<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities
---- Exchange Act of 1934.
For the quarterly period ended June 30, 1996
Transition report pursuant to Section 13 or 15(d) of the
---- Securities Exchange Act of 1934.
Commission file number 0-11428
INFORMATION RESOURCES, INC.
------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2947987
------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 North Clinton Street, Chicago, Illinois 60661
------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 726-1221
--------------
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
-------------------
Common, $.01 par value per share
Preferred Stock Purchase Rights
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's common stock, $.01 par value per share
outstanding, as of July 31, 1996 was 27,758,535.
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
INDEX
-----
PAGE
NUMBER
------
PART I. FINANCIAL INFORMATION
- ----------------------------------
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
- ----------------------------
Item 1 - Legal Proceedings 15
Item 4 - Submission of Matters to Vote of Security Holders 16
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1996 DECEMBER 31, 1995
- ------ ------------- -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,158 $ 24,884
Accounts receivable, net 98,461 95,862
Escrow receivable 8,000 8,000
Prepaid expenses and other 4,848 5,169
-------- --------
Total Current Assets 121,467 133,915
-------- --------
Property and equipment, at cost 143,890 136,946
Accumulated depreciation and amortization (83,303) (76,541)
-------- --------
Net property and equipment 60,587 60,405
Investments 18,736 18,791
Other assets 136,337 125,425
-------- --------
$337,127 $338,536
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
Current maturities of capitalized leases $ 2,374 $ 2,317
Accounts payable 32,918 36,214
Accrued compensation and benefits 18,277 19,812
Accrued property, payroll and other taxes 3,709 3,981
Accrued expenses 6,967 11,571
Deferred revenue 16,526 15,599
-------- --------
Total Current Liabilities 80,771 89,494
-------- --------
Long-term bank debt 9,500 --
Long-term capitalized leases 3,816 3,760
Deferred income taxes, net 6,179 8,643
Deferred gain 3,840 4,047
Other liabilities 2,987 2,838
STOCKHOLDERS' EQUITY
Preferred stock-authorized, 1,000,000 shares
$.01 par value - none issued -- --
Common stock - authorized 60,000,000 shares,
$.01 par value; 27,757,314 and
27,587,176 shares issued and
outstanding, respectively 278 276
Capital in excess of par value 186,210 183,615
Retained earnings 43,823 45,828
Cumulative translation adjustment (277) 35
-------- --------
Total Stockholders' Equity 230,034 229,754
-------- --------
$337,127 $338,536
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30 June 30
------- -------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
U.S. and International services $ 102,955 $ 90,412 $ 195,953 $ 177,364
Software products business sold to Oracle -- 18,920 -- 36,763
--------- --------- --------- ---------
102,955 109,332 195,953 214,127
Costs and expenses:
Information services (93,014) (82,144) (182,108) (162,344)
Software products business sold to Oracle -- (19,812) -- (37,763)
Selling, general and administrative expenses (9,170) (12,409) (17,548) (24,033)
--------- --------- --------- ---------
(102,184) (114,365) (199,656) (224,140)
--------- --------- --------- ---------
Operating profit (loss) 771 (5,033) (3,703) (10,013)
Interest expense and other, net (478) (1,732) (659) (2,686)
Equity in earnings (loss) of affiliated companies 17 204 (68) 155
--------- --------- --------- ---------
Earnings (loss) before income taxes and
minority interests 310 (6,561) (4,430) (12,544)
Income tax (expense) benefit (225) 2,952 2,038 5,644
--------- --------- --------- ---------
Earnings (loss) before minority interests 85 (3,609) (2,392) (6,900)
Minority interests 157 -- 387 --
--------- --------- --------- ---------
Net earnings (loss) $ 242 $ (3,609) $ (2,005) $ (6,900)
========= ========= ========= =========
Net earnings (loss) per common and
common equivalent share $ .01 $ (.13) $ (.07) $ (.26)
========= ========= ========= =========
Weighted average common and
common equivalent shares 27,753 26,826 27,703 26,721
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss: $ (2,005) $ (6,900)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Amortization of deferred data procurement costs 42,036 40,767
Depreciation 9,878 10,324
Amortization of capitalized software costs 1,693 4,597
Amortization of intangibles 1,388 2,609
Deferred income tax provision (2,038) (5,934)
Equity in earnings of affiliated companies and minority interests (319) (155)
Provision for losses on accounts receivable 157 596
Other 192 2,387
Change in assets and liabilities:
Accounts receivable (2,531) (21,451)
Other current assets 321 (1,955)
Accounts payable and accrued liabilities (9,332) 2,379
Deferred revenue (753) 16,855
Other, net (124) (1,425)
-------- --------
Total adjustments 40,568 49,594
-------- --------
Net cash provided by operating activities 38,563 42,694
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred data procurement costs (50,223) (48,404)
Purchase of property and equipment (10,235) (11,239)
Capitalized software costs (2,927) (5,043)
Investments relating to joint ventures (600) (4,812)
-------- --------
Net cash used in investing activities (63,985) (69,498)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net bank borrowings 9,500 24,750
Net borrowings (repayments) of capitalized leases (1,150) 1,124
Proceeds from exercise of stock options and other 2,576 1,236
-------- --------
Net cash provided by financing activities 10,926 27,110
EFFECT OF EXCHANGE RATE CHANGES ON CASH (230) 680
-------- --------
Net increase (decrease) in cash and cash equivalents (14,726) 986
Cash and cash equivalents at beginning of period 24,884 11,792
-------- --------
Cash and cash equivalents at end of period $ 10,158 $ 12,778
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Basis of presentation: The accompanying condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements included in Information Resources, Inc.'s Annual Report on Form
10-K for the year ended December 31, 1995. The condensed consolidated financial
information furnished herein reflects all adjustments (consisting of normal
recurring accruals) which are, in the opinion of management, necessary for a
fair presentation of the condensed consolidated financial statements for the
periods shown.
Principles of consolidation: The condensed consolidated financial statements
include the accounts of Information Resources, Inc. and its subsidiaries
(collectively "the Company") after elimination of intercompany transactions.
Reclassifications: Certain amounts in the 1995 condensed consolidated financial
statements have been reclassified to conform to the 1996 presentation.
Adoption of Statement of Financial Accounting Standards: On January 1, 1996,
the Company adopted the Statement of Financial Accounting Standards, No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of". The adoption of this Standard did not have a material impact
on the Company's consolidated financial statements.
NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
- -------------------------------------------
Cash paid (refunded) for interest and income taxes during the period was as
follows (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
1996 1995
---------- --------
<S> <C> <C>
Interest $ 893 $ 2,408
Income taxes (175) (1,064)
</TABLE>
In March 1995, Information Resources, Inc. ("IRI") and Middle East Market
Research Bureau ("MEMRB") International entered into a strategic alliance
agreement. In connection with this agreement, IRI issued common stock having a
market value of approximately $2.6 million to the stockholders of MEMRB and
obtained an option to acquire up to a 49% ownership interest in MEMRB.
6
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 3 - ACCOUNTS RECEIVABLE
- ----------------------------
<TABLE>
<CAPTION>
Accounts receivable were as follows (in thousands):
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Billed $ 61,566 $ 62,580
Unbilled 37,588 34,903
Other 3,364 2,239
-------- --------
102,518 99,722
Reserve for accounts receivable (4,057) (3,860)
-------- --------
$ 98,461 $ 95,862
======== ========
</TABLE>
NOTE 4 - OTHER ASSETS
- ---------------------
Other assets were as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
------------- -----------------
<S> <C> <C>
Deferred data procurement costs -
net of accumulated amortization of
of $103,329 in 1996 and $92,912
in 1995 $ 108,740 $ 98,602
Intangible assets, including
goodwill primarily related to
acquisitions - net of
accumulated amortization of
$10,848 in 1996 and $14,026
in 1995 12,132 13,395
Capitalized software costs -
net of accumulated amortization
of $4,644 in 1996 and $3,648 in
1995 11,091 9,857
Other 4,374 3,571
--------- --------
$ 136,337 $ 125,425
========= ========
</TABLE>
7
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 5 - ACCRUED EXPENSES
- -------------------------
In 1995, the Company decided to transition its Towne-Oller service from the use
of warehouse withdrawal data to InfoScan scanner data and close down its New
York operation. Amounts charged against the $2.9 million reserve established in
1995 for facility operating leases and severance aggregated $.7 million through
June 30, 1996.
NOTE 6 - LONG-TERM DEBT
- -----------------------
The Company increased its bank borrowings to $9.5 million at June 30, 1996. The
primary use of borrowings has been the expansion of the Company's International
services business in Europe.
In November 1995, the Company replaced its $65.0 million bank credit facility
maturing in 1997 with a new $50.0 million facility maturing in 1998, with fixed
or floating interest rate options at or below prime. Facility fees of .15% are
payable on the bank credit facility, and there are no commitment fees. The
credit facility contains financial covenants which restrict the Company's
ability to incur additional indebtedness or liens on its assets. The financial
covenants also require the Company to meet tangible net worth levels, cash flow
coverage amounts, leverage limitations and quick ratio minimums.
Certain of the Company's loan and lease agreements include various financial
covenants which require that the Company maintain a minimum tangible net worth,
as defined, and otherwise limit IRI's ability to declare dividends or make
distributions to holders of capital stock, or redeem or otherwise acquire shares
of the Company. Approximately $4.0 million is available for such distributions
under the most restrictive of these covenants.
8
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW OF OPERATIONS
Over the periods presented, the Company has generated increased revenues
resulting from the continued growth of its U.S. services business and the
startup and significant expansion of its International services business. The
U.S. revenue gains for the six months ended June 30, 1996 were achieved in spite
of an intensely competitive pricing environment that began in late 1993 and
continued through 1995. Due to the longer-term nature of most InfoScan
contracts, pricing changes have a delayed effect on the results of operations
as reported in the Company's condensed consolidated financial statements. This
lagged effect is especially apparent in the Company's U.S. operations because
only a portion of all InfoScan contracts come up for renewal in any particular
year. The development of the Company's International services business, while
generating substantial revenue growth in spite of continuing intense price
competition, has resulted in significant operating losses which will likely
continue until these operations achieve a substantially higher level of
revenues.
In July 1995, the Company completed the sale to Oracle Corporation ("Oracle")
of certain assets, liabilities and software products relating to its on-line
analytical processing (OLAP) business, the software products business previously
operated by the Company's software division. Since this business was not a
separate business segment, prior period's consolidated financial statements have
not been restated.
Ongoing business revenues in the first six months of 1996 increased over the
same period in 1995, and the Company reported net earnings for the second
quarter of 1996 and a consolidated net loss for both six month periods. A
number of factors influenced results in the first six months of 1996, including:
(a) the continued competitive environment in Europe and costs relating to the
development of the Company's International services business; (b) the effects of
price competition on past U.S. InfoScan renewals; (c) costs related to building
the Company's InfoScan Census data base and its Omega re-engineering
initiatives; (d) increased client deliverables associated with past InfoScan
contract renewals; (e) increased costs of software development efforts; and (f)
the sale of the Company's OLAP software products business to Oracle.
Based upon discussions with financial analysts and in part due to the July 1995
sale of the OLAP software products business to Oracle, the Company considers the
aggregation of operating profit (loss), equity earnings (losses) and minority
interests ("Operating Results") to be a meaningful and readily comparable
measure of the Company's relative performance. A comparative analysis of
consolidated revenues and Operating Results for the three and six months ended
June 30, 1996 and 1995 follows (in thousands):
9
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
JUNE 30 JUNE 30
------- -------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
U.S. Services $ 86,974 $ 80,762 $166,935 $158,699
International Services 15,981 9,650 29,018 18,665
-------- -------- -------- --------
Subtotal 102,955 90,412 195,953 177,364
Software products business sold to Oracle -- 18,920 -- 36,763
-------- -------- -------- --------
$102,955 $109,332 $195,953 $214,127
======== ======== ======== ========
Operating Results:
U.S. Services
Operating profit $ 8,310 $ 8,992 $ 12,596 $ 15,807
Equity in loss of affiliated companies -- -- -- (200)
-------- -------- -------- --------
Subtotal - U.S. 8,310 8,992 12,596 15,607
International Services
Operating loss (7,072) (9,332) (15,417) (17,137)
Equity in earnings (loss) of affiliated companies 17 204 (68) 355
Minority interests 157 -- 387 --
-------- -------- -------- --------
Subtotal - International (6,898) (9,128) (15,098) (16,782)
Corporate and other expenses (467) (1,618) (882) (2,879)
Software products business sold
to Oracle operating loss -- (3,075) -- (5,804)
-------- -------- -------- --------
Operating Results $ 945 $ (4,829) $ (3,384) $ (9,858)
======== ======== ======== ========
</TABLE>
In the second quarter of 1996, revenue from the Company's U.S. services
business were $87.0 million, an increase of 8% compared to $80.8 million for the
corresponding 1995 quarter. This increase was primarily the result of revenue
growth from existing clients and increased InfoScan Census revenues which more
than doubled from the 1995 quarter. Revenues from the Company's U.S. businesses
were 5% higher than in the first half of 1995, with increased 1996 data revenue
being partially offset by the effect of the previously announced close-down of
the Company's Towne-Oller service during late 1995. Operating Results for the
Company's U.S. businesses, after direct overhead charges, were $8.3 million in
the second quarter of 1996, slightly lower than the second quarter of 1995 as
revenue increases and the benefit of InfoScan cost containment programs were
offset by the cost of increased software development efforts. U.S. Operating
Results for the six months ended June 30, 1996 were $12.6 million or 19% lower
than the same period in 1995. This decrease was due to revenue gains being
offset by an 8% increase in costs related principally to the Company's Census
initiatives, software application development and client servicing requirements.
10
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Second quarter 1996 revenues from the Company's International businesses were
$16.0 million, an increase of 66% over the corresponding 1995 quarter as a
result of an increase in the number of InfoScan clients and expanded usage among
existing clients, particularly in France and Italy. International services
revenues for the six months ended June 30, 1996 increased 55% to $29.0 million
primarily as a result of significant revenue gains in France and Italy.
Operating Results for the Company's International businesses were a ($6.9)
million loss in the second quarter of 1996 compared to a ($9.1) million loss in
the corresponding 1995 quarter which has been restated to include direct
overhead. International's Operating Results were a ($15.1) million loss for the
six months ended June 30, 1996 compared to a ($16.8) million loss for the same
period of 1995 which has been restated to include direct overhead. International
results for the three and six month periods continue to reflect a difficult
competitive environment in Europe, the ramp-up of Italian operations and high
retailer costs in the U.K.
Consolidated revenues and Operating Results for the three and six months
ended June 30, 1995 included the revenues and Operating Results of the Company's
OLAP software products business subsequently sold to Oracle on July 27, 1995.
RESULTS OF OPERATIONS
Consolidated net earnings were $.2 million for the second quarter of 1996
compared to a loss of ($3.6) million for the corresponding 1995 quarter.
Consolidated net loss was ($2.0) million for the six months ended June 30, 1996
compared to a net loss of ($6.9) million for the same period of 1995.
Due to the effect of the sale of the OLAP software products business to
Oracle Corporation, consolidated revenues decreased to $103.0 million and $196.0
million for the three and six months ended June 30, 1996, respectively, compared
to $109.3 million and $214.1 million for the same periods in 1995. Consolidated
revenues for the three and six months ended June 30, 1996 were up 14% and 10%,
respectively, after adjusting revenues for the three and six months ended June
30, 1995 to remove that portion of the Company's software business that was sold
to Oracle in July 1995.
Consolidated costs of information services increased 13% to $93.0 million for
the three months ended June 30, 1996 compared to $82.1 million for the same
period in 1995. Consolidated costs of information services increased 12% to
$182.1 million for the six months ended June 30, 1996 compared to $162.3 million
for the same period in 1995. The increase in the first six months of 1996 was
primarily due to: (a) a $8.9 million increase in U.S. services compensation
expense resulting primarily from higher headcount required for software
development and client servicing; (b) a $6.6 million increase in International
services compensation expense resulting from the continued expansion of
operations; (c) a $1.8 million increase in depreciation and computer expenses
11
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
required to deliver increasing levels of InfoScan services in Europe and the
U.S.; and (d) a $1.3 million increase in amortization of deferred data
procurement costs, principally resulting from the expansion of the information
services business in Europe. The increase in computer operations were required
to support the Company's Census product initiative and its production re-
engineering and cost reduction project.
Consolidated results for the three and six months ended June 30, 1995
included the operations of the software products business which was sold to
Oracle. This part of the software business reported costs of software products
sold of $19.8 million and $37.8 million for the three and six months ended June
30, 1995. Consolidated results for the three and six months ended June 30, 1995
included a pre-tax loss of ($3.1) million and ($5.8) million, respectively, from
this software products business sold to Oracle.
Consolidated selling, general and administrative expenses decreased $3.2
million to $9.2 million for the second quarter of 1996 and decreased $6.5
million to $17.5 million for the six months ended June 30, 1996. Excluding
that portion of selling, general and administrative expenses attributable to
the software products business sold to Oracle, consolidated selling, general
and administrative expenses decreased $1.1 million or 10% for the first quarter
of 1996 and decreased $1.7 million or 9% for the six months ended June 30, 1996
compared to the same periods of 1995. These decreases were primarily
attributable to cost reduction programs.
Interest and other expenses, net for the second quarter of 1996 was $.5
million compared to $1.7 million for the corresponding 1995 quarter. Interest
and other expenses, net for the six months ended June 30, 1996 and 1995 were $.7
million and $2.7 million, respectively. The decreases from 1995 amounts are
principally due to borrowings in the first half of 1995 being paid off following
the transaction with Oracle.
The Company's effective income tax rate is greater than the Federal statutory
rate due to certain unbenefitted foreign losses, goodwill amortization and other
nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements continue to be extensive, primarily caused by
losses incurred in the expansion of its information services in Europe. The
Company's current cash resources include its $10.2 million consolidated cash
balance, $40.5 million available under the bank line of credit and internally
generated funds from its U.S. operations. The Company anticipates that it will
have sufficient funds from these sources to satisfy its capital needs for the
foreseeable future. Bank line availability is subject to compliance with
covenants relating to tangible net worth levels, cash flow coverage amounts,
leverage limitations and quick ratios.
12
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Certain of the Company's loan and lease agreements include various financial
covenants which require that the Company maintain a minimum tangible net worth,
as defined, and otherwise limit IRI's ability to declare dividends or make
distributions to holders of capital stock, or redeem or otherwise acquire shares
of the Company. Approximately $4.0 million is available for such distributions
under the most restrictive of these covenants.
Cash Flow: Consolidated net cash provided by operating activities was $38.6
million for the six months ended June 30, 1996 compared to $42.7 million for the
same period in 1995. Cash provided by operating activities decreased primarily
due to a higher investment in net working capital in 1996 compared to 1995
partially offset by improved operating performance in 1996. Consolidated cash
used in net investing activities was ($64.0) million in 1996 compared to ($69.5)
million for the same period in 1995. The decrease in consolidated investing
activities in 1996 compared to 1995 was primarily due to 1995 investments in
joint ventures. Net cash used before financing activities was ($25.4) million
for the six months ended June 30, 1996 and ($26.8) million for the same period
of 1995. Consolidated cash provided by net financing activities was $10.9
million for the six months ended June 30, 1996 compared to $27.1 million for the
same period in 1995. The net financing activities primarily reflect bank
borrowings used to fund the Company's continuing development of its
International services business.
Financings: The Company increased its bank borrowings to $9.5 million at June
30, 1996. The primary use of borrowings has been the expansion of the Company's
information services business in Europe.
Other Deferred Costs and Capital Expenditures: Consolidated deferred data
procurement expenditures were $50.2 million for the six months ended June 30,
1996 and $48.4 million for the same period in 1995. These expenditures are
amortized over a period of 28 months and include payments to retailers for
point-of-sale data and costs related to collecting, reviewing and verifying
other data (i.e., causal factors) which are an essential part of the InfoScan
data base. Deferred data procurement expenditures for the Company's U.S.
services business were $33.4 million and $32.1 million for the periods ended
June 30, 1996 and 1995, respectively. The Company's International services
business deferred data procurement expenditures were $16.8 million and $16.3
million for the six months ended June 30, 1996 and 1995, respectively. The
Company's European operations will continue to require substantial
investment in data procurement costs. Based upon currently projected
operating results and cash flows, the Company's assessment is that the
realizability of these assets is not impaired. To the extent that actual
operating results and cash flows are lower than these projections,
the Company may be required to write down a portion of these assets.
13
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Consolidated capital expenditures were $10.2 million and $11.2 million for
the six months ended June 30, 1996 and 1995, respectively. Capital expenditures
for the Company's U.S. services business were $7.8 million and $8.4 million for
the six months ended June 30, 1996 and 1995, respectively, while related
depreciation expense was $7.9 million and $8.8 million, respectively. The
Company's International services business capital expenditures were $2.4 million
and $2.8 million for the six months ended June 30, 1996 and 1995, respectively,
while related depreciation expense was $2.0 million and $1.5 million,
respectively.
Consolidated capitalized software development costs were $2.9 million and
$5.0 million for the six months ended June 30, 1996 and 1995, respectively. Due
to the sale of the software products business to Oracle, software development
costs declined from historical levels.
NOL Carryforwards: As of December 31, 1995, the Company had cumulative
Federal net operating loss ("NOL") carryforwards of approximately $41.1 million
that expire primarily in 2009 and 2010. In addition, at December 31, 1995,
various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards
for foreign income tax purposes of approximately $3.9 million which are subject
to various income tax provisions of each respective country. Approximately $2.7
million of these foreign NOL's may be carried forward indefinitely while the
remaining $1.2 million expire in 1999 and 2000. A majority of the European
foreign pre-tax losses are deducted as partnership losses in IRI's consolidated
U.S. income tax return in accordance with the Internal Revenue Code.
14
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On July 29, 1996, IRI filed an action against The Dun & Bradstreet
Corp. ("D&B"), A.C. Nielsen Co. ("Nielsen") and IMS International, Inc.
("IMS") in the United States District Court for the Southern District
of New York entitled Information Resources, Inc. v. The Dun &
Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleges
that, among other things, the Defendants violated Sections 1 and 2 of
the Sherman Act, 15 U.S.C. (S)(S) 1 and 2, by engaging in a series of
anti-competitive practices aimed at excluding IRI from various export
markets for retail tracking services and regaining monopoly power in
United States market for such services. These practices included: i)
entering into exclusionary contracts with retailers in several
countries in order to restrict IRI's access to sales data necessary to
provide retail tracking services; ii) illegally tying services in
markets over which Defendants' had monopoly power with services in
markets in which Nielsen competed with IRI; iii) predatory pricing; iv)
acquiring foreign market competitors with the intent of impeding IRI's
efforts at export market expansion; v) tortiously interfering with IRI
contracts and relationships with clients, joint venture partners and
other market research companies; and vi) disparaging IRI to financial
analysts and clients.
The Action follows legal proceedings by the Canadian Competition
Tribunal and the European Commission against Nielsen for its anti-
competitive practices. On August 30, 1995, following a full hearing,
the Canadian Competition Tribunal issued an Order and Reasons for Order
against Nielsen in In Re: The D&B Companies of Canada Ltd. concluding
that Nielsen had engaged in "anti-competitive acts" with the express
intent "to exclude potential competitors generally and IRI
specifically" from the Canadian retail tracking services market. On May
4, 1996, the European Commission issued a "Statement of Objections"
against Nielsen, following an 18 month investigation, alleging that
Nielsen had infringed Article 86 of the Treaty of Rome through several
practices undertaken intentionally as part of a strategy to exclude IRI
from the European markets for retail tracking services.
By the Action, IRI seeks to enjoin Defendants anti-competitive
practices and to recover damages in excess of $350 million, prior to
trebling.
15
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders.
a. The annual meeting of Stockholders of the Company was held May 23,
1996.
b. Without solicitation in opposition, the nominees listed in the proxy
statement soliciting proxies were elected as directors to serve for
a three-year term ending in 1999 as follows:
<TABLE>
<CAPTION>
Name Votes For Votes Withheld
-------- ---------- --------------
<S> <C> <C>
James G. Andress 24,666,431 337,402
Edwin E. Epstein 24,667,025 336,808
Edward E. Lucente 24,667,135 336,698
Jeffrey P. Stamen 24,667,268 336,565
</TABLE>
Following is the name of each other director whose term of office as
a director continued after the meeting for terms ending in either
1997 or 1998: Gerald J. Eskin, Ph.D., John D. C. Little, Ph.D.,
George G. Montgomery, Jr., Glen L. Urban, Ph.D., Gian M. Fulgoni,
Leonard M. Lodish, Ph.D., Edith W. Martin, Ph.D. and Thomas W.
Wilson, Jr. In June 1996, George G. Montgomery Jr. resigned as a
director.
c. The adoption of the 1996 Stock Plan for Non-Employee Directors in
Lieu of Cash Retainer was approved as follows:
Votes For Votes Against Votes Withheld Broker Non-Votes
--------- ------------- -------------- ----------------
23,688,553 870,549 128,938 315,793
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
27 Financial Data Schedule (filed herewith). EF
b. Reports on Form 8-K.
The registrant has not filed any reports on Form 8-K during the
quarter for which this report is filed.
16
<PAGE>
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INFORMATION RESOURCES, INC.
---------------------------
(Registrant)
/s/ Gary M. Hill
--------------------------------------
Gary M. Hill
Executive Vice President
and Chief Financial Officer
(Authorized officer of Registrant and
principal financial officer)
/s/ John P. McNicholas, Jr.
--------------------------------------
John P. McNicholas, Jr.
Controller
(Principal accounting officer)
August 14, 1996
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 10,158
<SECURITIES> 0
<RECEIVABLES> 110,518
<ALLOWANCES> (4,057)
<INVENTORY> 0
<CURRENT-ASSETS> 121,467
<PP&E> 143,890
<DEPRECIATION> (83,303)
<TOTAL-ASSETS> 337,127
<CURRENT-LIABILITIES> 80,771
<BONDS> 13,316
<COMMON> 278
0
0
<OTHER-SE> 229,756
<TOTAL-LIABILITY-AND-EQUITY> 337,127
<SALES> 0
<TOTAL-REVENUES> 195,953
<CGS> 0
<TOTAL-COSTS> 182,108
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,045
<INCOME-PRETAX> (4,430)
<INCOME-TAX> 2,038
<INCOME-CONTINUING> (2,005)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,005)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
