<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-04781
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MARKET FACTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-2061602
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(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Employer Identification No.)
3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 590-7000
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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 THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
8,928,301 common shares as of November 2, 1998
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Market Facts, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
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<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 20,085,311 $ 36,444,256
Certificate of deposit 50,000 50,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,220,588 in 1998 and $1,101,551 in 1997 19,470,505 20,085,658
Other 116,154 60,189
Notes receivable 11,975 188,844
Revenues earned on contracts in progress
in excess of billings 8,127,885 4,618,736
Deferred income taxes 1,133,946 1,136,254
Prepaid expenses and other assets 540,195 514,323
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Total Current Assets 49,535,971 63,098,260
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PROPERTY, AT COST 34,170,652 30,356,209
Less accumulated depreciation and amortization (15,419,073) (13,274,711)
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Net Property 18,751,579 17,081,498
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OTHER ASSETS:
Goodwill and other intangibles, net of accumulated amortization
of $766,835 in 1998 and $229,772 in 1997 25,791,602 4,959,752
Deferred income taxes, noncurrent 1,142,298 1,063,833
Investment in affiliated companies 441,843 688,404
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Total Other Assets 27,375,743 6,711,989
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Total Assets $ 95,663,293 $ 86,891,747
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
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MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
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<S> <C> <C>
CURRENT LIABILITIES:
Accrued expenses $ 11,161,710 $ 10,052,639
Billings in excess of revenues earned
on contracts in progress 8,629,649 9,267,185
Accounts payable 2,955,901 2,380,596
Income taxes 1,700,980 945,449
Current portion of obligations under capital leases 158,072 154,991
Current portion of long-term debt 136,546 136,546
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Total Current Liabilities 24,742,858 22,937,406
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LONG-TERM LIABILITIES:
Long-term debt 10,057,947 10,159,110
Obligations under capital leases, noncurrent portion 766,002 249,978
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Total Long-Term Liabilities 10,823,949 10,409,088
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Total Liabilities 35,566,807 33,346,494
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STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares authorized;
Series A - none issued; Series B - 100 shares issued -- --
Common stock, $1 par value; 15,000,000 shares authorized;10,910,058 and 10,875,258
shares issued as of September 30, 1998 and December 31, 1997, respectively 10,910,058 10,875,258
Capital in excess of par value 45,504,005 44,707,038
Cumulative foreign currency translation (231,045) (133,632)
Retained earnings 18,262,075 12,672,160
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74,445,093 68,120,824
Less treasury common stock at cost; 1,999,757 and 2,042,550 shares
as of September 30, 1998 and December 31, 1997, respectively (13,723,714) (13,891,966)
Less other transactions involving common stock (624,893) (683,605)
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Total Stockholders' Equity 60,096,486 53,545,253
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Total Liabilities and Stockholders' Equity $ 95,663,293 $ 86,891,747
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
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<TABLE>
<CAPTION>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Three Months Ended September 30,
--------------------------------
1998 1997
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<S> <C> <C>
REVENUE $ 34,859,301 $ 24,858,871
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DIRECT COSTS:
Payroll 6,301,374 4,529,289
Other expenses 14,060,225 9,774,128
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Total 20,361,599 14,303,417
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Gross Margin 14,497,702 10,555,454
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OPERATING EXPENSES:
Selling 1,100,950 826,026
General and administrative 9,681,559 7,287,281
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Total 10,782,509 8,113,307
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Income from Operations 3,715,193 2,442,147
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OTHER INCOME (EXPENSE):
Interest expense (264,720) (300,077)
Interest income 184,474 6,621
Other income, net 53,018 25,012
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Total (27,228) (268,444)
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Income Before Provision For Income Taxes 3,687,965 2,173,703
Provision For Income Taxes 1,510,490 893,385
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NET INCOME $ 2,177,475 $ 1,280,318
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BASIC EARNINGS PER SHARE $ .25 $ .18
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DILUTED EARNINGS PER SHARE $ .24 $ .18
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</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 3
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MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
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<S> <C> <C>
REVENUE $ 98,270,059 $ 71,693,518
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DIRECT COSTS:
Payroll 18,004,628 13,149,321
Other expenses 38,023,423 27,090,441
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Total 56,028,051 40,239,762
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Gross Margin 42,242,008 31,453,756
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OPERATING EXPENSES:
Selling 3,362,225 2,410,657
General and administrative 29,331,377 22,790,588
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Total 32,693,602 25,201,245
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Income from Operations 9,548,406 6,252,511
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OTHER INCOME (EXPENSE):
Interest expense (831,690) (842,938)
Interest income 703,068 38,866
Other income, net 186,589 71,923
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Total 57,967 (732,149)
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Income Before Provision For Income Taxes 9,606,373 5,520,362
Provision For Income Taxes 4,016,458 2,324,851
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NET INCOME $ 5,589,915 $ 3,195,511
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BASIC EARNINGS PER SHARE $ .63 $ .46
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DILUTED EARNINGS PER SHARE $ .61 $ .45
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,589,915 $ 3,195,511
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,998,347 2,309,959
Deferred income taxes (80,311) --
Vesting of restricted stock and demand notes receivable 41,574 41,574
Net gain on disposal of property (86,030) (17,005)
Change in assets and liabilities:
Accounts receivable 1,516,314 3,574,593
Prepaid expenses and other assets (90,118) 76,096
Billings less than revenues earned on contracts in progress (4,742,913) (1,498,707)
Accounts payable and accrued expenses 47,073 (92,509)
Income taxes 758,802 (118,311)
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Net cash provided by operating activities 5,952,653 7,471,201
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of acquired cash (19,278,208) (3,789,061)
Purchases of property (3,040,949) (1,797,739)
Proceeds from notes receivable 194,007 98,398
Investment in affiliated companies 36,561 (250,000)
Investment in notes receivable -- (150,000)
Proceeds from the sale of property -- 17,005
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Net cash used in investing activities (22,088,589) (5,888,402)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings (6,654,488) (8,493,340)
Proceeds from short-term borrowings 6,504,488 9,743,340
Reduction of obligations under capital leases and long-term debt (234,891) (423,698)
Proceeds from exercise of stock options 176,254 --
Repayment of notes payable to BAIGlobal's selling shareholders -- (2,250,000)
Payment of stock issuance costs -- (191,799)
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Net cash used in financing activities (208,637) (1,615,497)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH (14,372) (867)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (16,358,945) (33,565)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 36,444,256 129,428
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,085,311 $ 95,863
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CASH PAID DURING THE PERIOD FOR:
Interest $ 828,832 $ 851,628
Income taxes, net of refunds 3,337,623 2,449,335
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NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital lease obligation incurred on lease of equipment $ 636,876 $ --
Treasury stock issued in Product Intelligence acquisition 823,765 --
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of Market
Facts, Inc. and Subsidiaries ("Company") have been prepared in accordance with
the instructions to Form 10-Q. The results of operations for interim periods
are not necessarily indicative of the results to be expected for the entire
year. For further information regarding the Company's most recently completed
fiscal year, refer to the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - ADJUSTMENTS AND RECLASSIFICATIONS
The information furnished herein includes all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management, necessary for a
fair presentation of the interim financial statements.
NOTE 3 - 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.
NOTE 4 - EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the three and nine months ended
September 30, 1998 and 1997, respectively, are as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1998
-------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $2,177,475 8,873,336 $ .25
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---------
Effect of Dilutive Securities
Stock options -- 338,028
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Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $2,177,475 9,211,364 $ .24
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</TABLE>
Page 6
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<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
------------------------------------
Per Share
Income Shares Amount
---------- --------- ------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $5,589,915 8,850,839 $ .63
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Effect of Dilutive Securities
Stock options -- 331,776
Diluted Earnings Per Share ---------- ---------
Income available to common stockholders
plus assumed conversions $5,589,915 9,182,615 $ .61
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</TABLE>
<TABLE>
<CAPTION>
Three Months Ended September 30, 1997
-------------------------------------
Per Share
Income Shares Amount
---------- --------- ------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $1,280,318 6,923,708 $ .18
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Effect of Dilutive Securities
Stock options -- 305,206
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Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $1,280,318 7,228,914 $ .18
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</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1997
------------------------------------
Per Share
Income Shares Amount
---------- --------- ------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $3,195,511 6,923,708 $ .46
------
------
Effect of Dilutive Securities
Stock options -- 244,722
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Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $3,195,511 7,168,430 $ .45
---------- --------- ------
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</TABLE>
Page 7
<PAGE>
NOTE 5 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" which establishes standards
to report and display comprehensive income and its components in a full set of
general purpose financial statements. The Company's comprehensive income was as
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30,
--------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $2,177,475 $1,280,318
Other comprehensive income:
Foreign currency translation adjustments (59,796) (34)
---------- ----------
Comprehensive income $2,117,679 $1,280,284
---------- ----------
---------- ----------
Nine Months Ended September 30,
-------------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $5,589,915 $3,195,511
Other comprehensive income:
Foreign currency translation adjustments (97,413) (10,455)
---------- ----------
Comprehensive income $5,492,502 $3,185,056
---------- ----------
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</TABLE>
NOTE 6 - ACQUISITIONS
On March 31, 1998, TRA Acquisition Corp. ("TRA"), a wholly-owned subsidiary
of the Company, acquired certain assets and assumed certain liabilities of
Tandem Research Associates, Inc. ("Tandem Research"), a 16 year-old firm
providing specialized custom and multi-client research products and services
to leading pharmaceutical companies and emerging biotech firms. The purchase
price was an amount equal to (i) $14,424,000 in cash paid at closing, (ii)
the assumption of approximately $590,000 of customer deposit liabilities,
(iii) up to $9,000,000 of possible contingent payments based on TRA exceeding
certain earnings targets, and (iv) additional contingent payments based on
fifty percent of TRA's aggregate earnings before interest and income taxes
("EBIT") during the three-year period after the closing in excess of
$9,931,000. At the election of Tandem Research, up to twenty-five percent of
the contingent payments may be payable in shares of the Company's common
stock.
The acquisition was accounted for under the purchase method of accounting. The
excess of the purchase price over the fair values of the assets acquired and
liabilities assumed of $15,397,167 has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. The operating results of TRA
have been included in the consolidated statements of earnings and cash flows
since the date of acquisition.
The following unaudited pro forma financial information is provided for the nine
months ended September 30, 1998 and 1997 as though the acquisition had taken
place at the beginning of the periods being reported on:
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenue $ 99,610,005 $ 76,093,618
Net Income $ 5,941,685 $ 4,291,005
Basic Earnings Per Share $ .67 $ .62
Diluted Earnings Per Share $ .65 $ .60
</TABLE>
Page 8
<PAGE>
The pro forma financial results do not necessarily reflect actual results which
may have occurred if the acquisition had taken place at the beginning of the
periods being reported on, nor are they necessarily indicative of the results of
future combined operations.
On January 1, 1998, the Company acquired the remaining 90% of the outstanding
stock of Strategy Research Corporation ("Strategy Research"). Prior to 1998, the
Company held a 10% interest in Strategy Research. Strategy Research is a full
service market research company specializing in the Latin American and U.S.
Hispanic markets. The purchase price was an amount equal to (i) $1,192,000 in
cash paid at closing, (ii) the assumption of $150,000 of bank debt, and (iii) up
to $1,950,000 of possible contingent payments based on Strategy Research
exceeding certain earnings targets for 1998 and 1999. The acquisition was
accounted for under the purchase method of accounting. The excess of the
purchase price over the fair values of the assets acquired and liabilities
assumed of $1,416,012 has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years. The operating results of Strategy Research
have been included in the consolidated statements of earnings and cash flows
since the date of acquisition.
On August 31, 1998, PI Acquisition Corp. ("PI"), a wholly-owned subsidiary of
the Company, acquired substantially all of the assets and assumed certain
liabilities of Product Intelligence, Inc. ("Product Intelligence"). Product
Intelligence operates a national network of multimedia computerized consumer
interviewing stations in 35 separate markets that provide clients with rapid
turnaround of market research requiring consumer exposure to marketing elements.
The purchase price was an amount equal to (i) $3,675,000 in net cash paid at
closing, (ii) 42,793 shares of Market Facts' common stock, (iii) the assumption
of approximately $438,534 of operating liabilities, (iv) up to $6,640,000 of
possible contingent payments based on PI exceeding certain earnings targets, and
(v) additional contingent payments based on fifty percent of the amount of PI's
aggregate EBIT through December 31, 2003 in excess of $8,600,000.
The acquisition was accounted for under the purchase method of accounting. The
excess of the purchase price over the fair values of the assets acquired and
liabilities assumed of $4,370,734 has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. This preliminary allocation of
purchase price is subject to further adjustments; however, the Company does not
expect the estimated values to change materially upon finalization of the
allocation of the purchase price. The operating results of PI have been included
in the consolidated statements of earnings and cash flows since the date of
acquisition.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity depends primarily upon its net income, accounts
receivable, accounts payable and accrued expenses. Historically, the Company
has financed its operations through cash generated from operating activities and
bank lines of credit. In October 1997, the Company generated $36.9 million in
net proceeds from a public offering of its common stock. The Company intends to
continue using the remaining net proceeds as working capital and for general
corporate purposes, including acquisitions, investments in technology, new
product development and joint ventures.
During the first nine months of 1998, cash and cash equivalents decreased by
$16.4 million. The decrease was due primarily to the acquisitions of Tandem
Research, Product Intelligence and Strategy Research. Net cash provided by
operating activities was $6.0 million in the first nine months of 1998 compared
to $7.5 million in the same period in 1997. The decrease was due primarily to
the timing of billings to clients partially offset by increased net income. Cash
used in investing activities was $22.1 million in the first nine months of 1998
compared to $5.9 million in the same period in 1997. The increase in cash used
was due primarily to the acquisitions of Tandem Research, Product Intelligence
and Strategy Research and increased purchases of property primarily relating to
investments in technology. Cash used in financing activities was $0.2 million in
the first nine months of 1998
Page 9
<PAGE>
compared to $1.6 million in the same period in 1997. The decrease in cash
used was due primarily to the repayment of notes payable to BAIGlobal's
selling shareholders in 1997.
The Company has available borrowings under established bank credit facilities
totaling $13.7 million. There were no borrowings outstanding under these
arrangements at September 30, 1998 and December 31, 1997.
The Company believes that the net proceeds from the 1997 public offering of its
common stock, cash flow from operations and borrowings available from its bank
credit facilities will be sufficient to meet its working capital expenditure
requirements for the foreseeable future. It is the Company's intention to
continue to pursue acquisition opportunities as a means to grow, and these
acquisitions may require an amount of capital that exceeds that available from
the proceeds of the 1997 public offering, cash from operations and existing bank
arrangements.
RESULTS OF OPERATIONS
COMPARISON OF THIRD QUARTER 1998 TO THIRD QUARTER 1997
The Company had third quarter revenue of $34.9 million in 1998, an increase of
40.2% over the same period in 1997. The increase in revenue was due primarily
to the impact of acquisitions made during 1998, continued expansion of marketing
research services within the Company's existing client base and the addition of
clients for whom the Company did not perform any research services during the
previous fiscal year.
Gross margin for the third quarter of 1998 was $14.5 million, an increase of
37.3% over the same period in 1997. The increase in gross margin was primarily
due to the growth in revenue. Gross margin as a percentage of revenue was 41.6%
compared to 42.5% for the same period in 1997.
Operating expenses for the third quarter of 1998 rose by $2.7 million, an
increase of 32.9% compared to the same period in 1997. The increase in operating
expenses was due primarily to higher marketing staff expenses to support the
growth in business and the inclusion of operating expenses for the acquisitions
made during the past fourteen months. Operating expenses as a percentage of
revenue decreased during the third quarter of 1998 to 30.9% from 32.6% for the
same period in 1997. The decrease in operating expenses as a percentage of
revenue is due to the Company being able to better leverage the higher revenue
by controlling the growth of operating expenses.
Other income increased $0.2 million during the third quarter of 1998 primarily
due to interest earned on the remaining proceeds from the public offering
completed in October 1997.
Net income rose 70.1% to $2.2 million or 6.2% of revenue compared to $1.3
million or 5.2% of revenue during the same period in 1997. Basic earnings per
share increased 38.9% to $.25 for the third quarter of 1998 compared to $.18 for
the same period in 1997. Diluted earnings per share increased 33.3% to $.24 for
the third quarter of 1998 compared to $.18 for the same period in 1997.
COMPARISON OF FIRST NINE MONTHS OF 1998 TO FIRST NINE MONTHS OF 1997
During the first nine months of 1998, the Company had revenue of $98.3 million,
an increase of 37.1% over the same period in 1997. The increase in revenue was
due primarily to the impact of acquisitions made during the past fourteen
months, continued expansion of marketing research services within the Company's
existing client base and the addition of clients for whom the Company did not
perform any research services during the previous fiscal year.
Gross margin for the first nine months of 1998 was $42.2 million, an increase of
34.3% over the same period in 1997. The increase in gross margin was primarily
due to the growth in revenue. Gross margin as a percentage of revenue was 43.0%
compared to 43.9% in 1997.
Page 10
<PAGE>
Operating expenses for the first nine months of 1998 rose by $7.5 million, an
increase of 29.7% compared to the same period in 1997. The increase in operating
expenses was due primarily to the inclusion of operating expenses for the
acquisitions made during the past fourteen months, higher marketing staff
expenses to support the growth in business, and increased spending to grow the
Consumer Mail Panel. Operating expenses as a percentage of revenue decreased
during the first nine months of 1998 to 33.3% from 35.2% for the same period in
1997. The Company was able to better leverage the higher revenue by controlling
the growth of operating expenses.
Other income increased $0.8 million during the first nine months of 1998
primarily due to interest earned on the remaining proceeds from the public
offering completed in 1997.
Net income for the first nine months of 1998 rose 74.9% to $5.6 million or 5.7%
of revenue compared to $3.2 million or 4.5% of revenue during the same period in
1997. Basic earnings per share increased 37.0% to $.63 for the first nine months
of 1998 compared to $.46 for the same period in 1997. Diluted earnings per
share increased 35.6% to $.61 for the first nine months of 1998 compared to $.45
for the same period in 1997.
YEAR 2000
The Company recognizes the need to identify and correct problems associated with
its existing computer systems and certain non-information technology systems as
the Year 2000 approaches. Both internal and external resources are being used
to identify, to correct, and to test these financial, information and
operational systems for Year 2000 compliance. The Company is assessing its
internal systems for Year 2000 compliance and is making inquiries of its
suppliers and customers to assess the potential impact on the Company's
operations if key third parties are not successful in converting their systems
in a timely manner. The Company's assessment of its internal systems is near
completion and it expects its full review of Year 2000 issues, including its
review of third party compliance, to be completed by January 31, 1999.
Costs and expenses incurred to date in addressing the Year 2000 issue have
not been material. Based on its assessment efforts to date, the Company does
not believe that its operations will be materially impacted by a failure of
its internal systems to be Year 2000 compliant and has identified
approximately $500,000 in costs to be incurred in 1999 in order to replace
certain of its telephone systems and computer equipment that are not Year
2000 compliant. The Company expects most of these costs to be capitalized.
Although the Company does not at this time believe that its business
operations or financial condition will be materially impacted by a failure of
its suppliers and customers to be Year 2000 compliant, it is difficult for
the Company to assess the likelihood, or the impact on its business, of such
entities' failure until its assessment is completed. The Company currently
anticipates that additional expense and capital expenditures associated with
its Year 2000 compliance plan will be necessary, although the Company does
not expect such costs to have a material adverse effect on its financial
position or results of operations. The actual amount of these costs will not
be known, however, until the Company's review of the Year 2000 issue has been
completed and tested.
The Company anticipates that its remediation efforts and necessary testing
related to the Year 2000 issue will be completed by September 1999. The Company
is in the process of developing contingency plans in the event of Year 2000
failures, and anticipates that these contingency plans will be in place by
September 1999.
The Company's expectations about future costs necessary to achieve Year 2000
compliance, the impact on its operations and its ability to bring each of its
systems into Year 2000 compliance are subject to a number of uncertainties that
could cause actual results to differ materially. Such factors include the
following: (i) The Company may not be successful in properly identifying all
systems and programs that contain two-digit year codes; (ii) The nature and
number of systems which require reprogramming, upgrading or replacement may
exceed the Company's expectations in terms of
Page 11
<PAGE>
complexity and scope; (iii) The Company may not be able to complete all
remediation and testing necessary in a timely matter; (iv) The Company has no
control over the ability of its key suppliers and customers to achieve Year
2000 compliance; and (v) The impact of the Year 2000 problem on key customers
may be of such magnitude that it may adversely affect their demand for the
Company's products and services.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits immediately following the signature page.
(b) Reports on Form 8-K.
None.
Page 12
<PAGE>
SIGNATURES
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.
MARKET FACTS, INC.
(Registrant)
Date: November 9, 1998 Timothy J. Sullivan
-------------------
Timothy J. Sullivan
Chief Financial Officer, Senior Vice President,
Treasurer, Assistant Secretary and Director
(Principal Financial Officer)
Date: November 9, 1998 Anthony J. Solarz
-----------------
Anthony J. Solarz
Vice President and Controller
(Principal Accounting Officer)
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<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
(3)(a) Restated Certificate of Incorporation (5), as amended. (14)
(3)(b) By-laws as Amended and Currently in Effect. (11)
(4)(a) Article Fourth of the Company's Restated Certificate of
Incorporation (5), as amended. (14)
(4)(b) Rights Agreement as Amended and Currently in Effect. (3)
(4)(c) Certificate of Designation, Preferences and Rights of Series B
Preferred Stock. (10)
(10.1) Term Note dated February 23, 1995 between Market Facts, Inc. and
Verne Churchill. (4)
(10.2) Term Note dated February 23, 1995 between Market Facts, Inc. and
Lawrence Labash. (4)
(10.3) Term Note dated February 23, 1995 between Market Facts, Inc. and
Thomas Payne. (4)
(10.4) Term Note dated February 23, 1995 between Market Facts, Inc. and
Glenn Schmidt. (4)
(10.5) Term Note dated February 23, 1995 between Market Facts, Inc. and
Timothy Sullivan. (16)
(10.6) Demand Note and London Interbank Offered Rate Borrowing Agreement
dated April 30, 1997, between the Company and American National
Bank and Trust Company of Chicago. (16)
(10.7) 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. (2)
(10.8) Credit Agreement dated June 7, 1996, between the Company and
Harris Trust and Savings Bank (6), as amended (19), and Revolving
Credit Note dated September 4, 1997 relating thereto. (16)
(10.9) Employment Agreement with Thomas H. Payne. (13)
(10.10) Employment Agreement with Lawrence W. Labash. (13)
(10.11) Employment Agreement with Timothy J. Sullivan. (13)
(10.12) Employment Agreement with Sanford M. Schwartz. (17)
(10.13) Indemnity Agreement with Jack R. Wentworth dated July 15, 1994.
(1)
Substantially identical agreements were also entered into with
the following individuals:
William W. Boyd Karen E. Predow
Verne B. Churchill Thomas H. Payne
Lawrence W. Labash Sanford M. Schwartz
(10.14) Term Note dated March 29, 1996 between Market Facts, Inc. and
Verne Churchill. (5)
(10.15) Term Note dated March 29, 1996 between Market Facts, Inc. and
Thomas Payne. (5)
(10.16) Term Note dated March 29, 1996 between Market Facts, Inc. and
Glenn Schmidt. (5)
(10.17) Term Note dated March 29, 1996 between Market Facts, Inc. and
Lawrence Labash. (5)
(10.18) Term Note dated March 29, 1996 between Market Facts, Inc. and
Timothy Sullivan. (16)
(10.19) Indemnity Agreement with Timothy Sullivan dated September 3,
1997. (16)
Substantially identical agreements were also entered into with
Ned Sherwood and Jeffery Oyster.
(10.20) Investment Agreement dated June 6, 1996 among the Company, MFI
Investors L.P. and MFI Associates, Inc. (7)
(10.21) Financial Advisory Agreement dated June 6, 1996 between the
Company and MFI Investors L.P. (8)
</TABLE>
Page 14
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
<S> <C>
(10.22) Convertible Note dated June 6, 1996 in the principal amount of
$8,250,000 issued by the Company to MFI Investors L.P. (9)
(10.23) Market Facts, Inc. 1996 Stock Plan, as amended. (12)
(10.24) Stock Purchase Agreement by and among Market Facts, Inc.,
Kathleen Knight, Robert Skolnick, Gunilla Broadbent and
BAIGlobal, Inc. dated as of July 31 1997. (15)
(10.25) Employment Agreement with Kathleen Knight. (15)
(10.26) Employment Agreement with Robert Skolnick. (15)
(10.27) Employment Agreement with Gunilla Broadbent. (15)
(10.28) Underwriting Agreement dated October 21, 1997 by and among Market
Facts, Inc., MFI Investors L.P. and the several underwriters
named therein. (16)
(10.29) Promissory Note dated April 1, 1994 between Market Facts, Inc.
and Timothy Sullivan. (16)
(10.30) Term Note dated December 12, 1997 between Market Facts, Inc. and
Sanford M. Schwartz. (17)
(10.31) Asset Purchase Agreement by and among Market Facts, Inc. TRA
Acquisition Corp., Donald E. Rupnow, Daniel Fish and Tandem
Research Associates, Inc. dated as of March 31, 1998. (18)
(10.32) Termination Agreement dated June 4, 1998 between ZS Fund L.P. and
the Company (19).
(10.33) Financial Advisory Agreement dated as of January 1, 1998 between
ZS Fund L.P. and the Company (19).
(27) Financial Data Schedule.
</TABLE>
__________________
(1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1992.
(3) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996,
commission file number 0-04781.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1995.
(5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996.
(6) Incorporated by reference to Exhibit No. (b) of Registrant's Schedule 13E-4
dated June 11, 1996, commission file number 5-20859.
(7) Incorporated by reference to Exhibit No. (c)(1) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(8) Incorporated by reference to Exhibit No. (c)(2) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(9) Incorporated by reference to Exhibit No. (c)(3) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(10) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996.
(12) Incorporated by reference to Registrant's Form S-8 dated August 5, 1998.
(13) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1996.
(14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
(15) Incorporated by reference to Registrant's Form 8-K dated July 31, 1997.
(16) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1997.
(17) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1997.
(18) Incorporated by reference to Registrant's Form 8-K dated March 31, 1998.
(19) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998.
Page 15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1998 AND THE STATEMENT OF EARNINGS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 20,085,311
<SECURITIES> 50,000
<RECEIVABLES> 20,691,093
<ALLOWANCES> 1,220,588
<INVENTORY> 0
<CURRENT-ASSETS> 49,535,971
<PP&E> 34,170,652
<DEPRECIATION> 15,419,073
<TOTAL-ASSETS> 95,663,293
<CURRENT-LIABILITIES> 24,742,858
<BONDS> 0
0
0
<COMMON> 10,910,058
<OTHER-SE> 49,186,428
<TOTAL-LIABILITY-AND-EQUITY> 95,663,293
<SALES> 0
<TOTAL-REVENUES> 98,270,059
<CGS> 0
<TOTAL-COSTS> 56,028,051
<OTHER-EXPENSES> 32,693,602
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 831,690
<INCOME-PRETAX> 9,606,373
<INCOME-TAX> 4,016,458
<INCOME-CONTINUING> 5,589,915
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,589,915
<EPS-PRIMARY> .63
<EPS-DILUTED> .61
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 112,868
<SECURITIES> 50,000
<RECEIVABLES> 14,599,207
<ALLOWANCES> 1,109,273
<INVENTORY> 0
<CURRENT-ASSETS> 20,656,060
<PP&E> 30,707,687
<DEPRECIATION> 13,304,057
<TOTAL-ASSETS> 44,534,121
<CURRENT-LIABILITIES> 20,073,284
<BONDS> 0
0
0
<COMMON> 8,966,258
<OTHER-SE> 4,865,561
<TOTAL-LIABILITY-AND-EQUITY> 44,534,121
<SALES> 0
<TOTAL-REVENUES> 71,693,518
<CGS> 0
<TOTAL-COSTS> 40,239,762
<OTHER-EXPENSES> 25,201,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 842,938
<INCOME-PRETAX> 5,520,362
<INCOME-TAX> 2,324,851
<INCOME-CONTINUING> 3,195,511
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,195,511
<EPS-PRIMARY> .46
<EPS-DILUTED> .45
</TABLE>
