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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
Commission file number 1-13286
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DUFF & PHELPS CREDIT RATING CO.
(Exact name of Registrant as specified in its Charter)
ILLINOIS 36-3569514
(State of Incorporation) (I.R.S. Employer
Identification No.)
55 East Monroe Street, Chicago, Illinois 60603 (312) 368-3100
(Address of principal executive offices) (Registrant's telephone number)
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. | |
On April 30, 1997, the registrant had 5,072,466 shares of common stock
outstanding.
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DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES
Quarter Ended March 31, 1997
Index
PART I. - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Condensed Statements of Income - 1
Three Months Ended March 31, 1997 and
Three Months Ended March 31, 1996
Consolidated Balance Sheets - 2
March 31, 1997 and December 31, 1996
Consolidated Statements of Cash Flows - 3
Three Months Ended March 31, 1997 and
Three Months Ended March 31, 1996
Notes to the Consolidated Financial Statements 4-6
ITEM 2. Management's Discussion and Analysis of 7
Results of Operations and Financial Condition
PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 8
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Per Share Data)
(Unaudited)
Three Months Three Months
Ended Ended
March 31, March 31,
1997 1996
------------ ------------
REVENUES (Note 1) $14,395 $12,238
EXPENSES
Employment expense 6,124 5,161
Other operating expenses 2,942 2,379
Name usage fees--paid to former parent (Note 2) 500 500
Depreciation and amortization (Note 1) 536 502
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Total expenses 10,102 8,542
OPERATING INCOME 4,293 3,696
Other income 178 37
Interest expense (Note 3) 119 125
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EARNINGS BEFORE INCOME TAXES 4,352 3,608
Income taxes 1,836 1,536
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NET EARNINGS $ 2,516 $ 2,072
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Weighted average shares outstanding (Note 1) 5,665 5,871
EARNINGS PER SHARE (Note 1) $ 0.44 $ 0.35
1
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
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Duff Phelps Credit Rating Co. and Subsidiaries
Consolidated Balance Sheets
(In Thousands)
March 31, December 31,
1997 1996
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 251 $ 0
Accounts receivable, net of allowance for
doubtful accounts of $246 and $219,
respectively 10,363 10,298
Other current assets 497 642
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Total current assets 11,111 10,940
OFFICE FURNITURE, EQUIPMENT AND LEASEHOLD
IMPROVEMENTS,
net of accumulated depreciation of $3,315 and
$3,042 respectively (Note 1) 4,516 4,540
OTHER ASSETS:
Intangible assets, net (Note 1) 2,243 2,319
Goodwill, net (Note 1) 22,907 23,094
Other long-term investments 1,113 1,019
Other long-term assets 231 214
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Total assets $42,121 $42,126
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued compensation and employment taxes $ 2,126 $ 5,756
Accounts payable 3,597 3,193
Accrued income tax 1,592 576
Advance service fee billings to clients (Note 1) 1,671 1,314
Other current liabilities 14 15
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Total current liabilities 9,000 10,854
LONG-TERM DEBT 7,500 5,500
OTHER LONG-TERM LIABILITIES 717 717
STOCKHOLDERS' EQUITY:
Preferred stock, no par value: 3,000 shares
authorized, zero issued and outstanding 0 0
Common stock, no par value: 15,000 shares
authorized, 5,076 and 5,152 shares issued
and outstanding at March 31, 1997 and
December 31, 1996, respectively 2,518 5,030
Retained earnings 22,386 20,025
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Total stockholders' equity 24,904 25,055
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Total liabilities and stockholders' equity $42,121 $42,126
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2
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
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DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Month
Period Ended
March 31, March 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITES:
<S> <C> <C>
Net earnings $ 2,516 $ 2,072
Decrease (increase) in accounts receivable (65) 1,656
Decrease in accrued compensation and employment taxes (3,630) (2,764)
Increase (decrease) in advance service billings 357 (80)
Depreciation and amortization 536 502
Increase in accrued income taxes payable 1,238 392
Increase in other assets and liabilities - net 564 (153)
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Cash provided by operating activities 1,516 1,625
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CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in other long term investments (94) (78)
Purchase of office furniture, equipment
and leashold improvements-net of retirements (248) (528)
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Cash used in investing activities (342) (606)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid to shareholders (154) (165)
Deferred financing costs (17) 7
Issuances of common stock 416 75
Repurchases of common stock & common
stock equivalents (3,168) (768)
Increase of long-term debt 4,000 500
Decrease of long-term debt (2,000) (500)
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Cash used in financing activities (923) (851)
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NET CHANGE IN CASH 251 168
CASH, BEGINNING OF PERIOD 0 233
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CASH, END OF PERIOD $ 251 $ 401
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</TABLE>
3
The accompanying notes to the consolidated financial statements are
an integral part of these statements.
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DUFF & PHELPS CREDIT RATING CO. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
1 SIGNIFICANT ACCOUNTING POLICIES:
General
Duff & Phelps Credit Rating Co. (the "Company") is an internationally
recognized credit rating agency which provides ratings and research on
corporate, structured and sovereign financings, as well as insurance claims
paying ability. The Company has offices in Chicago, New York, London and Hong
Kong and operates directly or through international partners in North and South
America, Europe, Asia and Africa. The Company is also a designated rating agency
in Japan.
On October 31, 1994, the spin-off of the Company from its former parent
company, Phoenix Duff & Phelps Corporation, formerly Duff & Phelps Corporation
("D&P"), was finalized. The Company's shares, held by D&P, were distributed
October 31, 1994, to D&P shareholders as a tax-free distribution. D&P
shareholders received one of the Company's shares for every three shares held of
D&P. The distribution resulted in the Company operating as a free standing
entity whose common stock is publicly traded on the New York Stock Exchange
under the ticker symbol "DCR."
Basis of Presentation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates affect the reported amounts of assets, liabilities
and disclosure of contingent assets and liabilities at the date of the financial
statements. In addition, they affect the reported amounts of revenues and
expenses during the period. Actual results could differ from those estimates.
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles and include those
assets, liabilities, revenues and expenses directly attributable to the
Company's operations in the years presented.
Principles of Consolidation
During July 1994, the Company organized a U.S. subsidiary, Duff & Phelps
Credit Rating Co. of Europe, with an office located in London, England. In July
1996, the Company organized a U.S. subsidiary, Duff & Phelps Credit Rating Co.
of Asia, with an office in Hong Kong. The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiaries, Duff &
Phelps Credit Rating Co. of Europe and Duff & Phelps Credit Rating Co. of Asia.
All significant intercompany balances have been eliminated.
Earnings Per Share
Fully diluted earnings per share were computed using the weighted average
number of shares of common stock and common stock equivalents outstanding.
Common stock equivalents are based on outstanding stock options under a
non-qualified stock option plan.
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Revenue Recognition
Rating revenues are typically recognized when services rendered for credit
ratings are complete, generally when billed. Revenues are dependent, in large
part, on levels of debt issuance. The Company's fee schedule depends on the type
and amount of securities rated and the complexity of securities issued. Research
revenues are billed in advance and amortized over the subscription period.
Goodwill and Intangible Assets
In 1987, an acquisition of the former parent resulted in goodwill and
intangible assets allocated to the Company of approximately $5.0 million and
$6.0 million, respectively. In 1989, another acquisition of the former parent
resulted in a "push-down" of goodwill to the Company of approximately $24.0
million.
Goodwill and intangible assets are shown net of accumulated amortization.
Goodwill is amortized over its estimated remaining life of approximately 31
years, and intangible assets are amortized over remaining lives of 4 through 12
years.
The Company periodically evaluates whether significant events have occurred
which may require a revision of the estimated useful life of goodwill and
intangible assets or an impairment of the recoverability of remaining balances.
The Company uses an estimate of future undiscounted cash flows over the
remaining useful life of goodwill and intangible assets to measure
recoverability as required by Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of."
Depreciation and Amortization
Office furniture and equipment are stated at cost less accumulated
depreciation and are depreciated on a straight-line basis over the estimated
remaining lives of the assets, which, on a composite basis, is five years.
Leasehold improvements are amortized over the remaining lives of the related
leases, which, on a composite basis, is 11 years.
New Accounting Pronouncements
Recently the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128") which changes the disclosure
of earnings per share ("EPS") data. SFAS 128 replaces the presentation of
"primary" EPS with "basic" EPS. Under SFAS 128 "diluted" EPS, the dilutive
effect of outstanding share options is computed similarly to "fully diluted"
EPS. Under SFAS 128 shares outstanding are computed using the "average share
price" for the period rather than the "greater of the average share price or end
of period share price." By these standards the pro forma basic EPS for this
period would be $0.49 per share for 5,109,558 average shares outstanding and the
pro forma diluted EPS would be $0.44 per share for 5,632,400 shares. SFAS 128 is
effective for financial statements issued for periods ending after December 15,
1997.
2 RELATED PARTIES:
Service Fees Paid to D&P
A name use fee agreement in effect between the Company and D&P of $2
million per year is included in the Company's financial results for the periods
presented. Effective September 30, 2000, the name use fee reduces to $10
thousand per year.
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Service Fees Paid to the Company
The Company and D&P are parties to service and support agreements under
which the Company provides D&P with fixed income research services for an annual
fee of $0.9 million and administrative services for a fee that represents actual
expenses incurred by the Company on behalf of D&P. For the years presented, the
fixed-income research fees are included in revenue, and the administrative
support fees offset other operating expenses. The fixed income research
agreement expires on September 30, 2000.
3 LONG-TERM DEBT AND SUPPLEMENTAL CASH FLOWS INFORMATION:
Long-term debt obligations were $7.5 and $5.5 million, bearing interest of
6.4 percent and 6.3 percent, for the periods ended March 31, 1997 and December
31, 1996, respectively. Cash interest and fees paid were $.1 million for three
months ended March 31, 1997 and 1996.
Dividends paid totaled $0.2 million, and share repurchases of 120,350
amounted to $3.2 million during the first quarter of 1997.
Income taxes paid were $.6 million during the first quarter of 1997 and
$1.1 million in the first quarter of 1996.
4 LITIGATION MATTERS:
During 1993, several legal actions were filed against the Company in
federal court by holders of secured promissory notes ("Notes") of Towers
Financial Corporation ("Towers") and holders of bonds ("Bonds") issued by
subsidiaries of Towers in five structured financing transactions. Towers
collapsed in 1993 amid allegations of massive fraud and is in bankruptcy. The
Company had rated the Bonds but had not rated the Notes. It is alleged that $245
million of Notes were sold that are worthless and that $200 million of Bonds
were sold that have lost much or all of their value. Directors and officers of
Towers, lawyers, accountants, broker-dealers and the indenture trustee for the
Bonds were also named as defendants in one or more of the actions. The
plaintiffs in the actions contend that the Company and the other defendants are
liable for losses the plaintiffs have suffered and for punitive damages. The
holders of the Bonds also sought recovery from the Company of treble damages
under the Racketeer Influenced and Corrupt Organizations Act ("RICO"). It is
asserted that the Company, in its ratings and its monitoring of the transactions
after ratings were issued, was either fraudulent or negligent in failing to
discover the alleged fraud of Towers and its officers or in taking other action
that allegedly induced purchases of the Bonds and the Notes. The Company denies
these assertions. The Company's ratings were based upon (and assumed the
accuracy of) the information provided to it by Towers and its officers. The
Company has taken the position that it cannot be expected to detect fraud or
discover variances from the structure of a rated security when the information
provided to it demonstrates compliance with that structure. In 1996, the legal
actions filed by the holders of the Notes were dismissed by the federal courts
and the RICO claim of the holders of the Bonds was dismissed. One holder of
Notes claiming to represent holders of approximately $17 million of Notes filed
a class action against the Company in Illinois state court alleging the state
law claims previously asserted in federal court.
Management intends to vigorously defend these actions, and at this time,
cannot make an assessment with regard to such litigation's effect on the
Company's financial position or results of operations. The Company is involved
in other litigation, which in the opinion of management, would not have a
material adverse effect on the Company's financial position or results of
operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH
THREE MONTHS ENDED MARCH 31, 1996
Revenues for the three months March 31, 1997, were $14.4 million, an
increase of 18 percent, or $2.2 million over the $12.2 million recorded in the
corresponding period in 1996. Rating revenues accounted for $2.4 million of the
increase and were offset by a decline in other revenues.
The growth in revenues and earnings was the result of strong performance by
both the corporate and structured finance rating businesses, which posted 13
percent and 33 percent revenue increases, respectively. The Company's corporate
rating business achieved higher revenues due to the addition of new clients and
due to higher renewal revenues despite the continuing moderate level of
financing activity. The structured finance revenue increase was primarily
contributed by the on-going strong performance of the mortgage-backed and
asset-backed sectors. The Company's international business, which is
incorporated in the corporate and structured revenue comparisons above, also
exhibited strong revenue growth.
For the quarter ending March 31, 1997, operating expenses were up 18
percent primarily reflecting higher compensation expense from added staff and
higher other operating expense; which includes the Hong Kong office opened in
mid 1996.
Net earnings for the first quarter of 1997 increased approximately 19
percent to $2.5 million, while earnings per share were $0.44 compared with $0.35
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Capital expenditures totaled $0.2 million for the first quarter of 1997 and
are anticipated to be approximately $1.8 million for the year ending December
31, 1997. Capital expenditures are primarily for leasehold improvements to
accommodate the increase in staff, computer equipment and office fixtures for
office expansion.
Dividends paid totaled $0.2 million in the first quarter of 1997, and share
repurchases of 120,350 during the first quarter amounted to $3.2 million.
The Company has in place a $20.0 million revolving credit agreement, which
expires December 31, 1999. As of March 31, 1997, $7.5 million was outstanding
under the facility at a floating rate of approximately 6.4 percent. Commitment
fees are accrued on the unused facility at a rate of .25 percent and are paid
quarterly. The credit agreement contains certain financial covenants which the
Company is currently in compliance with.
The Company believes that funds provided by operations and amounts
available under its credit agreement will provide adequate liquidity for the
foreseeable future.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
This report contains forward-looking statements that are subject to risks and
uncertainties, including but not limited to the following: the Company's
performance is highly dependent on corporate debt issuances and structured
finance transactions, which may decrease for any number of reasons including
changes in interest rates and adverse economic conditions; the Company's
performance is affected by the demand for and the market acceptance of the
Company's services; and the Company's performance may be impacted by changes in
the performance of the financial markets and general economic conditions.
Accordingly, actual results may differ materially from those set forth in the
forward-looking statements. Attention is also directed to other risk factors set
forth in documents filed by the Company with the Securities and Exchange
Commission.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
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10.11 Second Amendment to Credit Agreement among
Duff & Phelps Credit Rating Co., various financial
institutions and Bank of America Illinois.
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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.
Duff & Phelps Credit Rating Co.
May 12, 1997 /s/ Marie C. Becker, Chief Accounting
-------------------------------------------
Marie C. Becker, Chief Accounting
Officer/Controller
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SECOND AMENDMENT
THIS SECOND AMENDMENT, dated as of March 31, 1997 (this "Amendment"),
amends the Credit Agreement, dated as of
October 31, 1994 (as amended by the First Amendment dated as of August 14, 1996,
the "Credit Agreement"), among DUFF & PHELPS CREDIT RATING CO. (the "Company"),
various financial institutions and BANK OF AMERICA ILLINOIS, as agent.
Capitalized terms used in this Amendment and not otherwise defined herein have
the meanings ascribed to such terms in the Credit Agreement.
WHEREAS, the parties hereto have entered into the Credit Agreement which
provides for the Banks to make Loans to the Company from time to time; and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration (the receipt and sufficiency of which are hereby
acknowledged), the parties hereto agree as follows:
SECTION l AMENDMENT. Effective on (and subject to the occurrence of) the
Second Amendment Effective Date (as defined below), the Credit Agreement shall
be amended as follows:
I.l Aggregate Commitment. The definition of Aggregate Commitment in Section
1 of the Credit Agreement is amended to read as follows:
"Aggregate Commitment means the aggregate amount of all of the
Commitments. The amount of the Aggregate Commitment on the Second Amendment
Effective Date is $20,000,000."
1.2 Applicable Margin. The definition of Applicable Margin in Section 1 of
the Credit Agreement is amended to read as follows:
"Applicable Margin means (a) as of the Second Amendment Effective Date
and continuing until adjusted pursuant to clause (b), 0.50%, and (b) on and
after any date thereafter on which the Applicable Margin is to be adjusted,
if the Leverage Ratio for the then applicable Calculation Period is: (a)
1.0 to 1.0 or greater, 0.75%, or (b) less than 1.0 to 1.0, 0.50%. The
Applicable Margin shall be adjusted, to the extent applicable, on the 45th
day (or, in the case of the last Fiscal Quarter of any Fiscal Year, the
90th day) after the end of each Fiscal Quarter; it being agreed that
if the Company fails to deliver the financial statements required by
Section 10.1.1 or 10.1.2(a), as applicable, or the compliance certificate
required by Section 10.1.3 by the 45th day (or, if applicable, the 90th
day) after any Fiscal Quarter, the Applicable Margin shall be 0.75% until
such financial statements and the compliance certificate are delivered.
"Calculation Period" as used in this definition means the period comprised
of the four consecutive Fiscal Quarters ending with and including the most
recent Fiscal Quarter for which the immediately preceding sentence requires
an adjustment to be made."
<PAGE>
1.3 Commitment. The definition of Commitment in Section 1 of the Credit
Agreement is amended to read as follows:
"Commitment as to any Bank means the commitment of such Bank to make
loans hereunder, as adjusted from time to time pursuant to Section 6 or
Section 14.9. The amount of the Commitment of each Bank on the Second
Amendment Effective Date is set forth on Schedule I."
1.4 Commitment Reduction Date. The definition of Commitment Reduction Date
in Section l of the Credit Agreement is deleted.
1.5 Foreign Joint Venture. Section l of the Credit Agreement is amended by
adding the following definition of Foreign Joint Venture in proper alphabetical
order:
"'Foreign Joint Venture' means any joint venture formed under the laws
of a jurisdiction other than that of the United States or any state thereof
that is not a Subsidiary of the Company."
1.6 Required Banks. The definition of Required Banks in Section l of the
Credit Agreement is amended to read as follows:
"Required Banks means Banks having an aggregate Percentage of 51% or
more."
1.7 Second Amendment Effective Date. Section l of the Credit Agreement is
amended by adding the following definition of Second Amendment Effective Date in
proper alphabetical order:
"Second Amendment Effective Date has the meaning specified in the
Second Amendment, dated as of March 31, 1997, among the Company, the Banks
and the Agent."
1.8 Termination Date. The definition of Termination Date in Section l of
the Credit Agreement is amended to read as follows:
"Termination Date means December 31, 1999 or such other date on which
the Commitments shall terminate pursuant to Section 6 or 12."
1.9 Interest Period. The last sentence of Section 4.3 of the Credit
Agreement is amended to read as follows:
"The Company may not select an Interest Period which would end after
December 31, 1999."
1.10 Non-Use Fee. Section 5.1 of the Credit Agreement is amended to read as
follows:
"5.1 Non-Use Fee. The Company agrees to pay to the Agent for the
accounts of the Banks (pro rata according to their respective Percentages)
a non-use fee for each day in the period from and including the Second
Amendment Effective Date to but excluding the Termination Date at the rate
of 0.25% per annum on the daily average of the unused portion of the
Aggregate Commitment. Such non-use fee shall be payable in arrears on the
last day of each calendar quarter and on the Termination Date for any
period then ending for which such non-use fee shall not have been
theretofore paid. The non-use fee shall be computed for the actual number
of days elapsed on the basis of a year of 360 days."
<PAGE>
1.11 Reduction or Termination of Commitments. Section 6.1 of the Credit
Agreement is amended to read as follows:
"6.1 Voluntary Reduction or Termination. The Company may from time to
time on at least five Business Days' prior written notice received by the
Agent (which shall promptly advise each Bank thereof) permanently reduce
the amount of the Commitments to an amount not less than the aggregate
unpaid principal amount of the Loans then outstanding. Any such reduction
shall be in an integral multiple of $1,000,000. All reductions of the
Commitments shall be pro rata among the Banks according to their respective
Percentages. The Company may at any time on like notice terminate the
Commitments upon payment in full of the Notes and all other obligations of
the Company hereunder."
1.12 Financial Information. Section 9.4 of the Credit Agreement is amended
by (a) deleting "December 31, 1993" and inserting in its place "December 31,
1995", and (b) deleting "June 30, 1994" and inserting in its place "September
30, 1996".
1.13 Net Worth. Section 10.6.1 of the Credit Agreement amended to read as
follows:
"10.6.1 Minimum Net Worth. Not permit Net Worth at any time to be less
than the sum of (a) $24,054,714, plus (b) the total of (l) an amount equal
to the sum of 75% of Consolidated Net Income for each Fiscal Quarter then
ended, commencing with the Fiscal Quarter ending March 31, 1997, without
giving effect to any Fiscal Quarter in which Consolidated Net Income is
negative, plus (2) 100% of stock option proceeds received by the Company
after December 31, 1996, minus (3) 100% of the purchase price paid by the
Company to repurchase shares of its common stock after December 31, 1996."
1.14 Maximum Leverage. Section 10.6.2 of the Credit Agreement is amended to
read as follows:
"10.6.2 Maximum Leverage. Not Permit the Leverage Ratio as of the last
day of any Fiscal Quarter to exceed 1.75 to 1.0."
1.15 Maximum Debt/Capitalization Ratio. Section 10.6.3 of the Credit
Agreement is hereby deleted.
1.16 Limitations on Debt. Clause (d) of Section 10.7 of the Credit
Agreement is amended by deleting "$1,000,000" and inserting "$5,000,000" in its
place.
1.17 Capital Expenditures. Section 10.9 of the Credit Agreement is amended
by deleting "$1,500,000" and inserting "$2,500,000" in its place.
1.18 Guaranties. Loans. Advances. Clause (ii) (x) of Section 10.11 of the
Credit Agreement is amended by deleting "$1,000,000" and inserting "$5,000,000"
in its place.
1.19 Mergers; Acquisitions. Clause (iii) (d) of Section 10.12 of the Credit
Agreement is amended by deleting "$2,000,000" and inserting "$5,000,000" in its
place.
1.20 Investments. Clause (e) of Section 10.13 of the Credit Agreement is
amended by deleting "$2,500,000" and inserting "$5,000,000" in its place.
1.21 Further Assurances. The proviso to Section 10.17 of the Credit
Agreement is amended to read as follows:
<PAGE>
"provided that, (A) unless the Required Banks so request, neither D&P
of Europe nor Duff & Phelps Credit Rating Co. of Asia shall be obligated to
perfect the Agent's security interest in any of its tangible assets located
outside the United States of America and (B) so long as such Investment is
permitted under Section
10.13 and unless (l) the Required Banks so request or (2) the
Investment in any such Person exceeds $500,000, the Company shall not be
required to pledge its ownership interests in any Foreign Joint Venture."
1.22 Judgments. Section 12.1.8 of the Credit Agreement is amended by
deleting "$2,000,000" and inserting "$5,000,000" in its place.
1.23 Litigation Expenses. Section 12.1.9 of the Credit Agreement is amended
by deleting "$2,000,000" and inserting "$3,000,000" in its place.
1.24 Schedule I. Schedule I to the Credit Agreement is amended to read as
set forth on Exhibit A hereto.
SECTION 2 INTEREST AND FEES. Amendments set forth above that affect the
rate at which interest or fees accrue or are calculated under the Credit
Agreement shall not be retroactive to any period prior to the Second Amendment
Effective Date.
SECTION 3 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Banks as follows:
3.1 Credit Agreement Warranties. Each warranty of the Company set forth in
Section 9 of the Credit Agreement, as amended by this Amendment (as so amended,
the "Amended Credit Agreement"), is true and correct as of the date of the
execution and delivery of this Amendment by the Company, with the same effect as
if made on such date.
3.2 Event of Default. No Event of Default or Unmatured Event of Default has
occurred and is continuing.
3.3 Authorization: No Conflict. The (a) execution and delivery by (i) the
Company of this Amendment, the New Note (as defined below), the Company Pledge
Agreement (as defined below) and the Security Agreement Letter Agreement (as
defined below), and (ii) Duff & Phelps Credit Rating Co. of Asia ("D&P of Asia")
of the Guaranty and the Security Agreement and (iii) each Guarantor of the
Consent of Guarantors (as defined below) and the Security Agreement Letter
Agreement, and (b) performance by (i) the Company of its obligations under the
Amended Credit Agreement, the New Note, and each other Loan Document to which it
is a party and (ii) each Guarantor of the Guaranty and each other Loan Document
to which it is a party, are within the corporate powers of the Company and such
Guarantor, as applicable, have been duly authorized by all necessary corporate
action on the part of the Company and such Guarantor, have received all
necessary governmental approval, and do not and will not (x) violate any
provision of law or of any order, decree or judgment
which is binding on the Company or such Guarantor, (y) contravene or conflict
with, or result in a breach of, any provision of the Certificate of
Incorporation or By-Laws of the Company or such Guarantor or of any agreement,
indenture, instrument or other document which is binding on the Company or such
Guarantor or (z) result in, or require, the creation or imposition of any Lien
on any property of the Company or such Guarantor (other than Liens arising under
the Loan Documents).
<PAGE>
3.4 Validity and Binding Nature. Upon the execution and delivery hereof by
all of the parties hereto and thereto, each of this Amendment, the New Note, the
Company Pledge Agreement Amendment, the Security Agreement Letter Agreement, the
Amended Credit Agreement and each other Loan Document to which the Company is a
party will be legal, valid and binding obligations of the Company, enforceable
against the Company in accordance with its terms.
3.5 Guaranty. After the effectiveness of this Amendment, the Guaranty and
each other Loan Document to which each Guarantor is a party will continue in
full force and effect and will continue to be the legal, valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms.
SECTION 4 EFFECTIVENESS. The amendments set forth in Section l hereof shall
become effective, as of the day and year first above written, on the later of
(x) the date first written above and (y) the date when all of the following
conditions precedent have been satisfied (such later date being the "Second
Amendment Effective Date")
(a) the Agent shall have received all of the following, each in form
and substance satisfactory to the Agent:
(i) counterparts of this Amendment executed by the Company, the Agent
and the Required Banks;
(ii) the Consent of Guarantors substantially in the form of Exhibit B
attached hereto (the "Consent of Guarantors") executed by each
Guarantor;
(iii) an assignment of The Northern Trust Company's Commitment and
outstanding Loans to Bank of America Illinois;
(iv) a Note (the "New Note") issued to the Bank of America Illinois in
the amount of $20,000,000;
(v) an opinion of Lord, Bissell and Brook, counsel to the Company and
the Guarantors;
(vi) counterparts of the Guaranty executed by D&P of Asia;
(vii) counterparts of the Security Agreement executed by D&P of Asia
(with the schedules thereto completed with respect to D&P of Asia);
(viii) counterparts of an amendment to the Company Pledge Agreement
(the "Company Pledge Agreement Amendment"), together with all
certificates evidencing the capital stock of D&P of Asia and undated
stock powers relating thereto executed in blank;
(ix) Uniform Commercial Code financing statements naming D&P of Asia
as debtor and the Agent as secured party in appropriate form for
filing in such jurisdictions as the Agent may request;
(x) certified copies of resolutions of the Board of Directors of the
Company authorizing or ratifying the execution and delivery of this
Amendment, the New Note and the Company Pledge Agreement Amendment and
the performance by the Company of its obligations under the Amended
Credit Agreement, the New Note and the Company Pledge Agreement (as
amended by the Company Pledge Agreement Amendment);
<PAGE>
(xi) a certificate of the Secretary or an Assistant Secretary of the
Company certifying the names of the officer or officers authorized to
sign this Amendment, the New Note and the Company Pledge Agreement
Amendment, together with a sample of the true signature of each such
officer;
(xii) certified copies of resolutions of the Board of Directors of
each Guarantor authorizing or ratifying the execution and delivery of
the Consent of Guarantors (and, in the case of D&P of Asia, the
Guaranty and the Security Agreement) and the performance by such
Guarantor of its obligations under the Guaranty and the other Loan
documents to which it is a party;
(xiii) a certificate of the Secretary or Assistant Secretary of each
Guarantor certifying the names of the officer or officers of such
Guarantor authorized to sign the Consent of Guarantors (and, in the
case of D&P of Asia, the Guaranty and the Security Agreement);
(xiv) a letter agreement relating to the Security Agreement executed
by the Company and each Guarantor (the "Security Agreement Letter
Agreement") and UCC-3 amendments to the financing statements currently
on file against the Company and D&P of Europe;
(xv) UCC search results for financing statements naming D&P of Asia as
debtor filed with the Illinois Secretary of State;
(xvi) evidence of the insurance required by Section 10.3 of the Credit
Agreement; and
(xvii) a certificate of the Company as to the satisfaction of the
conditions set forth in Section 4(c) of this Amendment;
(b) the Agent shall have received a $25,000 closing fee for the
account of Bank of America Illinois; and
(c) the representations and warranties contained in Section 3 of this
Amendment shall be true and correct in all material respects and no Event
of Default or Unmatured Event of Default shall have occurred and be
continuing.
SECTION 5 MISCELLANEOUS.
5.1 Continuing Effectiveness. etc. Except herein amended or as amended by
the agreements referred to herein, the Credit Agreement and each other Loan
Document shall remain in full force and effect and is hereby ratified and
confirmed in all respects. After the Second Amendment Effective Date, all
references in the Credit Agreement to "this Agreement", and all references in
any Loan Document to "Credit Agreement", shall refer to the Amended Credit
Agreement.
5.2 Counterparts. This Amendment may be executed in any number of
counterparts and by the different parties on separate counterparts, and each
such counterpart shall be deemed to be an original but all such counterparts
shall together constitute one and the same Amendment.
5.3 Governing Law. This Amendment shall be a contract made under and
governed by the internal laws of the State of Illinois.
5.4 Successors and Assigns. This Amendment shall be binding upon the
parties hereto and their respective successors and assigns, and shall inure to
the benefit of the parties hereto and the respective successors and assigns of
the Banks and the Agent.
<PAGE>
5.5 Agent's Fee. The agency fees set forth in that certain letter agreement
dated October 31, 1994 between BofA that become due after the Second Amendment
Effective Date shall not be payable; however, BofA shall be entitled to receive
and retain all such fees that become due prior to the Second Amendment Effective
Date.
<PAGE>
Delivered at Chicago, Illinois, as of the day and year first above written.
DUFF & PHELPS CREDIT RATING CO.
By /s/ Marie C. Becker
--------------------------------------
Name Marie C. Becker
Title Vice President & Secretary
BANK OF AMERICA ILLINOIS,
as Agent
By /s/ David L. Graham
--------------------------------------
Name David L. Graham
Title Vice President
BANK OF AMERICA ILLINOIS,
` By /s/ Paul R. Frey
--------------------------------------
Name Paul R. Frey
Title Senior Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATION FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 251
<SECURITIES> 0
<RECEIVABLES> 10,609
<ALLOWANCES> 246
<INVENTORY> 0
<CURRENT-ASSETS> 497
<PP&E> 7,831
<DEPRECIATION> 3,315
<TOTAL-ASSETS> 42,121
<CURRENT-LIABILITIES> 9,000
<BONDS> 7,500
<COMMON> 2,518
0
0
<OTHER-SE> 22,386
<TOTAL-LIABILITY-AND-EQUITY> 24,904
<SALES> 0
<TOTAL-REVENUES> 14,395
<CGS> 0
<TOTAL-COSTS> 10,102
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 119
<INCOME-PRETAX> 4,352
<INCOME-TAX> 1,836
<INCOME-CONTINUING> 2,516
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,516
<EPS-PRIMARY> .44
<EPS-DILUTED> .44
</TABLE>
