-----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, QTdn85x05UpMWMG0B8i3XtE0NjBxqb+VKQTNYsU4QjVz3Lytw3G3Y3hm6ccdLHZT HXyoVATD9dM3wEtq/jNAdQ== 0000950137-01-502966.txt : 20010814 0000950137-01-502966.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950137-01-502966 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION RESOURCES INC CENTRAL INDEX KEY: 0000714278 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 521287752 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: 1706787 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 c64422e10-q.txt QUARTERLY REPORT 1 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, 2001 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 -------------- 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, 2001 was 29,305,029. 1 2 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 13 PART II. OTHER INFORMATION Item 4 - Submission of Matters to a 20 Vote of Security Holders Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 21 2 3 INFORMATION RESOURCES, INC. and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
ASSETS June 30, 2001 December 31, 2000 - ------ ------------- ----------------- (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 10,731 $ 11,914 Accounts receivable, net 77,517 80,610 Prepaid expenses and other 9,438 11,009 --------- ---------- Total Current Assets 97,686 103,533 --------- ---------- Property and equipment, at cost 215,560 203,509 Accumulated depreciation (142,472) (127,777) --------- ---------- Net property and equipment 73,088 75,732 --------- ---------- Investments 15,170 15,858 Deferred income taxes 8,078 4,031 Other assets 164,891 166,006 --------- ---------- $ 358,913 $ 365,160 ========= ========== LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ CURRENT LIABILITIES Current maturities of capitalized leases $ 2,441 $ 2,337 Accounts payable 56,738 53,360 Accrued compensation and benefits 13,025 22,609 Accrued property, payroll and other taxes 2,974 1,980 Accrued expenses 8,814 11,372 Accrued restructuring costs 1,243 2,570 Deferred revenue 31,506 24,487 --------- ---------- Total Current Liabilities 116,741 118,715 --------- ---------- Long-term debt 18,122 24,628 Other liabilities 16,292 8,686 STOCKHOLDERS' EQUITY Preferred stock-authorized, 1,000,000 shares, $.01 par value; none issued -- -- Common stock - authorized 60,000,000 shares, $.01 par value, 29,259,789 and 29,069,892 shares issued and outstanding, respectively 296 294 Additional paid-in capital 199,794 198,926 Retained earnings 20,136 23,852 Accumulated other comprehensive loss (12,468) (9,941) --------- ---------- Total Stockholders' Equity 207,758 213,131 --------- ---------- $ 358,913 $ 365,160 ========= ==========
The accompanying notes are an integral part of these statements. 3 4 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, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Information services revenues $ 140,906 $ 133,931 $ 277,214 $ 263,072 Costs and expenses: Information services sold (123,811) (119,216) (246,071) (238,822) Selling, general and administrative expenses (14,014) (14,304) (27,337) (27,242) Restructuring and other charges (4,102) (2,082) (8,199) (5,639) --------- --------- --------- --------- (141,927) (135,602) (281,607) (271,703) --------- --------- --------- --------- Operating loss (1,021) (1,671) (4,393) (8,631) Interest expense and other, net (990) (697) (2,397) (1,511) Equity in earnings (losses) of affiliated companies (120) 157 (176) 270 Minority interest benefit 585 642 1,377 1,849 --------- --------- --------- --------- Loss before income taxes (1,546) (1,569) (5,589) (8,023) Income tax benefit 306 582 1,874 3,482 --------- --------- --------- --------- Net loss $ (1,240) $ (987) $ (3,715) $ (4,541) ========= ========= ========= ========= Net loss per common share - basic $ (.04) $ (.03) $ (.13) $ (.16) ========= ========= ========= ========= Net loss per common and common equivalent share - diluted $ (.04) $ (.03) $ (.13) $ (.16) ========= ========= ========= ========= Weighted average common shares - basic 29,068 29,071 29,069 29,070 ========= ========= ========= ========= Weighted average common and common equivalent shares - diluted 29,068 29,071 29,069 29,070 ========= ========= ========= =========
The accompanying notes are an integral part of these statements. 4 5 INFORMATION RESOURCES, INC. and Subsidiaries CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (In thousands)
Six Months Ended ---------------- June 30, -------- 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,715) $(4,541) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 61,730 60,170 Depreciation 14,554 14,791 Amortization of capitalized software costs and intangibles 2,979 2,854 Restructuring and other charges, net of cash payments 715 (1,015) Deferred income tax benefit (1,874) (3,482) Equity in earnings of affiliated companies and minority interests (1,201) (2,115) Other 60 129 Change in assets and liabilities: Accounts receivable 2,986 (10,030) Other current assets 1,571 (1,145) Accounts payable and accrued liabilities (6,038) (16,819) Deferred revenue 7,019 13,755 Other, net 6,966 1,041 --------- -------- Net cash provided by operating activities 85,752 53,593 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs (65,579) (63,717) Purchase of property, equipment and software (12,029) (7,810) Capitalized software costs (1,233) (1,233) Investment in joint ventures (1,834) -- Other, net 251 311 --------- -------- Net cash used in investing activities (80,424) (72,449) CASH FLOWS FROM FINANCING ACTIVITIES: Net bank borrowings (repayments) (5,250) 17,600 Purchases of Common Stock (110) -- Proceeds from issuance of stock and exercise of stock options 643 -- Net repayments of capitalized leases (1,049) (2,227) --------- -------- Net cash (used) provided by financing activities (5,766) 15,373 EFFECT OF EXCHANGE RATE CHANGES ON CASH (745) 354 Net decrease in cash and cash equivalents (1,183) (3,129) Cash and cash equivalents at beginning of period 11,914 8,077 --------- -------- Cash and cash equivalents at end of period $ 10,731 $ 4,948 ========= ========
The accompanying notes are an integral part of these statements. 5 6 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION Principles of consolidation: The condensed consolidated financial statements include the accounts of Information Resources, Inc. and all wholly or majority owned subsidiaries and affiliates (collectively "the Company"). Minority interests reflect the non-Company owned stockholder interests in international operations. The equity method of accounting is used for investments in which the Company has a 20% to 50% ownership interest because it exercises significant influence over operating and financial policies. All significant intercompany accounts and transactions have been eliminated in consolidation. The excess of the carrying value over the net book value of investments accounted for using the equity method is amortized over ten years. Interim financial statements: The interim financial statements are unaudited, but include all adjustments (consisting of normal recurring adjustments) necessary, in the opinion of management, for a fair statement of financial position and results of operations for the period presented. The preparation of interim financial statements necessarily relies on estimates, requiring the use of caution in estimating results for the full year based on interim results of operations. Reclassifications: Certain amounts in the 2000 condensed consolidated financial statements have been reclassified to conform to the 2001 presentation. Loss per Common and Common Equivalent Share: Net loss per share is based upon the weighted average number of shares of common stock outstanding during each period. Net loss per common and common equivalent share diluted is based upon the weighted average number of shares of common stock and common stock equivalents, entirely comprised of stock options, outstanding during each period. In 2000 and 2001, common stock equivalents were excluded from the weighted average shares outstanding calculation because they were anti-dilutive. NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION Cash paid (received) for interest and income taxes during the period was as follows (in thousands): SIX MONTHS ENDED ---------------- JUNE 30, -------- 2001 2000 ---- ---- Interest $ 1,389 $ 1,376 Income taxes 332 (356) Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. 6 7 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, 2001 December 31, 2000 ------------- ----------------- Billed $ 67,445 $ 69,822 Unbilled 13,715 14,706 -------- -------- 81,160 84,528 Reserve for accounts receivable (3,643) (3,918) -------- -------- $ 77,517 $ 80,610 ======== ========
NOTE 4 - INVESTMENTS AND OTHER ASSETS Investments were as follows (in thousands):
JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- Mosaic InfoForce, L.P., at cost plus equity in undistributed earnings $ 5,545 $ 6,101 Datos Information Resources, at cost plus equity in undistributed earnings 4,361 4,439 GfK Panel Services Benelux B.V., at cost 1,315 1,315 Middle East Market Research Bureau ("MEMRB"), at cost 2,788 2,795 Other 1,161 1,208 -------- -------- $ 15,170 $ 15,858 ======== ========
7 8 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont'd. (UNAUDITED) Other assets were as follows (in thousands):
JUNE 30, 2001 DECEMBER 31, 2000 ------------- ----------------- Deferred data procurement costs - net of accumulated amortization of of $135,798 in 2001 and $132,884 in 2000 $141,855 $142,036 Intangible assets, including goodwill - net of accumulated amortization of $12,817 in 2001 and $12,026 in 2000 8,578 9,370 Capitalized software costs - net of accumulated amortization of $5,902 in 2001 and $4,716 in 2000 5,469 5,862 Other 8,989 8,738 -------- -------- $164,891 $166,006 ======== ========
NOTE 5 - LONG TERM DEBT Long-term debt was as follows (in thousands):
June 30, 2001 December 31, 2000 ------------- ----------------- Bank borrowings $ 15,750 $ 21,000 Capitalized leases and other 4,814 5,965 -------- -------- 20,564 26,965 Less current maturities (2,442) (2,337) -------- -------- $ 18,122 $ 24,628 ======== ========
8 9 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont'd. (UNAUDITED) The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $.2 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. Further, the agreement grants the bank a security interest in the Company's assets if certain financial covenants are not met. As of June 30, 2001, the Company was in compliance with all covenants. Note 6 - Comprehensive Loss The comprehensive loss summary shown below sets forth certain items that affect stockholders' equity but are excluded from the presentation of net earnings. The components of comprehensive loss were as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 2001 2000 2001 2000 ---- ---- ---- ---- Net loss $ (1,240) $ (987) $ (3,715) $ (4,541) Foreign currency translation adjustment (753) (1,688) (2,527) (3,787) -------- -------- -------- -------- Comprehensive loss $ (1,993) $ (2,675) $ (6,242) $ (8,328) ======== ======== ======== ========
NOTE 7 - STOCK REPURCHASE The Company purchased 20,000 shares of common stock aggregating $0.1 million during the first quarter of 2001 in connection with the stock repurchase program announced in August 2000 that was established principally to acquire shares to fund the Company's 2000 Employee Stock Purchase Plan ("ESPP"). In June 2001, the Company sold 144,939 shares of Common Stock for $0.4 million to employees participating in the ESPP. Of the shares sold, 31,863 were previously held in treasury and 113,076 were newly issued by the Company. 9 10 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont'd. (UNAUDITED) NOTE 8 - SEGMENT INFORMATION The Company's business information services are conducted almost exclusively in the United States and Europe. The Company's operations in other markets account for approximately 1% of consolidated revenues. The executive management of the Company considers revenues from third parties and the aggregation of operating profit (loss), equity earnings (losses) and minority interests, ("Operating Results"), on a geographic basis to be the most meaningful measure of the operating performance of each respective geographic segment and of the Company as a whole. The following table presents certain information regarding the operations of the Company by geographic segments (in thousands):
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Revenues: U.S. Services $ 107,005 $ 101,392 $ 210,266 $ 199,780 International Services 33,901 32,539 66,948 63,292 --------- --------- --------- --------- Total Revenue $ 140,906 $ 133,931 $ 277,214 $ 263,072 ========= ========= ========= ========= Operating Results: U.S. Services $ 6,981 $ 5,751 $ 13,148 $ 8,560 International Services: Operating loss (505) (1,399) (2,588) (4,958) Equity in earnings (losses) of affiliated companies (27) 157 125 270 Minority interest benefit 585 642 1,377 1,849 --------- --------- --------- --------- Subtotal--International Services 53 (600) (1,086) (2,839) Corporate and other expenses including equity in loss of affiliated companies (3,488) (3,941) (7,055) (6,594) Restructuring and other charges (a) (4,102) (2,082) (8,199) (5,639) --------- --------- --------- --------- Operating Results (556) (872) (3,192) (6,512) Interest expense and other, net (990) (697) (2,397) (1,511) --------- --------- --------- --------- Loss before income taxes $ (1,546) $ (1,569) $ (5,589) $ (8,023) ========== ========= ========= =========
10 11 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont'd. (UNAUDITED) (a) Restructuring and other charges for the U.S. Services, International Services and Corporate were $1.9 million, $2.2 million and $0 million, respectively, for the three months ended June 30, 2001 and $1.7 million, $1.3 million and $(.9) million, respectively, for the three months ended June 30, 2000. Restructuring and other charges for the U.S. Services, International Services and Corporate were $4.0 million, $4.2 million and $0 million, respectively, for the six months ended June 30, 2001 and $4.2 million, $2.3 million and $(.9) million, respectively, for the six months ended June 30, 2000. NOTE 9 - RESTRUCTURING AND OTHER CHARGES The Company began the Project Delta initiative in the fourth quarter of 1999 and continues to incur costs associated with this project. Certain restructuring and other costs were not eligible for accrual in 2000 and were recorded during 2001. For the quarter and six months ended June 30, 2001 and 2000, the Restructuring and Other Charges included in the Statement of Operations consist of the following (in thousands): THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Restructuring Charges Termination benefits $ - $ 1,417 $ 21 $ 2,676 Disposition of excess office space - 198 17 750 Transition of German production to U.S. facility 2,141 1,243 4,003 2,199 Discontinued activities 1,021 - 2,042 - Other costs of project 940 131 2,116 921 Other Charges - (907) - (907) ------- ------- ------- ------- $ 4,102 $ 2,082 $ 8,199 $ 5,639 ======= ======= ======= ======= The following table reflects restructuring and other charges accrued prior to 2001 and expenses incurred and cash payments made during the first half of 2001 (in thousands): 11 12 INFORMATION RESOURCES, INC. and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Cont'd. (UNAUDITED)
2001 Activity ---------------------------------- Liability at Liability at December 31, 2000 Provision Cash Non-Cash June 30, 2001 ----------------- ---------- -------- -------- ------------- Termination benefits $ 2,029 $ 21 $ (1,692) $ - $ 358 Disposition of excess office space - 17 (17) - - Transition of German production to U.S. facility - 4,003 (3,546) - 457 Discontinued activities 2,042 (113) (2,042) 428 541 Other costs of project - 2,116 (2,116) - - ------- --------- -------- -------- ------- $ 2,570 $ 8,199 $ (7,484) $ (2,042) $ 1,243 ======= ========= ========= ========= =======
Termination Benefits: As of June 30, 2001, 351 employees have been terminated under various Project Delta initiatives. The accrual balance remaining as of June 30, 2001 represents the unpaid severance costs associated with employees terminated through the second quarter of 2001. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first half of 2001 relating to office space not currently utilized. Transition of German Production to U.S. Facility: The Company made a decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail Services GmbH from an external vendor in Germany to the Company's U.S. headquarter facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. In the first half of 2001, charges of approximately $4.0 million were recorded related to this transition. Discontinued Activities: During 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in the first half of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs in the first half of 2001 relate primarily to the fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. 12 13 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following narrative discusses the results of operations, liquidity and capital resources for the Company on a consolidated basis. This section should be read in conjunction with IRI's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. RESULTS OF OPERATIONS The Company's consolidated net loss was $1.2 million or $(.04) per diluted share for the second quarter of 2001 compared to a consolidated net loss of $1.0 million or $(.03) per diluted share for the corresponding 2000 quarter. The Company's consolidated net loss was $3.7 million or $(.13) per diluted share for the six months ended June 30, 2001 compared to a consolidated net loss of $4.5 million or $(.16) per diluted share for the corresponding 2000 period. Excluding restructuring and other charges, net income (loss) for the quarter and year to date 2001 was $1.5 million or $.05 per diluted share compared to $.3 million and $(1.2) million, respectively, or $.01 and $(.04) per diluted share for the corresponding 2000 period. Second Quarter Versus Prior Year Consolidated revenues for the quarter ended June 30, 2001 were $140.9 million, an increase of 5% over the corresponding quarter in 2000. U.S revenues were $107.0 million, an increase of 6% compared to the prior year due to increased panel, analytics, and web delivery and access tools revenues. International revenues increased 4% to $33.9 million. Excluding foreign exchange effects, international revenues increased 12% over the prior year reflecting continued revenue growth in most of the major European businesses. Consolidated costs of information services sold increased 4% to $123.8 million for the three months ended June 30, 2001 compared to $119.2 million for the second quarter of 2000. This increase is due to higher compensation resulting primarily from annual increases and the continued growth of the international business. Consolidated selling, general and administrative expenses decreased 2% to $14.0 million for the three months ended June 30, 2001 compared to $14.3 million for the second quarter of 2000. Earnings before interest and taxes, excluding restructuring and other charges of $4.1 million, was $3.5 million for the second quarter of 2001 compared to $1.2 million in the prior year, before restructuring and other charges of $2.1 million. This improvement is the result of better performance in both U.S. and international operations. Restructuring and other charges are discussed below. Interest and other expenses were $1.0 million for the second quarter of 2001, an increase of $.3 million over the prior year due to increased foreign exchange losses resulting from the continued strength of the U.S. dollar against European currencies during 2001. 13 14 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. First Half Versus Prior Year Consolidated revenues were $277.2 million for the six months ended June 30, 2001, an increase of 5% over the corresponding period of 2000. U.S. revenues increased 5% to $210.3 million for the first half of 2001 compared to the prior year due to increased panel, analytics, and web delivery and access tools revenues. International revenues increased 6% to $66.9 million. Excluding the impact of foreign exchange effects, international revenues for the first half of 2001 increased 13% over the prior year. Consolidated costs of information services sold increased 3% to $246.1 million for the six months ended June 30, 2001 compared to costs of $238.8 million for the first half of 2000. This increase is due to higher compensation resulting primarily from annual increases and the continued growth of the international business. Consolidated selling, general and administrative expenses were essentially unchanged at $27.3 million for the six months ended June 30, 2001 compared to $27.2 million for the first half of 2000. For the first half of 2001, the Company's earnings before interest and taxes, excluding restructuring and other charges of $8.2 million, was $5.0 million compared to a loss of $.9 million in the prior year before restructuring and other charges of $5.6 million. This improvement is the result of better performance in both U.S. and international operations. Restructuring and other charges are discussed below. Interest and other expenses were $2.4 million for the six months ended June 30, 2001, an increase of $.9 million over the prior year primarily due to foreign exchange losses resulting from the continued strength of the U.S. dollar against European currencies during 2001 and interest on capital leases. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $10.7 million consolidated cash balance and $40.5 million available under the Company's bank revolving credit facility. The Company anticipates that it will have sufficient funds from these sources and internally generated funds from its U.S. operations to satisfy its cash needs for the foreseeable future. The Company's bank credit agreement contains covenants which restrict the Company's ability to incur additional indebtedness. 14 15 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. FINANCINGS The financial covenants in the bank credit agreement, as well as in the lease agreement for the Company's Chicago headquarters, require the Company to maintain a minimum tangible net worth and to meet certain cash flow coverage and leverage ratios. The agreements also limit the Company's ability to declare dividends or make distributions to holders of capital stock, or redeem or otherwise acquire shares of the Company. Approximately $.2 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement also contains covenants that restrict the Company's ability to incur additional indebtedness. Further, the agreement grants the bank a security interest in the Company's assets if certain financial covenants are not met. As of June 30, 2001, the Company was in compliance with all covenants. Cash Flow Consolidated net cash provided by operating activities was $85.8 million for the six months ended June 30, 2001 compared to $53.6 million for the same period in 2000. This increase was primarily attributable to improved accounts receivable management in 2001 combined with the fact that 2000 operating cash flow included higher funding of restructuring charges. Additionally, in the second quarter, the Company received a $10.9 million cash payment as an early termination fee on a client contract that was to expire in 2005. As part of this arrangement, the Company also entered into a long-term contract with the client's parent. The Company will recognize most of this payment as income over four years beginning in 2002. Consolidated cash flow used in net investing activities was $80.4 million in 2001 compared to $72.4 million for the same period in 2000. Investing activity in 2001 reflects higher expenditures for data procurement and capital, and payments made in connection with the formation of Mosaic InfoForce, L.P. Net cash provided (used) before financing activities was $5.3 million for the six months ended June 30, 2001 compared to $(18.9) million for the same period in 2000. Consolidated cash flow provided (used) by net financing activities was $(5.8) million for the six months ended June 30, 2001 compared to $15.4 million for the same period in 2000. Other Deferred Costs and Capital Expenditures Consolidated deferred data procurement expenditures were $65.6 million for the six months ended June 30, 2001 and $63.7 million for the same period in 2000. These expenditures are amortized over a period of 28 months and include payments and services to retailers for point-of-sale data and other costs related to collecting, reviewing and verifying panel, causal and other data which are an essential part of the Company's database. Such expenditures were $39.2 million and $36.6 million for the periods ended June 30, 2001 and 2000, respectively, for the Company's U.S. services business and $26.4 million and $27.1 million, respectively, for the Company's International services business. 15 16 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. On May 1, 2001, Wal-Mart Stores, Inc. announced its decision, effective as of the beginning of August, 2001, to discontinue providing point-of-sale and related data for its U.S. business to all third party data providers, including the Company and ACNielsen Corporation. The Company has been focusing its efforts on creating an alternative data solution for its customers that will replace Wal-Mart sample-based point of sale scanner data with the Company's consumer panel data. Although this panel solution has not yet been made available to the marketplace, management believes that it will be a reasonable substitute for the Wal-Mart scanner data. If, however, the marketplace does not view the Company's Wal-Mart panel solution as a reasonable substitute for Wal-Mart scanner data, the Company's revenues and results of operations could be adversely impacted. Consolidated capital expenditures were $12.0 million and $7.8 million for the six months ended June 30, 2001 and 2000, respectively. Capital expenditures for the Company's U.S. services business were $9.6 million and $5.5 million, while depreciation expense was $12.4 million and $12.5 million for the six months ended June 30, 2001 and 2000, respectively. The increase in U.S. capital expenditures is primarily due to the purchase of equipment used in conjunction with the panel business and leasehold improvements. The Company's International services business capital expenditures were $2.4 million and $2.3 million for the six months ended June 30, 2001 and 2000, respectively, while depreciation expense was $2.2 million and $2.3 million for the six months ended June 30, 2001 and 2000, respectively. Consolidated capitalized software development costs, primarily in the U.S., were $1.2 million for the first half of both 2001 and 2000. Software and Related Products On May 31, 2001, the Company entered into a new agreement with Oracle Corporation pursuant to which the Company was granted the right to continue to acquire new licenses to current versions of Oracle software products on favorable licensing and maintenance terms. The Company's right to use such licenses includes the right to allow its clients to use such licenses to access Company data. Impact of Inflation Inflation has slowed in recent years, however the Company's results of operations are impacted by rising prices given the labor intensive nature of the business. To the extent permitted by competitive conditions, the Company passes increased costs on to customers by adjusting sales prices and, in the case of multi-year contracts, through consumer price index provisions in such agreements. RESTRUCTURING AND OTHER CHARGES The Company began the Project Delta initiative in the fourth quarter of 1999 and continues to incur costs associated with this project. Certain restructuring and other costs were not eligible for accrual in 2000 and were recorded during 2001. For the quarter and six months ended June 30, 2001 and 2000, the Restructuring and Other Charges included in the Statement of Operations consist of the following (in thousands): 16 17 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, -------- -------- 2001 2000 2001 2000 ---- ---- ---- ---- Restructuring Charges Termination benefits $ - $ 1,417 $ 21 $ 2,676 Disposition of excess office space - 198 17 750 Transition of German production to U.S. facility 2,141 1,243 4,003 2,199 Discontinued activities 1,021 - 2,042 - Other costs of project 940 131 2,116 921 Other Charges - (907) - (907) ------- ------- ------- ------- $ 4,102 $ 2,082 $ 8,199 $ 5,639 ======= ======= ======= ======= The following table reflects restructuring and other charges accrued prior to 2001 and expenses incurred and cash payments made during the first half of 2001 (in thousands):
2001 Activity ------------------------------- Liability at Liability at December 31, 2000 Provision Cash Non-Cash June 30, 2001 ----------------- --------- --------- -------- ------------- Termination benefits $ 2,029 $ 21 $ (1,692) $ - $ 358 - Disposition of excess office space - 17 (17) - - Transition of German production to U.S. facility - 4,003 (3,546) - 457 Discontinued activities 541 2,042 (113) (2,042) 428 Other costs of project - 2,116 (2,116) - - ------- -------- -------- --------- ------- $ 2,570 $ 8,199 $ (7,484) $ (2,042) $ 1,243 ======= ======== ======== ========= =======
Termination Benefits: As of June 30, 2001, 351 employees have been terminated under various Project Delta initiatives. The accrual balance remaining as of June 30, 2001 represents the unpaid severance costs associated with employees terminated through the second quarter of 2001. 17 18 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first half of 2001 relating to office space not currently utilized. Transition of German Production to U.S. Facility: The Company made a decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail Services GmbH from an external vendor in Germany to the Company's U.S. headquarter facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. In the first half of 2001, charges of approximately $4.0 million were recorded related to this transition. Discontinued Activities: During 2000, it was determined that certain equipment used in the Company's U.S. operations to collect retail information would no longer be utilized after the second quarter of 2001. Accordingly, the Company recognized a non-cash charge of $2.0 million in the first half of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs in the first half of 2001 relate primarily to the fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. Future Restructuring Charges: The Company's U.S. Project Delta cost reduction program is nearing completion. However, the Company expects to incur additional costs in 2001 (primarily in the third quarter of 2001) of $3 million to $5 million relating to the Company's U.S. Project Delta initiative which could not be accrued as of June 30, 2001. Further, International Project Delta initiatives will be undertaken during 2001 at a significantly lower cost than the U.S. Project Delta program. Additionally, the Company has begun an initial review of its information technology operations to assess potential restructuring costs and benefits. The Company cannot yet estimate the costs for these restructuring programs. EUROPEAN CURRENCY CONVERSION ISSUES In accordance with the 1992 treaty of the European Union, on January 1, 1999, a new single European currency, the Euro, became legal tender. The Euro will replace the sovereign currencies ("legacy currencies") of eleven members of the European Union ("participating countries"). On January 1, 1999, fixed conversion rates between the Euro and the legacy currencies in those particular countries were established. As the Company has operations in several of the participating countries, it will be affected by issues relating to the introduction of and transition to the Euro. The Company's European Executive Committee is charged with formulating and executing all aspects of the Company's plan concerning the conversion to the Euro. 18 19 INFORMATION RESOURCES, INC. and Subsidiaries MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, Cont'd. The Company does not expect the cost of any system modifications to be material or result in any material increase in transaction costs. The Company will continue to evaluate the impact of the Euro, however, based on currently available information, management does not believe the introduction of the Euro will have a material adverse impact on the Company's financial condition or overall trends in results of operations. FORWARD LOOKING INFORMATION Certain matters discussed in this Quarterly Report on Form 10-Q are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in reports and other documents filed by the Company with the Securities and Exchange Commission including the Company's Annual Report on Form 10-K for the year 2000. 19 20 INFORMATION RESOURCES, INC. and Subsidiaries PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Annual Meeting. On May 18, 2001, Information Resources held its annual meeting of shareholders. As of that date, shareholders of the Company's common shares outstanding were entitled to 29,054,577 votes. At the meeting, the Company's shareholders voted on the election of four directors, for three year terms. The votes cast for, against and abstentions were as follows: Votes For Votes Withheld --------- -------------- Election of Directors: William B. Connell 25,944,394 223,238 Leonard M. Lodish, Ph.D. 25,892,249 275,383 Raymond H. VanWagener, Jr. 25,944,693 222,939 Thomas W. Wilson, Jr. 25,659,629 508,003 A more detailed description of the matter voted on by shareholders of the Company at this meeting is included in the definitive Proxy Statement dated April 18, 2001 and incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits None. b. Reports on Form 8-K. None. 20 21 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/Andrew G. Balbirer -------------------------------------------- Andrew G. Balbirer Executive Vice President and Chief Financial Officer (Authorized Officer of Registrant) /s/Mary K. Sinclair -------------------------------------------- Mary K. Sinclair Controller (Principal Accounting Officer) August 13, 2001 21 -----END PRIVACY-ENHANCED MESSAGE-----