<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------------------------------------------
FORM 8 - K/A
AMENDMENT NO.1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): August 5, 1999
(May 26, 1999)
----------------------
OPINION RESEARCH CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 000-22554 22-3118960
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No. )
23 Orchard Road, Skillman, NJ 08558
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (908) 281-5100
----------------
<PAGE>
Item 2. Acquisition
On June 9, 1999 the Registrant filed with the Securities and Exchange
Commission a Current Report on Form 8-K (the "June 8-K") regarding its May 26,
1999 acquisition of all of the outstanding capital stock of Macro International,
Inc., a Delaware corporation ("Macro"), pursuant to a certain Stock Purchase
Agreement (the "Agreement"), dated April 30, 1999, by and among the Registrant
and the stockholders of Macro.
In accordance with Rule 3-05(b)(i) and Article 11 under Regulation S-X,
as referenced by Items 7(a) and 7(b) of Form 8-K, the Registrant is required to
furnish (i) the below-listed financial statements of Macro and (ii) certain pro
forma information with regard to the Registrant in filing its Form 8-K. The
Registrant hereby amends the June 8-K to file such financial statements and pro
forma information, in accordance with Item 7(a)(4) of Form 8-K.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements of the acquired business. The following financial
statements are included herein.
I. Consolidated Financial Statements of Macro International, Inc. and
Subsidiaries
Independent Auditor's Report
Consolidated Balance Sheets as of April 30, 1998 and 1999
Consolidated Statements of Income for the years ended April 30, 1997, 1998
and 1999
Consolidated Statements of Stockholders' Equity for the years ended
April 30, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the years ended April 30, 1997,
1998 and 1999
Notes to Consolidated Financial Statements
(b) Pro forma financial information
The following pro forma financial information is included herein:
I. Pro Forma Consolidated Financial Statements of Opinion Research Corporation
Introduction
Pro Forma Consolidated Balance Sheet as of March 31, 1999 (unaudited)
Pro Forma Consolidated Statement of Operations for the Three Months Ended
March 31, 1999 (unaudited)
Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1998 (unaudited)
Notes to Pro Forma Consolidated Financial Statements
(c.) Exhibits
<PAGE>
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 hereunto duly authorized.
Opinion Research Corporation
Dated: August 6, 1999 By: /s/ Douglas L. Cox
--------------------------------
Douglas L. Cox
Executive Vice President and
Chief Financial Officer
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
TITLE PAGE
----- ----
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................1
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS......................................................................2 - 3
CONSOLIDATED STATEMENTS OF INCOME ...................................................................4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY..................................................5 - 6
CONSOLIDATED STATEMENTS OF CASH FLOWS............................................................7 - 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS......................................................9 - 21
</TABLE>
<PAGE>
Independent Auditor's Report
Board of Directors
MACRO INTERNATIONAL INC.
Beltsville, Maryland
We have audited the accompanying Consolidated Balance Sheets of MACRO
INTERNATIONAL INC. AND SUBSIDIARIES as of April 30, 1999 and 1998, and the
related Consolidated Statements of Income, Stockholders' Equity and Cash Flows
for the years ended April 30, 1999, 1998 and 1997. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the accompanying consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of MACRO INTERNATIONAL INC. AND SUBSIDIARIES as of April 30, 1999 and
1998, and the results of their operations and their cash flows for the years
ended April 30, 1999, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Aronson, Fetridge & Weigle
- -----------------------------------
Rockville, Maryland
June 17, 1999
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1998 AND 1999
<TABLE>
<CAPTION>
ASSETS
1998 1999
--------------- ---------------
<S> <C> <C>
CURRENT ASSETS
Cash (Note 1) $ 266,229 $ 60,143
Accounts receivable - contracts (Notes 1, 3, 5 and 6) 17,166,534 17,248,636
Deferred income taxes (Notes 1 and 7) 90,534 207,025
Income tax receivable - 34,599
Other 180,531 263,855
--------------- ---------------
Total current assets 17,703,828 17,814,258
--------------- ---------------
PROPERTY AND EQUIPMENT, AT COST (NOTES 1, 4, 5 AND 6)
Furniture, fixtures and equipment 6,358,903 7,332,248
Leasehold improvements 267,632 258,349
Leased equipment under capital leases 504,700 370,136
--------------- ---------------
Total 7,131,235 7,960,733
Less: Accumulated depreciation and amortization (3,974,944) (5,043,385)
--------------- ---------------
Net property and equipment 3,156,291 2,917,348
--------------- ---------------
OTHER ASSETS
Deposits 261,639 224,017
Goodwill, net of accumulative amortization of $77,516 and $170,535 at
April 30, 1998 and 1999, respectively (Notes 1 and 2) 1,317,769 1,224,750
Investment in limited partnership (Note 1) 1,000,000 1,000,000
Other 28,249 -
--------------- ---------------
Total other Assets 2,607,657 2,448,767
--------------- ---------------
TOTAL ASSETS $ 23,467,776 $ 23,180,373
=============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - line of credit (Note 5) $ 6,475,659 $ 5,248,782
Current portion of long-term debt (Note 6) 708,642 131,922
Accounts payable 764,542 1,983,668
Accrued salaries and expenses 2,844,307 2,981,371
Payroll taxes accrued and withheld 779,076 721,343
Other liabilities 131,547 -
Income taxes payable 190,615 -
Deferred income taxes (Notes 1 and 7) 69,037 69,312
--------------- ---------------
Total current liabilities 11,963,425 11,136,398
--------------- ---------------
LONG-TERM LIABILITIES, NET OF CURRENT PORTION
Long-term debt (Note 6) 131,500 37,570
Accrued rent payable (Note 4) 616,873 677,008
Deferred income taxes (Notes 1 and 7) 397,077 322,994
--------------- ---------------
Total long-term liabilities 1,145,450 1,037,572
--------------- ---------------
Total liabilities 13,108,875 12,173,970
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTES 4, 9 and 12)
STOCKHOLDERS' EQUITY (NOTES 8, 9 AND 10)
Common stock, $1 par value per share; 1,000,000 shares authorized, 323,394
shares issued in 1998 and 1999 323,394 323,394
Retained earnings 10,355,483 11,819,041
--------------- ---------------
Total 10,678,877 12,142,435
Less: Treasury stock, at cost, 4,389 and 22,839 shares in 1998 and 1999,
respectively (319,976) (1,136,032)
--------------- ---------------
Total stockholders' equity 10,358,901 11,006,403
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 23,467,776 $ 23,180,373
=============== ===============
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
CONTRACT REVENUE (NOTE 1) $ 53,907,610 $ 57,427,988 $ 62,961,253
--------------- --------------- ---------------
DIRECT CONTRACT COSTS (NOTE 1) 30,221,802 31,716,253 35,036,691
--------------- --------------- ---------------
GROSS MARGIN ON REVENUE 23,685,808 25,711,735 27,924,562
--------------- --------------- ---------------
INDIRECT COSTS (NOTE 1)
Other operating costs and expenses 16,471,647 18,572,924 20,030,369
Selling, general and administrative 3,514,897 3,754,449 4,128,358
--------------- --------------- ---------------
Total 19,986,544 22,327,373 24,158,727
--------------- --------------- ---------------
INCOME FROM OPERATIONS 3,699,264 3,384,362 3,765,835
--------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 33,084 28,304 1,469
Interest expense (447,168) (563,959) (403,204)
Other income/expense - (77,516) (112,585)
Loss on disposal of assets (17,905) - (9,133)
Merger costs - - (235,607)
Loss on closure of subsidiaries (Note 11) - - (633,642)
--------------- --------------- ---------------
Total (431,989) (613,171) (1,392,702)
--------------- --------------- ---------------
INCOME BEFORE PROVISION FOR INCOME TAXES 3,267,275 2,771,191 2,373,133
PROVISION FOR INCOME TAXES (NOTES 1 AND 7) 1,158,232 909,880 808,926
--------------- --------------- ---------------
NET INCOME $ 2,109,043 $ 1,861,311 $ 1,564,207
=============== =============== ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
Common Stock Capital Unallocated
---------------------------- In excess of Retained Treasury ESOP
Shares Amount Par Value Earnings Stock Shares Total
------------- ------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 30, 1996 323,394 $ 323,394 $ 890,655 $ 6,819,148 $ (1,279,506) $ (1,191,883) $ 5,561,808
TREASURY STOCK TRANSACTIONS
Purchase of 2,149 shares
of common stock for
treasury (Note 10) - - - - (82,328) - (82,328)
Sale of 8,444 shares of
common stock from
treasury (Note 8) - - (890,655) (48,125) 1,252,590 - 313,810
ESOP TRANSACTIONS
Purchase of 6,336
shares of common
stock for treasury
from terminated
participants
(Note 10) - - - - (242,706) - (242,706)
Release of
unallocated
ESOP shares - - - - - 700,000 700,000
CASH DIVIDEND DECLARED AND
PAID OF $.75 PER SHARE
NonESOP and allocated
ESOP shares - - - (207,460) - - (207,460)
Unallocated ESOP share: - - - - - 28,664 28,664
NET INCOME FOR THE YEAR - - - 2,109,043 - - 2,109,043
------------- ------------- ------------ ------------- -------------- ------------- ------------
BALANCE, APRIL 30, 1997 323,394 323,394 - 8,672,606 $ (351,950) $ (463,219) $ 8,180,831
TREASURY STOCK
TRANSACTIONS
Purchase of 200 shares
of common stock for
treasury (Note 10) - - - - (9,298) - (9,298)
Sale of 561 shares
of common stock
from treasury
(Note 8) - - - (18,962) 41,272 - 22,310
ESOP TRANSACTIONS
Release of unallocated
ESOP shares - - - - - 463,219 463,219
CASH DIVIDEND DECLARED
AND PAID OF $.50 PER
SHARE
NonESOP and allocated
ESOP shares - - - (159,472) - - (159,472)
NET INCOME FOR THE YEAR - - - 1,861,311 - - 1,861,311
------------- ------------- ------------ ------------- ------------- ------------- ------------
BALANCE, APRIL 30, 1998 323,394 323,394 - 10,355,483 (319,976) - 10,358,901
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (CONTINUED)
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
Capital Unallocated
Common In excess of Retained Treasury ESOP
Shares Stock Par Value Earnings Stock Shares Total
------------- ------------- ------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
TREASURY STOCK
TRANSACTIONS
Purchase of 24,400
shares of common
stock for
treasury
(Note 10) - $ - $ - $ $ (1,197,537) $ - $ (1,197,537)
Sale of 5,910 shares
of common stock
from treasury 381,481 - 280,832
(Note 8) - - - (100,649)
NET INCOME FOR THE YEAR - - - 1,564,207 - - 1,564,207
------------- ------------- ------------- ----------- ------------- ------------- -------------
BALANCE, APRIL 30, 1999 323,394 $ 323,394 $ - $11,819,041 $ (1,136,032) $ - $ 11,006,403
============= ============= ============= =========== ============= ============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,109,043 $ 1,861,311 $ 1,564,207
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 999,247 1,171,185 1,273,238
Loss on disposal of assets 17,905 - 9,133
Loss on closure of foreign subsidiaries - - 159,229
Release of unallocated ESOP shares 728,664 463,219 -
(Increase) decrease in assets
Accounts receivable - contracts (662,264) (2,161,288) (82,102)
Other current assets 10,251 320,774 (83,324)
Income tax receivable - - (34,599)
Other assets (13,342) 53,093 28,249
Deferred income taxes - (90,534) (116,491)
Increase (decrease) in liabilities
Accounts payable 145,001 (966,733) 1,219,126
Accrued salaries and expenses (313,101) 303,893 137,064
Payroll taxes accrued and withheld 41,235 257,992 (57,733)
Other liabilities (63,710) 113,287 (131,547)
Income taxes payable 123,371 (100,438) (190,615)
Accrued rent payable 26,808 40,423 60,135
Deferred income taxes (102,095) 19,324 (73,808)
--------------- --------------- ---------------
Net cash provided by operating activities 3,047,013 1,285,508 3,680,162
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (682,790) (1,076,260) (1,109,638)
Purchase of common stock of Quantum Research Corporation, net
of acquired cash - (1,123,812) -
Deposits refunded (placed) 429 (12,163) 37,622
--------------- --------------- ---------------
Net cash used by investing activities (682,361) (2,212,235) (1,072,016)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable - line of credit 31,853,255 34,354,788 44,362,028
Principal payments on note payable - line of credit (32,867,700) (31,936,000) (45,588,865)
Curtailment of long-term debt (1,049,623) (1,319,027) (670,690)
Acquisition of common stock for treasury (325,034) (9,298) (1,197,537)
Proceeds from sale of common stock 313,810 22,310 280,832
Payment of dividends (207,460) (159,472) -
--------------- --------------- --------------
Net cash (used) provided by financing
activities (2,282,752) 953,301 (2,814,232)
--------------- --------------- --------------
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED APRIL 30, 1997, 1998 AND 1999
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH $ 81,900 $ 26,574 $ (206,086)
CASH, BEGINNING OF YEAR 157,755 239,655 266,229
--------------- --------------- ---------------
CASH, END OF YEAR $ 239,655 $ 266,229 $ 60,143
=============== =============== ===============
SUPPLEMENTAL CASH FLOW INFORMATION Actual cash payments for:
Interest $ 480,278 $ 563,959 $ 403,204
=============== =============== ===============
Federal and state income taxes $ 1,136,956 $ 699,240 $ 1,224,259
=============== =============== ===============
NON-CASH INVESTING ACTIVITIES
Purchase price of Quantum Research Corporation (Note 2) $ 3,240,000
Note payable to former owners (648,000)
Cash component of subsidiary (1,468,188)
----------------
Net cash paid for acquired assets $ 1,123,812
===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated financial statements.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
(A) Organization and principles of consideration
Macro International Inc. was organized in May 1966 in the State of
Maryland and became a Delaware corporation in 1972. The Company provides
research, management consulting and information technology services to
governmental agencies and commercial organizations.
The accompanying financial statements include the accounts of Macro
International Inc. and its wholly-owned subsidiaries, Macro International Sp.
Zoo, which was located in Poland, Macro International Z.A.O. which was located
in Russia, Macro International Kft which was located in Hungary, and Quantum
Research Corporation, which was acquired on June 30, 1997 (Note 2), collectively
called "the Company." All intercompany transactions have been eliminated in
consolidation.
Effective January 31, 1999, the Company closed the operations of its
subsidiaries Macro International Sp. Zoo. Macro International, Z.A.O. and Macro
International Kft (Note 11). These subsidiaries engaged primarily in research
and consulting services to commercial organizations.
Quantum Research Corporation engages primarily in consulting in the
public and private sectors on the design, implementation and use of large
statistical information systems.
(B) Use of accounting estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(C) Cash and cash equivalents
For purposes of financial statement presentation, the Company considers
all highly liquid debt instruments with initial maturities of ninety days or
less to be cash equivalent.
The Company maintains cash balances which may exceed Federally insured
limits. The Company does not believe that this results in any significant credit
risk.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(D) Contract revenue
Revenue from cost-type contracts is recognized as costs are incurred on
the basis of direct costs plus allowable indirect costs and an allocable portion
of the fixed fee.
Revenue from fixed-price type contracts is recognized under the
percentage-of-completion method of accounting, with costs and estimated profits
included in contract revenue as work is performed. If actual and estimated costs
to complete a contract indicate a loss, provision is made currently for the loss
anticipated on the contract.
Revenue from time and materials contracts is recognized as costs are
incurred, at amounts represented by the agreed-upon billing amounts.
Revenue recognized on contracts for which billings have not been
presented to customers is reflected in the Accounts Receivable Contracts
classification on the Balance Sheets as detailed in Note 3.
(E) Property and equipment
Property and equipment are recorded at original cost to the Company and
are depreciated over estimated useful lives ranging from three to ten years
using the straight-line method.
Leasehold improvements are amortized over the period of the lease or
estimated useful life of the improvement, whichever is shorter.
(F) Investment in unconsolidated subsidiaries
Prior to 1998, the Company owned 50% of the common stock of Macro-TQI, a
Hungarian company. Because of its insignificance in relation to the consolidated
financial statements, the investment was accounted for on the cost method and
excluded from the amounts reported in the consolidated financial statements.
During 1998, the other 50% shareholders forfeited their shares in Macro TQI and
the Company contributed the net assets to a newly formed wholly owned
subsidiary, Macro International Kft. The results of operations for Macro
International Kft are included in the accompanying consolidated financial
statements for 1998 and 1999.
(G) Goodwill
Goodwill represents the excess of the purchase price over the estimated
fair value of the net assets acquired in the purchase of Quantum Research
Corporation (Note 2) and is being amortized on the straight-line basis over a
fifteen-year period.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES)
(CONTINUED)
(H) Investment in limited partnership
During 1993, the Company acquired a 4.72% limited partnership interest
in the National Tax Credit Fund 27, a registered tax shelter partnership. The
investment is carried at cost because management believes that its interest is
so minor that it has no ability to influence the partnerships operating and
financial policies and estimates that cost approximates fair value.
(I) Income taxes
The Company files its income tax return using the accrual basis of
accounting. Certain transactions, principally retention, depreciation and
accrued vacation, affect different periods for financial statement and tax
reporting purposes. Deferred Federal and state income taxes are provided for
these temporary differences.
(J) Reclassification
Certain amounts in the accompanying 1997 and 1998 financial statements
have been reclassified to conform with the 1999 presentation.
NOTE 2 - PURCHASE OF SUBSIDIARY
On June 30, 1997, the Company acquired all the outstanding common stock
of Quantum Research Corporation in a transaction accounted for as a purchase.
The results of Quantum's operations are included in the Company's 1998 and 1999
Consolidated Statement of Income from the date of acquisition.
The components of the acquisition are as follows:
<TABLE>
<S> <C>
Goodwill $ 1,395,285
Cash 1,468,189
Accounts receivable 902,696
Property and equipment 191,498
Advances 290,500
Prepaid expenses 9,943
Deposits 17,617
Deferred income taxes (335,866)
Accounts payable (7,210)
Accrued salaries and expenses (504,954)
Income taxes payable (76,799)
Accrued rent payable (78,048)
Capital lease obligations (32,851)
---------------
Total $ 3,240,000
===============
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 2 - PURCHASE OF SUBSIDIARY (CONTINUED)
Revenues subsequent to acquisition for the years ended April 30, 1998
and 1999 were $5,221,283 and $6,729,006, respectively, and amortization of
goodwill for the years ended April 30, 1998 and 1999 was $77,516 and $93,019,
respectively, which has been included in other income (expense) in the
accompanying Consolidated Statement of Operations.
NOTE 3 - ACCOUNTS RECEIVABLE
The accounts receivable consist mainly of billed accounts, retention
and unbilled recoverable amounts under contracts in progress with governmental
units, primarily with U.S. civilian and defense governmental agencies with no
major concentration in any one agency. The components of accounts receivable are
as follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Billed receivables $ 14,795,445 $ 14,806,437
Unbilled receivables 1,956,609 1,975,868
Retention 414,480 541,331
Allowance for doubtful accounts - (75,000)
--------------- ---------------
Total $ 17,166,534 $ 17,248,636
=============== ===============
</TABLE>
All billed and unbilled receivable amounts are expected to be
collected during the next fiscal year. Substantially all the retention relates
to cost contracts and can only be invoiced upon completion of Federal government
indirect cost audits, which the Company does not believe will occur within the
next fiscal year. Therefore, the retention amounts are not anticipated to be
collected within the next fiscal year. It has been the Company's policy not to
require collateral to support its accounts receivable.
At April 30, 1997, 1998 and 1999, the billed accounts receivable are
pledged as collateral on a line of credit arrangement (Note 5).
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 4 - LEASES
(A) Capital leases
The Company leases equipment as lessee under long-term lease
arrangements that are classified as capital leases. The following is a schedule
by years of future minimum lease payments, together with the net present value
of future minimum lease payments as of April 30, 1999:
Year Ending
April 30 Amount
------------ -----------
2000 $ 67,962
2001 31,598
2002 7,099
2003 2,958
-----------
Total future minimum lease payments 109,617
Less: Amount representing interest 23,632
-----------
Net present value of future minimum lease payments $ 85,985
===========
The amount necessary to reduce the minimum lease payments to their net
present value is calculated at the interest rate implicit in the leases, which
ranges from 8% to 25%. The net present value of the minimum lease payments and
other balances related to capitalized leases at April 30, 1999 are included in
long-term debt (Note 6) in the accompanying financial statements as follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Capital lease obligation
Current portion $ 111,659 $ 48,415
Long-term portion 54,724 37,570
--------------- ---------------
Total capital lease obligation $ 166,383 $ 85,985
=============== ===============
Leased Equipment under capital leases
Original asset values $ 504,700 $ 370,136
Less: Accumulated amortization (310,262) (247,374)
--------------- ---------------
Net book value $ 194,438 $ 122,762
=============== ===============
Amortization expense $ 80,104 $ 76,313
=============== ===============
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 4 - LEASES (CONTINUED)
(B) Operating leases
The Company is obligated under noncancellable operating leases for its
office space with the majority of its space in various locations throughout the
United States. Most leases provide for periodic fixed increases in required
rental payments. Noncontingent rental payments are expensed on a pro rata basis
over the term of the lease. The difference between the expense and the required
lease payments at the balance sheet date is reflected as accrued rent payable in
the accompanying Consolidated Balance Sheets. The leases for office space expire
at various dates through August 2006.
The following is a schedule by year of future minimum rental payments
required under operating leases that have an initial or remaining noncancellable
lease term in excess of one year, as of April 30, 1999:
<TABLE>
<CAPTION>
Year Ending
April 30 Amount
<S> <C>
2000 $ 2,757,834
2001 2,779,991
2002 2,844,708
2003 2,870,800
2004 1,480,007
Thereafter 1,546,916
Total $ 14,280,256
===============
</TABLE>
Total rent expense charged to operations for the years ended April 30,
1997, 1998 and 1999 was $2,097,357, $2,539,769 and $2,902,660, respectively.
NOTE 5 - NOTES PAYABLE - LINE OF CREDIT
The Company entered into a line of credit arrangement with First
Virginia Commercial Corporation in September 1994, that has been renewed
annually since that time. Interest on this line of credit is payable monthly at
the 30-day London Interbank Offered Rate plus 200 basis points at April 30, 1998
and 1999. The line of credit is secured by all the assets of the Company. The
maximum amount available under the line of credit arrangement at April 30, 1998
and 1999 was $9,000,000. The balance outstanding at April 30, 1998 and 1999 was
$6,475,659 and $5,248,782, respectively.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 6 - LONG-TERM DEBT
At April 30, 1998 and 1999, long-term debt consisted of:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Note to First Virginia Commercial Corporation - principle payable in twelve
consecutive equal quarterly installments of $108,333, with monthly interest
payments required at the prime rate, secured by substantially all of the
general corporate assets of the Company $ 464,667 $ 31,333
Note to William M. Sowers - unsecured promissory note, payable in four
consecutive equal annual principal installments of $52,174, plus interest
at 8.75% 104,347 52,174
Note to Robert W. Dahlin - unsecured promissory note, payable in four
consecutive equal annual principal installments of $104,745, plus
interest at 8.75% 104,745 -
Obligations under capital leases (Note 4) 166,383 85,985
--------------- ---------------
Total 840,142 169,492
Less: Current portion (708,642) (131,922)
--------------- ---------------
Net long-term debt $ 131,500 $ 37,570
=============== ===============
</TABLE>
The weighted average interest rate for long term debt for the years
ended April 30, 1997, 1998 and 1999 was 9.4%, 9.37% and 10.1%, respectively.
At April 30, 1999, the schedule of future principal maturities for
long-term obligations is as follows:
<TABLE>
<CAPTION>
Year Ending
April 30 Amount
----------- ----------------
<S> <C>
2000 $ 131,922
2001 28,159
2002 6,157
2003 3,254
----------------
Total $ 169,492
================
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 7 - INCOME TAXES
For the years ended April 30, 1997, 1998 and 1999, the components of
the provision for income taxes consisted of:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- --------------- ---------------
<S> <C> <C> <C>
Current
Federal $ 963,900 $ 852,253 $ 701,046
State 296,427 128,837 298,179
--------------- --------------- ---------------
Total 1,260,327 981,090 999,225
--------------- --------------- ---------------
Deferred
Federal (80,742) (47,650) (165,501)
State (21,353) (23,560) (24,798)
--------------- --------------- ---------------
Total (102,095) (71,210) (190,299)
--------------- --------------- ---------------
Provision for income taxes $ 1,158,232 $ 909,880 $ 808,926
=============== =============== ===============
</TABLE>
A reconciliation of the provision for income taxes to the income taxes
computed using statutory rates is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Tax computed at graduated Federal
statutory rate $ 1,110,874 $ 942,205 $ 806,865
State income taxes, net of Federal income
tax effect 172,512 100,931 125,301
General business credits (162,759) (166,567) (166,598)
Permanent differences (12,643) 15,922 20,378
Other 50,248 17,389 22,980
---------------- ---------------- ----------------
Provision for income taxes $ 1,158,232 $ 909,880 $ 808,926
================ ================ ================
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 7 - INCOME TAXES (CONTINUED)
Deferred income taxes result from differences between the timing of
revenue and expense recognition for financial statement and tax reporting
purposes (Note 1). The cumulative temporary differences as of April 30, 1998 and
1999 totaled $987,172 and $475,605, respectively, for which cumulative net
deferred taxes of $375,580 and $185,281, respectively, have been provided. The
components of such temporary differences are as follows:
<TABLE>
<CAPTION>
1998 1999
--------------- ---------------
<S> <C> <C>
Retention receivable recognized as revenue for financial
statement reporting purposes but not for income tax purposes $ 414,480 $ 541,332
General and administrative expenses deducted for financial
statement reporting purposes but not for income tax reporting
purposes (616,873) (852,008)
Fringe benefit expenses deducted for financial statement reporting
purposes but not for income tax reporting purposes (785,147) (957,271)
Cumulative adjustment for conversion from cash basis to accrual
basis for tax purposes on newly acquired wholly-owned
subsidiary 730,086 486,724
Loss allocation from investment in unconsolidated limited
partnership reported for income tax purposes but not for
financial statement purposes 474,768 597,517
Depreciation expense reported for income tax purposes in excess
of financial statement amounts for property and equipment 769,858 659,311
--------------- ---------------
Net temporary differences $ 987,172 $ 475,605
=============== ===============
</TABLE>
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 8 - EMPLOYEE BENEFIT PLANS
(A) Retirement plan
The Company has a profit sharing 401(k) retirement plan which provides
retirement benefits to all of its eligible employees. The annual profit sharing
contribution to the Plan is determined by the Board of Directors at their sole
discretion with a maximum amount equal to the maximum amount allowed under
Internal Revenue Service regulations, which at the present time is 15% of gross
eligible salaries up to a maximum amount that is adjusted for inflation.
Participants become 100% vested in the Company's contributions after six years.
For the years ended April 30, 1997, 1998 and 1999, the Company's contributions
to the plan were $297,000, $831,818 and $1,133,439, respectively.
(B) Employee stock purchase plan
During 1994, the Company adopted an employee stock purchase plan. The
plan provides for the issuance of options for the purchase of a maximum of
500,000 shares of the Company's common stock. The options are granted at no less
than fair market value and are exercisable for a 30-day period. The primary
purpose of the plan is an inducement for continued service with the Company.
There were no outstanding options at April 30, 1997, 1998 and 1999. During the
years ended April 30, 1997, 1998 and 1999 there was no compensation expense
related to the granting or exercise of the stock options. The following is a
summary of activity under the plan:
Year Ending Options Options Dollar Price per
April 30, Granted Exercised Amount Share
---------- ---------- ----------- ---------------- ---------------
1997 8,444 8,444 $ 313,810 $33.52 - $38.31
1998 561 561 22,310 $38.31 - $46.49
1999 5,910 5,910 280,832 $46.49 - $49.08
The Plan was terminated effective with the consummation of closing for
the sale of the Company's stock (Note 13).
Prior to 1997, the Company had acquired stock that was held in treasury
for the purpose of issuance under the stock purchase plan. In March 1996, the
Company effected a 10 for 1 stock split of all shares then outstanding, which
excluded the treasury shares. When the treasury shares were sold in 1997, the
price per share was based upon a post-split price even though the carrying
value, per share, was at the pre-split cost. As a result, upon the sale of the
treasury shares in 1997, the Company adjusted its previously recorded Capital in
Excess Par Value for $890,655 and retained earnings of $48,125 for the
difference in the per share sales price of the shares and the acquisition costs
of the treasury shares.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN
On February 5, 1992, the Company's Board of Directors adopted an
Employee Stock Ownership Plan (ESOP), as defined in Section 4975(e)(7) of the
Internal Revenue Code. The ESOP was established to acquire shares of the
Company's common stock for the benefit of all eligible employees. In August
1995, the ESOP purchased 37,850 shares of common stock from existing
stockholders of the Company for $1,268,883, financing the purchase with a
non-interest bearing term note to the Company. Payments are due to the Company
in quarterly installments of $105,740, and the note is secured by the 37,850
shares less those shares released from pledge. The Company has agreed to make
contributions to the ESOP in amounts sufficient to enable it to make its
payments on the note as they come due. During year ended April 30, 1998, the
Company made sufficient contributions to the ESOP in order to release the
remaining shares from pledge and extinguish all remaining debt.
Contributions to the ESOP that were charged to expense from the Parent
Company in 1997, and 1998 were $701,662 and $643,937, respectively. Participants
become 100% vested in the Company's contributions after six years of employment.
The ESOP was amended and restated as a defined contribution plan
effective with the consummation of closing for the sale of the Company's stock
(Note 13). The plan is now closed to any new entrants. All other terms of the
plan remain the same.
NOTE 10 - STOCK TRANSACTIONS
The Company has purchased shares of common stock from employees who
were stockholders and from ESOP participants who terminated employment with the
Company for cash. A summary of the stock transactions is as follows:
Number of Price per
April 30, Shares Share Amount
- -------- ------- --------------- ---------------
1997 8,485 $35.36 - $38.31 $ 325,034
1998 200 $46.49 9,298
1999 24,400 $46.49 - $49.08 1,197,537
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 11 - CLOSURE OF SUBSIDIARIES
During 1999, the Company adopted and formally announced plans to close
the operations of its subsidiaries in Poland, Hungary and Russia effective
February 1, 1999. As a result of this action, the costs related to closure of
the operations are expensed and is reported as the loss on closure of
subsidiaries in the accompanying consolidated financial statements.
Substantially all costs related to the closure have been incurred with the
exception of a reserve for $100,000 which has been accrued for any future
residual costs. A summary of the costs related to the closure of the
subsidiaries is as follows:
<TABLE>
<CAPTION>
<S> <C>
Net loss for the period ending January 31, 1999 (after eliminations) $ (22,000)
Foreign currency transaction losses (293,000)
Employee severance pay (67,000)
Reserve for additional costs (100,000)
Professional and consulting fees (123,000)
Other costs (28,642)
---------------
Total loss on closure of foreign subsidiaries $ (633,642)
===============
</TABLE>
The above amounts include a loss on disposition of property and
equipment of $159,229. Substantially all employees of the subsidiaries were
terminated upon closure.
Total revenues and net income (loss) from the closed entities were as
follows:
Year Ending Revenue Net
April 30 Amount Income (Loss)
----------- --------------- ---------------
1997 $ 2,471,732 $ (53,586)
=============== ===============
1998 $ 1,931,297 $ (55,241)
=============== ===============
1999 $ 1,759,534 $ (229,641)
=============== ===============
NOTE 12 - COMMITMENTS AND CONTINGENCIES
(A) Provisional indirect cost rates
Billings under cost-based government contracts are calculated using
provisional rates which permit recovery of indirect costs. These rates are
subject to audit on an annual basis by the government agencies' cognizant audit
agency. The cost audit will result in the negotiation and determination of final
indirect cost rates which the Company may use for the period(s) audited. The
final rates, if different from the provisionals, may create an additional
receivable or liability.
<PAGE>
MACRO INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1997, 1998 AND 1999
NOTE 12 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
(A) Provisional indirect cost rates (continued)
As of April 30, 1999, the Parent Company had negotiated final
settlements on indirect rates through April 30, 1998 and Quantum Research
Corporation had final settlements on indirect rates through December 31, 1997.
The Company periodically reviews its cost estimates and experience rates, and
adjustments, if needed, are made and reflected in the period in which the
estimates are revised. In the opinion of management, redetermination of any
cost-based contracts will not have a material effect on the Company's financial
position or results of operations.
(B) Contract backlog
The Company has authorized but uncompleted contracts on hand as of
April 30, 1999 of approximately $45,655,000. In addition to this amount, the
Company has contracts which contain unexercised options of approximately
$147,159,000.
NOTE 13 - CHANGE OF OWNERSHIP
On December 28, 1998, the stockholders of the Company entered into a
letter of intent to sell 100% of their stock to another company for cash. The
settlement for the sale occurred on May 26, 1999.
<PAGE>
OPINION RESEARCH CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma consolidated balance sheet of the
Company as of March 31, 1999 gives effect to the acquisition of Macro
International Inc. completed by the Company subsequent to such date and
financing of such acquisition, as if all such transactions had occurred on March
31, 1999.
The following unaudited pro forma consolidated statements of operations
of the Company for the three months ended March 31, 1999 and the year ended
December 31, 1998 give effect to the acquisition and the financing thereof, as
if all such transactions had occurred at the beginning of the respective
periods.
The unaudited pro forma consolidated financial statements are based
upon certain assumptions and estimates which are subject to change. These
statements are not necessarily indicative of the actual results of operations
that might have occurred, nor are they necessarily indicative of expected
results in the future.
The pro forma consolidated financial statements should be read in
conjunction with the Company's historical consolidated financial statements and
related notes and the consolidated financial statements of Macro
International Inc.
<PAGE>
OPINION RESEARCH CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Opinion Research Macro
Corporation International Pro Forma Adjustments Pro Forma
Inc. Consolidated
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $181 $77 $492 (a) ($750
Accounts receivable, net 14,234 16,239 30,473
Prepaid and other current assets 3,995 282 (1,010) (b) 3,267
--------------------------------------------------------------------------------
Total current assets 18,410 16,598 (518) 34,490
Property and equipment, net 5,858 2,865 8,723
Intangible assets, net 1,983 - 2,960 (b) 4,943
Goodwill, net 23,199 1,233 11,608 (b) 36,040
Other assets 1,007 1,224 2,045 (b),(c) 4,276
================================================================================
$50,457 $21,920 $16,095 $88,472
================================================================================
Liabilities and stockholders'
equity Current liabilities:
Accounts payable and accrued
expenses $4,535 $5,939 $ 2,782 (b),(c) $13,256
Deferred revenue 2,909 - 2,909
Short-term borrowings 3,170 4,387 (6,387) (a) 1,170
--------------------------------------------------------------------------------
Total current liabilities 10,614 10,326 (3,605) 17,335
Long-term debt 19,575 91 14,179 (a) 33,845
Subordinated notes payable 13,970 (a) 13,970
Deferred income taxes 420 323 1,484 (b) 2,227
Other liabilities 2,849 64 2,913
--------------------------------------------------------------------------------
Total liabilities 33,458 10,804 26,028 70,290
Stockholders' equity:
Common stock 42 323 (323) (d) 42
Additional paid-in capital 14,216 - 1,183 (a) 15,399
Retained earnings 3,059 12,030 (12,030) (d) 3,059
Accumulated other comprehensive income (132) - (132)
Treasury stock (186) (1,237) 1,237 (d) (186)
--------------------------------------------------------------------------------
Total stockholders' equity 16,999 11,116 (9,933) 18,182
================================================================================
$50,457 $21,920 $16,095 $88,472
================================================================================
</TABLE>
The accompanying notes are an integral part of these pro
forma consolidated financial statements.
<PAGE>
OPINION RESEARCH CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(UNAUDITED)
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS)
<TABLE>
<CAPTION>
Opinion Research Macro
Corporation International Pro Forma Adjustments Pro Forma
Inc. Consolidated
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $17,342 $15,826 $ 33,168
Cost of revenues 10,098 8,587 18,685
----------------------------------------------------------------------------------
Gross profit 7,244 7,239 14,483
Selling, general and administrative expenses 4,791 6,102 10,893
Depreciation and amortization 1,015 323 $ 285 (a),(b) 1,623
----------------------------------------------------------------------------------
Operating income 1,438 814 (285) 1,967
Interest expense, net 424 78 847 (c) 1,349
----------------------------------------------------------------------------------
Income before income taxes 1,014 736 (1,132) 618
Provision for income taxes 462 250 (354) (d) 358
----------------------------------------------------------------------------------
Net income $552 $486 $(778) $260
==================================================================================
Earnings per share:
Basic $0.13 $0.06
=================== ==================
Diluted $0.13 $0.06
=================== ==================
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
<PAGE>
OPINION RESEARCH CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(UNAUDITED)
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS)
<TABLE>
<CAPTION>
Opinion Research Macro
Corporation International Pro Forma
Inc. Pro Forma Adjustments Consolidated
-----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $73,167 $61,689 $ 134,856
Cost of revenues 44,807 34,420 79,227
-----------------------------------------------------------------------
Gross profit 28,360 27,269 55,629
Selling, general and administrative expenses 19,408 22,094 41,502
Depreciation and amortization 4,142 1,314 $ 1,141 (a),(b) 6,597
Unusual charge 2,470 - 2,470
-----------------------------------------------------------------------
Operating income 2,340 3,861 (1,141) 5,060
Interest expense, net 1,871 564 2,911 (c) 5,346
-----------------------------------------------------------------------
Income (loss) before income taxes and extraordinary loss 469 3,297 (4,052) (286)
Provision for income taxes 489 1,121 (1,203) (d) 407
-----------------------------------------------------------------------
Income (loss) before extraordinary loss $(20) $2,176 $(2,849) $ (693)
=======================================================================
Income (loss) before extraordinary loss per common share:
Basic $0.00 $(0.16)
================= ==============
Diluted $0.00 $(0.16)
================= ==============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
<PAGE>
OPINION RESEARCH CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands)
(A) Background
Opinion Research Corporation was established in 1938 to apply the
principles of general public opinion polling to marketing issues facing
America's largest companies. The Company has evolved to provide primary market
research, information services, marketing services, including a focus on
businesses selling primarily to other businesses, and model-based telemarketing.
The Company assists clients in evaluating, monitoring and optimizing the
effectiveness of their marketing and sales. The Company's services and products
address issues as customer loyalty and retention, market demand and forecasting,
corporate image, competitive positioning, and model-based telemarketing.
(B) Historical financial statements
The historical financial data presented in these pro forma consolidated
financial statements represent the financial position and results of operations
of (i) the Company as of and for the three months ended March 31, 1999 and the
year ended December 31, 1998 and (ii) Macro International Inc. as of and for the
three months ended March 31, 1999 and the year ended December 31, 1998. Such
data is derived from the respective consolidated financial statements of the
Company and Macro International Inc. ("Macro").
(C) Acquisition
The Company acquired all of the outstanding shares of stock of Macro
pursuant to a Stock Purchase Agreement dated April 30, 1999. The purchase price
was comprised of a $22,300 cash payment and approximately $1,010 of additional
costs related to the acquisition. The fair value of the net assets acquired was
$8,742. Identifiable intangible assets valued at $2,960 are being amortized
using the straight-line method over a period of five years. The excess
consideration paid over the estimated fair value of net assets acquired and
identifiable intangible assets of $11,608 has been recorded as goodwill to be
amortized using the straight-line method over a period of twenty years.
In addition, over the next two years, the sellers may earn up to an
additional $8,700 of cash payments, contingent upon Macro achieving certain
future targets for revenues and earnings before interest, income taxes,
depreciation and amortization. The pro forma adjustments presented do not give
effect to any such contingent payments.
<PAGE>
(D) Pro forma adjustments
Balance sheet adjustments:
(a) Records the funding of the purchase price and repayment of existing debt
through borrowings under the Company's new credit facility and through the
issuance of subordinated notes payable and warrants.
(b) Records the allocation of the purchase price over the estimated fair value
of the net assets acquired, $2,960 for intangible assets (backlog and
workforce) and $11,608 for goodwill.
(c) Records the capitalization of financing costs.
(d) Records the elimination of the historical stockholders' equity of Macro.
Statements of operations adjustments:
(a) Records the elimination of the historical amortization expense of
goodwill from a previous acquisition of Macro.
(b) Records the amortization (i) of the identifiable intangible assets over a
period of five years; and (ii) of the goodwill attributable to the
acquisition over a period of twenty years.
(c) Records the incremental interest expense relating to the portion of the
purchase price funded through borrowings under the Company's credit
facility and through the issuance of subordinated notes payable, with
effective interest rates of 8.86% and 15.10%, respectively.
(d) To adjust the provision for income taxes to reflect the effect of the
acquisition.
(E) Earnings per share
Earnings per share is calculated by dividing the net income by the
weighted average outstanding shares during the period. The historical weighted
average outstanding shares during the periods are as follows:
March 31, December 31,
1999 1998
--------------- ------------------
Basic 4,243,889 4,202,131
=============== ==================
Diluted 4,320,147 4,202,131
=============== ==================
For the pro forma calculation as of March 31, 1999, the dilutive
effect of warrants is 35,064. At December 31, 1998, there is no dilutive effect
as such warrants are anti-dilutive.
