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 JUNE 30, 1999
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)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
AT AUGUST 6, 1999, REGISTRANT HAD OUTSTANDING 22,249,680 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 6
Notes to Condensed Consolidated Financial Statements 7
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 14
Signature 15
2
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31,
1999 1998
-------- --------
(unaudited)
Assets
Current Assets:
Cash and Cash Equivalents $ 7,303 $ 17,739
Receivables:
Trade, Less Allowance for Doubtful Accounts 95,109 98,250
Unbilled Receivables 29,195 22,524
Prepaid Expenses and Other Current Assets 17,611 15,524
-------- --------
Total Current Assets 149,218 154,037
Property and Equipment, Net 46,704 44,472
Customer List, Goodwill and Other Intangible Assets 227,533 231,225
Other Assets 19,076 22,064
-------- --------
Total Assets $442,531 $451,798
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Current Maturities of Long-Term Debt $ 613 $ 396
Accounts Payable 20,145 31,945
Accrued Liabilities 43,396 63,122
Customer Billings in Excess of Revenues Earned 31,493 26,659
-------- --------
Total Current Liabilities 95,647 122,122
-------- --------
Long-Term Debt, Less Current Portion 197,026 190,657
Accrued Pension, Postretirement Benefits and Other 13,019 14,092
-------- --------
Total Long-Term Liabilities 210,045 204,749
-------- --------
Total Liabilities 305,692 326,871
-------- --------
Minority Interests 2,994 3,164
-------- --------
Stockholders' Equity:
Common Stock, Par Value $.01 Per Share;
60,000 Shares Authorized; 22,221 and
21,401 Issued and Outstanding
in 1999 and 1998, respectively 222 214
Additional Paid-In Capital 71,100 63,723
Retained Earnings 68,560 60,535
Accumulated Other Comprehensive Loss:
Minimum Pension Liability, Net of Income Taxes (631) (631)
Foreign Currency Translation Adjustment (5,406) (2,078)
-------- --------
Total Stockholders' Equity 133,845 121,763
-------- --------
Total Liabilities and Stockholders' Equity $442,531 $451,798
======== ========
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $119,431 $65,003 $225,847 $115,246
Costs and Expenses:
Cost of Revenues 61,177 29,769 116,627 52,050
Selling, General and Administrative 40,916 24,433 78,925 45,417
Amortization 2,452 1,226 4,823 2,333
Depreciation 2,330 1,172 4,751 2,120
-------- ------- -------- --------
Operating Income 12,556 8,403 20,721 13,326
Interest Expense, Net 3,610 645 6,759 1,072
Equity Interest in Net (Income) Loss
of Affiliated Companies
and Other Expenses (413) 104 (883) 277
--------- ------- --------- --------
Income Before Income Taxes
and Minority Interests 9,359 7,654 14,845 11,977
Provision for Income Taxes 4,139 3,062 6,568 4,726
-------- ------- -------- --------
Net Income Before
Minority Interests 5,220 4,592 8,277 7,251
Minority Interests 98 226 252 403
-------- ------- -------- --------
Net Income $ 5,122 $ 4,366 $ 8,025 $ 6,848
======== ======= ======== ========
Earnings Per Share:
Basic $ .23 $ .21 $ .37 $ .33
======== ======= ======== ========
Diluted $ .23 $ .20 $ .36 $ .32
======== ======= ======== ========
Weighted Average Number of
Shares Outstanding:
Basic 22,028 21,200 21,720 20,996
======== ======= ======== ========
Diluted 22,282 21,729 22,229 21,622
======== ======= ======== ========
</TABLE>
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 SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flow From Operating Activities:
Net Income $ 5,122 $ 4,366 $ 8,025 $ 6,848
Adjustments to Reconcile to Net Cash
Used By Operating Activities:
Minority Interests 98 226 252 403
Amortization Expense 2,452 1,226 4,823 2,333
Depreciation Expense 2,330 1,172 4,751 2,120
Equity Interest in Net (Income) Loss of
Affiliated Companies (438) 107 (930) 172
Other (525) (312) 144 (312)
-------- -------- -------- --------
Subtotal 9,039 6,785 17,065 11,564
Change in Assets and Liabilities that Provided (Used)
Cash, Net of Effects of Acquisitions:
Trade Receivables (8,883) 392 (4,061) (1,763)
Unbilled Receivables (7,404) (9,196) (5,428) (7,160)
Prepaid Expenses & Other Current Assets (2,151) (1,477) (2,734) (2,092)
Accounts Payable & Accrued Liabilities (12,466) (4,424) (20,469) (3,556)
Customer Billings in Excess
of Revenues Earned 2,196 (2,240) 3,019 (1,538)
-------- -------- -------- --------
Net Cash Used By Operating Activities (19,669) (10,160) (12,608) (4,545)
-------- -------- -------- --------
Cash Flow From Investing Activities:
Acquisitions (Net of Cash Acquired) (2,634) (6,669) (2,634) (17,158)
Capital Expenditures (Net of Minor Disposals) (3,547) (3,712) (8,094) (8,366)
-------- -------- -------- --------
Net Cash Used By Investing Activities (6,181) (10,381) (10,728) (25,524)
-------- -------- -------- --------
Cash Flow From Financing Activities:
Issuance of Common Stock, Net of Expenses 1,986 598 2,257 1,069
Payments on Long-Term Debt (1,438) (19,177) (30,155) (57,755)
Proceeds from Line of Credit and
Other Long-Term Debt 20,830 34,444 41,274 82,641
-------- -------- -------- --------
Net Cash Used By Financing Activities 21,378 15,865 13,376 25,955
-------- -------- -------- --------
Effect of Exchange Rate Changes on Cash 447 891 (476) (119)
-------- -------- -------- --------
Change in Cash (4,025) (3,785) (10,436) (4,233)
Cash and Cash Equivalents, Beg. of Period 11,328 7,607 17,739 8,055
-------- -------- -------- --------
Cash and Cash Equivalents, End of Period $ 7,303 $ 3,822 $ 7,303 $ 3,822
======== ======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During the Period for:
Interest $ 3,760 $ 270 $ 6,285 $ 663
Income Taxes $ 5,356 $ 2,050 $ 8,143 $ 2,386
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
ADDITIONAL OTHER COMP- STOCK COMPRE-
COMMON COMMON PAID-IN RETAINED REHENSIVE HOLDERS' HENSIVE
SHARES STOCK CAPITAL EARNINGS (LOSS) EQUITY INCOME
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 21,401 $214 $63,723 $60,535 $(2,709) $121,763
Net Income 8,025 8,025 $ 8,025
Translation Adjustments (3,328) (3,328) (3,328)
--------
Comprehensive Income $ 4,697
=======
Other Issuances 820 8 7,377 7,385
------ ---- ------- ------- ------- --------
Balance at June 30, 1999 22,221 $222 $71,100 $68,560 $(6,037) $133,845
====== ==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. FINANCIAL STATEMENTS:
These condensed consolidated financial statements include the accounts of NFO
Worldwide, Inc., and its subsidiaries (the Company). All significant
intercompany amounts have been eliminated. In the opinion of management, 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 June 30, 1999, and
the results of its operations for the three and six month periods ended June 30,
1999, and June 30, 1998.
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,
1998, included in the Company's Form 10-K filed with the SEC on March 31, 1999,
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. EARNINGS PER SHARE:
The following table reconciles the net income and weighted average number of
shares included in the basic earnings per share calculation to the net income
and weighted average number of shares used to compute diluted earnings per share
(in thousands):
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income Used for Basic and Diluted
Earnings Per Share $ 5,122 $ 4,366 $ 8,025 $ 6,848
======= ======= ======= =======
Weighted Average Number of Shares Outstanding
Used for Basic Earnings Per Share 22,028 21,200 21,720 20,996
Dilutive Stock Options 254 529 225 553
Contingently Issuable Common Shares -- -- 284 73
------- ------- ------- -------
Weighted Average Number of Shares Outstanding
and Common Share Equivalents Used for
Diluted Earnings Per Share 22,282 21,729 22,229 21,622
======= ======= ======= =======
</TABLE>
NOTE 3. CREDIT FACILITIES:
On March 26, 1999, the Company successfully completed the private placement of
$7 million in Senior Notes and $8 million in Senior Subordinated Notes, the
proceeds of which were used to reduce then-existing debt. The Senior and
Subordinated Notes bear interest at the fixed rates of 7.52 percent and 9.84
percent, respectively, and are due November 15, 2008. The Senior and
Subordinated Notes are to be repaid in equal annual installments of $1 million
and $2.67 million beginning in 2002 and 2006, respectively. With the placement
of these Notes, the Company satisfied certain provisions contained in its Series
A and Series B Senior Notes dated November 20, 1998, thereby reducing the annual
interest rates on those Notes from 7.48 percent and 7.82 percent, respectively,
to 7.18 percent and 7.52 percent, respectively.
7
<PAGE>
NOTE 4. SEGMENT DATA:
The Company has three operating segments as defined by the provisions of
Financial Accounting Standards Board Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"), North America,
Europe and Australasia and the Middle East. Intersegment sales are generally
recorded at market or equivalent value. Operating income by segment consists of
net sales less related costs and expenses.
Operating segment disclosures as required by SFAS 131 are as follows (IN
THOUSANDS):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
North America $ 53,538 $47,880 $ 99,539 $ 82,680
Europe 54,192 6,526 104,756 12,416
Australasia and the Middle East 12,384 10,597 22,626 20,150
-------- ------- -------- --------
Total Operating Segments 120,114 65,003 226,921 115,246
Intersegment Revenues (683) -- (1,074) --
-------- ------- -------- --------
Total Revenues $119,431 $65,003 $225,847 $115,246
======== ======= ======== ========
Operating Income:
North America $ 8,817 $ 7,584 $ 14,445 $ 12,450
Europe 4,181 703 8,342 1,129
Australasia and the Middle East 1,247 1,396 1,543 2,451
-------- ------- -------- --------
Total Operating Segments 14,245 9,683 24,330 16,030
Unallocated Corporate Expenses (1,689) (1,280) (3,609) (2,704)
-------- ------- -------- --------
Total Operating Income $ 12,556 $ 8,403 $ 20,721 $ 13,326
======== ======= ======== ========
</TABLE>
8
<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 JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------- -------------------------
PERCENTAGE OF PERCENTAGE OF
REVENUES PERCENTAGE REVENUES PERCENTAGE
------------------- CHANGE FROM -------------------- CHANGE FROM
1999 1998 PRIOR YEAR 1999 1998 PRIOR YEAR
-------- -------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 83.7% 100.0% 100.0% 96.0%
Costs and Expenses:
Cost of Revenues 51.2 45.8 105.5 51.6 45.2 124.1
Selling, General & Administrative 34.3 37.6 67.5 34.9 39.4 73.8
Amortization 2.0 1.9 100.0 2.2 2.0 106.7
Depreciation 2.0 1.8 98.8 2.1 1.8 124.1
------ ------ ------ ------ ------ ------
Operating Income 10.5 12.9 49.4 9.2 11.6 55.5
Interest Expense, Net 3.0 1.0 459.7 3.0 0.9 530.5
Equity Interest in Net (Income) Loss
of Affiliated Companies and
Other Expenses (0.4) 0.1 (497.1) (0.4) 0.3 (418.8)
------ ------ ------ ------ ------ ------
Income Before Income Taxes
and Minority Interests 7.9 11.8 22.3 6.6 10.4 23.9
Provision for Income Taxes 3.5 4.7 35.2 2.9 4.1 39.0
------ ------ ------ ------ ------ ------
Net Income Before
Minority Interests 4.4 7.1 13.7 3.7 6.3 14.1
Minority Interests .1 0.4 (56.6) .1 0.4 (37.5)
------ ------ ------ ------ ------ ------
Net Income 4.3% 6.7% 17.3% 3.6% 5.9% 17.2%
====== ====== ====== ====== ====== ======
</TABLE>
9
<PAGE>
OPERATIONS
The majority of the increases in the various components of the Company's results
of operations for the three and six month periods ended June 30, 1999, compared
with the same periods in 1998, are the result of the Company's 1998 acquisitions
as discussed in the Company's Annual Report on Form 10-K filed with the SEC on
March 31, 1999.
The Company's revenues for the three months ended June 30, 1999, increased $54.4
million, or 84%, to $119.4 million from $65.0 million for the same period last
year. For the six months ended June 30, 1999, revenues increased 96% to $225.8
million compared with $115.2 million in the prior year. These increases were
driven by double-digit growth across each of the Company's three operating
segments - North America, Europe, and Australasia and the Middle East. In total,
organic growth reached almost 9% for the quarter and 7% for the year-to-date
period.
For the second quarter, North American revenues grew 12%, largely as a result of
organic growth of 9%. This growth was attributed to continued strong performance
by the Company's North American Healthcare, Technologies and Panel Groups. For
the six months ended June 30, 1999, the North American revenues increased 20%,
with 13% driven by acquisitions. The North American Healthcare, Continuous
Tracking, Hi Tech/Telecommunications and Panel Groups all grew in excess of 10%
for the six month period, fueled by organic growth of 7%. Within Europe, second
quarter revenues were more than eight times those of the second quarter a year
ago, principally due to the inclusion of Infratest Burke, acquired in November
1998. Organic growth within Europe reached 16% for the second quarter and 7% for
the six months ended June 30, 1999. Revenue increases in Australasia and the
Middle East were led by strong growth in the Middle East as well as the first
time inclusion of Donovan Research in Australia. Total revenues grew 17% in this
region for the quarter and 12% for the year-to-date period, with organic growth
of 9% and 7%, respectively.
Cost of revenues increased $31.4 million, or 106%, in the second quarter to
$61.2 million from $29.8 million a year ago. For the six month period, cost of
revenues increased $64.6 million, or 124%, to $116.6 million from $52.0 million
in the prior year. These increases were primarily the result of increased
revenues in the Company's three operating segments as discussed above, as well
as the inclusion of the Company's newly acquired companies ($30.0 million and
$62.2 million for the quarter and year-to-date periods, respectively).
Selling, general and administrative expenses increased $16.5 million, or 68%, in
the second quarter to $40.9 million from $24.4 million in the same period last
year. Year-to-date selling, general and administrative expenses increased $33.5
million, or 74%, to $78.9 million from $45.4 million in the prior year. These
increases were predominately the result of the inclusion of the newly acquired
companies ($13.4 million and $27.5 million for the second quarter and
year-to-date periods, respectively), as well as increased staffing expenses
($2.0 million and $3.7 million for the quarter and year-to-date periods,
respectively). Increases were also effected by inflationary factors.
As a result of the items above, operating income for the quarter ended June 30,
1999, increased $4.2 million, or 49%, to $12.6 million from $8.4 million in the
same quarter a year ago. Year-to-date operating income increased $7.4 million,
or 55%, to $20.7 million from $13.3 million in the prior year. Second quarter
operating margins decreased to 10.5% from 12.9% for the same period last year
due to the inclusion of the newly acquired companies. Excluding the effect of
newly acquired companies, second quarter operating margins were consistent with
the same period last year.
10
<PAGE>
Year-to-date operating margins decreased to 9.2% from 11.6% in the prior year.
The primary causes of the year-to-date decline, which was in line with the
Company's expectations, were a) increased losses in the North American financial
services business as result of heightened competition within the industry
following recent bank mergers and consolidations, b) reduced profitability in
the Australasian operations as a result of continued competitive and market
pressures in that region and c) increased losses in the Company's Interactive
division during the first half of 1999 resulting from increased investments in
that operation.
Interest expense increased to $3.6 million from $.6 million for the second
quarter and increased to $6.8 million from $1.1 million for the six months ended
June 30, 1999, compared to the respective periods in the prior year. The
increases were due to additional borrowings in 1998 to fund acquisitions,
primarily the Infratest Burke acquisition in November 1998.
The Company's effective tax rate for the quarter ended June 30 1999, was 44.2%
compared to 40.0% for the same period last year. For the six months ended June
30, 1999, the effective tax rate increased to 44.2% from 39.5% in the prior
year. The increases were principally the result of the Company's recent
acquisitions being located in higher tax jurisdictions as well as the effect of
non-deductible goodwill associated with these acquisitions.
Net income for the second quarter of 1999 increased 17% to $5.1 million from
$4.4 million for the same period in 1998. For the six months ended June 30,
1999, net income increased 17% to $8.0 million from $6.8 million in the prior
year. Second quarter diluted earnings per share were $.23 compared to last
year's $.20 per share, an increase of 15%. Year-do-date diluted earnings per
share increased 13% to $.36 from $.32 for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of June 30, 1999, was $53.6 million compared to $31.9 million
at December 31, 1998. The increase in working capital resulted primarily from a
decline in accounts payable and accrued liabilities of $31.5 million and an
increase in receivables of $3.5 million, partially offset by a decrease in cash
and cash equivalents of $10.4 million and a decrease in other net current assets
of $2.9 million. The decreases in accounts payable and accrued liabilities were
attributed to 1999 payment of earn outs accrued as of year end totaling $4.4
million, payment of accrued bonuses totaling $4.0 million, payment of other
tax-related accruals totaling $3.2 million, as well as normal fluctuations in
the timing of the payment of invoices. The decrease in cash was attributed to
routine fluctuations as well as the cash portion of the 1999 earn out payments
totaling $5.0 million.
As of June 30, 1999, the Company had $45.5 million outstanding on its $75.0
million credit facility, $127.0 million outstanding in Senior Notes payable, and
$23.4 million of debt outstanding outside the United States. Total stockholders'
equity as of June 30, 1999, was $133.8 million.
Capital expenditures for the quarter ended June 30, 1999, were $3.5 million
compared to $3.7 million for the same period last year. Capital expenditures for
the six months ended June 30, 1999, were $8.1 million compared to $8.4 million
in the prior year. Capital expenditures for 1999 are anticipated to be
approximately $14 million.
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.
11
<PAGE>
YEAR 2000 ISSUES
The Company is currently working to resolve the Year 2000 issue. In early 1997,
the Company completed an impact analysis across all proprietary custom software
programs and systems. As a result of this analysis, affected programs are being
modified by the Company's programming departments to ensure future compliance.
Any new programs being developed are being made Year 2000 compliant from the
outset, while certain existing systems are being made Year 2000 compliant as
they are reengineered.
The Company operates subsidiaries and divisions worldwide. While many of these
operations are already Year 2000 compliant in hardware, software and embedded
systems, other operations are still in the process of upgrading their systems
for Year 2000 compliance. The Company is in the process of testing its mission
critical and non-critical systems and software for Year 2000 compliance by using
a series of Year 2000 test dates. In instances where the Year 2000 dates are not
properly processed, the systems and software are upgraded and re-tested as
necessary for Year 2000 compliance. Mission critical applications and systems
have been prioritized for Year 2000 compliance, and the majority of those
systems are already compliant.
The Company believes the most likely worst case scenario would be for a
non-critical application or system to not be Year 2000 compliant on January 1,
2000. The Company's contingency plan includes manually addressing non-critical
applications and systems compliance problems. Additionally, the Company has the
ability to readily outsource many of its data collection and processing
processes should the need arise.
The Company is also coordinating with clients, vendors, affiliates and other
outside parties who may affect, or be affected by, the Company's plans to
address the Year 2000 issue. The Company sent surveys to these outside parties
inquiring as to their status in addressing the Year 2000 issue within their
respective organizations. Although the results of those surveys are still being
gathered and analyzed, the Company does not believe the effect of non-compliance
with Year 2000 on the part of any individual or group of outside parties would
have a material negative impact on the Company's day-to-day operations.
The Company originally targeted January 1, 1999, to complete Year 2000
compliance of mission critical systems, including third-party and supply chain
vendors. Although the majority of the Company's subsidiaries have met this
target, certain newly acquired entities are still being analyzed for compliance.
The Company estimates that total Year 2000 compliance costs incurred from 1997
through June 30, 1999, were approximately $800,000, and the estimated future
cost to complete Year 2000 compliance is approximately $400,000, including
capital expenditures of approximately $250,000. Although the Company has taken
the steps outlined above to address the Year 2000 issue, management cannot fully
assure Year 2000 compliance due to the unprecedented nature of the Year 2000
issue.
THE EURO CONVERSION
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency, the Euro. The Company conducts business in member
countries. The transition period for the Euro is from January 1, 1999, to June
30, 2002. The Company is addressing the issues involved with the introduction of
the Euro. The more important issues include converting information technology
systems, reassessing currency risk, and processing accounting and tax records.
12
<PAGE>
Based upon progress to date, the Company believes that use of the Euro will not
have a significant impact on the manner in which the Company conducts its
business and processes its accounting records. Accordingly, conversion to the
Euro is not expected to have a material effect on the Company's financial
condition or results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
As certain of the statements made in this Form 10-Q are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995), they involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, clients' timing of new product introductions and reformulations,
clients' marketing budgets, industry and economic conditions, changes in
management or ownership of a client, the effect of the Company's competition on
client purchasing decisions, the strategic decisions of the Company's management
team, the extent to which the Company is successful in developing and marketing
its interactive marketing research techniques, the effect of foreign exchange
rate fluctuations, and other factors referenced in this report. In addition, the
success of the Company's worldwide expansion efforts is dependent in part upon
the successful application of NFO's methodologies to different business and
consumer environments. To understand the additional risks which may affect the
Company's future performance, please refer to Part 1 of NFO's 1998 Annual Report
on Form 10-K filed on March 31, 1999.
13
<PAGE>
PART II OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1 NFO Research, Inc. Directors' Stock Option Plan dated as of May 11,
1999.
27 Financial Data Schedule
(A) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K for the quarter ended June 30,
1999.
14
<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: AUGUST 13, 1999 /s/ PATRICK G. HEALY
--------------------
Patrick G. Healy,
President - Australasia & the Middle East,
and Chief Financial Officer
(Authorized Officer of Registrant and
Principal Financial Officer)
15
NFO RESEARCH, INC. DIRECTORS' STOCK OPTION PLAN
-----------------------------------------------
1. Purpose. The NFO Research, Inc. Directors' Stock Option Plan (the
"Plan") has been established by NFO Research, Inc., a Delaware corporation (the
"Company"), to secure for the Company and its stockholders the benefits arising
from capital ownership by those non-employee directors of the Company and its
Subsidiaries (as defined below) who will be responsible for its future growth
and continued success. The Plan will provide a means whereby such individuals
may purchase shares of the Common Stock of the Company pursuant to options that
are not intended to qualify as incentive stock options under section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The term "Subsidiary"
means each corporation of which the Company owns directly or indirectly at least
50% of the total combined voting power of all classes of stock entitled to vote.
2. Administration. The Plan is intended to be a largely self- governing
plan. To the extent, if any, that questions of administration arise, these shall
be resolved by the Board of Directors of the Company (the "Board of Directors").
Any interpretation of the Plan by the Board of Directors and any decision made
by the Board of Directors on any other matter within its discretion is final and
binding on all persons. No member of the Board of Directors shall be liable for
any action or determination made with respect to the Plan.
3. Participation. Each member of the Company's Board of Directors who
is not an employee of the Company or a Subsidiary shall be a "Participant" in
the Plan. Upon a Participant's initial election to the Company's Board of
Directors, such Participant shall receive an option to purchase 22,500 Shares.
Upon re-election to the Board of Directors, each Participant shall receive, on
the date of annual meeting of the Company's stockholders, an option to purchase
an additional 15,000 Shares.
Notwithstanding the foregoing, each Participant who is a Director on
the Company's Board of Directors on the date of the 1999 annual meeting of the
Company's stockholders shall receive, on the date of such meeting, an option to
purchase 45,000 Shares. No options shall be granted such Participants upon
re-election at the 2000 and 2001 annual meetings of the Company's Stockholders.
Thereafter, each such Participant who is re-elected to the Board of Directors at
and after the 2002 annual meeting of the Company's stockholders shall receive,
on the date of each such annual meeting of the Company's stockholders, an option
to purchase an additional 15,000 Shares.
4. Shares Subject to the Plan. Subject to the provisions of paragraph
12, the aggregate number of Shares for which options may be granted under the
Plan shall not exceed 360,000 Shares. If, as to any number of Shares, any
<PAGE>
2
option granted pursuant to the Plan shall expire or terminate for any reason
without all Shares subject to such option being issued, such number of unissued
Shares shall again be available for grant under the Plan.
5. Option Price. The price at which a Share may be purchased pursuant
to the exercise of an option under the Plan shall not be less than the Fair
Market Value (as defined below) of a Share on the date an option is awarded
under the Plan. Subject to the provisions of paragraph 12, for all purposes of
the Plan the "Fair Market Value" of a Share as of any date means (i) the closing
price of a Share on that date on the principal national securities exchange or
automated interdealer quotation system on which the Shares are traded, or (ii)
if the Shares are not traded on any securities exchange or quoted on an
automated interdealer quotation system, the fair market value of the Shares
determined by the Board of Directors in its sole discretion.
6. Option Expiration Date. The "Expiration Date" with respect to an
option or any portion thereof granted to a participant under the Plan means the
date which is five years after the date on which the option is granted. All
rights to purchase Shares pursuant to an option shall cease as of the option's
Expiration Date.
7. Exercise of Options. Each option shall be exercisable, either in
whole or in part, at any time after the date the option was awarded and before
the fifth anniversary of such date. A Participant may exercise an option by
giving written notice thereof prior to the option's Expiration Date to the Chief
Executive Officer of the Company at the Company's corporate headquarters.
Contemporaneously with the delivery of such notice, the full purchase price of
the Shares purchased pursuant to the exercise of a stock option, together with
any required state or federal withholding taxes, shall be paid (i) in cash, (ii)
by tender of stock certificates held by the Participant for at least six months,
in proper form for transfer to the Company representing Shares valued at the
Fair Market Value of the stock on the preceding day, (iii) by any combination of
the foregoing, or (iv) by a written assignment of the proceeds of sale of the
Shares purchased pursuant to the option exercised. Notwithstanding the
foregoing, upon the exercise of an option requiring tax withholding, a
Participant may make a written election to have Shares withheld by the Company
from the Shares otherwise to be received. The number of Shares so withheld shall
have an aggregate Fair Market Value sufficient to satisfy the applicable
withholding taxes.
8. Compliance with Applicable Laws. Notwithstanding any other provision
in the Plan, the Company shall have no liability to issue any Shares under the
Plan unless such issuance would comply with all applicable laws and applicable
requirements of any securities exchange or similar entity. Prior to the issuance
of any Shares under the Plan, the Company may require a written statement that
the recipient is acquiring the Shares for investment and not for the intention
of distributing the Shares.
<PAGE>
3
9. Death of Participant. In the event of the death of a Participant,
any options which the Participant was entitled to exercise on the date
immediately preceding his death shall be exercisable by the person or persons to
whom that right passes by will or by the laws of descent and distribution for a
period of three months after the date of death, but no later than the option's
Expiration Date. Any such exercise shall be by written notice thereof filed with
the Chief Executive Officer of the Company at the Company's corporate
headquarters prior to the option's Expiration Date.
10. Transferability. Options under the Plan are not transferable except
by will or by the laws of descent and distribution or, to the extent not
inconsistent with the applicable provisions of the Code, pursuant to a qualified
domestic relations order (as that term is defined in the Code). Options may be
exercised during the lifetime of the Participant only by the Participant, and
after the death of the Participant, only as provided in paragraph 9.
11. Right of Discharge and Stockholder Status. Nothing in the Plan
shall confer upon any Participant the right to continue to serve as a director
of the Company or affect any right that the Board of Directors or the Company's
stockholders may have to terminate the service of such Participant. The grant of
an option under the Plan shall not confer upon the holder thereof any right as a
stockholder of the Company. No person entitled to exercise any option granted
under the Plan shall have any of the rights or privileges of a stockholder of
record with respect to any Shares issuable upon exercise of such option until
certificates representing such Shares have been issued and delivered. If the
redistribution of Shares is restricted pursuant to paragraph 8, certificates
representing such Shares may bear a legend referring to such restrictions.
12. Adjustments to Number of Shares Subject to the Plan and to Option
Terms. Subject to the following provisions of this paragraph 12, in the event of
any change in the outstanding Shares by reason of any stock dividend, stock
split, recapitalization, merger, consolidation, combination, exchange of shares
or other similar corporate change, an appropriate and proportionate adjustment
shall be made in the number and kind of Shares subject to options outstanding or
to be granted under the Plan. Any such adjustment in any outstanding option
shall be made without change in the aggregate purchase price applicable to the
unexercised portion of such option but with a corresponding adjustment in the
price for each Share covered by such option as well as the adjustment in the
number and kind of Shares mentioned above. Adjustments under this paragraph 12
shall be made by the Board of Directors, whose determination as to what
adjustments shall be made and the extent thereof, shall be final, binding and
conclusive. In no event shall the purchase price for a Share be adjusted below
the par value of such Share, nor shall any fraction of a Share be issued upon
the exercise of an option.
<PAGE>
4
13. Agreement with Company. Each option grant is contingent upon the
execution by the Participant of a stock option agreement with the Company in the
form of Exhibit A hereto.
14. Term of Plan. Subject to the approval of the stockholders of the
Company, the Plan shall be effective February 23, 1993. No options may be
granted under the Plan after February 1, 2003.
15. Amendment and Termination of Plan. Subject to any approval of the
stockholders of the Company which may be required by law (including under Rule
16b-3), the Board of Directors of the Company may at any time amend, suspend or
terminate the Plan; provided that the provisions of the Plan with respect to
eligibility for participation or the number, timing or pricing of options
granted may not be amended more frequently than once in any six-month period
except to comply with changes in the Code, the Employee Retirement Income
Security Act of 1974, as amended, or the regulations thereunder. No amendment,
suspension or termination of the Plan shall alter or impair any rights under any
option previously granted under the Plan without the consent of the holder
thereof.
AS AMENDED THROUGH MAY 11, 1999
<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 June 30, 1999, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000897940
<NAME> NFO Worldwide, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 7,303
<SECURITIES> 0
<RECEIVABLES> 125,231
<ALLOWANCES> 927
<INVENTORY> 0
<CURRENT-ASSETS> 149,218
<PP&E> 78,852
<DEPRECIATION> 32,148
<TOTAL-ASSETS> 442,531
<CURRENT-LIABILITIES> 95,647
<BONDS> 197,026
0
0
<COMMON> 222
<OTHER-SE> 133,623
<TOTAL-LIABILITY-AND-EQUITY> 442,531
<SALES> 225,847
<TOTAL-REVENUES> 225,847
<CGS> 116,627
<TOTAL-COSTS> 205,126
<OTHER-EXPENSES> (1,174)
<LOSS-PROVISION> (24)
<INTEREST-EXPENSE> 7,050
<INCOME-PRETAX> 14,845
<INCOME-TAX> 6,568
<INCOME-CONTINUING> 8,025
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,025
<EPS-BASIC> .37
<EPS-DILUTED> .36
</TABLE>
