<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
<TABLE>
<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
--------------------------------------------------------------------------------------
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 0-4781
------------------------------------------------------------------------------------------
MARKET FACTS, INC.
- -----------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2061602
- -------------------------------------------------------------------- ------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
- --------------------------------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 590-7000
--------------------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
(Title of Class)
Common Stock, Par Value $1.00 Per Share
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES (X) NO ( )
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. ( )
AS OF FEBRUARY 29, 1996, THERE WERE ISSUED AND OUTSTANDING 1,926,769 SHARES OF
COMMON STOCK; THE AGGREGATE MARKET VALUE OF THE SHARES OF SUCH STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT WAS $13,505,310 AS OF THE SAME DATE, ASSUMING
SOLELY FOR PURPOSES OF THIS CALCULATION THAT ALL DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT ARE "AFFILIATES." THIS DETERMINATION OF AFFILIATE
STATUS IS NOT NECESSARILY A CONCLUSIVE DETERMINATION FOR OTHER PURPOSES.
DOCUMENTS INCORPORATED BY REFERENCE: LIST THE FOLLOWING DOCUMENTS IF
INCORPORATED BY REFERENCE AND THE PART OF THE FORM 10-K INTO WHICH THE DOCUMENT
IS INCORPORATED: (1) ANY ANNUAL REPORT TO SECURITY HOLDERS; (2) ANY PROXY OR
INFORMATION STATEMENT; AND (3) ANY PROSPECTUS FILED PURSUANT TO RULE 424(b) OR
(c) UNDER THE SECURITIES ACT OF 1933. THE LISTED DOCUMENTS SHOULD BE CLEARLY
DESCRIBED FOR IDENTIFICATION PURPOSES.
1995 Annual Report to Stockholders -- Parts I, II and IV Hereof. Proxy
Statement for the Registrant's 1996 Annual Meeting to be filed within 120
days after the end of the fiscal year -- Part III Hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General development and narrative description of business
---------------------------------------------------------
The predecessor to the Registrant was incorporated in 1946 in Illinois.
The Registrant was incorporated in 1966 in Delaware and is engaged in one
industry segment, namely, providing information to assist clients in their
marketing decisions relating primarily to consumer products and services.
Effective April 29, 1994, the Registrant acquired the remaining 50% of the
common stock of Market Facts of Canada, Ltd.
The Registrant's usual procedure is for its professional research staff to
first define the marketing problem in consultation with the client. It
then develops questionnaires or instruments to be used to elicit the
required information. The remaining procedures involve collecting the
data, processing and evaluating the data and finally analyzing the results.
In any particular project or program, the Registrant may perform one or
more of these functions.
After the problem has been defined, the Registrant submits to the client a
proposed research project or program specifically designed for the problem,
together with a cost estimate. The proposal typically includes one or more
of three basic methods for obtaining the required data, whichever one or
combination is most useful and economical under the circumstances. The
three basic methods for collecting information from respondents are
interviews conducted through the mail, telephone interviews and in-person
interviews. The method to be used is determined by the specific marketing
problem and numerous other factors, including the type of data to be
obtained, the geographical scope of the study, the size of the sample and
budget considerations, among others. The type of product or subject to be
studied generally is not itself determinative of the method to be used.
Interviews are conducted through the mail using panels of consumers
constructed by the Registrant. Currently, there are over 460,000
households throughout the continental United States and Canada that
participate in the Registrant's proprietary Consumer Mail Panel (CMP) for
mail interviews. CMP provides clients with many benefits, including (1)
flexibility for conducting national, regional and specific market research
studies, (2) research effectiveness by providing large samples at low cost,
nationally balanced samples and confidentiality, and (3) economy through
cooperative respondents, high response rates and low cost per interview.
The Registrant also gathers data through telephone interviews. In the
United States, this data collection method operates under the name of
National Telephone Center (NTC). The Registrant's telephone interviewing
capabilities provide clients with cost efficient long distance calling
services, high speed response and complete national coverage. The
Registrant operates over 225 interviewing stations in approximately eight
locations throughout Illinois and Canada, using an advanced computer
assisted telephone interviewing system. The locations operate up to seven
days a week, fourteen hours a day. Samples include interviewing the general
population as well as hard-to-reach individuals and can be drawn on a
nationally representative basis or confined to a single market.
In-person interviews conducted by the Registrant are primarily performed by
independent field interviewing organizations. This method includes
personal interviews either in a central location, such as a shopping
center, or on a house-to-house basis.
Research assignments performed by the Registrant include the data
collection phase, and in most cases, the data processing requirements. The
Registrant maintains three separate functions relating to data processing.
They include coding, which reviews and assigns numerical codes to
questionnaire responses; data entry, which prepares the documents as input
for tabulation; and tabulation, where final tabulated reports are
processed.
1
<PAGE>
In many projects serviced by the Registrant, data analysis reports are also
written. For this service, the research design team who originally drafted
the project proposal is used. The Decision Systems group of the Registrant
may also be used to further review and dissect the gathered data. This
group uses statistical methods such as factor analysis, cluster analysis
and analysis of covariance to aid in the general review of the collected
data. Several programs are maintained in a computer library to complete
these functions with flexibility and efficiency.
While there will always be a need for gathering of raw data, the Registrant
believes that one of the fastest growing areas within the market research
industry today is data interpretation and analysis. In response, the
Registrant has developed or licensed proprietary products and services
which provide this capability for clients. BrandVision is a custom
continuous tracking product which measures the effect of altering
components in the advertising mix. In a BrandVision study, telephone
interviews are conducted on a continuous schedule so that changes in
consumers' thinking can be quickly spotted and appropriate adjustments
made. ComPete is a PC-based multimedia concept database system which
enables clients to query a database of their proprietary concept test
results. The Conversion Model, which the Registrant has an exclusive
license for in the United States and Canada and has sublicensed to a third
party in the European Economic Community, is a product that examines the
dimensions that lock consumers to their current product choice and thereby
measures consumers' strength of commitment to a given brand and their
susceptibility of conversion to another brand. Data Gage is CMP's monthly
mailing service that permits non-competing clients to share data collection
costs while providing responses to specific questions from a nationally
representative sample of households (including customized processing and
analysis) ranging in size from 1,000 to 150,000 households. MarkeTest 2000
is a sales forecasting system which combines consumer reactions with brand
category data and marketing plans to estimate sales potential for new
product concepts, particularly those in the early stages of the product
development process. National ShowCase is a weekly mall omnibus survey
conducted in the United States and Canada that provides clients with rapid
turnaround of test results where consumer exposure to stimuli is required.
TeleNation is a twice a week national telephone survey that offers clients
the ability to collect consumer opinion, attitude and buying pattern data
from a nationally representative sample at low cost, with short lead time
and rapid turnaround of results.
(1) Clients
-------
Clients are served on a confidential basis under agreements for individual
projects which are negotiated on the basis of estimates prepared by the
Registrant. Inasmuch as profits are determined by the difference between
actual costs and the bid submitted to the client, the ability of the
Registrant to make a profit is partially dependent on accurate estimates of
the costs which will be involved in any project or program. Approximately
90% of the Registrant's business during the year ended December 31, 1995
was with clients for whom the Registrant had performed work during the
previous year. In 1995, the top five clients accounted for approximately
26% of total revenues with one client, Procter & Gamble, accounting for 12%
of revenues. Groupings of clients, which are located primarily in the
United States and Canada, are not meaningful as the Registrant's services
do not differ by client type.
(2) Backlog
-------
The Registrant recognizes revenue under the percentage of completion method
of accounting. Revenues are recognized as services are performed. The
Registrant had unrecognized revenue from contracts in process of
approximately $19,497,000 and $12,252,000 for the years ended December 31,
1995 and 1994, respectively.
2
<PAGE>
(3) Competition
-----------
The business in which the Registrant is engaged is highly competitive. The
industry is characterized by a large number of relatively small
organizations and a few large concerns with resources greater than those of
the Registrant. The Registrant is also subject to indirect competition from
the marketing research departments of clients and potential clients,
advertising agencies and consulting firms. The Registrant believes it is
among the ten largest custom market research firms in the United States as
measured by revenue. The Registrant also believes the principal methods of
competition are the ability to properly design the market research project;
perform and report on the research project in a short period of time; the
quality and consistency of information; and price.
(4) Service Marks
-------------
The Registrant believes that all registered service marks and propriety
marks are important to its business. The marks Autoquest(R),
BrandVision(R), Mail Monitor(R), National ShowCase(R) and TeleNation(R) are
registered service marks in the United States. The marks ComPete, Consumer
Mail Panel, Data Gage, MarkeTest 2000, Market Facts, MiniScreen, National
Telephone Center, OmniMax and PatientFacts are propriety marks of the
Registrant.
Market Facts Canada, Ltd. is the registered owner of the following
trademarks in Canada: CATI(R), ADPAC(R), ADPAC II(R), NATIONAL FLEXIBUS(R)
and TeleNation(R).
(5) Employees
---------
The Registrant has approximately 525 salaried employees and employs part-
time help as required. At December 31, 1995, there were approximately 875
part-time employees. The Registrant has never had a work stoppage and
believes it has maintained good employee relations. None of the
Registrant's employees are represented by a union. A substantial number of
employees are skilled personnel trained in the various facets of market
research.
ITEM 2. DESCRIPTION OF PROPERTY
The headquarters of the Registrant are located at 3040 West Salt Creek
Lane, Arlington Heights, Illinois in an office building of approximately
120,000 square feet owned by the Registrant. This location also houses the
Registrant's computer facility, service departments, mail panel operations
and largest sales office. The property is financed through a mortgage loan
discussed in Note 5 of the Notes to Consolidated Financial Statements
contained in the 1995 Annual Report to Stockholders and is incorporated
herein by reference. Other leased sales offices in the United States are
located at 902 Broadway, New York, New York; 65 Madison Avenue, Morristown,
New Jersey; 16133 Ventura Boulevard, Encino, California; 1650 Tysons
Boulevard, McLean, Virginia; 572 Washington Street, Wellesley,
Massachusetts; and 201 East Fifth Street, Cincinnati, Ohio. The Registrant
has three leased telephone interviewing facilities located at One Rotary
Center, Evanston, Illinois; 4260 Westbrook Drive, Aurora, Illinois; and
1010 Lake Street, Oak Park, Illinois.
Canadian operations are headquartered at 77 Bloor Street West, Toronto,
Ontario. This location primarily houses mail panel, telephone interviewing
and sales operations. In addition, a smaller leased office is located at
1200 McGill College, Montreal, Quebec.
3
<PAGE>
Rental expense for the Registrant's leased locations was approximately
$1,168,000 in 1995. Some of the Registrant's leases provide for future increases
in rental payments to reflect increases in the lessor's taxes, maintenance, and
other operating expenses. The Registrant believes that these facilities are
adequate to meet its existing business requirements. The Registrant also leases
some of its computer and office equipment and vehicles. Additional information
regarding the Registrant's obligations under leases is contained in Note 9 of
the Notes to Consolidated Financial Statements contained in the 1995 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Registrant is a
party or of which the property of the Registrant is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Age of Offices Held and Business
Name of Officer Officer Experience for Last Five Years
- --------------------------- ------- ------------------------------------------
<S> <C> <C>
Verne B. Churchill 63 Chairman of the Board of Directors since
1987 and Chief Executive Officer of the
Company since 1983.
Thomas H. Payne 50 President and Chief Operating Officer of
the Company since 1987.
Glenn W. Schmidt 53 Executive Vice President, Assistant
Secretary and Assistant Treasurer of the
Company since 1982.
Sanford M. Schwartz 44 Executive Vice President of the Company
and President of Market Facts - New York,
Inc. since July 1992; prior thereto
President of Elrick & Lavidge, a market
research firm in New York, New York.
Timothy Q. Rounds 57 Senior Vice President of the Company
since 1984.
John C. Robertson 64 Chairman of the Board of Directors of
Market Facts of Canada, Ltd. since June
1995; prior thereto President of Market
Facts of Canada, Ltd. since 1962.
Wesley S. Walton 57 Secretary of the Company since 1979 and a
partner in the law firm of Keck, Mahin
and Cate, Chicago, Illinois.
Ronald P. Duda 53 Senior Vice President of the Company
since May 1993; prior thereto Vice
President of the Company.
Michael H. Freehill 53 Senior Vice President of the Company
since 1988.
Janith P. Fuller 54 Senior Vice President of the Company
since 1987.
</TABLE>
4
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT (Continued)
<TABLE>
<CAPTION>
Age of Offices Held and Business
Name of Officer Officer Experience for Last Five Years
- --------------------------- ------- ------------------------------------------
<S> <C> <C>
Lawrence W. Labash 48 Senior Vice President of the Company
since 1987.
Peter J. LaSalle 48 Senior Vice President of the Company
since October 1994; prior thereto Vice
President of the Company.
Lawrence R. Levin 41 Senior Vice President of the Company
since February 1993; prior thereto Vice
President of the Company.
Gregory J. McMahon 43 Senior Vice President of the Company
since January 1994; prior thereto Vice
President of the Company.
Donald J. Morrison 37 Senior Vice President of the Company
since April 1995; prior thereto Vice
President of the Company since February
1993; prior thereto Marketing Vice
President and General Manager for NFO
Research, Greensboro, North Carolina.
William E. Seymour III 49 Senior Vice President of the Company
since April 1991; prior thereto Vice
President of the Company.
Timothy J. Sullivan 42 Vice President, Treasurer, and Assistant
Secretary of the Company since April
1991; prior thereto Treasurer and
Assistant Secretary of the Company since
1990.
Stephen J. Weber 51 Senior Vice President of the Company
since 1985.
</TABLE>
Officers are elected annually in April by the Board of Directors for a period of
one year or until successors are duly elected and qualified. The executive
officers listed above are as of March 1, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The following section of the Registrant's 1995 Annual Report to Stockholders is
hereby incorporated by reference:
Dividends and Market Price Statistics - page 1
This referenced section should be read in conjunction with the Consolidated
Financial Statements and related Notes (herein incorporated by reference) on
pages 6-16 of the 1995 Annual Report to Stockholders.
ITEM 6. SELECTED FINANCIAL DATA
The following section of the Registrant's 1995 Annual Report to Stockholders is
hereby incorporated by reference:
Selected Financial Data - page 1
This referenced section should be read in conjunction with the Consolidated
Financial Statements and related Notes (herein incorporated by reference) on
pages 6-16 of the 1995 Annual Report to Stockholders.
5
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following section of the Registrant's 1995 Annual Report to Stockholders is
hereby incorporated by reference:
Management's Discussion and Analysis of Financial Condition and
Results of Operations - pages 4-5
This referenced section should be read in conjunction with the Consolidated
Financial Statements and related Notes (herein incorporated by reference) on
pages 6-16 of the 1995 Annual Report to Stockholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements required by this item are listed below:
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page Number
-----------
Consolidated Balance Sheets as of December 31, 1995 and 1994 *
For the years ended December 31, 1995, 1994 and 1993:
Consolidated Statements of Earnings *
Consolidated Statements of Stockholders' Equity *
Consolidated Statements of Cash Flows *
Notes to Consolidated Financial Statements *
Independent Auditors' Report *
* Incorporated by reference to the 1995 Annual Report to Stockholders, filed
with the Commission pursuant to Rule 12b-23, portions of which are attached.
Independent Auditors' Report on Schedule 7
Schedule:
II Valuation and Qualifying Accounts for the years ended
December 31, 1995, 1994 and 1993 8
All other schedules are not submitted because they are not applicable or not
required or because the required information is included in the Consolidated
Financial Statements and related Notes in the 1995 Annual Report to
Stockholders.
6
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Board of Directors of Market Facts, Inc.:
Under date of February 27, 1996, we reported on the consolidated balance sheets
of Market Facts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1995, as
contained in the 1995 annual report to stockholders. These consolidated
financial statements and our report thereon are incorporated by reference in the
annual report on Form 10-K for the year 1995. In connection with our audits of
the aforementioned consolidated financial statements, we also have audited the
related financial statement schedule as listed in the accompanying index. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement schedule
based on our audits.
In our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
February 27, 1996
7
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Allowance For Doubtful Accounts:
Balance at beginning of year $668,805 $563,500 $ 551,514
MFCL's balance at 4/30/94 -- 42,334 --
Provision 197,515 101,666 185,000
Write-offs of uncollectible accounts (29,661) (37,450) (173,014)
Cumulative foreign currency 1,544 (1,245) --
translation -------- -------- ---------
Balance at end of year $838,203 $668,805 $ 563,500
======== ======== =========
</TABLE>
8
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the directors of the Registrant is included under the
caption "Election of Directors" in the Registrant's proxy statement for the
Registrant's 1996 Annual Meeting* and is incorporated herein by reference.
Information regarding the executive officers of the Registrant is included under
a separate caption at the end of Part I hereof, and is incorporated herein by
reference, in accordance with General Instruction G(3) to Form 10-K and
Instruction 3 to Item 401(b) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding the above is included under the captions "Remuneration of
Named Executive Officers", "Stock Options" and "Employment Agreements" in the
Registrant's proxy statement for the Registrant's 1996 Annual Meeting* and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding the above is included in the following sections of the
Registrant's proxy statement for the Registrant's 1996 Annual Meeting*, which
sections are hereby incorporated by reference:
Voting Securities - page 2
Election of Directors - pages 3 - 6
Security Ownership of Named Executive - page 6
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding the above is included in the following sections of the
Registrant's proxy statement for the Registrant's 1996 Annual Meeting*, which
sections are hereby incorporated by reference:
Information Respecting Nominees - page 4, footnote (5)
Certain Transactions - page 9
__________
* to be filed within 120 days after the end of the Registrant's fiscal year.
9
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements as indexed on page 6.
(a) (2) Financial Statement Schedule as indexed on page 6.
The consolidated balance sheets as of December 31, 1995 and 1994, and the
consolidated statements of earnings, stockholders' equity and cash flows for the
years ended December 31, 1995, 1994 and 1993, together with the report of the
independent auditors, and management's discussion and analysis of financial
condition and results of operations are contained in the Registrant's 1995
Annual Report to Stockholders, portions of which are filed with this Form 10-K
and are incorporated herein by reference.
(a) (3) See list of exhibits set forth in the Index on pages 12 and 13.
(b) None.
(c) See list of exhibits set forth in the Index on pages 12 and 13.
(d) Financial Statement Schedule as indexed on page 6.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report to be signed on
its behalf by the undersigned thereunto duly authorized.
MARKET FACTS, INC.
- ------------------
(Registrant)
By: TIMOTHY J. SULLIVAN
-------------------
Timothy J. Sullivan
Vice President, Treasurer and
Assistant Secretary
Dated: March 12, 1996
10
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
VERNE B. CHURCHILL
- ------------------
Verne B. Churchill
Chairman of the Board,
Chief Executive Officer and Director
THOMAS H. PAYNE
- ---------------
Thomas H. Payne
President, Chief Operating Officer
and Director
GLENN W. SCHMIDT
- ---------------- ---------------------
Glenn W. Schmidt William W. Boyd
Executive Vice President, Director
Assistant Secretary, Assistant Treasurer and Director
(Principal Financial Officer)
TIMOTHY J. SULLIVAN
- ------------------- ---------------------
Timothy J. Sullivan Karen E. Predow-James
Vice President, Treasurer and Assistant Secretary Director
(Principal Accounting Officer)
LAWRENCE W. LABASH
- ------------------ ---------------------
Lawrence W. Labash John C. Robertson
Senior Vice President and Director Chairman of the Board of Directors, Market Facts
of Canada, Ltd. and Director
TIMOTHY Q. ROUNDS
- ----------------- ---------------------
Timothy Q. Rounds Wesley S. Walton
Senior Vice President and Director Secretary and Director
SANFORD M. SCHWARTZ
- ------------------- ---------------------
Sanford M. Schwartz Jack R. Wentworth
Executive Vice President, Director
President, Market Facts - New York, Inc.
and Director
</TABLE>
March 12, 1996
11
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
(2)(1) Stock Purchase Agreement by and among Market Facts, Inc. and
John C. Robertson and Roberta Robertson dated as of April 27,
1994.
(3)(a)(5) Composite Certificate of Incorporation as Amended and Currently
in Effect.
(3)(b)(3) By-laws as Amended and Currently in Effect.
(4)(a)(5) Article Fourth of Certificate of Incorporation is included in
Exhibit (3)(a) above.
(4)(b)(6) The Stockholder Rights Plan.
(10.1)(8)* Term Note dated February 23, 1995 between Market Facts, Inc. and
Verne Churchill.
(10.2)(8)* Term Note dated February 23, 1995 between Market Facts, Inc. and
Lawrence Labash.
(10.3)(8)* Term Note dated February 23, 1995 between Market Facts, Inc. and
Thomas Payne.
(10.4)(8)* Term Note dated February 23, 1995 between Market Facts, Inc. and
Glenn Schmidt.
(10.5)(8)* Term Note dated March 1, 1995 between Market Facts, Inc. and
Stephen J. Weber.
(10.6)(7)* Promissory Note dated April 1, 1994 between Market Facts, Inc.
and Stephen J. Weber.
(10.7)(1)* Employment Agreement by and among Market Facts of Canada, Ltd.,
Market Facts, Inc. and John C. Robertson dated as of April 14,
1994.
(10.8)(4)* 1982 Executive Incentive Stock Option Plan.
(10.9)(3) Mortgage and Security Agreement dated April 11, 1990 between
American National Bank and Trust Company as Trustee under Trust
No. 110201-04 and The Manufacturers Life Insurance Company
together with Mortgage Note.
(10.10)(2) Unsecured Note and Procedures Letter between Market Facts, Inc.
and Harris Trust and Savings Bank.
(10.11)(2)* Employment Agreement with Verne B. Churchill.
(10.12)(2)* Employment Agreement with Lawrence W. Labash.
(10.13)(2)* Employment Agreement with Timothy Q. Rounds.
(10.14)(2)* Employment Agreement with Glenn W. Schmidt.
(10.15)(2)* Employment Agreement with Sanford M. Schwartz.
12
<PAGE>
Exhibit Number Description
-------------- -----------
(10.16)(2)* Indemnity Agreement with Jack R. Wentworth. Substantially
identical agreements were also entered into with the
following directors:
William W. Boyd John C. Robertson
Verne B. Churchill Timothy Q. Rounds
Lawrence W. Labash Glenn W. Schmidt
Thomas H. Payne Sanford M. Schwartz
Karen E. Predow-James Wesley S. Walton
(13) Portions of the 1995 Annual Report to Stockholders
incorporated herein by reference.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
_____________________
(1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1994.
(2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994.
(3) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1992.
(4) Incorporated by reference to Exhibit No. 10(d) of Registrant's Annual
Report on Form 10-K for its fiscal year ended December 31, 1981, commission
file number 0-4781.
(5) Incorporated by reference to Registrant's Annual Report on Form 10-K/A-1
for its fiscal year ended December 31, 1993.
(6) Incorporated by reference to Exhibit No. 4 of Registrant's Form 8-K dated
August 7, 1989, commission file number 0-4781.
(7) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q/A-1
for the quarterly period ended June 30, 1994.
(8) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1995.
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K pursuant to Item
14(c) of Form 10-K.
13
<PAGE>
EXHIBIT 13
Selected Financial Data
<TABLE>
<CAPTION>
1991 1992* 1993 1994 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $39,681,469 $40,718,225 $45,609,073 $55,483,032 $64,608,724
- ------------------------------------------------------------------------------------------------
Income from operations $ 1,411,897 $ 306,109 $ 2,662,481 $ 3,294,736 $ 5,194,779
- ------------------------------------------------------------------------------------------------
Net income (loss) available
to stockholders $ 797,177 $ (436,808) $ 1,074,352 $ 1,434,167 $ 2,226,119
- ------------------------------------------------------------------------------------------------
Weighted average common
and common equivalent
shares outstanding 1,683,699 1,693,839 1,752,173 1,892,825 1,942,206
Earnings per share $ .47 $ (.26) $ .61 $ .76 $ 1.15
- ------------------------------------------------------------------------------------------------
Total assets $27,765,738 $27,449,730 $27,974,494 $31,681,983 $34,376,637
- ------------------------------------------------------------------------------------------------
Long-term obligations $11,041,845 $10,935,854 $10,931,573 $11,523,178 $11,163,037
- ------------------------------------------------------------------------------------------------
Cash dividends declared $ .29 $ .20 $ .22 $ .29 $ .38
- ------------------------------------------------------------------------------------------------
</TABLE>
*Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 109 and has reported the cumulative effect of that
change in the method of accounting for income taxes in the 1992 consolidated
statement of earnings.
DIVIDENDS &
Market Price Statistics
<TABLE>
<CAPTION>
DIVIDENDS DECLARED MARKET PRICE STATISTICS*
- ---------------------------------------------------------------------
1994 1995
1994 1995 High Low HIGH LOW
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 8 cents 10 cents 8 7 1/4 14 1/2 12 1/2
3rd Quarter 7 cents 10 cents 8 1/4 7 1/4 15 10
2nd Quarter 7 cents 10 cents 9 7 1/2 11 7 1/2
1st Quarter 7 cents 8 cents 11 6 1/2 8 1/4 7 1/4
</TABLE>
As of February 20, 1996, there were approximately 896 holders of record of
Market Facts, Inc. common stock.
*Market Facts, Inc. common stock trades on The Nasdaq Stock Market under the
symbol MFAC.
1
<PAGE>
management's discussion and analysis of
Financial Condition and results of operations
LIQUIDITY AND CAPITAL RESOURCES
During 1995, cash and cash equivalents increased by $2,618,948 primarily due
to net cash provided by operations of $4,800,471 and proceeds from the exercise
of stock options of $676,605. These sources of cash were partially offset by
purchases of property of $1,570,259, payment of dividends of $721,784, payment
of the second installment for the acquisition of Market Facts of Canada, Ltd.
(MFCL) of $339,127 and a reduction in obligations under capital leases and long-
term debt of $323,719.
The Company's ratio of current assets to current liabilities was 1.5 to 1 at
the end of 1995 compared with 1.3 to 1 at the end of 1994. The improvement in
the ratio is primarily attributable to the increase in cash and cash equivalents
and a reduction in net billings in excess of revenue earned on contracts in
progress due to less timely billings. This is partially offset by an increase in
accrued expenses due primarily to higher year end accruals for compensation,
contributions to employee benefit plans and liabilities to vendors.
Stockholders' equity increased by $2,303,622 primarily due to current year net
income of $2,226,119 and proceeds from the exercise of stock options of
$676,605, partially offset by the payment of dividends of $721,784.
In April 1994, the Company acquired the remaining 50% of the issued and
outstanding shares of common stock of MFCL. The purchase price was $1,017,380,
payable in three equal installments. The first two installments were paid in
1994 and 1995 with the remaining installment due at the end of 1996.
The Company maintains established bank lines of credit which increased from
$4,000,000 to $7,000,000 during 1995. There were no borrowings outstanding from
these lines of credit at December 31, 1995 or 1994.
The Company's principal sources of cash flow are provided by operating
activities and borrowings under its lines of credit. The Company believes that
cash flow from operations, its ability to secure additional leases and
borrowings available from its lines of credit will be adequate to fund both
short-term and long-term investing and financing activities and growth for the
foreseeable future.
RESULTS OF OPERATIONS: COMPARISON OF 1995 TO 1994
The Company had revenue of $64,608,724 during 1995, an increase of 16.4% over
1994. The growth in revenue was due primarily to higher levels of utilization of
research products and services that are proprietary to the Company and the
acquisition of MFCL.
Gross margin for 1995 was $28,295,407, an increase of 12.1% over 1994. The
increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 43.8% in 1995 compared to 45.5% in 1994. The decline
in the gross margin percentage is primarily attributable to two factors. First,
the Company is allocating a greater share of internal operating costs directly
to client research projects, and second, the Company has experienced growth in
certain types of business which yield lower gross margin percentages but which
require only a minimal increase in operating expenses.
Operating expenses for 1995 rose by $1,160,683, an increase of 5.3% compared
to 1994. These results are due primarily to the increased level of business
activity, higher payroll expenses and the acquisition of MFCL, partially offset
by greater internal operating costs being allocated to client research projects.
However, operating expenses as a percentage of revenue were 35.8% in 1995
compared to 39.5% during 1994 primarily as a result of greater internal
operating costs being allocated to client research projects.
4
<PAGE>
The 1995 provision for income taxes reflects an effective tax rate of 47.2%
versus 33.5% in 1994. The increase in the effective tax rate is primarily due to
the elimination in 1994 of the valuation allowance for state deferred tax assets
of $254,107 and higher foreign, state and local income taxes.
Net income for 1995 was $2,226,119 or 3.4% of revenue compared with $1,434,167
and 2.6% of revenue in 1994.
RESULTS OF OPERATIONS: COMPARISON OF 1994 TO 1993
The Company had revenue of $55,483,032 during 1994, an increase of 21.6% over
1993. The growth in revenue was due primarily to higher levels of utilization of
research products and services that are proprietary to the Company and the
acquisition of MFCL.
Gross margin for 1994 was $25,234,681, an increase of 18.6% over 1993. The
increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 45.5% in 1994 compared to 46.7% in 1993. The decline
in the gross margin percentage is primarily attributable to two factors. First,
the Company is allocating a greater share of internal operating costs directly
to client research projects and second, the Company has experienced growth in
certain types of business which yield lower gross margin percentages but which
require only a minimal increase in operating expenses.
Operating expenses for 1994 rose by $3,317,793, an increase of 17.8% compared
to 1993. These results are due primarily to increased payroll expenses,
continuing investments in new technologies, expansion of the Consumer Mail Panel
and the acquisition of MFCL, partially offset by the change in allocation of
internal operating costs to client research projects. Operating expenses as a
percentage of revenue were 39.5% in 1994 compared to 40.8% during 1993.
The 1994 income tax provision reflects the elimination of the valuation
allowance for state deferred tax assets of $254,107, resulting in an effective
income tax rate of 33.5%.
Net income for 1994 was $1,434,167 or 2.6% of revenue compared with $1,074,352
and 2.4% of revenue in 1993.
IMPACT OF ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was
issued in March 1995 and is effective for fiscal years beginning after December
15, 1995.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation Plans" was issued in October 1995. The Statement is effective
for fiscal years beginning after December 15, 1995. As allowed by the new
Statement, the Company plans to continue to use Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" in accounting for its
stock options. Certain pro forma and other information will be disclosed as if
the Company had measured compensation costs in a manner consistent with the new
Statement.
Management has reviewed these Statements and expects that their provisions
will not have a material adverse effect upon the financial condition or results
of operations of the Company.
5
<PAGE>
================================================================================
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,530,157 $ 911,209
Bank certificate of deposit 50,000 50,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$838,203 and $668,805 in 1995 and 1994, respectively 9,547,035 9,433,470
Other 6,200 128,232
Notes receivable 79,214 59,037
Revenue earned on contracts in progress in excess of billings 2,889,027 2,394,591
Current portion of deferred income taxes 747,314 624,578
Prepaid expenses and other assets 309,954 435,723
- -------------------------------------------------------------------------------------------
Total Current Assets $17,158,901 $14,036,840
- -------------------------------------------------------------------------------------------
OTHER ASSETS:
Goodwill, net of accumulated amortization $ 557,568 $ 599,386
Mail panel acquired, net of accumulated amortization 101,587 182,857
- -------------------------------------------------------------------------------------------
Total Other Assets $ 659,155 $ 782,243
- -------------------------------------------------------------------------------------------
PROPERTY, AT COST:
Land $ 1,221,459 $ 1,221,459
Building and building improvements 12,544,681 12,436,819
Computer and office equipment 7,777,869 6,641,992
Furniture and fixtures 2,906,981 2,539,410
Leasehold improvements 1,318,176 1,264,567
Vehicles 313,881 435,115
- -------------------------------------------------------------------------------------------
$26,083,047 $24,539,362
Less accumulated depreciation and amortization (9,524,466) (7,676,462)
- -------------------------------------------------------------------------------------------
Net Property $16,558,581 $16,862,900
- -------------------------------------------------------------------------------------------
Total Assets $34,376,637 $31,681,983
===========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
Market Facts, Inc. and Subsidiaries as of December 31, 1995 and 1994
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued expenses $ 5,515,608 $ 4,393,196
Billings in excess of revenues earned on contracts in progress 3,328,937 3,712,487
Accounts payable 1,253,922 995,644
Income taxes 387,742 684,950
Current portion of note payable for acquisition of MFCL 339,126 339,127
Current portion of obligations under capital leases 225,903 185,026
Current portion of long-term debt 112,555 102,190
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities $11,163,793 $10,412,620
- ------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt $10,419,628 $10,532,183
Obligations under capital leases, noncurrent portion 536,242 581,710
Note payable for acquisition of MFCL, noncurrent portion -- 339,126
Deferred income taxes 205,545 39,122
Other long-term liabilities 1,622 31,037
- ------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities $11,163,037 $11,523,178
- ------------------------------------------------------------------------------------------------------------
Total Liabilities $22,326,830 $21,935,798
- ------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares authorized; none issued $ -- $ --
Common stock, $1 par value; 5,000,000 shares authorized;
2,106,237 and 1,973,241 shares issued in 1995 and 1994, respectively 2,106,237 1,973,241
Capital in excess of par value 2,328,137 1,765,776
Cumulative foreign currency translation (69,144) (100,391)
Retained earnings 9,525,401 8,021,066
- ------------------------------------------------------------------------------------------------------------
$13,890,631 $11,659,692
Less 167,468 and 184,402 shares of treasury common stock, at cost,
in 1995 and 1994, respectively (1,189,029) (1,310,134)
Less other transactions involving common stock (651,795) (603,373)
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $12,049,807 $ 9,746,185
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $34,376,637 $31,681,983
============================================================================================================
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994 and 1993
========================================================================================
CONSOLIDATED STATEMENTS OF EARNINGS
1995 1994 1993
---------------------------------------
<S> <C> <C> <C>
REVENUE $64,608,724 $55,483,032 $45,609,073
- --------------------------------------------------------------------------------------------------------------
DIRECT COSTS:
Payroll $13,853,642 $12,166,287 $10,015,925
Other expenses 22,459,675 18,082,064 14,308,515
- --------------------------------------------------------------------------------------------------------------
Total $36,313,317 $30,248,351 $24,324,440
- --------------------------------------------------------------------------------------------------------------
Gross Margin $28,295,407 $25,234,681 $21,284,633
- --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Selling $ 2,292,190 $ 2,076,829 $ 1,666,226
General and administrative 20,005,436 19,285,376 16,480,926
Contributions to profit sharing and employee stock ownership plans 803,002 577,740 475,000
- --------------------------------------------------------------------------------------------------------------
Total $23,100,628 $21,939,945 $18,622,152
- --------------------------------------------------------------------------------------------------------------
Income From Operations $ 5,194,779 $ 3,294,736 $ 2,662,481
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME (EXPENSE):
Interest expense $(1,137,728) $(1,259,887) $(1,174,199)
Interest income 77,636 47,718 61,718
Equity in income of MFCL -- 33,668 131,493
Other income, net 85,432 39,932 36,859
- --------------------------------------------------------------------------------------------------------------
Total $ (974,660) $(1,138,569) $ (944,129)
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE PROVISION FOR INCOME TAXES $ 4,220,119 $ 2,156,167 $ 1,718,352
PROVISION FOR INCOME TAXES 1,994,000 722,000 644,000
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 2,226,119 $ 1,434,167 $ 1,074,352
==============================================================================================================
EARNINGS PER SHARE $1.15 $.76 $.61
==============================================================================================================
COMMON AND COMMON EQUIVALENT SHARES 1,942,206 1,892,825 1,752,173
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE>
<TABLE>
<CAPTION>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994 and 1993
========================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
PREFERRED STOCK:
BALANCE at beginning and end of year $ -- $ -- $ --
===============================================================================================================
COMMON STOCK:
BALANCE at beginning of year $ 1,973,241 $ 1,965,741 $ 1,965,741
COMMON stock issued during the year 132,996 7,500 --
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $ 2,106,237 $ 1,973,241 $ 1,965,741
===============================================================================================================
CAPITAL IN EXCESS OF PAR VALUE:
BALANCE at beginning of year $ 1,765,776 $ 1,735,214 $ 1,735,214
COMMON stock issued during the year 562,361 30,562 --
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $ 2,328,137 $ 1,765,776 $ 1,735,214
===============================================================================================================
ADJUSTMENT FROM FOREIGN CURRENCY TRANSLATION:
BALANCE at beginning of year $ (100,391) $ (56,526) $ (29,965)
CURRENT year adjustment 31,247 (43,865) (26,561)
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $ (69,144) $ (100,391) $ (56,526)
===============================================================================================================
RETAINED EARNINGS:
BALANCE at beginning of year $ 8,021,066 $ 7,104,997 $ 6,415,208
NET income 2,226,119 1,434,167 1,074,352
LESS dividends declared--common, $.38 per share in 1995,
$.29 in 1994 and $.22 in 1993 (721,784) (518,098) (384,563)
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $ 9,525,401 $ 8,021,066 $ 7,104,997
===============================================================================================================
TREASURY COMMON STOCK:
BALANCE at beginning of year $(1,310,134) $(1,310,134) $(1,510,132)
TREASURY stock issued 121,105 -- 199,998
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $(1,189,029) $(1,310,134) $(1,310,134)
===============================================================================================================
OTHER TRANSACTIONS INVOLVING COMMON STOCK:
BALANCE at beginning of year $ (603,373) $ (616,232) $ (746,356)
ISSUANCE of demand notes receivable (159,750) (115,500) (45,000)
PAYMENTS received on demand notes receivable 55,896 75,571 127,624
VESTING of restricted stock and demand notes receivable 55,432 52,788 47,500
- ---------------------------------------------------------------------------------------------------------------
BALANCE at end of year $ (651,795) $ (603,373) $ (616,232)
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
<TABLE>
<CAPTION>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994 and 1993
========================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,226,119 $ 1,434,167 $ 1,074,352
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,164,114 2,055,792 1,715,005
Vesting of restricted stock and demand notes receivable 55,432 52,788 47,500
Deferred income taxes 43,783 (185,534) (104,000)
Net gain on disposal of property (39,297) (46,630) (28,591)
Undistributed earnings of MFCL -- (15,972) (21,393)
Contribution of treasury stock to employee stock ownership plan -- -- 199,998
Change in assets and liabilities:
Accounts receivable 31,518 (960,335) 56,556
Prepaid expenses and other assets 126,853 (269,800) 115,414
Revenues earned in excess of billings on contracts in progress (875,035) (168,847) (95,465)
Accounts payable and accrued expenses 1,364,902 665,682 319,918
Income taxes (297,918) 613,280 93,266
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $ 4,800,471 $ 3,174,591 $ 3,372,560
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property $(1,570,259) $(1,331,484) $(2,036,263)
Payment for acquisition of MFCL, net of acquired cash (339,127) (134,964) --
Investment in notes receivable (238,945) (182,668) (150,529)
Proceeds from notes receivable 114,914 165,831 476,980
Proceeds from the sale of property 65,559 132,760 67,882
Proceeds from bank certificates of deposit -- -- 26,462
- --------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $(1,967,858) $(1,350,525) $(1,615,468)
- --------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings $(2,000,000) $(7,500,000) $(3,190,000)
Proceeds from short-term borrowings 2,000,000 6,600,000 2,380,000
Dividends paid (721,784) (518,098) (384,563)
Proceeds from exercise of stock options 676,605 38,062 --
Reduction of obligations under capital leases and long-term debt (323,719) (319,159) (218,205)
Proceeds from the sale of treasury stock 139,857 -- --
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities $ (229,041) $(1,699,195) $(1,412,768)
- --------------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH $ 15,376 $ 13,352 $ --
- --------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 2,618,948 $ 138,223 $ 344,324
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 911,209 772,986 428,662
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,530,157 $ 911,209 $ 772,986
==============================================================================================================
CASH PAID DURING THE YEAR FOR:
Interest $ 1,140,464 $ 1,227,800 $ 1,172,714
Income taxes $ 2,215,411 $ 321,499 $ 654,732
==============================================================================================================
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES:
Capital lease obligations incurred on lease of equipment $ 208,465 $ 189,948 $ 238,229
Issuance of note payable $ -- $ 1,017,380 $ --
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
10
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
===============================================================================
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Principles of Consolidation and Line of Business:
The accompanying consolidated financial statements include the accounts of
Market Facts, Inc. and its subsidiaries (Company). All significant intercompany
transactions have been eliminated.
The Company is engaged in marketing research services as its dominant line of
business. One client accounted for approximately 12% of total 1995 revenue and
10% of total 1994 revenue.
b. Revenue Recognition:
The Company recognizes revenue under the percentage of completion method of
accounting. Revenue on client projects is recognized as services are performed.
Losses expected to be incurred on jobs in progress are charged to income as soon
as such losses are known. Revenue earned on contracts in progress in excess of
billings is classified as a current asset. Amounts billed in excess of revenue
earned are classified as a current liability. Client projects are expected to be
completed within a twelve month period.
c. Cash and Cash Equivalents:
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
d. Mail Panel Acquired:
Total capitalized costs of a purchased mail panel are amortized using the
straight-line method over the panel's estimated life of five years.
e. Property:
Maintenance and repairs are expensed and renewals and betterments are
capitalized. Upon retirement or disposition of property, the applicable cost and
accumulated depreciation and amortization are removed from the accounts and the
resulting gains or losses are included in income.
Depreciation is provided on the straight-line method at rates considered
adequate to depreciate the costs of property over their estimated useful lives.
The useful life of the building is 31 1/2 years, while all other owned assets
have estimated useful lives of three to ten years. Property under capital leases
is recorded at the lower of the fair market value of the leased property or the
present value of the minimum lease payments. Amortization of the leased property
is computed using the straight-line method over the lease term.
f. Income Taxes:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires an
asset and liability method of accounting for income taxes. Under the asset and
liability method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.
g. Earnings Per Share:
Earnings per share are based on the weighted average number of common shares and
common share equivalents (resulting from options granted under the Company's
1982 Incentive Stock Option Plan) outstanding during the year.
h. Foreign Currency Translation:
The financial statements of the Company's foreign operations have been
translated in accordance with Statement of Financial Accounting Standards No.
52. Accordingly, assets and liabilities have been translated using the exchange
rate in effect at the balance sheet date. Results of operations are translated
using the average exchange rate prevailing throughout the period. Resulting
translation gains and losses are reported as a component of stockholders'
equity.
i. Disclosure of Certain Significant Risks and Uncertainties:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
j. Financial Instruments:
The carrying amounts of the Company's financial instruments approximate their
fair values.
2. NOTES RECEIVABLE:
Notes receivable consist of amounts due from officers and employees. The notes
bear interest at the prime lending rate (8.5% at December 31, 1995).
11
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
================================================================================
Notes to Consolidated Financial Statements (continued)
3. BANK BORROWINGS:
The Company maintains established bank lines of credit which are renewed
annually. The lines of credit increased from $4,000,000 to $7,000,000 during
1995. No amounts were outstanding under these agreements at December 31, 1995 or
1994. The borrowings bear interest at the prime lending rate which was 8.5% at
December 31, 1995 and 1994. The weighted average interest rate outstanding
during 1995 and 1994 was 9.0% and 7.4%, respectively.
4. ACCRUED EXPENSES:
Accrued expenses consist of the following at December 31:
1995 1994
---------- ----------
Compensation $2,043,189 $1,656,335
Real estate taxes 858,037 842,000
Contributions to employee
benefit plans 636,786 376,568
Other 1,977,596 1,518,293
- ---------------------------------------------------
Total $5,515,608 $4,393,196
===================================================
5. LONG-TERM DEBT:
Long-term debt relates to the mortgage loan on the office building used by the
Company as its corporate and operations headquarters. The loan bears interest at
a fixed rate of 9.7% per annum. Principal payments due under the terms of the
mortgage with the final principal amount due May 1, 2000 are as follows:
In 1996................ $ 112,555
In 1997................ $ 123,972
In 1998................ $ 136,546
In 1999................ $ 150,396
In 2000................ $10,008,714
6. STOCKHOLDERS' EQUITY:
In April 1986, the stockholders approved an amendment to the Certificate of
Incorporation creating a new class of 500,000 shares of preferred stock, without
par value. No shares have been issued to date.
On July 26, 1989, the Board of Directors of the Company approved a stockholder
rights agreement which provides for a dividend distribution of one preferred
share purchase right for each outstanding share of common stock. Each right
initially entitles stockholders, upon occurrence of certain events, to purchase
one one-hundredth of a share of Series A preferred stock (25,000 shares of the
preferred stock authorized in April 1986 have been designated as Series A
preferred stock), at an exercise price of $20 per one one-hundredth of a
preferred share, subject to adjustment.
The rights become exercisable ten days after a person, group or company acquires
20% or more of Company common stock or announces a tender offer which would
result in ownership of 20% or more of the common stock. The Company is entitled
to redeem the rights at one cent per right at any time before a 20% or greater
position has been acquired.
If the Company is acquired in a merger or other business combination transaction
or 50% or more of its consolidated assets or earning power are sold, each right
will entitle its holder to purchase, at the right's then current exercise price,
a number of the acquiring company's common shares having a market value at that
time of twice the right's exercise price. In addition, in the event a person or
group acquires 20% or more of the Company's common stock, each right (other than
those held by the acquiring person or group) will entitle its holder to purchase
a number of shares of the acquiring company's common stock having a market value
of two times the exercise price of the right.
At any time after a person or group acquires 20% or more (but less than 50%) of
the Company's outstanding common stock, the Board of Directors may exchange the
rights at an exchange ratio of one share of common stock for one one-hundredth
of a share of Series A preferred stock per right. The rights will expire on
August 7, 1999.
During 1995, the Company sold 16,934 shares of its common stock, previously held
in treasury, to its employee benefit plans. In 1993, the Company contributed
33,333 shares of its common stock, previously held in treasury, to its Employee
Stock Ownership Plan.
Other transactions involving common stock consist of demand notes receivable due
from officers and employees and unearned restricted stock. Monies received by
officers and employees under the demand notes receivable were used to purchase
Company common stock. These demand notes receivable, classified as a reduction
of stockholders' equity, amounted to $366,795, $270,873 and $236,232 as of
December 31, 1995, 1994 and 1993, respectively. Some of the notes, which are due
in ten equal annual installments through 2004, provide for the forgiveness of
every other principal payment, contingent upon the borrower's employment with
the Company on the date such payment is due. The Company recognized $7,932 and
$5,288 of compensation expense in 1995 and 1994, respectively, relating to the
forgiveness of debt. All other notes are due in varying installments through
2001.
12
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
================================================================================
Notes to Consolidated Financial Statements (continued)
Unearned restricted stock amounted to $285,000, $332,500 and $380,000 as of
December 31, 1995, 1994 and 1993, respectively, and relates to a 1992 restricted
stock grant of 100,000 shares of common stock to a Company executive which vests
at a rate of 10% per year, subject to his continued employment with the Company.
The aggregate fair market value of the shares at date of grant is unearned
compensation and the amount is amortized to compensation expense over the
periods the restrictions lapse. Amortization of this compensation expense
amounted to $47,500 in 1995, 1994 and 1993.
7. EMPLOYEE STOCK OPTION PLAN:
Under terms of the noncompensatory 1982 Incentive Stock Option Plan (1982 Plan)
which expired as of May 1, 1992, options to purchase shares of the Company's
common stock have been granted at a price equal to the market price at the date
of grant.
Options from the 1982 Plan are exercisable on or after the first anniversary of
the date of the grant and expire four years after the date of the grant. 421,441
shares of the Company's common stock have been reserved for stock option grants
under the 1982 Plan. Shares under option relating to the plan are summarized as
follows:
1982 Plan
---------------------------
1995 1994 1993
-------- -------- --------
Options outstanding
at beginning of year 293,500 347,900 372,400
Options exercised (132,996) (7,500) --
Options canceled (78,504) (46,900) (24,500)
- -----------------------------------------------------------
Options outstanding
and exercisable
at end of year 82,000 293,500 347,900
===========================================================
Average price of options:
Exercised during year $5.09 $5.08 $--
Outstanding at end of year $5.08 $5.10 $5.13
===========================================================
8. EMPLOYEE BENEFIT PLANS:
In July 1985, the Company adopted an Employee Stock Ownership Plan (ESOP), which
covers substantially all employees. Under the ESOP, the Company may make
contributions at its discretion, within defined limits, in the form of cash or
common stock of the Company. Cash contributions must be used to purchase shares
of common stock of the Company. The Company made a $50,000 cash contribution in
1995, no contribution in 1994, and a $200,000 contribution in the form of cash
and common stock in 1993.
The Company maintains separate defined-contribution profit sharing plans for its
U.S. and Canadian operations which cover substantially all employees.
Contributions to the plans, subject to certain limitations, are at the
discretion of the Company and were $753,002 in 1995, $577,740 in 1994 and
$275,000 in 1993.
9. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases office facilities, along with some of its computer and office
equipment and vehicles, under operating lease agreements. Total rental expense
was approximately $1,331,000, $1,193,000 and $1,232,000 in 1995, 1994 and 1993,
respectively. Some of the Company's leases provide for escalations based on
increases in the lessors' taxes, maintenance and other operating expenses.
Computer and office equipment include $1,444,868 and $1,351,517 in 1995 and
1994, respectively, of computer and other equipment acquired under capital
leases. Accumulated depreciation and amortization include $667,956 and $514,617
in 1995 and 1994, respectively, of accumulated amortization on capital leases.
The leases provide for the payment of certain insurance and maintenance expenses
and contain renewal options. The leases also provide for upgrading the equipment
under lease and the purchase of equipment. The amortization expense for these
capital leases was $274,704, $188,457 and $116,551 in 1995, 1994 and 1993,
respectively.
The minimum future rentals under capital and operating leases with an initial
term of one year or more as of December 31, 1995 are as follows:
Operating Leases
------------------------
Capital Office Equipment
Year Leases Facilities & Vehicles
- ------------------------------- ---------- ----------
1996 $273,381 $1,204,968 $ 95,052
1997 233,264 1,205,983 25,238
1998 205,619 1,233,119 16,329
1999 74,881 933,163 492
2000 59,072 746,205 --
2001 and thereafter 29,536 1,507,190 --
- -----------------------------------------------------------
Total minimum
lease payments $875,753 $6,830,628 $137,111
========== ========
Less amounts
representing
interest 113,608
--------
Present value
of minimum
lease payments 762,145
Current portion 225,903
--------
Long-term portion $536,242
===========================================================
13
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
================================================================================
Notes to Consolidated Financial Statements (continued)
10. PROVISION FOR INCOME TAXES:
The provision for income taxes consists of the following:
1995 1994 1993
---------- --------- --------
Currently payable:
Federal $1,422,900 $ 637,100 $616,000
State and local 349,000 137,000 132,000
Foreign 178,700 133,900 --
Deferred:
Federal (44,000) (8,000) (74,000)
State and local 110,000 (178,000) (30,000)
Foreign (22,600) -- --
- -------------------------------------------------------
Total $1,994,000 $ 722,000 $644,000
=======================================================
The following is a reconciliation between the statutory Federal income tax rate
and the Company's effective income tax rate:
1995 1994 1993
---------- --------- --------
Statutory Federal
income tax rate 34.0% 34.0% 34.0%
State and local income
taxes, net of Federal
income tax benefits 8.0 7.7 5.2
Foreign income taxes 1.3 1.8 --
Foreign tax credit -- (1.2) (3.4)
Distribution of earnings
of MFCL -- 0.7 0.8
Change in the valuation
allowance for deferred
tax assets -- (11.8) (1.2)
Other 3.9 2.3 2.1
- ------------------------------------------------------------------
Effective income tax rate 47.2% 33.5% 37.5%
==================================================================
The significant components of the deferred income tax
expense (benefit) are as follows:
1995 1994 1993
-------- --------- ---------
Deferred tax expense
(benefit) (exclusive of
change in valuation
allowance) $43,400 $ 68,000 $ (83,000)
Change in beginning-
of-the-year valuation
allowance for
deferred tax assets -- (254,000) (21,000)
- ----------------------------------------------------------------
Total $43,400 $(186,000) $(104,000)
================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 and
1994 are presented below:
Significant deferred
tax assets (liabilities): 1995 1994
-------- --------
Doubtful accounts $329,689 $235,915
Vacation 144,102 131,255
Rent abatement 100,206 89,434
Net operating loss carryforwards 53,297 175,122
Other 120,020 116,910
Depreciation (205,545) (163,180)
-------- --------
Net deferred tax asset $541,769 $585,456
======== ========
The valuation allowance related to state deferred tax assets which were
primarily generated by net operating loss carryforwards. Prior to 1994,
management was unable to conclude whether all state deferred tax assets would be
utilized. In 1994, a subsidiary of the Company completed another profitable year
and management reassessed the likelihood of realizing the benefit of the state
net operating loss carryforwards. Principally as a result of the reassessment,
which included the consideration of expected future taxable income and available
tax planning strategies, the valuation allowance at January 1, 1994 of $254,000
was eliminated. Of that amount, approximately $79,000 was realized in 1994. The
Company has net operating loss carryforwards at December 31, 1995 of
approximately $600,000 which are available to offset certain future state income
through 2006. At December 31, 1995, all deferred tax assets are considered
realizable in view of past, current and the expectation of future taxable
income.
Federal income taxes and foreign withholding taxes have not been provided on the
Company's share of the undistributed earnings ($1,260,538 at December 31, 1995)
of MFCL since these earnings are considered to be permanently reinvested. The
net Federal income taxes and foreign withholding taxes which would be payable if
these earnings were distributed would be insignificant to the financial position
and results of operations of the Company.
14
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
================================================================================
Notes to Consolidated Financial Statements (continued)
11. MARKET FACTS OF CANADA, LTD. (MFCL):
Prior to April 30, 1994, the Company owned 50% of the stock of MFCL and
accounted for its investment using the equity method of accounting. The
remaining 50% interest was owned jointly by Roberta Robertson and John C.
Robertson, a director of the Company and President of MFCL (collectively, the
"Selling Stockholders").
Pursuant to a Stock Purchase Agreement between the Selling Stockholders and the
Company, the Company acquired the remaining 50% of the issued and outstanding
shares of common stock of MFCL effective April 29, 1994. The purchase price for
the common stock and the covenants not to compete was $1,017,380 and is payable
in three equal installments, as evidenced by a note issued by the Company to the
Selling Stockholders. The first two installments plus interest at 6% were paid
April 29, 1994 and December 29, 1995. The remaining installment plus accrued and
unpaid interest at 6% is due December 31, 1996. The acquisition has been
accounted for under the purchase method of accounting. The excess of the
purchase price over the fair market value of the net assets acquired has been
recorded as goodwill and is being amortized using the straight-line method over
15 years. The fair value of assets acquired was $1,058,989 and liabilities
assumed was $668,873.
The Company's consolidated financial statements report MFCL's results of
operations and cash flow activity for the periods subsequent to April 30, 1994
under the consolidated method of accounting.
MFCL maintains offices in Toronto and Montreal and provides Canadian and
American firms with marketing research information on Canadian consumers. MFCL
utilizes the same general methods of marketing research as the Company and
maintains its own survey staff and mail panel. This is the Company's only
foreign subsidiary.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the unaudited quarterly results of operations for
1995 and 1994 (in thousands, except for earnings per share):
1995 First Second Third Fourth
- --------------------------------------------------------
Revenue $15,333 $16,332 $15,880 $17,064
Gross margin $ 6,583 $ 7,332 $ 6,979 $ 7,401
Net income $ 417 $ 514 $ 549 $ 746
Earnings per share $ .23 $ .26 $ .28 $ .38
========================================================
1994 First Second Third Fourth
- --------------------------------------------------------
Revenue $11,118 $12,687 $16,203 $15,475
Gross margin $ 4,951 $ 5,842 $ 7,257 $ 7,185
Net income $ 153 $ 71 $ 516 $ 694
Earnings per share $ .08 $ .04 $ .27 $ .37
========================================================
15
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1995, 1994
and 1993
================================================================================
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Market Facts, Inc.:
We have audited the accompanying consolidated balance sheets of Market
Facts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 financial position of Market
Facts, Inc. and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 27, 1996
16
<PAGE>
Exhibit No. 21
SUBSIDIARIES OF MARKET FACTS, INC.
Place of
Name Incorporation
- ---- -------------
Market Facts - New York, Inc. New York
Market Facts of Canada, Ltd. Canada
<PAGE>
Exhibit No. 23
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors of Market Facts, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-61726) on Form S-8 of Market Facts, Inc. of our reports dated February
27, 1996, relating to the consolidated balance sheets of Market Facts, Inc. and
subsidiaries as of December 31, 1995 and 1994, the related consolidated
statements of earnings, stockholders' equity, and cash flows and related
financial statement schedule for each of the years in the three year period
ended December 31, 1995, which reports appear in or are incorporated by
reference in the December 31, 1995 annual report on Form 10-K of Market Facts,
Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 19, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,530,157
<SECURITIES> 50,000
<RECEIVABLES> 10,385,238
<ALLOWANCES> 838,203
<INVENTORY> 0
<CURRENT-ASSETS> 17,158,901
<PP&E> 26,083,047
<DEPRECIATION> 9,524,466
<TOTAL-ASSETS> 34,376,637
<CURRENT-LIABILITIES> 11,163,793
<BONDS> 0
<COMMON> 2,106,237
0
0
<OTHER-SE> 9,943,570
<TOTAL-LIABILITY-AND-EQUITY> 34,376,637
<SALES> 64,608,724
<TOTAL-REVENUES> 64,608,724
<CGS> 36,313,317
<TOTAL-COSTS> 36,313,317
<OTHER-EXPENSES> 23,100,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,137,728
<INCOME-PRETAX> 4,220,119
<INCOME-TAX> 1,994,000
<INCOME-CONTINUING> 2,226,119
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,226,119
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
</TABLE>
