-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KMI5bUd94Zvr/k/5336yOJT8GGwt6eedYInuLh/siGQwRyc6ntNevUQULQyMFE9y F9dTjBs6ddGmmOak5mg7lQ== 0000950142-97-000912.txt : 19971117 0000950142-97-000912.hdr.sgml : 19971117 ACCESSION NUMBER: 0000950142-97-000912 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NFO WORLDWIDE INC CENTRAL INDEX KEY: 0000897940 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 061327424 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21460 FILM NUMBER: 97721208 BUSINESS ADDRESS: STREET 1: 2 PICKWICK PLAZA STREET 2: STE 400 CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036298888 MAIL ADDRESS: STREET 1: TWO PICKWICK PLAZA CITY: GREENWICH STATE: CT ZIP: 06830 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 0 - 21460 NFO WORLDWIDE, INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1327424 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) TWO PICKWICK PLAZA, GREENWICH, CT 06830 (Address of principal executive offices, zip code) (203) 629 - 8888 (Registrant's telephone number, including area code) NFO Research, Inc. (name changed October 14, 1997) (Former name, former address and former fiscal year, if changed since last report) Indicated by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: At November 3, 1997, Registrant had outstanding 20,556,568 shares of Common Stock. NFO WORLDWIDE, INC. INDEX PAGE PART I FINANCIAL INFORMATION NUMBER FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets 3 Condensed Consolidated Statements of Income 4 Condensed Consolidated Statements of Cash Flows 5 Condensed Consolidated Statement of Stockholders' Equity 8 Notes to Condensed Consolidated Financial Statements 9 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Part II OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K 15 Signature 16 -2- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30 DECEMBER 31 1997 1996 ---- ---- ASSETS CURRENT ASETS: (UNAUDITED) CASH AND CASH EQUIVALENTS $ 4,753 $ 9,579 RECEIVABLES: TRADE 39,820 37,231 UNBILLED 11,575 3,963 PREPAID EXPENSES AND OTHER CURRENT ASSET 7,107 6,487 --------- --------- TOTAL CURRENT ASSETS 63,255 57,260 PROPERTY AND EQUIPMENT, NET 15,381 12,966 CUSTOMER LIST, GOODWILL AND OTHER INTANGIBLE ASSETS 65,075 50,192 OTHER ASSETS 4,719 5,025 --------- --------- TOTAL ASSETS$ $ 148,430 $ 125,443 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: CURRENT MATURITIES OF LONG-TERM DEBT $ 272 $ 459 ACCOUNTS PAYABLE 4,408 5,164 ACCRUED EXPENSES 16,892 18,761 CUSTOMER BILLINGS IN EXCESS OF REVENUES EARNED 11,469 13,226 --------- --------- TOTAL CURRENT LIABILITIES 33,041 37,610 LONG-TERM DEBT 20,086 4,841 OTHER LONG-TERM LIABILITIES 5,362 4,718 --------- --------- TOTAL LIABILITIES 58,489 47,169 --------- --------- MINORITY INTEREST 1,429 3,877 --------- --------- STOCKHOLDERS' EQUITY: COMMON STOCK, PAR VALUE $.01 PER SHARE; 60,000 SHARES AUTHORIZED, 20,500 AND 20,055 ISSUED AND OUTSTANDING IN 1997 AND 1996, RESPECTIVELY 137 134 ADDITIONAL PAID-IN CAPITAL 46,836 40,662 RETAINED EARNINGS 41,814 33,540 ADDITIONAL MINIMUM LIABILITY (323) (323) FOREIGN CURRENCY TRANSLATION ADJUSTMENT 48 384 --------- --------- TOTAL STOCKHOLDERS' EQUITY 88,512 74,397 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 148,430 $ 125,443 ========= =========
The accompanying notes are an integral part of these statements. -3- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------ ------------------ 1997 1996 1997 1996 --------- --------- --------- --------- REVENUES $ 49,340 $ 38,241 $ 138,385 $ 109,427 COST OF REVENUES 21,163 16,339 61,311 46,531 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 20,143 15,157 55,772 43,654 DEPRECIATION EXPENSE 731 594 2,037 1,701 AMORTIZATION EXPENSE 876 775 2,348 2,342 --------- --------- --------- --------- OPERATING INCOME 6,427 5,376 16,917 15,199 INTEREST EXPENSE, NET 274 (37) 346 (10) OTHER EXPENSES (INCOME) 87 (9) (3) (21) EQUITY INTEREST IN NET LOSS OF AFFILIATED COMPANIES 86 32 240 287 --------- --------- --------- --------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 5,980 5,390 16,334 14,943 PROVISION FOR INCOME TAXES 2,464 2,339 6,933 6,529 --------- --------- --------- --------- NET INCOME BEFORE MINORITY INTEREST 3,516 3,051 9,401 8,414 MINORITY INTEREST 315 183 1,127 827 --------- --------- --------- --------- NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587 ========= ========= ========= ========= EARNINGS PER WEIGHTED AVERAGE SHARE OUTSTANDING(a): PRIMARY $ .15 $ .14 $ .40 $ .37 FULLY DILUTED $ .15 $ .12 $ .39 $ .30 WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING(a): PRIMARY 20,850 20,774 20,665 20,651 FULLY DILUTED 21,102 20,976 20,937 20,865
(a) For comparability, the earnings per share and share data reflect the three-for-two stock splits effected on February 5, 1996 and October 15, 1997. The accompanying notes are an integral part of these statements. -4- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 1997 1996 1997 1996 -------- -------- -------- -------- CASH FLOW FROM OPERATING ACTIVITIES: NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587 ADJUSTMENTS TO RECONCILE TO NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES: MINORITY INTEREST 315 183 1,127 827 DEPRECIATION EXPENSE 731 594 2,037 1,701 AMORTIZATION EXPENSE 876 775 2,348 2,342 EQUITY INTEREST IN NET LOSS OF AFFILIATED COMPANIES 86 32 240 287 DIVIDENDS PAID TO MINORITY INTEREST 0 0 (721) (270) -------- -------- -------- -------- SUBTOTAL 5,209 4,452 13,305 12,474 CHANGE IN ASSETS AND LIABILITIES THAT PROVIDED (USED) CASH: TRADE RECEIVABLES 1,170 1,460 (1,568) (2,005) UNBILLED RECEIVABLES (4,150) (493) (7,612) (435) PREPAID EXPENSES AND OTHER CURRENT ASSETS 605 (198) (406) 57 OTHER ASSETS (119) (505) 105 (349) ACCOUNTS PAYABLE, ACCRUED AND OTHER LIABILITIES (29) 188 (2,762) 1,941 CUSTOMER BILLINGS IN EXCESS OF REVENUE EARNED (2,779) (4,292) (1,853) (5,272) -------- -------- -------- -------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (93) 612 (791) 6,411 -------- -------- -------- -------- CASH FLOW FROM INVESTING ACTIVITIES: CAPITAL EXPENDITURES (1,346) (581) (4,298) (2,715) ACQUISITIONS (NET OF CASH ACQUIRED) (9,358) (1,040) (14,330) (7,258) INVESTMENTS IN AFFILIATED COMPANIES (50) (66) (301) (999) PURCHASE OF LICENSE AGREEMENT AND OTHER INTANGIBLES 0 5 (469) (35) -------- -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES (10,754) (1,682) (19,398) (11,007) -------- -------- -------- --------
The accompanying notes are an integral part of these statements. -5- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) (Continued)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 1997 1996 1997 1996 -------- -------- -------- -------- CASH FLOW FROM FINANCING ACTIVITIES: PAYMENTS ON LONG-TERM DEBT (76) (2,542) (4,440) (6,723) NET PROCEEDS FROM ISSUANCE OF STOCK 224 130 527 702 BORROWINGS ON LINE OF CREDIT 10,500 4,000 19,500 9,000 -------- -------- -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 10,648 1,588 15,587 2,979 -------- -------- -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (62) 57 (224) 73 CHANGE IN CASH (261) 575 (4,826) (1,544) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,014 8,411 9,579 10,530 -------- -------- -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,753 $ 8,986 $ 4,753 $ 8,986 ======== ======== ======== ========
The accompanying notes are an integral part of these statements. -6- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS) (continued)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: CASH PAID DURING THE PERIOD FOR: INTEREST $ 112 $ 152 $ 316 $ 312 INCOME TAXES $2,549 $1,898 $5,667 $5,204
The accompanying notes are an integral part of these statements. -7- NFO WORLDWIDE, INC. CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED, IN THOUSANDS)
FOREIGN ADDITIONAL ADDITIONAL CURRENCY COMMON PAID-IN RETAINED MINIMUM TRANSLATION SHARES STOCK CAPITAL EARNINGS LIABILITY ADJUSTMENT ------- ------- ------- ------- ------- ------- BALANCE AT JANUARY 1, 1997, AS PREVIOUSLY REPORTED 18,009 $ 120 $40,525 $28,163 $ (323) $ -- ACQUISITION OF MBL, ACCOUNTED FOR AS A POOLING OF INTERESTS 2,046 14 137 5,377 384 ------- ------- ------- ------- ------- ------- BALANCE AT JANUARY 1, 1997 AS RESTATED 20,055 $ 34 $40,662 $33,540 $ (323) $ 384 COMMON STOCK ISSUED IN CONJUNCTION WITH ACQUISITION EARNOUTS 198 1 2,678 COMMON STOCK ISSUED IN CONJUNCTION WITH ACQUISITIONS 126 1 2,972 OTHER STOCK ISSUANCES 121 1 524 TRANSLATION ADJUSTMENTS (336) NET INCOME 8,274 ------- ------- ------- ------- ------- ------- BALANCE AT SEPTEMBER 30, 1997 20,500 $ 137 $46,836 $41,814 $ (323) $ 48 ======= ======= ======= ======= ======= =======
The accompanying notes are an integral part of this statement. -8- NFO WORLDWIDE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Note 1. Financial Statements: These condensed consolidated financial statements include the accounts of the Company (NFO Worldwide, Inc. that changed its name from NFO Research, Inc. effective October 14, 1997), including its subsidiaries. All significant intercompany amounts have been eliminated. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Company as of September 30, 1997 and the results of its operations for the three and nine month periods ended September 30, 1997 and September 30, 1996, respectively. These financial statements are presented in accordance with the requirements of Form 10-Q. Accordingly, the financial statements and related notes in the Company's Supplemental Financial Statements for the fiscal year ended December 31, 1996, included in the Company's Form 8-K filed with the SEC on October 22, 1997, should be read in conjunction with the accompanying condensed consolidated financial statements. The information included herein may not be indicative of the results to be expected for a full year. Note 2. Acquisitions: On April 1, 1997 the Company issued approximately 2,590,000 shares (adjusted for the 3 for 2 stock split effective October 15, 1997) of NFO common stock to acquire 100% of the stock of Prognostics, a leading provider of survey-based quantitative customer satisfaction research to information technology companies worldwide. The acquisition has been accounted for as a pooling of interests and, accordingly, the accompanying financial statements have been restated to reflect the combined results of NFO and Prognostics for all periods presented. On May 29, 1997 the Company acquired Access Research, Inc. ("Access"). Access is a research based financial services consulting firm specializing in the retirement market. Access is a leading source of quantitative and qualitative research, consulting and communications services addressing pension sales, operations and marketing issues, especially in the 401(k) market. The entire purchase price of approximately $4.0 million was paid in cash at closing. The Access acquisition has been accounted for as a purchase and the accompanying financial statements include the results of operations from the effective date of the acquisition. The purchase price allocations are based on preliminary estimates of fair market value and are subject to revision. The pro forma effects of this acquisition are not material to the consolidated results of operations for the Company in 1997 and 1996. On July 11, 1997 the Company issued approximately 2,046,000 shares (adjusted for the 3 for 2 stock split effective October 15, 1997) of NFO common stock to acquire 100% of the outstanding stock of The MBL Group, Plc, a leading international market research firm. The acquisition of the MBL Group Plc has been accounted for as a pooling of interests. The condensed consolidated financial statements give retroactive effect to the merger and all financial statements are presented as if NFO (including Prognostics) and The MBL Group Plc had been consolidated for all periods presented. -9- NFO has also entered into agreements with minority shareholders of the various MBL Group operating companies whereby the Company has agreed to repurchase a portion of the minority shares during 1997 and the remainder in three years utilizing a combination of cash and NFO common stock. The acquisitions of the MBL Group operating companies' minority shares will be accounted for as purchases. During the third quarter of 1997, NFO issued 125,559 shares of common stock and paid $10.2 million in cash under these agreements. This resulted in $10.4 million of goodwill, based on preliminary estimates of fair market value and are subject to revision. Included in the above purchases the Company's ownership interest in MBL's Middle Eastern operations is now in excess of 50% and accordingly has been consolidated for the first time in the quarter. Previously these results were reported under the equity method of accounting. The pro forma effects of these purchases are not material to the consolidated results of operations for the Company in 1997 and 1996. Separate results of operations for the periods prior to the merger with MBL and Prognostics are as follows:
(UNAUDITED), IN THOUSANDS ------------------------- THIRD FIRST NINE FIRST SIX QUARTER MONTHS MONTHS 1996 1996 1997 ----------- --------- ---------- REVENUES NFO $ 26,838 $ 76,588 $ 66,046 MBL 9,018 26,778 21,153 PROGNOSTICS 2,385 6,061 1,846 * ---------- --------- ---------- COMBINED $ 38,241 $ 109,427 $ 89,045 ========== ========= ========== NET INCOME NFO $ 2,519 $ 6,418 $ 4,484 MBL 141 697 459 PROGNOSTICS 208 472 130 * ---------- --------- ---------- COMBINED $ 2,868 $ 7,587 $ 5,073 =========== ========= ==========
* Only includes first three months of 1997. Note 3. Stock Splits: On September 17, 1997 the Company's Board of Directors authorized a 3 for 2 stock split of the Company's common stock effected on October 15, 1997, for stockholders of record on September 30, 1997. As a result, approximately 6,850,000 additional shares of NFO common stock were issued. All per share and share amounts in the accompanying condensed consolidated financial statements have been restated to reflect the above stock split. -10- NFO WORLDWIDE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto included in this Quarterly Report. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain operating statement data for the Company, expressed as a percentage of revenues, and the percentage change in such items compared to amounts for the prior year.
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30 ------------------------------------- ------------------------------------- PERCENTAGE OF PERCENTAGE OF REVENUES PERCENTAGE REVENUES PERCENTAGE --------------------- CHANGE FROM --------------------- CHANGE FROM 1997 1996 PRIOR YEAR 1997 1996 PRIOR YEAR ---- ---- ------------- ---- ---- ----------- REVENUES 100.0% 100.0% 29.0% 100.0% 100.0% 26.5% COST OF REVENUES 42.9 42.7 29.5 44.3 42.5 31.8 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 40.8 39.6 32.9 40.3 39.9 27.8 DEPRECIATION EXPENSE 1.5 1.6 23.1 1.5 1.6 19.8 AMORTIZATION EXPENSE 1.8 2.0 13.0 1.7 2.1 0.3 ------ ------ ------ ------ ------ ------ OPERATING INCOME 13.0 14.1 19.5 12.2 13.9 11.3 INTEREST EXPENSE, NET 0.6 (0.1) NM 0.3 0.0 NM OTHER EXPENSES (INCOME) 0.1 0.0 NM 0.0 0.0 NM EQUITY INTEREST IN NET LOSS OF AFFILIATED COMPANIES 0.2 0.1 NM 0.1 0.2 (16.4) ------ ------ ------ ------ ------ ------ INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 12.1 14.1 10.9 11.8 13.7 9.3 PROVISION FOR INCOME TAXES 5.0 6.1 5.3 5.0 6.0 6.2 ------ ------ ------ ------ ------ ------ NET INCOME BEFORE MINORITY INTEREST 7.1 8.0 15.2 6.8 7.7 11.7 MINORITY INTEREST .6 .5 72.1 .8 .8 36.3 ------ ------ ------ ------ ------ ------ NET INCOME 6.5% 7.5% 11.6% 6.0% 6.9% 9.1% ====== ====== ====== ====== ====== ======
11 NFO WORLDWIDE, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OPERATIONS Effective April 1, 1997, the Company acquired Prognostics and on July 11, 1997, the Company acquired MBL. Both transactions were accounted for as pooling of interests. Accordingly, all of the accompanying financial information has been restated to include the combined financial results of NFO, Prognostics and MBL for all periods presented. The Company's revenues for the three months ended September 30, 1997 increased 29% to $49.3 million from $38.2 million for the same period last year. Revenues in the third quarter increased $11.1 million over the same period last year, led by strong performances in the Company's domestic financial services, healthcare and packaged goods and foods business units where revenues grew by double digit rates in each sector. Additionally, the Company's comparable international businesses grew by 27% compared to the same period last year. For the nine months ended September 30, 1997, revenues increased by over 26% to $138.4 million from $109.4 million in the same period last year, with these same sectors as well as the Company's hi-tech/telecommunications business units all growing at double digit rates for the nine month period. Spectrem, acquired in August 1996, and Access Research, acquired in May 1997, as well as the first time consolidation of the Company's Middle Eastern operations in the third quarter of 1997, contributed $3.6 million to the quarter's increase in revenues, and $6.5 million to the nine month increase. Cost of revenues increased 30% in the third quarter to $21.2 million from $16.3 million a year ago. This increase is primarily due to overall increased business volume, the impact of Spectrem and Access Research ($.8 million), the Company's interactive initiatives ($.2 million), and inflationary increases. For the nine months ended September 30, 1997 cost of revenues increased 32% to $61.3 million from $46.5 million last year. The primary reasons for this increase were: overall increased business volume, the acquisitions of Spectrem and Access ($2.3 million), as well as the first time consolidation of the Company's Middle Eastern operations ($1.4 million), the Company's interactive initiatives ($.6 million) and a slight shift in product mix. Selling, general and administrative expenses increased 33% in the third quarter to $20.1 million from $15.2 million in the same period last year. The major factors for the increase were: transaction costs associated with the acquisition of MBL ($.8 million), the inclusion of Spectrem, Access Research, and the Company's Middle Eastern operations ($.7 million), increased costs due to increased business activity, especially in the Company's Pharmaceutical/HealthMed and Financial Services business units ($1.1 million), expenses relating to the Company's interactive initiatives ($.4 million) and inflationary increases. For the nine month period ended September 30, 1997 selling, general and administrative expenses increased 28% to $55.8 million from $43.7 million last year. The primary reasons for the increase were: the inclusion of the new acquisitions as well as the consolidation of the Company's Middle Eastern operations ($1.9 million), transaction costs associated with the acquisitions of Prognostics ($.4 million) and MBL ($.8 million), increased staffing caused by increased business activity, especially in the Company's Pharmaceutical/HealthMed and Financial Services business units ($2.6 million), costs associated with the Company's new office in China ($.2 million), the development of on-line interactive research activities ($.9 million), and inflationary increases. As a result of the items above, operating income for the quarter ended September 30, 1997 increased 20% to $6.4 million from $5.4 million, and for the first nine months of 1997 increased 11% to $16.9 million from $15.2 million, compared to the same periods a year ago. Excluding the pooling transaction costs, operating income increased 35% and 20% for the three and nine month periods ended September 30, 1997, respectively, compared to the prior year. 12 Net operating losses associated with NFO's European joint venture activities equaled $.1 million for the quarter and $.3 million for the nine month period, $.1 million below the year ago level. The Company's effective tax rate for the quarter ended September 30, 1997 was 41.2% compared to 43.4% for the same period last year. The decrease in the quarter's effective tax rate was primarily the result of several state and local tax saving strategies implemented in late 1996, as well as increased earnings compared to the same period last year in countries with lower tax rates. The non-deductibility of the pooling transaction costs related to the MBL acquisition partially offset these reductions for the quarter. For the nine month period ended September 30, 1997 the effective tax rate was 42.4% compared to 43.7% in the same period last year. The decrease was primarily the result of the 1996 tax savings strategies partially offset by the nondeductible pooling transaction costs related to the Prognostics and MBL acquisitions. Net income for the third quarter of 1997 increased 12% to $3.2 million. Primary earnings per share, including the $.04 per share relating to transaction costs associated with the acquisition of MBL, were $.15, up $.01 from the same period last year, but up $.05 or 36% ahead of the prior year when this charge is excluded. Net income for the nine months ended September 30, 1997 increased 9% to $8.3 million from $7.6 million a year ago. Net income, excluding the charge for the transaction costs of MBL and Prognostics increased 26% over the same nine month period a year ago. Primary earnings per share for the nine month period, including the $.06 charge for the MBL and Prognostics acquisition costs, were $.40 compared to $.37 for the same period last year. Excluding the $.06 charge, primary earnings per share were $.46, a 24% increase compared to the first nine months of 1996. LIQUIDITY AND CAPITAL RESOURCES Working capital as of September 30, 1997 was $30.3 million compared to $19.7 million at December 31, 1996. The increase in working capital resulted primarily from the results of operations for the nine months ended September 30, 1997 and payments in cash (financed by long term debt) and stock of previously accrued acquisition related liabilities. Offsetting these increases were capital expenditures ($4.5 million) and investments in European Joint Ventures ($.3 million). As of September 30, 1997 the Company had $19.5 million outstanding on its $45.0 million credit facility with three major U.S. banks. Capital expenditures for the quarter ended September 30, 1997 were $1.3 million compared to $.6 million for the same period last year. For the nine months ended September 30, 1997 capital expenditures were $4.3 million compared to $2.7 million a year ago. Capital expenditures for 1997 are anticipated to be approximately $8 million including approximately $2 million due to planned expansion of the Company's operations capacity. The Company anticipates that existing cash, together with internally generated funds and its credit and stock availabilities will provide the Company with the resources that are needed to satisfy potential acquisitions, capital expenditures and the Company's growing working capital requirements. The timing and magnitude of future acquisitions will be the single most important factor in determining the Company's long term capital needs. 13 FUTURE REQUIRED ACCOUNTING CHANGES In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share (SFAS No. 128). This statement introduces new methods for calculating earnings per share. The adoption of this standard will not impact results from operations, financial condition, or long-term liquidity, but will require the Company to restate earnings per share reported in prior periods to conform with this statement. The Company is required to adopt the new standard for periods ending after December 15, 1997. The Company believes that the adoption of this standard will result in higher earnings per share when comparing the current primary and fully diluted earnings per share calculations to the calculations of basic and diluted earnings per share required by SFAS No. 128. On September 30, 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME (SFAS No. 130). This statement establishes standards for reporting and display of comprehensive income and its components in financial statements. The adoption of this standard will not impact results from operations, financial condition, or long-term liquidity, but will require the Company to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately in the equity section of the balance sheet. The Company is required to adopt the new standard for periods beginning after December 15, 1997. 14 PART II OTHER INFORMATION - ------- ----------------- ITEM 6 Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits -------- 11. Computations of Net Income per Common Share 27. Financial Data Schedule (b) Reports on Form 8-K ------------------- The Company filed a report on Form 8-K with the Commission on June 11, 1997 to voluntarily report certain financial statements related to the acquisition of Prognostics by the Company effective April 1, 1997. The acquisition of Prognostics was accounted for as a pooling of interests and, accordingly, all historical financial information has been restated to include the combined results of the Company and Prognostics, and included in the Form 8-K dated June 11, 1997. The Company filed a report on Form 8-K with the Commission on July 25, 1997 and amended this report on September 22, 1997 to voluntarily report certain financial statements related to the acquisition of MBL by the Company effective July 11, 1997. The acquisition of MBL was accounted for as a pooling of interests and, accordingly, all historical financial information has been restated to include the combined results of the Company and MBL. The Company filed a report on Form 8-K with the Commission on October 22, 1997 to voluntarily restate its 1996 Form 10-K financial information combining NFO and Prognostics. The Company filed a second report on Form 8-K with the Commission on October 22, 1997 to report supplemental 1996 Form 10-K financial information combining NFO and MBL. 15 NFO WORLDWIDE, INC. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NFO WORLDWIDE, INC. ------------------- (Registrant) Dated: November 14, 1997 /s/ Patrick G. Healy ----------------------- Patrick G. Healy, President, Corporate Products and Systems Development and Chief Financial Officer (Authorized Officer of Registrant and Principal Financial Officer) NFO WORLDWIDE, INC. EXHIBIT 11 COMPUTATIONS OF NET INCOME PER COMMON SHARE (UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS NINE MONTHS ENDED SEPTEMBER 30 ENDED SEPTEMBER 30 ---------------------- ----------------------- 1997 1996 1997 1996 ---- ---- ---- ---- PRIMARY: - -------- NET INCOME $ 3,201 $ 2,868 $ 8,274 $ 7,587 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES OUTSTANDING 20,340 19,955 20,230 19,874 DILUTIVE STOCK OPTIONS 494 769 419 727 OTHER COMMON SHARES EQUIVALENTS 16 50 16 50 ------- ------- ------- ------- 20,850 20,774 20,665 20,651 ======= ======= ======= ======= PRIMARY EARNINGS PER SHARE $ .15 $ .14 $ .40 $ .37 ======= ======= ======= ======= FULLY DILUTED: - -------------- NET INCOME $ 3,138 $ 2,427 $ 8,085 $ 6,271 ======= ======= ======= ======= WEIGHTED AVERAGE SHARES OUTSTANDING 20,340 19,955 20,230 19,874 DILUTIVE STOCK OPTIONS 554 769 499 739 OTHER COMMON SHARES EQUIVALENTS 16 50 16 50 CONTINGENT SHARES 192 202 192 202 ------- ------- ------- ------- 21,102 20,976 20,937 20,865 ======= ======= ======= ======= FULLY DILUTED EARNINGS PER SHARE $ .15 $ .12 $ .39 $ .30 ======= ======= ======= =======
The Company acquired Prognostics effective April 1, 1997 and The MBL Group Plc effective July 11, 1997. Both transactions were accounted for as pooling of interests. Accordingly, all historical financial information has been restated to include the combined financial results of NFO, Prognostics and MBL. The earnings per share and share data reflect the three-for-two stock splits effected on February 5, 1996 and October 15, 1997. EX-27 2 ART.5 FDS FOR 3RD QUARTER 10-Q
5 This schedule contains summary financial information extracted from the financial statements contained in NFO Worldwide, Inc.'s report on Form 10-Q for the quarter ended September 30, 1997, and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1997 SEP-30-1997 4,753 0 51,789 394 0 63,255 26,504 11,123 148,430 32,929 20,086 137 0 0 88,375 148,430 138,385 138,385 61,311 121,468 237 26 532 16,334 6,933 8,274 0 0 0 8,274 .40 .39
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