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 MARCH 31, 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 RESEARCH, 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
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(Registrant's telephone number, including area code)
--------------------------------------------------
(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 May 9, 1997, Registrant had outstanding 12,141,370 shares of Common Stock.
<PAGE>
NFO RESEARCH, 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 7
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9
Part II OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 12
Signature 13
2
<PAGE>
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
MARCH 31 DECEMBER 31
1997 1996
---- ----
(UNAUDITED)
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 4,252 $ 4,086
RECEIVABLES:
TRADE 21,338 24,728
UNBILLED 4,387 3,963
PREPAID EXPENSES AND OTHER CURRENT ASSETS 4,425 3,309
--------- ---------
TOTAL CURRENT ASSETS 34,402 36,086
PROPERTY AND EQUIPMENT, NET 11,401 11,013
CUSTOMER LIST, GOODWILL AND
OTHER INTANGIBLE ASSETS 49,001 49,412
OTHER ASSETS 4,734 4,946
---------- ---------
TOTAL ASSETS $ 99,538 $ 101,457
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
CURRENT MATURITIES OF LONG-TERM DEBT $ 521 $ 459
ACCOUNTS PAYABLE 2,058 2,182
ACCRUED EXPENSES 9,059 13,568
CUSTOMER BILLINGS IN EXCESS OF REVENUES EARNED 7,214 9,106
--------- ---------
TOTAL CURRENT LIABILITIES 18,852 25,315
LONG-TERM DEBT 4,611 4,821
OTHER LONG-TERM LIABILITIES 4,851 4,579
---------- ---------
TOTAL LIABILITIES 28,314 34,715
---------- ---------
STOCKHOLDERS' EQUITY:
COMMON STOCK, PAR VALUE $.01 PER SHARE;
60,000 SHARES AUTHORIZED, 10,404 AND
10,280 ISSUED AND OUTSTANDING
IN 1997 AND 1996, RESPECTIVELY 104 103
ADDITIONAL PAID-IN CAPITAL 43,072 40,541
RETAINED EARNINGS 28,371 26,421
ADDITIONAL MINIMUM LIABILITY (323) (323)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 71,224 66,742
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 99,538 $ 101,457
========== =========
The accompanying notes are an integral part of these statements.
3
<PAGE>
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS
ENDED MARCH 31
1997 1996
---- ----
REVENUES $ 30,123 $ 24,106
COST OF REVENUES 14,456 10,794
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 11,020 8,809
DEPRECIATION EXPENSE 444 390
AMORTIZATION EXPENSE 742 775
-------- --------
OPERATING INCOME 3,461 3,338
INTEREST EXPENSE, NET 33 43
EQUITY INTEREST IN NET LOSS
OF JOINT VENTURES 78 130
-------- --------
INCOME BEFORE INCOME TAXES 3,350 3,165
PROVISION FOR INCOME TAXES 1,400 1,464
-------- --------
NET INCOME $ 1,950 $ 1,701
======== ========
PRIMARY WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING(a) 10,597 10,603
======== ========
PRIMARY EARNINGS PER WEIGHTED AVERAGE
SHARE(a) $ .18 $ .16
======== ========
(a) For comparability, the earnings per share and share data reflect the
three-for-two stock split effected on February 5, 1996. Fully diluted
earnings per common share has not been presented on the basis that the
difference between fully diluted and primary earnings per share is less
than $0.01 per share.
The accompanying notes are an integral part of these statements.
4
<PAGE>
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31
1997 1996
---- ----
CASH FLOW FROM OPERATING ACTIVITIES:
NET INCOME $ 1,950 $ 1,701
ADJUSTMENTS TO RECONCILE TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 444 390
AMORTIZATION 742 775
EQUITY INTEREST IN NET LOSS OF JOINT VENTURES 78 130
SUBTOTAL 3,214 2,996
------- -------
CHANGE IN ASSETS AND LIABILITIES THAT
PROVIDED (USED) CASH:
TRADE RECEIVABLES 3,390 3,528
UNBILLED RECEIVABLES (424) (1,095)
PREPAID EXPENSES AND OTHER
CURRENT ASSETS (1,116) (268)
OTHER ASSETS 316 (14)
ACCOUNTS PAYABLE, ACCRUED AND
OTHER LIABILITIES (760) 7
CUSTOMER BILLINGS IN EXCESS OF REVENUES
EARNED (1,892) (920)
------- -------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 2,728 4,234
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (832) (411)
ACQUISITIONS (NET OF CASH ACQUIRED) (1,080) (5,695)
INVESTMENTS IN JOINT VENTURES (182) (894)
PURCHASE OF LICENSE AGREEMENT AND OTHER (331) (37)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (2,425) (7,037)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
NET PROCEEDS FROM ISSUANCE OF STOCK 11 226
PAYMENTS ON LONG-TERM DEBT (4,148) (3,192)
COSTS ASSOCIATED WITH NEW CREDIT FACILITY
BORROWINGS ON LINE OF CREDIT 4,000 5,000
------- -------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES (137) 2,034
------- -------
CHANGE IN CASH 166 (769)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 4,086 5,677
------- -------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 4,252 $ 4,908
======= =======
5
<PAGE>
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
THREE MONTHS
ENDED MARCH 31
1997 1996
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
INTEREST $ 78 $ 96
INCOME TAXES $560 $338
The accompanying notes are an integral part of these statements.
6
<PAGE>
NFO RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
ADDITIONAL ADDITIONAL
COMMON PAID-IN RETAINED MINIMUM
SHARES STOCK CAPITAL EARNINGS LIABILITY
------ ------ ---------- -------- ----------
BALANCE AT
JANUARY 1, 1997 10,280 $ 103 $ 40,541 $ 26,421 $ (323)
COMMON STOCK ISSUED
IN CONJUNCTION WITH
ACQUISITIONS 123 1 2,520
OTHER STOCK ISSUANCES 1 0 11
NET INCOME 1,950
------- ------- -------- -------- -------
BALANCE AT
MARCH 31, 1997 10,404 $ 104 $ 43,072 $ 28,371 $ (323)
======= ======= ======== ======== =======
The accompanying notes are an integral part of this statement.
7
<PAGE>
NFO RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. Financial Statements:
These condensed consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly owned. 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 March 31, 1997 and
the results of its operations for the three month periods ended March 31, 1997
and 1996.
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 Audited Financial Statements for the fiscal year ended December 31,
1996, included in the Company's Form 10- K filed with the SEC on March 31, 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. Acquisition Subsequent to Period End:
On April 1, 1997 the Company issued 1,726,480 shares of NFO common stock in
conjunction with the plan of merger to acquire 100% of the stock of Prognostics,
a leading provider of survey-based quantitative customer satisfaction research
to information technology companies worldwide. The purchase will be accounted
for as a pooling of interests and, accordingly, historical financial data in
future reports will be restated to include Prognostics. The Company plans to
issue a report on Form 8-K.
8
<PAGE>
NFO RESEARCH, 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.
THREE MONTHS ENDED MARCH 31
PERCENTAGE OF PERCENTAGE
REVENUES CHANGE FROM
-------- PRIOR YEAR
1997 1996 ----------
REVENUES 100.0% 100.0% 25.0%
COST OF REVENUES 48.0 44.8 33.9
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 36.6 36.6 25.1
DEPRECIATION EXPENSE 1.5 1.6 13.8
AMORTIZATION EXPENSE 2.4 3.2 (4.3)
----- -----
OPERATING INCOME 11.5 13.8 3.7
INTEREST EXPENSE, NET 0.1 0.2 (23.3)
EQUITY INTEREST IN NET LOSS
OF JOINT VENTURES 0.3 0.5 (40.0)
----- -----
INCOME BEFORE INCOME TAXES 11.1 13.1 5.8
PROVISION FOR INCOME TAXES 4.6 6.0 (4.4)
----- -----
NET INCOME 6.5% 7.1% 14.6%
===== =====
9
<PAGE>
NFO RESEARCH, INC.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OPERATIONS
The Company's revenues for the three months ended March 31, 1997 increased 25%
to $30.1 million from $24.1 million for the same period last year. The SPECTREM
Group, acquired in August 1996 and which specializes in financial services
research and consulting, contributed $1.4 million to this quarter's revenue
increase. Excluding the SPECTREM Group's increase, revenues were up 19% over the
same period last year, led by strong showings in NFO's pharmaceutical/
healthmed, financial services and telecommunications business units.
Cost of revenues increased 34% to $14.5 million from $10.8 million a year ago
primarily due to the first time inclusion of the SPECTREM Group ($.8 million),
overall increased business volume ($2.2 million), cost relating to the Company's
interactive initiatives ($.2 million) and a shift in product mix.
Selling, general and administrative expenses increased 25% to $11.0 million from
$8.8 million last year. The principal contributing factors were the inclusion of
the SPECTREM Group ($.6 million), increased costs due to increased business
activity, especially in the Company's pharmaceutical/ healthmed business units
($.8 million), expenses relating to the Company's interactive initiatives ($.2
million), and inflationary increases.
Net operating losses associated with NFO's European joint venture activities
equaled $.1 million for the quarter, slightly below the year ago level.
The Company's effective tax rate for the quarter ended March 31, 1997 was 41.8%
compared to 46.3% for the same period last year. The decrease is primarily the
result of lower state and local income taxes attributed to several tax savings
strategies implemented in late 1996.
Net income for the first quarter of 1997 increased 15% to $2.0 million from $1.7
million last year. Primary earnings per share increased 13% to $.18 from $.16 .
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of March 31, 1997 was $15.6 million compared to $10.8 million
at December 31, 1996. The increase in working capital resulted primarily from
the results of operations for the quarter ended March 31, 1997, and payment in
cash and stock of previously accrued acquisition related liabilities. Offsetting
these gains were: capital expenditures ($.8 million) and investments in European
Joint Ventures ($.2 million). related to acquisitions settled in common stock of
the Company ($2.5 million). Offsetting these gains were: capital expenditures
($.8 million) and investments in European Joint Ventures ($.2 million).
As of March 31, 1997 the Company had $4.0 million outstanding on its $45.0
million credit facility with three major U.S. banks.
10
<PAGE>
Capital expenditures for the quarter ended March 31, 1997 were $.8 million.
Capital expenditures for 1997 are anticipated to be approximately $9 million
including approximately $5 million due to a planned expansion of the Company's
operations capacity.
The Company anticipates that existing cash, together with internally generated
funds and its credit 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.
FORWARD LOOKING STATEMENTS
Statements in this Form 10-Q relating to matters that are not historical facts
are forward-looking statements. Such forward-looking statements are based on the
Company's current forecasts and actual results may differ materially. To
understand the risks which may affect the Company's future performance, please
refer to Part 1 of NFO's 1996 Annual Report on Form 10-K.
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.
11
<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 did not file any reports on Form 8-K during
the quarter for which this report is filed.
12
<PAGE>
NFO RESEARCH, 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 RESEARCH, INC.
------------------
(Registrant)
Dated: May 15, 1996 /s/ Patrick G. Healy
---------------------
Patrick G. Healy,
Executive Vice President
and Chief Financial Officer
(Authorized Officer of
Registrant and
Principal Financial Officer)
13
<PAGE>
NFO RESEARCH, INC.
INDEX TO EXHIBITS
SEQUENTIAL
PAGE
NUMBER
EXHIBITS
11 Computations of Net Income per Common Share
27 Financial Data Schedule
<PAGE>
NFO RESEARCH, INC.
EXHIBIT 11
COMPUTATIONS OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED MARCH 31
---------------------------
1997 1996
---- ----
PRIMARY:
WEIGHTED AVERAGE SHARES OUTSTANDING 10,297 10,098
DILUTIVE STOCK OPTIONS 280 449
OTHER COMMON SHARE EQUIVALENTS 20 56
------- -------
10,597 10,603
======= =======
NET INCOME $ 1,950 $ 1,701
======= =======
PRIMARY EARNINGS PER SHARE $.18 $.16
======= =======
The earnings per share and share data reflect the three-for-two stock split
effected on February 5, 1996. Fully diluted earnings per common share has not
been presented on the basis that the difference between fully diluted and
primary earnings per share is less than $0.01 per share.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS CONTAINED IN NFO RESEARCH, INC.'S REPORT ON FORM 10-Q FOR
THE QUARTER ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,367
<SECURITIES> 0
<RECEIVABLES> 25,868
<ALLOWANCES> 143
<INVENTORY> 0
<CURRENT-ASSETS> 34,402
<PP&E> 17,641
<DEPRECIATION> 6,240
<TOTAL-ASSETS> 99,538
<CURRENT-LIABILITIES> 18,852
<BONDS> 4,611
0
0
<COMMON> 104
<OTHER-SE> 71,120
<TOTAL-LIABILITY-AND-EQUITY> 99,538
<SALES> 30,123
<TOTAL-REVENUES> 30,123
<CGS> 14,456
<TOTAL-COSTS> 26,662
<OTHER-EXPENSES> (5)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116
<INCOME-PRETAX> 3,350
<INCOME-TAX> 1,400
<INCOME-CONTINUING> 1,950
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,950
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
