<PAGE> 1
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 September 30, 2000
-- 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
--------------
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 October 31, 2000 was 28,974,773.
<PAGE> 2
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
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 14
PART II. OTHER INFORMATION
Item 6 -- Exhibits and Reports Form 8-K 22
Signatures 23
</TABLE>
2
<PAGE> 3
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 2000 DECEMBER 31, 1999
------ ------------------ -----------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ................................................. $ 12,937 $ 8,077
Accounts receivable, net .................................................. 78,495 94,125
Prepaid expenses and other ................................................ 8,920 8,569
--------- ---------
Total Current Assets ................................................. 100,352 110,771
--------- ---------
Property and equipment, at cost ................................................ 218,261 204,535
Accumulated depreciation ....................................................... (143,713) (123,550)
--------- ---------
Net property and equipment ..................................................... 74,548 80,985
Investments .................................................................... 16,366 9,624
Other assets ................................................................... 164,844 167,100
--------- ---------
$ 356,110 $ 368,480
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of capitalized leases .................................. $ 1,902 $ 55
Accounts payable .......................................................... 42,398 49,616
Accrued compensation and benefits ......................................... 13,802 23,838
Accrued property, payroll and other taxes ................................. 2,810 4,813
Accrued expenses .......................................................... 13,393 11,475
Accrued restructuring costs ............................................... 6,088 8,885
Deferred revenue .......................................................... 27,043 23,163
--------- ---------
Total Current Liabilities ............................................ 107,436 121,845
--------- ---------
Long-term debt ................................................................. 28,291 10,764
Deferred income taxes, net ..................................................... -- 2,269
Other liabilities .............................................................. 7,556 8,627
STOCKHOLDERS' EQUITY
Preferred stock -- authorized, 1,000,000 shares,
$.01 par value; none issued .......................................... -- --
Common stock -- authorized 60,000,000 shares,
$.01 par value, 28,974,773 and
29,068,657 shares issued and outstanding, respectively ............... 291 291
Additional paid-in capital ................................................ 198,703 198,863
Retained earnings ......................................................... 26,251 31,390
Accumulated other comprehensive loss ...................................... (12,418) (5,569)
--------- ---------
Total Stockholders' Equity ........................................... 212,827 224,975
--------- ---------
$ 356,110 $ 368,480
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Information services revenues ........................................ $ 131,672 $ 136,092 $ 394,744 $ 405,684
Costs and expenses:
Information services sold ......................................... (114,581) (121,322) (353,403) (366,371)
Selling, general and administrative expenses ...................... (13,052) (12,849) (40,294) (38,772)
Restructuring and other charges ................................... (3,157) -- (8,796) --
--------- --------- --------- ---------
(130,790) (134,171) (402,493) (405,143)
--------- --------- --------- ---------
Operating profit (loss) .............................................. 882 1,921 (7,749) 541
Equity in earnings (loss) of affiliated companies .................... (583) 84 (313) 180
Minority interest benefit ............................................ 487 1,170 2,336 3,455
Interest expense and other, net ...................................... (1,282) (501) (2,793) (1,091)
--------- --------- --------- ---------
Earnings (loss) before income taxes .................................. (496) 2,674 (8,519) 3,085
Income tax (expense) benefit ......................................... (102) (1,346) 3,380 (1,540)
--------- --------- --------- ---------
Net earnings (loss) .................................................. $ (598) $ 1,328 $ (5,139) $ 1,545
========= ========= ========= =========
Net earnings (loss) per common share -- basic ........................ $ (.02) $ .05 $ (.18) $ .06
========= ========= ========= =========
Net earnings (loss) per common and
common equivalent share -- diluted ............................... $ (.02) $ .05 $ (.18) $ .06
========= ========= ========= =========
Weighted average common shares -- basic .............................. 29,046 28,120 29,061 28,022
========= ========= ========= =========
Weighted average common and
common equivalent shares -- diluted .............................. 29,046 28,267 29,061 28,081
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) .............................................................. $ (5,139) $ 1,545
Adjustments to reconcile net earnings (loss) to net cash provided by
operating activities:
Amortization of deferred data procurement costs ............................. 89,996 89,655
Depreciation ................................................................ 22,224 19,985
Amortization of capitalized software costs and intangibles .................. 4,508 5,086
Restructuring and other charges, net of cash payments ....................... (1,912) --
Deferred income tax (benefit) expense ....................................... (3,380) 1,540
Equity in earnings of affiliated companies and minority interests ........... (2,023) (3,635)
Other ....................................................................... 225 (1,187)
Change in assets and liabilities:
Accounts receivable ....................................................... 15,957 1,146
Other current assets ...................................................... (351) (1,179)
Accounts payable and accrued liabilities .................................. (18,186) 937
Deferred revenue .......................................................... 3,880 11,452
Other, net ................................................................ (4,761) 4,095
--------- ---------
Net cash provided by operating activities ........................... 101,038 129,440
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred data procurement costs .................................................. (92,867) (98,098)
Purchase of property, equipment and software ..................................... (13,259) (24,569)
Investment in joint venture ...................................................... (1,940) --
Capitalized software costs ....................................................... (1,490) (5,457)
Other, net ....................................................................... 994 3,414
--------- ---------
Net cash used in investing activities ............................... (108,562) (124,710)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) ...................................................... 13,790 (1,588)
Purchases of Common Stock ........................................................ (675) (1,036)
Proceeds from exercise of stock options and other ................................ -- 871
--------- ---------
Net cash provided by (used in) financing activities ................. 13,115 (1,753)
--------- ---------
EFFECT OF EXCHANGE RATE CHANGES ON CASH .......................................... (731) (771)
--------- ---------
Net increase in cash and cash equivalents ........................... 4,860 2,206
Cash and cash equivalents at beginning of period ............................... 8,077 11,149
--------- ---------
Cash and cash equivalents at end of period ..................................... $ 12,937 $ 13,355
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
Principles of consolidation: The condensed consolidated financial
statements include the accounts of Information Resources, Inc. and all
wholly or majority owned subsidiaries and affiliates (collectively "the
Company"). Minority interests reflect the non-Company owned stockholder
interests in international operations. The equity method of accounting is
used for investments in which the Company has a 20% to 50% ownership
interest because it exercises significant influence over operating and
financial policies. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Interim financial statements: The interim financial statements are
unaudited, but include all adjustments (consisting of normal recurring
adjustments) necessary, in the opinion of management, for a fair statement
of financial position and results of operations for the period presented.
The preparation of interim financial statements necessarily relies on
estimates, requiring the use of caution in estimating results for the full
year based on interim results of operations.
Reclassifications: Certain amounts in the 1999 condensed
consolidated financial statements have been reclassified to conform to the
2000 presentation.
Earnings (Loss) per Common and Common Equivalent Share: Net
earnings (loss) per share is based upon the weighted average number of
shares of common stock outstanding during each period. Net earnings (loss)
per common and common equivalent share-diluted is based upon the weighted
average number of shares of common stock and common stock equivalents,
entirely comprised of stock options, outstanding during each period. In
2000, common stock equivalents were excluded from the weighted average
shares outstanding calculation because they were anti-dilutive.
NOTE 2 -- SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid (received) for interest and income taxes during the
period was as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 30,
-------------
2000 1999
---- ----
<S> <C> <C>
Interest $2,529 $770
Income taxes (277) 130
</TABLE>
Non-cash investing and financing activities are excluded from the
consolidated statement of cash flows. During the nine months ended
September 30, 2000, the Company acquired mainframe computer equipment in
exchange for a capital lease obligation recorded at $5.6 million. The
Company repaid a portion of the capital lease obligation during the second
and third quarters of 2000.
6
<PAGE> 7
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 3 -- ACCOUNTS RECEIVABLE
Accounts receivable were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Billed $60,514 $73,605
Unbilled 21,293 24,294
------ ------
81,807 97,899
Reserve for accounts receivable (3,312) (3,774)
------- -------
$78,495 $94,125
======= =======
</TABLE>
NOTE 4 -- OTHER ASSETS
Other assets were as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Deferred data procurement costs --
net of accumulated amortization of
$138,189 in 2000 and $141,531 in 1999 $137,864 $140,285
Intangible assets, including goodwill --
net of accumulated amortization of
$11,390 in 2000 and $15,050 in 1999 9,688 11,659
Capitalized software costs -- net of
accumulated amortization of $5,756
in 2000 and $3,149 in 1999 6,682 7,799
Other 10,610 7,357
-------- --------
$164,844 $167,100
======== ========
</TABLE>
7
<PAGE> 8
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 5 -- LONG TERM DEBT
Long-term debt was as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------ -----------------
<S> <C> <C>
Bank borrowings $24,750 $10,000
Capitalized leases and other 5,443 819
------- -------
30,193 10,819
Less current maturities (1,902) (55)
------- -------
$28,291 $10,764
======= =======
</TABLE>
The financial covenants in the bank credit agreement, as well as
in the lease agreement for the Company's Chicago headquarters, require the
Company to maintain a minimum tangible net worth and to meet certain cash
flow coverage and leverage ratios. The agreements also limit the Company's
ability to declare dividends or make distributions to holders of capital
stock, or redeem or otherwise acquire shares of the Company. Approximately
$4.6 million is currently available for such distributions under the most
restrictive of these covenants. The bank credit agreement contains
covenants that restrict the Company's ability to incur additional
indebtedness.
NOTE 6 -- COMPREHENSIVE INCOME (LOSS)
The comprehensive income (loss) summary shown below sets forth
certain items that affect stockholders' equity but are excluded from the
presentation of net earnings. The components of comprehensive income (loss)
were as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) $ (598) $1,328 $ (5,139) $ 1,545
Foreign currency translation
adjustment (3,062) 2,105 (6,849) (2,080)
------- ----- -------- -------
Comprehensive income (loss) $(3,660) $3,433 $(11,988) $ (535)
======= ====== ======== =======
</TABLE>
8
<PAGE> 9
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 7 -- STOCK REPURCHASE
During the third quarter of 2000, the Company began acquiring
shares of its common stock in connection with a stock repurchase program
announced in August 2000. The program, approved by the Company's Board of
Directors, authorizes the periodic repurchase of up to 1,000,000 shares of
its common stock on the open market, or in privately negotiated
transactions, depending upon market conditions and other factors. The
Company purchased 102,200 shares of common stock aggregating $.7 million
during the third quarter of 2000. The shares are currently being held in
treasury and will be sold to employees in connection with the Company's
Employee Stock Purchase Plan.
NOTE 8 -- JOINT VENTURE
During the third quarter of 2000, the Company and Mosaic Group
Inc. organized a joint venture company, Mosaic InfoForce, L.P. (MIF), in
which the Company currently has a 49% ownership interest and Mosaic Group
Inc. owns the remainder. The Company's domestic data collection, audit and
merchandising business will be operated by MIF. The Company's investment of
$1.9 million in MIF is being accounted for using the equity method of
accounting.
NOTE 9 -- SEGMENT INFORMATION
The Company's business information services are conducted almost
exclusively in the United States and Europe. The Company's operations in
other markets account for approximately 1% of consolidated revenues. The
executive management of the Company considers revenues from third parties
and the aggregation of operating profit (loss), equity earnings (losses)
and minority interests, ("Operating Results"), on a geographic basis to be
the most meaningful measure of the operating performance of each respective
geographic segment and of the Company as a whole.
9
<PAGE> 10
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
The following table presents certain information regarding the
operations of the Company by geographic segments (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
U.S. Services $98,589 $103,627 $298,369 $311,580
International Services 33,083 32,465 96,375 94,104
-------- -------- -------- --------
Total Revenue $131,672 $136,092 $394,744 $405,684
======== ======== ======== ========
Operating Results:
U.S. Services $6,020 $8,536 $ 14,580 $ 20,779
International Services
Operating Loss (1,320) (3,350) (6,278) (12,561)
Equity in earnings of affiliated companies 157 84 427 180
Minority interest benefit International Services 487 1,170 2,336 3,455
-------- -------- -------- --------
(676) (2,096) (3,515) (8,926)
Corporate and other expenses (661) (3,265) (7,255) (7,677)
Equity in losses of affiliated companies (740) - (740) -
Restructuring and other charges (a) (3,157) - (8,796) -
-------- -------- -------- --------
Operating Results 786 3,175 (5,726) 4,176
Interest expense and other, net (1,282) (501) (2,793) (1,091)
-------- -------- -------- --------
Earnings (loss) before income taxes $ (496) $ 2,674 $ (8,519) $ 3,085
======== ======== ======== ========
</TABLE>
(a) Restructuring and other charges for the U.S. Services, International
and Corporate were $1.2 million, $2.0 million and $0 million, respectively,
for the three months ended September 30, 2000 and $5.4 million, $4.3
million and $(0.9) million, respectively, for the nine months ended
September 30, 2000.
10
<PAGE> 11
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
NOTE 10 -- RESTRUCTURING AND OTHER CHARGES
RESTRUCTURING
In the third quarter of 1999, the Company initiated a
comprehensive cost reduction program named Project Delta. The first phase
of Project Delta included the identification and assessment of potential
operating efficiencies in the Company's various U.S. functional areas and
was completed in the fourth quarter of 1999. The cost reduction program
implementation began in the first quarter of 2000, with cost savings of
approximately $11.0 million to $13.0 million achieved year to date.
Certain restructuring costs were not eligible for accrual in 1999
and were recorded in the first three quarters of 2000. For the quarter and
year to date September 30, 2000, the restructuring charges included in
Restructuring and Other Charges in the Statement of Operations consist of
the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------ ------------------
<S> <C> <C>
Termination benefits $ 730 $3,406
Discontinued activities 1,603 1,603
Disposition of excess office space (231) 519
Transition of German Production to
U.S. facility 980 3,179
Other costs of project 75 997
------ ------
$3,157 $9,704
------ ------
</TABLE>
A restructuring accrual was established in the fourth quarter of
1999 to reflect the outstanding obligations related to the fourth quarter
1999 restructuring charges. The following table reflects the additional
restructuring charges incurred in the first three quarters of 2000 and all
cash payments made to date (in thousands):
11
<PAGE> 12
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
<TABLE>
<CAPTION>
2000 ACTIVITY
-------------------------------------
LIABILITY AT LIABILITY AT
DECEMBER 31, 1999 PROVISION CASH SEPTEMBER 30, 2000
----------------- --------- ---- ------------------
<S> <C> <C> <C> <C>
Termination benefits $8,391 $3,406 $ (7,035) $4,762
Discontinued activities -- 928 -- 928
Disposition of excess office space 494 (114) (371) 9
Transition of German production to
U.S. facility -- 3,179 (2,790) 389
Other costs of project -- 997 (997) --
------ ------ -------- ------
8,885 8,396 (11,193) 6,088
Non-cash provision -- 1,308 -- --
------ ------ -------- ------
$8,885 $9,704 $(11,193) $6,088
====== ====== ======== ======
</TABLE>
Termination Benefits: In the fourth quarter of 1999, the Company
expected to terminate 325 full-time positions during 2000 impacting
virtually all areas of the U.S. business, including operations, client
services, technology and marketing, as well as Corporate headquarters. As
of September 30, 2000, $7.0 million of accrued termination benefits have
been disbursed and through October 31, 2000, 253 employees have been
terminated under various Project Delta initiatives. Additional provisions
have been made throughout the year to cover retention and relocation
incentive costs that were not eligible for accrual at December 31, 1999.
Discontinued Activities: During the third quarter of 2000, the
Company ceased operations of entities in Japan (IRI Apollo K.K.) and
Australia (Information Resources Australia Pty, Ltd.) which were
responsible for distributing Apollo software. The Company has entered into
agreements with its 40% owned affiliate, Information Resources Japan Ltd.
and an unrelated company in Australia to distribute its Apollo software. In
connection with the cessation of local operations, the Company reserved $.3
million and $.6 million, respectively, relating to the Japan and Australia
businesses.
During the third quarter of 2000, it was determined that certain
equipment used by the Company's field staff to collect retail information
will no longer be utilized after the second quarter of 2001. Accordingly,
the Company recognized a non-cash charge of $1.1 million in the third
quarter of 2000 relating to accelerated depreciation on this equipment.
Disposition of Excess Office Space: As a result of planned
headcount reductions and space not currently utilized, the Company has
decided to vacate certain facilities. The Company recorded $.6 million of
charges relating to accelerated depreciation on leasehold improvements and
furniture and fixtures and $(.1) million in lease buyouts associated with
these facilities in the first nine months of 2000.
12
<PAGE> 13
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D.
(UNAUDITED)
Transition of German Production to U.S. Facility: The Company made
a decision in the fourth quarter of 1999 to transfer production services
for IRI/GfK Retail Services GmbH from an external vendor in Germany to the
Company's U.S. headquarter facility in order to enhance its InfoScan
offering in Germany and to reduce future production costs. As of September
30, 2000, charges of approximately $3.2 million were recorded related to
this transition.
Other Restructuring Costs: Other restructuring costs relate
primarily to the final fees paid to the Boston Consulting Group for
assistance in the identification and execution of the Project Delta
objectives.
OTHER CHARGES
In the fourth quarter of 1999, Restructuring and Other Charges
included a $0.9 million charge for a non-current receivables reserve. This
reserve was reversed in the second quarter of 2000 pursuant to a settlement
agreement reached with the other party.
13
<PAGE> 14
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following narrative discusses the results of operations,
liquidity and capital resources for the Company on a consolidated basis.
This section should be read in conjunction with IRI's Annual Report on Form
10-K for the fiscal year ended December 31, 1999. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained therein.
RESULTS OF OPERATIONS
The Company's consolidated net loss was $.6 million or $.02 per
diluted share for the third quarter of 2000 compared to consolidated net
income of $1.3 million or $0.05 per diluted share for the corresponding
1999 quarter. The Company's consolidated net loss was $5.1 million or $.18
per diluted share for the nine months ended September 30, 2000 compared to
consolidated net income of $1.5 million or $0.06 per diluted share for the
corresponding 1999 period. Excluding restructuring and other charges, net
income for the quarter was $1.3 million or $.05 per diluted share and year
to date 2000 net income was $.1 million.
Third Quarter Versus Prior Year
Consolidated revenues for the quarter ended September 30, 2000
were $131.7 million, a decrease of 3.2% over the corresponding quarter in
1999. U.S revenues were $98.6 million, a decrease of 4.9% compared to the
prior year due to the impact of client losses experienced in 1999, delays
in the delivery of client projects that have since been corrected with a
capacity upgrade and client consolidation activity. International revenues
increased 1.9% to $33.1 million. Excluding foreign exchange effects,
European revenues for the third quarter, which comprise 98% of total
international revenues, increased 20.0% over the prior year reflecting
continued strong revenue growth in most of the European businesses.
Consolidated costs of information services sold decreased 5.6% to
$114.6 million for the three months ended September 30, 2000 compared to
costs of $121.3 million for the third quarter of 1999. The decline in
expenses resulted from the Company's cost reduction initiative, Project
Delta, lower U.S. revenues, adjustments during the third quarter of 2000 to
personnel expense accruals and the continued strengthening of the U.S.
dollar against European currencies. These savings were offset slightly by
increased costs related to the investment in the Company's CPGNetwork
internet-based delivery service and other strategic opportunities.
Consolidated selling, general and administrative expenses
increased 1.6% to $13.1 million for the three months ended September 30,
2000 compared to $12.8 million for the third quarter of 1999.
14
<PAGE> 15
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Earnings before interest and taxes, excluding restructuring and
other charges of $3.2 million, was $3.9 million for the third quarter of
2000 compared to $3.2 million in the prior year. Improvements in the
performance of the international operations and reduced U.S. expenses
offset the decline in U.S. revenues.
Restructuring and other charges are discussed below. Equity in
earnings (losses) of affiliated companies were $(.6) million for the third
quarter of 2000 compared to $.08 million in the prior year due to the
Company's recognition of its share of the Mosaic InfoForce, L.P. start up
costs. Interest and other expenses were $1.3 million for the third quarter
of 2000 compared to $0.5 million in the prior year due to higher bank
borrowings during 2000 and increased foreign currency exchange losses
resulting from the continued strength of the U.S. dollar against European
currencies in 2000.
Third Quarter Year To Date Versus Prior Year
Consolidated revenues were $394.7 million for the nine months
ended September 30, 2000, a decrease of 2.7% over the corresponding period
of 1999. U.S. business revenues decreased 4.2% to $298.4 million for the
nine months ended September 30, 2000 compared to the prior year. The
decline was due to the impact on the current period's revenues of 1999
client losses and delays in the delivery of client projects during the
third quarter of 2000 that the Company has corrected with a capacity
upgrade. International revenues were up 2.4% to $96.4 million over the
first three quarters of 1999. Excluding the impact of foreign exchange
rates, European revenues for the first nine months of 2000, which comprise
97% of total international revenues, increased 16.0% over the prior year.
Consolidated costs of information services sold decreased 3.5% to
$353.4 million for the nine months ended September 30, 2000 compared to
costs of $366.4 million for the first nine months of 1999. Expenses
declined primarily due to lower U.S. revenues, savings achieved through the
Project Delta cost reduction initiative and the continued strengthening of
the U.S. dollar against European currencies. These savings were offset
slightly by increased costs related to the investment in the Company's
CPGNetwork internet-based delivery service and other strategic
opportunities.
Consolidated selling, general and administrative expenses
increased 3.9% to $40.3 million for the nine months ended September 30,
2000 compared to $38.8 million for the first nine months of 1999. The
increase is primarily attributable to the costs incurred during 2000 to
pursue new strategic opportunities for the Company, including
internet-based business initiatives.
For the first nine months of 2000, the Company's earnings before
interest and taxes, excluding restructuring and other charges of $8.8
million, was $3.1 million compared to operating income of $4.2 million in
the prior year. Results were below prior year because of the delayed
financial impact of 1999 U.S. client losses on revenues partially offset by
improved international performance and reduced U.S. expenses resulting from
the Company's Project Delta cost reduction initiatives.
15
<PAGE> 16
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Restructuring and other charges are discussed below. Interest and
other expenses were $2.8 million for the nine months ended September 30,
2000 compared to $1.1 million in the prior year due to higher bank
borrowings during 2000 and increased foreign currency exchange losses
resulting from the continued strength of the U.S. dollar against European
currencies in 2000. The Company's effective income tax rate is greater than
the U.S. Federal statutory rate due to certain unbenefited foreign losses,
goodwill amortization and other nondeductible expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current cash resources include its $12.9 million
consolidated cash balance and $34.1 million available under the Company's
bank revolving credit facility. The Company anticipates that it will have
sufficient funds from these sources and internally generated funds from its
U.S. operations to satisfy its cash needs for the foreseeable future.
Financings
The financial covenants in the bank credit agreement, as well as
in the lease agreement for the Company's Chicago headquarters, require the
Company to maintain a minimum tangible net worth and to meet certain cash
flow coverage and leverage ratios. The agreements also limit the Company's
ability to declare dividends or make distributions to holders of capital
stock, or redeem or otherwise acquire shares of the Company. Approximately
$4.6 million is currently available for such distributions under the most
restrictive of these covenants. The bank credit agreement also contains
covenants that restrict the Company's ability to incur additional
indebtedness.
Cash Flow
Consolidated net cash provided by operating activities was $101.0
million for the nine months ended September 30, 2000 compared to $129.4
million for the same period in 1999. This reduction was primarily
attributable to lower earnings resulting from restructuring charges and the
timing of payments of accounts payable and accrued liabilities.
Consolidated cash flow used in net investing activity was $108.6 million in
2000 compared to $124.7 million for the same period in 1999. Net investing
activity in 2000 includes the Company's initial $1.9 million investment in
the Mosaic InfoForce, L.P. joint venture. During the third quarter of 2000,
the Company repurchased 102,200 shares of common stock aggregating $.7
million. The shares are currently being held in treasury and will be sold
to employees in connection with the Company's Employee Stock Purchase Plan.
Net cash provided by financing activities was $13.1 million for the nine
months ended September 30, 2000 compared to net cash used of $1.8 million
for the same period in 1999. Consolidated cash flow provided by financing
activities reflects borrowings of $14.8 million under its revolving line of
credit in 2000 compared to $2.3 million in the prior year.
16
<PAGE> 17
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Other Deferred Costs and Capital Expenditures
Consolidated deferred data procurement expenditures were $92.9
million for the nine months ended September 30, 2000 and $98.1 million for
the same period in 1999. These expenditures are amortized over a period of
28 months and include payments and services to retailers for point-of-sale
data and other costs related to collecting, reviewing and verifying panel,
causal and other data which are an essential part of the Company's
database. Such expenditures were $54.9 million and $61.2 million for the
periods ended September 30, 2000 and 1999, respectively, for the Company's
U.S. services business and $38.0 million and $36.9 million, respectively,
for the Company's International services business.
Consolidated capital expenditures were $13.3 million and $24.6
million for the nine months ended September 30, 2000 and 1999,
respectively. Capital expenditures for the Company's U.S. services business
were $9.3 million and $20.7 million, while depreciation expense was $18.8
million and $16.6 million for the nine months ended September 30, 2000 and
1999, respectively. Additionally, the Company acquired mainframe computer
equipment in exchange for a capital lease obligation recorded at $5.6
million during the current year. Capital expenditures in the prior year
included computer hardware and software purchases required for Year 2000
compliance. The Company's International services business capital
expenditures were $4.0 million and $3.9 million, while depreciation expense
was $3.4 million for each of the nine months ended September 30, 2000 and
1999.
Consolidated capitalized software development costs, primarily in
the U.S., were $1.5 million and $5.5 million for the nine months ended
September 30, 2000 and 1999, respectively.
Impact of Inflation
Inflation has slowed in recent years, however the Company's
results of operations are impacted by rising prices given the labor
intensive nature of the business. To the extent permitted by competitive
conditions, the Company passes increased costs on to customers by adjusting
sales prices and, in the case of multi-year contracts, through consumer
price index provisions in such agreements.
RESTRUCTURING CHARGES
In the third quarter of 1999, the Company initiated a
comprehensive program named Project Delta, with the objective to improve
productivity and operating efficiencies to reduce the Company's on-going
cost structure in its U.S. operations. The first phase of Project Delta
included the identification and assessment of potential operating
efficiencies in the Company's various U.S. functional areas and was
completed in the fourth quarter of 1999. The cost reduction program
implementation began in the first quarter of 2000, with cost savings of
approximately $11.0 million to $13.0 million achieved year to date. The
Company expects that annualized cost savings in certain expenses of at
least $15.0 million will be achievable in the U.S. operations by the end of
2000.
17
<PAGE> 18
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Certain costs were not eligible for accrual in 1999 and were recorded
during the first nine months of 2000. For the quarter and year to date
September 30, 2000, the components of the restructuring charges included in
Restructuring and Other Charges in the Statement of Operations consist of
the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 2000
------------------ ------------------
<S> <C> <C>
Termination benefits $ 730 $3,406
Discontinued activities 1,603 1,603
Disposition of excess office space (231) 519
Transition of German production to U.S. facility 980 3,179
Other costs of project 75 997
------ ------
$3,157 $9,704
------ ------
</TABLE>
Changes in the restructuring reserve, including cash payments, for
the nine months ended September 30, 2000 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 ACTIVITY
-------------------------------------
LIABILITY AT LIABILITY AT
DECEMBER 31, 1999 PROVISION CASH SEPTEMBER 30, 2000
----------------- --------- ---- ------------------
<S> <C> <C> <C> <C>
Termination benefits $8,391 $3,406 $ (7,035) $4,762
Discontinued activities -- 928 -- 928
Disposition of excess office space 494 (114) (371) 9
Transition of German production to
U.S. facility -- 3,179 (2,790) 389
Other costs of project -- 997 (997) --
------ ------ -------- ------
8,885 8,396 (11,193) 6,088
Non-cash provision -- 1,308 -- --
------ ------ -------- ------
$8,885 $9,704 $(11,193) $6,088
====== ====== ======== ======
</TABLE>
18
<PAGE> 19
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Termination Benefits: In the fourth quarter of 1999, the Company
expected to terminate 325 full-time positions during 2000 impacting
virtually all areas of the U.S. business, including operations, client
services, technology and marketing, as well as Corporate headquarters. As
of September 30, 2000, $7.0 million of accrued termination benefits have
been disbursed and through October 31, 2000, 253 employees have been
terminated under various Project Delta initiatives. Additional provisions
have been made throughout the year to cover retention and relocation
incentive costs that were not eligible for accrual at December 31, 1999.
Discontinued Activities: During the third quarter of 2000, the
Company ceased operations of entities in Japan (IRI Apollo K.K.) and
Australia (Information Resources Australia Pty, Ltd.) which were
responsible for distributing Apollo software. The Company has entered into
agreements with its 40% owned affiliate, Information Resources Japan Ltd.
and an unrelated company in Australia to distribute its Apollo software. In
connection with the cessation of local operations, the Company reserved $.3
million and $.6 million, respectively, relating to the Japan and Australia
businesses.
During the third quarter of 2000, it was determined that certain
equipment used by the Company's field staff to collect retail information
will no longer be utilized after the second quarter of 2001. Accordingly,
the Company recognized a non-cash charge of $1.1 million in the third
quarter of 2000 relating to accelerated depreciation on this equipment.
Disposition of Excess Office Space: As a result of planned
headcount reductions and space not currently utilized, the Company has
decided to vacate certain facilities. The Company recorded $.6 million of
charges relating to accelerated depreciation on leasehold improvements and
furniture and fixtures and $(.1) million in lease buyouts associated with
these facilities in the first three quarters of 2000.
Transition of German Production to U.S. Facility: The Company made
a decision in the fourth quarter of 1999 to transfer production of IRI/GfK
Retail Services GmbH from an external vendor in Germany to the U.S.
headquarter facility in order to enhance its InfoScan offering in Germany
and to reduce future production costs. For the nine months ended September
30, 2000, charges of approximately $3.2 million were recorded related to
this transition. The transition is expected to be completed during the
first quarter of 2001, with estimated future costs that cannot currently be
accrued of approximately $5.0 million.
Other Restructuring Costs: Other restructuring costs primarily
relate to final fees paid to the Boston Consulting Group for assistance in
the identification and execution of the Project Delta objectives.
19
<PAGE> 20
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
Future Restructuring Charges: The Company is progressing on its
previously announced restructuring activities, and believes that the
restructuring provisions recorded will be adequate to cover the estimated
restructuring costs. The Company anticipates that it will continue to incur
restructuring charges for items that do not meet the criteria for accrual
and for future restructurings. The Company expects to incur additional
costs of $9.0 million to $10.0 million relating to the first phase of
Project Delta which could not be accrued as of September 30, 2000. In
addition, the Company has begun the initial stages of reviewing its
International and information technology operations to assess potential
restructuring costs and benefits. The Company cannot yet estimate the costs
for these future restructuring programs.
In the fourth quarter of 1999, Restructuring and Other Charges
included a $0.9 million charge for a non-current receivables reserve. This
reserve was reversed in the second quarter of 2000 pursuant to a settlement
agreement reached with the other party.
EUROPEAN CURRENCY CONVERSION ISSUES
In accordance with the 1992 treaty of the European Union, on
January 1, 1999, a new single European currency, the Euro, became legal
tender. The Euro will replace the sovereign currencies ("legacy
currencies") of the eleven initial members of the European Union
("participating countries"). On this date, fixed conversion rates between
the Euro and the legacy currencies in those particular countries were
established.
As the Company has operations in several of the participating
countries, it will be affected by issues relating to the introduction of
and transition to the Euro. The Company's European Executive Committee is
charged with formulating and executing all aspects of the Company's plan
concerning the conversion to the Euro.
The Company does not expect the cost of any system modifications
to be material or result in any material increase in transaction costs. The
Company will continue to evaluate the impact of the Euro, however, based on
currently available information, management does not believe the
introduction of the Euro will have a material adverse impact on the
Company's financial condition or overall trends in results of operations.
20
<PAGE> 21
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D
FORWARD LOOKING INFORMATION
All statements other than statements of historical fact made in
this Quarterly Report on Form 10-Q are forward looking. In particular,
statements regarding industry prospects, our future results of operations
or financial position, and statements preceded by, followed by or that
include the words "intends," "estimates," "believes," "expects,"
"anticipates," "should," "could," or similar expressions, are
forward-looking statements and reflect our current expectations and are
inherently uncertain. The Company's actual results may differ significantly
from our expectations for a number of reasons, including risks and
uncertainties relating to customer renewals of service contracts, the
timing of significant new customer engagements, the success of implementing
Project Delta, competitive conditions, the potential for future client
losses, changes in client spending for the non-contractual services the
Company offers, the release of chain-specific data by European retailers,
foreign currency exchange rates, European currency conversion issues and
other factors beyond the Company's control. These risks and uncertainties
are described herein and in reports and other documents filed by the
Company with the Securities and Exchange Commission.
21
<PAGE> 22
INFORMATION RESOURCES, INC. AND SUBSIDIARIES
PART II
OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
<S> <C> <C> <C>
10.1 Employment and Change in Control Agreement between EF
the Company and certain executive officers
10.2 Outsourcing Services Agreement between the Company EF
and Mosaic InfoForce, L.P. Portions of this
exhibit have been omitted pursuant to a request
for confidential treatment.
10.3 Information Resources, Inc. Third Amendment to EF
Credit Agreement
10.4 Directors Deferred Compensation Agreement EF
b. Reports on Form 8-K.
None.
</TABLE>
22
<PAGE> 23
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/ ANDREW G. BALBIRER
-------------------------------------
Andrew G. Balbirer
Executive Vice President
and Chief Financial Officer
(Authorized Officer of Registrant)
/s/ MARY K. SINCLAIR
-------------------------------------
Mary K. Sinclair
Controller
(Principal Accounting Officer)
November 10, 2000
23
