-----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, GPgcPyw30R5Edo+/31CK88W+W7fhosjEbpnhPuTGOyoSzODA21Ck5+QW+SJ7Gr2d dBWEfw/KjzgC7t1BA+29LQ== 0000950137-02-002934.txt : 20020514 0000950137-02-002934.hdr.sgml : 20020514 ACCESSION NUMBER: 0000950137-02-002934 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020514 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: 02644574 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 c69540e10-q.txt QUARTERLY REPORT 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 March 31, 2002 - --- 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 April 30, 2002 was 29,551,007. 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 14 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 20 Signatures 21 2 INFORMATION RESOURCES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- (UNAUDITED) CURRENT ASSETS Cash and cash equivalents $ 6,044 $ 13,708 Accounts receivable, net 83,830 74,669 Prepaid expenses and other 10,020 11,283 --------- --------- Total Current Assets 99,894 99,660 --------- --------- Property and equipment, at cost 214,547 214,392 Accumulated depreciation (149,471) (144,461) --------- --------- Net Property and Equipment 65,076 69,931 Investments 13,716 14,573 Deferred income taxes 8,994 7,465 Other assets 163,517 161,794 --------- --------- $ 351,197 $ 353,423 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current maturities of long-term debt $ 2,970 $ 3,549 Accounts payable 52,796 59,708 Accrued compensation and benefits 25,186 20,368 Accrued property, payroll and other taxes 3,288 1,949 Accrued expenses 5,529 5,851 Accrued restructuring costs 2,066 2,904 Deferred revenue 36,695 32,464 --------- --------- Total Current Liabilities 128,530 126,793 --------- --------- Long-term debt 1,864 2,234 Other liabilities 12,686 13,565 STOCKHOLDERS' EQUITY Preferred stock - authorized, 1,000,000 shares, $.01 par value; none issued -- -- Common stock - authorized 60,000,000 shares, $.01 par value 29,495,541 and 29,397,373 shares issued and outstanding, respectively 298 297 Additional paid-in capital 201,335 200,826 Retained earnings 17,653 19,945 Accumulated other comprehensive loss (11,169) (10,237) --------- --------- Total Stockholders' Equity 208,117 210,831 --------- --------- $ 351,197 $ 353,423 ========= =========
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 MARCH 31, --------- 2002 2001 ---- ---- Information services revenues $ 133,119 $ 136,308 Costs and expenses: Information services sold (120,551) (122,260) Selling, general and administrative expenses (10,752) (13,323) Restructuring and other items (5,292) (4,097) --------- --------- (136,595) (139,680) --------- --------- Operating loss (3,476) (3,372) Interest expense (60) (791) Other, net (359) (616) Equity in earnings (losses) of affiliated companies 41 (56) Minority interest benefit 299 792 --------- --------- Loss before income taxes (3,555) (4,043) Income tax benefit 1,264 1,568 --------- --------- Net loss $ (2,291) $ (2,475) ========= ========= Net loss per common share - basic $ (.08) $ (.09) ========= ========= Net loss per common and common equivalent share - diluted $ (.08) $ (.09) ========= ========= Weighted average common shares - basic 29,430 29,069 ========= ========= Weighted average common and common equivalent shares - diluted 29,430 29,069 ========= =========
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)
THREE MONTHS ENDED MARCH 31, --------- 2002 2001 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (2,291) $ (2,475) Adjustments to reconcile net loss to net cash provided by operating activities: Amortization of deferred data procurement costs 31,778 30,688 Depreciation 6,705 7,321 Amortization of capitalized software costs and intangibles 802 1,472 Restructuring and other charges (245) 195 Deferred income tax benefit (1,264) (1,568) Equity in earnings of affiliated companies and minority interests (340) (736) Other (17) 59 Change in assets and liabilities: Accounts receivable, net (9,162) (6,420) Other current assets 1,263 1,329 Accounts payable and accrued liabilities (1,103) 104 Deferred revenue 4,231 5,951 Other, net 844 1,121 -------- -------- Net cash provided by operating activities 31,201 37,041 CASH FLOWS FROM INVESTING ACTIVITIES: Deferred data procurement costs (34,668) (32,221) Purchase of property, equipment and software (2,731) (6,502) Capitalized software costs (743) (357) Investment in joint ventures -- (917) Capital contributions from minority interests and other, net -- 134 -------- -------- Net cash used in investing activities (38,142) (39,863) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings 250 1,500 Net repayments of capital leases (1,199) (456) Purchases of common stock -- (110) Proceeds from exercise of stock options and other 424 -- -------- -------- Net cash (used) provided by financing activities (525) 934 EFFECT OF EXCHANGE RATE CHANGES ON CASH (198) (619) -------- -------- Net decrease in cash and cash equivalents (7,664) (2,507) Cash and cash equivalents at beginning of period 13,708 11,914 -------- -------- Cash and cash equivalents at end of period $ 6,044 $ 9,407 ======== ========
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 - 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. Interim financial statements: The interim financial statements are unaudited, but include all adjustments necessary (consisting of normal recurring adjustments), 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. Earnings (Loss) per Common and Common Equivalent Share: Net earnings (loss) per share is based upon the weighted average number of shares of common stock outstanding during each period. Net earnings (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 2001 and 2002, 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):
THREE MONTHS ENDED MARCH 31, -------------------- 2002 2001 ---- ---- Interest $ 60 $ 649 Income taxes -- (5)
Non-cash investing and financing activities are excluded from the consolidated statement of cash flows. 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):
MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- Billed $ 65,690 $ 66,065 Unbilled 22,005 12,555 -------- -------- 87,695 78,620 Reserve for accounts receivable (3,865) (3,951) -------- -------- $ 83,830 $ 74,669 ======== ========
NOTE 4 - INVESTMENTS AND OTHER ASSETS Investments were as follows (in thousands):
MARCH 31, 2002 DECEMBER 31, 2001 --------------- ------------------ Mosaic InfoForce, L.P., at cost plus equity in undistributed earnings $ 4,512 $ 5,273 Datos Information Resources, at cost plus equity in undistributed earnings 4,263 4,341 GfK Panel Services Benelux B.V., at cost 1,315 1,315 Middle East Market Research Bureau ("MEMRB"), at cost 2,778 2,781 Other 848 863 ------- ------- $13,716 $14,573 ======= =======
7 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) Other assets were as follows (in thousands):
MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- Deferred data procurement costs - net of accumulated amortization of of $140,772 in 2002 and $138,046 in 2001 $146,197 $144,500 Intangible assets, including goodwill - net of accumulated amortization of $13,737 in 2002 and $13,584 in 2001 7,659 7,811 Capitalized software costs - net of accumulated amortization of $5,312 in 2002 and $4,665 in 2001 4,508 4,412 Other 5,153 5,071 -------- -------- $163,517 $161,794 ======== ========
NOTE 5 - LONG TERM DEBT Long-term debt was as follows (in thousands):
MARCH 31, 2002 DECEMBER 31, 2001 -------------- ----------------- Bank borrowings $ 250 $ -- Capitalized leases and other 4,584 5,783 ------- ------- 4,834 5,783 Less current maturities (2,970) (3,549) ------- ------- $ 1,864 $ 2,234 ======= =======
In April 2002, the Company reduced its secured bank revolving credit facility to $35 million. All other terms and conditions of the credit facility remain unchanged. The Company had $14.3 million of borrowing availability under the amended revolving credit facility as of April 30, 2002. 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 $1.0 million is currently available for such distributions under the most restrictive of these covenants. The bank credit agreement contains 8 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) covenants which restrict the Company's ability to incur additional indebtedness. As of March 31, 2002, 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 MARCH 31 ---------------------- 2002 2001 ---- ---- Net loss $(2,291) $(2,475) Foreign currency translation adjustment (932) (1,774) ------- ------- Comprehensive loss $(3,223) $(4,249) ======= =======
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"). The shares were held in treasury until they were sold to employees in connection with the Company's ESPP. 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 less than 1% of consolidated revenues. The 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. 9 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) The following table presents certain information regarding the operations of the Company by geographic segments (in thousands): SEGMENTED RESULTS:
THREE MONTHS ENDED MARCH 31, --------- 2002 2001 ---- ---- Revenues: U.S. Services $ 100,036 $ 103,261 International Services 33,083 33,047 --------- --------- Total $ 133,119 $ 136,308 ========= ========= Operating Results: U.S. Services $ 6,242 $ 6,167 International Services: Operating loss (2,823) (2,084) Equity in earnings (losses) of affiliated companies (78) 153 Minority interest benefit 299 792 --------- --------- Subtotal--International Services (2,602) (1,139) Corporate and other expenses including equity In loss of affiliated companies (1,484) (3,567) Restructuring and other items (a) (5,292) (4,097) --------- --------- Operating Results (3,136) (2,636) Interest expense and other, net (419) (1,407) --------- --------- Loss before income taxes $ (3,555) $ (4,043) ========= =========
(a) $4.2 million and $1.1 million of restructuring and other items relate to U.S. Services and International Services, respectively, for the first quarter of 2002. $2.1 million and $2.0 million of restructuring and other items relate to U.S. Services and International Services, respectively, for the first quarter of 2001. NOTE 9 - RESTRUCTURING AND OTHER ITEMS Since 1999, the Company has undertaken three major initiatives as described below resulting in incremental, one-time expenditures that have been classified as restructuring expenses in the Statement of Operations. 10 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta. The objective of Project Delta was to improve productivity and operating efficiencies to reduce the Company's ongoing cost structure in its U.S. operations. The work outlined as part of Project Delta was completed during the third quarter of 2001. A restructuring accrual was established in 1999 to reflect certain of the outstanding obligations related to 1999 restructuring charges. Certain restructuring costs were not eligible for accrual in 1999 and were recorded during 2000 and 2001. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002. Information Technology Assessment: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. The review includes initial assessments of database design, transition planning and cost and savings estimates. This review will be completed in the second quarter of 2002. The following tables reflect restructuring and other items incurred and cash payments made during the first quarters of 2002 and 2001 (in thousands):
2002 ACTIVITY LIABILITY -------------------------------------------- (RECEIVABLE) AT LIABILITY AT DECEMBER 31, 2001 PROVISION CASH NON-CASH MARCH 31, 2002 ----------------- --------- ---- -------- -------------- RESTRUCTURING CHARGES Project Delta Termination benefits $ 634 $ (240) $ (254) $-- $ 140 Discontinued activities 265 -- (4) -- 261 Transition of German production to U.S. facility 592 1,131 (1,723) -- -- Information technology assessment 1,413 4,401 (4,149) -- 1,665 OTHER ITEMS (1,036) -- 1,036 -- -- ------- ------- ------- --- ------- $ 1,868 $ 5,292 $(5,094) $-- $ 2,066 ======= ======= ======= === =======
11 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 MARCH 31, 2001 ----------------- --------- ---- -------- -------------- RESTRUCTURING CHARGES Project Delta Termination benefits $ 2,029 $ 21 $(1,157) $ -- $ 893 Disposition of excess office space -- 17 (17) -- -- Discontinued activities 541 1,021 (39) (1,021) 502 Other costs -- 1,176 (1,176) -- -- Transition of German production to U.S. facility -- 1,862 (1,513) -- 349 ------- ------- ------- ------- ------- $ 2,570 $ 4,097 $(3,902) $(1,021) $ 1,744 ======= ======= ======= ======= =======
Termination Benefits: As of March 31, 2002, 397 employees had been terminated under various Project Delta initiatives. The accrual balance remaining as of March 31, 2002 represents the unpaid severance costs associated with employees previously terminated. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first quarter of 2001 relating to office space not currently utilized. 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 $1.0 million in the first quarter of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs in the first quarter of 2001 relate primarily to consulting fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. Transition of German Production to U.S. Facility: During the first quarter of 2002 and 2001, charges of approximately $1.1 million and $1.9 million, respectively, were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002. 12 INFORMATION RESOURCES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, CONT'D. (UNAUDITED) Information Technology Assessment: 2002 costs relate primarily to consulting fees paid to a third party in connection with the rearchitecture project. NOTE 10 - ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets." Under the new rules, goodwill, the excess of the carrying value over the net book value of investments accounted for using the equity method and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests. Other intangible assets are amortized over their useful lives. Proforma results for the first quarter of 2001 are summarized below (in thousands, except per share data):
THREE MONTHS ENDED MARCH 31, ---------------------------- 2002 2001 ---- ---- Reported net loss $ (2,291) $(2,475) Add: Goodwill amortization -- 138 Amortization of Mosaic InfoForce, L.P. investment -- 79 --------- ------- Adjusted net loss $ (2,291) $(2,258) ========= ======= Basic and diluted earnings per share: Reported net loss $ (.08) $ (.09) Goodwill amortization and amortization of Mosaic InfoForce, L.P. investment -- .01 --------- ------- Adjusted net loss $ (.08) $ (.08) ========= =======
The Company will perform the first of the required impairment tests of goodwill during the second quarter of 2002, and has not yet determined what effect, if any, these tests will have on the earnings and financial position of the Company. 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, 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained therein. RESULTS OF OPERATIONS Operations: The Company's consolidated net loss was $2.3 million or $.08 per diluted share for the first quarter of 2002 compared to a consolidated net loss of $2.5 million or $.09 per diluted share for the corresponding 2001 quarter. Excluding restructuring and other items, the Company recorded consolidated net income of $1.0 million or $.03 per diluted share in the first quarter of 2002 compared to net income of $0.4 million for the corresponding 2001 quarter. Consolidated revenues for the first quarter of 2002 were $133.1 million, a decrease of 2% over the corresponding quarter in 2001. U.S. revenues were $100.0 million, a decrease of 3% compared to the prior year due to the overall economic environment coupled with the lag effect of 2001 client losses that have not yet been offset by 2001 client wins. International revenues of $33.1 million were essentially unchanged from the prior year. Excluding foreign exchange effects, international revenues increased 4% over the prior year reflecting revenue growth in many of the Company's European markets. Consolidated costs of information services sold decreased 1% to $120.6 million for the three months ended March 31, 2002 compared to $122.3 million for the first quarter of 2001. This decrease is primarily the result of lower expenses in the areas of compensation and benefits due to lower U.S. headcount, travel, office expenditures and technical consultants. Consolidated selling, general and administrative expenses decreased 19% to $10.8 million for the three months ended March 31, 2002 compared to $13.3 million for the first quarter of 2001. The decrease relates primarily to lower trade show expenses due to event timing and lower training and recruiting costs. Earnings before interest and taxes, excluding restructuring and other items of $5.3 million, was $2.2 million for the first quarter of 2002 compared to $1.5 million in the prior year. This improvement is the result of lower expenses that more than offset the decline in revenues in the first quarter of 2002. Restructuring and other charges are discussed below. Interest and other expenses were $.4 million for the first quarter of 2002 compared to $1.4 million in the prior year due to lower bank borrowings and decreased foreign exchange losses in the first quarter of 2002. The Company adopted Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" in the first quarter of 2002. Proforma results for the first quarter of 2001, had the provisions of Statement No. 142 been applied, would have been a net loss of $2.3 14 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. million or $0.8 per diluted share compared to a reported net loss of $2.5 million or $.09 per diluted share. The Company will perform the first of the required impairment tests of goodwill during the second quarter of 2002, and has not yet determined what effect, if any, these tests will have on the earnings and financial position of the Company. On May 1, 2001, Wal-Mart 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. The Company has developed an alternative data solution for its customers that replaces Wal-Mart sample-based point-of-sale scanner data with the Company's consumer panel data. The Company began introducing its solution, InfoScan Advantage, to clients in October 2001. While management believes InfoScan Advantage is the best available substitute in the marketplace for Wal-Mart scanner point-of-sale data, it does not provide the granularity of Wal-Mart point-of-sale data. IRI is continuing to review and develop enhancements to this service that are targeted to improving data accuracy and maximizing the value of the data. Although the Company's InfoScan Advantage panel solution is still relatively new to the marketplace, management believes that it is a reasonable substitute for the Wal-Mart scanner data, particularly for the larger product categories on which IRI reports. However, many of the Company's clients are continuing to evaluate IRI's InfoScan Advantage solution. If, based on the level of acceptance, the marketplace does not view the Company's solution as a reasonable substitute for Wal-Mart scanner data, the Company's revenues and results of operations could be materially impacted. LIQUIDITY AND CAPITAL RESOURCES The Company's current cash resources include its $6.0 million consolidated cash balance and $14.3 million available under the Company's bank revolving credit facility as of April 30, 2002. 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. FINANCINGS During April 2002, the Company reduced its amended bank revolving credit facility to $35 million. All other terms and conditions of the credit facility remain unchanged. Under the credit facility, the maximum commitment of funds available for borrowings is limited by a defined borrowing base formula related to eligible accounts receivable. The facility is secured by the Company's assets. 15 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 $1.0 million is currently available for such distributions under the most restrictive of these covenants. As of March 31, 2002, the Company was in compliance with all covenants. Cash Flow: Consolidated net cash provided by operating activities was $31.2 million for the three months ended March 31, 2002 compared to $37.0 million for the same period in 2001. This decrease was primarily attributable to changes in accounts receivable and accounts payable resulting from the timing of billings and payments. Consolidated cash flow used in net investing activities was $38.1 million in the first quarter of 2002 compared to $39.9 million for the same period in 2001. Investing activity in the first quarter of 2002 reflects higher expenditures for data procurement primarily for causal data, and lower capital expenditures. Net cash used before financing activities was $6.9 million for the three months ended March 31, 2002 compared to $2.8 for the same period in 2001. Consolidated cash flow used by net financing activities was $.5 million for the three months ended March 31, 2002 compared to a provision of $0.9 million for the same period in 2001. The Company borrowed an additional $.25 million under its revolving line of credit in the first quarter of 2002 compared to $1.5 million in the prior year. Other Deferred Costs and Capital Expenditures: Consolidated deferred data procurement expenditures were $34.7 million for the three months ended March 31, 2002 and $32.2 million for the same period in 2001. These expenditures are amortized over a period of 28 months, which is the average number of months of back-data provided to clients, and include payments to retailers for point-of-sale data and other costs related to collecting, reviewing and verifying other data (i.e., causal factors) which are an essential part of the Company's database. Such expenditures were $21.0 million and $19.2 million for the three month periods ended March 31, 2002 and 2001, respectively, for the Company's U.S. services business and $13.7 million and $13.0 million, respectively, for the Company's International services business. Consolidated capital expenditures were $2.7 million and $6.5 million for the three months ended March 31, 2002 and 2001, respectively. Capital expenditures for the Company's U.S. services business were $1.8 million and $5.0 million, while depreciation expense was $5.6 million and $6.2 million for the three months ended March 31, 2002 and 2001, respectively. The decline in capital expenditures is primarily due to the timing of projects. The Company's International services capital expenditures were $0.9 million and $1.5 million while depreciation expense was $1.1 million for each of the three month periods ended March 31, 2002 and 2001. Consolidated capitalized software development costs, primarily in the U.S., were $0.7 million and $0.4 million for the three months ended March 31, 2002 and 2001, respectively. 16 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 ITEMS Since 1999, the Company has undertaken three major initiatives as described below resulting in incremental, one-time expenditures that have been classified as restructuring expenses in the Statement of Operations. Project Delta: In the third quarter of 1999, the Company initiated a comprehensive program named Project Delta. The objective of Project Delta was to improve productivity and operating efficiencies to reduce the Company's ongoing cost structure in its U.S. operations. The work outlined as part of Project Delta was completed during the third quarter of 2001. A restructuring accrual was established in 1999 to reflect certain of the outstanding obligations related to 1999 restructuring charges. Certain restructuring costs were not eligible for accrual in 1999 and were recorded during 2000 and 2001. Transition of German Production to U.S. Facility: The Company made the decision in the fourth quarter of 1999 to transfer production services for IRI/GfK Retail from an external vendor in Germany to the Company's U.S. headquarters facility in order to enhance its InfoScan offering in Germany and to reduce future production costs. The transition of German production to the U.S. facility began in the first quarter of 2000 and was completed in the first quarter of 2002. Information Technology Assessment: During the fourth quarter of 2001, the Company began a review of its information technology operations to assess potential restructuring costs and benefits. The review includes initial assessments of database design, transition planning and cost and savings estimates. This review will be completed in the second quarter of 2002. 17 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. The following tables reflect restructuring and other items incurred and cash payments made during the first quarters of 2002 and 2001 (in thousands):
2002 ACTIVITY ------------------------------------------- LIABILITY (RECEIVABLE) AT LIABILITY AT DECEMBER 31, 2001 PROVISION CASH NON-CASH MARCH 31, 2002 ----------------- --------- ---- -------- -------------- RESTRUCTURING CHARGES Project Delta Termination benefits $ 634 $ (240) $ (254) $ -- $ 140 Discontinued activities 265 -- (4) -- 261 Transition of German production to U.S. facility 592 1,131 (1,723) -- -- Information technology assessment 1,413 4,401 (4,149) -- 1,665 OTHER ITEMS (1,036) -- 1,036 -- -- ------- ------- ------- ------- ------- $ 1,868 $ 5,292 $(5,094) -- $ 2,066 ======= ======= ======= ======= =======
2001 ACTIVITY ---------------------------------------- LIABILITY AT LIABILITY AT DECEMBER 31, 2000 PROVISION CASH NON-CASH MARCH 31, 2001 ----------------- --------- ---- -------- -------------- RESTRUCTURING CHARGES Project Delta Termination benefits $ 2,029 $ 21 $(1,157) $ -- $ 893 Disposition of excess office space -- 17 (17) -- -- Discontinued activities 541 1,021 (39) (1,021) 502 Other costs -- 1,176 (1,176) -- -- Transition of German production to U.S. facility -- 1,862 (1,513) -- 349 ------- ------- ------- ------- ------- $ 2,570 $ 4,097 $(3,902) $(1,021) $ 1,744 ======= ======= ======= ======= =======
Termination Benefits: As of March 31, 2002, 397 employees had been terminated under various Project Delta initiatives. The accrual balance remaining as of March 31, 2002 represents the unpaid severance costs associated with employees previously terminated. Disposition of Excess Office Space: The Company recorded $.02 million of charges relating to lease buyouts in the first quarter of 2001 relating to office space not currently utilized. 18 INFORMATION RESOURCES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, CONT'D. 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 $1.0 million in the first quarter of 2001 relating to accelerated depreciation on this equipment. Other Restructuring Costs: Other restructuring costs in the first quarter of 2001 relate primarily to consulting fees paid to a third party for assistance in the identification of process improvements and efficiencies within the U.S. operations. Transition of German Production to U.S. Facility: During the first quarter of 2002 and 2001, charges of approximately $1.1 million and $1.9 million, respectively were recorded related to the transition of German production to the U.S. facility. These costs consist primarily of parallel processing and temporary workforce expenses. The transition was completed in the first quarter of 2002. Information Technology Assessment: 2002 costs relate primarily to consulting fees paid to a third party in connection with the rearchitecture project. Future Restructuring Charges: The Company expects to incur additional costs in the second quarter of 2002 of approximately $2.0 million to $2.5 million relating to the review of the Company's information technology operations. Restructuring charges for the information technology assessment will end during the second quarter of 2002. 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 2001. 19 INFORMATION RESOURCES, INC. AND SUBSIDIARIES PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits None b. Reports on Form 8-K. None. 20 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 and Principal Financial Officer) /s/ MARY K. SINCLAIR ------------------------ Mary K. Sinclair Controller May 14, 2002 (Principal Accounting Officer) 21 -----END PRIVACY-ENHANCED MESSAGE-----