-----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, N/tdBIq/7gUKA5LFaDM7Y2/7/Hd+OZvzLzhlqQ1WhOKZW+k++5LbqP8ufXmY9RRi WeMh8prKa+Qcq7vU/KnWRw== 0000950131-96-005770.txt : 19961115 0000950131-96-005770.hdr.sgml : 19961115 ACCESSION NUMBER: 0000950131-96-005770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 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: 96662094 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 September 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 October 31, 1996 was 27,809,469. 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 6 - Exhibits and Reports on Form 8-K 15 Signatures 16
2 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
ASSETS SEPTEMBER 30, 1996 DECEMBER 31, 1995 - ------ ------------------ ----------------- (UNAUDITED) CURRENT ASSETS - -------------- Cash and cash equivalents $ 8,260 $ 24,884 Accounts receivable, net 101,582 95,862 Escrow receivable 8,000 8,000 Prepaid expenses and other 4,890 5,169 -------- -------- Total Current Assets 122,732 133,915 -------- -------- Property and equipment, at cost 147,336 136,946 Accumulated depreciation and amortization (87,507) (76,541) -------- -------- Net property and equipment 59,829 60,405 Investments 19,152 18,791 Other assets 138,793 125,425 -------- -------- $340,506 $338,536 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Current maturities of capitalized leases $ 2,859 $ 2,317 Accounts payable 36,273 36,214 Accrued compensation and benefits 13,244 19,812 Accrued property, payroll and other taxes 3,670 3,981 Accrued expenses 6,967 11,571 Deferred revenue 19,916 15,599 -------- -------- Total Current Liabilities 82,929 89,494 -------- -------- Long-term bank debt 10,750 -- Long-term capitalized leases 2,962 3,760 Deferred income taxes, net 6,554 8,643 Deferred gain 3,736 4,047 Other liabilities 3,001 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; 27,802,370 and 27,587,176 shares issued and outstanding, respectively 278 276 Capital in excess of par value 186,531 183,615 Retained earnings 43,833 45,828 Cumulative translation adjustment (68) 35 -------- -------- Total Stockholders' Equity 230,574 229,754 -------- -------- $340,506 $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 NINE MONTHS ENDED ----------------------- ------------------------ SEPTEMBER 30 SEPTEMBER 30 ----------------------- ------------------------ 1996 1995 1996 1995 --------- --------- --------- --------- Revenues: U.S. and International services $ 101,980 $ 83,853 $ 297,933 $ 261,217 Software products business sold to Oracle -- 3,435 -- 40,198 --------- --------- --------- --------- 101,980 87,288 297,933 301,415 Costs and expenses: Information services (93,390) (88,203) (275,498) (250,547) Software products business sold to Oracle -- (3,379) -- (41,142) Selling, general and administrative expenses (8,562) (17,252) (26,110) (41,285) Nonrecurring expenses -- (22,759) -- (22,759) --------- --------- --------- --------- (101,952) (131,593) 301,608 (355,733) --------- --------- --------- --------- Operating profit (loss) 28 (44,305) (3,675) (54,318) Net gain on disposition of assets -- 41,126 -- 41,126 Interest expense and other, net (415) (446) (1,074) (3,132) Equity in earnings of affiliated companies 94 91 26 246 --------- --------- --------- --------- Loss before income taxes and minority interests (293) (3,534) (4,723) (16,078) Income tax (expense) benefit -- (1,400) 2,038 4,244 --------- --------- --------- --------- Loss before minority interests (293) (4,934) (2,685) (11,834) Minority interests 303 132 690 132 --------- --------- --------- --------- Net earnings (loss) $ 10 $ (4,802) $ (1,995) $ (11,702) ========= ========= ========= ========= Net earnings (loss) per common and common equivalent share $ -- $ (.18) $ (.07) $ (.44) ========= ========= ========= ========= Weighted average common and common equivalent shares 27,775 27,128 27,727 26,856 ========= ========= ========= =========
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)
NINE MONTHS ENDED SEPTEMBER 30 -------------------------------- 1996 1995 --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss: $ (1,995) $(11,702) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 64,698 62,434 Depreciation expense 14,921 15,547 Amortization of capitalized software costs 2,887 5,893 Amortization of intangibles 2,079 3,661 Deferred income tax provision (2,038) (4,671) Equity in earnings of affiliated companies and minority interests (716) (378) Provision for losses on accounts receivable 385 5,799 Net gain on disposition of assets -- (41,126) Nonrecurring expenses -- 22,759 Other 490 2,192 Change in assets and liabilities: Accounts receivable (6,400) (9,984) Other current assets 279 (4,318) Accounts payable and accrued liabilities (11,049) (2,578) Deferred revenue 1,827 10,808 Other, net 718 (1,016) -------- -------- Total adjustments 68,081 65,022 -------- -------- Net cash provided by operating activities 66,086 53,320 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposition of assets -- 92,000 Deferred data procurement costs (75,050) (72,482) Purchase of property and equipment (14,578) (18,369) Capitalized software costs (4,367) (7,179) Investments relating to joint ventures (600) (4,812) -------- -------- Net cash used in investing activities (94,595) (10,842) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments) 10,750 (29,000) Net (repayments) borrowings of capitalized leases (1,387) 2,291 Proceeds from exercise of stock options and other 2,862 7,844 -------- -------- Net cash provided by (used in) financing activities 12,225 (18,865) EFFECT OF EXCHANGE RATE CHANGES ON CASH (340) 177 -------- -------- Net (decrease) increase in cash and cash equivalents (16,624) 23,790 Cash and cash equivalents at beginning of period 24,884 11,792 -------- -------- Cash and cash equivalents at end of period $ 8,260 $ 35,582 ======== ========
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):
NINE MONTHS ENDED SEPTEMBER 30 1996 1995 --------------- --------------- Interest $1,580 $3,155 Income taxes (550) (836)
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): SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- Billed $ 58,956 $62,580 Unbilled 43,064 34,903 Other 3,764 2,239 -------- ------- 105,784 99,722 Reserve for accounts receivable (4,202) (3,860) -------- ------- $101,582 $95,862 ======== =======
NOTE 4 - OTHER ASSETS - --------------------- Other assets were as follows (in thousands): SEPTEMBER 30, 1996 DECEMBER 31, 1995 ------------------ ----------------- Deferred data procurement costs - net of accumulated amortization of $108,188 in 1996 and $92,912 in 1995 $111,875 $ 98,602 Intangible assets, including goodwill primarily related to acquisitions - net of accumulated amortization of $6,610 in 1996 and $14,026 in 1995 11,468 13,395 Capitalized software costs - net of accumulated amortization of $5,289 in 1996 and $3,648 in 1995 11,337 9,857 Other 4,113 3,571 -------- -------- $138,793 $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 $1.0 million through September 30, 1996. NOTE 6 - LONG-TERM DEBT - ----------------------- The Company increased its bank borrowings to $10.8 million at September 30, 1996. The primary use of borrowings has been the expansion of the Company's International services business in Europe. The Company currently has a $50.0 million bank credit 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 $10.5 million is available for such distributions under the most restrictive of these covenants. NOTE 7 - 1995 UNUSUAL ITEMS - --------------------------- The third quarter of 1995 included a nonrecurring pre-tax gain of $41.1 million attributable to the sale of a portion of the Company's software business to Oracle Corporation. This gain was partially offset by a nonrecurring pre-tax charge of ($22.8) million primarily related to the accelerated recognition of deferred European data procurement costs and the reorganization of the Company's Towne-Oller unit. In addition, selling, general and administrative expenses in third quarter of 1995 reflect approximately ($7.0) million of special charges. 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 nine months ended September 30, 1996 were achieved in spite of the effect of an intensely competitive pricing environment that began in late 1993, continued through 1995, and moderated somewhat in 1996. 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 has resulted in significant operating losses which will likely continue until these operations achieve a substantially higher level of revenues. The Company's European operations also will continue to require substantial cash investment. On an ongoing basis, the Company reviews the outlook of its European services business, including current and near term economic conditions, expected market growth and the regulatory and competitive environment. Based upon currently projected operating results and cash flows, the Company's assessment is that the realizability of its European assets is not currently 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. 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. The sale resulted in a pre-tax gain of $41.1 million. This gain was partially offset by a nonrecurring pre-tax charge of ($22.8) million primarily related to the accelerated recognition of deferred European data procurement costs and the reorganization of the Company's Towne-Oller unit. In addition, selling, general and administrative expenses in the third quarter of 1995 reflect approximately ($7.0) million of special charges. Ongoing business revenues in the first nine months of 1996 increased over the same period in 1995. The Company reported break-even results for the third quarter of 1996 and a consolidated net loss for both nine month periods. A number of factors influenced results in the first nine 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; and (e) increased costs of software development efforts. 9 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Based upon discussions with financial analysts, 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 nine months ended September 30, 1996 and 1995 follows (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED ------------------ ----------------- SEPTEMBER 30 SEPTEMBER 30 ------------ ------------- 1996 1995 1996 1995 -------- -------- -------- -------- Revenues: U.S. Services $ 86,848 $ 73,379 $253,783 $232,078 International Services 15,132 10,474 44,150 29,139 -------- -------- -------- -------- Subtotal 101,980 83,853 297,933 261,217 Software products business sold to Oracle -- 3,435 -- 40,198 -------- -------- -------- -------- $101,980 $ 87,288 $297,933 $301,415 ======== ======== ======== ======== Operating Results: U.S. Services Operating profit $ 8,168 $ (7,664) $ 20,764 $ 8,143 Equity in loss of affiliated companies -- -- -- (200) -------- -------- -------- -------- Subtotal - U.S. 8,168 (7,664) 20,764 7,943 International Services Operating loss (7,808) (10,439) (23,225) (27,576) Equity in earnings (loss) of affiliated companies 94 91 26 446 Minority interests 303 132 690 132 -------- -------- -------- -------- Subtotal - International (7,411) (10,216) (22,509) (26,998) Corporate and other expenses (332) (1,203) (1,214) (4,082) Software products business sold to Oracle operating loss -- (2,240) -- (8,044) Nonrecurring expenses -- (22,759) -- (22,759) -------- -------- -------- -------- Operating Results $ 425 $(44,082) $ (2,959) $(53,940) ======== ======== ======== ========
In the third quarter of 1996, revenues from the Company's U.S. services business were $86.8 million, an increase of 18% compared to $73.4 million for the corresponding 1995 quarter. This increase was primarily the result of revenue growth from existing, as well as new clients, and increased InfoScan Census revenues which nearly doubled over the third quarter of 1995. 10 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Revenues from the Company's U.S. services business in the first nine months of 1996 were 9% higher than in the corresponding period of 1995, with increased 1996 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 $8.2 million in the third quarter of 1996 compared to ($7.7) million for the third quarter of 1995. Excluding third quarter 1995 unusual items which affect the year-ago comparison, operating earnings in the third quarter of 1996 for the U.S. businesses were significantly higher, reflecting the impact of revenue increases and cost containment initiatives. U.S. Operating Results for the nine months ended September 30, 1996 were $20.8 million, up almost 40% over the comparable period in 1995, after excluding nonrecurring and special charges in 1995. This increase was due to strong revenue gains and the benefit of lower expense growth resulting from the Company's cost containment programs. Third quarter 1996 revenues from the Company's International businesses were $15.1 million, an increase of 44% over the corresponding 1995 quarter. The revenue gains resulted from an increase in the number of InfoScan clients and expanded usage among existing clients, particularly in France and Italy. International services revenues for the nine months ended September 30, 1996 increased 52% to $44.2 million primarily as a result of significant revenue gains in France and Italy. Operating Results for the Company's International businesses were a ($7.4) million loss in the third quarter of 1996 compared to a ($10.2) million loss in the corresponding 1995 quarter which has been restated to include direct overhead. International's Operating Results were a ($22.5) million loss for the nine months ended September 30, 1996 compared to a ($27.0) million loss for the same period of 1995 which has been restated to include direct overhead. International results for the three and nine 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. RESULTS OF OPERATIONS Consolidated net earnings were break-even for the third quarter of 1996 compared to a loss of ($4.8) million for the corresponding 1995 quarter. Consolidated net loss was ($2.0) million for the nine months ended September 30, 1996 compared to a net loss of ($11.7) million for the same period of 1995. Consolidated revenues for the three and nine months ended September 30, 1996 were up 22% and 14%, respectively, after adjusting revenues for the three and nine months ended September 30, 1995 to remove that portion of the Company's software business that was sold to Oracle in July 1995. 11 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. Consolidated revenues increased to $102.0 million for the quarter ended September 30, 1996 from $87.3 million for the same quarter of 1995. This increase was the result of revenue growth from existing, as well as new clients, increased InfoScan Census revenues and strong international growth, particularly in France and Italy. Due to the effect of the July 1995 sale of the OLAP software products business to Oracle Corporation, consolidated revenues decreased to $297.9 million for the nine months ended September 30, 1996 compared to $301.4 million for the same period in 1995. Consolidated costs of information services increased 6% to $93.4 million for the three months ended September 30, 1996 compared to $88.2 million for the same period in 1995. Consolidated costs of information services increased 10% to $275.5 million for the nine months ended September 30, 1996 compared to $250.5 million for the same period in 1995. The increase in the first nine months of 1996 was primarily due to: (a) a $14.3 million increase in U.S. services compensation expense resulting primarily from higher headcount required for software development and client servicing; (b) a $7.3 million increase in International services compensation expense resulting from the continued expansion of operations; (c) a $2.3 million increase in amortization of deferred data procurement costs, principally resulting from the expansion of the information services business in Europe; and (d) a $1.9 million increase in depreciation and computer expenses due to increasing levels of InfoScan services in Europe and the U.S. and the cost of production re-engineering projects. Consolidated results for the three and nine months ended September 30, 1995 include the operations of the software products business which was sold to Oracle. This part of the Company's overall software business reported costs of software products sold of $3.4 million and $41.1 million for the three and nine months ended September 30, 1995. Consolidated results for the three and nine months ended September 30, 1995 included a pre-tax loss of ($2.2) million and ($8.0) million, respectively, from the business sold to Oracle. Consolidated selling, general and administrative expenses decreased $8.7 million to $8.6 million for the third quarter of 1996 and decreased $15.2 million to $26.1 million for the nine months ended September 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 $6.4 million or 43% for the third quarter of 1996 and decreased $8.1 million or 24% for the nine months ended September 30, 1996 compared to the same periods of 1995. These decreases were primarily attributable to cost reduction programs and the $7.0 million special charge in the third quarter of 1995. Interest and other expenses, net, were $.4 million in both the third quarter of 1996 and 1995. Interest and other expenses, net, for the nine months ended September 30, 1996 and 1995 were $1.1 million and $3.1 million, respectively. The decrease was principally due to application of proceeds from the Oracle sale to reduce bank debt. 12 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 expenses incurred in the expansion of its information services in Europe. The Company's current cash resources include its $8.3 million consolidated cash balance, $39.2 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 international 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. 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 $10.5 million is available for such distributions under the most restrictive of these covenants. Cash Flow: Consolidated net cash provided by operating activities was $66.1 million for the nine months ended September 30, 1996 compared to $53.3 million for the same period in 1995, primarily due to improved operating performance in 1996. Consolidated cash used in net investing activities was ($94.6) million in 1996 compared to ($10.8) million for the same period in 1995 as the 1995 period benefitted from the $92.0 million of proceeds received from the sale of the General Software Business to Oracle. Net cash provided (used) before financing activities was ($28.5) million for the nine months ended September 30, 1996 and $42.5 million for the same period of 1995. Consolidated cash provided by (used in) net financing activities was $12.2 million for the nine months ended September 30, 1996 compared to ($18.9) million for the same period in 1995. The 1995 net financing activities primarily reflect the repayment of bank borrowings using proceeds from the Oracle sale. Financings: The Company increased its bank borrowings by $1.3 million during the third quarter of 1996 to $10.8 million at September 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 $75.1 million for the nine months ended September 30, 1996 and $72.5 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. Such expenditures for the Company's U.S. services business were $50.0 million and $48.4 million for the periods ended September 30, 1996 and 1995, respectively, and $25.1 million and $24.1 million, respectively, for the Company's International services business. 13 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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. Consolidated capital expenditures were $14.6 million and $18.7 million for the nine months ended September 30, 1996 and 1995, respectively. Capital expenditures for the Company's U.S. services business were $11.2 million and $14.8 million for the nine months ended September 30, 1996 and 1995, respectively, while related depreciation expense was $11.9 million and $13.3 million, respectively. The Company's International services business capital expenditures were $3.4 million and $3.9 million for the nine months ended September 30, 1996 and 1995, respectively, while related depreciation expense was $3.0 million and $2.2 million, respectively. Consolidated capitalized software development costs were $4.4 million and $7.2 million for the nine months ended September 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 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. Form 8-K dated August 29, 1996 Items Reported: Item 4: Change in Registrant's Certifying Accountant Form 8-K\A dated August 30, 1996 Items Reported: Item 4: Change in Registrant's Certifying Accountant 15 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) November 13, 1996 - ----------------- 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 8,260 0 113,784 (4,202) 0 122,732 147,336 (87,507) 340,506 82,929 13,712 278 0 0 230,296 340,506 0 297,933 0 275,498 0 0 1,574 (4,723) 2,038 (2,685) 0 0 0 (1,995) (.07) (.07)
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