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United States
Securities and Exchange Commission
Washington, D.C. 20549

FORM 10-Q

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 periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:  

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practical date.

Common Stock, $0.01 Par Value – 6,042,852 shares as of March 31, 2003

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INDEX

Opinion Research Corporation and Subsidiaries

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
(Unaudited)

See notes to financial statements

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OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(in thousands, except share and per share amounts)
(Unaudited)

See notes to financial statements

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OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)

See notes to financial statements

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OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
March 31, 2003
(Unaudited)
(in thousands, except shares and per share data)

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the three-month period ended March 31, 2003 are not necessarily indicative of the results that may be expected for the year ending December 31, 2003.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries’ Annual Report on Form 10-K for the year ended December 31, 2002.

NOTE B - RECENT ACCOUNTING PRONOUNCEMENT

In August 2001, the FASB issued Statement No. 143, Accounting for Asset Retirement Obligations.  That standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred.  The Company has adopted Statement 143 on January 1, 2003 and the adoption of Statement 143 did not have any impact on the Company’s results of operations, financial position or cash flows.

NOTE C - CREDIT FACILITY

In February 2003, the Company completed an amendment to its senior credit facility (the “Amendment”) which reduced the amount available under the revolving credit from $19,000 to $16,500 and amended certain future covenants to be less restrictive.  Additionally, the Amendment provides for an increase in the interest rate by 50 basis points to LIBOR plus 375 basis points or the financial institution’s designated base rate plus 250 basis points.  As of March 31, 2003 the Company had approximately $3,825 of credit available under the senior credit facility as amended.  In conjunction with the Amendment, the Company also amended its subordinated debenture to increase the coupon rate from 12% to 12.5% and amended certain future covenants to be less restrictive.  

The Company’s senior credit facility will mature on June 1, 2004 and, as is customary, may be accelerated if the Company is unable to meet various financial covenants.  The Company expects to renegotiate its credit facilities during 2003, extending their maturities, and expects to meet the financial covenant requirements.

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NOTE D - STOCK-BASED COMPENSATION

The Company accounts for its employee stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations.  The Company has adopted the disclosure-only provisions of Statement 123, Stock-Based Compensation and Statement 148, Accounting for Stock-Based Compensation — Transition and Disclosure, which was releasedin December 2002 as an amendment of Statement 123.  The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all stock option awards:

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

The weighted average fair value of options granted during the three months ended March 31, 2003 and 2002 was $3.09 and $3.33 per share, respectively.

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NOTE E - EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:

NOTE F - GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying value of goodwill as of March 31, 2003 are as follows:

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The Company’s intangible assets consist of the following:

Amortization of intangible assets was $138 for the three months ended March 31, 2003 and $246 for the three months ended March 31, 2002, respectively.  The estimated aggregate amortization expense for 2003 and each of the five succeeding years is as follows:

NOTE G - COMPREHENSIVE INCOME

The Company’s comprehensive income for the three months ended March 31, 2003 and 2002, are set forth in the following table:

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NOTE H - SEGMENTS

The Company’s operations by business segments for the three months ended March 31, 2003 and 2002, are presented in the table below.  For both periods presented, the U.S. market research segment included unallocated corporate headquarters related expenses. 

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollars in thousands)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Company’s interim financial statements and notes thereto, which appear elsewhere in this Quarterly Report on Form 10-Q, and the Company’s audited financial statements and the MD&A contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 21, 2003 (the “Form 10-K”).  The following discussion contains forward-looking statements that involve risks and uncertainties.  The words “may,” “could,” “believe,” “expect,” “anticipate,” or “intend” and similar expressions and phrases are intended to identify forward-looking statements.  As a result of many factors, including the factors set forth under the caption “Forward-Looking Statements” in the Form 10-K, the Company’s actual results may differ materially from those anticipated in these forward-looking statements.

Results of Operations - First Quarter 2003 as Compared to First Quarter 2002

Revenues for the first quarter of 2003 increased $713, or 2%, to $43,164 from $42,451 in 2002. Revenues increased $3,798, or 16%, in the Company’s social research business.  Revenues declined $1,856, or 22%, in U.S. market research, $707, or 17%, in the teleservices business and $158, or 3%, in U.K. market research.  In all cases, the increase or decrease in revenues in the various operating segments is due to higher or lower demand for services, with approximately $900 of the decline in U.S. market research revenues arising from the reduced scope of two client contracts and $200 from the non-renewal of a client contract.  For U.K. market research, the decline of the U.S. dollar relative to the U.K. pound increased revenues by $510.

Cost of revenues increased $662, or 2%, from $29,144 in 2002 to $29,806 in 2003.  Gross profit as a percentage of revenues decreased slightly from 31.4% in 2002 to 31.0% in 2003.  For the social research business, cost of revenues increased 17% from $17,239 in 2002 to $20,248 in 2003 and the gross profit percentage decreased from 28% in 2002 to 27% in 2003, reflecting increased subcontracting and reimbursable expenses partially offset by improved efficiencies.  In U.S. market research, cost of revenues decreased 22% from $5,796 in 2002 to $4,510 in 2003 and the gross profit percentage increased slightly from 31.3% in 2002 to 31.5% in 2003, reflecting improved efficiencies.  For U.K. market research, cost of revenues decreased 9% from $3,087 in 2002 to $2,797 in 2003 and the gross profit percentage increased from 35% in 2002 to 39% in 2003, reflecting lower subcontracting expenses.  In the teleservices business, cost of revenues decreased 18% from $2,168 in 2002 to $1,778 in 2003 and the gross profit percentage improved from 47.1% in 2002 to 47.5% in 2003.

Selling, general and administrative expenses (“SG&A”) increased $316, or 3%, to $9,974 in the first quarter of 2003 from $9,658 in the first quarter of 2002.  As a percentage of revenues, consolidated SG&A was stable 23% in both 2003 and 2002.

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Depreciation and amortization expense decreased by $203, or 18%, to $946 in the first quarter of 2003 from $1,149 in the first quarter of 2002.  The decrease is principally due to certain fixed and intangible assets which were fully depreciated/amortized by the end of 2002. 

Interest and other non-operating expenses decreased by $12, or 1%, to $1,173 in the first quarter of 2003 from $1,185 in the first quarter of 2002.  The decline is principally due to the decrease in interest expense of $41, partially offset by an increase in other non-operating expenses.

The provision for income taxes for the first quarter of 2003 and the first quarter of 2002 was $532 and $526, respectively. 

With the adoption of Statement 142 on January 1, 2002, the Company recorded as a cumulative effect of a change in accounting principle, goodwill impairment related to the Company’s Mexican subsidiary of $292, or $(0.05) per share, in the first quarter of 2002.

As a result of all of the above, net income increased to $733 in the first quarter of 2003 from $497 in the first quarter of 2002.

Liquidity and Capital Resources

Net cash provided by operating activities for the first quarter of 2003 was $1,884 as compared to net cash used by operating activities of $73 in the first quarter of 2002.  For the three months ended March 31, 2003, the net cash provided by operating activities was primarily generated by net income, after adjusting for depreciation and amortization and other non-cash items, totaling $1,923, a decrease in accounts receivable of $985, and an increase of $680 in other liabilities, offset by an increase in other assets of $724 and decreases in accounts payable and accrued expenses of $787 and deferred revenues of $193.  For the three months ended March 31, 2002, the net cash used in operating activities was primarily generated by net income, after adjusting for depreciation and amortization and other non-cash items, totaling $2,106 offset by increases in accounts receivable of $309 and other assets of $1,057, and a decrease in liabilities of $813.

Investing activities for the first quarter of 2003 consisted of capital expenditures totaling $643.  Investing activities for the first quarter of 2002 included capital expenditures of $548 and an acquisition related payment of $46.

Financing activities included a net reduction in borrowings during the first three months of 2003 totaling $1,840 and proceeds from the sale of the Company’s common stock under the Company’s stock purchase plans of $145.  This compares to net reduction in borrowing of $630 and proceeds of $202 from the sale of common stock and the exercises of stock options in the first three months of 2002.

In February 2003, the Company completed an amendment to its senior credit facility (the “Amendment”) which reduced the amount available under the revolving credit from $19,000 to $16,500 and amended certain future covenants to be less restrictive.  Additionally, the Amendment provides for an increase in the interest rate by 50 basis points to LIBOR plus 375

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basis points or the financial institution’s designated base rate plus 250 basis points.  As of March 31, 2003 the Company had approximately $3,825 of credit available under the senior credit facility as amended.  In conjunction with the Amendment, the Company also amended its subordinated debenture to increase the coupon rate from 12% to 12.5% and amended certain future covenants to be less restrictive.  

The Company’s senior credit facility will mature on June 1, 2004 and, as is customary, may be accelerated if the Company is unable to meet various financial covenants.  The Company expects to renegotiate its credit facilities during 2003, extending their maturities, and expects to meet the financial covenant requirements.  

The Company entered into a joint venture agreement during 2001 for the purpose of developing new research-based products.  In 2003, the Company contributed $366 in services and cash and, since inception, has contributed an aggregate of $1,521.  All amounts funded to date have been expensed.

There are no material capital expenditure commitments and no acquisition related commitments.  The Company has no off-balance sheet financing arrangements.  The Company believes that its current sources of liquidity and capital will be sufficient to fund its long-term obligations and working capital needs for the foreseeable future.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

There have been no significant changes in market risk since December 31, 2002 that would have a material effect on the Company’s risk exposure as previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.            

ITEM 4.  CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have concluded, based on their evaluation within 90 days prior to the filing date of this report, that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.  There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of the foregoing evaluation.

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PART II:  OTHER INFORMATION

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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CERTIFICATION

I, John F. Short, Chairman, CEO and President of Opinion Research Corporation, certify that:

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CERTIFICATION

I, Douglas L. Cox, Executive Vice President and Chief Financial Officer of Opinion Research Corporation, certify that:

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