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.
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.
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.
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
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.
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.
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.
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.
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.
Item 2.
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:
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.
Item 3.
Item 3. Legal Proceedings
The Company is not a party to any material litigation.
Item 4.
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.
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.
PART II
Item 5.
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 ------------- ------------- ---- Fourth Quarter $7.500 $4.750 Third Quarter 7.750 5.750 Second Quarter 8.500 6.000 First Quarter 11.625 7.875
---- 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.
Item 6.
Item 6. Selected Financial Data
(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.
Item 7.
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.
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
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.
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.
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.
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;
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.
Item 7A.
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.
Item 8.
Item 8. Financial Statements and Supplementary Data
Financial Statements are set forth at Page at the end of this Report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
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.
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.
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.
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.
PART IV
Item 14.
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.
Consolidated Balance Sheets as of December 31, 2000 and 1999.
Consolidated Statements of Operations for the years ended December 31, 2000, 1999, and 1998.
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000 1999, and 1998.
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999, and 1998.
Notes to Consolidated Financial Statements.
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.
(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").
*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 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
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.
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
OPINION RESEARCH CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (in thousands, except share amounts)
See notes to consolidated financial statements.
OPINION RESEARCH CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (in thousands, except share and per share amounts)
See notes to consolidated financial statements.
OPINION RESEARCH CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (in thousands)
See notes to consolidated financial statements.
OPINION RESEARCH CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (in thousands)
See notes to consolidated financial statements.
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.
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.
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.
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.
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.
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:
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:
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 ============== ============== ===============
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:
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:
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:
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:
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
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.
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.
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.
OPINION RESEARCH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Stock options (continued)
Stock option transactions were as follows:
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.
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:
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
The weighted average fair value of options granted during 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.
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:
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:
OPINION RESEARCH CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Segments (continued)
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)
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.
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.
Schedule II - Valuation and Qualifying Accounts OPINION RESEARCH CORPORATION AND SUBSIDIARIES (in Thousands of Dollars) - --------------------------------------------------------------------------------
Rule 12-09. Valuation and Qualifying Accounts
(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