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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
------ EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
or
_______ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to _______
Commission file number 0-22554
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OPINION RESEARCH CORPORATION
----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3118960
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
23 Orchard Road, Skillman, New Jersey 08558
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 281-5100
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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Preferred Stock Purchase Rights
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(Titles of Classes)
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_______
---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock by non-affiliates of the
Registrant, based on the closing sale price of its common stock on February 29,
2000, a date within 60 days prior to the date of filing, as quoted on the
American Stock Exchange, was approximately $27,444,000.*
As of February 29, 2000, 4,263,083 shares of common stock, par value $.01
per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III - Portions of the Registrant's definitive Proxy Statement, which will
be filed with the Securities and Exchange Commission in connection
with the Registrant's 2000 Annual Meeting of Stockholders, are
incorporated by reference into Part III of this report.
_______________________
*Calculated by excluding all shares that may be deemed to be beneficially owned
by executive officers, directors of the Registrant, without conceding that all
such persons are "affiliates" of the Registrant for purposes of the federal
securities laws.
Readers of this report should be aware that the following important factors,
among others, in some cases have affected, and in the future could affect, the
actual operating results of Opinion Research Corporation (the "Company") and
could cause the Company's actual consolidated results for 2000 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company:
Reliance on Key Clients. The Company's success is dependent upon its ability
to maintain its existing clients and obtain new clients. The loss of one or more
of the Company's large clients or a significant reduction in business from such
clients could have a material adverse effect on the Company. The Company's focus
on attracting larger projects and establishing long-term client relationships
may increase the Company's reliance on particular projects and clients. Although
the Company's ongoing projects may generally be terminated by its clients at any
time, funds for work completed are normally recoverable.
Fluctuations in Demand for Company Services. Demand for the Company's
services can be affected by a number of factors outside the Company's control,
including marketing budgets, economic conditions, consolidations and other
industry-specific trends, government spending, and changes in management or
ownership of a client. As a result, the Company's revenues and operating results
may fluctuate.
Business Strategy Regarding Acquisitions and International Expansion. Part of
the Company's business strategy is to expand domestically and internationally,
and to extend into related businesses through strategic acquisitions. There can
be no assurance that the Company will be able to so expand or to identify
targets for such acquisitions on terms attractive to the Company. Further, there
can be no assurance that the Company's services will be widely accepted as it
seeks to expand in international markets. International expansion will also
subject the Company to risks inherent in doing business abroad, including
adverse fluctuations in currency exchange rates, limitations on asset transfer,
changes in foreign regulations and political turmoil. Furthermore, there can be
no assurance that the Company will be able to integrate successfully the
operations of any subsequently acquired company with its own operations.
Dependence on Key Personnel. The Company is dependent upon the efforts and
skills of certain key senior executives. The loss of the services of one or more
of these individuals could have a material adverse effect on the Company.
Competition. The Company faces competition in connection with most of the
individual services and products it provides. Although the Company believes that
no single competitor offers a comparable combination of services and products,
there can be no assurance that other companies, some with greater financial
resources than the Company, will not attempt to offer a range of services and
products similar to those offered by the Company, or otherwise compete more
effectively in the business-to-business market research and information services
industry. For consumer market research services, the Company regularly
experiences significant competition from a large number of competitors,
including consumer market research companies, advertising agencies and business
consulting firms.
For public sector research services, the Company competes with a large number
of firms that vary in size as well as with not-for-profit organizations. The
competition varies depending upon the agency for whom the work is being
conducted and the services to be provided. Technical competence and price are
the key differentiators.
For outbound telemarketing services, the Company competes with a large number
of telemarketing companies. Quality of service and the application of continuous
statistical modeling on call lists are the key differentiators.
PART I
Item 1. Business
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General
Opinion Research Corporation (the "Company") was established in 1938
to apply the principles of general public opinion polling to marketing issues
facing America's largest companies. The Company has evolved to provide primary
market research, social research, information services, marketing services, and
model-based telemarketing. The Company assists clients in evaluating, monitoring
and optimizing the effectiveness of their marketing and sales with a focus on
businesses selling primarily to other businesses. The Company's services and
products address issues such as customer loyalty and retention, market demand
and forecasting, corporate image, competitive positioning, public sector primary
research, and model-based telemarketing.
In August 1993, the Company acquired all of the stock of Gordon
Simmons Research Group, Ltd. ("GSR"), substantially increasing the Company's
presence in the U.K. and expanding the international aspects of its business. In
April 1994, the Company acquired all of the stock of Strategic Research and
Consulting ("SRC"). The SRC acquisition gave the Company access to the U.S.
automotive industry. In August 1995, the Company opened a branch office in Hong
Kong and continued to expand internationally with the formation of GSR/SIA
Limited ("GSR/SIA") in the U.K. in the latter part of 1996. In purchasing the
assets of a division of an information technology company, GSR/SIA expanded the
Company's capabilities in servicing international clients and introduced the
Company to the U.K. public sector. During 1997, as part of its globalization
strategy, the Company acquired a presence in Korea, Taiwan, and Mexico. In
January 1998, the Company acquired ProTel Marketing, Inc. ("ORC ProTel" or
"ProTel"), a high quality telemarketing company based in Lansing, Illinois. In
May 1999, the Company acquired Macro International Inc. ("ORC Macro" or
"Macro"), a predominately public sector research, consulting and technology
company based in the Washington, D.C. area.
The Company collects customer and market information through computer-
assisted telephone interviews, internet based data collection techniques,
personal interviews, mail questionnaires and specialized techniques such as
business panels. Management believes that the Company's extensive expertise with
regard to certain business issues enables it to provide reliable customer and
market information and advisory services to clients. The Company also believes
that its recognized name and long-standing reputation enable it to obtain
information from senior executives who are difficult to access.
The Company's strategy for market research focuses on client projects
that require periodic updating and tracking of information, thereby creating the
potential for higher-margin recurring revenues. The portion of the Company's
market research revenues from such projects was approximately 52% in 1999.
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The Company's Services and Products
The Company offers a variety of services and products to assist
clients with their strategic and tactical decisions as well as their plans for
marketing and selling their products to other businesses and consumers.
Services
Customer Loyalty & Retention. The Company assists its clients in
quantifying customer loyalty and increasing customer retention. By capturing and
analyzing the perceptions and experiences of its clients' prospects, clients,
and employees, the Company provides analysis and feedback on customer loyalty
which drives superior customer retention and business performance. The Company
provides its clients with information on the elements of products or services
which are most important to their customers; on how well these products and
services compare to the competition; and on which customers will continue to
purchase and recommend such products and services.
Corporate Reputation & Branding. The Company works with clients
worldwide to manage their corporate and brand images; identify and achieve
optimal positioning in the marketplace; and strengthen equity with customers,
employees and the financial community. The strength of a client's image or
reputation is identified through interviews with constituency groups with whom
the client interacts and whose decisions influence the client's success. These
groups may include customers, potential customers, distributors, suppliers, the
media and the investment community.
Demographic and Health Surveys. The Company manages international
research programs in developing nations. By providing information for informed
decisions in population, health and nutrition, it supports a range of data
collection options that can be tailored to fit specific monitoring and
evaluation needs of host countries. These include a variety of population and
facility-based surveys, secondary data analyses and other specialized research
such as qualitative, education and gender-based studies.
Management Consulting. The Company offers a full spectrum of services
to address opportunities and problem areas, and to ensure that client
organizations can meet future challenges effectively. Its methods and expertise
produce strategies, plans and interventions that fit the values, cultures and
needs of the client organization and its managers. The Company's focus is on
sound analysis, with effective support in implementing recommended strategies
and solutions and ensuring capacity within the client organization so that
continuing outside assistance is not required.
Market Assessment. The Company works with clients worldwide to
analyze and forecast market demand for new products and services. The Company
combines sophisticated analytic techniques with global reach to provide clients
with insight regarding optimal
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product/services configuration and pricing, as well as market size information.
This work supports clients' business planning and capital generation for new
ventures.
Advanced Analytics & Data Modeling. The Company's diagnostic and
statistical models are among the most sophisticated in market research and are
redefining the teleservices industry. The Company applies advanced market
research techniques and uses predictive segmentation learning models to improve
teleservices success rates. By focusing on its clients' business issues and the
application of the right analytic tools, the Company can effectively transform
data and analyses into intelligence and insight. This approach holds whether
the Company is designing traditional market research surveys, "data mining"
client databases to optimize marketing efforts or building dynamic models to
guide telemarketers on selecting target prospects and product offerings.
Employee Survey Programs. The Company provides comprehensive
employee-related research services to measure satisfaction, increase staff
retention, reduce hiring and training costs, and improve customer service. Using
proprietary computer software, exclusive multi-industry benchmarking databases
and a combination of quantitative and qualitative methodologies, the Company
works with clients to identify strengths and weaknesses. The Company implements
all stages of program management, from questionnaire design and processing
through reporting, final analysis and recommendations for action.
Public Sector Research. The Company provides research and evaluation
services to local and national governments and to international organizations
such as the United Nations, the World Bank and the World Health Organization.
Among the services provided are cost, cost-benefit & cost effectiveness
analysis; customer satisfaction & loyalty studies; ethnography; experimental &
quasi-experimental research; needs assessments; outcome & impact studies;
performance measurement; policy research; process & implementation studies;
secondary data analysis & data mining; and survey research.
Data Collection & Processing. The Company's telephone interviewing
call centers in North America and Europe combine research expertise and advanced
telecommunications technology. These facilities, staffed with multilingual
interviewers, use Computer Assisted Telephone Interviewing (CATI), which
provides clients with highly efficient and cost effective data and information
collection. The Company also utilizes internet based data collection techniques.
Teleservices. The Company combines its market research expertise in
predictive segmentation modeling and database management with top quality
teleservices to quantify buyer behavior, optimize targeting of its clients'
customers and provide feedback from its clients' customers for "continuous loop"
marketing to improve sales. This breakthrough capability - ORC TeleScienceSM -
applies sophisticated modeling techniques to cutting-edge teleservices to
increase the overall success rate of telemarketing as measured by higher sales
yields and lower costs of customer acquisition.
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Training & Educational Technologies. The Company offers a full
spectrum of training services to help organizations adapt to and capitalize on
changing circumstances. All courses and training services are supported by the
Company's research and management consulting services in the subject areas
offered. It uses adult learning methodologies, instructional system design
(ISD), electronic performance support systems (EPSS) and highly skilled
facilitators who provide interactive, experiential-based training.
The Company is also a leader is applying technology to educational and
learning needs and in developing and producing distance learning programs,
multimedia materials and expert systems.
Information Technologies. The Company offers a variety of technology-
based services and technology products. These include computer security
products, such as Internet firewalls; software testing and quality assurance,
instructional product development for interactive multimedia, computer-based
instruction, decision-support systems, computer-based textbooks, and products
for individuals with special learning needs; and advanced Web services,
including a number of proprietary Web applications, Web-based data collection,
database development and management, and dynamic information retrieval.
Industries
Telecommunications and Information Technology. The Company provides
market knowledge for a range of telecommunications and information technology
companies, from wireless communications companies and telephone carriers to
Internet service providers and computer hardware and software firms. Its
services include market definition, segmentation, new product development,
customer retention, corporate branding, usage analysis, competitive profiling
and market demand analysis for satellite communications products.
Among its services, the Company helps clients determine pricing and
distribution systems, tracks service performance, gauges the success of products
and services, designs and configures new products, predicts customer needs and
defines competitive positions in new markets.
Financial Services. The Company provides market and customer
intelligence to banks, securities brokerage, insurance companies and other
financial institutions across a number of business issues: customer loyalty and
retention, image management, market segmentation and positioning, new product
development, pricing strategy, corporate branding and customer database
management.
By focusing its research efforts on key customer segments - such as
high net worth individuals, corporate treasurers, active investors,
policyholders, etc. - the Company can determine the specific factors that
influence the target groups' decisions, and design strategies to attract, retain
and motivate them effectively.
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Automotive. Utilizing research methodologies developed for its
automotive industry clients, the Company has extensive experience working with a
wide range of companies around the world, including vehicle manufacturers,
original-equipment-manufacturers (OEM) suppliers, dealers, distributors,
trucking companies and heavy equipment manufacturers.
The Company provides sophisticated segmentation research and long-term
studies on retailing sales and service; brand image and equity; product
development, design and performance; and dealer/manufacturer relations. The
Company's exclusive consumer market analysis evaluates and tracks customer needs
as they relate to new vehicle purchase, financing and leasing, buying behavior
and brand loyalty.
Retail and Trade. To shape marketing strategy, the Company's areas of
specialization include understanding the determinants of store choice; customer
loyalty and satisfaction; mystery shopping; segmentation and positioning; store
location, layout, design and product positioning; merchandise performance;
development and appraisal of individual outlets and sites; and diversification
into new markets, both domestic and international.
The Company also works in partnership with manufacturers and suppliers
of consumer goods to understand the needs, behavior and attitudes of customers
at all stages in the distribution channel. The Company's aim is to enhance the
manufacturer/trade/consumer relationship.
Health Care. The Company's services include surveys and evaluations
to determine patient satisfaction, market segmentation and customer acquisition,
competitive analysis, community needs assessment, market segmentation and
corporate positioning. For pharmaceutical companies, HMOs, hospitals, and
health care providers, the Company also conducts loyalty and retention modeling
research as part of its clients' patient and employee satisfaction programs.
Through its innovative methodologies, such as proprietary panels, the
Company establishes ongoing dialogues with difficult-to-reach decision-makers
such as physicians, plan and hospital administrators and benefits managers.
Products
The following products are used by the Company to deliver some of the
services listed above and are also marketed as stand-alone products:
Business Panels. The Company develops business panels to access
executives and professionals. Panels are comprised of executives and
professionals who have agreed in advance to participate in an on-going series of
interviews with the Company for the purpose of gathering customer and market
information.
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The Company owns and operates a number of proprietary panels. The
panels range in size from several hundred to several thousand panelists. These
panels have been created with no predetermined end date.
The creation of a business panel involves considerable planning, time
and expense. Once established, however, it provides a significant amount of
reliable information that can be collected and updated from a relatively
constant source with less time and expense than would be otherwise required. As
such, the Company believes that there are strong financial incentives for
clients to continue using a panel.
Business panels produce up-to-date market intelligence that can be
used by the client for decisions ranging from marketing and sales strategies to
"micro-marketing" plans for specific market niches or segments. Typical issues
addressed by business panels include customer satisfaction, pricing and sales
strategy, market receptivity to new or potential products or services and market
share information.
Shared-Cost Programs. For over 30 years, the Company has conducted
shared-cost telephone survey programs, marketed under the name "CARAVAN," in
which questions from a number of clients are combined in a series of interview
questionnaires. The CARAVAN programs provide multiple clients with high-
quality, timely information at a relatively low cost.
The general public CARAVAN is a weekly shared-cost national survey
combining questions of clients such as advertising agencies, public affairs
departments of large corporations and product managers. Typically, the
information collected from the CARAVAN survey provides measurement and
evaluation of advertising and products.
Developed in 1994, CORPerceptions profiles the image of major
corporations that serve the needs of other business establishments located in 16
countries around the world. Telephone or in-person interviews are completed
annually with approximately 1,200 senior business executives selected from the
largest industrial and services companies within these countries. Industries
profiled include automotive, brokerage services, computer hardware, electronics,
information technology services, and management consulting.
CORPerceptions' sister-study, BrandPerceptions, is an international
brand equity study conducted among 4,250 consumers in 16 countries throughout
Asia Pacific, Europe and North America. As a result of BrandPerceptions, some
of the world's leading companies learn more about consumer awareness,
preference, satisfaction and loyalty toward their brand and competing brands in
the international marketplace.
Customers for Life is a software-based customer retention tool
designed to build and strengthen customer relationships and long-term customer
loyalty. Developed in 1997, Customers for Life is a comprehensive program that
provides the framework for direct customer feedback, real-time trouble shooting,
database management and structured reporting systems.
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Competitive Environment Test (CET) is the Company's system for testing
television and print advertising in a competitive setting. Both evaluative and
diagnostic, CET measures Intrusiveness, the ability to stand out in a "clutter"
situation and register the brand name; Impact, the ability to register the main
idea of the ad/commercial through the "clutter"; Communication, the ability to
deliver the intended message(s); Impression of delivery, the degree to which the
message is delivered clearly and unambiguously, believably, likeable and without
confusion; Image, the degree to which the ad or commercial creates the intended
image about the brand; and Persuasion, the ability to improve interest in
trying/purchasing the brand.
Customer Loyalty Plus (CL+) is the Company's system for measuring and
building customer loyalty. The three-phase approach includes Assessment, which
is designed to provide clients with a customized CL+ score that can be used over
time to evaluate change; Planning, which consists of an action plan aimed at
closing the identified gaps; and Improvement, during which the Company's
professionals design and implement a specialized program tailored to the
client's specific needs. The plan includes training, organization development
and total quality management programs.
Customer Loyalty Plus Equity Valuation Model is the Company's system
for measuring and building brand equity. It is designed to help a client
position its strategic approach to the marketplace of tomorrow, where customer
satisfaction is merely the jumping off point, not the final destination. Steps
in this model include identifying "cost of entry" benefits which, once
satisfied, carry less weight in brand choice, and "leverageable" benefits, which
can provide competitive advantage; isolating "core equity" characteristics that
are very relevant to a client's customers and on which a client is
differentiated; examining a client's opportunity/vulnerability profile based on
how its delivery fares against competitors; profiling which customers are loyal
users, which are vulnerable to competitors, which non-users can be attracted,
and tracking loyalty development over time; and using the Equity Valuation Model
to relate a client's equity to progress in real terms.
Communications & Reaction Test, together with the Competitive
Environment Test, comprises the Company's testing procedure for testing
television and radio commercials, print advertisements and concepts. Conducted
in shopping malls across the United States, the C&R Test measures advertising
comprehension and reaction. It both evaluates the effectiveness of a print or
television commercial and diagnoses its strengths and weaknesses.
e.Tr@ck is the Company's nationally projectable syndicated study of
on-line shoppers. By offering a complete demographic portrait of adult U.S.
residents, including Internet users who do and do not shop online, e.Tr@ck
provides e-commerce companies with vital and actionable consumer insight into
this rapidly evolving market.
OPTI-TEST is the Company's conjoint-based approach for identifying the
best combination of variables, from a range of alternatives, to enhance the
market potential of a product or service. It provides an affordable way to test
a large number of variables, offers a way
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to include qualitative/ situational dimensions; provides a way to link concepts
to emotional benefits; offers several ways to include established brands,
depending on the marketing issue at hand; and provides an evaluative measure for
all combinations, including untested options.
RAd Track is the Company's advanced advertising tracking service for
the radio industry. By gathering critical information from a client's target
audience, such as changes in brand and advertising awareness, RAd Track allows a
client to measure the impact, awareness, recall and overall effectiveness of its
radio ad campaigns. As both a pre- and post-advertising impact study, it can
cover the full range of radio advertising, from local to nationwide campaigns.
It also can measure the impact of the radio-only component of a multimedia
campaign, as well as that of the entire multimedia campaign.
SEL-TEST, which is an efficient way to select the best alternatives or
combination of alternatives from "lots of alternatives," can be used for a
variety of issues, including new products, line extensions/optimization, recipe
ideas, promotion candidates and name appropriateness of individual items in a
line of products.
Marketing
Marketing and Sales-Support Program. In 1999, the Company continued to
develop and implement a comprehensive communications program to support a
systematic business development effort. Elements include advertising, direct
marketing, sales-support materials, media relations, seminars and telemarketing
to gain access to a large number of prospective clients. The Company's web site
allows prospective clients to learn about its products and services at a time of
their choosing.
Clients and Client Relationships
Some of the Company's largest clients in terms of revenues generated
include America Online, Cendant, Department of Human Health Services/Substance
Abuse Mental Health Services, EDS, General Motors, IBM, Morgan Stanley Dean
Witter, Sears, USAID, U.S. Department of Education. In 1999, the Company served
over 1,200 clients. For many clients, the Company performed multiple projects,
sometimes for different subsidiaries or business units of the same client.
In 1999, the Company's largest single client, USAID, accounted for 11%
of the Company's revenues. All revenues generated by the USAID relationship were
for social research studies. USAID has been a Macro client since 1989.
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Competition
Many other firms provide some of the services and products provided by
the Company, typically focusing on consumer markets. However, the Company
believes that no single competitor offers a comparable combination of services
and products.
For business to business market research, the Company believes that it
competes for clients based on a variety of factors, including name recognition,
reputation, expertise in a variety of industries, ability to access executives
and other key constituencies, ability to collect accurate and representative
information, ability to enhance the value of the data collected through analysis
and consulting, technological competence, reliability, promptness and
efficiency. In the Company's experience, rather than price, its typical clients
are interested primarily in the quality and utility of the service received.
For consumer market research services, the Company regularly
experiences significant competition from a large number of competitors,
including marketing and research departments of various companies, advertising
agencies and business consulting firms. Price, reputation, and quality of
service are the dominant considerations.
For public sector research services, the Company competes with a large
number of firms that vary in size as well as with not-for-profit organizations.
The competition varies depending upon the agency for whom the work is being
conducted and the services to be provided. Technical competence and price are
the key differentiators.
For outbound telemarketing services, the Company competes with a large
number of telemarketing companies. Quality of service and the application of
continuous statistical modeling on call lists are the key differentiators.
The Company considers the relationship with its clients as well as its
know-how and expertise as invaluable assets. The Company seeks to safeguard
these assets by requiring each of its senior employees to execute
confidentiality and non-solicitation agreements.
Backlog
As of December 31, 1999, revenues expected to be received by the
Company under its market research client contracts, which are based on budgeted
amounts in those contracts, were $28,289, as compared to $22,971 as of December
31, 1998. All of the 1999 amount is expected to be received by December 31,
2000. Public sector backlog at December 31, 1999 was $195,091. This backlog is
expected to be recognized as revenues over the next five years. The Company's
engagements generally are terminable by the Company's clients at any time, with
the expectation of cost recovery for work completed by the Company.
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Employees
As of December 31, 1999, the Company employed a total of approximately
1,500 full-time employees and maintained a pool of part-time hourly employees in
the United States and the United Kingdom of approximately 1,300 people. The
part-time employees work as telephone interviewers and data processors. Of the
full-time employees, 750 are professionals engaged in direct client service, 500
are telemarketing representatives, and 250 are engaged in support,
administration and executive oversight.
The Company conducts special training programs for all telephone
interviewing staff and regularly monitors such staff to ensure that its high-
quality standards are maintained.
None of the Company's employees are subject to a collective bargaining
agreement, nor has the Company experienced any work stoppages. The Company
believes that its relationship with its employees is excellent.
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Item 2. Properties
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The Company's executive offices are located in approximately 45,000
square feet of leased space in Skillman (Greater Princeton), New Jersey. The
term of the lease expires in August 2003. The Company leases additional
facilities throughout the world. The following table sets forth certain
information relating to these properties:
Operating Unit Location Facility Usage
- ------------------------- -------------------------- -------------------------------------------------
U.S. Market Research Skillman, New Jersey Worldwide Headquarters, Research Location
Maumee, Ohio Research Location
Evanston, Illinois Research Location
Detroit, Michigan Research Location
Tucson, Arizona Telephone Interviewing Facility
Tampa, Florida Telephone Interviewing Facility
U.K. Market Research London, U.K. U.K. Market Research Headquarters, Research
Location, and Telephone Interviewing Facility
Manchester, U.K. Research Location
Asia Market Research Hong Kong Asia Market Research Headquarters and
Research Location
Seoul, Korea Country Headquarters, Research Location
Taipei, Taiwan Country Headquarters, Research Location
Mexico Market Research Mexico City, Mexico Country Headquarters, Research Location
Teleservices Lansing, Illinois ORC ProTel Headquarters, Telemarketing
Facility
Milwaukee, Wisconsin Telemarketing Facility
Topeka, Kansas Telemarketing Facility
St. John Missouri Telemarketing Facility
Dayton, Ohio Telemarketing Facility
Social Research Calverton, Maryland ORC Macro Headquarters, Research Location
Burlington/St. Albans, Telephone Interviewing Facilities and Data
Vermont Collection Centers
New York, New York Research Location
Olympia, Washington Research Location
Bethesda, Maryland Research Location
Plattsburgh, New York Telephone Interviewing Facility
The Company presently has a combined total of 593 computer assisted
telephone interviewing stations worldwide dedicated to market research and an
additional 405 telemarketing stations. All of these facilities are equipped
with state-of-the-art hardware and software. In a typical telephone interview
or sale, the computer assisted telephone interviewing system prompts
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the interviewer's sequence of questions or responses depending on the previous
answers. All responses are recorded directly into the computer, avoiding the
need for subsequent data entry and enabling prompt analysis of responses. The
interviewees communicate with live interviewers at all times.
Over the past several years the Company has installed database systems
to store information in its Maumee, Tucson, and London centers. These systems
expand the Company's reporting capabilities and transform traditional tabular
formats into graphic output, thereby improving the utility and presentation of
reports as well as the turnaround times.
The Company believes that its properties are sufficient for its
current operational needs.
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Item 3. Legal Proceedings
-----------------
The Company is not a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1999.
Item 4A. Executive Officers of the Registrant
------------------------------------
The current term of office of each of the Company's executive officers
expires at the first meeting of the Board of Directors of the Company following
the 2000 Annual Meeting of Stockholders, or as soon thereafter as each of their
successors is duly elected and qualified.
The following table sets forth certain information concerning the
principal executive officers of the Company as of February 29, 2000.
Name Age Position
- ---- --- --------
John F. Short 55 Chairman, Chief Executive Officer, and
President
Douglas L. Cox 54 Chief Financial Officer
Gregory C. Ellis 43 Chief Operating Officer - ORC
Market Research
Ruth R. Wolf 62 Chief Executive Officer - ORC ProTel
Frank J. Quirk 59 Chief Executive Officer - ORC Macro
Michael T. Errecart 50 President - ORC Macro
Mr. Short joined the Company as its Chief Financial Officer in 1989 and was
appointed Vice Chairman in 1992. In 1998, Mr. Short was appointed President of
the Company. In February 1999, Mr. Short assumed the roles of Chief Executive
Officer and Chairman of the Board.
Mr. Cox joined the Company as its Chief Financial Officer in October 1998.
Prior to joining the Company, Mr. Cox spent ten years as Senior Vice President
and Chief Financial Officer of Elf Atochem North America, Inc. Mr. Cox holds an
MBA, with honors, from the Wharton School of the University of Pennsylvania.
-13-
Mr. Ellis joined the Company in October 1995 as the Chief Executive Officer
of the Princeton Group. In July 1997 Mr. Ellis was appointed Managing Director
- - ORC Automotive Group, and in December 1997, he was promoted to Chief Operating
Officer - ORC Market Research. Prior to joining ORC, Mr. Ellis was Senior Vice
President and General Manager of Testing, Analytics, and Media Services for AC
Nielsen Company. Mr. Ellis holds a M.S.I.A. degree from Carnegie-Mellon
University's Graduate School of Industrial Administration.
Ms. Wolf joined the Company in 1998 with the acquisition of ProTel, which
she co-founded in 1988. Ms. Wolf was appointed Chief Executive Officer of ORC
ProTel in 1998. Ms. Wolf has over 30 years of experience in telemarketing.
Mr. Quirk joined the Company in 1999 with the acquisition of Macro, where
he had served as its Chief Executive Officer since 1980. Mr. Quirk was
appointed Chief Executive Officer of ORC Macro in 1999. Mr. Quirk holds an MBA
degree from Cornell University.
Dr. Errecart joined the Company in 1999 with the acquisition of Macro,
where he had served as its President since 1998 and Executive Vice President
from 1994 to 1998. Dr. Errecart was appointed President of ORC Macro in 1999.
Dr. Errecart received his Ph.D. in Mathematical Sciences from the Johns Hopkins
University.
-14-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
---------------------------------------------------------------------
Market Information
- ------------------
The Company's Common Stock is currently traded on American Stock
Exchange under the symbol "OPI". The table below sets forth the high and low
prices for the Company's Common Stock (the "Common Stock") for each of the four
quarters of 1999 and 1998:
High Low
------------ -----------
1999
----
Fourth Quarter $9.875 $4.313
Third Quarter 6.000 4.250
Second Quarter 5.875 3.875
First Quarter 8.000 3.250
1998
----
Fourth Quarter $6.375 $4.125
Third Quarter 8.625 5.500
Second Quarter 9.375 6.063
First Quarter 6.750 5.063
The closing price of the Common Stock on February 29, 2000 was $9.625
per share. As of February 29, 2000, the Company had 46 holders of record of the
Common Stock (approximately 625 beneficial stockholders).
Dividends
- ---------
The Company has not paid any dividends on the Common Stock. The
Company currently intends to retain its earnings to finance future growth and
therefore does not anticipate paying dividends on the Common Stock in the
foreseeable future.
-15-
Item 6. Selected Financial Data
Selected Financial Data
(In Thousands, Except Per Share Data)
- ---------------------------------------------------------------------------------------------------------------------------------
For the Twelve Months Ended December 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ---------- ----------- ---------- -----------
Operating Statement Data:
Revenues $ 118,621 $ 73,167 $ 56,673 $ 47,273 $ 44,101
Income (loss) from operations (1), (2) 8,463 2,340 2,801 2,425 (1,341)
Extraordinary loss on debt
refinancings, net of tax of $60 and $133 (3) (90) (150) - - -
Net income (loss) $ 2,424 $ (170) $ 1,151 $ 808 $ (1,669)
============ ========== =========== ========== ===========
Weighted average common shares
outstanding 4,244 4,202 4,144 4,169 4,232
Income (loss) before extraordinary
loss per common share $ 0.59 $ (0.00) $ 0.28 $ 0.19 $ (0.39)
Extraordinary loss per common share (0.02) (0.04) - - -
------------ ---------- ----------- ---------- -----------
Net income (loss) per common share $ 0.57 $ (0.04) $ 0.28 $ 0.19 $ (0.39)
============ ========== =========== ========== ===========
Adjusted weighted average common shares
and assumed conversions (4) 4,332 4,202 4,146 4,213 4,232
Income before extraordinary
loss per diluted share $ 0.58 $ (0.00) $ 0.28 $ 0.19 $ (0.39)
Extraordinary loss per diluted share (0.02) (0.04) - - -
------------ ---------- ----------- ---------- -----------
Net income (loss) per diluted share $ 0.56 $ (0.04) $ 0.28 $ 0.19 $ (0.39)
============ ========== =========== ========== ===========
Balance Sheet Data:
Total assets $ 91,966 $ 50,610 $ 32,480 $ 32,772 $ 28,537
Total debt 47,438 18,320 6,652 7,916 7,372
- ---------------------------------------------------------------------------------------------------------------------------------
(1) In the fourth quarter of 1998, the Company took an unusual pre-tax charge
of $2,470 for expenses incurred in relation to a separation agreement
with the Company's former Chairman and CEO and the buy-out of his
pre-existing employment contract.
(2) In the second quarter of 1995, the Company took an unusual pre-tax charge
of $3,489. This charge included a $1,958 write-down of capitalized
production costs; $178 for the disposal of fixed assets: $460 of
intangible assets associated with previous acquisitions; $380 in
severance costs; $414 provision for the abandonment of leases; and other
miscellaneous charges of $99.
(3) In the second quarters of 1999 and 1998, the Company recorded
extraordinary losses of $90 and $150, net of tax benefits of $60 and
$133, respectively, due to the write-off of unamortized loan origination
fees associated with debt refinancings.
(4) Shares attributable to the conversion of convertible debentures are not
included for 1996 as they expired on November 30, 1996, nor in 1995, as
their effect was anti-dilutive.
-16-
Item 7. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations
---------------------
Overview
The Company was established in 1938 to apply the principles of general
public opinion polling to marketing issues facing America's largest companies.
The Company has evolved to provide primary market research, social research,
information services, marketing services, including a focus on businesses
selling primarily to other businesses, and model-based telemarketing. The
Company assists clients in evaluating, monitoring and optimizing the
effectiveness of their marketing and sales. The Company's services and products
address issues such as customer loyalty and retention, market demand and
forecasting, corporate image, competitive positioning, public sector primary
research, and model-based telemarketing.
In August 1993 the Company acquired all of the stock of GSR,
substantially increasing the Company's presence in the U.K. and expanding the
international aspects of its business. In April 1994 the Company acquired all
of the stock of SRC. The SRC acquisition gave the Company access to the U.S.
automotive industry. In August 1995 the Company opened a branch office in Hong
Kong and continued to expand internationally with the formation of GSR/SIA in
the U.K. in the latter part of 1996. In purchasing the assets of a division of
an information technology company, GSR/SIA expanded the Company's capabilities
in servicing international clients and introduced the Company to the U.K. public
sector. During 1997, as part of its globalization strategy, the Company acquired
a presence in Korea, Taiwan, and Mexico. In January 1998, the Company acquired
ProTel Marketing, Inc. ("ORC ProTel" or "ProTel"), a high quality telemarketing
company based in Lansing, Illinois. In the fourth quarter of 1998, the Company
took an unusual pre-tax charge for expenses incurred in relation to a separation
agreement with the Company's former Chairman and Chief Executive Officer and the
buy-out of his pre-existing employment contract. In May 1999, the Company
acquired Macro International Inc. ("ORC Macro" or "Macro"), a predominately
public sector research, consulting, and technology company based in the
Washington, D.C. area.
Results of Operations - 1999 compared to 1998
Revenues
Revenues for 1999 increased $45,454, or 62%, to $118,621 in 1999 from
$73,167 in 1998. This increase is principally due to $44,961 in revenues
generated by Macro, the Company's social research business acquired in the
second quarter of 1999 (the "Macro Acquisition"). Revenue increases for the
remainder of the Company were due principally to the improvements in the
Company's teleservices business, where revenue increased by $1,921, or 13%,
offset by a decrease in revenues of $1,428, or 2%, from the Company's market
research business.
-17-
Cost of Revenues
Cost of revenues increased $31,042, or 69%, to $75,849 in 1999 from
$44,807 in 1998. This increase is principally due to the Macro Acquisition, for
which cost of revenues was $32,284 in 1999. Cost of revenues for the Company's
market research business decreased by $1,677, or 5%, in 1999 while cost of
revenues for the teleservices business increased by $435, or 5%, to $8,709 in
1999 from $8,274 in 1998.
Gross profit as a percentage of revenues for the Company decreased to
36% in 1999 from 39% in 1998 due to the impact of the Macro Acquisition, for
which the gross profit percentage is 28%. The gross profit percentage for the
market research business increased to 39% in 1999 from 37% in 1998 and the gross
profit percentage for the teleservice business increased to 48% in 1999 from 45%
in 1998.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased
$9,094, or 47%, to $28,502 in 1999 from $19,408 in 1998. The Macro Acquisition
accounted for $8,294, or 91%, of the increase while non-acquisition SG&A
increased by $800, or 4%. As a percent of revenues, consolidated SG&A decreased
to 24% in 1999 from 27% in 1998.
The lower gross profit and lower SG&A percentages for the Macro
Acquisition are due to the nature of its business, as approximately 70% of the
Macro Acquisition's business is conducted with government entities.
Consequently, in accordance with the prescribed accounting procedures for
government contractors, the Macro Acquisition's cost of revenues reflect certain
costs attributable to its contract projects which the Company classifies as
general and administrative expenses for its other operating segments.
Therefore, the inclusion of the Macro Acquisition in the operating results of
the Company has, and will continue to have, the effect of lowering, as a
percentage of revenues, the consolidated gross profit and SG&A.
Depreciation and Amortization Expense
Depreciation and amortization expense increased by $1,665, or 40%, to
$5,807 in 1999 from $4,142 in 1998. The Macro Acquisition accounted for $1,568,
or 94%, of the total increase. Depreciation and amortization on a consolidated
basis decreased to 5% of revenues in 1999 from 6% in 1998.
Unusual Charge
In 1998, the Company took a fourth quarter pre-tax charge of $2,470
for expenses incurred in relation to an agreement with Dr. Michael R. Cooper
providing for the resignation of Dr. Cooper as a Director, Chairman, and Chief
Executive Officer of the Company and the buy-out of Dr. Cooper's pre-existing
employment contract.
-18-
Interest Expense
Interest expense increased $2,134, or 114%, to $4,005 in 1999 from
$1,871 in 1998. The increase in interest expense is primarily attributable to
the additional borrowings incurred to fund the Macro Acquisition.
Provision for Income Taxes
The provision for income taxes for 1999 and 1998 was $1,944 and $489,
respectively. The provisions for these years are higher than the amount that
results from applying the federal statutory rate to income primarily because of
amortization of non-deductible goodwill generated from acquisitions throughout
the years and the impact of state taxes.
Extraordinary Loss
The Company recorded extraordinary losses, net of tax benefits, of $90
and $150, in 1999 and 1998, respectively. These non-cash charges were due to the
write-off of unamortized loan origination fees associated with debt refinancings
during each period.
Net Income
Net income (loss) for 1999 and 1998 was $2,424 and ($170),
respectively. The Company's results for the year ended December 31, 1998 were
materially impacted by the non-recurring unusual charge discussed previously.
There was no such non-recurring item in 1999.
Results of Operations - 1998 compared to 1997
Revenues
Revenues for 1998 increased $16,494, or 29%, to $73,167 in 1998 from
$56,673 in 1997. This increase is principally due to $15,921 in revenues
generated by ORC ProTel and ORC Mexico (the "Acquisitions") as well as an
increase in U.S. and U.K. market research revenues of $3,651, or 7%, partially
offset by a decrease in revenues from Asia of $483, and a $2,595 decrease in
revenues due to a management decision to abandon a small start-up telemarketing
business in favor of ProTel.
Cost of Revenues
Cost of revenues increased $10,433, or 30%, to $44,807 in 1998 from
$34,374 in 1997. The cost of revenues for the Company's core business increased
by $1,760, or 5%, in 1998, principally reflecting higher subcontractor costs for
certain large-scale global projects. The gross profit percentage for the core
business decreased to 37% in 1998 from 39% in 1997 reflecting this change in the
business mix. The Acquisitions, for which cost of revenues were $8,673 in 1998
and the gross profit percentage was 45%, offset the impact of the higher costs
for the core business.
Selling, General, and Administrative Expenses
SG&A increased $2,564, or 15%, to $19,408 in 1998 from $16,844 in
1997. As a percent of revenues, consolidated SG&A decreased to 27% in 1998 from
30% in 1997. The
-19-
Acquisitions for 1998 increased SG&A by $3,701 while SG&A related to the core
business decreased by $1,137 as compared to 1997.
Depreciation and Amortization Expense
Depreciation and amortization expense increased to $4,142 in 1998 from
$2,654 in 1997. The Acquisitions accounted for $1,261 of the increase in
depreciation and amortization. Additionally, the Company recorded a write-down
of goodwill of $324 associated with the telemarketing operation that was
discontinued in 1998. Depreciation and amortization on a consolidated basis
increased to 6% of revenues in 1998 from 5% in 1997.
Unusual Charge
In 1998, the Company took a fourth quarter pre-tax charge of $2,470
for expenses incurred in relation to an agreement with Dr. Michael R. Cooper
providing for the resignation of Dr. Cooper as a Director, Chairman, and Chief
Executive Officer of the Company and the buy-out of Dr. Cooper's pre-existing
employment contract.
Interest Expense
Interest expense increased in 1998 to $1,871 from $674 in 1997. The
increase in interest expense is primarily attributable to the debt incurred to
fund the acquisition of ORC ProTel.
Provision for Income Taxes
The provision for income taxes for 1998 and 1997 was $489 and $976,
respectively. The provisions for these years are higher than the amount that
results from applying the federal statutory rate to income primarily because of
amortization of non-deductible goodwill generated from pre-1996 acquisitions and
the impact of state taxes.
In 1998, the Company has recognized for financial reporting purposes
deferred tax assets that consist primarily of the tax benefits arising from the
unusual charge. These deferred tax assets are expected to be realized upon the
reversal of existing taxable temporary differences.
Extraordinary Loss
The Company recorded an extraordinary loss of $150, net of tax
benefits, in the second quarter of 1998. This non-cash charge is due to the
write-off of unamortized loan origination fees associated with the Company's
prior credit facility.
Net Income
Net income (loss) for 1998 and 1997 was ($170) and $1,151,
respectively. The Company's net loss for the year ended December 31, 1998 was
materially impacted by the non-recurring unusual charge and the extraordinary
loss discussed previously. There were no such non-recurring items in 1997.
-20-
Liquidity and Capital Resources
As of December 31, 1999, working capital was $15,373, which includes a
liability of $2,897 for the payment of the contingent purchase price earned by
ORC ProTel. Net cash generated by operations for 1999 was $6,771 as compared to
$2,846 in 1998.
Investing and financing activities for 1999 included capital
expenditures of $3,563 and payments of $26,383 for the Macro Acquisition and
earn-out payments for previous acquisitions. Net of borrowings for acquisitions,
including assumed debt of $5,249, and cash on hand, the Company decreased its
bank borrowings by $4,484 for the year ended December 31, 1999. The Company
believes that amount available under its debt agreements and its current sources
of capital will be sufficient to fund its long-term obligations and working
capital needs for the foreseeable future.
In May 1999, in connection with the Macro Acquisition, the Company
entered into a credit agreement with a financial institution for a new facility
of $50,000 (the "Senior Facility"). This financial institution later syndicated
the facility to include four additional financial institutions. The Senior
Facility provides $30,000 of term notes and up to $20,000 of revolving credit
for a six-year term and is secured by substantially all of the assets of the
Company. The Senior Facility carries an interest rate at the discretion of the
Company of either the financial institution's designated base rate (8.5% at
December 31, 1999) plus 125 basis points or LIBOR (3-month LIBOR was 6.13% at
December 31, 1999) plus 275 basis points for both revolving credit and term
notes. Principal payments on the term notes are due in escalating quarterly
installments commencing September 30, 1999. As of December 31, 1999, the Company
had approximately $15,846 of additional credit available under the Senior
Facility. Given that the interest rates on the revolving credit facility and the
notes are based on current market rates, the carrying value of the amounts due
under the credit facility approximates their fair value at December 31, 1999.
In May 1999, the Company also issued $15,000 of subordinated
debentures to a financial institution. In exchange for consideration received in
connection with this debt, the Company also issued warrants to purchase a
maximum of 437,029 shares of the Company's common stock at an exercise price of
$5.422 per share. The warrants are exercisable from the date of issuance and
expire in 2007. The subordinated financing has an eight-year term and a coupon
rate of 12%.
All debt outstanding as of May 26, 1999 was repaid with proceeds from
the above borrowings. In conjunction with its new credit facilities, the Company
recorded an after-tax, non-cash charge of $90 for the write-off of unamortized
loan fees. This charge is shown as an extraordinary loss from debt refinancing
in 1999.
-21-
Inflation and Foreign Currency Exchange
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact
through 2000. As the Company continues to expand its international operations,
exposures to gains and losses from foreign currency fluctuations will increase.
The Company may choose to limit such exposure by the purchase of the forward
foreign exchange contracts.
Readiness for Year 2000
The Company has not experienced any problems with its internal
computer systems or software applications due to the start of the Year 2000. The
Company also did not experience any problems with the computer systems or
software applications of its third party vendors, suppliers or service
providers. The Company will continue to monitor these third parties to determine
the impact, if any, on the Company's business and the actions, if any, required
in the event of non-compliance by any of these third parties. Based on the
Company's assessment of compliance by third parties, there does not appear to be
any material business risk posed by any such non-compliance.
Forward-looking Statements
Certain statements contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations, and elsewhere in this annual
report, are forward-looking statements. The forward-looking statements are
subject to risks and uncertainties, including, but not limited to, competition,
foreign exchange fluctuations, uncertainties of international economies, and
other risk factors discussed in this Annual Report on Form 10-K.
-22-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Market risks relating to the Company's operations result primarily
from changes in interest rates and changes in foreign exchange rates. The
Company utilizes interest rate derivative financial instruments to minimize the
risk and costs associated with its financial activities. The following table
provides information about the derivative financial instruments and other
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For an interest rate cap, the
table presents notional amounts and weighted-average interest rates or strike
rates by contractual maturity dates. Notional amounts are used to calculate the
contractual cash flows to be exchanged under the contract.
- -------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity
Principal (Notional) Amount by Expected Maturity
Average Interest (Cap) Rate
There- Fair Value
2000 2001 2002 2003 2004 After Total 12/31/99
- -------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt including current
portion:
Variable rate debt $2,027 $3,038 $4,500 $6,000 $8,500 $ 9,253 $33,318 $ 33,318
Average interest rate -
LIBOR+2.75%
Fixed rate debt - 12% $15,000 $15,000 $ 14,020
Interest Rate Derivative Financial
Instruments Related to Debt
Interest rate cap
Notional amount $3,000 $ 3,000 $ 1
Strike rate - 3-month LIBOR 7%
- -------------------------------------------------------------------------------------------------------------
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Financial Statements are set forth at Page F-1 at the end of this
Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
-23-
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Except as set forth under the caption "Executive Officers of the
Registrant" in Part I of this Annual Report on Form 10-K, this information will
be contained in the Company's definitive Proxy Statement with respect to the
Company's Annual Meeting of Stockholders for 2000, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended December 31, 1999, and is hereby incorporated by
reference thereto.
Item 11. Executive Compensation
----------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
This information will be contained in the Company's definitive Proxy
Statement with respect to the Company's Annual Meeting of Stockholders for 2000,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 1999, and is
hereby incorporated by reference thereto.
-24-
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
-----------------------------------------------------------------
(a) The following documents are filed as part of this report.
1. Financial Statements Page Reference
-------------------- --------------
Report of Independent Auditors. F-1
Consolidated Balance Sheets as of December 31, F-2
1999 and 1998.
Consolidated Statements of Operations for F-3
the years ended December 31, 1999, 1998,
and 1997.
Consolidated Statements of Stockholders' F-4
Equity for the years ended December 31, 1999
1998, and 1997.
Consolidated Statements of Cash Flows for F-5
the years ended December 31, 1999, 1998, and 1997.
Notes to Consolidated Financial Statements. F-6
2. Financial Statement Schedule
----------------------------
Schedule II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable or the required
information is given in the Financial Statements or Notes thereto, and therefore
have been omitted.
(b) Reports on Form 8-K
None.
-25-
(c) Exhibits
--------
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant -Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (No. 33-68428)
filed with the Securities and Exchange Commission on September 3,
1993 (the "Form S-1").
3.2 Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 Rights Agreement, dated September 13, 1996, between the
Registrant and StockTrans, Inc. - Incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A,
filed with the Securities and Exchange Commission on September
27, 1996.
4.2 Amendment to Rights Agreement dated August 8, 1998 - Incorporated
by reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 10-K").
*10.1 Employment Agreement between the Registrant and Michael R.
Cooper - Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
*10.2 Agreement and General Release, dated February 12, 1999, between
the Registrant and Michael R. Cooper - Incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 16,
1999.
*10.3 Employment Agreement between the Registrant and John F. Short -
Incorporated by reference to Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(the "1999 10-Q").
*10.4 Employment Agreement between the Registrant and Douglas L. Cox
dated October 26, 1998 - Incorporated by reference to Exhibit
10.5 to the 1998 10-K.
*10.5 Employment Agreement between the Registrant and James T.
Heisler -Incorporated by reference to Exhibit 10.6 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
-26-
*10.6 Employment Agreement between the Registrant and Gregory C.
Ellis - Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
*10.7 Employment Agreement among Opinion Research Corporation, ORC
ProTel Inc., and Ruth R. Wolf dated January 1, 1998.
*10.8 Employment Agreement between Macro International Inc. and Frank
J. Quirk dated May 20, 1999.
*10.9 Employment Agreement between Macro International Inc. and Michael
T. Errecart dated May 20, 1999.
10.10 1997 Stock Incentive Plan - Incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.11 Lease Agreement dated May 15, 1995 between the Registrant and the
Maumee Woodlands IV Company (Maumee Facility) - Incorporated by
reference to Exhibit 10.15 to the 1995 10-K.
10.12 Lease Agreement dated May 24, 1993 between the Registrant and
Computer Associates International, Inc. (for Princeton facility)-
Incorporated by reference to Exhibit 10.16 to the Form S-1.
10.13 Lease dated December 13, 1998 between Life Assurance Holding
Corporation Limited and O.R.C. International, Ltd. (UK Facility)-
Incorporated by reference to Exhibit 10.17 to the 1998 10-K.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc.
10.15 Asset Purchase Agreement between registrant and Pro Tel
Marketing, Inc. - Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 20, 1998.
10.16 Loan and Security Agreement, dated July 20, 1998, among Chase
Manhattan Bank, the Bank of New York, and First Union National
Bank and Opinion Research Corporation, ORC Inc., and ORC ProTel,
Inc. - Incorporated by reference to Exhibit 10.19 to the 1998
10-K.
-27-
10.17 Credit Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.1 to the 1999 10-Q.
10.18 Security Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.2 to the 1999 10-Q.
10.19 Guaranty dated May 26, 1999 by ORC Teleservice Corp., ORC ProTel,
Inc., Macro International Inc., and Quantum Research Corporation
for the benefit of Heller Financial, Inc. - Incorporated by
reference to Exhibit 10.3 to the 1999 10-Q.
10.20 Subsidiary Security Agreement dated May 26, 1999 by ORC
Teleservice Corp., ORC ProTel, Inc., Macro International Inc.,
Quantum Research Corporation and Heller Financial, Inc. -
Incorporated by reference to Exhibit 10.4 to the 1999 10-Q.
10.21 Investment Agreement dated May 26, 1999 among Opinion Research
Corporation, Allied Investment Corporation, and Allied Capital
Corporation -Incorporated by reference to Exhibit 10.5 to the
1999 10-Q.
10.22 Subsidiary Guaranty dated May 26, 1999 by ORC Teleservice Corp.,
ORC ProTel, Inc., Macro International Inc., and Quantum Research
Corporation for the benefit of Allied Capital Corporation and
Allied Investment Corporation -Incorporated by reference to
Exhibit 10.6 to the 1999 10-Q.
10.23 Subordinated Debenture for $9.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Capital Corporation -
Incorporated by reference to Exhibit 10.7 to the 1999 10-Q.
10.24 Subordinated Debenture for $5.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Investment
Corporation - Incorporated by reference to Exhibit 10.8 to the
1999 10-Q.
10.25 Registration Rights Agreement dated May 26, 1999 among Opinion
Research Corporation, Allied Capital Corporation and Allied
Investment Corporation - Incorporated by reference to Exhibit
10.9 to the 1999 10-Q.
10.26 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Capital Corporation dated May 26, 1999 - Incorporated by
reference to Exhibit 10.10 to the 1999 10-Q.
-28-
10.27 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Investment Corporation dated May 26, 1999 - Incorporated
by reference to Exhibit 10.11 to the 1999 10-Q.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP dated March 20, 2000.
27 Financial Data Schedule (EDGAR only).
- --------------------------------------------------------------------------------
* Constitutes a compensatory plan or arrangement required to be filed as an
exhibit to this report
-29-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
OPINION RESEARCH CORPORATION
By: /s/ John F. Short
---------------------------------
John F. Short, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on March 20, 2000 by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ John F. Short Chairman of the Board, Chief Executive Officer,
- ------------------------
John F. Short President and Director
(Principal Executive Officer)
/s/ Douglas L. Cox Chief Financial Officer
- ------------------------
Douglas L. Cox (Principal Financial and Accounting Officer)
/s/ James T. Heisler Executive Vice President and Director
- ------------------------
James T. Heisler
/s/ Stephen A. Greyser Director
- ------------------------
Stephen A. Greyser
/s/ Derek B. Smith Director
- ------------------------
Derek B. Smith
/s/ Lenard B. Tessler Director
- ------------------------
Lenard B. Tessler
/s/ Dale J. Florio Director
- ------------------------
Dale J. Florio
/s/ Gregory C. Ellis Chief Operating Officer - ORC Market Research
- ------------------------
Gregory C. Ellis and Director
-30-
Report of Independent Auditors
The Board of Directors and Stockholders
Opinion Research Corporation
We have audited the accompanying consolidated balance sheets of Opinion Research
Corporation and Subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule listed in the Index at Item 14(a).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Opinion
Research Corporation and Subsidiaries at December 31, 1999 and 1998, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ ERNST & YOUNG LLP
MetroPark, New Jersey
February 10, 2000
F-1
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31,
------------------------------------
1999 1998
--------------- ----------------
Assets
Current Assets:
Cash and cash equivalents $ 2,808 $ 1,058
Accounts receivable:
Billed 21,107 9,457
Unbilled services 11,853 3,383
--------------- ----------------
32,960 12,840
Less: allowance for doubtful accounts 259 209
--------------- ----------------
32,701 12,631
Prepaid and other current assets 2,034 4,244
--------------- ----------------
Total current assets 37,543 17,933
Property and equipment, net 8,815 5,421
Intangible assets, net 4,217 2,201
Goodwill, net 37,588 23,659
Other assets 3,803 1,396
--------------- ----------------
$ 91,966 $ 50,610
=============== ================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 3,629 $ 1,688
Accrued expenses 8,329 4,484
Payable for acquisitions 2,897 3,068
Deferred revenues 3,450 2,683
Short term borrowings 2,027 2,623
Other current liabilities 1,838 143
--------------- ----------------
Total current liabilities 22,170 14,689
Long term debt 45,311 15,600
Deferred income taxes 1,232 404
Other liabilities 3,060 3,226
Stockholders' Equity:
Preferred Stock, $.01 par value, 1,000,000 shares authorized,
none issued or outstanding - -
Common Stock, $.01 par value, 10,000,000 shares authorized,
4,292,641 shares issued and 4,254,783 outstanding in 1999
and 4,281,747 shares issued and 4,243,889 outstanding in 1998 43 42
Additional paid-in capital 15,475 14,216
Retained earnings 4,931 2,507
Accumulated other comprehensive income (loss) (70) 112
Treasury Stock, at cost, 37,858 shares in 1999 and 1998 (186) (186)
--------------- ----------------
Total stockholders' equity 20,193 16,691
--------------- ----------------
$ 91,966 $ 50,610
=============== ================
See notes to consolidated financial statements.
F-2
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except share and per share amounts)
Year Ended December 31,
---------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
Revenues $ 118,621 $ 73,167 $ 56,673
Cost of revenues 75,849 44,807 34,374
--------------- -------------- --------------
Gross profit 42,772 28,360 22,299
Selling, general and administrative expenses 28,502 19,408 16,844
Depreciation and amortization 5,807 4,142 2,654
Unusual charge - 2,470 -
--------------- -------------- --------------
Operating income 8,463 2,340 2,801
Interest expense, net 4,005 1,871 674
--------------- -------------- --------------
Income before income taxes and extraordinary loss 4,458 469 2,127
Provision for income taxes 1,944 489 976
--------------- -------------- --------------
Income (loss) before extraordinary loss 2,514 (20) 1,151
Extraordinary loss on debt refinancings,
net of tax benefit of $60 in 1999 and $133 in 1998 (90) (150) -
--------------- -------------- --------------
Net income (loss) $ 2,424 $ (170) $ 1,151
=============== ============== ==============
Income (loss) before extraordinary loss per common share:
Basic $ 0.59 $ (0.00) $ 0.28
=============== ============== ==============
Diluted $ 0.58 $ (0.00) $ 0.28
=============== ============== ==============
Extraordinary loss on debt refinancings per common share:
Basic $ (0.02) $ (0.04) $ -
=============== ============== ==============
Diluted $ (0.02) $ (0.04) $ -
=============== ============== ==============
Net income (loss) per common share:
Basic $ 0.57 $ (0.04) $ 0.28
=============== ============== ==============
Diluted $ 0.56 $ (0.04) $ 0.28
=============== ============== ==============
Weighted average common shares outstanding:
Basic 4,244,026 4,202,131 4,144,164
Diluted 4,331,700 4,202,131 4,145,866
See notes to consolidated financial statements.
F-3
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(in thousands)
Accumulated
Common stock Additional other
------------------------ paid in Retained comprehensive
Shares Amount capital earnings income (loss)
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1996 4,232 $ 42 $ 14,011 $ 1,526 $ 556
Comprehensive income:
Net income - - - 1,151 -
Other comprehensive income:
Foreign currency translation
adjustments - - - - (705)
Comprehensive income
Stock issuance - - (35) - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1997 4,232 42 13,976 2,677 (149)
Comprehensive income:
Net loss - - - (170) -
Other comprehensive income:
Foreign currency translation
adjustments - - - - 261
Comprehensive income
Stock issuance 50 - 228 - -
Compensation expense recognized
for stock options - - 12 - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1998 4,282 42 14,216 2,507 112
Comprehensive income:
Net income - - - 2,424 -
Other comprehensive income:
Foreign currency translation
adjustments - - - - (182)
Comprehensive income (loss)
Exercise of stock options 148 1 912 - -
Common stock redeemed for the
exercise of stock options (137) - (936) - -
Compensation expense recognized
for warrants issued - - 100 - -
Warrants issued in association with
debt refinancing - - 1,183 - -
---------- ---------- -------------- ------------ -----------------
Balance, December 31, 1999 4,293 $ 43 $ 15,475 $ 4,931 $ (70)
========== ========== ============== ============ =================
Treasury stock Total
------------------------- stockholders'
Shares Amount equity
---------- ----------- ------------------
Balance, December 31, 1996 88 $ (490) $ 15,645
Comprehensive income:
Net income - - 1,151
Other comprehensive income:
Foreign currency translation
adjustments - - (705)
------------------
Comprehensive income 446
Stock issuance (50) 304 269
---------- ----------- ------------------
Balance, December 31, 1997 38 (186) 16,360
Comprehensive income:
Net loss - - (170)
Other comprehensive income:
Foreign currency translation
adjustments - - 261
------------------
Comprehensive income 91
Stock issuance - - 228
Compensation expense recognized
for stock options - - 12
---------- ----------- ------------------
Balance, December 31, 1998 38 (186) 16,691
Comprehensive income:
Net income - - 2,424
Other comprehensive income:
Foreign currency translation
adjustments - - (182)
------------------
Comprehensive income (loss) 2,242
Exercise of stock options - - 913
Common stock redeemed for the
exercise of stock options - - (936)
Compensation expense recognized
for warrants issued - - 100
Warrants issued in association with
debt refinancing - - 1,183
---------- ----------- ------------------
Balance, December 31, 1999 38 $ (186) $ 20,193
========== =========== ==================
See notes to consolidated financial statements.
F-4
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
--------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) $ 2,424 $ (170) $ 1,151
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 5,807 4,142 2,654
Loss on disposal of fixed assets 9 120 4
Extraordinary loss 150 283 -
Non-cash portion of unusual charge - 198 -
Provision for doubtful accounts 135 226 10
Amortization of original issue discount included in interest expense 260 - -
Amortization of loan fees 169 51 26
Compensation expense recognized for issuance of warrants 100 - -
Deferred income taxes (835) (1,356) (677)
Changes in operating assets and liabilities net of effects
from acquisitions,
Billed accounts receivable, net 3,269 (2,312) 228
Unbilled services (6,509) 707 (1,236)
Other assets 709 (1,137) (405)
Accounts payable (84) 755 (1,033)
Accrued expenses (282) 1,656 980
Advanced billing from customers 777 (1,343) 1,216
Deferred interest payable - - (1,203)
Other liabilities 772 1,026 1,161
-------------- -------------- --------------
Net cash provided by operating activities 6,871 2,846 2,876
-------------- -------------- --------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (26,383) (12,131) (1,382)
Proceeds from the sale of fixed assets 107 142 18
Capital expenditures (3,563) (1,882) (1,011)
-------------- -------------- --------------
Net cash used in investing activities (29,839) (13,871) (2,375)
-------------- -------------- --------------
Cash flows from financing activities:
Borrowings under line-of-credit agreement 23,769 43,108 18,010
Repayments under line-of-credit agreement (31,735) (37,125) (17,400)
Issuance of note payable 43,970 20,093 6,151
Repayments of note payable (12,355) (14,194) (7,840)
Repayments under capital lease arrangements (101) (214) (240)
Proceeds from issuance of capital stock/warrants 1,161 228 269
-------------- -------------- --------------
Net cash provided by (used in) financing activities 24,709 11,896 (1,050)
-------------- -------------- --------------
Effect of exchange rate changes on cash and cash equivalents 9 27 (156)
-------------- -------------- --------------
Increase (decrease) in cash and cash equivalents 1,750 898 (705)
Cash and cash equivalents at beginning of period 1,058 160 865
-------------- -------------- --------------
Cash and cash equivalents at end of period $ 2,808 $ 1,058 $ 160
============== ============== ==============
Non-cash investing and financing activities:
Acquisition of equipment under capital lease $ 107 $ - $ 55
============== ============== ==============
See notes to consolidated financial statements.
F-5
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
(in thousands, except share and per share amounts)
1. Summary of significant accounting policies
Nature of operations and basis of presentation
Opinion Research Corporation (the "Company" or "ORC") was established in 1938 to
apply the principles of general public opinion polling to marketing issues
facing America's largest companies. The Company has evolved to provide primary
market research, social research, information services, marketing services,
including a focus on businesses selling primarily to other businesses, and
model-based telemarketing. The Company assists clients in evaluating,
monitoring and optimizing the effectiveness of their marketing and sales. The
Company's services and products address issues such as customer loyalty and
retention, market demand and forecasting, corporate image, competitive
positioning, public sector primary research, and model-based telemarketing. The
Company operates in three industry and three geographic segments.
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All inter-company transactions are eliminated
upon consolidation.
Revenue recognition
Revenues from professional services are recognized at the time services are
performed on a percentage of completion basis. Invoices to clients are
generated in accordance with the terms of the applicable contract, which may not
be directly related to the performance of services. Unbilled services are
classified as a current asset. Advanced billings from clients in excess of
revenue earned are classified as a current liability. The Company grants credit
primarily to large companies and government agencies and performs periodic
credit evaluations of its clients' financial condition. The Company does not
generally require collateral. Credit losses relating to clients consistently
have been within management's expectations. For the year ended December 31,
1999, one client accounted for 11% of the Company's total revenues. No single
client constituted more than 10% of net accounts receivable at December 31,
1999. As of December 31, 1998, two clients constituted 31% of net accounts
receivable and accounted for 30% of revenues for the year ended December 31,
1998. At December 31, 1997, two clients constituted 27% of net accounts
receivable and 22% of the Company's total revenues.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-6
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Cash equivalents
The Company considers as cash equivalents all highly liquid debt instruments
with an original maturity of three months or less when purchased.
Property and equipment
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets (3-10
years). Leasehold improvements are amortized using the straight-line method
over their estimated useful lives or the remaining life of the lease, whichever
is shorter.
Impairment of long-lived assets
The Company records impairment losses on long-lived assets used in operations or
expected to be disposed when events and circumstances indicate that the assets
might be impaired and the undiscounted cash flows estimated to be generated by
those assets are less than the carrying amounts of those assets.
Financial instruments
The Company uses interest rate swap and cap agreements to limit the Company's
exposure to interest rate fluctuations. Interest rate differentials to be paid
or received as a result of interest rate swap or cap agreements are accounted
for by recording the net interest received or paid as an adjustment to interest
expense on a current basis. The fair value of the interest rate swap and cap
agreements, as well as gains or losses resulting from market movements, are not
recognized in the financial statements.
Foreign currency translation
All assets and liabilities of foreign subsidiaries are translated into U.S.
dollars using the exchange rate in effect at the balance sheet date and revenues
and expenses are translated using a monthly average exchange rate during the
period. The resulting translation adjustments are recorded as a component of
other comprehensive income and are accumulated in stockholder's equity. Because
cumulative translation adjustments are considered a component of permanently
invested unremitted earnings of subsidiaries outside of the United States, no
taxes are provided on such amounts.
F-7
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Stock-based compensation
As permitted by FASB Statement No. 123, Accounting for Stock-Based Compensation,
the Company has elected to follow Accounting Principal Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB 25) and related interpretations in
accounting for its employee option plans. Under APB 25, no compensation expense
is recognized at the time of option grant if the exercise price of the Company's
employee stock option equals or exceeds the fair market value of the underlying
common stock on the date of grant.
Income taxes
The Company uses the liability method of accounting for income taxes. Under
this method, deferred tax assets and liabilities are determined based on the
differences between financial statement and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that are expected to be in
effect when the differences are expected to reverse. Recognition of deferred
tax assets is limited to amounts considered by management to be more likely than
not realized in future periods.
Earnings per share
Basic and diluted earnings per share are calculated in accordance with Statement
No. 128, Earnings per Share. Earnings per share amounts for all periods have
been presented in conformity with the requirements of Statement 128.
Comprehensive income
The Company has adopted Statement No. 130, Reporting Comprehensive Income.
Statement 130 establishes new rules for the reporting and display of
comprehensive income and its components. Since this Statement requires only
additional disclosure, there will be no effect on the Company's results of
operations or financial position. Statement 130 requires foreign currency
translation adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income. Prior year
financial statements have been reclassified to conform to the requirements of
Statement 130.
F-8
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Segments
The Company has adopted Statement No. 131, Disclosures about Segments of an
Enterprise and Related Information. Statement 131 establishes annual and interim
reporting standards for the way that public business enterprises report
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. The adoption of Statement 131
did not affect the Company's results of operations or financial position, and
was limited to the presentation of its disclosures. See Note 14.
Computer Software
Effective January 1, 1999, the Company adopted Statement of Position 98-1 ("SOP
98-1"), Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use issued by the American Institute of Certified Public Accountants.
SOP 98-1 requires companies to capitalize certain costs of computer software
developed or obtained for internal use and amortize such costs over the
software's estimated useful life.
Impact of Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board issued Statement No. 137,
Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133. This statement defers the effective
date of Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities, to all fiscal quarters of all fiscal years beginning after June 15,
2000. Statement 133 establishes a new model for accounting for derivatives and
hedging activities. The Statement requires all derivatives be recognized in the
statement of financial position as either assets or liabilities and measured at
fair value. The Company is currently evaluating the effects of adoption of
Statement 133 on the Company's financial position and results of operations.
Reclassification
Certain amounts in prior years have been reclassified to conform to the 1999
presentation. These reclassifications had no impact on the Company's results of
operations or financial position.
F-9
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisitions
In 1997, the Company completed a stock purchase of a company in Korea and the
asset purchase of companies in Taiwan and Mexico. Additionally, the Company's
two operating units in the U.K. were merged into one unit and renamed O.R.C.
International, Ltd.
In January 1998, ORC ProTel, Inc. ("ProTel"), a newly created subsidiary of the
Company, purchased certain assets (not including cash or accounts receivable)
and assumed certain liabilities of Pro Tel Marketing, Inc. The acquisition was
accounted for as a purchase and accordingly, the purchase price was allocated to
the assets acquired and liabilities assumed. The purchase price was comprised of
a $10,000 cash payment and 400,000 options to purchase common shares of the
Company's stock, with the provision that such options may, at the option of the
holders, be returned to the Company for cash payment of $2,000 on the second
anniversary of the closing. The fair value of these options was $1,691 at the
acquisition date and $2,000 at December 31, 1999. This amount is recorded as
other long-term liabilities in the Company's consolidated financial statements.
In January 2000, these options were returned to the Company for a payment of
$2,000. The fair value of the assets acquired and liabilities assumed was $632
and $143, respectively. The Company incurred $543 of costs related to the
acquisition. Identifiable intangible assets valued at $1,250 are being amortized
using the straight-line method over a period of five years. The excess
consideration paid over the estimated fair value of net assets acquired in the
amount of $10,495 has been recorded as goodwill to be amortized using the
straight-line method over a period of fifteen years.
In addition, over the years 1998 through 2000, the sellers may earn up to an
additional $10,000 of cash payments, contingent upon ProTel achieving certain
targets for revenues and earnings before interest, income taxes, depreciation,
and amortization. Based on 1999 and 1998 operating results, additional payments
totaling $2,897 and $3,068 were made to the principals and broker in March 2000
and 1999, respectively. The additional consideration has been recorded as
goodwill and is being amortized over the remaining life of the original
goodwill.
The Company acquired all of the outstanding shares of stock of Macro
International Inc. ("Macro) pursuant to a Stock Purchase Agreement dated April
30, 1999. The purchase price was comprised of a $22,300 cash payment and
approximately $1,010 of additional costs related to the acquisition. The fair
value of the net assets acquired was $8,742. Identifiable intangible assets
valued at $2,960 are being amortized using the straight-line method over a
period of five years. The excess consideration paid over the estimated fair
value of net assets acquired and identifiable intangible assets of $11,608 has
been recorded as goodwill to be amortized using the straight-line method over a
period of twenty years.
F-10
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisition (continued)
In addition, over the next two years, the sellers may earn up to an additional
$8,700 of cash payments, contingent upon Macro achieving certain future targets
for revenues and earnings before interest, income taxes, depreciation and
amortization. The pro forma adjustments presented do not give effect to any
such contingent payments.
The unaudited pro forma results of operations for the years ended December 31,
1999, 1998 and 1997, which assumes the consummation of the ProTel and Macro
purchases as of January 1, 1997, are as follows:
Years Ended December 31,
1999 1998 1997
------------- ------------- -------------
Revenues $140,714 $134,856 $125,218
Net income (loss) $ 1,874 ($693) $ 790
Net income (loss) per share:
Basic $ 0.44 ($0.16) $ 0.19
Diluted $ 0.43 ($0.16) $ 0.19
The pro forma net income (loss) includes adjustment for amortization of goodwill
and intangible assets, adjustment of interest expense, and the related income
tax effect of such adjustments.
3. Property and equipment
Property and equipment consists of the following:
December 31,
--------------------------------
1999 1998
-------------- --------------
Leasehold improvements $ 3,198 $ 2,057
Computer equipment and software 12,334 9,494
Furniture, fixtures, and equipment 4,797 3,959
Equipment under capital lease obligations 276 366
-------------- --------------
20,605 15,876
Less accumulated depreciation & amortization 11,790 10,455
-------------- --------------
Property and equipment, net $ 8,815 $ 5,421
============== ==============
F-11
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Property and equipment (continued)
Depreciation expense of $3,053, $2,337, and $1,628 was charged to earnings for
the years ended December 31, 1999, 1998, and 1997.
4. Intangible assets
Intangible assets are as follows:
December 31,
--------------------------------
1999 1998
-------------- --------------
Intangible assets $ 9,098 $ 6,214
Less accumulated amortization 4,881 4,013
-------------- --------------
Intangible assets, net $ 4,217 $ 2,201
============== ==============
Goodwill $42,245 $26,507
Less accumulated amortization 4,657 2,848
-------------- --------------
Goodwill, net $37,588 $23,659
============== ==============
Amortization expense of goodwill and intangible assets for the years ended 1999,
1998 and 1997 was $2,754, $1,805, and $1,026, respectively.
5. Income taxes
For financial reporting purposes, income (loss) before income taxes and
extraordinary loss consists of the following:
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
United States $4,373 $ 675 $2,343
Foreign 85 (206) (216)
-------------- --------------- --------------
$4,458 $ 469 $2,127
============== =============== ==============
F-12
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Income taxes (continued)
The provision (benefit) for income taxes excluding extraordinary loss consists
of the following:
Year Ended December 31,
----------------------------------------------------
1999 1998 1997
-------------- --------------- --------------
Current:
Federal $1,010 $ 1,610 $1,520
State 274 230 117
Foreign 86 5 (14)
-------------- --------------- --------------
Total current 1,370 1,845 1,623
-------------- --------------- --------------
Deferred:
Federal 379 (1,084) (496)
State 167 (245) (146)
Foreign 28 (27) (5)
-------------- --------------- --------------
Total deferred 574 (1,356) (647)
-------------- --------------- --------------
$1,944 $ 489 $ 976
============== =============== ==============
The difference between tax expense and the amount computed by applying the
statutory federal income tax rate (34%) to income before income taxes and
extraordinary loss is as follows:
Year Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ------------ ------------
Statutory rate applied to pre-tax income $1,516 $ 159 $ 723
Add (deduct):
State income taxes, net of federal benefit 291 (10) 77
Foreign operating losses for which a tax
benefit has not been recorded 85 48 55
Effect of non-deductible goodwill amortization 251 106 107
Effect of other non-deductible expenses 36 120 46
Tax credits (100) - -
Other (135) 66 (32)
----------- ------------ ------------
$1,944 $ 489 $ 976
=========== ============ ============
F-13
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Income taxes (continued)
The Company's deferred tax liabilities and assets consists of the following
temporary differences:
December 31,
----------------------------------
1999 1998
-------------- ---------------
Deferred tax liabilities:
Intangibles ($1,026) $ -
Capitalized production costs (378) (669)
-------------- ---------------
Total deferred tax liabilities (1,404) (669)
-------------- ---------------
Deferred tax assets:
Reserves for doubtful accounts 90 149
Fixed assets (65) 55
Compensation 431 1,186
Net operating loss carryforwards - 35
Valuation allowance (95) (34)
Other (91) 209
-------------- ---------------
Total deferred tax assets 270 1,600
-------------- ---------------
Net deferred tax assets (liabilities) ($1,134) $ 931
============== ===============
At December 31, 1999 and 1998, the Company has net short-term deferred tax
assets in the amount of $98 and $1,335, respectively, which are reported in the
balance sheet in prepaid and other current assets. At December 31, 1999 and
1998, unremitted earnings of foreign subsidiaries were approximately $654 and
$240, respectively. Since it is the Company's intention to indefinitely reinvest
these earnings, no U.S. taxes have been provided. Determination of the amount of
unrecognized deferred tax liability on these unremitted earnings is not
practicable.
Income taxes paid in the U.S. in 1999, 1998, and 1997 were $968, $1,959, and
$841, respectively. Income taxes of $39, $27 and $0 were paid in the U.K. in
1999, 1998, and 1997, respectively.
6. Debt
Debt consists of the following:
December 31,
--------------------------------
1999 1998
-------------- --------------
Working capital facilities $ 4,253 $ 6,973
Notes payable 43,085 11,250
-------------- --------------
Total debt 47,338 18,223
Less current maturities 2,027 2,623
-------------- --------------
Long-term portion $45,311 $15,600
============== ==============
F-14
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (Continued)
In May 1999, in connection with the acquisition of Macro, the Company entered
into a credit agreement with a financial institution for a new facility of
$50,000 (the "Senior Facility"). This financial institution later syndicated the
facility to include four additional financial institutions. The Senior Facility
provides $30,000 of term notes and up to $20,000 of revolving credit for a six-
year term and is secured by substantially all of the assets of the Company. The
Senior Facility carries an interest rate at the discretion of the Company of
either the financial institution's designated base rate (8.5% at December 31,
1999) plus 125 basis points or LIBOR (3-month LIBOR was 6.13% at December 31,
1999) plus 275 basis points for both revolving credit and term notes. Principal
payments on the term notes are due in escalating quarterly installments
commencing September 30, 1999. As of December 31, 1999, the Company had
approximately $15,846 of additional credit available under the Senior Facility.
Given that the interest rates on the revolving credit facility and the notes are
based on current market rates, the carrying value of the amounts due under the
credit facility approximates their fair value at December 31, 1999.
In May 1999, the Company also issued $15,000 of subordinated debentures to a
financial institution. In exchange for consideration received in connection with
this debt, the Company also issued warrants to purchase a maximum of 437,029
shares of the Company's common stock at an exercise price of $5.422 per share.
The warrants are exercisable from the date of issuance and expire in 2007. The
subordinated financing has an eight-year term and a coupon rate of 12%. The fair
market value of $14,020 at December 31, 1999 is included in the notes payable in
the previously presented debt table.
All debt outstanding as of May 26, 1999 was repaid with proceeds from the above
borrowings. In conjunction with its new credit facilities, the Company incurred
costs of $2,154, which are recorded as other long-term assets in the Company's
consolidated financial statements and are being amortized over the term of the
facilities. The Company also recorded an after-tax, non-cash charge of $90 for
the write-off of unamortized loan fees from the previous credit facility. This
charge is shown as an extraordinary loss from debt refinancing.
Aggregate maturities of debt for the years ending December 31 are as follows:
2000........................................................ $ 2,027
2001........................................................ 3,038
2002........................................................ 4,500
2003........................................................ 6,000
2004........................................................ 8,500
Thereafter.................................................. 24,253
F-15
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Debt (Continued)
The Company paid interest of $2,123, $1,527, and $679 during the years ended
December 31, 1999, 1998, and 1997, respectively. Also during 1997, the Company
paid $1,203 of deferred interest associated with the repayment of its
subordinated debt.
7. Leases
Future minimum payments required under capital and operating leases that have
noncancelable lease terms in excess of one year are as follows:
Capital Operating
Leases Leases
------------- --------------
2000.............................................. $ 40 $ 5,754
2001.............................................. 27 5,341
2002.............................................. 27 5,193
2003.............................................. 27 4,507
2004.............................................. - 2,076
Thereafter........................................ - 2,552
------------- --------------
Total minimum lease payments...................... $121 $25,423
==============
Less amounts representing interest................ 21
-------------
Capitalized lease obligations..................... $100
=============
At December 31, 1999, the current portion of capital lease obligations of $31
was recorded in the balance sheet in other current liabilities. Rent expense
under operating leases was $4,768, $2,641, and $2,178, for the years ended
December 31, 1999, 1998 and 1997, respectively. Real estate taxes, insurance and
maintenance expenses generally are obligations of the Company and, accordingly,
are not included as part of rental payments. It is expected that, in the normal
course of business, leases that expire will be renewed or replaced by leases on
similar properties.
8. Interest Rate Instruments
At December 31, 1999, the Company had an interest rate cap agreement outstanding
for a notional amount of $3,000. This agreement will expire in 2001.
F-16
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. Interest Rate Instruments (continued)
In 1998, the Company entered into interest rate cap and interest rate swap
agreements to reduce its exposure to fluctuations in interest rates. As of
December 31, 1998, selected information related to such agreements was as
follows:
Notional Amount Maturity Fair Value
------------------- ---------- --------------
Interest Rate Cap $ 3,000 2001 $ 2
Interest Rate Swap $11,250 2003 $29
The interest rate cap agreement required a premium payment to the counterparty
based upon the notional principal amount. The interest rate cap agreement
entitles the Company to receive from the counterparty the amounts, if any, by
which the selected market interest rate exceeds the strike rate stated in the
agreement. The Company utilized an interest rate swap agreement to reduce the
impact on interest expense of fluctuating interest rates on its variable rate
debt. Under the Company's interest rate swap agreement, the Company paid a fixed
rate of interest and received a 3-month LIBOR floating rate. The swap agreement
was liquidated in May 1999.
9. Pension
The Company maintains a defined contribution pension and profit sharing plan
covering substantially all employees ("ORC Plan") except Macro, which maintains
a separate profit sharing/401k plan ("Macro Plan"). Under both plans, employees
may contribute up to 15% of their annual salary but not to exceed the maximum
allowable under the Internal Revenue Code. The respective Board of Directors may
elect to match employees' contributions or contribute to the profit sharing
plan. ORC Plan assets include 206,625 and 310,625 shares of common stock of the
Company as of December 31, 1999 and 1998, respectively. The Company contributed
$250, $95, and $104 to the ORC Plan in 1999, 1998, and 1997, respectively. In
1999, the Company contributed $765 to the Macro Plan.
10. Stockholders' equity
In December 1997, the Company sold 50,000 shares to a senior executive of the
Company for a fair market value of $269. In November 1998, 50,000 shares were
sold to a second senior officer for $228, the fair market value at the time of
the transaction.
F-17
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options
The 1993 Stock Incentive Plan provided for the grant of up to 375,000 options to
purchase common stock to directors and key employees of the Company. The
exercise price of options granted to employees under this plan was at least
equal to the fair market value of the stock on the date of grant. These options
vested equally over a three year period. The plan terminates in August 2003.
The 1994 Stock Incentive Plan provided for the grant of up to 350,000 options to
purchase common stock to directors and key employees of the Company. No employee
could be granted options to acquire more than 100,000 shares of Company common
stock in any one calendar year. The options granted under the 1994 plan had an
exercise price that was at least equal to the fair market value of the stock on
the grant date and were exercisable for seven years. Options granted under this
plan vested equally over a period of three years. The plan terminates on April
25, 2004.
As amended in 1996, each Non-employee Director on the date of the Annual Meeting
of Stockholders is automatically granted options to acquire the "formula number"
of shares of common stock. The option exercise price for these options will be
equal to the fair market value of the underlying shares on the date of the
grant. The options granted under this provision will be non-qualified stock
options. The Non-employee Directors' options will become exercisable on the
first anniversary of the date of grant provided the Non-employee Director is a
member of the Board of Directors on that date.
For 1999, all outside directors were granted the "formula number" of 5,000
shares. In addition, each director who chaired a committee was granted options
to purchase an additional 5,000 shares of the Company's common stock. The
"formula number" for 1998 and 1997 was 15,000 shares for those Non-employee
Directors who have served as a member of the Board of Directors for a period of
three full years or more, and 5,000 shares for all other Non-employee Directors.
Non-employee Directors' options terminate seven years from the date of grant or
90 days after the optionee ceases to serve as a member of the Board of Directors
for any reason. Any options of a Non-employee Director that are not exercisable
when he or she ceases to serve as a member of the Board of Directors will
terminate as of the termination of the Non-employee Director's service on the
Board of Directors.
On June 17, 1997 the shareholders of the Company approved the merger of the 1993
and 1994 Stock Incentive Plans into the 1997 Stock Incentive Plan. This merger
was undertaken in order to simplify administration and record keeping otherwise
required in operating the plans separately. The 1997 Stock Incentive Plan was
also amended to increase the number of shares available for grant from 725,000
to 875,000.
F-18
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
On June 9, 1998, the 1997 Stock Incentive Plan was amended to increase the
number of shares available for grant from 875,000 to 1,125,000 and to revise the
date of grant of formula options for non-employee Directors from the date of the
annual meeting to January 2 of each year. The 1997
Stock Incentive Plan terminates on April 16, 2007. Stock option transactions for
the 1997 Stock Incentive Plan (and its predecessors) were as follows:
Weighted
Number Average
of Shares Exercise Price
-------------- ------------------
Outstanding balance at December 31, 1996 690,292 $6.01
1997
----
Granted 595,206 $5.55
Canceled (327,458) $6.22
--------------
Outstanding Balance at December 31, 1997 958,040 $5.65
1998
----
Granted 236,000 $5.60
Canceled (24,334) $5.61
--------------
Outstanding Balance at December 31, 1998 1,169,706 $5.64
1999
----
Granted 50,000 $5.35
Canceled (117,332) $5.56
Exercised (147,582) $6.18
--------------
Outstanding Balance at December 31, 1999 954,792 $5.55
==============
Included above in the 1997 figures are 307,706 options that were issued in 1993
and 1994, cancelled in December 1997, and reissued in December 1997. The
reissued options retained all of the original attributes except for expiration
dates which are six years from the date of grant for options initially granted
in 1993 and seven years for those options originally granted in 1994. All
reissued options have an exercise price equal to or greater than the market
value of the stock on the date of grant.
F-19
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
Additionally, in December 1997, 200,000 non-plan options were granted to three
senior executives. These non-plan options were issued with an exercise price
equal to the market value of the stock at the date of grant. These options have
a vesting period of three years and a life of seven years. As of December 31,
1999, 140,000 were issued and outstanding. These options are included in the
previously presented option table.
Options exercisable at December 31, 1999, 1998 and 1997 were 736,960, 733,708,
and 533,791, respectively. Exercise prices for options outstanding as of
December 31, 1999 for the plan ranged from $3.63 to $8.00 per share. The
weighted average remaining term of the outstanding options is 4.64 years.
In accordance with the provisions of SFAS No. 123, the Company applies APB 25
and related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation expense. If the Company had elected
to recognize compensation expense based on the fair value of the options granted
at grant date as prescribed by SFAS No. 123, net income (loss) and earnings
(loss) per share would have been adjusted to the pro forma amounts indicated in
the table below:
1999 1998 1997
----------- ------------ ------------
Net income (loss) - as reported....................... $2,424 ($170) $1,151
Net income (loss) - pro forma......................... $2,239 ($514) $ 593
Earnings (loss) per share - as reported............... $ .56 ($.04) $ .28
Earnings (loss) per share - pro forma................. $ .52 ($.12) $ .14
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:
1999 1998 1997
----------- ------------ ------------
Expected dividend yield............................... 0% 0% 0%
Expected stock price volatility....................... 63.1% 42.3% 40.2%
Risk-free interest rate............................... 5.4% 5.5% 5.5%
Expected life of options.............................. 7 years 7 years 7 years
The weighted average fair value of options granted during 1999 and 1998 was
$3.56 and $2.97 per share, respectively.
F-20
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. Stock options (continued)
As of December 31, 1999, the Company has 692,029 warrants issued and outstanding
with a weighted average exercise price of $5.36. These warrants are immediately
exercisable.
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Years Ended December 31,
----------------------------------------------
1999 1998 1997
------------- ------------ ------------
(000's omitted, except per share data)
Numerator:
Income (loss) before extraordinary loss $2,514 ($20) $1,151
------------- ------------ ------------
Numerator for basic and diluted earnings per share $2,514 ($20) $1,151
============= ============ ============
Denominator:
Denominator for basic earnings per share,
Weighted-average shares 4,244 4,202 4,144
Effect of dilutive stock options 88 - 2
------------- ------------ ------------
Denominator for diluted earnings per share
Adjusted weighted-average shares 4,332 4,202 4,146
------------- ------------ ------------
Basic earnings per share $ .59 $ .00 $ .28
============= ============ ============
Diluted earnings per share $ .58 $ .00 $ .28
============= ============ ============
13. Split-dollar life insurance
The Company has entered into certain agreements with trusts established in the
names of two officers of the Company. Under these agreements, the Company pays
certain premiums on life insurance policies on the officers, to which the trusts
are the beneficiaries. The Company has been assigned certain rights to the
assets of the trusts as collateral for the premiums paid on these life insurance
policies. The amounts paid by the Company for the premiums on these policies
were $57 and $123 for the year ended December 31, 1999 and 1998, respectively.
These amounts are recorded in other assets in the accompanying consolidated
balance sheets. In the event the policies are terminated, the officers have
guaranteed the repayment of the amounts due from their respective trusts, and
have pledged certain of their personal assets to the Company to collateralize
such guarantees (See Note 15).
F-21
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Segments
The Company identifies its segments based on the Company's geographic locations
and industries in which the Company operates. The Company currently has four
reportable segments: U.S. Market Research, U.K. Market Research, Teleservices,
and Social Research, the business segment operated by Macro. There were no
significant intersegment events which materially affected the financial
statements. The Company measures segment profits as operating profit, which is
defined as income before interest expenses and income taxes. Information on
segments and a reconciliation to consolidated total, are as follows:
U.S. Market U.K. Market Social Total
Research Research Teleservices Research Segments Other Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1999:
- -----------------------------
Revenues from external customers $36,915 $15,411 $16,907 $44,961 $114,194 $ 4,427 $118,621
Depreciation and amortization 1,906 750 1,442 1,568 5,666 141 5,807
Operating income 3,227 174 1,965 2,815 8,181 282 8,463
Interest expense 4,005 4,005
Income (loss) before income taxes
and extraordinary loss $ 2,514
Total assets $22,163 $ 9,829 $20,072 $37,559 $ 89,623 $ 2,343 $ 91,966
Capital expenditures $ 632 $ 1,414 $ 1,094 $ 438 $ 3,578 $ 92 $ 3,670
Year Ended December 31, 1998:
- -----------------------------
Revenues from external customers $40,144 $14,349 $14,986 - $ 69,479 $ 3,688 $ 73,167
Depreciation and amortization 1,798 632 1,568 - 3,998 144 4,142
Unusual charge (2,470) (2,470)
Operating income 3,561 253 1,083 - 4,897 (2,557) 2,340
Interest expense 1,871 1,871
Income (loss) before income taxes
And extraordinary loss $ 469
Total assets $24,044 $ 8,832 $16,259 - $ 49,135 $ 1,769 $ 50,904
Capital expenditures $ 1,134 $ 421 $ 269 - $ 1,824 $ 58 $ 1,882
Year Ended December 31, 1997:
- -----------------------------
Revenues from external customers $36,726 $14,116 $ 2,377 - $ 53,219 $ 3,454 $ 56,673
Depreciation and amortization 1,870 647 52 - 2,569 85 2,654
Operating income (loss) 2,856 (136) (264) - 2,456 345) 2,801
Interest expense 674 674
Income before income taxes $ 2,127
Total assets $21,182 $ 8,794 $ 1,528 - $ 31,504 $ 976 $ 32,480
Capital expenditures $ 635 $ 177 $ 154 - $ 966 $ 45 $ 1,011
- ----------------------------------------------------------------------------------------------------------------------------------
F-22
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. Segments (continued)
International long-lived assets are $6,444, $5,960 and $5,335 in 1999, 1998, and
1997, respectively. In 1999, revenues from one customer of the Company's Social
Research segment represented $12,592 of the Company's total revenues. In 1998
and 1997, revenues from one client of the Company's Teleservices and U.S. Market
Research segment represented $13,441 and $9,720 of the Company's total revenues,
respectively. Revenues in the "other" category were generated from the
Company's Asia and Mexico operations. As these segments are not significant,
results are not presented separately.
15. Unusual charge
In the fourth quarter of 1998, the Company took a fourth quarter pre-tax charge
of $2,470 for expenses incurred in relation to an agreement with its former
Chief Executive Officer providing for his resignation as a Director, Chairman,
and Chief Executive Officer of the Company and the buy-out of his pre-existing
employment contract. Included in the pre-tax charge of $2,470 was a write-off
of $186 related to the termination of a split-dollar life insurance policy for
this former officer and the cancellation of the repayment guarantee.
16. Extraordinary losses
The Company recorded extraordinary losses, net of tax benefits, of $90 and $150
in 1999 and 1998, respectively. These non-cash charges resulted from the write-
off of unamortized loan origination fees in connection with debt refinancings
during each period.
F-23
Schedule II - Valuation and Qualifying Accounts
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
(in Thousands of Dollars)
- ------------------------------------------------------------------------------
Rule 12-09. Valuation and Qualifying Accounts
- ------------------------------------------------------------------------------
Additions
-------------------------------------
Balance at Charged to Charged to Balance
Description beginning costs other accounts Deductions - at end
of period and expenses - describe describe of period
- ----------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1999:
Deducted from asset account:
Allowance for Doubtful Accounts $ 209 $ 151 $ 101 (1) $ 259
Accumulated Amortization:
Capitalized Production Costs 1,009 67 1,076
Goodwill 2,848 1,809 4,657
Intangible Assets 3,004 801 3,805
------------ ------------- ----------- -----------
Totals $ 7,070 $ 2,828 $ 101 $ 9,797
============ ============= =========== ===========
Year ended December 31, 1998:
Deducted from asset account:
Allowance for Doubtful Accounts $ 170 $ 291 $ 252 (1) $ 209
Accumulated Amortization:
Capitalized Production Costs 931 78 1,009
Goodwill 1,636 1,212 2,848
Intangible Assets 2,489 515 3,004
------------ ------------- ----------- -----------
Totals $ 5,226 $ 2,096 $ 252 $ 7,070
============ ============= =========== ===========
Year ended December 31, 1997:
Deducted from asset account:
Allowance for Doubtful Accounts $ 162 $ 153 $ 145 (1) $ 170
Accumulated Amortization:
Capitalized Production Costs 560 371 931
Goodwill 1,194 442 1,636
Intangible Assets 2,276 213 2,489
------------ ------------- ----------- -----------
Totals $ 4,192 $ 1,179 $ 145 $ 5,226
============ ============= =========== ===========
- ------------------------------------------------------------------------------
(1) Uncollectible accounts written-off
S-1
OPINION RESEARCH CORPORATION
Annual Report on Form 10-K
EXHIBIT INDEX
Exhibit No.
- -----------
3.1 Amended and Restated Certificate of Incorporation of the
Registrant -Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (No. 33-68428)
filed with the Securities and Exchange Commission on September 3,
1993 (the "Form S-1").
3.2 Amended and Restated By-Laws of the Registrant - Incorporated by
reference to Exhibit 3.2 to the Form S-1.
4.1 Rights Agreement, dated September 13, 1996, between the
Registrant and StockTrans, Inc. - Incorporated by reference to
Exhibit 1 to the Registrant's Registration Statement on Form 8-A,
filed with the Securities and Exchange Commission on September
27, 1996.
4.2 Amendment to Rights Agreement dated August 8, 1998 - Incorporated
by reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1998 (the "1998 10-K").
*10.1 Employment Agreement between the Registrant and Michael R.
Cooper -Incorporated by reference to Exhibit 10.1 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 10-K").
*10.2 Agreement and General Release, dated February 12, 1999, between
the Registrant and Michael R. Cooper - Incorporated by reference
to Exhibit 10 to the Registrant's Current Report on Form 8-K
filed with the Securities and Exchange Commission on February 16,
1999.
*10.3 Employment Agreement between the Registrant and John F. Short -
Incorporated by reference to Exhibit 10.12 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1999
(the "1999 10-Q").
*10.4 Employment Agreement between the Registrant and Douglas L. Cox
dated October 26, 1998 - Incorporated by reference to Exhibit
10.1 to the 1998 10-K.
*10.5 Employment Agreement between the Registrant and James T.
Heisler -Incorporated by reference to Exhibit 10.6 to 1994 10-K.
*10.6 Employment Agreement between the Registrant and Gregory C.
Ellis - Incorporated by reference to Exhibit 10.5 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K").
*10.7 Employment Agreement among Opinion Research Corporation, ORC
ProTel Inc., and Ruth R. Wolf dated January 1, 1998.
*10.8 Employment Agreement between Macro International Inc. and Frank
J. Quirk dated May 20, 1999.
*10.9 Employment Agreement between Macro International Inc. and Michael
T. Errecart dated May 20, 1999.
10.10 1997 Stock Incentive Plan - Incorporated by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997.
10.11 Lease Agreement dated May 15, 1995 between the Registrant and the
Maumee Woodlands IV Company (Maumee Facility) - Incorporated by
reference to Exhibit 10.15 to the 1995 10-K.
10.12 Lease Agreement dated May 24, 1993 between the Registrant and
Computer Associates International, Inc. (for Princeton facility)
- Incorporated by reference to Exhibit 10.16 to the Form S-1.
10.13 Lease dated December 13, 1998 between Life Assurance Holding
Corporation Limited and O.R.C. International, Ltd. (UK Facility)
- Incorporated by reference to Exhibit 10.17 to the 1998 10-K.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc.
10.15 Asset Purchase Agreement between registrant and Pro Tel
Marketing, Inc. -Incorporated by reference to Exhibit 2.1 to the
Registrant's Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 20, 1998.
10.16 Loan and Security Agreement, dated July 20, 1998, among Chase
Manhattan Bank, the Bank of New York, and First Union National
Bank and Opinion Research Corporation, ORC Inc., and ORC ProTel,
Inc. - Incorporated by reference to Exhibit 10.19 to the 1998 10-
K.
10.17 Credit Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.1 to the 1999 10-Q.
10.18 Security Agreement dated May 26, 1999 among Opinion Research
Corporation, ORC Inc., and Heller Financial, Inc. - Incorporated
by reference to Exhibit 10.2 to the 1999 10-Q.
10.19 Guaranty dated May 26, 1999 by ORC Teleservice Corp., ORC ProTel,
Inc., Macro International Inc., and Quantum Research Corporation
for the benefit of Heller Financial, Inc. - Incorporated by
reference to Exhibit 10.3 to the 1999 10-Q.
10.20 Subsidiary Security Agreement dated May 26, 1999 by ORC
Teleservice Corp., ORC ProTel, Inc., Macro International Inc.,
Quantum Research Corporation and Heller Financial, Inc. -
Incorporated by reference to Exhibit 10.4 to the 1999 10-Q.
10.21 Investment Agreement dated May 26, 1999 among Opinion Research
Corporation, Allied Investment Corporation, and Allied Capital
Corporation. -Incorporated by reference to Exhibit 10.5 to the
1999 10-Q.
10.22 Subsidiary Guaranty dated May 26, 1999 by ORC Teleservice Corp.,
ORC ProTel, Inc., Macro International Inc., and Quantum Research
Corporation for the benefit of Allied Capital Corporation and
Allied Investment Corporation. -Incorporated by reference to
Exhibit 10.6 to the 1999 10-Q.
10.23 Subordinated Debenture for $9.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Capital Corporation. -
Incorporated by reference to Exhibit 10.7 to the 1999 10-Q.
10.24 Subordinated Debenture for $5.5 million dated May 26, 1999 issued
by Opinion Research Corporation to Allied Investment Corporation.
- Incorporated by reference to Exhibit 10.8 to the 1999 10-Q.
10.25 Registration Rights Agreement dated May 26, 1999 among Opinion
Research Corporation, Allied Capital Corporation and Allied
Investment Corporation. - Incorporated by reference to Exhibit
10.9 to the 1999 10-Q.
10.26 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Capital Corporation dated May 26, 1999 - Incorporated by
reference to Exhibit 10.10 to the 1999 10-Q.
10.27 Common Stock Warrant Issued by Opinion Research Corporation to
Allied Investment Corporation dated May 26, 1999 - Incorporated
by reference to Exhibit 10.11 to the 1999 10-Q.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP dated March 20, 2000.
27 Financial Data Schedule (EDGAR only).