-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WX2nku5Iya2hfs93Z8ZTM8iLhY8Qy0dGn3WqEBWffAKhW8xkBvvIZ2EZWY0oHsQ2 mY+zTxCsBbH1Bjc5GrgM2g== 0000950131-96-003935.txt : 19960816 0000950131-96-003935.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950131-96-003935 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 362947987 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-11428 FILM NUMBER: 96612837 BUSINESS ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 BUSINESS PHONE: 3127261221 MAIL ADDRESS: STREET 1: 150 N CLINTON ST CITY: CHICAGO STATE: IL ZIP: 60661-1416 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly Report Pursuant to Section 13 or 15(d) of The Securities ---- Exchange Act of 1934. For the quarterly period ended June 30, 1996 Transition report pursuant to Section 13 or 15(d) of the ---- Securities Exchange Act of 1934. Commission file number 0-11428 INFORMATION RESOURCES, INC. ------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 36-2947987 ------------------------------- ----------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 150 North Clinton Street, Chicago, Illinois 60661 ------------------------------------------- ----------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (312) 726-1221 -------------- Securities registered pursuant to Section 12(g) of the Act: Title of each class ------------------- Common, $.01 par value per share Preferred Stock Purchase Rights 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 --- --- The number of shares of the registrant's common stock, $.01 par value per share outstanding, as of July 31, 1996 was 27,758,535. INFORMATION RESOURCES, INC. AND SUBSIDIARIES INDEX ----- PAGE NUMBER ------ PART I. FINANCIAL INFORMATION - ---------------------------------- Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 9 PART II. OTHER INFORMATION - ---------------------------- Item 1 - Legal Proceedings 15 Item 4 - Submission of Matters to Vote of Security Holders 16 Item 6 - Exhibits and Reports on Form 8-K 16 Signatures 17 2 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS JUNE 30, 1996 DECEMBER 31, 1995 - ------ ------------- ----------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 10,158 $ 24,884 Accounts receivable, net 98,461 95,862 Escrow receivable 8,000 8,000 Prepaid expenses and other 4,848 5,169 -------- -------- Total Current Assets 121,467 133,915 -------- -------- Property and equipment, at cost 143,890 136,946 Accumulated depreciation and amortization (83,303) (76,541) -------- -------- Net property and equipment 60,587 60,405 Investments 18,736 18,791 Other assets 136,337 125,425 -------- -------- $337,127 $338,536 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Current maturities of capitalized leases $ 2,374 $ 2,317 Accounts payable 32,918 36,214 Accrued compensation and benefits 18,277 19,812 Accrued property, payroll and other taxes 3,709 3,981 Accrued expenses 6,967 11,571 Deferred revenue 16,526 15,599 -------- -------- Total Current Liabilities 80,771 89,494 -------- -------- Long-term bank debt 9,500 -- Long-term capitalized leases 3,816 3,760 Deferred income taxes, net 6,179 8,643 Deferred gain 3,840 4,047 Other liabilities 2,987 2,838 STOCKHOLDERS' EQUITY Preferred stock-authorized, 1,000,000 shares $.01 par value - none issued -- -- Common stock - authorized 60,000,000 shares, $.01 par value; 27,757,314 and 27,587,176 shares issued and outstanding, respectively 278 276 Capital in excess of par value 186,210 183,615 Retained earnings 43,823 45,828 Cumulative translation adjustment (277) 35 -------- -------- Total Stockholders' Equity 230,034 229,754 -------- -------- $337,127 $338,536 ======== ========
The accompanying notes are an integral part of these statements. 3 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS UNAUDITED (In thousands, except per share data)
Three Months Ended Six Months Ended ----------------------- ----------------------- June 30 June 30 ------- ------- 1996 1995 1996 1995 --------- --------- --------- --------- Revenues: U.S. and International services $ 102,955 $ 90,412 $ 195,953 $ 177,364 Software products business sold to Oracle -- 18,920 -- 36,763 --------- --------- --------- --------- 102,955 109,332 195,953 214,127 Costs and expenses: Information services (93,014) (82,144) (182,108) (162,344) Software products business sold to Oracle -- (19,812) -- (37,763) Selling, general and administrative expenses (9,170) (12,409) (17,548) (24,033) --------- --------- --------- --------- (102,184) (114,365) (199,656) (224,140) --------- --------- --------- --------- Operating profit (loss) 771 (5,033) (3,703) (10,013) Interest expense and other, net (478) (1,732) (659) (2,686) Equity in earnings (loss) of affiliated companies 17 204 (68) 155 --------- --------- --------- --------- Earnings (loss) before income taxes and minority interests 310 (6,561) (4,430) (12,544) Income tax (expense) benefit (225) 2,952 2,038 5,644 --------- --------- --------- --------- Earnings (loss) before minority interests 85 (3,609) (2,392) (6,900) Minority interests 157 -- 387 -- --------- --------- --------- --------- Net earnings (loss) $ 242 $ (3,609) $ (2,005) $ (6,900) ========= ========= ========= ========= Net earnings (loss) per common and common equivalent share $ .01 $ (.13) $ (.07) $ (.26) ========= ========= ========= ========= Weighted average common and common equivalent shares 27,753 26,826 27,703 26,721 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 4 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 -------------------------- 1996 1995 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss: $ (2,005) $ (6,900) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 42,036 40,767 Depreciation 9,878 10,324 Amortization of capitalized software costs 1,693 4,597 Amortization of intangibles 1,388 2,609 Deferred income tax provision (2,038) (5,934) Equity in earnings of affiliated companies and minority interests (319) (155) Provision for losses on accounts receivable 157 596 Other 192 2,387 Change in assets and liabilities: Accounts receivable (2,531) (21,451) Other current assets 321 (1,955) Accounts payable and accrued liabilities (9,332) 2,379 Deferred revenue (753) 16,855 Other, net (124) (1,425) -------- -------- Total adjustments 40,568 49,594 -------- -------- Net cash provided by operating activities 38,563 42,694 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs (50,223) (48,404) Purchase of property and equipment (10,235) (11,239) Capitalized software costs (2,927) (5,043) Investments relating to joint ventures (600) (4,812) -------- -------- Net cash used in investing activities (63,985) (69,498) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings 9,500 24,750 Net borrowings (repayments) of capitalized leases (1,150) 1,124 Proceeds from exercise of stock options and other 2,576 1,236 -------- -------- Net cash provided by financing activities 10,926 27,110 EFFECT OF EXCHANGE RATE CHANGES ON CASH (230) 680 -------- -------- Net increase (decrease) in cash and cash equivalents (14,726) 986 Cash and cash equivalents at beginning of period 24,884 11,792 -------- -------- Cash and cash equivalents at end of period $ 10,158 $ 12,778 ======== ========
The accompanying notes are an integral part of these statements. 5 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - --------------------------------------------------- Basis of presentation: The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in Information Resources, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995. The condensed consolidated financial information furnished herein reflects all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair presentation of the condensed consolidated financial statements for the periods shown. Principles of consolidation: The condensed consolidated financial statements include the accounts of Information Resources, Inc. and its subsidiaries (collectively "the Company") after elimination of intercompany transactions. Reclassifications: Certain amounts in the 1995 condensed consolidated financial statements have been reclassified to conform to the 1996 presentation. Adoption of Statement of Financial Accounting Standards: On January 1, 1996, the Company adopted the Statement of Financial Accounting Standards, No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". The adoption of this Standard did not have a material impact on the Company's consolidated financial statements. NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION - ------------------------------------------- Cash paid (refunded) for interest and income taxes during the period was as follows (in thousands):
SIX MONTHS ENDED JUNE 30 1996 1995 ---------- -------- Interest $ 893 $ 2,408 Income taxes (175) (1,064)
In March 1995, Information Resources, Inc. ("IRI") and Middle East Market Research Bureau ("MEMRB") International entered into a strategic alliance agreement. In connection with this agreement, IRI issued common stock having a market value of approximately $2.6 million to the stockholders of MEMRB and obtained an option to acquire up to a 49% ownership interest in MEMRB. 6 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 3 - ACCOUNTS RECEIVABLE - ----------------------------
Accounts receivable were as follows (in thousands): JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- Billed $ 61,566 $ 62,580 Unbilled 37,588 34,903 Other 3,364 2,239 -------- -------- 102,518 99,722 Reserve for accounts receivable (4,057) (3,860) -------- -------- $ 98,461 $ 95,862 ======== ========
NOTE 4 - OTHER ASSETS - --------------------- Other assets were as follows (in thousands):
JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- Deferred data procurement costs - net of accumulated amortization of of $103,329 in 1996 and $92,912 in 1995 $ 108,740 $ 98,602 Intangible assets, including goodwill primarily related to acquisitions - net of accumulated amortization of $10,848 in 1996 and $14,026 in 1995 12,132 13,395 Capitalized software costs - net of accumulated amortization of $4,644 in 1996 and $3,648 in 1995 11,091 9,857 Other 4,374 3,571 --------- -------- $ 136,337 $ 125,425 ========= ========
7 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) NOTE 5 - ACCRUED EXPENSES - ------------------------- In 1995, the Company decided to transition its Towne-Oller service from the use of warehouse withdrawal data to InfoScan scanner data and close down its New York operation. Amounts charged against the $2.9 million reserve established in 1995 for facility operating leases and severance aggregated $.7 million through June 30, 1996. NOTE 6 - LONG-TERM DEBT - ----------------------- The Company increased its bank borrowings to $9.5 million at June 30, 1996. The primary use of borrowings has been the expansion of the Company's International services business in Europe. In November 1995, the Company replaced its $65.0 million bank credit facility maturing in 1997 with a new $50.0 million facility maturing in 1998, with fixed or floating interest rate options at or below prime. Facility fees of .15% are payable on the bank credit facility, and there are no commitment fees. The credit facility contains financial covenants which restrict the Company's ability to incur additional indebtedness or liens on its assets. The financial covenants also require the Company to meet tangible net worth levels, cash flow coverage amounts, leverage limitations and quick ratio minimums. Certain of the Company's loan and lease agreements include various financial covenants which require that the Company maintain a minimum tangible net worth, as defined, and otherwise limit IRI's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $4.0 million is available for such distributions under the most restrictive of these covenants. 8 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW OF OPERATIONS Over the periods presented, the Company has generated increased revenues resulting from the continued growth of its U.S. services business and the startup and significant expansion of its International services business. The U.S. revenue gains for the six months ended June 30, 1996 were achieved in spite of an intensely competitive pricing environment that began in late 1993 and continued through 1995. Due to the longer-term nature of most InfoScan contracts, pricing changes have a delayed effect on the results of operations as reported in the Company's condensed consolidated financial statements. This lagged effect is especially apparent in the Company's U.S. operations because only a portion of all InfoScan contracts come up for renewal in any particular year. The development of the Company's International services business, while generating substantial revenue growth in spite of continuing intense price competition, has resulted in significant operating losses which will likely continue until these operations achieve a substantially higher level of revenues. In July 1995, the Company completed the sale to Oracle Corporation ("Oracle") of certain assets, liabilities and software products relating to its on-line analytical processing (OLAP) business, the software products business previously operated by the Company's software division. Since this business was not a separate business segment, prior period's consolidated financial statements have not been restated. Ongoing business revenues in the first six months of 1996 increased over the same period in 1995, and the Company reported net earnings for the second quarter of 1996 and a consolidated net loss for both six month periods. A number of factors influenced results in the first six months of 1996, including: (a) the continued competitive environment in Europe and costs relating to the development of the Company's International services business; (b) the effects of price competition on past U.S. InfoScan renewals; (c) costs related to building the Company's InfoScan Census data base and its Omega re-engineering initiatives; (d) increased client deliverables associated with past InfoScan contract renewals; (e) increased costs of software development efforts; and (f) the sale of the Company's OLAP software products business to Oracle. Based upon discussions with financial analysts and in part due to the July 1995 sale of the OLAP software products business to Oracle, the Company considers the aggregation of operating profit (loss), equity earnings (losses) and minority interests ("Operating Results") to be a meaningful and readily comparable measure of the Company's relative performance. A comparative analysis of consolidated revenues and Operating Results for the three and six months ended June 30, 1996 and 1995 follows (in thousands): 9 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D.
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30 JUNE 30 ------- ------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: U.S. Services $ 86,974 $ 80,762 $166,935 $158,699 International Services 15,981 9,650 29,018 18,665 -------- -------- -------- -------- Subtotal 102,955 90,412 195,953 177,364 Software products business sold to Oracle -- 18,920 -- 36,763 -------- -------- -------- -------- $102,955 $109,332 $195,953 $214,127 ======== ======== ======== ======== Operating Results: U.S. Services Operating profit $ 8,310 $ 8,992 $ 12,596 $ 15,807 Equity in loss of affiliated companies -- -- -- (200) -------- -------- -------- -------- Subtotal - U.S. 8,310 8,992 12,596 15,607 International Services Operating loss (7,072) (9,332) (15,417) (17,137) Equity in earnings (loss) of affiliated companies 17 204 (68) 355 Minority interests 157 -- 387 -- -------- -------- -------- -------- Subtotal - International (6,898) (9,128) (15,098) (16,782) Corporate and other expenses (467) (1,618) (882) (2,879) Software products business sold to Oracle operating loss -- (3,075) -- (5,804) -------- -------- -------- -------- Operating Results $ 945 $ (4,829) $ (3,384) $ (9,858) ======== ======== ======== ========
In the second quarter of 1996, revenue from the Company's U.S. services business were $87.0 million, an increase of 8% compared to $80.8 million for the corresponding 1995 quarter. This increase was primarily the result of revenue growth from existing clients and increased InfoScan Census revenues which more than doubled from the 1995 quarter. Revenues from the Company's U.S. businesses were 5% higher than in the first half of 1995, with increased 1996 data revenue being partially offset by the effect of the previously announced close-down of the Company's Towne-Oller service during late 1995. Operating Results for the Company's U.S. businesses, after direct overhead charges, were $8.3 million in the second quarter of 1996, slightly lower than the second quarter of 1995 as revenue increases and the benefit of InfoScan cost containment programs were offset by the cost of increased software development efforts. U.S. Operating Results for the six months ended June 30, 1996 were $12.6 million or 19% lower than the same period in 1995. This decrease was due to revenue gains being offset by an 8% increase in costs related principally to the Company's Census initiatives, software application development and client servicing requirements. 10 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Second quarter 1996 revenues from the Company's International businesses were $16.0 million, an increase of 66% over the corresponding 1995 quarter as a result of an increase in the number of InfoScan clients and expanded usage among existing clients, particularly in France and Italy. International services revenues for the six months ended June 30, 1996 increased 55% to $29.0 million primarily as a result of significant revenue gains in France and Italy. Operating Results for the Company's International businesses were a ($6.9) million loss in the second quarter of 1996 compared to a ($9.1) million loss in the corresponding 1995 quarter which has been restated to include direct overhead. International's Operating Results were a ($15.1) million loss for the six months ended June 30, 1996 compared to a ($16.8) million loss for the same period of 1995 which has been restated to include direct overhead. International results for the three and six month periods continue to reflect a difficult competitive environment in Europe, the ramp-up of Italian operations and high retailer costs in the U.K. Consolidated revenues and Operating Results for the three and six months ended June 30, 1995 included the revenues and Operating Results of the Company's OLAP software products business subsequently sold to Oracle on July 27, 1995. RESULTS OF OPERATIONS Consolidated net earnings were $.2 million for the second quarter of 1996 compared to a loss of ($3.6) million for the corresponding 1995 quarter. Consolidated net loss was ($2.0) million for the six months ended June 30, 1996 compared to a net loss of ($6.9) million for the same period of 1995. Due to the effect of the sale of the OLAP software products business to Oracle Corporation, consolidated revenues decreased to $103.0 million and $196.0 million for the three and six months ended June 30, 1996, respectively, compared to $109.3 million and $214.1 million for the same periods in 1995. Consolidated revenues for the three and six months ended June 30, 1996 were up 14% and 10%, respectively, after adjusting revenues for the three and six months ended June 30, 1995 to remove that portion of the Company's software business that was sold to Oracle in July 1995. Consolidated costs of information services increased 13% to $93.0 million for the three months ended June 30, 1996 compared to $82.1 million for the same period in 1995. Consolidated costs of information services increased 12% to $182.1 million for the six months ended June 30, 1996 compared to $162.3 million for the same period in 1995. The increase in the first six months of 1996 was primarily due to: (a) a $8.9 million increase in U.S. services compensation expense resulting primarily from higher headcount required for software development and client servicing; (b) a $6.6 million increase in International services compensation expense resulting from the continued expansion of operations; (c) a $1.8 million increase in depreciation and computer expenses 11 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. required to deliver increasing levels of InfoScan services in Europe and the U.S.; and (d) a $1.3 million increase in amortization of deferred data procurement costs, principally resulting from the expansion of the information services business in Europe. The increase in computer operations were required to support the Company's Census product initiative and its production re- engineering and cost reduction project. Consolidated results for the three and six months ended June 30, 1995 included the operations of the software products business which was sold to Oracle. This part of the software business reported costs of software products sold of $19.8 million and $37.8 million for the three and six months ended June 30, 1995. Consolidated results for the three and six months ended June 30, 1995 included a pre-tax loss of ($3.1) million and ($5.8) million, respectively, from this software products business sold to Oracle. Consolidated selling, general and administrative expenses decreased $3.2 million to $9.2 million for the second quarter of 1996 and decreased $6.5 million to $17.5 million for the six months ended June 30, 1996. Excluding that portion of selling, general and administrative expenses attributable to the software products business sold to Oracle, consolidated selling, general and administrative expenses decreased $1.1 million or 10% for the first quarter of 1996 and decreased $1.7 million or 9% for the six months ended June 30, 1996 compared to the same periods of 1995. These decreases were primarily attributable to cost reduction programs. Interest and other expenses, net for the second quarter of 1996 was $.5 million compared to $1.7 million for the corresponding 1995 quarter. Interest and other expenses, net for the six months ended June 30, 1996 and 1995 were $.7 million and $2.7 million, respectively. The decreases from 1995 amounts are principally due to borrowings in the first half of 1995 being paid off following the transaction with Oracle. The Company's effective income tax rate is greater than the Federal statutory rate due to certain unbenefitted foreign losses, goodwill amortization and other nondeductible expenses. LIQUIDITY AND CAPITAL RESOURCES The Company's cash requirements continue to be extensive, primarily caused by losses incurred in the expansion of its information services in Europe. The Company's current cash resources include its $10.2 million consolidated cash balance, $40.5 million available under the bank line of credit and internally generated funds from its U.S. operations. The Company anticipates that it will have sufficient funds from these sources to satisfy its capital needs for the foreseeable future. Bank line availability is subject to compliance with covenants relating to tangible net worth levels, cash flow coverage amounts, leverage limitations and quick ratios. 12 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Certain of the Company's loan and lease agreements include various financial covenants which require that the Company maintain a minimum tangible net worth, as defined, and otherwise limit IRI's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $4.0 million is available for such distributions under the most restrictive of these covenants. Cash Flow: Consolidated net cash provided by operating activities was $38.6 million for the six months ended June 30, 1996 compared to $42.7 million for the same period in 1995. Cash provided by operating activities decreased primarily due to a higher investment in net working capital in 1996 compared to 1995 partially offset by improved operating performance in 1996. Consolidated cash used in net investing activities was ($64.0) million in 1996 compared to ($69.5) million for the same period in 1995. The decrease in consolidated investing activities in 1996 compared to 1995 was primarily due to 1995 investments in joint ventures. Net cash used before financing activities was ($25.4) million for the six months ended June 30, 1996 and ($26.8) million for the same period of 1995. Consolidated cash provided by net financing activities was $10.9 million for the six months ended June 30, 1996 compared to $27.1 million for the same period in 1995. The net financing activities primarily reflect bank borrowings used to fund the Company's continuing development of its International services business. Financings: The Company increased its bank borrowings to $9.5 million at June 30, 1996. The primary use of borrowings has been the expansion of the Company's information services business in Europe. Other Deferred Costs and Capital Expenditures: Consolidated deferred data procurement expenditures were $50.2 million for the six months ended June 30, 1996 and $48.4 million for the same period in 1995. These expenditures are amortized over a period of 28 months and include payments to retailers for point-of-sale data and costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the InfoScan data base. Deferred data procurement expenditures for the Company's U.S. services business were $33.4 million and $32.1 million for the periods ended June 30, 1996 and 1995, respectively. The Company's International services business deferred data procurement expenditures were $16.8 million and $16.3 million for the six months ended June 30, 1996 and 1995, respectively. The Company's European operations will continue to require substantial investment in data procurement costs. Based upon currently projected operating results and cash flows, the Company's assessment is that the realizability of these assets is not impaired. To the extent that actual operating results and cash flows are lower than these projections, the Company may be required to write down a portion of these assets. 13 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Consolidated capital expenditures were $10.2 million and $11.2 million for the six months ended June 30, 1996 and 1995, respectively. Capital expenditures for the Company's U.S. services business were $7.8 million and $8.4 million for the six months ended June 30, 1996 and 1995, respectively, while related depreciation expense was $7.9 million and $8.8 million, respectively. The Company's International services business capital expenditures were $2.4 million and $2.8 million for the six months ended June 30, 1996 and 1995, respectively, while related depreciation expense was $2.0 million and $1.5 million, respectively. Consolidated capitalized software development costs were $2.9 million and $5.0 million for the six months ended June 30, 1996 and 1995, respectively. Due to the sale of the software products business to Oracle, software development costs declined from historical levels. NOL Carryforwards: As of December 31, 1995, the Company had cumulative Federal net operating loss ("NOL") carryforwards of approximately $41.1 million that expire primarily in 2009 and 2010. In addition, at December 31, 1995, various foreign subsidiaries of IRI had aggregate cumulative NOL carryforwards for foreign income tax purposes of approximately $3.9 million which are subject to various income tax provisions of each respective country. Approximately $2.7 million of these foreign NOL's may be carried forward indefinitely while the remaining $1.2 million expire in 1999 and 2000. A majority of the European foreign pre-tax losses are deducted as partnership losses in IRI's consolidated U.S. income tax return in accordance with the Internal Revenue Code. 14 INFORMATION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 1. Legal Proceedings On July 29, 1996, IRI filed an action against The Dun & Bradstreet Corp. ("D&B"), A.C. Nielsen Co. ("Nielsen") and IMS International, Inc. ("IMS") in the United States District Court for the Southern District of New York entitled Information Resources, Inc. v. The Dun & Bradstreet Corp., et. al. No. 96 CIV. 5716 (the "Action"). IRI alleges that, among other things, the Defendants violated Sections 1 and 2 of the Sherman Act, 15 U.S.C. (S)(S) 1 and 2, by engaging in a series of anti-competitive practices aimed at excluding IRI from various export markets for retail tracking services and regaining monopoly power in United States market for such services. These practices included: i) entering into exclusionary contracts with retailers in several countries in order to restrict IRI's access to sales data necessary to provide retail tracking services; ii) illegally tying services in markets over which Defendants' had monopoly power with services in markets in which Nielsen competed with IRI; iii) predatory pricing; iv) acquiring foreign market competitors with the intent of impeding IRI's efforts at export market expansion; v) tortiously interfering with IRI contracts and relationships with clients, joint venture partners and other market research companies; and vi) disparaging IRI to financial analysts and clients. The Action follows legal proceedings by the Canadian Competition Tribunal and the European Commission against Nielsen for its anti- competitive practices. On August 30, 1995, following a full hearing, the Canadian Competition Tribunal issued an Order and Reasons for Order against Nielsen in In Re: The D&B Companies of Canada Ltd. concluding that Nielsen had engaged in "anti-competitive acts" with the express intent "to exclude potential competitors generally and IRI specifically" from the Canadian retail tracking services market. On May 4, 1996, the European Commission issued a "Statement of Objections" against Nielsen, following an 18 month investigation, alleging that Nielsen had infringed Article 86 of the Treaty of Rome through several practices undertaken intentionally as part of a strategy to exclude IRI from the European markets for retail tracking services. By the Action, IRI seeks to enjoin Defendants anti-competitive practices and to recover damages in excess of $350 million, prior to trebling. 15 INFORMATION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION Item 4. Submission of Matters to Vote of Security Holders. a. The annual meeting of Stockholders of the Company was held May 23, 1996. b. Without solicitation in opposition, the nominees listed in the proxy statement soliciting proxies were elected as directors to serve for a three-year term ending in 1999 as follows:
Name Votes For Votes Withheld -------- ---------- -------------- James G. Andress 24,666,431 337,402 Edwin E. Epstein 24,667,025 336,808 Edward E. Lucente 24,667,135 336,698 Jeffrey P. Stamen 24,667,268 336,565
Following is the name of each other director whose term of office as a director continued after the meeting for terms ending in either 1997 or 1998: Gerald J. Eskin, Ph.D., John D. C. Little, Ph.D., George G. Montgomery, Jr., Glen L. Urban, Ph.D., Gian M. Fulgoni, Leonard M. Lodish, Ph.D., Edith W. Martin, Ph.D. and Thomas W. Wilson, Jr. In June 1996, George G. Montgomery Jr. resigned as a director. c. The adoption of the 1996 Stock Plan for Non-Employee Directors in Lieu of Cash Retainer was approved as follows: Votes For Votes Against Votes Withheld Broker Non-Votes --------- ------------- -------------- ---------------- 23,688,553 870,549 128,938 315,793 Item 6. Exhibits and Reports on Form 8-K a. Exhibits Exhibit No. Description of Exhibit Page ----------- ---------------------- ---- 27 Financial Data Schedule (filed herewith). EF b. Reports on Form 8-K. The registrant has not filed any reports on Form 8-K during the quarter for which this report is filed. 16 INFORMATION RESOURCES, INC. AND SUBSIDIARIES SIGNATURES 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. INFORMATION RESOURCES, INC. --------------------------- (Registrant) /s/ Gary M. Hill -------------------------------------- Gary M. Hill Executive Vice President and Chief Financial Officer (Authorized officer of Registrant and principal financial officer) /s/ John P. McNicholas, Jr. -------------------------------------- John P. McNicholas, Jr. Controller (Principal accounting officer) August 14, 1996 17 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 10,158 0 110,518 (4,057) 0 121,467 143,890 (83,303) 337,127 80,771 13,316 278 0 0 229,756 337,127 0 195,953 0 182,108 0 0 1,045 (4,430) 2,038 (2,005) 0 0 0 (2,005) (.07) (.07)
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