he was elected partner. Mr. Gilbert holds a BS in Physics from The University of Texas and a J.D. from The University of Texas School of Law.
Michael S. Rupe has been President of our Enabling Technologies and Services Division since September 2000. From March 1998 through August 2000, Mr. Rupe served as President and Chief Executive Officer of Solomon Software, Inc., an accounting and business software company that was sold to Great Plains Software in June 2000. From March 1997 to February 1998, Mr. Rupe served as Executive Vice President and Chief Financial Officer of Solomon Software, Inc. From August 1995 through February 1997, Mr. Rupe was Senior Vice President of Finance and Administration at FormMaker Software, Inc., a document technology company, which merged with Image Sciences Corp. to form DocuCorp International. Mr. Rupe holds a B.S. in Accounting from the University of Kentucky.
Kerry Walbridge has been President of our Conversion and Distribution Services Division since March 2001. From April 2000 to December 2000, Mr. Walbridge was President and CEO of eMake Corporation, a first-to-market provider of web hosted ERP software solutions and electronic supply chain services to the manufacturing market. From August 1998 to April 2000, Mr. Walbridge was Senior Vice President Sales and Marketing for Outsourcing Solutions, Inc., the nations largest provider of accounts receivable management services. From November 1991 to June 1993 and from June 1996 to August 1998, Mr. Walbridge was a Division Vice President for Electronic Data Services (EDS) and from October 1989 to November 1991 Mr. Walbridge was a Division Vice President for McDonnell Douglas Systems Integration. Mr. Walbridge received a B.S. in business from St. Louis University.
Ronald Zazworsky has been President of our HealthSERVE/Government Services Division since November 2000. From October 1997 until November 2000, Mr. Zazworsky was Senior Vice President - HealthSERVE. From February 1994 until July 1997, Mr. Zazworsky was Senior Vice President at Medaphis Corporation. From April 1992 to February 1994, Mr. Zazworsky was President and CEO at Habersham Banking Solutions, Inc. Prior to 1992, Mr. Zazworsky was employed at HBO as Regional Vice President for eight years. Previously, Mr. Zazworsky held various sales, marketing and management positions at IBM. Mr. Zazworsky holds a B.A. from Gettysburg College and an M.B.A. from Emory University.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE MAKING AN INVESTMENT DECISION. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR RESULTS OF OPERATIONS COULD BE HURT, THE PRICE OF OUR SECURITIES COULD DECLINE, WE MAY NOT BE ABLE TO REPAY OUR DEBT SECURITIES, IF ANY, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED IN THIS REPORT AND INCORPORATED IN THIS REPORT BY REFERENCE, INCLUDING OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES.
WE MAY NOT BE ABLE TO CONTINUE TO EFFECTIVELY INTEGRATE ALL OF OUR OPERATING COMPANIES
Our growth and future financial performance depend on our ability to continue to integrate all of our operating companies. We may not achieve integration unless we effectively combine the operations of all our operating companies. A number of our operating companies offer different services, use different capabilities and technologies and target different geographic markets and client segments. These differences increase the risk in successfully completing the integration of our operating companies. We need to centralize certain functions to achieve cost savings and develop programs and processes that will promote cooperation and the sharing of opportunities and resources. Any difficulties we encounter in the integration process could adversely affect us and we cannot assure you that our operating results will match or exceed the combined individual operating results achieved by our operating companies prior to their acquisition.
WE MAY NOT BE ABLE TO MANAGE OUR RAPID GROWTH
We cannot be sure that our management group will be able to implement our operating or rapid growth strategies. Further, to the extent that we are able to implement our acquisition strategy, our growth will continue to place significant demands on management and on our internal systems and controls. We cannot assure you that our management group will be able to direct us through a continued period of significant growth. In addition, we cannot assure you that our current systems will be adequate for our future needs or that we will be successful in implementing new systems or converting existing systems. If we fail to implement these systems, procedures and controls on a timely basis, we may not be able to service our clients' needs, hire and retain new employees, pursue new business, complete future acquisitions or operate our business effectively. We could also trigger contractual credits to clients. Failure to properly integrate acquired operations with vendors' systems could result in increased cost. As a result of any of these problems associated with expansion, our business, financial condition and results of operations could be materially and adversely affected.
WE NEED TO BE ABLE TO ACQUIRE COMPANIES SUCCESSFULLY
An element of our growth strategy is the acquisition of additional companies that will complement our existing businesses. We cannot assure you that we will be able to identify or reach mutually agreeable terms with acquisition candidates and their owners, or that we will be able to profitably manage additional businesses or successfully integrate such additional businesses into us without substantial costs, delays or other problems. Acquisitions may involve a number of special risks including: (a) adverse short-term effects on our reported operating results; (b) diversion of management's attention; (c) dependence on retention, hiring and training of key personnel; (d) departure of key clients; (e) risks associated with unanticipated problems or legal liabilities; and (f) amortization of acquired intangible assets. Some or all of these risks could have a material adverse effect on our operations and financial performance. In addition, to the extent that consolidation becomes more prevalent in the industry, the prices for attractive acquisition candidates may continue to be bid up to higher levels. In addition, we may find that there will be fewer suitable acquisition candidates at acceptable prices. In any event, we cannot assure you that businesses acquired in the future will achieve sales and profitability that justify the investment therein. Governmental and regulatory constraints could prevent acquisitions in the future. We cannot assure you that any acquisitions, if consummated, will be advantageous to us. Without additional acquisitions, we may not be able to grow at historical rates. If our acquisition strategy fails, our business, financial condition and results of operations could be materially and adversely affected.
WE NEED TO FINANCE OUR POTENTIAL GROWTH THROUGH ACQUISITIONS
We currently intend to finance future acquisitions by using cash and our common stock for all or a portion of the consideration to be paid. In the event that our common stock does not maintain sufficient value, or potential acquisition candidates are unwilling to accept our common stock as consideration for the sale of their businesses, we may be required to use more cash, if available, in order to continue our acquisition program. If we do not have sufficient cash, our growth could be limited unless we are able to obtain capital through additional debt or equity financings. Under our line of credit with Paribas and Bank of America Texas, N.A., we and our subsidiaries could borrow, on a revolving credit basis, loans in an aggregate outstanding principal amount of $175 million for working capital, general corporate purposes and acquisitions, subject to certain restrictions in our line of credit. As of December 31, 2000, the availability under the line of credit was approximately $42 million. We cannot assure you, however, that funds available under our line of credit will be sufficient for our needs. We currently are in the process of trying to establish a new credit facility, anticipated to be in the aggregate maximum principal amount of $250 to $300 million, which would replace our existing $175 million credit facility; however, we cannot assure you that such a new facility will be finalized or if finalized, that funds available thereunder will be sufficient for our needs.
THE PRICE OF OUR COMMON STOCK MAY BE VOLATILE
The price of our common stock may be volatile. Our quarterly results of operations may vary materially as a result of the timing and structure of our acquisitions, the timing and magnitude of costs related to acquisitions, the gain or loss of material client relationships and variations in the prices charged by us for our services. In addition, since a significant portion of our revenue is generated on a project-by-project basis, the timing or completion of material projects could result in fluctuations in our results of operations for particular quarterly periods. Fluctuations in operating results may adversely affect the market price of our common stock. The market price for our common stock may also fluctuate in response to material announcements by us or our significant clients or competitors, changes in the economic or other conditions impacting our targeted client segments or changes in general economic conditions. Further, the securities markets have experienced significant price and volume fluctuations from time to time that have often been unrelated or disproportionate to the operating performance of particular companies. These broad fluctuations may adversely affect the market price of our common stock.
WE DEPEND ON CERTAIN CLIENT INDUSTRIES
We derive our revenue primarily from document and information intensive industries. Fundamental changes in the business practices of any of these client industries, whether due to regulatory, technological, the internet or other developments, could cause a material reduction in demand by our clients for the services offered by us. Any reduction in demand could have a material adverse effect on our results of operations. The business process outsourcing service industry is characterized by technological change, evolving client needs and emerging technical standards. Although we believe that we will be able to continue to offer services based on new technologies, we cannot assure you that we will be able to obtain any of these technologies, that we will be able to effectively implement these technologies on a cost-effective or timely basis or that such technologies will not render obsolete our role as a third party provider of business process outsourcing services.
Our success depends substantially upon retaining our significant clients. Generally, we may lose clients due to a merger or acquisition, business failure, contract expiration, conversion to a competitor or conversion to an in-house system. We cannot guarantee that we will be able to retain long-term relationships or secure renewals of short-term relationships with our significant clients in the future.
We incur a high level of fixed costs related to certain of our business process outsourcing clients. These fixed costs result from significant investments, including computer hardware platforms, computer software, facilities, and client service infrastructure. The loss of any one of our significant clients could leave us with a significantly higher level of fixed costs than is necessary to serve our remaining clients, thereby reducing our profitability.
WE FACE INTENSE COMPETITION
The business process outsourcing services industry is highly competitive. We cannot guarantee that we will be able to compete successfully in the future. A significant source of competition is the in-house document handling capability of our targeted client base. We cannot assure you that these businesses will outsource more of their document and information management needs or that such businesses will not bring in-house, services that they currently outsource. In addition, certain of our competitors are larger businesses and have greater financial resources than we do. Certain of these competitors operate in broader geographic areas than we do, and others may choose to enter our areas of operation in the future. In addition, we intend to enter new geographic areas through internal growth and acquisitions and expect to encounter significant competition from established competitors in each new area. Some of our competitors have a greater international presence than us and offer a broader range of services in certain segments. As a result of this highly competitive environment, we may lose clients or have difficulty in acquiring new clients and new companies, and our results of operations may be adversely affected. In addition, we may be forced to lower our pricing or if demand for our services decreases our business, financial condition and results of operations will be materially and adversely affected.
WE HAVE SIGNIFICANT INVESTMENTS IN SOME CLIENT CONTRACTS, WHICH EXPOSE US TO THE RISK OF THESE CLIENTS' FINANCIAL CONDITIONS
We must make significant capital investments in order to attract and retain large outsourcing agreements. We sometimes must purchase assets such as computing equipment and software, assume financial obligations such as computer lease and software maintenance obligations or property leases, incur capital expenditures or incur expenses necessary to provide outsourcing services to a client. If any of these agreements were to terminate, we may not be able to realize a return on the assets and investments acquired or financial obligations assumed.
OUR ABILITY TO MEET CHANGES IN TECHNOLOGY COULD BE EXPENSIVE AND, IF WE DO NOT KEEP UP WITH THESE CHANGES, WE COULD LOSE EXISTING CLIENTS AND BE UNABLE TO ATTRACT CLIENTS
The markets for our business process outsourcing services are subject to rapid technological changes and rapid changes in client requirements. To compete, we commit substantial resources to operating multiple hardware platforms, to customizing third-party software programs and to training client personnel and our personnel in the use of new technologies. Future hardware, software and other products may be able to manipulate large amounts of documents and information more cost effectively than existing products that we use. Information processing is shifting toward client-server and web-based systems, in which individual computers or groups of personal computers and mid-range systems replace older systems. This trend could adversely affect our business and financial results and result in us losing clients and being unable to attract clients. We have committed substantial resources to developing outsourcing solutions for these distributed computing environments. We cannot guarantee that we will be successful in customizing products and services that incorporate new technology on a timely basis. We also cannot guarantee that we will continue to be able to deliver the services and products demanded by the marketplace. Technology costs have also dropped significantly in recent years due in large part to hardware technology advances.
INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS COULD REQUIRE US TO INCUR SUBSTANTIAL COSTS TO DEFEND THE CLAIMS, CHANGE OUR SERVICES, CHANGE THE TRADEMARKS UNDER WHICH OUR SERVICES ARE PROVIDED, PURCHASE NEW LICENSES OR REDESIGN OUR USE OF CHALLENGED TECHNOLOGY
We and other companies in our industry rely heavily on the use of intellectual property. We own registrations for and/or use certain trademarks in connection with the operations of our business. Should any third parties assert claims that our use of our trademarks infringe said third parties' trademark rights, we could incur substantial costs to defend these claims and, if any such third party claims are ultimately successful, we could be enjoined from further use of certain of our trademarks. After previously receiving a notice from Identitech, Inc. that our registered trademark "F.Y.I. INCORPORATED" infringed Identitech's registered trademark "FYI", on April 7, 2000, we filed an action in the United States District Court for the Northern District of Texas seeking a declaration that our use of this mark and certain other of our trademarks for document management services did not infringe Identitech, Inc.'s registered trademark "FYI" for computer software. Identitech answered the complaint and brought counterclaims for infringement of its mark by us. In its counterclaim, Identitech seeks its actual damages, trebling
of these damages and reasonable attorneys' fees and costs. Identitech also seeks cancellation of our registered "F.Y.I. INCORPORATED" mark and injunctions preventing us from prosecuting our applications for "F.Y.I." formative marks and from using our registered "F.Y.I. INCORPORATED" mark. We are strongly contesting the allegations in Identitech's counterclaims and do not believe that our business, financial condition and results of operations will be materially and adversely affected by this claim. However, the outcome cannot always be predicted and there is no assurance that this will be the case.
We do not own the majority of the software that we use to run our business; instead we license this software from a number of vendors. If these vendors assert claims that we or our clients are infringing on their software or related intellectual property, we could incur substantial costs to defend these claims. In addition, if any of our vendors' infringement claims are ultimately successful, our vendors could require us: (i) to cease selling or using products or services that incorporate the challenged software or technology; (ii) to obtain a license or additional licenses from our vendors; or (iii) to redesign our products and services which rely on the challenged software or technology. Except as noted above, we are not currently involved in any material intellectual property litigation, but could be in the future to protect our trade secrets, trademarks or know-how, or to defend ourselves or our clients against alleged infringement claims.
WE DEPEND ON OUR PERSONNEL
Our operations are dependent on the continued efforts of our executive officers and on senior management of our operating companies. Also, we will likely depend on the senior management of businesses acquired in the future. If any of these people are unable or unwilling to continue in their present role, or if we are unable to attract and retain additional managers and skilled employees, our business could be adversely affected. We do not currently have key person life insurance covering any of our executive officers.
Our success depends, to a significant extent, upon our ability to attract, retain and motivate highly skilled and qualified personnel. If we fail to attract, train, and retain sufficient numbers of these technically-skilled people, our business, financial condition, and results of operations will be materially and adversely affected. Competition for personnel is intense in the document and information services industry, and recruiting and training personnel require substantial resources. We must continue to grow internally by hiring and training technically-skilled people in order to perform services under our existing and future contracts. We have to pay an increasing amount to hire and retain a skilled workforce. Our business also experiences significant turnover of technically-skilled people.
WE MAY BE LIABLE FOR BREACH OF CONFIDENTIALITY
A substantial portion of our business involves the handling of documents containing confidential and other sensitive information. Although we have established procedures intended to prevent any unauthorized disclosure of confidential information and, in some cases, have contractually limited our potential liability for unauthorized disclosure of such information, we cannot assure you that unauthorized disclosures will not result in material liability to us.
WE MAY HAVE BUSINESS INTERRUPTIONS
Certain of our operations are performed at a single location and are dependent on continuous computer, electrical, and telephone service. As a result, any disruption of our day-to-day operations could have a material adverse effect upon us. We cannot assure you that a fire, flood, earthquake, power loss, telephone service loss, problems caused by computer or technology issues or other event affecting one or more of our facilities would not disable these services. Any significant damage to any facility or other failure that causes significant interruptions in our operations may not be covered by insurance. Any uninsured or underinsured loss could have a material adverse effect on our business, financial condition or results of operations.
GOVERNMENT REGULATIONS MAY HINDER OUR ABILITY TO CHANGE PRICES
In our medical records release of information business, there is state legislation from time to time aimed at fixing the price that can be charged for copying and distributing medical records information. Depending on the
severity of such pricing legislation, there can be significant pressure on the profit margins associated with providing medical records release services. Today, some form of pricing legislation exists in many states in the United States.
OUR CONTRACTS CONTAIN TERMINATION PROVISIONS AND PRICING RISKS THAT CREATE UNCERTAIN REVENUE STREAMS AND COULD DECREASE OUR REVENUES AND PROFITABILITY
Some of our contracts with clients permit termination in the event our performance is not consistent with service levels specified in those contracts. Some of our government and other clients can terminate their contracts for any reason or no reason. In addition, public sector contracts are subject to detailed regulatory requirements and public policies, as well as to funding priorities. Our clients' ability to terminate contracts creates an uncertain revenue stream. If clients are not satisfied with our level of performance, our reputation in the industry may suffer, which could also materially and adversely affect our business, financial condition, and results of operations. Some of our contracts contain pricing provisions that require the client to pay a set fee for our services regardless of whether our costs to perform these services exceed the amount of the set fee. Many of our document and information outsourcing contracts provide for credits for our clients if we fail to achieve specific contract standards. Some of our contracts contain re-pricing provisions that can result in reductions of our fees for performing our services. In these situations, we could incur significant unforeseen costs or financial penalties in performing the contract.
MANAGEMENT EXERCISES SUBSTANTIAL CONTROL OVER OUR AFFAIRS
As of December 31, 2000, our directors and executive officers owned approximately 6.7% of the shares of our common stock. Our directors and executive officers exercise substantial control over our affairs. If these persons act together, they might be able to elect a sufficient number of directors to control our Board of Directors and to approve or disapprove any matter submitted to a vote of our stockholders.
FUTURE SALES OF OUR SHARES MAY ADVERSELY AFFECT OUR STOCK PRICE
The market price of our common stock could be adversely affected by the sale of substantial amounts of our common stock in the public market. In addition, many shares are subject to contractual restrictions on resale, over some period of time.
If a significant number of shares of our common stock are issued in acquisitions that are consummated in close proximity to each other, such shares could become freely tradable at approximately the same time. If a large number of shares are sold by stockholders in the market as soon as their shares became freely transferable, the price of our common stock could be adversely affected.
WE MAY HAVE ENVIRONMENTAL LIABILITIES IN THE FUTURE
We are subject to regulations and ordinances that govern activities or operations that may have adverse environmental effects, such as discharges to air and water. We are not aware of any environmental conditions relating to present or past waste generation at or from these facilities that would be likely to have a material adverse effect on our business, financial condition or results of operations. However, we cannot assure you that environmental liabilities in the future will not have a material adverse effect on our business, financial condition or results of operations.
OUR BOARD OF DIRECTORS MAY BE ABLE TO DELAY OR PREVENT TAKEOVERS
Our Board of Directors is empowered to issue preferred stock without stockholder action. The existence of this "blank-check" preferred could render more difficult or discourage an attempt to obtain control of us by means of a tender offer, merger, proxy contest or otherwise.
OTHER RISKS, UNKNOWN OR IMMATERIAL TODAY, MAY BECOME KNOWN OR MATERIAL IN THE FUTURE
We have attempted to identify certain material risk factors currently affecting us. However, additional risks that we do not yet know of, that are not described herein, or that we currently think are immaterial, may occur or become material. These risks could impair our business operations or adversely affect revenues or profitability.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 2000, we approximately 140 business process outsourcing service facilities in 45 states. Except for the two facilities we own, all of these facilities were leased and were principally used for operations and general administrative functions. See Note 8 of Notes to Consolidated Financial Statements of F.Y.I. Incorporated and subsidiaries for further information relating to these leases.
As of December 31, 2000, we also operated on-site at customer locations, primarily in connection with our F.Y.I. HealthSERVE offering at over 1,000 client locations and from time to time at many other client locations for specific projects.
In order to secure our obligations under our current line of credit, we granted to Paribas and Bank of America Texas, N.A., as co-agents for our lenders, a lien on substantially all of our properties and other assets. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
We believe that our properties are generally well maintained, in good condition and adequate for our present needs. Furthermore, we believe that suitable additional or replacement space will be available when required.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
After previously receiving a notice from Identitech, Inc. that our registered trademark "F.Y.I. INCORPORATED" infringed Identitech's registered trademark "FYI", on April 7, 2000, we filed an action in the United States District Court for the Northern District of Texas seeking a declaration that our use of this mark and certain other of our trademarks for document management services did not infringe Identitech, Inc.'s registered trademark "FYI" for computer software. Identitech answered the complaint and brought counterclaims for infringement of its mark by us. In its counterclaim, Identitech seeks its actual damages, trebling of these damages and reasonable attorneys' fees and costs. Identitech also seeks cancellation of our registered "F.Y.I. INCORPORATED" mark and injunctions preventing us from prosecuting our applications for "F.Y.I." formative marks and from using our registered "F.Y.I. INCORPORATED" mark.
We are strongly contesting the allegations in Identitech's counterclaims and do not believe that our business, financial condition or results of operations will be materially and adversely affected by this claim.
We are, from time to time, a party to litigation arising in the normal course of business. We believe that none of these actions will have a material adverse effect on our business, financial condition or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended December 31, 2000, no matters were submitted to a vote of the security holders.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock trades on The Nasdaq Stock Market under the symbol "FYII." The following table sets forth, for our fiscal periods indicated, the range of high and low last reported sale prices for our common stock.
HOLDERS
On February 28, 2001, the last reported sale price of our common stock on the Nasdaq Stock Market was $33.63 per share. At February 28, 2001, there were 128 holders of record of our common stock and 16,204,138 shares outstanding.
DIVIDENDS
We have not declared any cash dividends on our common stock. We do not anticipate paying any cash dividends on our common stock in the foreseeable future and intend to retain our earnings, if any, to finance the expansion of our business and for general corporate purposes. Any payment of future dividends will be at the discretion of our Board of Directors and will depend upon, among other things, our earnings, financial condition, capital requirements, level of indebtedness, contractual restrictions and other factors that our Board of Directors deems relevant.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
We were founded in September 1994, and we effectively began our operations on January 26, 1996, following the completion of our initial public offering ("IPO"). We acquired, simultaneously with and as a condition to the closing of the IPO, seven Founding Companies (the "Acquisitions"). The Acquisitions have been accounted for in accordance with generally accepted accounting principles ("GAAP") as a combination of the Founding Companies at historical cost. For accounting purposes and for the purposes of the presentation of the financial data herein, January 31, 1996, has been used as the effective date of the Acquisitions.
Since the IPO, and through December 31, 2000, we acquired nine companies in transactions that were accounted for as poolings-of-interests: (i) The Rust Consulting Group, Inc. ("Rust") in December 1996; (ii) MAVRICC Management Systems, Inc. and a related company, MMS Escrow and Transfer Agency, Inc. (collectively, "MAVRICC") in March 1997; (iii) Input of Texas, Inc. ("Input") in March 1997; (iv) Micro
Publishing Systems ("MPS") in December 1997; (v) Lifo Systems, Inc. ("Lifo") in February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii) Economic Research Services, Inc. ("ERS") in October 1998; (viii) TCH Mailhouse, Inc. and G&W Enterprise, Inc. (collectively, "TCH") in December 1998; and (ix) Advanced Digital Graphics, Inc. ("ADG") in December 1998 (collectively, the "Pooled Companies"). Our consolidated financial statements for all periods presented have been restated to include the accounts of MAVRICC, Input, CMI, and ERS. Our consolidated financial statements were not restated for the Rust, MPS, and Lifo acquisitions for the periods prior to January 1, 1996, 1997, and 1998, respectively, due to their financial immateriality. The financial results for periods presented were also not restated prior to October 1, 1998, for the acquisitions of TCH and ADG due to their financial immateriality. We and the Pooled Companies were not under common control or management during the periods prior to their respective mergers. Our results of operations for the periods presented may not be indicative of the results in the future because of (i) the impact of acquisitions recorded as purchases, whose results are only included subsequent to the purchase date; and (ii) the impact of acquisitions recorded as poolings-of-interests, whose predecessor companies were not under common control or management.
Subsequent to the IPO and through December 31, 2000, we acquired 50 additional companies in transactions accounted for as purchases. Our results of operations include the results of these acquisitions from the date of their respective acquisitions.
Our Selected Financial Data for the years ended December 31, 1996, 1997, 1998, 1999 and 2000, have been derived from our consolidated financial statements, which have been audited by Arthur Andersen LLP. Our Selected Financial Data are based on available information and certain assumptions described in the footnotes set forth below, all of which we believe are reasonable.
Our Selected Financial Data provided below should be read in conjunction with our historical consolidated financial statements, including the related notes thereto, and "Item 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and the related notes thereto and "Item 6. Selected Financial Data" appearing elsewhere in this Report. Additional information concerning factors that could cause results to differ materially from those in the forward-looking statements is contained under "Item 1. Business -- Risk Factors."
INTRODUCTION
We were founded in September 1994, to create a national, single source provider of document and information outsourcing solutions to document and information intensive industries, including: healthcare, law, banking, insurance, retailing, high tech manufacturing and government. We acquired seven document management services businesses (the "Founding Companies") simultaneously with the closing of our initial public offering (the "IPO") on January 26, 1996, and effectively began operations at that time. The consideration for the Founding Companies consisted of a combination of cash and common stock (the "Common Stock") of our Company.
Since the IPO, and through December 31, 2000, we acquired nine companies in transactions that were accounted for as poolings-of-interests: (i) Rust in December 1996; (ii) MAVRICC in March 1997; (iii) Input in March 1997; (iv) MPS in December 1997; (v) Lifo in February 1998; (vi) CMI in September 1998; (vii) ERS in October 1998; (viii) TCH in December 1998; and (ix) ADG in December 1998. Our consolidated financial statements for all periods presented have been restated to include the accounts of MAVRICC, Input, CMI and ERS. As a result, we are reporting financial results in periods prior to the date we effectively began our operations. Our consolidated financial statements were not restated for the Rust, MPS and Lifo acquisitions for the periods prior to January 1, 1996, 1997, and 1998, respectively, due to their financial immateriality. Periods presented were also not restated prior to October 1, 1998, for the acquisitions of TCH and ADG due to their financial immateriality. We and the Pooled Companies were not under common control or management during the periods prior to their respective mergers. Our results of operations for the periods presented may not be indicative of the results in the future because of (i) the impact of acquisitions recorded as purchases, whose results are only included subsequent to the purchase date; and (ii) the impact of acquisitions recorded as poolings-of-interests, whose predecessor companies were not under common control or management.
Subsequent to the IPO and through December 31, 2000, we acquired 50 additional companies in transactions accounted for as purchases. Our results of operations include the results of these acquisitions from the date of their respective acquisitions.
Our revenue relates to the following divisions: F.Y.I. HealthSERVE/Government Services; F.Y.I. LEGAL; F.Y.I. IMAGE; and F.Y.I. DIRECT. Revenue relates to the following services, by division:
F.Y.I. HEALTHSERVE/GOVERNMENT SERVICES: (i) processing a request for a patient's medical records from a physician, insurance company, attorney, healthcare institution or individual; (ii) off-site active storage of a healthcare institutions medical records; (iii) online delivery of images of selected medical records for healthcare institutions; (iv) document and data conversion services for healthcare institutions; (v) document conversion services for state government disability workers compensation claims and other government agencies; (vi) temporary staffing services; (vii) providing attending physicians' statements for life and health insurance underwriting; and (viii) managed care compliance reviews.
F.Y.I. LEGAL: (i) automated litigation support, including document conversion, computer indexing and automated document retrieval; (ii) litigation consulting services such as discovery assistance, labor discrimination, forensic analysis and other trial support services; (iii) high-speed, multiple-set reproduction of documents; (iv) records acquisition in the form of subpoena of business documents and service of process; and (v) employee and investor services which provides administration, record keeping and information processing services.
F.Y.I. IMAGE: (i) electronic imaging services, involving the conversion of paper or microfilm documents into digitized information, database management and indexing; (ii) analog services involving the conversion of paper documents into microfilm images, film processing and computer based indexing and formatting; (iii) data capture and database management services involving data capture, data consolidation and elimination, storage, maintenance, formatting and report creation; (iv) claims processing; (v) integrated solutions, which deliver technical services with a focus on document imaging, work flow, COLD and document information management systems using third party imaging systems; and (vi) electronic object storage and internet-based retrieval capabilities to compliment our document capture and conversion services.
F.Y.I. DIRECT: (i) direct mail, which includes direct mail and fulfillment services to clients who need rapid, reliable and cost-effective methods for making large scale distributions of advertising, literature and other information; (ii) full service commercial printing, including printing and related services such as electronic prepress services, full-color report production of annual reports, flyers and catalogs; and (iii) statement processing.
Cost of services consists primarily of compensation and benefits to employees providing goods and services to our clients, occupancy costs, equipment costs and supplies. Our cost of services also includes the cost of products sold for micrographics supplies and equipment, computer hardware and software and business imaging supplies and equipment.
Selling, general and administrative expenses ("SG&A") consist primarily of: (i) compensation and related benefits to sales and marketing, executive management, accounting, human resources and other administrative employees; (ii) other sales and marketing costs; (iii) communications costs; (iv) insurance costs; and (v) legal and accounting professional fees and expenses.
RESULTS OF OPERATIONS
The following table sets forth certain items as shown in "Item 6. Selected Financial Data" expressed as a percentage of total revenue for the periods indicated:
(1) Selling, general and administrative expenses for the year ended December 31, 1998 include charges totaling 1.0% of revenue. See Note 6 of Notes to Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries. (2) Reports the gain on the sale of Leonard for the year ended December 31, 1998. The gain on sale, net of other charges included in (2) and (4), was 0.06% of revenue. See Note 6 of Notes to Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries. (3) Amortization for the year ended December 31, 1998 includes goodwill acceleration of 0.7% of revenue. See Note 6 of Notes to Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries. (4) Gives effect to certain tax adjustments in 1998 related to the taxation of Pooled Companies as S corporations or sole proprietorships prior to the consummation of the Acquisitions. See Note 2 of Notes to Consolidated Financial Statements of F.Y.I. Incorporated and Subsidiaries.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUE
Revenue increased 30.7%, from $350.0 million for the year ended December 31, 1999 to $457.6 million for the year ended December 31, 2000. This increase was largely due to: (i) revenue from the acquisitions completed subsequent to December 31, 1999; (ii) full-year revenue from 1999 acquisitions; and (iii) internal growth of 10.1% in revenue. Internal growth was primarily attributable to: (i) an increase in government services imaging revenue; (ii) an increase in litigation consulting; (iii) an increase in the government services revenue in California; and (iv) an increase in healthcare records release services revenue and conversion revenue due to expansion into additional healthcare institutions throughout the markets that we serve.
GROSS PROFIT
Gross profit increased 34.3% from $127.3 million for the year ended December 31, 1999 to $171.0 million for the year ended December 31, 2000, largely due to the increases in revenue discussed above. Gross profit as a percentage of revenue increased from 36.4% for the year ended December 31, 1999 to 37.4% for the year ended December 31, 2000, primarily due to higher gross profit margins experienced in our litigation consulting and class-action claims administration companies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased 27.8% from $78.6 million, or 22.4% of revenue, for the year ended December 31, 1999 to $100.5 million, or 22.0% of revenue, for the year ended December 31, 2000, primarily due to SG&A associated with the acquisitions subsequent to December 31, 1999. This decrease as a percentage of revenue was a result of management emphasis on cost controls. This decrease in SG&A was partially offset by increased SG&A as a percentage of revenue in our government services companies.
OPERATING INCOME
Operating income increased 40.9% from $44.0 million, or 12.6% of revenue, for the year ended December 31, 1999 to $62.0 million, or 13.5% of revenue, for the year ended December 31, 2000, largely attributable to the factors discussed above.
INTEREST AND OTHER EXPENSE
Interest and other expense increased 124.6% from $4.0 million for the year ended December 31, 1999 to $8.9 million for the year ended December 31, 2000, primarily due to increased borrowings due to cash paid for acquisitions in 2000 and contingent consideration paid for acquisitions acquired before December 31, 1999. The average interest rate on borrowings increased from 6.4% in 1999 to 7.6% in 2000.
INCOME BEFORE INCOME TAXES AND NET INCOME
Income before income taxes increased 32.6% from $40.0 million for the year ended December 31, 1999, to $53.0 million for the year ended December 31, 2000, and net income increased 33.7% from $24.0 million for the year ended December 31, 1999, to $32.1 million for the year ended December 31, 2000, largely attributable to the factors discussed above.
The provision for income taxes was $16.0 million for the year ended December 31, 1999 and $20.9 million for the year ended December 31, 2000. The effective tax rate of 40.0% and 39.5% for the years ended December 31, 1999 and 2000, respectively, differs from the statutory federal rate of 35.0% principally due to state and local taxes and non-deductible goodwill expenses.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Revenue increased 45.3%, from $240.9 million for the year ended December 31, 1998 to $350.0 million for the year ended December 31, 1999. This increase was largely due to: (i) revenue from the acquisitions completed subsequent to December 31, 1998, accounted for under the purchase method of accounting and their subsequent growth, primarily in the class action claims processing area; and (ii) internal growth of 13.0% in revenue at the companies owned greater than one year based on the acquisition anniversary date. This internal growth was primarily attributable to: (i) an increase in document conversion services relating to government agencies in the State of New York; (ii) an increase in healthcare services revenue due to expansion into additional healthcare institutions throughout the markets we serve; and (iii) an overall increase in data capture and imaging revenue, partially due to claims processing services performed.
GROSS PROFIT
Gross profit increased 46.2%, from $87.1 million for the year ended December 31, 1998 to $127.3 million for the year ended December 31, 1999, largely due to the increases in revenue discussed above. Gross profit as a percentage of revenue increased from 36.2% for the year ended December 31, 1998 to 36.4% for the year ended December 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A increased 41.3%, from $55.6 million, or 23.1% of revenue, for the year ended December 31, 1998 to $78.6 million, or 22.4% of revenue, for the year ended December 31, 1999, primarily due to SG&A associated with the acquisitions subsequent to December 31, 1998. SG&A for the year ended December 31, 1998, includes the following charges and impairments totaling $2.5 million: (i) severance payments due on acquisition related employment contracts terminated or not renewed and other costs, $1.7 million; (ii) facilities closings costs, $0.5 million; and (iii) other write-downs and impairments, $0.3 million. Excluding these charges, SG&A increased 48.0% from $53.1 million, or 22.0% of revenue, for the year ended December 31, 1998, to $78.6 million, or 22.4% of revenue, for the year ended December 31, 1999. This increase as a percentage of revenue was a result of increased corporate overhead required to manage the consolidated group of companies. This increase was partially offset by decreased SG&A as a percentage of revenue in the companies owned greater than one year.
OPERATING INCOME
Operating income increased 41.8%, from $31.0 million, or 12.9% of revenue, for the year ended December 31, 1998 to $44.0 million, or 12.6% of revenue, for the year ended December 31, 1999, largely attributable to the factors discussed above.
INTEREST AND OTHER EXPENSE
Interest and other expense increased 302%, from $1.0 million for the year ended December 31, 1998 to $4.0 million for the year ended December 31, 1999, due to the higher outstanding balance related to our credit agreement entered into in April 1996, with Paribas, as agent, and the lenders named therein (the "1998 Credit Agreement") in 1999. The outstanding balance on the credit agreement increased due to cash paid for acquisitions in 1999. The average interest rate on borrowings decreased from 6.5% in 1998 to 6.4% in 1999.
INCOME BEFORE INCOME TAXES AND PRO FORMA NET INCOME
Income before income taxes increased 33.3% from $30.0 million for the year ended December 31, 1998 to $40.0 million for the year ended December 31, 1999, and pro forma net income adjusted for pro forma provision for taxes increased 33.3% from $18.0 million for the year ended December 31, 1998 to $24.0 million for the year ended December 31, 1999, largely attributable to the factors discussed above.
FLUCTUATIONS IN QUARTERLY RESULTS OF OPERATIONS
Revenue from our services shows no significant seasonal variations. However, service revenue can vary from period to period due to the impact of specific projects, primarily in the F.Y.I. LEGAL and F.Y.I. IMAGE segments. Quarterly results may also vary as a result of the timing of acquisitions and the timing and magnitude of costs related to such acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2000, we had $55.9 million of working capital and $9.5 million of cash. Cash flows provided by operating activities for the year ended December 31, 2000 were $45.9 million. Net cash provided by operating activities for the year ended December 31, 2000 was primarily impacted by an increase in earnings. This increase was offset in part by an increase in accounts receivable and prepaid expenses, which were attributable to the increase in revenue for the year. Net cash used in investing activities was $99.1 million for the year ended December 31, 2000, and consisted primarily of payments of $86.0 million for acquisitions, net of cash acquired, and the purchase of property, plant and equipment. Net cash provided by financing activities was $53.4 million, as we utilized our credit facility to fund our acquisition program. Net borrowings on the credit facility were $36.9 million for the year.
At December 31, 1999, we had $20.1 million of working capital and $9.4 million of cash. Cash flows provided by operating activities for the year ended December 31, 1999 were $26.7 million. Net cash provided by
operating activities for the year ended December 31, 1999 was primarily impacted by an increase in earnings and an increase in accounts payable and accrued liabilities. These increases were offset in part by an increase in accounts receivable, which was attributable to the increase in revenue for the year. Net cash used in investing activities was $80.4 million for the year ended December 31, 1999, and consisted primarily of payments of $63.1 million for acquisitions, net of cash acquired, and the purchase of property, plant and equipment. Net cash provided by financing activities was $48.5 million, as we utilized our credit facility to fund our acquisition program. Net borrowings on the credit facility were $44.0 million for the year.
At December 31, 1998, we had $37.8 million of working capital and $14.6 million of cash. Cash flows provided by operating activities for the year ended December 31, 1998 were $19.1 million. Net cash provided by operating activities for the year ended December 31, 1998 was primarily impacted by (i) an increase in revenue and a corresponding increase in accounts receivable; and (ii) an increase in prepaid expenses and other assets. Net cash used in investing activities was $37.1 million for the year ended December 31, 1998, and was primarily used for the purchase of property, plant and equipment and payments of $29.8 million for acquisitions, net of cash acquired. These uses were partially offset by the $6.6 million received from the sale of the assets of Leonard. Net cash provided by financing activities was $21.6 million, as we utilized our credit facility to fund our acquisition program. Net borrowings on the credit facility were $23.3 million for the year.
In February 1998, we entered into our line of credit with BNP Paribas and Bank of America Texas, N.A. (the "1998 Credit Agreement"). Under this agreement, we initially could borrow on a revolving credit basis loans in an aggregate outstanding principal amount up to $65.0 million, subject to certain customary borrowing capacity requirements. In April 1999 and August 1999, the 1998 Credit Agreement was amended to increase the aggregate outstanding principal limit to $100 million and $125 million, respectively. In November 1999, we further amended the 1998 Credit Agreement, increasing the aggregate principal limit to $150 million. In May 2000, the 1998 Credit Agreement was further amended to increase the aggregate principal limit to $175 million from $150 million. In July 2000, the 1998 Credit Agreement was amended to extend its revolving term by one year. The availability under the 1998 Credit Agreement as of February 28, 2001 was $36.2 million for acquisitions, working capital and general corporate purposes. Depending on the mix of stock and cash used to execute our acquisition program, we may need to seek additional financing through the public or private sale of equity or debt securities. There can be no assurance we could secure such financing if and when it is needed or on terms we deem acceptable.
In January 2000, we registered on Form S-4 (Registration No. 333-92981) 3,012,217 shares of common stock for issuance in connection with our acquisition program (the "Acquisition Shelf"), of which 2,082,556 shares were available as of December 31, 2000.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its term loans and revolving credit facility. Interest rates are fixed on the indenture and capitalized lease obligations. In December, 2000, in order to mitigate interest rate risk, the Company has entered into an interest rate hedge agreement in the notional amount of $50 million, whereby the Company has fixed the interest rate through March 2003 on the notional amount of the hedge agreement at 5.775% plus the applicable floating spread.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of F.Y.I. Incorporated:
We have audited the accompanying consolidated balance sheets of F.Y.I. Incorporated (a Delaware corporation) and subsidiaries (the "Company") as of December 31, 1999 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of F.Y.I. Incorporated and subsidiaries as of December 31, 1999 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Dallas, Texas, February 19, 2001
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes are an integral part of these consolidated financial statements.
F.Y.I. INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
The accompanying notes are an integral part of these consolidated financial statements.
F.Y.I. INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
F.Y.I. Incorporated (the "Company" or "F.Y.I.") was founded in September 1994, to create a national, single source provider of document and information outsourcing solutions to document and information intensive industries, including: healthcare, law, banking, insurance, retailing, high tech manufacturing and government. We acquired seven document management services businesses (the "Founding Companies") simultaneously with the closing of our initial public offering (the "IPO") on January 26, 1996, and effectively began operations at that time. The consideration for the Founding Companies consisted of a combination of cash and common stock (the "Common Stock") of our Company.
Since the IPO, we acquired nine companies in transactions that were accounted for as poolings-of-interests: (i) The Rust Consulting Group, Inc. ("Rust") in December 1996; (ii) MAVRICC Management Systems, Inc. and a related company, MMS Escrow and Transfer Agency, Inc. (collectively, "MAVRICC") in March 1997; (iii) Input of Texas, Inc. ("Input") in March 1997; (iv) Micro Publishing Systems, Inc. ("MPS") in December 1997; (v) Lifo Systems, Inc. ("Lifo") in February 1998; (vi) Creative Mailings, Inc. ("CMI") in September 1998; (vii) Economic Research Services ("ERS") in October 1998; (viii) TCH Mailhouse, Inc. and G&W Enterprise, Inc. (collectively, "TCH"); in December 1998; and (ix) Advanced Digital Graphics, Inc. ("ADG") in December 1998 (collectively, the "Pooled Companies"). The consolidated financial statements for all periods presented have been restated to include the accounts of CMI and ERS. Periods presented were not restated prior to October 1, 1998, for the acquisitions of TCH and ADG due to their financial immateriality. The Pooled Companies and our Company were not under common control or management during the periods prior to their respective mergers. The results of operations for the periods presented may not be indicative of the results in the future because of (i) the impact of acquisitions recorded as purchases, whose results are only included subsequent to the purchase date; and (ii) the impact of acquisitions recorded as poolings-of-interests, whose predecessor companies were not under common control or management.
Subsequent to the IPO and through December 31, 2000, we acquired 50 additional companies in transactions accounted for as purchases. Our results of operations include the results of these acquisitions from the date of their respective acquisitions.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS
We consider highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value.
FUNCTIONAL CURRENCY AND FOREIGN CURRENCY TRANSACTIONS
Our functional currency and that of all of our operating companies is the U.S. dollar. Certain of our operating companies conduct transactions in foreign currencies. Foreign currency transaction gains and losses are recorded as other income and expense on the income statement.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are depreciated over the lesser of the estimated useful life or the term of the lease.
INTANGIBLE ASSETS
Intangibles consist primarily of goodwill. Based on the historical profitability of the purchased companies and trends in the legal, healthcare and other industries regarding the outsourcing of document management functions in the foreseeable future, goodwill is being amortized over periods not to exceed 30 years. Management continually evaluates whether events and circumstances indicate that the remaining estimated useful life of intangible assets might warrant revisions or that the remaining balance of intangibles or other long-lived assets may not be recoverable. To make this evaluation, management compares the estimated undiscounted future cash flows over the remaining life of the intangibles or other long-lived assets to the carrying amount of the assets being evaluated. If the expected future cash flows do not exceed the carrying amount of the assets being evaluated, an impairment loss is recognized based on the excess of the carrying amount of the impaired assets over their fair value. No impairments were recorded in 1999 and 2000. See Note 6 - 1998 Dispositions and Other Charges for 1998 impairments. The goodwill associated with a majority of our acquisitions is not deductible for income tax purposes.
REVENUE RECOGNITION
Revenue is recognized when the services are rendered, or products are delivered to our customers. Unearned revenue represents certain services which are billed in advance.
INCOME TAXES
Income taxes are accounted for using the asset and liability method pursuant to SFAS No. 109, "Accounting for Income Taxes." Deferred taxes are recognized for tax consequences of temporary differences by applying enacted statutory tax rates applicable in future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities.
NET INCOME PER SHARE
Net income per common share has been computed in accordance with SFAS No. 128, "Earnings Per Share," which requires the disclosure of basic and diluted net income per share. Basic net income per share has been computed by dividing income by the weighted average number of common shares outstanding for the period. Diluted net income per share has been computed by dividing income by the weighted average number of common shares and common stock equivalents outstanding for the period.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles ("GAAP") requires our management to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current year presentation.
CONSOLIDATION
The accompanying consolidated financial statements and related notes to consolidated financial statements include the accounts of F.Y.I. Incorporated and our subsidiaries. All significant intercompany balances and transactions have been eliminated.
PRO FORMA NET INCOME (UNAUDITED)
We acquired the Pooled Companies in transactions that were accounted for as poolings-of-interests. The Pooled Companies were managed through their acquisition dates as independent private companies and represent a variety of tax structures. The unaudited pro forma data presents the incremental provision for income taxes as if all entities had been subject to federal and state income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash and cash equivalents, accounts and notes receivable, net, accounts payable and accrued liabilities approximate fair value due to the short maturities of these instruments. The carrying amount of long-term debt approximates fair value due to interest rates that approximate current market rates for instruments of similar size and duration.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts (collectively referred to as derivatives) and for hedging activities. This statement, for the Company, is effective January 1, 2001. The Company does not believe that the adoption of this pronouncement will have a significant impact on the Company's financial statements.
The Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements," in December 1999. This bulletin, for the Company, was effective with the fourth quarter of 2000. This SAB summarizes the SEC staff's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company's revenue recognition policies are consistent with SAB 101.
3. ALLOWANCE FOR DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE:
The activity in the allowance for doubtful accounts and notes receivable is as follows (in thousands):
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following (in thousands):
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:
Accounts payable and accrued liabilities consist of the following (in thousands):
6. BUSINESS COMBINATIONS:
2000 ACQUISITIONS
During 2000, we acquired five business process outsourcing solution businesses, which were accounted for as purchases (the "Purchased Companies"). These acquisitions were (i) Mailing and Marketing, Inc., (ii) Global Direct, Inc., (iii) Pinnacle Legal Copies, Inc. and PLCI, Inc., (iv) Lexicode Corporation, and (v) RTI Laser Print Services, Inc. The aggregate consideration paid for the Purchased Companies consisted of $51.0 million in cash and 205,350 shares of common stock. The preliminary allocation of the purchase price is set forth below (in thousands):
The weighted average fair market values of the shares of common stock used in calculating the consideration paid for the Purchased Companies was $25.44 per share, which represents a 18% discount from the
average trading price of the common stock based on the length and type of restrictions in the purchase agreements.
The estimated fair market values reflected above are based on preliminary estimates and assumptions and are subject to revision. In management's opinion, the preliminary allocations are not expected to be materially different from the final allocations. Certain of the acquisitions are subject to adjustments in their overall consideration based upon performance against specified earning targets over one to three year periods.
1999 ACQUISITIONS
During 1999, we acquired 12 document management businesses, all of which were accounted for as purchases. These acquisitions were Northern Minnesota Medical Records Services, Inc., PMI Imaging Systems, Inc., Quality Data Conversions, Inc., MSI Imaging Solutions, Inc., Information Management Services, Inc., Managed Care Professionals, Inc., American Economics Group, Inc., Data Entry and Informational Services, Inc., Rust Consulting, Inc., Newport Beach Data Entry, Inc., Copy Right, Inc. and Exigent Computer Group, Inc. (the "1999 Acquisitions"). The aggregate consideration paid for the acquisitions consisted of $66.8 million in cash and 255,626 shares of common stock. The preliminary allocation of the purchase price is set forth below (in thousands):
The weighted average fair market values of the shares of common stock used in calculating the consideration paid was $25.28 per share, which represents a 20% discount from the average trading price of the common stock based on the length and type of restrictions in the purchase agreements.
Certain of the acquisitions are subject to adjustments in their overall consideration based upon performance against specified earning targets over one to three year periods.
1998 ACQUISITIONS
During 1998, we acquired 13 document management businesses, eight of which were accounted for as purchases (the "Purchased Companies") and five of which were accounted for under the pooling-of-interests method. The eight acquisitions accounted for as purchases were Medicopy, Inc. ("Medicopy"), Associate Record Technician Services, Inc. ("ARTS"), DeBari Associates, Inc. ("DeBari"), ACT Medical Record Services, Inc. ("ACT"), Eagle Legal Services, Inc. ("Eagle"), Doctex, Inc. ("Doctex"), Copyright, Inc. ("Copyright"), and certain assets of Olicon Imaging Systems, Inc. ("Radiology"). The aggregate consideration paid for the Purchased Companies consisted of $18.2 million in cash and 644,762 shares of common stock. The preliminary allocation of the purchase price is set forth below (in thousands):
The weighted average fair market values of the shares of common stock used in calculating the consideration paid was $20.28 per share which represented a 20% discount from the average trading price of the common stock based on the length and type of restrictions in the purchase agreements.
Certain of the acquisitions are subject to additional consideration based upon achievement of specified earning targets over a one to three year period.
The acquisitions of CMI in September 1998 and ERS in October 1998 for 745,000 and 835,000 shares of common stock, respectively, were accounted for as poolings-of-interests. The consolidated financial statements for all periods presented have been restated to include the accounts of CMI and ERS. Pro forma net income reflects
adjustments for the incremental provision for income taxes as if all entities had been subject to federal and state income taxes.
The acquisition of Lifo in February 1998 for 326,659 shares of common stock was accounted for as a pooling-of-interests. The acquisitions of TCH and ADG in December 1998 for 416,524 shares of common stock were also accounted for as poolings-of-interests. Our consolidated financial statements were not restated for periods prior to October 1, 1998, due to the financial immateriality of TCH and ADG.
1998 DISPOSITIONS AND OTHER CHARGES
In October 1998, we entered into an agreement to exchange certain assets and related liabilities of Leonard Archives Acquisition Corp. ("Leonard") for cash and certain assets and related liabilities of Copyright, Inc., a Philadelphia-based provider of healthcare release of information services. The divestiture of Leonard, which primarily offered archival records storage, was consistent with our strategic objective of focusing our activities on higher value-added document and information management and outsourcing solutions. The book value of the net assets disposed was approximately $4.1 million, and we recorded a gain of $4.4 million on the transaction, net of costs associated with the transaction.
Also in the fourth quarter, we recorded the write-down of certain intangible and fixed assets and recorded severance and other costs. The goodwill impairments related to the Computer Central Corporation, Microfilm Associates, Ltd. and Octo, Inc. acquisitions and a customer list associated with a Founding Company acquisition in which the customer base associated with the intangible asset had deteriorated to the extent that the assets were considered impaired under SFAS 121. The severance represented payments due on acquisition-related employment contracts terminated or not renewed. The charges totaling $4.3 million are presented in the consolidated statement of operations as follows: (i) acceleration of goodwill amortization, $1.8 million; (ii) accrual for severance and other costs, $1.7 million; (iii) facilities closings costs, $0.5 million; and (iv) other write-downs and impairments, $0.3 million. The gain on sale of the assets of Leonard, net of the above charges, was $145,000 before taxes.
CONTINGENT CONSIDERATION
Certain of our acquisitions are subject to adjustments in their overall consideration based upon the achievement of specified earning targets over one to three year periods. During 2000, we paid consideration of $30.8 million in cash and 662,447 of common stock at an average price of $32.09 per share in relation to contingent consideration agreements that have been settled. Based upon the evaluation of cumulative earnings through December 31, 2000, against the specified earnings targets, we have accrued aggregate contingent consideration of approximately $18.6 million, of which $10.4 million is classified as accounts payable and accrued liabilities and will be settled in cash and $8.2 million is classified as other long-term obligations and will be settled in common stock. All of the periods applicable for the earnout targets have not been completed, and additional amounts may be payable in future periods under the terms of the agreements.
PRO FORMA FINANCIAL DATA
Set forth below are unaudited pro forma financial data for the years ended December 31, 1999 and 2000. The unaudited pro forma data give effect to: (i) the 2000 Acquisitions and the 1999 acquisitions; and (ii) compensation and tax adjustments for all transactions as if these transactions had occurred on January 1, 1999.
The pro forma information is provided for informational purposes only and does not purport to present our results of operations had the transactions assumed therein occurred on or as of the dates indicated, nor are they necessarily indicative of the results of operations which may be achieved in the future.
7. LONG-TERM OBLIGATIONS AND CREDIT FACILITIES:
LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
In February 1998, we entered into a credit agreement (the "1998 Credit Agreement") with Paribas and Bank of America Texas, N.A., as co-agents and lenders named therein. Under the 1998 Credit Agreement, we and our subsidiaries could borrow on a revolving credit basis loans in an aggregate outstanding principal amount up to $65.0 million, subject to certain customary borrowing capacity requirements. In April 1999 and August 1999, the 1998 Credit Agreement was amended to increase the aggregate outstanding principal limit to $100.0 million and $125.0 million, respectively. In November 1999, we further amended the 1998 Credit Agreement, increasing the aggregate principal limit to $150.0 million. In May 2000, the 1998 Credit Agreement was further amended to increase the aggregate principal limit to $175 million from $150 million. In July 2000, the 1998 Credit Agreement was amended to extend its revolving term by one year. The 1998 Credit Agreement is secured by the assets and/or stock of our Company and our subsidiaries. The availability under the 1998 Credit Agreement as of December 31, 2000, was $41.7 million.
The commitment to fund revolving credit loans under the 1998 Credit Agreement expires February 18, 2002. The annual interest rate applicable to borrowings under this facility is, at our option, (i) the prime rate or (ii) grid pricing ranging from 0.5% to 1.50% plus the Eurodollar rate based on the ratio of debt to EBITDA (as defined
in the 1998 Credit Agreement). The 1998 Credit Agreement requires mandatory prepayments in certain circumstances. The outstanding principal balance of revolving credit loans is due and payable on March 31, 2003.
We also have outstanding an irrevocable letter of credit in the amount of approximately $2.3 million to serve as guarantee for periodic principal and interest payments related to the Industrial Revenue Bonds. In January 1998, we entered into a letter of credit in the amount of $10.0 million to serve as a guarantee for performance under a contract with New York State Workers Compensation Board. In April 1999, the amount of the letter of credit was reduced to $5.0 million. Additionally, in November 1999, we entered into a letter of credit in the amount of $5.0 million to serve as a guarantee for performance under a contract with the New York State Teachers' Retirement System.
The weighted average interest rate on long-term obligations at December 31, 1999 and 2000, was 6.4% and 7.6%, respectively. The 1998 Credit Agreement contains certain reporting requirements and financial covenants, including requirements that we maintain minimum levels of net worth and other financial ratios. As of December 31, 2000, we are in compliance with all loan covenants.
In December 2000, in order to mitigate interest rate risk, the Company has entered into an interest rate hedge agreement in the notional amount of $50 million, whereby the Company has fixed the interest rate through March 2003 on the notional amount of the hedge agreement at 5.775% plus the applicable floating spread.
MATURITIES OF LONG-TERM OBLIGATIONS
As of December 31, 2000, maturities of long-term obligations are as follows (in thousands):
8. LEASE COMMITMENTS:
Our operating companies lease various office buildings, machinery, equipment and vehicles. Future minimum lease payments under capital leases, included in long-term obligations, and noncancelable operating leases are as follows (in thousands):
Rent expense for all operating leases for the years ended December 31, 1998, 1999 and 2000 was approximately $11.7 million, $15.1 million, and $20.7 million, respectively.
9. INCOME TAXES:
The provision for federal and state income taxes consists of the following (in thousands):
The differences in income taxes provided and the amounts determined by applying the federal statutory tax rate to income before income taxes result from the following (in thousands):
The components of deferred income tax liabilities and assets are as follows (in thousands):
10. STOCKHOLDERS' EQUITY:
STOCK OPTIONS AND WARRANTS:
At December 31, 2000, we had one stock-based compensation plan, the 1995 Stock Option Plan, as amended (the "Plan"), which is described below. We have also issued warrants (the "Warrants") to certain key employees and employees of our subsidiaries. We refer to these options and warrants collectively as "Awards." We apply APB Opinion 25 and related interpretations in accounting for awards. Awards are granted at the market price of the common stock on the date of grant. Accordingly, no compensation cost has been recognized for the awards. Had compensation cost been determined based upon the fair value at grant dates for these awards consistent with the method of SFAS No. 123, "Accounting for Stock Based Compensation," our net income and earnings per share would have been as follows (in thousands, except for per share data):
The fair value of the Awards was estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions for 1998: risk free interest rate ranging from 4.0% to 5.7%, no dividend yield, average expected life of three years, and volatility of 40%. The following assumptions were used for 1999: risk free interest rate ranging from 4.5% to 6.1%, no dividend yield, average expected life of three years, and volatility of 35%. The following assumptions were used for 2000: risk free interest rate ranging from 5.0% to 6.8%, no dividend yield, average expected life of three years, and volatility of 40%.
The Plan provides awards of options to purchase common stock and may include incentive stock options ("ISOs") and/or non-qualified stock options. The Plan also provides for automatic option grants to directors who are not otherwise employed by us or our subsidiaries. Upon commencement of service (or upon agreeing to serve in the case of the initial non-employee directors), a non-employee director will receive a non-qualified option to purchase 10,000 shares of common stock, and continuing non-employee directors will receive annual options to purchase 5,000 shares of common stock. Options granted to non-employee directors become exercisable one-third on the date of grant and one-third on each of the next two anniversaries of the date of grant. Non-employee directors' options have a term of five years from the date of grant.
The maximum number of shares of common stock that may be subject to outstanding options under the Plan, determined immediately after the grant of any option, is the greater of 650,000 shares or 16% of the aggregate number of shares of our common stock outstanding; provided, however, that options to purchase no more than 650,000 shares of common stock may be granted as ISOs. At December 31, 1999 and 2000, approximately 417,000 and 1,046,000 shares, respectively, were available for issuance.
We had 2,830,410 and 2,598,861 Awards outstanding at December 31, 1999, and 2000, respectively. These Awards, other than those granted to employee directors, have 10-year expirations and various vesting schedules.
The following table summarizes information about Awards granted under the Plan that were outstanding at December 31, 2000:
NET INCOME PER SHARE
Basic and diluted net income per share were computed in accordance with SFAS No. 128, "Earnings Per Share." The differences between basic weighted average common shares and diluted weighted average common shares and common stock equivalents are as follows (in thousands):
At December 31, 2000, approximately 88,000 anti-dilutive options were not included in the diluted earnings per share calculation. These options may be dilutive in future earnings per share calculations.
11. EMPLOYEE BENEFIT PLANS:
We established a defined contribution plan (the "401(k) plan") in January 1997. The 401(k) plan covers our employees and the employees of some of our subsidiaries. The employees must be at least 21 years of age and work at least 1,000 hours per year with one year of service to be eligible for the plan. In addition, we established a non-qualified plan in December 1996. The non-qualified compensation plan permits eligible officers and certain highly compensated employees to defer a portion of their compensation. Contributions to both the 401(k) plan and the non-qualified compensation plan consist of employee pre-tax contributions determined as a percentage of each participating employee's compensation. We may make contributions to either or both plans at the discretion of our Board of Directors. We have not made any contributions to the 401(k) plan or the deferred compensation plan. We offer no post-employment or post-retirement benefits.
Certain of the operating companies have separate qualified defined contribution employee benefit plans (the "Plans"), the majority of which allow for voluntary pre-tax contributions by employees. The subsidiaries pay all general and administrative expenses of the Plans and, in some cases, the subsidiaries make matching and discretionary contributions to the Plans. The subsidiaries offer no post-employment or post-retirement benefits. The expense incurred by us related to the Plans was approximately $610,000, $887,000, and $970,542 for the years ended December 31, 1998, 1999 and 2000 respectively.
12. RELATED PARTY TRANSACTIONS:
LEASING TRANSACTIONS
Certain of our operating companies lease their operating facilities, along with certain equipment, from selling parties who remained our employees or directors. These leases are for various lengths and annual amounts. The rental expense for these operating leases for the years ended December 31, 1998, 1999 and 2000 was approximately $647,000, $1,362,348 and $1,113,209, respectively.
NOTES RECEIVABLE
In the acquisition of the Founding Companies, we acquired $642,000 of notes receivable from two Founding Company shareholders. When we began our operations, the shareholders entered into new notes receivable with a stated interest rate (5%) and principal payment schedules. Principal and interest were paid in full by the shareholders in 1999 and early 2000.
13. COMMITMENTS AND CONTINGENCIES:
LITIGATION
We are, from time to time, a party to litigation arising in the normal course of business. Our management believes that none of these actions will have a material adverse effect on our business, financial condition or results of operations.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject us to concentration of credit risk consist primarily of cash and cash equivalents and trade receivables. The Company maintains cash and cash equivalents and certain other financial instruments at various major financial institutions across many geographic areas. Credit risk on trade receivables is minimized as a result of the large number of entities comprising our client base and their dispersion across many industries and geographic areas.
14. SEGMENT REPORTING:
We and our subsidiaries are principally engaged in business process outsourcing services. We have identified segments based on management responsibility as follows:
F.Y.I. Image: (i) electronic imaging services, involving the conversion of paper or microfilm documents into digitized information, database management and indexing; (ii) analog services involving the conversion of paper documents into microfilm images, film processing and computer based indexing and formatting; (iii) data capture and database management services involving data capture, data consolidation and elimination, storage, maintenance, formatting and report creation; (iv) claims processing; and (v) integrated solutions, which deliver technical services with a focus on document imaging, work flow, COLD and document information management systems using third party imaging systems.
F.Y.I. Legal: (i) automated litigation support, including document conversion, computer indexing and automated document retrieval; (ii) litigation consulting services such as discovery assistance, labor discrimination, forensic analysis and other trial support services; (iii) high-speed, multiple-set reproduction of documents; (iv) records acquisition in the form of subpoena of business documents and service of process; and (v) employee and investor services which provides administration, record keeping and information processing services.
F.Y.I. HealthSERVE and Government: (i) processing a request for a patient's medical records from a physician, insurance company, attorney, healthcare institution or individual; (ii) off-site active storage of a healthcare institutions medical records; (iii) online delivery of images of selected medical records for healthcare institutions; (iv) document and data conversion services for healthcare institutions; (v) document conversion services for state government disability. workers compensation claims and other government agencies; (vi) temporary staffing services; (vii) providing attending physicians' statements for life and health insurance underwriting; and (viii) managed care compliance reviews.
F.Y.I. Direct: (i) direct mail, which includes direct mail and fulfillment services to clients who need rapid, reliable and cost-effective methods for making large scale distributions of advertising, literature and other information; (ii) full service commercial printing, including printing and related services such as electronic prepress services, full-color report production of annual reports, flyers and catalogs; and (iii) statement processing.
We have a broad client base. We had two clients' projects that accounted for approximately $33.6 million, or 7.3%, of our revenue for the year ended December 31, 2000.
We measure segment profit as earnings before taxes. Information on segments follows (in thousands):
15. QUARTERLY INFORMATION (UNAUDITED):
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information called for by Item 10 will be set forth under the caption "Election of Directors" in our 2001 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2000, and which is incorporated herein by this reference.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information called for by Item 11 will be set forth under the caption "Executive Compensation" in our 2001 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2000, and which is incorporated herein by this reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information called for by Item 12 will be set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in our 2001 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2000, and which is incorporated herein by this reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information called for by Item 13 will be set forth under the caption "Certain Relationships and Related Transactions" in our 2001 Proxy Statement, which will be filed not later than 120 days after the end of our fiscal year ended December 31, 2000, and which is incorporated herein by this reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The following documents are being filed as part of this Report:
(a)(1) Consolidated Financial Statements
See Index to Consolidated Financial Statements on page 22.
All other schedules are omitted because they are not applicable, not required or the required information is in the Financial Statements or the Notes thereto.
(a)(3) The following Exhibits are filed as part of this Report as required by Item 601 of Regulation S-K. The Exhibits designated by an asterisk are management contracts and compensatory plans and arrangements required to be filed as Exhibits to this Report.
EXHIBIT NUMBER DESCRIPTION ------- -----------
2.1 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I., Incorporated, Deliverex, Incorporated, ASK Record Management, Inc., Deliverex Acquisition Corp., and the Stockholders named therein (Incorporated by reference to Exhibit 2.1 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.2 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I. Incorporated, C. & T. Management Services, Inc., Qualidata, Inc., DPAS Acquisition Corp., and the Stockholders named therein (Incorporated by reference to Exhibit 2.2 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.3 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I. Incorporated, Melanson & Associates, Inc., Bay Area Micrographics, Researchers Acquisition Corp., and the Stockholders named therein (Incorporated by reference to Exhibit 2.3 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.4 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I. Incorporated, Paragon Management Group, Inc., Recordex Acquisition Corp., Recordex Services, Inc., and the Stockholders named therein (Incorporated by reference to Exhibit 2.4 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.5 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I. Incorporated, Permanent Records Inc., Permanent Records Acquisition Corp., and the Stockholders named therein (Incorporated by reference to Exhibit 2.5 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.7 -- Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among Imagent Corporation, Imagent Acquisition Corp. and the Stockholders named therein (Incorporated by reference to Exhibit 2.7 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.8 -- Agreement and Plan of Reorganization dated as of October 25, 1995, by and among Mobile Information Services Corporation, Inc., Imagent Acquisition Corp. and the Stockholders named therein (Incorporated by reference to Exhibit 2.8 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.9 -- First Amendment to Agreement and Plan of Reorganization, dated as of October 25, 1995, by and among F.Y.I. Incorporated, Leonard Archives Inc., Leonard Acquisition Corp. and the Stockholders named therein (Incorporated by reference to Exhibit 2.9 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.10 -- First Amendment to Agreement and Plan of Reorganization, dated as of November 14, 1995, by and among F.Y.I. Incorporated, C. & T. Management Services, Inc., Qualidata, Inc., DPAS Acquisition Corp., and the Stockholders named therein (Incorporated by reference to Exhibit 2.10 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
2.11 -- Agreement and Plan of Reorganization, dated as of May 31, 1996, by and among F.Y.I. Incorporated, B&B (Baltimore-Washington) Acquisition Corp., B&B Information and Image Management, Inc. and Charles J. Bauer, Jr. (Incorporated by reference to Exhibit 10.17 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective July 11, 1996)
2.12 -- Agreement and Plan of Reorganization, dated as of May 31, 1996, by and among F.Y.I. Incorporated, Premier Acquisition Corp., Premier Document Management, Inc., PDM Services, Inc., Brian E. Whiteside, Christopher S. Moore, Lynnette C. Pomerville and Gary T. Sievert (Incorporated by reference to Exhibit 10.18 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective July 11, 1996)
2.13 -- Asset Purchase Agreement, dated as of June 28, 1996, by and among F.Y.I. Incorporated, Robert A. Cook Acquisition Corp., Robert A. Cook and Staff, Inc. and RAC Services, Inc., Robert A. Cook and Robert A. Cook and Anna M. Cook, as Co-Trustees of the Cook 1993 Living Trust (Incorporated by reference to Exhibit 10.19 to Post-Effective Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective July 11, 1996)
2.14 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and among F.Y.I. Incorporated, California Medical Record Service Acquisition Corp., C.M.R.S. Incorporated and Alan Simon
(Incorporated by reference to Exhibit 2.14 to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective September 11, 1996)
2.15 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and among F.Y.I. Incorporated, Texas Medical Record Service Acquisition Corp., Texas Medical Record Service, Inc., California Medical Record Service Acquisition Corp. and Karen Jill Simon (Incorporated by reference to Exhibit 2.15 to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective September 11, 1996)
2.16 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and among F.Y.I. Incorporated, Minnesota Medical Record Service Acquisition Corp., Minnesota Medical Record Service, Inc. and Alan Simon (Incorporated by reference to Exhibit 2.16 to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective September 11, 1996)
2.17 -- Agreement and Plan of Reorganization, dated as of August 30, 1996, by and among F.Y.I. Incorporated, ZIA Acquisition Corp., ZIA Information Analysis Group and the shareholders named therein (Incorporated by reference to Exhibit 2.17 to Post-Effective Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective September 11, 1996)
2.18 -- Agreement and Plan of Reorganization, dated as of March 27, 1997, by and among F.Y.I. Incorporated, MAVRICC Acquisition Corp., MAVRICC Management Systems, Inc., F.Y.I. Incorporated, Craig F. Moncher and Kyle C. Kerbawy (Incorporated by reference to Exhibit 2.18 to the Company's Current Report on Form 8-K filed on April 9, 1997)
2.19 -- Agreement and Plan of Reorganization, dated as of March 27, 1997, by and among F.Y.I. Incorporated, MMS Escrow Acquisition Corp., MMS Escrow and Transfer Agency, Inc., Craig F. Moncher and Kyle C. Kerbawy (Incorporated by reference to Exhibit 2.19 to the Company's Current Report Form 8-K filed on April 9, 1997)
3.1 -- Amended and Restated Certificate of Incorporation of F.Y.I. Incorporated (Incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
3.2 -- First Amendment to Amended and Restated By-Laws of F.Y.I. Incorporated (Incorporated by reference to Exhibit 3.2 to the Company's Form 10-Q filed on August 8, 1997)
4 -- Form of certificate evidencing ownership of Common Stock of F.Y.I. Incorporated (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
10.1* -- F.Y.I. Incorporated 1995 Stock Option Plan (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
10.8 -- Form of Indemnification Agreement between F.Y.I. and each director (Incorporated by reference to Exhibit 10.8 to Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
10.10 -- Form of Registration Rights Agreement, dated as of November 14, 1995, by and among Thomas C. Walker, David Lowenstein and the persons named therein (Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
10.12 -- Five Year Media Purchase Agreement, dated as of August 9, 1994, between Eastman Kodak Company and Jonathan B. Shaw (Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 33-98608) effective January 12, 1996)
10.15 -- Lease Agreement between F.Y.I. Incorporated and One McKinney Plaza, Inc. (Incorporated by reference to Exhibit 10.15 to Post-Effective Amendment No. 1 to the Company's Registration Statement on Form S-1 (Registration No. 333-1084) effective April 30, 1996)
10.21 -- Separation Agreement, dated July 17, 1996, by and between F.Y.I. Incorporated and Robert C. Irvine (Incorporated by reference to Exhibit 10.21 to the Company's Registration Statement on Form S-1 (Registration No. 333-16057) effective December 11, 1996)
10.26* -- Amended and Restated Warrant issued by F.Y.I. Incorporated to Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.26 to the Company's Current Report on Form 8-K filed on April 9, 1997)
10.27* -- Amended and Restated Warrant issued by F.Y.I. Incorporated to Ed H. Bowman, Jr. (Incorporated by reference to Exhibit 10.27 to the Company's Current Report on Form 8-K filed on April 9, 1997)
10.28* -- Amended and Restated Warrant issued by F.Y.I. Incorporated to Timothy J. Barker (Incorporated by reference to Exhibit 10.28 to the Company's Current Report on Form 8-K filed on April 9, 1997)
10.37 -- Amended and Restated Credit Agreement, dated as of February 17, 1998, by and among F.Y.I. Incorporated, Banque Paribas, Bank of America Texas, N.A. and the Lenders named therein (Incorporated by referenced to Exhibit 10.37 to the Company's Form 10-K filed on March 11, 1998)
10.38 -- Agreement between New York State Workers' Compensation Board and QCSInet Acquisition Corp., dated January 21, 1998 (Incorporated by reference to Exhibit 10.38 to the Company's Form 8-K filed on March 20, 1998)
10.47* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Jonathan B. Shaw (Incorporated by reference to Exhibit 10.47 of the Company's Form 10-K filed on March 17, 1999)
10.48 -- First Amendment to Amended and Restated Credit Agreement, dated August 3, 1998, by and among F.Y.I. Incorporated, Banque Paribas, Bank of America Texas, N.A. and the Lenders named therein (Incorporated by reference to Exhibit 10.48 of the Company's Form 10-K filed on March 17, 1999)
10.49 -- Second Amendment to Amended and Restated Credit Agreement, dated April 13, 1999, by and among F.Y.I. Incorporated, Banque Paribas, Nations Bank, N.A. d/b/a Bank of America National Association, and Bank One, Texas, N.A. and the Lenders named therein. (Incorporated by reference to Exhibit 10.49 of the Company's Form 10-Q filed on May 13, 1999)
10.51 -- Third Amendment to Amended and Restated Credit Agreement, dated August 13, 1999, by and among F.Y.I. Incorporated and Paribas, Nations Bank, N.A. d/b/a Bank of America National Association, and Bank One, Texas, N.A. and the Lenders named therein. (Incorporated by reference to Exhibit 10.51 of the Company's Form 8-K filed on August 20, 1999)
10.53 -- Fourth Amendment, dated November 10, 1999, to the Amended and Restated Credit Agreement by and among F.Y.I. Incorporated, Paribas, Nations Bank, N.A. d/b/a Bank of America National Association, and Bank One, Texas, N.A. and the Lenders named therein (Incorporated by reference to Exhibit 10.53 to the Company's Form 10-Q filed on November 11, 1999)
10.54* -- Warrant issued to Joe A. Rose, dated May 19, 1999 (Incorporated by reference to Exhibit 4.3 of the Company's Form 10-Q filed on November 11, 1999)
10.55* -- Warrant issued to Ronald Zazworsky, dated May 19, 1999 (Incorporated by reference to Exhibit 4.4 of the Company's Form 10-Q filed on November 11, 1999)
10.56* -- Warrant issued to Timothy J. Barker, dated May 19, 1999 (Incorporated by reference to Exhibit 4.5 of the Company's Form 10-Q filed on November 11, 1999)
10.57* -- Warrant issued to Margot T. Lebenberg, dated May 19, 1999 (Incorporated by reference to Exhibit 4.6 of the Company's Form 10-Q filed on November 11, 1999)
10.58* -- Warrant issued to Gary Patton, dated May 19, 1999 (Incorporated by reference to Exhibit 4.7 of the Company's Form 10-Q filed on November 11, 1999)
10.59* -- Warrant issued to Thomas C. Walker, dated May 19, 1999 (Incorporated by reference to Exhibit 4.8 of the Company's Form 10-Q filed on November 11, 1999)
10.60* -- Warrant issued to Ed H. Bowman, Jr. dated May 19, 1999 (Incorporated by reference to Exhibit 4.9 of the Company's Form 10-Q filed on November 11, 1999)
10.61* -- Special Warrant issued to Joe A. Rose, dated May 19, 1999 (Incorporated by reference to Exhibit 5.0 of the Company's Form 10-Q filed on November 11, 1999)
10.62* -- Special Warrant issued to Timothy J. Barker, dated May 19, 1999 (Incorporated by reference to Exhibit 5.1 of the Company's Form 10-Q filed on November 11, 1999)
10.63* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Ed H. Bowman, Jr.
10.64* -- Amended and Restated Employment Agreement between F.Y.I Incorporated and Thomas C. Walker
10.65* -- Consulting Agreement between F.Y.I. Incorporated and David Lowenstein
10.66* -- Amended and Restated Employment Agreement between F.Y.I Incorporated and Margot Lebenberg
10.67* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Ron Zazworsky
10.68* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Joe A. Rose
10.69* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Timothy J. Barker
10.70* -- Amended and Restated Employment Agreement between F.Y.I Incorporated and David Byerley
10.71* -- Warrant issued to Margot T. Lebenberg, dated March 16, 2000
10.72* -- Warrant issued to Ron Zazworsky, dated March 16, 2000
10.73* -- Warrant issued to Timothy J. Barker, dated March 16, 2000
10.74* -- Warrant issued to Joe A. Rose, dated March 16,
10.75* -- Warrant issued to David Byerley, dated March 16, 2000
10.76* -- Warrant issued to Jon Shaw, dated March 16,
10.77* -- Amended and Restated Employment Agreement between F.Y.I. Incorporated and Jonathan B. Shaw
10.78 -- Fifth Amendment to Amended and Restated Credit Agreement dated April 13, 2000, by and among F.Y.I. Incorporated, Paribas, Bank of America N.A., and Bank One, Texas N.A. and the Lenders named therein.
10.79 -- Sixth Amendment to Amended and Restated Credit Agreement, dated as of July 14, 2000, by and among F.Y.I. Incorporated, BNP Paribas, Bank of America N.A., Bank One, Texas N.A. and the Lenders named therein.
10.80* -- Employment Agreement between F.Y.I. Incorporated and Barry L. Edwards
10.81* -- Letter agreement, dated July 25, 2000, between Timothy J. Barker and F.Y.I. Incorporated regarding modifications to Employment Agreement.
10.82* -- Employment Agreement dated as of August 1, 2000 between F.Y.I. Incorporated and Charles S. Gilbert.
10.83* -- Employment Agreement, dated as of September 5, 2000, between F.Y.I. Incorporated and Michael S. Rupe.
21 -- List of subsidiaries of F.Y.I. Incorporated
23.1 -- Consent of Arthur Andersen LLP
24 -- Power of Attorney (included with the signature page hereof)
* Compensatory plan or arrangement
(b) Reports on Form 8-K:
We did not file any Form 8-K Current Reports during the last quarter of the fiscal year ended December 31, 2000.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
F.Y.I. INCORPORATED
By: /s/ Ed H. Bowman, Jr. -------------------------------- Ed H. Bowman, Jr., President and Chief Executive Officer
Date: March 29, 2001
POWER OF ATTORNEY
Each person whose signature appears below hereby authorizes and constitutes Ed H. Bowman, Jr. and Charles S. Gilbert, and each of them singly, his true and lawful attorneys-in-fact with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities to sign and file any and all amendments to this report with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and he hereby ratifies and confirms all that said attorneys-in-fact or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of March 29, 2001 by the following persons on behalf of the Registrant and in the capacities indicated.
SIGNATURE CAPACITY IN WHICH SIGNED - --------- ------------------------
/s/ Thomas C. Walker - ---------------------- Chairman of the Board and Thomas C. Walker Chief Development Officer
/s/ Ed H. Bowman, Jr. - ---------------------- Director, President and Chief Ed H. Bowman, Jr. Executive Officer (Principal Executive Officer)
/s/ David Lowenstein - ---------------------- Director and Founder David Lowenstein
/s/ Joe A. Rose - ---------------------- Director, Executive Vice Joe A. Rose President and Chief Operating Officer
/s/ Barry L. Edwards - ---------------------- Executive Vice President and Barry L. Edwards Chief Financial Officer (Principal Financial and Accounting Officer)
/s/ Michael J. Bradley - ---------------------- Director Michael J. Bradley
/s/ Donald F. Moorehead, Jr. - ---------------------- Director Donald F. Moorehead, Jr.
/s/ Hon. Edward M. Rowell - ---------------------- Director Hon. Edward M. Rowell
/s/ Jonathan B. Shaw - ---------------------- Director Jonathan B. Shaw