UNITED STATES
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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0 - 21460
NFO WORLDWIDE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1327424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
TWO PICKWICK PLAZA, GREENWICH, CT
06830
(Address of principal executive offices, zip code)
(203) 629 - 8888
(Registrant's telephone number, including area code)
NFO Research, Inc. (name changed October 14, 1997)
(Former name, former address and former fiscal year,
if changed since last report)
Indicated 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
At November 3, 1997, Registrant had outstanding 20,556,568
shares of Common Stock.
<PAGE>
NFO WORLDWIDE, INC.
INDEX
PAGE
PART I FINANCIAL INFORMATION NUMBER
FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Condensed Consolidated Statement of
Stockholders' Equity 8
Notes to Condensed Consolidated Financial Statements 9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
Part II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 15
Signature 16
-2-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
---- ----
<S> <C> <C>
ASSETS
CURRENT ASETS: (UNAUDITED)
CASH AND CASH EQUIVALENTS $ 4,753 $ 9,579
RECEIVABLES:
TRADE 39,820 37,231
UNBILLED 11,575 3,963
PREPAID EXPENSES AND OTHER CURRENT ASSET 7,107 6,487
--------- ---------
TOTAL CURRENT ASSETS 63,255 57,260
PROPERTY AND EQUIPMENT, NET 15,381 12,966
CUSTOMER LIST, GOODWILL AND
OTHER INTANGIBLE ASSETS 65,075 50,192
OTHER ASSETS 4,719 5,025
--------- ---------
TOTAL ASSETS$ $ 148,430 $ 125,443
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 272 $ 459
ACCOUNTS PAYABLE 4,408 5,164
ACCRUED EXPENSES 16,892 18,761
CUSTOMER BILLINGS IN EXCESS OF REVENUES EARNED 11,469 13,226
--------- ---------
TOTAL CURRENT LIABILITIES 33,041 37,610
LONG-TERM DEBT 20,086 4,841
OTHER LONG-TERM LIABILITIES 5,362 4,718
--------- ---------
TOTAL LIABILITIES 58,489 47,169
--------- ---------
MINORITY INTEREST 1,429 3,877
--------- ---------
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.01 PER SHARE;
60,000 SHARES AUTHORIZED, 20,500 AND
20,055 ISSUED AND OUTSTANDING
IN 1997 AND 1996, RESPECTIVELY 137 134
ADDITIONAL PAID-IN CAPITAL 46,836 40,662
RETAINED EARNINGS 41,814 33,540
ADDITIONAL MINIMUM LIABILITY (323) (323)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 48 384
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 88,512 74,397
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 148,430 $ 125,443
========= =========
</TABLE>
The accompanying notes are an integral part of
these statements.
-3-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES $ 49,340 $ 38,241 $ 138,385 $ 109,427
COST OF REVENUES 21,163 16,339 61,311 46,531
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 20,143 15,157 55,772 43,654
DEPRECIATION EXPENSE 731 594 2,037 1,701
AMORTIZATION EXPENSE 876 775 2,348 2,342
--------- --------- --------- ---------
OPERATING INCOME 6,427 5,376 16,917 15,199
INTEREST EXPENSE, NET 274 (37) 346 (10)
OTHER EXPENSES (INCOME) 87 (9) (3) (21)
EQUITY INTEREST IN NET LOSS
OF AFFILIATED COMPANIES 86 32 240 287
--------- --------- --------- ---------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 5,980 5,390 16,334 14,943
PROVISION FOR INCOME TAXES 2,464 2,339 6,933 6,529
--------- --------- --------- ---------
NET INCOME BEFORE MINORITY INTEREST 3,516 3,051 9,401 8,414
MINORITY INTEREST 315 183 1,127 827
--------- --------- --------- ---------
NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587
========= ========= ========= =========
EARNINGS PER WEIGHTED AVERAGE
SHARE OUTSTANDING(a):
PRIMARY $ .15 $ .14 $ .40 $ .37
FULLY DILUTED $ .15 $ .12 $ .39 $ .30
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING(a):
PRIMARY 20,850 20,774 20,665 20,651
FULLY DILUTED 21,102 20,976 20,937 20,865
</TABLE>
(a) For comparability, the earnings per share and share data reflect the
three-for-two stock splits effected on February 5, 1996 and October 15, 1997.
The accompanying notes are an integral part of
these statements.
-4-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587
ADJUSTMENTS TO RECONCILE TO NET CASH
(USED IN)/PROVIDED BY OPERATING ACTIVITIES:
MINORITY INTEREST 315 183 1,127 827
DEPRECIATION EXPENSE 731 594 2,037 1,701
AMORTIZATION EXPENSE 876 775 2,348 2,342
EQUITY INTEREST IN NET LOSS OF AFFILIATED
COMPANIES 86 32 240 287
DIVIDENDS PAID TO MINORITY INTEREST 0 0 (721) (270)
-------- -------- -------- --------
SUBTOTAL 5,209 4,452 13,305 12,474
CHANGE IN ASSETS AND LIABILITIES THAT
PROVIDED (USED) CASH:
TRADE RECEIVABLES 1,170 1,460 (1,568) (2,005)
UNBILLED RECEIVABLES (4,150) (493) (7,612) (435)
PREPAID EXPENSES AND OTHER
CURRENT ASSETS 605 (198) (406) 57
OTHER ASSETS (119) (505) 105 (349)
ACCOUNTS PAYABLE, ACCRUED AND
OTHER LIABILITIES (29) 188 (2,762) 1,941
CUSTOMER BILLINGS IN EXCESS OF
REVENUE EARNED (2,779) (4,292) (1,853) (5,272)
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (93) 612 (791) 6,411
-------- -------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (1,346) (581) (4,298) (2,715)
ACQUISITIONS (NET OF CASH ACQUIRED) (9,358) (1,040) (14,330) (7,258)
INVESTMENTS IN AFFILIATED COMPANIES (50) (66) (301) (999)
PURCHASE OF LICENSE AGREEMENT AND
OTHER INTANGIBLES 0 5 (469) (35)
-------- -------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (10,754) (1,682) (19,398) (11,007)
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
-5-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
(Continued)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
PAYMENTS ON LONG-TERM DEBT (76) (2,542) (4,440) (6,723)
NET PROCEEDS FROM ISSUANCE OF STOCK 224 130 527 702
BORROWINGS ON LINE OF CREDIT 10,500 4,000 19,500 9,000
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES 10,648 1,588 15,587 2,979
-------- -------- -------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (62) 57 (224) 73
CHANGE IN CASH (261) 575 (4,826) (1,544)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 5,014 8,411 9,579 10,530
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,753 $ 8,986 $ 4,753 $ 8,986
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
-6-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
(continued)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 112 $ 152 $ 316 $ 312
INCOME TAXES $2,549 $1,898 $5,667 $5,204
</TABLE>
The accompanying notes are an integral part
of these statements.
-7-
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL ADDITIONAL CURRENCY
COMMON PAID-IN RETAINED MINIMUM TRANSLATION
SHARES STOCK CAPITAL EARNINGS LIABILITY ADJUSTMENT
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997,
AS PREVIOUSLY REPORTED 18,009 $ 120 $40,525 $28,163 $ (323) $ --
ACQUISITION OF MBL, ACCOUNTED
FOR AS A POOLING OF
INTERESTS 2,046 14 137 5,377 384
------- ------- ------- ------- ------- -------
BALANCE AT JANUARY 1, 1997
AS RESTATED 20,055 $ 34 $40,662 $33,540 $ (323) $ 384
COMMON STOCK ISSUED IN
CONJUNCTION WITH
ACQUISITION EARNOUTS 198 1 2,678
COMMON STOCK ISSUED IN
CONJUNCTION WITH
ACQUISITIONS 126 1 2,972
OTHER STOCK ISSUANCES 121 1 524
TRANSLATION ADJUSTMENTS (336)
NET INCOME 8,274
------- ------- ------- ------- ------- -------
BALANCE AT SEPTEMBER 30, 1997 20,500 $ 137 $46,836 $41,814 $ (323) $ 48
======= ======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
-8-
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Financial Statements:
These condensed consolidated financial statements include the accounts of the
Company (NFO Worldwide, Inc. that changed its name from NFO Research, Inc.
effective October 14, 1997), including its subsidiaries. All significant
intercompany amounts have been eliminated. In the opinion of the Company, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 1997
and the results of its operations for the three and nine month periods ended
September 30, 1997 and September 30, 1996, respectively.
These financial statements are presented in accordance with the requirements of
Form 10-Q. Accordingly, the financial statements and related notes in the
Company's Supplemental Financial Statements for the fiscal year ended December
31, 1996, included in the Company's Form 8-K filed with the SEC on October 22,
1997, should be read in conjunction with the accompanying condensed consolidated
financial statements. The information included herein may not be indicative of
the results to be expected for a full year.
Note 2. Acquisitions:
On April 1, 1997 the Company issued approximately 2,590,000 shares (adjusted for
the 3 for 2 stock split effective October 15, 1997) of NFO common stock to
acquire 100% of the stock of Prognostics, a leading provider of survey-based
quantitative customer satisfaction research to information technology companies
worldwide. The acquisition has been accounted for as a pooling of interests and,
accordingly, the accompanying financial statements have been restated to reflect
the combined results of NFO and Prognostics for all periods presented.
On May 29, 1997 the Company acquired Access Research, Inc. ("Access"). Access is
a research based financial services consulting firm specializing in the
retirement market. Access is a leading source of quantitative and qualitative
research, consulting and communications services addressing pension sales,
operations and marketing issues, especially in the 401(k) market. The entire
purchase price of approximately $4.0 million was paid in cash at closing. The
Access acquisition has been accounted for as a purchase and the accompanying
financial statements include the results of operations from the effective date
of the acquisition. The purchase price allocations are based on preliminary
estimates of fair market value and are subject to revision. The pro forma
effects of this acquisition are not material to the consolidated results of
operations for the Company in 1997 and 1996.
On July 11, 1997 the Company issued approximately 2,046,000 shares (adjusted for
the 3 for 2 stock split effective October 15, 1997) of NFO common stock to
acquire 100% of the outstanding stock of The MBL Group, Plc, a leading
international market research firm. The acquisition of the MBL Group Plc has
been accounted for as a pooling of interests. The condensed consolidated
financial statements give retroactive effect to the merger and all financial
statements are presented as if NFO (including Prognostics) and The MBL Group Plc
had been consolidated for all periods presented.
-9-
<PAGE>
NFO has also entered into agreements with minority shareholders of the various
MBL Group operating companies whereby the Company has agreed to repurchase a
portion of the minority shares during 1997 and the remainder in three years
utilizing a combination of cash and NFO common stock. The acquisitions of the
MBL Group operating companies' minority shares will be accounted for as
purchases. During the third quarter of 1997, NFO issued 125,559 shares of common
stock and paid $10.2 million in cash under these agreements. This resulted in
$10.4 million of goodwill, based on preliminary estimates of fair market value
and are subject to revision.
Included in the above purchases the Company's ownership interest in MBL's Middle
Eastern operations is now in excess of 50% and accordingly has been consolidated
for the first time in the quarter. Previously these results were reported under
the equity method of accounting. The pro forma effects of these purchases are
not material to the consolidated results of operations for the Company in 1997
and 1996.
Separate results of operations for the periods prior to the merger with MBL and
Prognostics are as follows:
<TABLE>
<CAPTION>
(UNAUDITED), IN THOUSANDS
-------------------------
THIRD FIRST NINE FIRST SIX
QUARTER MONTHS MONTHS
1996 1996 1997
----------- --------- ----------
REVENUES
<S> <C> <C> <C>
NFO $ 26,838 $ 76,588 $ 66,046
MBL 9,018 26,778 21,153
PROGNOSTICS 2,385 6,061 1,846 *
---------- --------- ----------
COMBINED $ 38,241 $ 109,427 $ 89,045
========== ========= ==========
NET INCOME
NFO $ 2,519 $ 6,418 $ 4,484
MBL 141 697 459
PROGNOSTICS 208 472 130 *
---------- --------- ----------
COMBINED $ 2,868 $ 7,587 $ 5,073
=========== ========= ==========
</TABLE>
* Only includes first three months of 1997.
Note 3. Stock Splits:
On September 17, 1997 the Company's Board of Directors authorized a 3 for 2
stock split of the Company's common stock effected on October 15, 1997, for
stockholders of record on September 30, 1997. As a result, approximately
6,850,000 additional shares of NFO common stock were issued. All per share and
share amounts in the accompanying condensed consolidated financial statements
have been restated to reflect the above stock split.
-10-
<PAGE>
NFO WORLDWIDE, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
this Quarterly Report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain operating
statement data for the Company, expressed as a percentage of revenues, and the
percentage change in such items compared to amounts for the prior year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------------- -------------------------------------
PERCENTAGE OF PERCENTAGE OF
REVENUES PERCENTAGE REVENUES PERCENTAGE
--------------------- CHANGE FROM --------------------- CHANGE FROM
1997 1996 PRIOR YEAR 1997 1996 PRIOR YEAR
---- ---- ------------- ---- ---- -----------
<S> <C> <C> <C> <C> <C> <C>
REVENUES 100.0% 100.0% 29.0% 100.0% 100.0% 26.5%
COST OF REVENUES 42.9 42.7 29.5 44.3 42.5 31.8
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 40.8 39.6 32.9 40.3 39.9 27.8
DEPRECIATION EXPENSE 1.5 1.6 23.1 1.5 1.6 19.8
AMORTIZATION EXPENSE 1.8 2.0 13.0 1.7 2.1 0.3
------ ------ ------ ------ ------ ------
OPERATING INCOME 13.0 14.1 19.5 12.2 13.9 11.3
INTEREST EXPENSE, NET 0.6 (0.1) NM 0.3 0.0 NM
OTHER EXPENSES (INCOME) 0.1 0.0 NM 0.0 0.0 NM
EQUITY INTEREST IN NET LOSS
OF AFFILIATED COMPANIES 0.2 0.1 NM 0.1 0.2 (16.4)
------ ------ ------ ------ ------ ------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 12.1 14.1 10.9 11.8 13.7 9.3
PROVISION FOR INCOME TAXES 5.0 6.1 5.3 5.0 6.0 6.2
------ ------ ------ ------ ------ ------
NET INCOME BEFORE MINORITY
INTEREST 7.1 8.0 15.2 6.8 7.7 11.7
MINORITY INTEREST .6 .5 72.1 .8 .8 36.3
------ ------ ------ ------ ------ ------
NET INCOME 6.5% 7.5% 11.6% 6.0% 6.9% 9.1%
====== ====== ====== ====== ====== ======
</TABLE>
11
<PAGE>
NFO WORLDWIDE, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATIONS
Effective April 1, 1997, the Company acquired Prognostics and on July 11, 1997,
the Company acquired MBL. Both transactions were accounted for as pooling of
interests. Accordingly, all of the accompanying financial information has been
restated to include the combined financial results of NFO, Prognostics and MBL
for all periods presented.
The Company's revenues for the three months ended September 30, 1997 increased
29% to $49.3 million from $38.2 million for the same period last year. Revenues
in the third quarter increased $11.1 million over the same period last year, led
by strong performances in the Company's domestic financial services, healthcare
and packaged goods and foods business units where revenues grew by double digit
rates in each sector. Additionally, the Company's comparable international
businesses grew by 27% compared to the same period last year. For the nine
months ended September 30, 1997, revenues increased by over 26% to $138.4
million from $109.4 million in the same period last year, with these same
sectors as well as the Company's hi-tech/telecommunications business units all
growing at double digit rates for the nine month period. Spectrem, acquired in
August 1996, and Access Research, acquired in May 1997, as well as the first
time consolidation of the Company's Middle Eastern operations in the third
quarter of 1997, contributed $3.6 million to the quarter's increase in revenues,
and $6.5 million to the nine month increase.
Cost of revenues increased 30% in the third quarter to $21.2 million from $16.3
million a year ago. This increase is primarily due to overall increased business
volume, the impact of Spectrem and Access Research ($.8 million), the Company's
interactive initiatives ($.2 million), and inflationary increases. For the nine
months ended September 30, 1997 cost of revenues increased 32% to $61.3 million
from $46.5 million last year. The primary reasons for this increase were:
overall increased business volume, the acquisitions of Spectrem and Access ($2.3
million), as well as the first time consolidation of the Company's Middle
Eastern operations ($1.4 million), the Company's interactive initiatives ($.6
million) and a slight shift in product mix.
Selling, general and administrative expenses increased 33% in the third quarter
to $20.1 million from $15.2 million in the same period last year. The major
factors for the increase were: transaction costs associated with the acquisition
of MBL ($.8 million), the inclusion of Spectrem, Access Research, and the
Company's Middle Eastern operations ($.7 million), increased costs due to
increased business activity, especially in the Company's
Pharmaceutical/HealthMed and Financial Services business units ($1.1 million),
expenses relating to the Company's interactive initiatives ($.4 million) and
inflationary increases. For the nine month period ended September 30, 1997
selling, general and administrative expenses increased 28% to $55.8 million from
$43.7 million last year. The primary reasons for the increase were: the
inclusion of the new acquisitions as well as the consolidation of the Company's
Middle Eastern operations ($1.9 million), transaction costs associated with the
acquisitions of Prognostics ($.4 million) and MBL ($.8 million), increased
staffing caused by increased business activity, especially in the Company's
Pharmaceutical/HealthMed and Financial Services business units ($2.6 million),
costs associated with the Company's new office in China ($.2 million), the
development of on-line interactive research activities ($.9 million), and
inflationary increases.
As a result of the items above, operating income for the quarter ended September
30, 1997 increased 20% to $6.4 million from $5.4 million, and for the first nine
months of 1997 increased 11% to $16.9 million from $15.2 million, compared to
the same periods a year ago. Excluding the pooling transaction costs, operating
income increased 35% and 20% for the three and nine month periods ended
September 30, 1997, respectively, compared to the prior year.
12
<PAGE>
Net operating losses associated with NFO's European joint venture activities
equaled $.1 million for the quarter and $.3 million for the nine month period,
$.1 million below the year ago level.
The Company's effective tax rate for the quarter ended September 30, 1997 was
41.2% compared to 43.4% for the same period last year. The decrease in the
quarter's effective tax rate was primarily the result of several state and local
tax saving strategies implemented in late 1996, as well as increased earnings
compared to the same period last year in countries with lower tax rates. The
non-deductibility of the pooling transaction costs related to the MBL
acquisition partially offset these reductions for the quarter. For the nine
month period ended September 30, 1997 the effective tax rate was 42.4% compared
to 43.7% in the same period last year. The decrease was primarily the result of
the 1996 tax savings strategies partially offset by the nondeductible pooling
transaction costs related to the Prognostics and MBL acquisitions.
Net income for the third quarter of 1997 increased 12% to $3.2 million. Primary
earnings per share, including the $.04 per share relating to transaction costs
associated with the acquisition of MBL, were $.15, up $.01 from the same period
last year, but up $.05 or 36% ahead of the prior year when this charge is
excluded. Net income for the nine months ended September 30, 1997 increased 9%
to $8.3 million from $7.6 million a year ago. Net income, excluding the charge
for the transaction costs of MBL and Prognostics increased 26% over the same
nine month period a year ago. Primary earnings per share for the nine month
period, including the $.06 charge for the MBL and Prognostics acquisition costs,
were $.40 compared to $.37 for the same period last year. Excluding the $.06
charge, primary earnings per share were $.46, a 24% increase compared to the
first nine months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of September 30, 1997 was $30.3 million compared to $19.7
million at December 31, 1996. The increase in working capital resulted primarily
from the results of operations for the nine months ended September 30, 1997 and
payments in cash (financed by long term debt) and stock of previously accrued
acquisition related liabilities. Offsetting these increases were capital
expenditures ($4.5 million) and investments in European Joint Ventures ($.3
million).
As of September 30, 1997 the Company had $19.5 million outstanding on its $45.0
million credit facility with three major U.S. banks.
Capital expenditures for the quarter ended September 30, 1997 were $1.3 million
compared to $.6 million for the same period last year. For the nine months ended
September 30, 1997 capital expenditures were $4.3 million compared to $2.7
million a year ago. Capital expenditures for 1997 are anticipated to be
approximately $8 million including approximately $2 million due to planned
expansion of the Company's operations capacity.
The Company anticipates that existing cash, together with internally generated
funds and its credit and stock availabilities will provide the Company with the
resources that are needed to satisfy potential acquisitions, capital
expenditures and the Company's growing working capital requirements. The timing
and magnitude of future acquisitions will be the single most important factor in
determining the Company's long term capital needs.
13
<PAGE>
FUTURE REQUIRED ACCOUNTING CHANGES
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). This
statement introduces new methods for calculating earnings per share. The
adoption of this standard will not impact results from operations, financial
condition, or long-term liquidity, but will require the Company to restate
earnings per share reported in prior periods to conform with this statement. The
Company is required to adopt the new standard for periods ending after December
15, 1997. The Company believes that the adoption of this standard will result in
higher earnings per share when comparing the current primary and fully diluted
earnings per share calculations to the calculations of basic and diluted
earnings per share required by SFAS No. 128.
On September 30, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS
No. 130). This statement establishes standards for reporting and display of
comprehensive income and its components in financial statements. The adoption of
this standard will not impact results from operations, financial condition, or
long-term liquidity, but will require the Company to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in the equity
section of the balance sheet. The Company is required to adopt the new standard
for periods beginning after December 15, 1997.
14
<PAGE>
PART II OTHER INFORMATION
- ------- -----------------
ITEM 6 Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
11. Computations of Net Income per Common Share
27. Financial Data Schedule
(b) Reports on Form 8-K
-------------------
The Company filed a report on Form 8-K with the Commission on
June 11, 1997 to voluntarily report certain financial
statements related to the acquisition of Prognostics by the
Company effective April 1, 1997. The acquisition of
Prognostics was accounted for as a pooling of interests and,
accordingly, all historical financial information has been
restated to include the combined results of the Company and
Prognostics, and included in the Form 8-K dated June 11, 1997.
The Company filed a report on Form 8-K with the Commission on
July 25, 1997 and amended this report on September 22, 1997 to
voluntarily report certain financial statements related to the
acquisition of MBL by the Company effective July 11, 1997. The
acquisition of MBL was accounted for as a pooling of interests
and, accordingly, all historical financial information has
been restated to include the combined results of the Company
and MBL.
The Company filed a report on Form 8-K with the Commission on
October 22, 1997 to voluntarily restate its 1996 Form 10-K
financial information combining NFO and Prognostics.
The Company filed a second report on Form 8-K with the
Commission on October 22, 1997 to report supplemental 1996
Form 10-K financial information combining NFO and MBL.
15
<PAGE>
NFO WORLDWIDE, INC.
SIGNATURE
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.
NFO WORLDWIDE, INC.
-------------------
(Registrant)
Dated: November 14, 1997 /s/ Patrick G. Healy
-----------------------
Patrick G. Healy,
President, Corporate Products
and Systems Development
and Chief Financial Officer
(Authorized Officer of
Registrant and
Principal Financial Officer)
<PAGE>
NFO WORLDWIDE, INC.
EXHIBIT 11
COMPUTATIONS OF NET INCOME PER COMMON SHARE
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
---------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY:
- --------
NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 20,340 19,955 20,230 19,874
DILUTIVE STOCK OPTIONS 494 769 419 727
OTHER COMMON SHARES EQUIVALENTS 16 50 16 50
------- ------- ------- -------
20,850 20,774 20,665 20,651
======= ======= ======= =======
PRIMARY EARNINGS PER SHARE $ .15 $ .14 $ .40 $ .37
======= ======= ======= =======
FULLY DILUTED:
- --------------
NET INCOME $ 3,138 $ 2,427 $ 8,085 $ 6,271
======= ======= ======= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 20,340 19,955 20,230 19,874
DILUTIVE STOCK OPTIONS 554 769 499 739
OTHER COMMON SHARES EQUIVALENTS 16 50 16 50
CONTINGENT SHARES 192 202 192 202
------- ------- ------- -------
21,102 20,976 20,937 20,865
======= ======= ======= =======
FULLY DILUTED EARNINGS PER SHARE $ .15 $ .12 $ .39 $ .30
======= ======= ======= =======
</TABLE>
The Company acquired Prognostics effective April 1, 1997 and The MBL Group Plc
effective July 11, 1997. Both transactions were accounted for as pooling of
interests. Accordingly, all historical financial information has been restated
to include the combined financial results of NFO, Prognostics and MBL.
The earnings per share and share data reflect the three-for-two stock splits
effected on February 5, 1996 and October 15, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in NFO Worldwide, Inc.'s report on Form 10-Q for
the quarter ended September 30, 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,753
<SECURITIES> 0
<RECEIVABLES> 51,789
<ALLOWANCES> 394
<INVENTORY> 0
<CURRENT-ASSETS> 63,255
<PP&E> 26,504
<DEPRECIATION> 11,123
<TOTAL-ASSETS> 148,430
<CURRENT-LIABILITIES> 32,929
<BONDS> 20,086
<COMMON> 137
0
0
<OTHER-SE> 88,375
<TOTAL-LIABILITY-AND-EQUITY> 148,430
<SALES> 138,385
<TOTAL-REVENUES> 138,385
<CGS> 61,311
<TOTAL-COSTS> 121,468
<OTHER-EXPENSES> 237
<LOSS-PROVISION> 26
<INTEREST-EXPENSE> 532
<INCOME-PRETAX> 16,334
<INCOME-TAX> 6,933
<INCOME-CONTINUING> 8,274
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,274
<EPS-PRIMARY> .40
<EPS-DILUTED> .39
</TABLE>
