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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, 2000 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
OPINION RESEARCH CORPORATION
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(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
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 27,
2001, a date within 60 days prior to the date of filing, as quoted on the
American Stock Exchange, was approximately $27,378,000.*
As of February 27, 2001, 5,666,761 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 2001 Annual Meeting of Stockholders, are
incorporated by reference into Part III of this report.
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*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 2001 and beyond to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company:
The Company's success depends on the Company's ability to retain its
existing clients and obtain new clients. The Company's clients generally may
terminate the services it provides to them at any time. 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 existence of
larger projects and long-term client relationships may increase the Company's
reliance on particular projects and clients. In 2000, approximately 42% of the
Company's revenue was generated by providing services to various U.S.
governmental departments and agencies.
The Company's business may suffer if demand for its services declines. A
number of factors that are beyond the Company's control can adversely affect the
demand of the Company's existing clients for its services and impair its ability
to attract new clients. These include marketing budgets, general economic
conditions, consolidations, government spending, and other industry-specific
trends. Changes in management or ownership of an existing client are factors
that can affect the client's demand for the Company's services. As a result, the
Company may provide different amounts of services to its clients from year to
year, and these differences can contribute to fluctuations in the Company's
operating results.
The Company's attempts to expand its operations into markets where the
Company does not currently operate may not be successful and the Company's
efforts to expand its international operations will be subject to added risks
which are inherent in doing business abroad. 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 sufficiently accepted to sustain
its efforts to expand in selected 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
transfers, 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
current operations.
The Company's business may suffer if the Company is unable to retain its
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. The Company
does not currently maintain key man life insurance policies on any of the
Company's executives other than John F. Short, the Company's chief executive
officer, and the Company has employment agreements only with certain executive
officers. Competition for senior management is intense, and the Company may not
be successful in retaining key personnel or in attracting and retaining other
personnel that the Company may require in the future.
The Company faces competition in its industry. 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, including some with greater financial resources than the
Company has, 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 customer and market research and information industry. The
Company regularly experiences significant competition for customers seeking
consumer market research services from a large number of competitors. These
include consumer market research companies, advertising agencies, and business
consulting firms. The Company competes for public sector research services with
a large number of firms that vary in size as well as with not-for-profit
organizations. For outbound telemarketing services, the Company competes with a
large number of telemarketing companies.
The Company does not currently pay dividends on its common stock and the
Company does not expect to do so for the foreseeable future. The Company expects
to retain its future earnings, if any, for the operation and expansion of its
business, and to pay no cash dividends for the foreseeable future. The terms of
the Company's current financing agreements prohibit the payment of dividends,
and other agreements the Company enters into may contain terms that limit the
amount of dividends the Company may pay or prohibit any payment of dividends.
Anti-takeover provisions and the Company's right to issue preferred stock
could make a third-party acquisition of the Company difficult. The Company's
certificate of incorporation provides that the board of directors may issue
preferred stock without stockholder approval. In addition, the Company's by-laws
provide for a classified board, with each board member serving a three-year
term. The board of directors has also adopted a stockholder rights plan,
commonly referred to as a "poison pill." The issuance of preferred stock, the
existence of a classified board, and the stockholder rights plan could make it
more difficult for a third party to acquire the Company without the board
approval. These provisions could also limit the price that certain investors
might be willing to pay in the future for the Company's common stock.
Trading Volume in the Company's Common Stock has historically been
limited. There is a limited market for the Company's common stock. Selling the
Company's shares may be difficult because smaller quantities of shares are
bought and sold and security analysts' and the news media's coverage about the
Company is limited. These factors could result in lower prices and larger
spreads in the bid and ask prices for the Company's shares.
PART I
Item 1. Business
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
telemarketing. The Company assists its commercial clients in the evaluation,
monitoring and optimization of their marketing and sales efforts. The majority
of the Company's commercial projects are for businesses selling to other
businesses and address issues such as customer loyalty and retention, market
demand and forecasting, and corporate image and competitive positioning. The
Company also performs public sector primary research and provides information
technology, communications, and other consulting services, primarily to agencies
of the United States federal government and state and local governments. The
majority of the Company's governmental projects are in the areas of health,
education, and international aid. The Company's telemarketing services consist
principally of outbound customer acquisition services. Except where the context
indicates otherwise, the term "Company" refers to Opinion Research Corporation
and its subsidiaries. All dollar amounts presented in this Annual Report on Form
10-K are in thousands unless indicated otherwise.
The Company completed its initial public offering in October 1993.
Between 1993 and 1997, as part of its globalization strategy, the Company
established its presence in the U.K., Asia and Mexico through various
acquisitions. In January 1998, the Company acquired ProTel Marketing, Inc. ("ORC
ProTel" or "ProTel"), a high quality telemarketing company based in Lansing,
Illinois, which enabled the Company to combine market research expertise with
telemarketing services. 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 Macro
acquisition substantially increased the Company's presence in the public sector.
In September 2000, the Company acquired C/J Research, Inc. ("C/J"), a market
research firm engaged primarily in consumer products, and in November 2000,
acquired Social and Health Services, Ltd. ("SHS"), a public sector research and
communications firm. The two acquisitions in 2000 provided additional
operational expansion for the Company in the areas of consumer research, social
research and information management.
The Company collects customer, market, and demographic 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 and social issues enables it to
provide reliable customer, market, and demographic 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.
-1-
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 55% in
2000.
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
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.
Communications and Marketing Services. The Company provides full
service communications and marketing services to private, not-for-profit, and
government organizations. These services include strategic planning;
communication and marketing campaign development; brochure design and
production; print, radio and television advertising; web site development and
management; brand development; public relations; video development and
broadcasting; clearinghouse, warehousing and fulfillment services, and inbound,
web-enabled call center services.
These services are mainly concentrated in public health and
education arenas where the Company has won awards for their success in areas
such as the reduction of drug, tobacco and alcohol use among teens, and the
prevention of school violence.
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.
-2-
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.
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 the Computer Assisted Telephone Interviewing (CATI) system,
which provides clients with highly efficient and cost effective data and
information collection. The Company also utilizes internet based data collection
techniques.
Demographic and Health Research. The Company manages international
research programs in Europe and developing nations for organizations such as The
United States Agency for International Development ("USAID"), the World Health
Organization ("WHO"), and UNICEF. 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 government organizations. 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.
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.
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.
-3-
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 product/services configuration and pricing, as
well as market size information. This work supports clients' business planning
and capital generation for new ventures.
Public Sector Research. The Company provides research and evaluation
services to local and national governments and to international organizations.
Among the services provided are communication studies; 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.
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.
Industries
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
-4-
analysis evaluates and tracks customer needs as they relate to new vehicle
purchase, financing and leasing, buying behavior and brand loyalty.
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.
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.
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.
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, and competitive
profiling.
-5-
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.
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.
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 twice-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 22
countries around the world.
-6-
Telephone or in-person interviews are completed annually with approximately
2,700 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 in Asia,
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.
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.
Communications & Reaction Test (C&R), 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.
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.
Marketing
Marketing and Sales-Support Program. In 2000, 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.
-7-
Clients and Client Relationships
Some of the Company's largest clients in terms of revenues generated
include America Online, Cendant Corporation, Department of Housing and Urban
Development, Department of Human Health Services, General Motors, IBM, National
Science Foundation, Sears Roebuck & Company, USAID, and U.S. Department of
Education. In 2000, the Company served over 1,500 clients. For many clients, the
Company performed multiple projects, sometimes for different subsidiaries or
business units of the same client.
The Company's largest single client, USAID, accounted for 13% and
11% of the Company's revenues in 2000 and 1999, respectively. All revenues
generated by the USAID relationship were for social research studies. In 1998,
Cendant accounted for 18% of the Company's revenues. All revenues generated by
the Cendant relationship were for outbound telemarketing services.
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, its typical clients are
interested primarily in the quality and utility of the service received rather
than price.
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.
-8-
Segment Information
Information regarding financial data by operating and geographic
segments is set forth in Part II, Item 8 of this Form 10-K in the Notes to
Consolidated Financial Statements at Note 13, "Segments," which information is
hereby incorporated by reference.
Backlog
As of December 31, 2000, revenues expected to be received by the
Company under its market research client contracts, which are based on budgeted
amounts in those contracts, were $35,188 as compared to $28,289 as of December
31, 1999. All of the 2000 amount is expected to be received by December 31,
2001. Public sector backlog at December 31, 2000 was $202,958, as compared to
$195,091 as of December 31, 1999. 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.
Employees
As of December 31, 2000, the Company employed a total of
approximately 1,800 full-time employees and 1,600 part-time hourly employees.
The part-time employees work as telephone interviewers and data processors. Of
the full-time employees, 900 are professionals engaged in direct client service,
650 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.
-9-
Item 2. Properties
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
Arlington Heights, Illinois Research Location and Telephone Interview
Facility
Evanston, Illinois Research Location
Bingham Farms, Michigan Research Location
Tucson, Arizona Telephone Interviewing Facility
Tampa, Florida Telephone Interviewing Facility
Reno, Nevada 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
Topeka, Kansas Telemarketing Facility
St. John, Missouri Telemarketing Facility
Dayton, Ohio Telemarketing Facility
Social Research Calverton, Maryland Macro Headquarters, Research Location
Burlington/St. Albans, Telephone Interviewing Facilities and Data
Vermont Collection Centers
New York, New York Research Location
Bethesda, Maryland Research Location
Plattsburgh, New York Telephone Interviewing Facility
Atlanta, Georgia Research Location
Rockville, Maryland Research Location and Multi-media Production
Facility
Columbia, Maryland Warehouse
-10-
The Company presently has a combined total of 715 computer assisted
telephone interviewing stations worldwide dedicated to market research and an
additional 365 telemarketing stations. All of these facilities are equipped with
state-of-the-art hardware and software. In a typical telephone interview or
sale, the CATI system prompts 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.
The Company believes that its properties are sufficient for its
current operational needs.
-11-
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, 2000.
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 2001 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 27, 2001.
Name Age Position
- ---- --- --------
Douglas L. Cox 55 Executive Vice President and
Chief Financial Officer
Kevin P. Croke 42 Executive Vice President and
Director of Finance
Michael T. Errecart 51 President, Macro International Inc.
Nigel P. Maxfield 43 Senior Vice President and
Managing Director,
O.R.C. International Ltd.
Frank J. Quirk 60 Chairman and Chief Executive Officer,
Macro International Inc.
Jeffrey T. Resnick 44 Executive Vice President
John F. Short 56 Chairman, President, and
Chief Executive Officer
Ruth R. Wolf 63 Chief Executive Officer,
ORC ProTel, Inc.
-12-
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.
Mr. Croke joined the Company in 1991 as Controller. Throughout the years
Mr. Croke has served in various capacities in the Company's financial arena. In
1995, Mr. Croke was appointed Director of Finance. Mr. Croke holds an MBA from
Case Western Reserve 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 Macro in 1999. Dr.
Errecart holds a Ph.D. in Mathematical Sciences from the Johns Hopkins
University.
Dr. Maxfield joined the Company in 1996 with the acquisition of an U.K.
division. In 1997, Dr. Maxfield was appointed Managing Director of ORC - U.K.
Dr. Maxfield holds a Ph.D. in Applied Mathematics and Computing Science from the
University of Sheffield.
Mr. Resnick joined the Company in 1984. Since 1990, Mr. Resnick has held a
variety of managerial roles, including Director of the Financial Services
Practice for the U.S. Group and Managing Director of the U.S. Research Group. In
1999, Mr. Resnick was appointed Chief Executive Officer of ORC U.S. Research
Group. Mr. Resnick holds a Master of Arts degree from Western Michigan
University.
Mr. Quirk joined the Company in 1999 with the acquisition of Macro, where
he served, and continues to service, as the Chief Executive Officer since 1980.
In 2000, Mr. Quirk was elected as a member of the Board of Directors of the
Company. Mr. Quirk holds an MBA degree from Cornell University.
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.
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.
-13-
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 the 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 2000 and 1999:
High Low
------------- -------------
2000
----
Fourth Quarter $7.500 $4.750
Third Quarter 7.750 5.750
Second Quarter 8.500 6.000
First Quarter 11.625 7.875
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
The closing price of the Common Stock on February 27, 2001 was $7.00
per share. As of February 27, 2001, the Company had 50 holders of record of the
Common Stock (approximately 700 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.
-14-
Item 6. Selected Financial Data
Selected Financial Data
(In Thousands, Except Per Share Data)
- ----------------------------------------------------------------------------------------------------------------------------------
For the Year Ended December 31,
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
-------------- ------------- ------------ ------------ ------------
Operating Statement Data:
Revenues $ 160,909 $ 118,621 $ 73,167 $ 56,673 $ 47,273
Operating income (1) 11,652 8,463 2,340 2,801 2,425
Extraordinary loss on debt
refinancings, net of tax of $60 and $133 (2) - (90) (150) - -
Net income (loss) $ 3,304 $ 2,424 $ (170) $ 1,151 $ 808
============== ============= ============ ============ ============
Weighted average common shares
outstanding 4,692 4,244 4,202 4,144 4,169
Income (loss) before extraordinary
loss per common share $ 0.70 $ 0.59 $ (0.00) $ 0.28 $ 0.19
Extraordinary loss per common share - (0.02) (0.04) - -
-------------- ------------- ------------ ------------ ------------
Net income (loss) per common share $ 0.70 $ 0.57 $ (0.04) $ 0.28 $ 0.19
============== ============= ============ ============ ============
Adjusted weighted average common shares
and assumed conversions (3) 5,053 4,332 4,202 4,146 4,213
Income before extraordinary
loss per diluted share $ 0.65 $ 0.58 $ (0.00) $ 0.28 $ 0.19
Extraordinary loss per diluted share - (0.02) (0.04) - -
-------------- ------------- ------------ ------------ ------------
Net income (loss) per diluted share $ 0.65 $ 0.56 $ (0.04) $ 0.28 $ 0.19
============== ============= ============ ============ ============
Cash earnings per share (4) $ 1.06 $ 0.90 $ 0.57 $ 0.38 $ 0.28
============== ============= ============ ============ ============
Balance Sheet Data:
Total assets $ 115,957 $ 91,966 $ 50,610 $ 32,480 $ 32,772
Total debt 51,842 47,438 18,320 6,652 7,916
- ---------------------------------------------------------------------------------------------------------------------------------
(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 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.
(3) Shares attributable to the conversion of convertible debentures are not
included for 1996 as they expired on November 30, 1996.
(4) Cash earnings per share is calculated as income before extraordinary loss
and unusual charge plus goodwill amortization after tax divided by
weighted average shares outstanding on a fully diluted basis.
-15-
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, and telemarketing. The
Company assists its commercial clients in the evaluation, monitoring and
optimization of their marketing and sales efforts. The majority of the Company's
commercial projects are for businesses selling to other businesses and address
issues such as customer loyalty and retention, market demand and forecasting,
and corporate image and competitive positioning. The Company performs public
sector primary research and provides information technology, communications, and
other consulting services, primarily to agencies of the United States federal
government and state and local governments. The majority of the Company's
governmental projects are in the areas of health, education, and international
aid. The Company's telemarketing services consist principally of outbound
customer acquisition services.
The Company completed its initial public offering in October 1993.
Between 1993 and 1997, as part of its globalization strategy, the Company
established its presence in the U.K., Asia and Mexico through various
acquisitions. In January 1998, the Company acquired ProTel Marketing, Inc. ("ORC
ProTel" or "ProTel"), a high quality telemarketing company based in Lansing,
Illinois, which enabled the Company to combine market research expertise with
telemarketing services. 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 Macro
acquisition substantially increased the Company's presence in the public sector.
In September 2000, the Company acquired C/J Research, Inc. ("C/J"), a market
research firm engaged primarily in consumer products, and in November 2000,
acquired Social and Health Services, Ltd. ("SHS"), a public sector research and
communications firm. The two acquisitions in 2000 provided additional
operational expansion for the Company in the areas of consumer research, social
research and information management.
Results of Operations - 2000 compared to 1999
Revenues
Revenues for 2000 increased $42,288, or 36%, to $160,909 in 2000
from $118,621 in 1999. The acquisitions of Macro, C/J and SHS (the
"Acquisitions") accounted for $40,948, of this increase. Revenue increases for
the remainder of the Company were due principally to the improvements in the
Company's teleservices business, where revenue increased by $2,837, or 17%,
offset by a decrease in revenues of $1,497, or 3%, from the Company's market
research business. The appreciation of the U.S. dollar against the U.K. pound
accounted for $1,129 of the decrease in market research revenues.
-16-
Cost of Revenues
Cost of revenues increased $30,126, or 40%, to $105,975 in 2000 from
$75,849 in 1999. The Acquisitions accounted for $28,767 of this increase. Cost
of revenues for the Company's market research business decreased by $155 to
$34,701 from $34,856 in 1999, while cost of revenues for the teleservices
business increased by $1,514, or 17%, to $10,223 in 2000 from $8,709 in 1999.
Gross profit as a percentage of revenues for the Company decreased
to 34% in 2000 from 36% in 1999 due to the impact of the Acquisitions, for which
the gross profit percentage for 2000 was 29%. The gross profit percentage for
the market research business decreased to 37% in 2000 from 39% in 1999 and the
gross profit percentage for the teleservice business was 48% in both 2000 and
1999.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased
$7,502, or 26%, to $36,004 in 2000 from $28,502 in 1999. The Acquisitions
accounted for $6,870, or 92%, of the increase while non-acquisition SG&A
increased by $632, or 3%. As a percent of revenues, consolidated SG&A decreased
to 22% in 2000 from 24% in 1999.
The lower gross profit and lower SG&A percentages for the
Acquisitions are due to the nature of the businesses, as approximately 80% of
the Acquisitions' businesses are conducted with government entities.
Consequently, in accordance with the prescribed accounting procedures for
government contractors, the Acquisitions' cost of revenues reflect certain costs
attributable to contract projects which the Company classifies as general and
administrative expenses for other operating segments. Therefore, the inclusion
of the Acquisitions 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 $1,471, or 25%,
to $7,278 in 2000 from $5,807 in 1999. The Acquisitions accounted for $1,136, or
77%, of the total increase. Depreciation and amortization on a consolidated
basis decreased to 4.5% of revenues in 2000 from 4.9% in 1999.
Interest Expense
Interest expense increased $1,676, or 42%, to $5,681 in 2000 from
$4,005 in 1999. The increase in interest expense is attributable to the
additional borrowings incurred during 2000 to fund two of the Acquisitions and
to higher interest rates.
Provision for Income Taxes
The provision for income taxes for 2000 and 1999 was $2,667 and
$1,944, respectively. The provisions for these years are higher than the amount
that results from applying
-17-
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 an extraordinary loss, net of tax benefits of
$90, in 1999. This non-cash charge was due to the write-off of unamortized loan
origination fees associated with a debt refinancing.
Net Income
Net income for 2000 and 1999 was $3,304 and $2,424, respectively.
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.
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.
-18-
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 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.
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.
-19-
Liquidity and Capital Resources
As of December 31, 2000, working capital was $14,833, which includes
a liability of $3,226 for the payment of the contingent purchase price earned by
ORC ProTel. Net cash generated by operations for 2000 was $11,003 as compared to
$6,871 in 1999.
Investing and financing activities for 2000 included capital
expenditures of $4,440 and payments of $19,344 for the C/J and SHS acquisitions
and earn-out payments to previous ProTel and Macro shareholders. Additionally,
in January 2000, the Company paid $2,000 to the previous ProTel shareholders for
options granted at the time of acquisition, due to the exercise of a put option.
These options were recorded as a long-term liability as of December 31, 1999.
Net of borrowings for acquisition related payments, inclusive of payment for the
acquisition options, and cash on hand, the Company decreased its borrowings by
$7,118 for the year ended December 31, 2000. The Company believes that its
current sources of liquidity and capital will be sufficient to fund its
long-term obligations and working capital needs for the foreseeable future.
On September 1, 2000, the Company entered into a Purchase Agreement
("Purchase Agreement") with LLR Equity Partners, L.P. and LLR Equity Partners
Parallel, L.P. (collectively, "LLR"). Pursuant to the terms of the Purchase
Agreement, the Company sold and LLR purchased in a private placement (i)
1,176,458 shares of the Company's Common Stock, (ii) 10 shares of the Series B
Preferred Stock, and (iii) warrants to purchase 740,500 shares of the Company's
Common Stock at an exercise price of $12.00 per share, for aggregate gross
proceeds of $10 million. The warrants are exercisable from the date of issuance
and expire in 2010. If the Company sells shares of Common Stock in the future at
a per share price below $8.50, the exercise price of the warrants would be
proportionately reduced and certain contingent warrants issued to LLR at an
exercise price of $.01 per share become exercisable. A portion of the proceeds
received from this private placement was used to fund the C/J acquisition (see
Note 2).
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 (9.50% at
December 31, 2000) plus 100 basis points or LIBOR (3-month LIBOR was 6.40% at
December 31, 2000) plus 250 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, 2000, the Company
had approximately $9,350 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, 2000.
-20-
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%.
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 2001. The appreciation of the U.S. dollar versus the British
pound and the various Asian currencies has negatively affected the Company's
operating results in 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
forward foreign exchange contracts.
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 on Form 10-K, are forward-looking statements. The Company has based these
forward-looking statements on its current expectations about future events.
These forward-looking statements include statements with respect to the
Company's beliefs, plans, objectives, goals, expectations, anticipations,
intentions, financial condition, results of operations, future performance and
business, including:
o statements relating to the Company's business strategy;
o the Company's current and future plans; and
o statements that include the words "may," "could," "should," "would,"
"believe," "expect," "anticipate," "estimate," "intend," "plan" or
similar expressions.
These forward-looking statements are subject to risks,
uncertainties, and assumptions about the Company and its operations that are
subject to change based on various important factors, some of which are beyond
the Company's control. The following factors, among others, could cause the
Company's financial performance to differ materially from the goals, plans,
objectives, intentions and expectations expressed in its forward-looking
statements:
o fluctuations in demand for the Company's services;
o competition;
o the Company's dependence on key personnel;
-21-
o leverage and debt service (including sensitivity to fluctuations in
interest rates);
o domestic and global economic, credit and capital market conditions;
o foreign exchange fluctuations;
o changes in federal or state tax laws or the administration of these
laws;
o regulatory or judicial proceedings; and
o certain other risks described in this Annual Report on Form 10-K.
If one or more of the assumptions underlying these forward-looking
statements proves incorrect, the Company's actual results, performance or
achievements in future periods could differ materially from those expressed in,
or implied by, the forward-looking statements contained in this Annual Report on
Form 10-K. Therefore, the Company cautions the readers not to place undue
reliance on its forward-looking statements.
The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether written or oral, whether as a result of
new information, changed assumptions, the occurrence of unanticipated events,
changes in future operating results over time or otherwise. All forward-looking
statements attributable to the Company are expressly qualified by these
cautionary statements.
-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. At
December 31, 2000, the Company had an interest rate cap agreement outstanding
for a notional amount of $3,000. This agreement expired in January 2001. The
Company does not currently utilize any interest rate derivative financial
instruments. The following table provides information about the financial
instruments of the Company 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.
- ----------------------------------------------------------------------------------------------------------------------
Interest Rate Sensitivity
Principal Amount by Expected Maturity
Average Interest Rate
There- Fair Value
2001 2002 2003 2004 2005 After Total 12/31/00
- ----------------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt including current
portion:
Variable rate debt $3,002 $4,511 $6,000 $8,500 $15,650 - $37,663 $37,663
Average interest rate -
LIBOR+2.50%
Fixed rate debt - 12% $3,750 $11,250 $15,000 $13,141
- ----------------------------------------------------------------------------------------------------------------------
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 2001, to be filed with the
Securities and Exchange Commission within 120 days following the end of the
Company's fiscal year ended December 31, 2000, 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 2001,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 2000, 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 2001,
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 2000, 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 2001
to be filed with the Securities and Exchange Commission within 120 days
following the end of the Company's fiscal year ended December 31, 2000, 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
2000 and 1999.
Consolidated Statements of Operations for F-3
the years ended December 31, 2000, 1999,
and 1998.
Consolidated Statements of Stockholders' F-4
Equity for the years ended December 31, 2000
1999, and 1998.
Consolidated Statements of Cash Flows for F-5
the years ended December 31, 2000, 1999, and 1998.
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 regulation 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").
4.3 Amendment No. 2 to Rights Agreement dated September 1, 2000 -
Incorporated by reference to Exhibit 10.11 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 15, 2000 (the "2000 8-K").
4.4 Opinion Research Corporation Designation of Series B Preferred Stock
- Incorporated by reference to Exhibit 4.1 to the 2000 8-K.
4.5 Opinion Research Corporation Designation of Series C Preferred Stock
- Incorporated by reference to Exhibit 4.1 to the 2000 8-K.
*10.1 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.
*10.2 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").
-26-
*10.3 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.
*10.4 Employment Agreement among Opinion Research Corporation, ORC ProTel
Inc., and Ruth R. Wolf dated January 1, 1998 - Incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1999 (the "1999 10-K").
*10.5 Employment Agreement between Macro International Inc. and Frank J.
Quirk dated May 20, 1999 - Incorporated by reference to Exhibit 10.1
to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 9, 1999 (the "1999 8-K").
*10.6 Employment Agreement between Macro International Inc. and Michael T.
Errecart dated May 20, 1999 - Incorporated by reference to Exhibit
10.2 to the 1999 8-K.
*10.7 Employment Agreement among Opinion Research Corporation, ORC
Consumer, Inc. and Terence W. Cotter dated August 31, 2000 -
Incorporated by reference to Exhibit 10.1 to the 2000 8-K.
*10.8 Employment Agreement among Opinion Research Corporation, ORC
Consumer, Inc. and Gary M. Cotter dated August 31, 2000 -
Incorporated by reference to Exhibit 10.2 to the 2000 8-K.
*10.9 Employment Agreement between Macro International Inc. and Lewis D.
Eigen dated October 31, 2000 - Incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
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 Opinion Research Corporation Employee Stock Purchase Plan -
Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, filed with the Securities and
Exchange Commission on September 8, 2000.
10.12 Opinion Research Corporation Stock Purchase Plan for Non-employee
Directors and Designated Employees and Consultants - Incorporated by
reference to Exhibit 4 to the Registrant's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission on
September 25, 2000.
-27-
10.13 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.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc. -
Incorporated by reference to Exhibit 10.14 to the 1999 10-K.
10.15 Lease and Lease Addendum dated February 24, 1995 between North
Bethesda Associates Limited Partnership and Social and Health
Services, Ltd.
10.16 First Amendment to Lease dated January 1st, 1999 and Second
Amendment to Lease dated September 15, 1999, between Bethesda
Properties, L.L.C. and Social and Health Services, Ltd.
10.17 Asset Purchase Agreement between the 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.
10.18 Stock Purchase Agreement dated April 30, 1999 among the Registrant
and the Stockholders of Macro International Inc. - Incorporated by
reference to Exhibit 2.1 to the 1999 8-K.
10.19 Asset Purchase Agreement dated August 31, 2000 among the Registrant,
ORC Consumer Inc., C/J Research, Inc. and the Stockholders of C/J
Research, Inc. - Incorporated by reference to Exhibit 2.1 to the
2000 8-K.
10.20 Stock Purchase Agreement dated October 31, 2000 among Macro
International Inc., Opinion Research Corporation, and Lewis D. Eigen
and Ramona E.F. Arnett - Incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
10.21 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.
10.22 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.
-28-
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 Amendment No.1 to Registration Rights Agreement dated September 1,
2000 among Opinion Research Corporation, Allied Capital Corporation
and Allied Investment Corporation - Incorporated by reference to
Exhibit 10.12 to the 2000 8-K.
10.28 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.
10.29 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.
10.30 Purchase Agreement dated September 1, 2000 among Opinion Research
Corporation, LLR Equity Partners, L.P. and LLR Equity Partners
Parallel, L.P. - Incorporated by reference to Exhibit 10.5 to the
2000 8-K.
10.31 Registration Rights Agreement dated September 1, 2000 among Opinion
Research Corporation, LLR Equity Partners, L.P. and LLR Equity
Partners Parallel, L.P. - Incorporated by reference to Exhibit 10.6
to the 2000 8-K.
10.32 Common Stock Warrant Issued by Opinion Research Corporation to LLR
Equity Partners, L.P. dated September 1, 2000 - Incorporated by
reference to Exhibit 10.7 to the 2000 8-K.
-29-
10.33 Common Stock Warrant Issued by Opinion Research Corporation to LLR
Equity Partners Parallel, L.P. dated September 1, 2000 -
Incorporated by reference to Exhibit 10.8 to the 2000 8-K.
10.34 Anti-Dilution Common Stock Warrant Issued by Opinion Research
Corporation to LLR Equity Partners, L.P. dated September 1, 2000 -
Incorporated by reference to Exhibit 10.9 to the 2000 8-K.
10.35 Anti-Dilution Common Stock Warrant Issued by Opinion Research
Corporation to LLR Equity Partners Parallel, L.P. dated September 1,
2000 - Incorporated by reference to Exhibit 10.10 to the 2000 8-K.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (EDGAR only).
- --------------------------------------------------------------------------------
* Constitutes a compensatory plan or arrangement required to be filed as an
exhibit to this report
-30-
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 26, 2001 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,
- -------------------------------------- President and Director
John F. Short (Principal Executive Officer)
/s/ Douglas L. Cox Executive Vice President and Chief Financial Officer
- -------------------------------------- (Principal Financial and Accounting Officer)
Douglas L. Cox
/s/ James A. Bulvanoski Director
- --------------------------------------
James A. Bulvanoski
/s/ Dale J. Florio Director
- --------------------------------------
Dale J. Florio
/s/ John J. Gavin Director
- --------------------------------------
John J. Gavin
/s/ Stephen A. Greyser Director
- --------------------------------------
Stephen A. Greyser
/s/ Seth J. Lehr Director
- --------------------------------------
Seth J. Lehr
/s/ Frank J. Quirk Executive Vice President and Director
- --------------------------------------
Frank J. Quirk
/s/ Lenard B. Tessler Director
- --------------------------------------
Lenard B. Tessler
-31-
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, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, 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 9, 2001
F-1
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share amounts)
December 31,
---------------------------------
2000 1999
-------------- --------------
Assets
Current Assets:
Cash and cash equivalents $ 3,235 $ 2,808
Accounts receivable:
Billed 27,162 21,107
Unbilled services 14,185 11,853
-------------- --------------
41,347 32,960
Less: allowance for doubtful accounts 246 259
-------------- --------------
41,101 32,701
Prepaid and other current assets 2,319 2,034
-------------- --------------
Total current assets 46,655 37,543
Property and equipment, net 9,610 8,815
Intangible assets, net 4,924 4,217
Goodwill, net 51,108 37,588
Other assets 3,660 3,803
-------------- --------------
$ 115,957 $ 91,966
============== ==============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable $ 4,737 $ 3,629
Accrued expenses 13,683 8,329
Payable for acquisitions 3,226 2,897
Deferred revenues 4,834 3,450
Short-term borrowings 3,002 2,027
Other current liabilities 2,340 1,838
-------------- --------------
Total current liabilities 31,822 22,170
Long-term debt 48,776 45,311
Deferred income taxes 548 1,232
Other long term liabilities 951 3,060
Stockholders' Equity:
Preferred stock, $.01 par value, 1,000,000 shares authorized,
Series A - 10,000 shares designated, none issued or outstanding in 2000 and 1999 -- --
Series B - 10 shares designated, issued and outstanding in 2000,
none issued or outstanding in 1999, liquidation value of $10 per share -- --
Series C - 588,229 shares designated, none issued or outstanding in 2000 and 1999 -- --
Common stock, $.01 par value, 10,000,000 shares authorized, 5,650,870 shares
issued and 5,613,012 outstanding in 2000,
and 4,292,641 shares issued and 4,254,783 outstanding in 1999 56 43
Additional paid-in capital 26,362 15,475
Retained earnings 8,235 4,931
Treasury stock, at cost, 37,858 shares in 2000 and 1999 (186) (186)
Accumulated other comprehensive loss (607) (70)
-------------- --------------
Total stockholders' equity 33,860 20,193
-------------- --------------
$ 115,957 $ 91,966
============== ==============
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,
-----------------------------------------------------
2000 1999 1998
--------------- --------------- ---------------
Revenues $ 160,909 $ 118,621 $ 73,167
Cost of revenues 105,975 75,849 44,807
--------------- --------------- ---------------
Gross profit 54,934 42,772 28,360
Selling, general and administrative expenses 36,004 28,502 19,408
Depreciation and amortization 7,278 5,807 4,142
Unusual charge - - 2,470
--------------- --------------- ---------------
Operating income 11,652 8,463 2,340
Interest and other non-operating expenses, net 5,681 4,005 1,871
--------------- --------------- ---------------
Income before income taxes and extraordinary loss 5,971 4,458 469
Provision for income taxes 2,667 1,944 489
--------------- --------------- ---------------
Income (loss) before extraordinary loss 3,304 2,514 (20)
Extraordinary loss on debt refinancings,
net of tax benefit of $60 in 1999 and $133 in 1998 - (90) (150)
--------------- --------------- ---------------
Net income (loss) $ 3,304 $ 2,424 $ (170)
=============== =============== ===============
Income (loss) before extraordinary loss per common share:
Basic $ 0.70 $ 0.59 $ (0.00)
=============== =============== ===============
Diluted $ 0.65 $ 0.58 $ (0.00)
=============== =============== ===============
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 $ 0.70 $ 0.57 $ (0.04)
=============== =============== ===============
Diluted $ 0.65 $ 0.56 $ (0.04)
=============== =============== ===============
Weighted average common shares outstanding:
Basic 4,691,859 4,244,026 4,202,131
Diluted 5,053,217 4,331,700 4,202,131
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, 1997 4,232 $ 42 $ 13,976 $ 2,677 $ (149)
Comprehensive income:
Net loss - - - (170) -
Other comprehensive income:
Foreign currency translation
adjustments - - - - 261
Comprehensive income
Issuance of capital stock 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
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)
Comprehensive income:
Net income - - - 3,304 -
Other comprehensive income:
Foreign currency translation
adjustments - - - - (537)
Comprehensive income
Exercise of stock options 37 - 168 - -
Issuance of capital stock and warrants 1,321 13 10,719 - -
-------- --------- ------------ ----------- ----------------
Balance, December 31, 2000 5,651 $ 56 $ 26,362 $ 8,235 $ (607)
======== ========= ============ =========== ================
Treasury stock Total
---------------------- stockholders'
Shares Amount equity
--------- ---------- ----------------
Balance, December 31, 1997 38 $ (186) $ 16,360
Comprehensive income:
Net loss - - (170)
Other comprehensive income:
Foreign currency translation
adjustments - - 261
----------------
Comprehensive income 91
Issuance of capital stock - - 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 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
Comprehensive income:
Net income - - 3,304
Other comprehensive income:
Foreign currency translation
adjustments - - (537)
----------------
Comprehensive income 2,767
Exercise of stock options - - 168
Issuance of capital stock and warrants - - 10,732
--------- ---------- ----------------
Balance, December 31, 2000 38 $ (186) $ 33,860
========= ========== ================
See notes to consolidated financial statements.
F-4
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Year Ended December 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 3,304 $ 2,424 $ (170)
Adjustments to reconcile net income (loss) to net cash
from operating activities:
Depreciation and amortization 7,278 5,807 4,142
Loss on disposal of fixed assets 63 9 120
Extraordinary loss - 150 283
Non-cash portion of unusual charge - - 198
Provision for doubtful accounts - 135 226
Amortization of original issue discount included in interest expense 95 260 -
Amortization of loan fees 315 169 51
Compensation expense recognized for issuance of warrants - 100 -
Deferred income taxes (964) (835) (1,356)
Changes in operating assets and liabilities, net of effects
from acquisitions,
Billed accounts receivable, net (2,710) 3,269 (2,312)
Unbilled services (1,582) (6,509) 707
Other assets (58) 709 (1,137)
Accounts payable (21) (84) 755
Accrued expenses 4,980 (282) 1,656
Deferred revenues 1,244 777 (1,343)
Other liabilities (941) 772 1,026
------------ ------------ ------------
Net cash provided by operating activities 11,003 6,871 2,846
------------ ------------ ------------
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired (19,344) (26,383) (12,131)
Proceeds from the sale of fixed assets - 107 142
Capital expenditures (4,440) (3,563) (1,882)
------------ ------------ ------------
Net cash used in investing activities (23,784) (29,839) (13,871)
------------ ------------ ------------
Cash flows from financing activities:
Borrowings under line-of-credit agreement 31,233 23,769 43,108
Repayments under line-of-credit agreement (24,836) (31,735) (37,125)
Issuance of note payable - 43,970 20,093
Repayments of note payable (2,051) (12,355) (14,194)
Repayments under capital lease arrangements (22) (101) (214)
Redemption of acquisition stock options (2,000) - -
Proceeds from issuance of capital stock, warrants, and options 10,900 1,161 228
------------ ------------ ------------
Net cash provided by financing activities 13,224 24,709 11,896
------------ ------------ ------------
Effect of exchange rate changes on cash and cash equivalents (16) 9 27
------------ ------------ ------------
Increase in cash and cash equivalents 427 1,750 898
Cash and cash equivalents at beginning of period 2,808 1,058 160
------------ ------------ ------------
Cash and cash equivalents at end of period $ 3,235 $ 2,808 $ 1,058
============ ============ ============
Non-cash investing and financing activities:
Acquisition of equipment under capital lease $ - $ 107 $ -
============ ============ ============
See notes to consolidated financial statements.
F-5
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2000
(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, and
telemarketing. The Company assists its commercial clients in the evaluation,
monitoring and optimization of their marketing and sales efforts. The majority
of the Company's commercial projects are for businesses selling to other
businesses and address issues such as customer loyalty and retention, market
demand and forecasting, and corporate image and competitive positioning. The
Company also performs public sector primary research and provides information
technology, communications, and other consulting services, primarily to agencies
of the United States federal government and state and local governments. The
majority of the Company's governmental projects are in the areas of health,
education, and international aid. The Company's telemarketing services consist
principally of outbound customer acquisition services. 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 to 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,
2000, one client accounted for 13% of the Company's total revenues and
constituted 12% of net accounts receivable. For the year ended December 31,
1999, the same 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. Two clients accounted for 30% of revenues for the year ended December
31, 1998.
F-6
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Use of estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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.
Cash equivalents
The Company considers as cash equivalents all highly liquid debt instruments
with a 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.
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 an 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 Principles 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
employee stock option is fixed and equals or exceeds the fair market value of
the underlying common stock on the date of grant and the number of shares to be
issued pursuant to the exercise of such options are known and fixed at the grant
date.
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
to be realized in future periods.
Earnings per share
Basic and diluted earnings per share are calculated in accordance with FASB
Statement No. 128, Earnings per Share.
Comprehensive income
Comprehensive income consists of two components, net income and other
comprehensive income. Other comprehensive income refers to revenue, expenses,
gains and losses that, under generally accepted accounting principles, are
recorded as an element of stockholders' equity but are excluded from net income.
The Company's other comprehensive income is comprised of foreign currency
translation adjustments from those subsidiaries not using the U.S. dollar as
their functional currency. Total accumulated other comprehensive income (loss)
is displayed as a separate component of stockholders' equity in the accompanying
consolidated balance sheets.
F-8
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Summary of significant accounting policies (continued)
Computer Software
In accordance with 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, the Company has capitalized
certain internal and external costs incurred to acquire or create internal use
software. Capitalized costs are amortized over five years.
Reclassification
Certain amounts in prior years have been reclassified to conform to the 2000
presentation. These reclassifications had no impact on the Company's results of
operations or financial position.
2. Acquisitions
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. In January 2000, these options
were returned to the Company for a payment of $2,000. The fair value of the net
assets acquired was $489. 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 of the
initial consideration paid over the estimated fair value of net assets and
identifiable intangible assets acquired in the amount of $10,495, has been
recorded as goodwill and is being amortized using the straight-line method over
a period of fifteen years.
In addition, over the years 1998 through 2000, the sellers were eligible to 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 2000 and 1999 operating results,
additional payments totaling $3,226 and $2,897 were made to the principals and
broker in March 2001 and 2000, respectively. The additional consideration has
been recorded as goodwill and is being amortized over the remaining life of the
original goodwill.
F-9
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Acquisition (continued)
On April 30, 1999, The Company completed the purchase of all of the outstanding
shares of stock of Macro International Inc. ("Macro"). 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 of the
initial consideration paid over the estimated fair value of net assets and
identifiable intangible assets acquired in the amount of $11,608, has been
recorded as goodwill to be amortized using the straight-line method over a
period of twenty years.
Based upon Macro's operating results for period ended April 30, 2000, an
additional payment of $3,200 was made to the sellers in July 2000. Such
additional consideration has been recorded as goodwill and is being amortized
over the remaining life of the goodwill. In addition, over the next year, the
sellers may earn up to an additional $5,500 of cash payments, contingent upon
Macro achieving certain future targets for revenues and earnings before
interest, income taxes, depreciation and amortization. The pro forma amounts
presented below do not give effect to any such contingent payments.
On August 31, 2000, the Company acquired substantially all of the assets of C/J
Research, Inc. ("C/J"). The purchase price was comprised of a $9,225 cash
payment and approximately $325 of additional costs related to the acquisition.
The fair value of the net assets acquired was $637. Identifiable intangible
assets valued at $1,300 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 and identifiable intangible assets acquired in the amount of
$7,613, has been recorded as goodwill and is being amortized using the
straight-line method over a period of twenty years.
Pursuant to a Stock Purchase Agreement dated October 31, 2000, the Company,
through its wholly owned subsidiary Macro, acquired all of the outstanding
shares of stock of Social & Health Services, Ltd. ("SHS"), a communications and
information management company based in Rockville, Maryland. The purchase price
was comprised of $3,750 in cash, 144,990 shares of the Company's common stock
valued at $1,000, and approximately $180 of other acquisition related costs. The
fair value of the net assets acquired was $2,340. Identifiable intangible assets
valued at $594 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 and identifiable intangible assets acquired in the amount of $1,996,
has been recorded as goodwill and is being 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)
The unaudited pro forma results of operations for the years ended December 31,
2000, 1999 and 1998, which assumes the consummation of Macro, C/J, and SHS
purchases as of January 1, 1998, are as follows:
Year Ended December 31,
2000 1999 1998
--------------- --------------- --------------
Revenues $180,173 $165,340 $155,663
Income (loss) before extraordinary loss $4,276 $2,895 ($83)
Net income (loss) $4,276 $2,805 ($233)
Income (loss) before extraordinary loss per share:
Basic $0.76 $0.52 ($0.02)
Diluted $0.72 $0.51 ($0.02)
Net income (loss) per share:
Basic $0.76 $0.50 ($0.04)
Diluted $0.72 $0.50 ($0.04)
The pro forma net income (loss) includes adjustment for amortization of goodwill
and identifiable intangible assets, adjustment of interest expense, and the
related income tax effects of such adjustments.
3. Property and equipment
Property and equipment consists of the following:
December 31,
---------------------------------
2000 1999
-------------- ---------------
Leasehold improvements $3,393 $3,198
Computer equipment and software 15,132 12,334
Furniture, fixtures, and equipment 6,105 4,797
Equipment under capital lease obligations 162 276
-------------- ---------------
24,792 20,605
Less accumulated depreciation and amortization 15,182 11,790
-------------- ---------------
Property and equipment, net $9,610 $8,815
============== ===============
F-11
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Property and equipment (continued)
Depreciation expense of $3,626, $3,053, and $2,337 was charged to earnings for
the years ended December 31, 2000, 1999, and 1998.
4. Intangible assets
Intangible assets are as follows:
December 31,
---------------------------------
2000 1999
-------------- ---------------
Intangible assets $9,777 $9,098
Less accumulated amortization 4,853 4,881
-------------- ---------------
Intangible assets, net $4,924 $4,217
============== ===============
Goodwill $58,239 $42,245
Less accumulated amortization 7,131 4,657
-------------- ---------------
Goodwill, net $51,108 $37,588
============== ===============
Amortization expense charged to earnings for the years ended December 31, 2000,
1999, and 1998 was $3,652, $2,754, and $1,805, respectively.
5. Income taxes
For financial reporting purposes, income (loss) before income taxes and
extraordinary loss consists of the following:
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
-------------- -------------- ---------------
United States $6,044 $4,373 $675
Foreign (73) 85 (206)
-------------- -------------- ---------------
$5,971 $4,458 $469
============== ============== ===============
F-12
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Income taxes (continued)
The provision (benefit) for income taxes, excluding amounts related to
extraordinary loss, consists of the following:
Year Ended December 31,
----------------------------------------------------
2000 1999 1998
-------------- -------------- ---------------
Current:
Federal $2,898 $1,010 $1,610
State 593 274 230
Foreign 140 86 5
-------------- -------------- ---------------
Total current 3,631 1,370 1,845
-------------- -------------- ---------------
Deferred:
Federal (732) 379 (1,084)
State (212) 167 (245)
Foreign (20) 28 (27)
-------------- -------------- ---------------
Total deferred (964) 574 (1,356)
-------------- -------------- ---------------
$2,667 $1,944 $489
============== ============== ===============
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,
----------------------------------------
2000 1999 1998
----------- ---------- ----------
Statutory rate applied to pre-tax income $2,030 $1,516 $159
Add (deduct):
State income taxes, net of federal benefit 251 291 (10)
Foreign operating losses for which a tax
benefit has not been recorded 70 85 48
Effect of non-deductible goodwill amortization 362 251 106
Effect of other non-deductible expenses 44 36 120
Tax credits (165) (100) -
Other 75 (135) 66
----------- ---------- ----------
$2,667 $1,944 $489
=========== ========== ==========
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,
---------------------------------
2000 1999
-------------- ---------------
Deferred tax liabilities:
Intangibles ($789) ($1,026)
Other assets (168) (378)
-------------- ---------------
Total deferred tax liabilities (957) (1,404)
-------------- ---------------
Deferred tax assets:
Reserves for doubtful accounts 76 90
Fixed assets 147 (65)
Compensation 519 431
Valuation allowance (95) (95)
Other 140 (91)
-------------- ---------------
Total deferred tax assets 787 270
-------------- ---------------
Net deferred tax liabilities ($170) ($1,134)
============== ===============
At December 31, 2000 and 1999, the Company has net current deferred tax assets
in the amount of $378 and $98, respectively, which are reported in the balance
sheet in prepaid and other current assets. At December 31, 2000 and 1999,
unremitted earnings of foreign subsidiaries were approximately $487 and $654,
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 2000, 1999, and 1998 were $3,166, $968, and
$1,959, respectively. There were no income taxes paid in the U.K. in 2000.
Income taxes of $39 and $27 were paid in the U.K. in 1999 and 1998,
respectively.
6. Debt
Debt consists of the following:
December 31,
---------------------------------
2000 1999
-------------- ---------------
Working capital facilities $10,650 $4,253
Notes payable 41,128 43,085
-------------- ---------------
Total debt 51,778 47,338
Less current maturities 3,002 2,027
-------------- ---------------
Long-term portion $48,776 $45,311
============== ===============
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 (9.50% at December 31,
2000) plus 100 basis points or LIBOR (3-month LIBOR was 6.40% at December 31,
2000) plus 250 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, 2000, the Company had
approximately $9,350 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, 2000.
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
carrying value of such debt, $14,115 at December 31, 2000, is included in 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. In 1999, 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:
2001............................................ $3,002
2002............................................ 4,511
2003............................................ 6,000
2004............................................ 8,500
2005............................................ 19,400
Thereafter...................................... 11,250
F-15
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Debt (continued)
The Company paid interest of $5,500, $2,123, and $1,527 for the year ended
December 31, 2000, 1999, and 1998, respectively.
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
------- -------
2001 ............................................... $25 $ 8,444
2002 ............................................... 25 7,833
2003 ............................................... 25 7,233
2004 ............................................... -- 6,258
2005 ............................................... -- 4,051
Thereafter ......................................... -- 6,303
------- -------
Total minimum lease payments ....................... $75 $40,122
=======
Less amounts representing interest ................. 11
-------
Capitalized lease obligations ...................... $64
=======
At December 31, 2000, the current portion of capital lease obligations of $19
was recorded in the balance sheet in other current liabilities. Rent expense
under operating leases was $6,006, $4,768, and $2,641, for the years ended
December 31, 2000, 1999 and 1998, 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. Benefit plans
The Company maintains a defined contribution pension and profit sharing plan
covering substantially all domestic employees ("ORC Plan") except for Macro and
SHS, which, as of December 31, 2000, maintained separate profit sharing and
401(k) plans (the "Macro Plans" and the "SHS Plans"). Effective January 2001,
the SHS Plans were amended to mirror the attributes of the Macro Plans.
F-16
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Benefit plans (continued)
Under both the ORC and the Macro 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 shares of common stock of the Company as of December 31, 2000 and 1999.
The Company contributed $200, $250, and $95 to the ORC Plan in 2000, 1999, and
1998, respectively. Under the Macro Plans, the Company contributed $1,593 and
$765 in 2000 and 1999, respectively.
9. Stockholders' equity
On September 1, 2000, the Company entered into a Purchase Agreement ("Purchase
Agreement") with LLR Equity Partners, L.P. and LLR Equity Partners Parallel,
L.P. (collectively, "LLR"). Pursuant to the terms of the Purchase Agreement, the
Company sold and LLR purchased in a private placement (i) 1,176,458 shares of
the Company's Common Stock, (ii) 10 shares of the Series B Preferred Stock, and
(iii) warrants to purchase 740,500 shares of the Company's Common Stock at an
exercise price of $12.00 per share, for aggregate gross proceeds of $10 million.
The warrants are exercisable from the date of issuance and expire in 2010. If
the Company sells shares of Common Stock in the future at a per share price
below $8.50, the exercise price of the warrants would be proportionately reduced
and certain contingent warrants issued to LLR at an exercise price of $.01 per
share become exercisable. A portion of the proceeds received from this private
placement was used to fund the C/J acquisition (see Note 2).
The holders of Series B Preferred Stock are entitled to nominate and elect two
directors to the Company's Board of Directors. The holders of the Series B
Preferred Stock are not entitled to receive dividends. In the event of
liquidation, each share of the Series B Preferred Stock is entitled to a
liquidation preference of $10.00 per share. The Company may redeem the
outstanding shares of Series B Preferred Stock at any time at a per share amount
equal to the greater of the fair market value or the liquidation preference.
At any time after the fifth anniversary of the closing, LLR may exchange each
share of Common Stock for one-half of a share of the Company's Series C
Preferred Stock. After conversion, the holders of Series C Preferred Stock are
entitled to receive cumulative quarterly cash dividends at an annual rate of
$2.04 per share. In the event of liquidation, each share of the Series C
Preferred Stock is entitled to a liquidation preference of $17.00 per share (the
"Preference Amount") plus all accrued and unpaid dividends. The Company may
redeem the outstanding shares of Series C Preferred Stock at any time at a per
share amount equal to the greater of the fair market value or the Preference
Amount multiplied by 25% per annum, compounded annually from September 30, 2000
plus any accrued but unpaid dividends per share. Each share of Series C
Preferred Stock is convertible at all times into two shares of Common Stock.
F-17
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stockholders' equity (continued)
The holders of Series C Preferred Stock are entitled to vote on all matters
before the common holders, as a single class with the Common Stock, on an as if
converted basis. Additionally, holders of Series C Preferred Stock as a class,
may also nominate and elect two additional directors to the Company's Board of
Directors, subject to LLR maintaining certain specified ownership percentages.
10. Stock options
The Company maintains a 1997 Stock Incentive Plan, which provides for the grant
of up to 1,125,000 options to purchase common stock to directors and key
employees of the Company. In 1998, the 1997 Stock Incentive Plan was amended to
increase the number of shares available for grant from 875,000 to 1,125,000. The
exercise price of options granted to employees under this plan is at least equal
to the fair market value of the stock on the date of grant and is exercisable
for seven years. Options granted under this plan are vested equally over a
three-year period.
Under the 1997 Stock Incentive Plan as amended, each Non-employee Director is
granted options to acquire the "formula number" of shares of common stock on
January 2nd of each year. The option exercise price for these options is equal
to the fair market value of the underlying shares on the date of the grant. The
options granted under this provision are non-qualified stock options.
The Non-employee Directors' options 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 2000 and 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 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.
F-18
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stock options (continued)
Stock option transactions were as follows:
Weighted
Number Average
of Shares Exercise Price
--------------- -------------------
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
2000
Granted 264,000 $8.75
Canceled (76,859) $6.18
Exercised (118,300) $5.01
---------------
Outstanding Balance at December 31, 2000 1,023,633 $6.39
===============
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. As of December 31, 2000,
110,000 of the December 1997 non-plan options were issued and outstanding. In
January 2000, an additional 90,000 non-plan options were granted to a senior
executive and were outstanding as of December 31, 2000. All such non-plan
options have a vesting period of three years and a life of seven years. All
non-plan options are included in the previously presented option table.
Options exercisable at December 31, 2000, 1999, and 1998 were 705,399, 736,960,
and 733,708, respectively. Exercise prices for options outstanding as of
December 31, 2000 for the plan ranged from $3.63 to $8.875 per share. The
weighted average remaining term of the outstanding options is 4.01 years. As of
December 31, 2000, the total of 1,325,000 shares of Common Stock were reserved
for issuance related to the Company's 1997 Stock Incentive Plan and its non-plan
options.
F-19
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stock options (continued)
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:
2000 1999 1998
---------- ------------ -------------
Net income (loss) - as reported....................... $3,304 $2,424 ($170)
Net income (loss) - pro forma......................... $2,836 $2,239 ($514)
Earnings (loss) per share - as reported............ $.65 $.56 ($.04)
Earnings (loss) per share - pro forma.............. $.56 $.52 ($.12)
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:
2000 1999 1998
----------- ------------ -------------
Expected dividend yield................................. 0% 0% 0%
Expected stock price volatility......................... 66.8% 63.1% 42.3%
Risk-free interest rate................................. 6.3% 5.4% 5.5%
Expected life of options............................... 7 years 7 years 7 years
The weighted average fair value of options granted during 2000, 1999, and 1998
was $6.12, $3.56 and $2.97 per share, respectively.
The Company has 1,432,529 and 692,029 warrants issued and outstanding with a
weighted average exercise price of $8.79 and $5.36 as of December 31, 2000 and
1999, respectively. These warrants are immediately exercisable.
11. Interest rate instruments
At December 31, 2000, the Company had an interest rate cap agreement outstanding
for a notional amount of $3,000. This agreement expired in January 2001. The
Company does not currently utilize any interest rate derivative financial
instruments.
F-20
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Earnings per share
The following table sets forth the computation of basic and diluted earnings
(loss) per share:
Years Ended December 31,
----------------------------------------------
2000 1999 1998
------------- ------------ ------------
(000's omitted, except per share data)
Numerator:
Income (loss) before extraordinary loss $3,304 $2,514 ($20)
------------- ------------ ------------
Numerator for basic and diluted earnings (loss) per share $3,304 $2,514 ($20)
============= ============ ============
Denominator:
Denominator for basic earnings (loss) per share,
Weighted-average shares 4,692 4,244 4,202
Effect of dilutive stock options 361 88 -
------------- ------------ ------------
Denominator for diluted earnings (loss) per share
Adjusted weighted-average shares 5,053 4,332 4,202
============= ============ ============
Basic earnings (loss) per share $.70 $.59 ($.00)
============= ============ ============
Diluted earnings (loss) per share $.65 $.58 ($.00)
============= ============ ============
13. 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. There were no significant inter-segment events which
materially affected the financial statements. The Company measures segment
profits as operating profit, which is defined as income before interest and
other non-operating expenses and income taxes. Information on segments and a
reconciliation to consolidated total, are as follows:
F-21
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Segments (continued)
U.S.
Market U.K. Market Social Total
Research Research Teleservices Research Segments Other Consolidated
- --------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 2000:
- -----------------------------------
Revenues from external customers $37,807 $16,956 $19,744 $83,011 $157,518 $3,391 $160,909
Depreciation and amortization 2,047 736 1,873 2,469 7,125 153 7,278
Operating income (loss) 1,500 727 2,851 6,664 11,742 (90) 11,652
Interest and other
non-operating expenses, net 5,681 5,681
Income before income taxes $5,971
Total assets $33,565 $9,369 $22,564 $48,010 $113,508 $2,449 $115,957
Capital expenditures $1,573 $297 $651 $1,744 $4,265 $175 $4,440
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 and other
non-operating expenses, net 4,005 4,005
Income before income taxes and
extraordinary loss $4,458
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 (loss) 3,561 253 1,083 - 4,897 (2,557) 2,340
Interest and other
non-operating expenses, net 1,871 1,871
Income 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
- --------------------------------------------------------------------------------------------------------------------------------
F-22
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Segments (continued)
International long-lived assets are $5,746, $6,444 and $5,960 in 2000, 1999, and
1998, respectively. In 2000 and 1999, revenues from one customer of the
Company's Social Research segment represented $21,623 and $12,592 of the
Company's total revenues, respectively. In 1998, revenues from one client of the
Company's Teleservices segment represented $13,441 of the Company's total
revenues. 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.
14. Selected quarterly financial information (unaudited)
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------------- ------------- -------------- -------------
(000's omitted, except per share data)
2000
- ----
Revenues $43,678 $37,661 $40,659 $38,911
Gross profit $15,042 $13,085 $13,492 $13,315
Net income $909 $777 $834 $784
Earnings per common share:
Basic $0.16 $0.17 $0.19 $0.18
Diluted $0.16 $0.16 $0.18 $0.16
1999
- ----
Revenues $37,867 $34,546 $28,866 $17,342
Gross profit $13,049 $12,208 $10,271 $7,244
Income before extraordinary loss $673 $694 $595 $552
Net income $673 $694 $505 $552
Income before extraordinary loss per
common share:
Basic $0.16 $0.16 $0.14 $0.13
Diluted $0.15 $0.16 $0.14 $0.13
15. Split-dollar life insurance
The Company has entered into an agreement with a trust established in the name
of an officer of the Company. Under the agreement, the Company pays certain
premiums on the life insurance policy on the officer, to which the trust is the
beneficiary. The Company has been assigned certain rights to the assets of the
trust as collateral for the premium paid on this life insurance policy. The
amounts paid by the Company for the premiums on this policy were $46 and $57 for
the year ended December 31, 2000 and 1999, respectively.
F-23
OPINION RESEARCH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Split-dollar life insurance (continued)
The cumulative premiums paid are recorded in other assets in the accompanying
consolidated balance sheets. In the event the policy is terminated, the officer
has guaranteed the repayment of the amount due from his trust, and has pledged
certain of his personal assets to the Company to collateralize such guarantee.
16. 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.
17. 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-24
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, 2000:
Deducted from asset account:
Allowance for Doubtful Accounts $ 259 $ - $ 13 (1) $ 246
Accumulated Amortization:
Capitalized Production Costs 1,076 - 1,076 (2) -
Goodwill 4,657 2,604 130 (3) 7,131
Intangible Assets 3,805 1,048 4,853
------------ --------------- -------------- --------------
Totals $ 9,797 $ 3,652 $ 1,219 $ 12,230
============ =============== ============== ==============
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
============ =============== ============== ==============
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Uncollectible accounts written-off
(2) Fully amortized asset written-off
(3) Adjustment of original goodwill amount for certain acquisitions
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").
4.3 Amendment No. 2 to Rights Agreement dated September 1, 2000 -
Incorporated by reference to Exhibit 10.11 to the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 15, 2000 (the "2000 8-K").
4.6 Opinion Research Corporation Designation of Series B Preferred
Stock -Incorporated by reference to Exhibit 4.1 to the 2000 8-K.
4.7 Opinion Research Corporation Designation of Series C Preferred
Stock - Incorporated by reference to Exhibit 4.1 to the 2000 8-K.
*10.1 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.
*10.2 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").
*10.3 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.
*10.4 Employment Agreement among Opinion Research Corporation, ORC
ProTel Inc., and Ruth R. Wolf dated January 1, 1998 -
Incorporated by reference to Exhibit 10.7 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1999
(the "1999 10-K").
*10.5 Employment Agreement between Macro International Inc. and Frank
J. Quirk dated May 20, 1999 - Incorporated by reference to
Exhibit 10.1 to the Registrant's Current Report on Form 8-K filed
with the Securities and Exchange Commission on June 9, 1999 (the
"1999 8-K") .
*10.6 Employment Agreement between Macro International Inc. and Michael
T. Errecart dated May 20, 1999 - Incorporated by reference to
Exhibit 10.2 to the 1999 8-K.
*10.7 Employment Agreement among Opinion Research Corporation, ORC
Consumer, Inc. and Terence W. Cotter dated August 31, 2000 -
Incorporated by reference to Exhibit 10.1 to the 2000 8-K.
*10.8 Employment Agreement among Opinion Research Corporation, ORC
Consumer, Inc. and Gary M. Cotter dated August 31, 2000 -
Incorporated by reference to Exhibit 10.2 to the 2000 8-K.
*10.9 Employment Agreement between Macro International Inc. and Lewis
D. Eigen dated October 31, 2000 - Incorporated by reference to
Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
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 Opinion Research Corporation Employee Stock Purchase Plan -
Incorporated by reference to Exhibit 4 to the Registrant's
Registration Statement on Form S-8, filed with the Securities and
Exchange Commission on September 8, 2000.
10.12 Opinion Research Corporation Stock Purchase Plan for Non-employee
Directors and Designated Employees and Consultants - Incorporated
by reference to Exhibit 4 to the Registrant's Registration
Statement on Form S-8, filed with the Securities and Exchange
Commission on September 25, 2000.
10.13 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.
10.14 Lease dated August 27, 1993 between Carrollton Enterprises
Associates Limited Partnership and Macro International, Inc. -
Incorporated by reference to the Exhibit 10.14 to the 1999 10-K.
10.15 Lease and Lease Addendum dated February 24, 1995 between North
Bethesda Associates Limited Partnership and Social and Health
Services, Ltd.
10.16 First Amendment to Lease dated January 1st, 1999 and Second
Amendment to Lease dated September 15, 1999, between Bethesda
Properties, L.L.C. and Social and Health Services, Ltd.
10.17 Asset Purchase Agreement between the 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.
10.18 Stock Purchase Agreement dated April 30, 1999 among the
Registrant and the Stockholders of Macro International Inc. -
Incorporated by reference to Exhibit 2.1 to the 1999 8-K.
10.19 Asset Purchase Agreement dated August 31, 2000 among the
Registrant, ORC Consumer Inc., C/J Research, Inc. and the
Stockholders of C/J Research, Inc. - Incorporated by reference to
Exhibit 2.1 to the 2000 8-K.
10.20 Stock Purchase Agreement dated October 31, 2000 among Macro
International Inc., Opinion Research Corporation, and Lewis D.
Eigen and Ramona E.F. Arnett - Incorporated by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2000.
10.21 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.
10.22 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.
10.23 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.
10.24 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.
10.25 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.
10.26 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.
10.27 Amendment No.1 to Registration Rights Agreement dated September
1, 2000 among Opinion Research Corporation, Allied Capital
Corporation and Allied Investment Corporation - Incorporated by
reference to Exhibit 10.12 to the 2000 8-K.
10.28 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.
10.29 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.
10.30 Purchase Agreement dated September 1, 2000 among Opinion Research
Corporation, LLR Equity Partners, L.P. and LLR Equity Partners
Parallel, L.P. - Incorporated by reference to Exhibit 10.5 to the
2000 8-K.
10.31 Registration Rights Agreement dated September 1, 2000 among
Opinion Research Corporation, LLR Equity Partners, L.P. and LLR
Equity Partners Parallel, L.P. - Incorporated by reference to
Exhibit 10.6 to the 2000 8-K.
10.32 Common Stock Warrant Issued by Opinion Research Corporation to
LLR Equity Partners, L.P. dated September 1, 2000 - Incorporated
by reference to Exhibit 10.7 to the 2000 8-K.
10.33 Common Stock Warrant Issued by Opinion Research Corporation to
LLR Equity Partners Parallel, L.P. dated September 1, 2000 -
Incorporated by reference to Exhibit 10.8 to the 2000 8-K.
10.34 Anti-Dilution Common Stock Warrant Issued by Opinion Research
Corporation to LLR Equity Partners, L.P. dated September 1, 2000
-Incorporated by reference to Exhibit 10.9 to the 2000 8-K.
10.35 Anti-Dilution Common Stock Warrant Issued by Opinion Research
Corporation to LLR Equity Partners Parallel, L.P. dated September
1, 2000 - Incorporated by reference to Exhibit 10.10 to the 2000
8-K.
21 Subsidiaries of the Registrant.
23 Consent of Ernst & Young LLP.
27 Financial Data Schedule (EDGAR only).
* Constitutes a compensatory plan or arrangement required to
be filed as an exhibit to this report