<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Quarterly Period Ended September 30, 2000
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the Transition Period from: ____________ to ____________
Commission file number 0-22554
-------
OPINION RESEARCH CORPORATION
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3118960
-------------------------------------------- --------------------------
(State of incorporation) (I.R.S. Employer
Identification No.)
23 Orchard Road
Skillman, NJ 08558
-------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
908-281-5100
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 periods 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 _____
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $0.01 Par Value - 5,464,541 shares outstanding as of September 30,
2000
<PAGE>
INDEX
Opinion Research Corporation and Subsidiaries
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets - September 30, 2000 and
December 31, 1999
Condensed consolidated statements of income - Three and nine months
ended September 30, 2000 and 1999
Condensed consolidated statements of cash flows - Nine months ended
September 30, 2000 and 1999
Notes to condensed consolidated financial statements - September 30,
2000
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
Part II. Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,364 $ 2,808
Accounts receivable:
Billed 21,501 21,107
Unbilled services 13,925 11,853
--------- --------
35,426 32,960
Less: allowance for doubtful accounts 244 259
--------- --------
35,182 32,701
Prepaid and other current assets 1,903 2,034
--------- --------
Total current assets 38,449 37,543
Property and equipment, net 8,809 8,815
Intangibles, net 4,662 4,217
Goodwill, net 46,365 37,588
Other assets 3,657 3,803
--------- --------
$ 101,942 $ 91,966
========= ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 4,827 $ 3,629
Accrued expenses 8,661 8,329
Deferred revenues 3,937 3,450
Acquisition payable - 2,897
Short-term borrowings 2,756 2,027
Other current liabilities 2,669 1,838
--------- --------
Total current liabilities 22,850 22,170
Long term debt 45,149 45,311
Deferred income taxes 1,053 1,232
Other liabilities 1,055 3,060
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
Series A - 10,000 designated, none issued or outstanding in 2000 and 1999 - -
Series B - 10 designated, 10 issued and outstanding in 2000,
none issued or outstanding in 1999, liquidation value of $10 per share - -
Series C - 588,229 designated, none issued or outstanding in 2000 and 1999 - -
Common stock, $.01 par value, 10,000,000 shares authorized,
5,502,399 shares issued and 5,464,541 outstanding in 2000
and 4,292,641 shares issued and 4,254,783 outstanding in 1999 55 43
Additional paid-in capital 25,433 15,475
Retained earnings 7,326 4,931
Treasury stock, at cost, 37,858 shares in 2000 and 1999 (186) (186)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment (793) (70)
--------- --------
Total stockholders' equity 31,835 20,193
--------- --------
$ 101,942 $ 91,966
========= ========
</TABLE>
--------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(in thousands, except share and per share amounts)
(Unaudited)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 37,661 $ 34,546 $ 117,231 $ 80,754
Cost of revenues 24,576 22,338 77,339 51,031
----------- ----------- ----------- -----------
Gross profit 13,085 12,208 39,892 29,723
Selling, general and administrative expenses 8,372 8,095 26,176 19,636
Depreciation and amortization 1,866 1,601 5,276 4,070
----------- ----------- ----------- -----------
Operating income 2,847 2,512 8,440 6,017
Interest and other non-operating expenses, net 1,516 1,315 4,224 2,617
----------- ----------- ----------- -----------
Income before provision for income taxes and
extraordinary loss 1,331 1,197 4,216 3,400
Provision for income taxes 554 503 1,821 1,559
----------- ----------- ----------- -----------
Income before extraordinary loss 777 694 2,395 1,841
Extraordinary loss on debt refinancing,
net of tax benefit of $60 in 1999 - - - (90)
----------- ----------- ----------- -----------
Net income $ 777 $ 694 $ 2,395 $ 1,751
=========== =========== =========== ===========
Income before extraordinary loss
per common share:
Basic $ 0.17 $ 0.16 $ 0.54 $ 0.43
=========== =========== =========== ===========
Diluted $ 0.16 $ 0.16 $ 0.50 $ 0.43
=========== =========== =========== ===========
Extraordinary loss on debt refinancing
per common share:
Basic $ - $ - $ - $ (0.02)
=========== =========== =========== ===========
Diluted $ - $ - $ - $ (0.02)
=========== =========== =========== ===========
Net income per common share:
Basic $ 0.17 $ 0.16 $ 0.54 $ 0.41
=========== =========== =========== ===========
Diluted $ 0.16 $ 0.16 $ 0.50 $ 0.41
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 4,658,923 4,243,889 4,399,999 4,243,889
Diluted 4,931,194 4,303,249 4,820,872 4,304,453
</TABLE>
--------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
--------------------------------------------------------------------------------
Nine Months Ended
September 30,
------------------------
2000 1999
-------- --------
Net cash provided by operating activities $ 8,401 $ 1,752
-------- --------
Cash flows from investing activities:
Payments for acquisitions (15,525) (26,383)
Proceeds from disposal of assets - 106
Capital expenditures (2,770) (2,598)
-------- --------
Net cash used in investing activities (18,295) (28,875)
-------- --------
Cash flows from financing activities:
Borrowings under line-of-credit agreements 20,554 18,881
Repayments under line-of-credit agreements (18,504) (25,735)
Issuance of notes payable - 43,970
Repayments of notes payable (1,548) (11,846)
Redemption of acquisition stock options (2,000) -
Exercise of employee stock options 181 -
Issuance of capital stock and warrants 9,789 1,183
Repayments under capital lease arrangements (22) (82)
-------- --------
Net cash provided by financing activities 8,450 26,371
-------- --------
Decrease in cash and cash equivalents (1,444) (752)
Cash and cash equivalents at beginning of period 2,808 1,058
-------- --------
Cash and cash equivalents at end of period $ 1,364 $ 306
======== ========
--------------------------------------------------------------------------------
See notes to financial statements
<PAGE>
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2000
(Unaudited)
(in thousands, except per share data)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September 30,
2000 are not necessarily indicative of the results that may be expected for the
year ending December 31, 2000. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
NOTE B - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for income before extraordinary loss:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
------------------------ --------------------------
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator:
Income before extraordinary loss $ 777 $ 694 $2,395 $1,841
---------- ---------- ----------- -----------
Numerator for basic and diluted earnings
per share $ 777 $ 694 $2,395 $1,841
========== ========== =========== ===========
Denominator:
Denominator for basic earnings per share,
Weighted-average shares 4,659 4,244 4,400 4,244
Effect of dilutive stock options 272 59 421 60
---------- ---------- ----------- -----------
Denominator for diluted earnings per share
Adjusted weighted-average shares 4,931 4,303 4,821 4,304
========== ========== =========== ===========
Basic earnings per share $ 0.17 $ 0.16 $ 0.54 $ 0.43
========== ========== =========== ===========
Diluted earnings per share $ 0.16 $ 0.16 $ 0.50 $ 0.43
========== ========== =========== ===========
</TABLE>
<PAGE>
NOTE C - ACQUISITION
Pursuant to an Asset Purchase Agreement dated August 31, 2000, the Company
acquired substantially all of the assets of C/J Research, Inc. ("C/J"). The
purchase price was comprised of a $9,225 cash payment and approximately $325 of
additional costs related to the acquisition. The fair value of the net assets
acquired was $637. Identifiable intangible assets valued at $1,300 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 $7,613 has been recorded as goodwill to be
amortized using the straight-line method over a period of twenty years.
Pursuant to a Stock Purchase Agreement dated April 30, 1999, the Company
acquired all of the outstanding shares of stock of Macro International Inc.
("Macro"). 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 and is being amortized using the straight-line method
over a period of twenty years.
Based upon Macro's operating results for period ended April 30, 2000, additional
payments of $3,200 were made to the sellers in July 2000. Such additional
consideration has been recorded as goodwill and is being amortized over the
remaining life of the goodwill. In addition, over the next year, the sellers may
earn up to an additional $5,500 of cash payments, contingent upon Macro
achieving certain future targets for revenues and earnings before interest,
income taxes, depreciation and amortization. The pro forma amounts presented
below do not give effect to any such contingent payments.
The unaudited pro forma results of operations for the nine months ended
September 30, 2000 and 1999, which assumes the consummation of the Macro and C/J
purchases as of the beginning of the respective periods, are as follows:
Nine Months
Ended September 30,
2000 1999
-------- --------
Revenues $124,135 $109,214
Income before extraordinary loss $ 3,145 $ 1,277
Net income $ 3,145 $ 1,187
Income before extraordinary loss per share:
Basic $ 0.58 $ 0.24
Diluted $ 0.54 $ 0.23
Net income per share:
Basic $ 0.58 $ 0.22
Diluted $ 0.54 $ 0.22
<PAGE>
The shares in the computation included 1,176,458 shares issued to LLR Equity
Partners, L.P. and LLR Equity Partners Parallel, L.P. (see Note E). The pro
forma income before extraordinary loss and net income include adjustments for
amortization of goodwill and intangible assets, interest expense, and the
related income tax effects of such adjustments. Also included in the nine-month
period ended September 30, 1999 are expenses of $660 incurred by Macro prior to
the acquisition for losses on the closure of certain subsidiaries and merger
related costs.
NOTE D - CREDIT FACILITIES
In May 1999, in connection with the acquisition of Macro, the Company entered
into a credit agreement with a financial institution for a new facility of
$50,000 (the "Senior Facility"). This financial institution later syndicated the
facility to include four additional financial institutions. The Senior Facility
provides $30,000 of term notes and up to $20,000 of revolving credit for a six-
year term and is secured by substantially all of the assets of the Company. The
Senior Facility carries an interest rate at the discretion of the Company of
either the financial institution's designated base rate (9.50% at September 30,
2000) plus 100 basis points or LIBOR (3-month LIBOR was 6.625% at September 30,
2000) plus 250 basis points for both revolving credit and term notes. Principal
payments on the term notes are due in escalating quarterly installments which
commenced on September 30, 1999. As of September 30, 2000, the Company had
approximately $13,706 of additional credit available under the Senior Facility.
In May 1999, the Company issued $15,000 of subordinated debentures to a
financial institution. In exchange for consideration received in connection with
this debt, the Company issued warrants to purchase a maximum of 437,029 shares
of the Company's common stock at an exercise price of $5.422 per share. The
warrants are exercisable from the date of issuance and expire in 2007. The
subordinated financing has an eight-year term and a coupon rate of 12%.
NOTE E - LLR INVESTMENT
On September 1, 2000, the Company entered into a Purchase Agreement ("Purchase
Agreement") with LLR Equity Partners, L.P. and LLR Equity Partners Parallel,
L.P. (collectively, "LLR"). Pursuant to the terms of the Purchase Agreement, the
Company sold and LLR purchased in a private placement (i) 1,176,458 shares of
the Company's Common Stock at a price of $8.50 per share, and (ii) 10 shares of
the Series B Preferred Stock at a price of $10.00 per share. In addition, the
Company issued warrants to purchase 740,500 shares of the Company's common stock
at an exercise price of $12.00 per share. The warrants are exercisable from the
date of issuance and expire in 2010. In addition, the Company also issued
certain contingent warrants, at an exercise price of $.01 per share, which may
become exercisable if the Company sell shares in the future at a per share price
below that paid by LLR. Part of the proceeds received from this private
placement were used to fund the C/J acquisition (see Note C).
At any time after the fifth anniversary of the closing, LLR may exchange each
share of its Common Stock for one-half of a share of the Company's Series C
Preferred Stock. The Series
<PAGE>
B Preferred Stock contains provisions that entitle LLR to nominate and elect two
directors to the Company's Board of Directors.
NOTE F - SEGMENTS
The Company's operations by business segments for the three and nine months
ended September 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
U.S. Market U.K. Market Social Total
Research Research Teleservices Research Segments Other Consolidated
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Three months ended September 30, 2000:
-------------------------------------
Revenues from external Customers $ 8,931 $ 4,054 $ 4,519 $19,613 $ 37,117 $ 544 $ 37,661
Operating income 481 229 339 1,805 2,854 (7) 2,847
Interest and other non-
operating expenses, net 1,516
Income before income taxes 1,331
Total assets 33,906 8,522 17,927 39,083 99,438 2,504 101,942
Three months ended September 30, 1999:
-------------------------------------
Revenues from external Customers $ 9,131 $ 4,124 $ 4,220 $16,052 $ 33,527 $1,019 $ 34,546
Operating income 933 146 441 902 2,422 90 2,512
Interest and other non-
operating expenses, net 1,315
Income before income taxes
and extraordinary loss 1,197
Total assets 24,809 9,598 16,544 36,188 87,139 2,231 89,370
Nine months ended September 30, 2000:
------------------------------------
Revenues from external Customers $26,384 $12,532 $14,464 $61,614 $114,994 $2,237 $117,231
Operating income 1,410 678 1,502 4,886 8,476 (36) 8,440
Interest and other non-
operating expenses, net 4,224
Income before income taxes 4,216
Total assets 33,906 8,522 17,927 39,083 99,438 2,504 101,942
Nine months ended September 30, 1999:
------------------------------------
Revenues from external Customers $27,676 $11,108 $12,530 $26,625 $ 77,939 $2,815 $ 80,754
Operating income 2,708 244 1,519 1,383 5,854 163 6,017
Interest and other non-
operating expenses, net 2,617
Income before income taxes
and extraordinary loss 3,400
Total assets 24,809 9,598 16,544 36,188 87,139 2,231 89,370
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE G - COMPREHENSIVE INCOME
The Company's comprehensive income for the three and nine months ended September
30, 2000 and 1999, are set forth in the following table:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net income $ 777 $ 694 $2,395 $1,751
Other comprehensive income (loss):
Foreign currency translation adjustment (394) 95 (723) (186)
----------- ------------ ----------- -----------
Comprehensive income $ 383 $ 789 $1,672 $1,565
=========== ============ =========== ===========
</TABLE>
NOTE H - SUBSEQUENT EVENT
Pursuant to a Stock Purchase Agreement dated October 31, 2000, the Company,
through its wholly owned subsidiary Macro, acquired all of the outstanding
shares of stock of Social & Health Services, Ltd. ("SHS"), a communications and
information management company based in Rockville, Maryland. The purchase price
comprised of $3,750 in cash, 144,990 shares of the Company's common stock, and
other acquisition related costs.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(in thousands)
Results of Operations - Third Quarter 2000 as Compared to Third Quarter 1999
Revenues for the third quarter of 2000 increased $3,115, or 9%, from $34,546 in
the third quarter of 1999 to $37,661 in the third quarter of 2000. Revenues from
Macro International Inc. ("Macro"), the Company's social research business,
increased from $16,052 to $19,613, or 22%, from the third quarter of 1999 to the
third quarter of 2000. Revenues from the Company's teleservices business
increased from $4,220 to $4,519, or 7%, from the third quarter of 1999 to the
third quarter of 2000. Revenues in the market research business were down by
$745, or 5%, as compared to the same period a year ago.
Cost of revenues increased $2,238, or 10%, to $24,576 in the second quarter of
2000 from $22,338 in the second quarter of 1999. This increase is principally
attributable to Macro, which accounted for $2,331 of the total increase arising
from revenue growth. Cost of revenues for the Company's market research business
decreased by $389, or 5%, while cost of revenues for the teleservices business
increased by $296, or 13%, as compared to the same period in 1999.
Gross profit for the three months ended September 30, 2000 was $13,085, an
increase of $877, or 7%, over the same period in 1999. Gross profit of Macro
increased $1,230, or 27%, for the third quarter of 2000. Gross profit of the
Company's market research business decreased $356, or 6%, for the third quarter
of 2000 as compared to the same period in 1999. As a percentage of revenues,
gross profit for the Company remained relatively constant at approximately 35%
for the third quarter of 2000 and 1999, respectively. The gross profit
percentage for Macro increased from 28% to 30% while the teleservices business
decreased from 47% to 44%. The gross profit as a percentage of revenues for the
market research business decreased slightly from 40% to 39%.
Selling, general and administrative expenses ("SG&A") increased $277, or 3%, to
$8,372 from $8,095 for the three months ended September 30, 2000 relative to the
same period in 1999. Macro accounted for $256, or 92%, of the increase. As a
percentage of revenues, consolidated SG&A decreased to 22% from 23%.
Depreciation and amortization expense increased by $265, or 17%, to $1,866 from
$1,601 for the three months ended September 30, 2000 relative to the same period
in 1999. The depreciation and amortization expense of Macro increased by $71, or
12%, principally due to additional goodwill amortization arising from a $3,200
acquisition earn-out payment. The depreciation and amortization expense of the
Company's teleservices business increased by $130, or 37%, principally
attributable to additional amortization of goodwill on a $2,914 acquisition
earn-out payment and additional depreciation due to the opening of new phone
centers.
<PAGE>
Interest and other non-operating expenses (net) increased to $1,516 from $1,315
for the third quarter of 2000 relative to the same period in 1999. The increase
of $83 in the interest expense is attributable to the general rate increase in
the financial markets. The remaining increase in the non-operating expense is
principally due to a loss on foreign exchange.
The provision for income taxes increased to $554 from $503 for the third quarter
of 2000 relative to the same period in 1999, due to the higher level of pre-tax
earnings. The provisions for these periods are higher than the amount that
results from applying the federal statutory rate to income primarily because of
the amortization of non-tax deductible goodwill generated from acquisitions and
the impact of state income taxes.
As a result of all of the above, net income for the Company increased from $694
to $777 for the three months ended September 30, 1999 and 2000, respectively.
Results of Operations - Nine Months Ended September 30, 2000 as Compared to Nine
Months Ended September 30, 1999
Revenues for the first nine months of 2000 increased $36,477, or 45%, as
compared to the first nine months of 1999. This increase is principally due to
the acquisition of Macro in April 1999 (the "Macro Acquisition"), which
accounted for $34,989 of the total increase. Revenues from the Company's
teleservices business increased from $12,530 to $14,464, or 15%, while revenues
in the market research business were down by $446, or 1%, as compared to the
same period a year ago.
Cost of revenues increased $26,308, or 52%, to $77,339 in the first nine months
of 2000 from $51,031 for the same period in 1999. This increase is principally
due to the Macro Acquisition, which accounted for an increase in cost of
revenues of $24,956. Cost of revenues for the Company's teleservices business
increased by $1,302, or 20%, due to the opening of new call centers and
resulting volume increases.
Gross profit for the nine months ended September 30, 2000 increased by $10,169,
or 34%, from $29,723 to $39,892. As a percentage of revenues, gross profit
decreased from 37% in 1999 to 34% in 2000. The decrease in the gross profit
percentage is attributable to the impact of Macro, for which the gross profit
percentage is 28%. The gross profit percentage for the market research business
decreased to 38% from 39% and the gross profit percentage for the teleservices
business decreased to 46% from 48%, due to the opening of new phone centers.
Selling, general and administrative expenses increased by $6,540, or 33%, from
$19,636 to $26,176 for the nine months ended September 30, 2000, relative to the
same period in 1999. As a percentage of revenues, SG&A has decreased from 24%
for the nine months ended September 30, 1999 to 22% for the comparable period in
2000. The dollar increase in SG&A is principally due to the impact of the Macro
Acquisition.
The lower gross profit and lower SG&A percentages for Macro are the result of
approximately 80% of Macro's business being conducted with government entities.
Consequently, in accordance with the prescribed accounting procedures for
government contractors, Macro's cost
<PAGE>
of revenues reflect certain costs attributable to its contract projects which
the Company classifies as general and administrative expenses for its other
operating segments. Therefore, the inclusion of Macro in the operating results
of the Company has, and will continue to have, the effect of lowering, as a
percentage of revenues, the consolidated gross profit and SG&A.
Depreciation and amortization expense increased by $1,206, or 30%, from $4,070
to $5,276 for the nine months ended September 30, 2000, relative to the same
period in 1999. The additional amortization related to the Macro Acquisition
accounted for $814, or 67%, of the total increase. The remaining increase is
principally attributable to additional amortization related to a $2,914
acquisition earn-out payment and depreciation arising from opening of new phone
centers in the teleservices business.
Interest and other non-operating expenses (net) increased to $4,224 from $2,617
for the first nine months of 2000 relative to the same period in 1999 primarily
due to the increased borrowings to fund the Macro Acquisition.
The provision for income taxes increased to $1,821 from $1,559 for the first
nine months of 2000 relative to the same period in 1999, due to the higher level
of pre-tax earnings. The provisions for these periods are higher than the amount
that results from applying the federal statutory rate to income primarily
because of the amortization of non-tax deductible goodwill generated from
acquisitions and the impact of state income taxes.
The Company recorded extraordinary losses of $90, net of tax benefits, in the
second quarter of 1999. This non-cash charge resulted from the write-off of
unamortized loan origination fees in connection with debt refinancing during
1999.
As a result of all of the above, income before extraordinary loss for the
Company increased from $1,841 to $2,395 for the nine months ended September 30,
1999 and 2000, respectively.
Liquidity and Capital Resources
Net cash provided by operations for the first nine months of 2000 was $8,401.
Investing and financing activities for the first nine months of 2000 included
capital expenditures of $2,770 and payments of $15,525 with respect to the C/J
acquisition and earn-out payments to previous ProTel and Macro shareholders.
Additionally, in January 2000, the Company paid $2,000 to the previous owners of
ProTel for options granted at the time of acquisition, due to the exercise of a
put option. These options were recorded as a long-term liability. Net of
borrowings for earn-out related payments and payment for the acquisition
options, the Company decreased its borrowings by $7,612 in the first nine months
of 2000. The Company believes that its current sources of liquidity and capital
will be sufficient to fund its long-term obligations and working capital needs
for the foreseeable future.
On September 1, 2000, the Company entered into a Purchase Agreement ("Purchase
Agreement") with LLR Equity Partners, L.P. and LLR Equity Partners Parallel,
L.P.
<PAGE>
(collectively, "LLR"). Pursuant to the terms of the Purchase Agreement, the
Company sold and LLR purchased in a private placement (i) 1,176,458 shares of
the Company's Common Stock at a price of $8.50 per share, and (ii) 10 shares of
the Series B Preferred Stock at a price of $10.00 per share. In addition, the
Company issued warrants to purchase 740,500 shares of the Company's common stock
at an exercise price of $12.00 per share. The warrants are exercisable from the
date of issuance and expire in 2010. In addition, the Company also issued
certain contingent warrants, at an exercise price of $.01 per share, which may
become exercisable if the Company sell shares in the future at a per share price
below that paid by LLR. Part of the proceeds received from this private
placement were used to fund the C/J acquisition (see Note C to the Company's
Consolidated Financial Statements at September 30, 2000 included herein).
In May 1999, in connection with the acquisition of Macro, the Company entered
into a credit agreement with a financial institution for a new facility of
$50,000 (the "Senior Facility"). This financial institution later syndicated the
facility to include four additional financial institutions. The Senior Facility
provides $30,000 of term notes and up to $20,000 of revolving credit for a six-
year term and is secured by substantially all of the assets of the Company. The
Senior Facility carries an interest rate at the discretion of the Company of
either the financial institution's designated base rate (9.50% at September 30,
2000) plus 100 basis points or LIBOR (3-month LIBOR was 6.625% at September 30,
2000) plus 250 basis points for both revolving credit and term notes. Principal
payments on the term notes are due in escalating quarterly installments which
commenced on September 30, 1999. As of September 30, 2000, the Company had
approximately $13,706 of additional credit available under the Senior Facility.
In May 1999, the Company issued $15,000 of subordinated debentures to a
financial institution. In exchange for consideration received in connection with
this debt, the Company issued warrants to purchase a maximum of 437,029 shares
of the Company's common stock at an exercise price of $5.422 per share. The
warrants are exercisable from the date of issuance and expire in 2007. The
subordinated financing has an eight-year term and a coupon rate of 12%.
<PAGE>
Forward-looking Statements
Certain statements contained in Management's Discussion and Analysis, and
elsewhere in this quarterly report, are forward-looking statements. The
forward-looking statements are subject to risks and uncertainties, including,
but not limited to, competition, foreign exchange fluctuations, uncertainties of
international economies, and other risk factors discussed in this filing and the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 137, Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133. This standard delays the effective date of SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, for one year, to
fiscal years beginning after June 15, 2000. SFAS No. 133 establishes a new
model for accounting for derivatives and hedging activities. The adoption of
SFAS No. 133 is not expected to have a material effect on the Company's
consolidated financial position or results of operations.
In June 2000, the FASB issued of SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities. This standard amends SFAS No. 133
and addresses a limited number of issues causing implementation difficulties.
The Company will adopt SFAS No. 138 on January 1, 2001, and is not expected to
have a material effect on the Company's consolidated financial position or
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
There have been no significant changes in market risk since December 31, 1999
that would have a material effect on the Company's risk exposure as previously
disclosed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
See the information contained on Form 8-K listed under Item 6.(b)
below as it relates to the Purchase Agreement with LLR. The Company
issued the securities under the Purchase Agreement in reliance upon
Rule 506 of Regulation D.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1.1 Opinion Research Corporation Designation of Series B Preferred Stock -
Incorporated by reference to Exhibit 4.1 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on
September 15, 2000.
3.1.2 Opinion Research Corporation Designation of Series C Preferred Stock -
Incorporated by reference to Exhibit 4.2 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange Commission on
September 15, 2000.
10.1 Stock Purchase Agreement dated October 31, 2000 among Macro
International Inc., Opinion Research Corporation, and Lewis D. Eigen and
Ramona E. F. Arnett.
10.2 Employment Agreement between Macro International Inc. and Lewis D. Eigen
dated October 31, 2000.
27 Financial Data Schedule (EDGAR only).
b) Reports on Form 8-K
One report filed on September 15, 2000, under Item 2 and 7 of Form
8-K, describing the acquisition of C/J Research, Inc. and the
Purchase Agreement with LLR. An amendment to this Form 8-K was
filed on October 30, 2000, under Item 7 of Form 8-K, including
audited financial statements of C/J Research, Inc. as of and for
the year ended December 31, 1999, and unaudited pro forma
consolidated financial statements of the Registrant as of and for
the six months ended June 30, 2000 and for the year ended December
31, 1999.
<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 thereunto duly authorized.
Opinion Research Corporation
------------------------------------------
(Registrant)
Date: November 14, 2000 /s/ Douglas L. Cox
----------------- ------------------------------------------
Douglas L. Cox
Executive Vice President &
Chief Financial Officer
