<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
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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
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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 Identification No.)
incorporation or organization)
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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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $1.00 Per Share
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(Title of Class)
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 March 10, 1998, there were issued and outstanding 8,838,308 shares of
common stock; the aggregate market value of the shares of such stock held by
nonaffiliates of the registrant, based upon a closing price of $19.125 per
share, was $115,347,369 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:
1997 Annual Report to Stockholders -- Parts I, II and IV Hereof. Proxy
Statement for the Registrant's 1998 Annual Meeting to be filed within 120 days
after the end of the fiscal year-- Part III Hereof.
<PAGE>
PART I
ITEM 1. BUSINESS
General
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The predecessor to Market Facts, Inc. (the "Company") was incorporated in 1946
in Illinois. The Company was incorporated in 1966 in Delaware and is a leading
provider of custom market research services. Custom market research involves the
measurement of consumer beliefs, attitudes and behavior toward particular
products, services, concepts or advertising. The Company has been successfully
supplying clients with accurate and objective marketing information about
consumers, products and competitors since its inception in 1946. It provides
quantitative and qualitative marketing research both domestically and
internationally. In 1997 the Company had revenue of $100.1 million,
approximately 90% of which was from clients for whom the Company had performed
work in the previous year.
The Company believes it is uniquely qualified to offer clients a full range of
custom market research products and services that offer superior solutions for
their market research needs. Its professional research staff works with clients
to define the marketing project, select project-appropriate products and
services, develop effective questionnaires or other means of data collection,
collect the responses, process the data, analyze and interpret the results, and
present them in a meaningful and succinct package. The Company believes clients
will continue to increasingly demand this fully integrated approach to custom
market research services.
The Company has developed the Consumer Mail Panel/SM/ ("CMP"), which is its own
broad-based panel of consumer households that have been "pre-screened" through
the collection of extensive demographic profiles to participate in a wide
variety of market research projects. The Company believes its CMP provides a
substantial competitive advantage over firms using only traditional random
research methods since the CMP delivers higher response rates and lower costs
than traditional methods. The Company's expertise in the collection and analysis
of consumer data from its CMP has a variety of marketing research applications,
such as tracking product performance and customer satisfaction, measuring the
effectiveness of advertising campaigns, assessing brand strength and competitive
position, determining price sensitivity, and evaluating new products, markets or
other business opportunities. The CMP, which was originally established in 1949,
presently consists of approximately 525,000 households throughout the United
States and Canada. The Company also maintains a Pan European consumer mail panel
of approximately 135,000 households through a joint venture with Taylor Nelson
AGB plc of England and Infratest Burke of Germany.
The Company's in-house staff conducts telephone interviews through its National
Telephone Center/SM/, consisting of over 300 computer-assisted interviewing
terminals located in the United States and Canada. The Company has also entered
into relationships with selected telephone interviewing firms to perform
telephone marketing research. The Company uses IVR (Interactive Voice Response)
technology for brief telephone surveys where interaction between a respondent
and a live interviewer is not required. In-person interviews are conducted
primarily through more than 100 independent field agencies, at the Company's
Central Location Interviewing Panel facility in suburban Chicago and at
automobile clinics held at various locations throughout the United States.
An important component of the Company's business strategy is to grow through
acquisitions. It will continue to seek acquisition candidates that are
profitable, have stable management, are culturally compatible with the Company,
are able to sell branded market research products and services, are able to
utilize advanced technology, are positioned in targeted industries, and are
compatible with the Company's international expansion plans.
On July 31, 1997, the Company completed the acquisition of the outstanding stock
of BAIGlobal, Inc., a New York market research company founded in 1969 which
conducts domestic and international quantitative and qualitative market research
primarily in the financial services industry.
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Another important element of the Company's business strategy is the ability to
provide market research products and services to its clients globally. The
Company believes that its ability to serve clients on a global basis is key to
its ability to further strengthen client relationships. In December 1996, the
Company acquired a ten percent interest in Strategy Research Corporation, a
Miami-based market research firm specializing in the Latin American and U.S.
Hispanic markets. The remaining ninety percent was acquired by the Company in
January 1998. The Company has established joint venture relationships in Europe,
China and India that it believes will enable it to serve the international
custom market research needs of its U.S.-based clients and intends to continue
seeking other acquisitions, joint ventures and strategic alliances globally. The
Company also is the exclusive licensee in North America of the Conversion Model,
which the Company believes to be the leading brand equity measurement method in
use worldwide. The Company has working relationships with ten international
marketing research companies outside the U.S. that are also Conversion Model
licensees which provide the Company with research capabilities in over fifty
countries. These relationships provide the Company with resources it believes
are essential to compete effectively for multi-country strategic and tracking
research programs that are increasingly being conducted internationally by North
American-based global marketers.
The Company's ongoing investment in technology is a key component of its growth
strategy and product development efforts. The Company's utilization of
technology occurs in three areas: (i) development of technologically
sophisticated market research products, (ii) development of new methods of
collecting market research data, and (iii) development of sophisticated ways of
delivering data to clients and presenting research results. In all three of
these areas, the Company's information technology staff works with its client
service personnel to develop integrated applications of technology tailored to
its clients' evolving needs. The Company considers most of its software,
database management methods, modeling techniques and other database information
strategies to be proprietary trade secrets.
The Company continually seeks to enhance its technological capabilities. In
1996, the Company formed its Interactive Solutions Group to explore the
opportunities provided by the Internet. The Company currently performs research
on and delivers research results to clients through the Internet, as well as
offers web site evaluation research. Additionally, it has developed a
proprietary product call Compete/(R)/, a PC-based software system that allows
clients instant access to a wide array of concept and product testing data which
can be configured in a variety of forms based on client desires. In November
1997, the Company signed a joint venture agreement with Juno Online Services,
L.P., the nation's second-largest online service with over 3.4 million
subscribers, to create the world's largest comprehensive interactive market
research panel. The Company plans to collect consumer information on both an ad-
hoc and an ongoing basis from a balanced panel of respondents who volunteer to
participate in market research studies. In the first year of operation, the
Company expects to establish a respondent panel of 20,000 subscribers, growing
the panel to over 250,000 subscribers within the next five years. In addition to
building the online panel, the Company will also be able to survey Juno's
general membership on its clients' behalf.
The Company believes that its ongoing investment in technology will continue to
provide it a significant competitive advantage over less technologically
sophisticated competitors.
Market Research Process
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The Company's professional research staff and, where appropriate, its
information technology personnel, work with clients to establish information
objectives, develop questionnaires or instruments to be used to elicit the
desired information and determine the types of consumers to be interviewed. The
Company then submits a proposal that describes the sample to be surveyed, the
manner of data collection, analysis requirements, delivery schedules and
pricing. The Company has developed its own computer program to estimate the cost
of each project and closely monitors actual costs versus the estimates in order
to continually update its computer model. Prices typically are quoted to clients
based upon a fixed fee.
The Company develops an appropriate consumer sample, either from its CMP or
another source (such as random telephone samples or samples of the client's own
customers), that matches the client's targeted consumers. If the sample is from
the CMP, it is either selected from the CMP based on households with
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precisely matched demographic characteristics that are already on file, or the
Company will conduct a custom screening survey among its CMP members to locate
households with the specific product usage or other characteristics targeted by
the client. The sample selection process is performed to ensure that the CMP
members meet the desired characteristics and that the survey adheres to the
Company's policies limiting the number of contacts with CMP members and varying
the subject matter of the surveys to avoid inconveniencing or burdening
household members. Research projects involve studies with samples ranging from a
few hundred to over a million respondents.
The Company designs its questionnaires to be as easy and interesting as possible
with questions, concepts and wording that will be readily understood by the
general population, to enable respondents to complete questionnaires accurately
without undue burden. Particularly complicated questionnaires may be pre-tested
among a small group of households to determine whether these requirements are
met. Experienced designers develop efficient, visually appealing and concisely
formatted questionnaires.
The Company also conducts telephone interviews with its CMP members and other
targeted groups. The Company's telephone interviewers operate through terminals
that are connected to the Company's computer assisted telephone interviewing
system (the "CATI system"), onto which the questions and possible responses have
been programmed. This allows the interviewers to record responses directly into
the computer, avoiding the need for subsequent data entry. Further, the CATI
system allows for complex survey question skip patterns and sampling plans to be
handled in a cost efficient manner.
Depending upon the type of survey, the Company frequently uses other methods of
data collection, such as mall interviewing, central location interviewing,
automotive clinics and in-home interviewing, both among CMP members and
consumers selected by other methods, including groups such as client employees
or client customers that are provided by the client.
Returned questionnaire information is entered directly into the Company's
computer system, either manually or through optical scanner and imaging systems.
The Company customizes survey reports and presents survey data in accordance
with client specifications. The emphasis, however, is always on providing
clients with actionable findings that address marketing issues.
Clients
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In 1997, the Company's five largest clients accounted for 25% of its revenues
with one client, Procter & Gamble, accounting for 11% of such revenues.
The Company does not generally enter into long-term contracts with its clients,
but operates on a project-by-project basis. However, the Company focuses on
building systems and programs for clients wherein particular research
methodologies are systematized, refined and used repeatedly on a project-by-
project basis. As the Company completes additional projects for a client, the
Company's knowledge base of its client is expanded, the Company's relationship
is further solidified, and the client therefore has higher switching costs
associated with not utilizing the Company going forward. The net result to the
Company is a more predictable recurring revenue stream. Although the Company is
not the exclusive provider of market research services for most of its clients,
its percentage of business from repeat clients has historically been high. In
1997 approximately 90% of the Company's revenue was from clients for whom the
Company had performed work during the previous year.
Many of the Company's clients have downsized their internal market research
staffs. As these clients have increasingly outsourced this function, they have
required an increased level of professional service throughout the market
research process, as well as a broader range of product offerings, and more
sophisticated data collection, analysis and interpretation capabilities. The
Company has also seen an increase in the number of clients in the
telecommunications, financial services, healthcare and utilities industries.
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Backlog
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The Company recognizes revenue under the percentage of completion method of
accounting. Revenues are recognized as services are performed. The Company
had unrecognized revenue from contracts in process of approximately $26,335,000
and $21,855,000 for the years ended December 31, 1997 and 1996, respectively.
Competition
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The custom market research industry is highly fragmented. The Company faces
direct competition from a large number of relatively small organizations that
serve niche markets but lack the capability to provide a full range of products
and services. Although the Company estimates that it is among the six largest
custom market research firms in the United States, as measured by 1996 revenue,
it faces direct competition from a small number of larger concerns with
resources greater than those of the Company. The Company believes that as the
industry continues to consolidate, it will face increasing competition from
these concerns not only for clients but also for acquisition candidates.
Furthermore, the Company is subject to competition from the marketing research
departments of clients and potential clients, advertising agencies and survey
research departments affiliated with universities and government agencies.
The Company believes that the principal methods of competition are quality and
speed of research results, the ability to provide customized data collection,
analysis and interpretation, geographic coverage, the ability to guide clients
through the entire marketing research process, the ability to provide creative
recommendations to clients and the ability to attractively price its services.
The Company believes that its ability to properly design research projects and
deliver quality research results quickly, and to customize its projects and
guide its clients through the entire marketing research process are competitive
strengths. The Company also believes that the ability to service the
international research needs of clients has become an increasingly important
competitive factor.
The Company believes that its CMP provides a competitive advantage over firms
that rely solely on random research methods, since its CMP delivers higher
response rates and higher quality data at lower costs than traditional methods.
The Company is aware of only two other custom market research companies in the
United States that maintain a broad-based consumer mail panel.
Service Marks
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The Company relies on a combination of copyright, trademark and trade secret
laws and employee and third-party non-disclosure agreements to protect its
proprietary systems, software and procedures. The Company's federally registered
service marks include Accutab/R/, Autoquest/R/, BrandVision/R/, Compete/R/,
InsideTrack/R/, Mail Monitor/R/, National ShowCase/R/, PatientFacts/R/,
PriceDynamics/R/ and TeleNation/R/. The marks Auto Gage/SM/, BehaviorScope/SM/,
Commitments/SM/, Consumer Mail Panel/SM/, Data Gage/SM/, MarkeTest 2000/SM/,
Market Facts/SM/, MiniScreen/SM/, National Telephone Center/SM/, OmniMax/SM/,
OnTarget/SM/, ProductQuest/SM/ and TechFacts/SM/ are proprietary marks of the
Company. In addition, the Company's Canadian subsidiary is the registered owner
of the following trademarks in Canada: ADPAC/R/, ADPAC II/R/, NATIONAL
FLEXIBUS/R/, and TeleNation/R/.
The Company's success is partially dependent upon the proprietary software
technology, research methods and data analysis techniques that it has developed
to service its clients. However, there can be no assurance that the steps taken
by the Company to protect its proprietary rights will be adequate to prevent the
misappropriation of such rights.
The Company vigorously defends against the unauthorized use of its service and
proprietary marks.
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Employees
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As of December 31, 1997, the Company employed approximately 700 full-time
employees and approximately 800 part-time employees. A substantial number of
employees are skilled personnel trained in the various facets of market
research.
The Company's employees are not represented by a union and the Company has never
experienced a work stoppage. The Company believes that its relationship with its
employees is excellent.
The Company offers employment contracts to the majority of its vice presidents
on the first anniversary of their election to office. These employment
agreements continue until terminated in accordance with their provisions and
contain confidentiality and noncompete restrictions during the term of
employment and for a period thereafter.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's headquarters are located at 3040 West Salt Creek Lane, Arlington
Heights, Illinois in an office building of approximately 120,000 square feet
owned by the Company. This location also houses the Company's largest client
service office, mail panel and information technology operations, corporate and
administrative functions and a telephone interviewing facility. The property is
financed through a mortgage loan discussed in Note 5 of the Notes to
Consolidated Financial Statements contained in the 1997 Annual Report to
Stockholders and is incorporated herein by reference. The Company also leases
client service offices in the United States in Atlanta, Georgia; Cincinnati,
Ohio; Dallas, Texas; Encino, California; McLean, Virginia; Miami, Florida;
Morristown, New Jersey; Natick, Massachusetts; New York, New York; Scottsdale,
Arizona; Seattle, Washington; and Tarrytown, New York. The Company has three
leased telephone interviewing facilities located in Evanston, Aurora, and Oak
Park, Illinois and additional leased administrative facilities in Arlington
Heights and Palatine, Illinois.
The Company's Canadian operations are headquartered in Toronto, Ontario. This
location primarily houses mail panel, telephone interviewing, client service
offices, operations and administrative functions. In addition, four smaller
leased offices, located in Montreal, Quebec; New Westminster, B.C.; Mississauga,
Ontario; and Peterborough, Ontario, are used as client service, telephone or
mall interviewing facilities.
The Company expects that additional facilities may be necessary to support the
Company's recent and anticipated future growth in business and is continually
evaluating alternatives for satisfying these requirements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or proceeding
and is not aware of any such proceedings threatened against it.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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 65 Chairman of the Board of Directors of the Company since 1996; prior thereto
Chairman and Chief Executive Officer of the Company.
Thomas H. Payne 52 President and Chief Executive Officer of the Company since 1996; prior
thereto President and Chief Operating Officer of the Company. Mr. Payne is
also a Director of the Company
Sanford M. Schwartz 46 Executive Vice President and Director of the Company and President of Market
Facts--New York, Inc.
Lawrence W. Labash 50 Senior Vice President of the Company; Director of the Company since 1994.
Timothy J. Sullivan 44 Chief Financial Officer and Director of the Company since August 1997 and
Senior Vice President of the Company since 1996; prior thereto Vice President
of the Company. Mr. Sullivan is also Treasurer and Assistant Secretary of the
Company.
</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 10, 1998.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The following section of the Registrant's 1997 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 8-19 of the 1997 Annual Report to Stockholders.
On July 31, 1997, the Company completed the acquisition of all the outstanding
stock of BAIGlobal, Inc. ("BAIGlobal"). The purchase price for the BAIGlobal
shares included up to $5,000,000 of possible contingent payments in the form of
cash and stock based upon BAIGlobal exceeding certain earnings targets for the
period July 31, 1997 through December 31, 1999 (the "Additional Purchase
Price"). The first $4,000,000 of the Additional Purchase Price is payable in
cash with the remaining $1,000,000 payable in shares of the Company's Common
Stock. At the present time, the Company is unable to determine the amount, if
any, of the Additional Purchase Price or whether any portion thereof will be
payable in shares of the Company's Common Stock. The Company does not presently
intend to register any shares issued as payment of the Additional Purchase
Price.
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ITEM 6. SELECTED FINANCIAL DATA
The following section of the Registrant's 1997 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 8-19 of the 1997 Annual Report to Stockholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following section of the Registrant's 1997 Annual Report to Stockholders is
hereby incorporated by reference:
Management's Discussion and Analysis of Financial Condition and
Results of Operations - pages 5-7
This referenced section should be read in conjunction with the Consolidated
Financial Statements and related Notes (herein incorporated by reference) on
pages 8-19 of the 1997 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
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Consolidated Balance Sheets as of December 31, 1997 and 1996 *
For the years ended December 31, 1997, 1996 and 1995:
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 1997 Annual Report to Stockholders, filed
with the Commission pursuant to Rule 12b-23, portions of which are attached.
Independent Auditors' Report on Schedule 8
Schedule:
II Valuation and Qualifying Accounts for the years ended
December 31, 1997, 1996 and 1995 9
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 1997 Annual Report to
Stockholders.
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INDEPENDENT AUDITORS' REPORT
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To the Stockholders and Board of Directors of Market Facts, Inc.:
Under date of February 25, 1998, we reported on the consolidated balance sheets
of Market Facts, Inc. and subsidiaries as of December 31, 1997 and 1996, 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, 1997, as
contained in the 1997 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 fiscal year ended December 31, 1997. 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 25, 1998
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MARKET FACTS, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Years Ended December 31,
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1997 1996 1995
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<S> <C> <C> <C>
Allowance For Doubtful Accounts:
Balance at beginning of year $1,007,243 $ 838,203 $668,805
Provision 107,299 197,602 197,515
Write-offs of uncollectible accounts (9,772) (28,260) (29,661)
Cumulative foreign currency translation (3,219) (302) 1,544
---------- ---------- --------
Balance at end of year $1,101,551 $1,007,243 $838,203
========== ========== ========
</TABLE>
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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 1998 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" and "Employment Agreements" in the Registrant's proxy
statement for the Registrant's 1998 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 1998 Annual Meeting*, which
sections are hereby incorporated by reference:
Security Ownership of Five Percent Beneficial Owners - page 3
Security Ownership of Directors and Executive Officers- page 4
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 1998 Annual Meeting*, which
sections are hereby incorporated by reference:
Certain Transactions - pages 11 - 12
__________
* to be filed within 120 days after the end of the Registrant's fiscal year.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements as indexed on page 7.
(a) (2) Financial Statement Schedule as indexed on page 7.
The consolidated balance sheets as of December 31, 1997 and 1996, and the
consolidated statements of earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, 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 1997 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 13 and 14.
(b) None.
(c) See list of exhibits set forth in the Index on pages 13 and 14.
(d) Financial Statement Schedule as indexed on page 7.
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.
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(Registrant)
By: TIMOTHY J. SULLIVAN
-----------------------
Timothy J. Sullivan
Chief Financial Officer, Senior Vice President,
Treasurer, Assistant Secretary and Director
(Principal Financial Officer)
By: ANTHONY J. SOLARZ
---------------------
Anthony J. Solarz
Controller
(Principal Accounting Officer)
Dated: March 25, 1998
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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.
VERNE B. CHURCHILL
- ------------------ ---------------------
Verne B. Churchill William W. Boyd
Chairman of the Board Director
THOMAS H. PAYNE JEFFERY A. OYSTER
- ------------------ ---------------------
Thomas H. Payne Jeffery A. Oyster
President, Chief Executive Officer Director
and Director
TIMOTHY J. SULLIVAN
- ------------------- ---------------------
Timothy J. Sullivan Karen E. Predow
Chief Financial Officer, Senior Vice President, Director
Treasurer, Assistant Secretary and Director
(Principal Financial Officer)
LAWRENCE W. LABASH
- ------------------- ---------------------
Lawrence W. Labash Ned L. Sherwood
Senior Vice President Director
and Director
SANFORD M. SCHWARTZ
- ------------------- ---------------------
Sanford M. Schwartz Jack R. Wentworth
Executive Vice President, President of Director
Market Facts - New York, Inc.
and Director
ANTHONY J. SOLARZ
- -----------------
Anthony J. Solarz
Controller
(Principal Accounting Officer)
March 25, 1998
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INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
(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, 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.*
(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)
13
<PAGE>
Exhibit Number Description
- -------------- -----------
(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. (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.*
(13) Portions of the 1997 Annual Report to Stockholders incorporated
herein by reference.
(21) Subsidiaries of the Registrant.
(23) Consent of KPMG Peat Marwick LLP.
(27) Financial Data Schedules.
__________________
(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 Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1996.
(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.
* 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.
14
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS AGREEMENT (the "Agreement"), made this first day of October, 1997
by and between MARKET FACTS, INC., a Delaware corporation (hereinafter "MFI"),
with its principal place of business at 3040 West Salt Creek Lane, Arlington
Heights, Illinois, 60005 and Sanford M. Schwartz (hereinafter "Executive"), an
individual residing in Scarsdale, New York.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive is currently employed as the Executive Vice
President, Market Facts, Inc. and President, Market Facts-New York, Inc. of MFI
and MFI desires to continue to employ Executive on terms which will encourage
the attention and dedication of Executive to MFI as one of its key employees;
and
WHEREAS, Executive is willing to commit himself/herself to continue to
serve MFI on the terms and conditions set forth below; and
WHEREAS, in order to effect the foregoing, MFI and Executive wish to
enter in an employment agreement on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties, by the execution hereof do agree as
follows:
1. Employment. MFI employs Executive as its Executive Vice
President, Market Facts, Inc. and President, Market Facts-New York, Inc., and
Executive accepts such employment and agrees to continue to serve MFI, in each
case upon and subject to the terms and conditions set forth herein, which terms
and conditions shall supersede any other oral or written employment agreement(s)
entered into by and between MFI and Executive prior to the date of this
Agreement.
2. Term. MFI agrees to employ Executive as provided in Section 1
hereof for a term of employment (the "Term of Employment") commencing on such
date (the "Effective Date") as this Agreement shall be ratified and approved by
the Board of Directors of MFI (the "Board of Directors") in accordance with
Section 22 hereof and continuing thereafter until terminated in accordance with
the provisions of Section 7 hereof.
3. Duties. MFI hereby employs, engages, and hires Executive in the
capacity set forth in Section 1 hereof and Executive hereby accepts and agrees
to such hiring, engagement and employment, subject to the general supervision
of, and pursuant to the orders, advice and direction of the Board of Directors.
Executive shall perform such other duties as are customarily performed by one
holding such position in other, same, or similar businesses or enterprises as
that engaged in by MFI, and shall also additionally render such other and
unrelated services and duties consistent with his/her executive officer status
in Section 1 hereof as may be assigned to him/her from time to time by MFI.
Executive shall devote all of his/her working time and efforts to the business
and affairs of MFI.
Executive shall perform such services wherever MFI shall in good faith
direct; however, Executive shall not be required to remove his/her permanent
residency from the Scarsdale, New York area or be absent from Scarsdale, New
York for such extended periods as to make his/her continued residence in
Scarsdale, New York not practicable.
4. Compensation. MFI agrees to pay Executive a base salary of
$212,836.00 (hereinafter "Base Salary") per year, which shall be payable in
accordance with MFI's customary payroll practices but not less frequently than
in equal amounts payable at two (2) week intervals. MFI may adjust the Base
Salary upward from time to time to conform to alterations, if any, in MFI's
compensation policy for officers.
1
<PAGE>
Based upon MFI's performance and Executive's individual performance
and at the sole discretion of the Board of Directors, Executive shall be
eligible for an annual bonus consistent with the provisions and goals set by the
Board of Directors for each bonus year, and shall be entitled to participate in
other stock and bonus compensation programs of MFI, in each case on a basis no
less favorable to Executive than that available to other officers of MFI with
similar responsibilities and duties.
5. Expenses. MFI shall reimburse Executive for his/her business
expenses (including expenditures for travel, meals, hotel accommodations, and
the like) incurred in the course of his/her employment hereunder, provided that
Executive submits the documentation necessary for deduction of the payments by
MFI on its income tax returns. In the event that any of Executive's expenses so
reimbursed pursuant to this Agreement are disallowed as a business expense by
the tax authorities due to lack of supporting evidence Executive shall be
responsible to MFI for any tax consequences incurred by MFI as a result thereof.
6. Executive Benefits. Executive shall be entitled to participate
in MFI's vacation, retirement, insurance, disability, medical coverage and other
fringe benefit programs in accordance with the terms of those programs, and this
Agreement is not intended to be in lieu of any rights, benefits and privileges
to which Executive may be entitled as an employee of MFI under any such programs
as may now be in effect or may hereafter be adopted. In no event shall
Executive's entitlement to vacation be determined under a policy that is less
favorable to him/her than MFI's vacation policy applicable to him/her as of the
date of this Agreement.
Pursuant to the "Market Facts Flexible Benefits Plan" (the "Flex
Plan") as currently in effect, employees of MFI are entitled to select (and pay
the premiums cost for) life insurance coverage in an amount equal to a selected
multiple of their earnings (as defined in the Flex Plan) for the prior calendar
year. For so long as MFI shall elect to maintain a life insurance option for its
executive officers pursuant to the Flex Plan or another comparable successor
plan, MFI shall furnish to Executive, at MFI's expense, life insurance coverage
pursuant to the Flex Plan, or such other comparable plan, in an amount equal to
one (1) year of Executive's calendar year earnings (as determined pursuant to
the Flex Plan or such other comparable plan).
7. Termination.
-----------
(a) Basis. Executive's employment may be terminated hereunder
by MFI or Executive without any breach of this Agreement under the following
circumstances and subject to the provisions set forth elsewhere herein:
(i) MFI, Without Cause. MFI may terminate Executive's employment
hereunder at any time by written notice to Executive.
(ii) Executive, Without Cause. Executive may terminate his/her
employment hereunder at any time by giving MFI not less than sixty
(60) days prior written notice.
(iii) Death. Executive's employment hereunder shall terminate upon
his/her death.
(iv) Disability. MFI may terminate the Executive's employment
hereunder at any time in the event of Executive's disability.
"Disability" is defined to mean Executive's inability to substantially
perform his/her normal duties for sixteen (16) weeks (not necessarily
continuous or calendar weeks) during any twelve (12) successive
months; and in the event of a dispute as to Executive's inability to
perform his/her duties, MFI may refer the same to a licensed
practicing physician of MFI's choice, and Executive agrees to submit
to such tests and examination as such physician shall deem
appropriate.
(v) For Cause. MFI may terminate Executive's employment hereunder at
any time for Cause. "Cause" shall mean (a) an act of proven fraud or
dishonesty on the part of Executive, or (b) a willful and material
breach of this Agreement by the Executive, which breach has not been
cured and remedied by Executive within sixty (60) days after written
notice from the Board of Directors to Executive describing such breach
in reasonable detail.
2
<PAGE>
(vi) By Mutual Agreement. This Agreement may be terminated at any time
by the mutual agreement of the parties. Any such termination shall be
memorialized by an agreement which is reduced to writing and signed by
Executive and a duly appointed officer of MFI.
(b) Notice of Termination. Any termination of Executive's
employment by MFI or by Executive (other than pursuant to Section 7(a)(iii)
above) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment if such
termination is pursuant to clauses (iv) or (v) of Section 7(a).
(c) Date of Termination. For purposes of this Agreement, "Date
of Termination" shall mean the date specified in the Notice of Termination as
the last day of employment of Executive or, if no such date is specified, (i) on
the sixtieth (60th) day following Notice of Termination if such notice is given
pursuant to Section 7(a)(ii) above, and (ii) in all other cases, at the end of
the month in which the Notice of Termination is given.
8. Rights Upon Termination.
-----------------------
(a) If Executive's employment is terminated other than pursuant
to Section 7(a)(v) herein, MFI shall pay to Executive the unpaid portion of any
Base Salary due and payable to Executive at and as of the Date of Termination.
In addition, if Executive's employment is terminated other than pursuant to
Sections 7(a)(iii) or (v) herein, Executive shall receive the Base Salary
payable to Executive under Section 4 above at the intervals provided therein,
from the Date of Termination to the respective date set forth below:
(i) if Executive's employment is terminated pursuant to the
provisions of Section 7(a)(i) hereof, the one (1) year anniversary
date of the date of the Notice of Termination;
(ii) if Executive's employment is terminated pursuant to the
provisions of Section 7(a)(ii) hereof, the date specified in the
Notice of Termination or if no such termination date is specified, the
60th day after the date of the Notice of Termination (or such earlier
applicable date as may be provided herein);
(iii) if Executive's employment is terminated pursuant to the
provisions of Section 7(a)(iv) by reason of Executive's Disability,
then until the first anniversary of the Date of Termination, Executive
shall be entitled to receive such portion of Base Salary as would have
been paid to Executive pursuant to MFI's disability programs then in
effect, if such Notice of Termination had not been given by MFI; and
(iv) if Executive's employment is terminated pursuant to the
provisions of Section 7(a)(vi), the termination date mutually agreed
by MFI and Executive.
(b) If Executive's employment is terminated by his/her death,
or if Executive's death shall occur prior to his/her receipt of the payments
provided for in Section 8(a) above, such payment(s) shall be paid to Executive's
designated beneficiary, or if he or she predeceases Executive, to Executive's
estate.
9. Executive's Ability to Contract for Company. To the extent
Executive is so authorized by MFI's Board of Directors or By-Laws, and until
such time as a Notice of Termination is given pursuant to Section 7(b) hereof,
Executive shall have the right to make any contracts or commitments for or on
behalf of MFI, to sign or endorse any commercial paper, contracts,
advertisements, or instrument of any nature, and to enter into any obligation
binding MFI to the payment of money or otherwise.
10. Non-Competition Provisions. Executive agrees that during his/her
employment with MFI and for a period of one (1) year following the Date of
Termination, Executive shall not, directly or indirectly:
(a) solicit or otherwise attempt to induce any clients of MFI
on whose account Executive has worked during the two (2) years prior to the
termination of Executive's employment to terminate their relationship with MFI
or otherwise divert from MFI and/or its affiliates any trade or business
3
<PAGE>
being conducted by such customers with MFI or otherwise provide any services
similar to the services provided by MFI to such customers; or
(b) recruit, solicit or otherwise induce or influence any
employee or agent of MFI to terminate their employment or agency relationship
with MFI, or employ, seek to employ, or cause any other business competitive to
MFI to employ or seek to employ any person who is then (or was at any time
within the six months prior thereto) employed by MFI.
11. Confidential Information. Executive recognizes that as a key
member of the management of MFI, Executive has and will continue to occupy a
position of trust with respect to such business information of a secret or
confidential nature which is the property of MFI or any of its subsidiaries or
affiliates and which has been or will be used by or imparted to Executive from
time to time in the course of Executive's duties. Executive therefore agrees
that:
(a) Executive shall not at any time during the term of this
Agreement or thereafter, except in the performance of his/her duties hereunder,
use or disclose directly or indirectly to any third person any such information.
(b) Executive shall return promptly on the termination of
Executive's employment for whatever reason (or in the event of Executive's
death, Executive's personal representative shall return) to MFI at its direction
and expense any and all copies of records, drawings, writings, blueprints,
materials, memoranda and other data pertaining to such secret or confidential
information.
(c) The term "information of a secret or confidential nature"
means information of any nature and in any form which at the time or times
concerned is not generally known to those persons engaged in businesses similar
to those conducted or contemplated by MFI which relates to any one or more of
the aspects of MFI's business, including, but not limited to, tests, test
procedures, test programs and systems, patents and patent applications;
copyrights or copyright applications, inventions and improvements, whether
patentable or not; writings whether copyrightable or not; development projects;
machines; machine designs and the materials for machines; policies, processes,
formulas, techniques, know-how, data, data bases, computer designs, computer
programs whether embodied in source or object code, computer languages or
formats and other facts relating to design, construction, development
utilization, manufacturing or servicing of machines or programs or relating to
materials for machines or programs; to plant layout or to plant operations;
policies, processes, formulas, techniques, know-how and other facts relating to
sales, marketing advertising, promotions, financial matters, customers, customer
lists, customers' purchases, or requirements, and other trade secrets, both
tangible and intangible, in writing and orally imparted.
12. Intellectual Property Rights.
----------------------------
(a) MFI shall have all rights including international priority
rights in: all tests, procedures, inventions, developments and discoveries,
whether or not patentable, and all suggestions, proposals, computer programs and
writings, including any copyright interests therein, which Executive authors,
conceives or makes, either solely or jointly with others during his/her
employment with MFI which: (i) relate to any subject matter with which
Executive's work for MFI may be concerned; (ii) relate to the business products
or services or actual or demonstrably anticipated research or development
projects of MFI; (iii) involve the use of the time, equipment, materials or
facilities of MFI; or (iv) relate or are applicable to any phase of MFI's
business. Further, Executive agrees to execute all documents and to take all
actions as may be necessary in order to assign all rights to or otherwise vest
good title to MFI in the property and proprietary rights described in this
subparagraph (a).
(b) MFI shall have no rights in inventions and writings made or
conceived by Executive prior to his/her employment with MFI which are: (i)
embodied in a United States Letters Patent, Copyright Registration or an
application for United States Letters Patent or Copyright Registration filed
prior to the commencement of his/her employment; or (ii) owned by a former
employer prior to Executive's employment by MFI; or (iii) disclosed in detail in
a writing attached hereto or provided to MFI within one (1) week of the
execution hereof. The acceptance of such disclosure by MFI shall not create a
confidential relationship.
4
<PAGE>
In addition to the foregoing, MFI shall have no rights in any
inventions made or conceived by Executive which do not involve any equipment,
supplies, facilities or materials of MFI and which are developed entirely on
Executive's own time unless: (i) the invention relates to the business, products
or services of MFI; (ii) the invention relates to actual or demonstrably
anticipated research or development projects of MFI, or (iii) the invention
results from any services performed by Executive for MFI.
(c) Executive will disclose promptly in writing to MFI all
ideas, inventions, improvements, discoveries and writings, whether or not
patentable or copyrightable, made or conceived by him/her either solely or in
collaboration with others during his/her employment with MFI, whether or not
during regular working hours, and, if based on confidential information as
defined in Paragraph 11(c) hereof, within one (1) year thereafter, if such
inventions or writings relate to either: (i) the subject of Executive's work for
MFI; (ii) products, projects, programs or business of MFI of which Executive had
knowledge in the course of Executive's work or otherwise; or (iii) any business
of MFI during Executive's employment.
(d) Executive shall maintain for disclosure to MFI complete
written records of all such inventions and writings. Such records shall bear
dates and signatures and show (i) the full nature thereof, and (ii) the critical
dates pertaining to conception, development, reduction to practice, and
embodiment in a tangible form. Such records shall be the sole property of and be
readily available to MFI.
(e) Executive will, during the term of his/her employment and
thereafter, at the request of MFI and without expense to Executive: (i)
cooperate in the procurement in the name of Executive of patent, utility model,
design and copyright protection to cover such inventions and writings, including
the execution of domestic, foreign, divisional, continuing and re-issue
applications for Letters Patent, Utility Models, Designs and Copyright
Registrations and assignments thereof; and (ii) execute all documents, make all
rightful oaths, testify in all proceedings in Government Offices or in the
Courts concerning such inventions and writings, and generally do everything
lawfully possible in any controversy or otherwise to aid MFI to obtain, enjoy
and enforce proper protection of such property.
13. Remedy. Executive understands that MFI would not have any
adequate remedy at law for the material breach or threatened breach by Executive
of any one or more of the covenants set forth in this Agreement and agrees that
in the event of any such material breach or threatened breach, MFI shall be
entitled to preliminary and permanent injunctive relief without bond in any
court of competent jurisdiction, which rights shall be cumulative and in
addition to any other rights or remedies to which MFI may be entitled.
14. Headings. The headings of the sections and subsections of this
Agreement are inserted for convenience of reference only and shall not
constitute a part hereof.
15. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original.
16. Assignment. This Agreement shall not be assignable by either
party without the express written consent of the other party hereto.
17. Amendment and Modification. No amendment or modification of the
terms of this Agreement shall be binding upon either party unless reduced to
writing and signed by Executive and a duly appointed officer of MFI.
18. Notices. All notices, reports and payments made pursuant to this
Agreement shall be addressed to MFI to the attention of the Chief Executive
Officer at the address set forth in the first paragraph of this Agreement.
Notices to Executive shall be addressed as set forth hereinafter:
Sanford M. Schwartz
Market Facts, Inc.
3040 West Salt Creek Lane
Arlington Heights, Illinois 60005
Either addressee may change its (his/her) address upon prior written
notice.
5
<PAGE>
19. Repayment of Compensation. In the event that either (a) all or
any portion of the amounts payable and benefits provided to the Executive under
this Agreement from and after the date hereof are disallowed by the Internal
Revenue Service as deductible expenses on grounds that they do not constitute a
"reasonable allowance" of compensation and/or (b) such amounts and benefits are
deemed by a court of competent jurisdiction (the "court") to constitute a waste
of corporate assets, Executive agrees to reimburse to MFI such amounts and
benefits to the extent of the disallowance and/or the amount of payments and
benefits deemed to constitute such waste within thirty (30) days after MFI has
notified Executive of the amount so disallowed and/or characterized. Executive
hereby also agrees to any modification of the terms of this Agreement which MFI
deems necessary and/or appropriate in light of the Internal Revenue Service's
disallowance and/or the court's finding.
20. Entire Agreement. This Agreement contains the entire agreement
between Executive and MFI and supersedes any and all previous agreements,
written or oral, between the parties relating to the subject matter hereof.
21. Severability. The provisions of this Agreement shall be
severable. The unenforceability or invalidity of any one or more provisions,
clauses, or sentences hereof shall not render any other provision, clause or
sentence herein contained unenforceable or invalid. The portion of the Agreement
which is not invalid or unenforceable shall be considered enforceable and
binding on the parties and the invalid or unenforceable provision(s), clauses(s)
or sentence(s) shall be deemed excised, modified or restricted to the extent
necessary to render the same valid and enforceable, and this Agreement shall be
construed as if such invalid or unenforceable provision(s), clause(s), or
sentence(s) were omitted.
22. Effective Date. This Agreement shall become effective only upon
and subject to the approval of the Board of Directors of MFI.
23. Governing Law. This Agreement shall be governed, construed and
enforced in accordance with the internal laws of the State of Illinois,
excluding any choice of law rules which may direct the application of the laws
of another jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
duplicate on the date first above written.
Sanford M. Schwartz
-------------------
Executive
MARKET FACTS, INC.
By: Thomas H. Payne
---------------
6
<PAGE>
Exhibit 10.30
TERM NOTE
December 12, 1997
For value received, SANFORD M. SCHWARTZ promises to pay no later than November
30, 1998 to the order of Market Facts, Inc., 3040 Salt Creek Lane, Arlington
Heights, Illinois, 60005, or at any such other place as the payee or legal
holder hereof may in writing appoint, the sum of ONE HUNDRED SIXTY-FIVE THOUSAND
DOLLARS ($165,000.00) together with interest.
Interest for the period of December 12, 1997 through date of payment will
calculated based upon an interest rate of 8.5%.
The undersigned agrees to surrender to Market Facts, Inc. 10,000 shares of
Market Facts common stock to be held as collateral for this Note until such time
as the unpaid balance of principal and interest are paid in full.
The undersigned hereby authorizes, irrevocably, any attorney of any Court of
Record to appear for SANFORD M. SCHWARTZ in such Court if this Note is not paid
when due, and at any time thereafter to confess judgment, without due process,
in favor of the holder of this Note, for such amount as may appear to be due and
unpaid thereon, together with reasonable costs of collection, including
reasonable attorney fees, and to waive and release all errors which may
intervene in any such proceedings, and to consent to immediate execution upon
judgment, hereby ratifying and confirming all that said attorney may do by
virtue hereof.
Sanford M. Schwartz Timothy J. Sullivan
- ------------------------- ------------------------------------
Sanford M. Schwartz Timothy J. Sullivan
Senior Vice President, Treasurer and
Chief Financial Officer
MARKET FACTS, INC.
<PAGE>
Exhibit 13
Selected Financial Data
- -----------------------
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $45,609,073 $55,483,032 $64,608,724 $83,795,562 $100,064,294
- ----------------------------------------------------------------------------------------------
Income from operations 2,662,481 3,294,736 5,194,779 8,397,948 10,281,163
- ----------------------------------------------------------------------------------------------
Net income 1,074,352 1,434,167 2,226,119 4,277,656 5,822,098
- ----------------------------------------------------------------------------------------------
Basic earnings per share 15c 20c 29c 57c 80c
- ----------------------------------------------------------------------------------------------
Diluted earnings per share 15c 19c 29c 55c 77c
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents $ 772,986 $ 911,209 $ 3,530,157 $ 129,428 $ 36,444,256
- ----------------------------------------------------------------------------------------------
Working capital 2,046,108 3,624,220 5,993,486 3,104,192 40,160,854
- ----------------------------------------------------------------------------------------------
Total assets 27,974,494 31,681,983 34,376,637 38,385,227 86,891,747
- ----------------------------------------------------------------------------------------------
Long-term obligations 10,931,573 11,453,019 10,955,870 10,742,988 10,409,088
- ----------------------------------------------------------------------------------------------
Cash dividends declared 5-1/2c 7-1/4c 9-1/2c 10c --
- ----------------------------------------------------------------------------------------------
</TABLE>
Dividends & Market Price Statistics
- -----------------------------------
<TABLE>
<CAPTION>
CASH DIVIDENDS MARKET PRICE STATISTICS*
- ---------------------------------------------------------------------
1996 1997
1996 1997 High Low High Low
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
4th Quarter 2-1/2c -- $10-11/16 $4-1/16 $24-3/4 $16 3/4
3rd Quarter 2-1/2c -- 4-1/4 3-1/2 31-5/8 10 1/4
2nd Quarter 2-1/2c -- 3-15/16 3-3/16 14 9 1/8
1st Quarter 2-1/2c -- 3-7/16 2-1/2 10-5/8 7
- ---------------------------------------------------------------------
</TABLE>
*Market Facts, Inc. common stock trades on The Nasdaq National Market under the
symbol MFAC.
All common share and per share amounts, unless indicated otherwise, have been
adjusted to give effect to a 2-for-1 stock split in December 1996 and an
additional 2-for-1 stock split in May 1997. The Company discontinued cash
dividends to invest in its future growth. See Management's Discussion and
Analysis. As of March 4, 1998, there were approximately 768 holders of record of
Market Facts, Inc. common stock and the closing price of the common stock was
$19.25.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
Market Facts is a leading provider of custom market research services.
Custom market research involves the measurement of customer beliefs, attitudes
and behavior toward particular products, services, concepts or advertising.
Founded in 1946, the Company provides quantitative and qualitative marketing
research both domestically and internationally through its network of fourteen
offices and its global affiliations.
In July 1997, the Company completed the acquisition of the outstanding
stock of BAIGlobal, Inc., an international market research and information
company based in New York, at a cost of $3.9 million, net of acquired cash.
Results of Operations: Comparison of 1997 to 1996
The Company had revenue of $100.1 million during 1997, an increase of 19.4%
over 1996. The increase in revenue was due primarily to the addition of clients
for whom the Company did not perform any research services during the previous
fiscal year, the impact of acquiring BAIGlobal and continued expansion of
marketing research services within the Company's existing client base.
Gross margin for 1997 was $43.7 million, an increase of 22.6% over 1996.
The increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 43.6% in 1997 compared to 42.5% in 1996. The
improvement in the gross margin percentage was primarily attributable to higher
gross margins on telephone business.
Operating expenses for 1997 rose by $6.2 million, an increase of 22.7%
compared to 1996. Operating expenses as a percentage of revenue increased from
32.5% in 1996 to 33.4% in 1997. The increases were due primarily to higher
marketing staff expenses to support the growth in business, the impact of
acquiring BAIGlobal and continued investments in new products and technologies.
The Company expects in 1998 to continue adding marketing staff to support higher
anticipated levels of business and investing in technology and new product
development. In 1997, the Company was able to expand its data gathering capacity
with only minimal expansion of facilities by entering into partnering
relationships with third party providers. The Company expects in 1998 that it
may be necessary to acquire additional real estate to accommodate growth in
staff due to higher expected levels of business.
The 1997 provision for income taxes reflected an effective tax rate of
38.9% versus 42.1% in 1996. The decrease in the effective tax rate was primarily
due to a reduction in foreign, state and local income taxes. The Company expects
its effective tax rate to be in the 39-42% range in 1998.
Net income for 1997 rose 36.1% to a record $5.8 million or 5.8% of revenue
compared with $4.3 million and 5.1% of revenue in 1996. Basic earnings per share
increased by 40.4% to $.80 in 1997 from $.57 in 1996. Diluted earnings per share
increased by 40.0% to $.77 in 1997 from $.55 in 1996.
Results of Operations: Comparison of 1996 to 1995
The Company had revenue of $83.8 million during 1996, an increase of 29.7%
over 1995. The increase in revenue was due to the addition of major research
programs for new clients as well as expansion of services for existing clients.
Gross margin for 1996 was $35.6 million, an increase of 25.9% over 1995.
The increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 42.5% in 1996 compared to 43.8% in 1995. The decrease
in the gross margin percentage was primarily attributable to the fact that the
Company experienced growth in large projects which yielded lower gross margin
percentages but which required only a minimal increase in operating expenses.
Operating expenses for 1996 rose by $4.1 million, an increase of 17.8%
compared to 1995, due primarily to higher marketing staff expenses to support
the growth in business and continued investments in new products and
technologies. Operating expenses as a percentage of revenue decreased from 35.8%
in 1995 to 32.5% in 1996. This reduction was primarily attributable to the fact
that the Company experienced growth in larger projects where certain data
gathering functions were outsourced. The Company was able to expand its data
gathering capacity with only minimal expansion of facilities by entering into
partnering relationships with third party providers.
2
<PAGE>
The 1996 provision for income taxes reflected an effective tax rate of
42.1% versus 47.2% in 1995. The decrease in the effective tax rate was primarily
due to a reduction in state and local income taxes.
Net income for 1996 rose 92.2% to $4.3 million or 5.1% of revenue compared
with $2.2 million and 3.4% of revenue in 1995. Basic earnings per share
increased by 96.6% to $.57 in 1996 from $.29 in 1995. Diluted earnings per share
increased by 89.7% to $.55 in 1996 from $.29 in 1995.
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 completed a public offering of its common
stock which resulted in net proceeds to the Company of $36.9 million. The
Company intends to use the net proceeds as working capital and for general
corporate purposes, including acquisitions, investments in technology, new
product development and joint ventures.
During 1997, cash and cash equivalents increased by $36.3 million. The
increase relates to investments in short-term debt instruments funded by the
proceeds of the public offering. Net cash flow provided by operating activities
was $10.2 million in 1997 compared to $4.5 million in 1996 and $.48 million in
1995. The increase in 1997 was due primarily to improved billing and collection
of client accounts receivable and increased net income. Cash used in investing
activities was $6.5 million in 1997 compared to $3.9 million in 1996 and $2.0
million in 1995. The increase in 1997 was due primarily to the acquisition of
BAIGlobal, net of acquired cash partially offset by lower purchases of property.
The increase from 1995 to 1996 was due to increased purchases of property. Cash
provided by financing activities was $32.6 million in 1997 compared to cash used
in financing activities of $4.0 million in 1996 and $0.2 million in 1995. Cash
provided in 1997 was due primarily to the proceeds from the public offering,
partially offset by repayment of notes payable to BAIGlobal's selling
shareholders and net repayment of short-term borrowings. Cash used in financing
activities in 1996 was due primarily to the purchase of the Company's common
stock for treasury pursuant to a self-tender offer partially offset by the net
proceeds from the issuance of a convertible note and short-term borrowings.
The Company expects that additional investments in equipment and facilities
will continue to be necessary to support the anticipated growth in business and
that capital expenditures in 1998 will be equal to or higher than 1997.
The Company's available borrowings under established bank credit facilities
increased from $10.7 million to $13.7 million during 1997. There were no
borrowings outstanding at December 31, 1997. Borrowings outstanding under these
arrangements were $1.8 million at December 31, 1996.
At its October 1996 meeting, the Board of Directors established a policy to
omit future cash dividends in order to fund the continued development and growth
of the Company's business.
The Company believes that the proceeds from its public offering, 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 public
offering, cash from operations and existing bank arrangements.
Year 2000
The Company is aware of issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Company is utilizing
both internal and external resources to identify, correct or reprogram, and test
its systems for Year 2000 compliance. Management is in the process of assessing
the Year 2000 compliance expense and the related potential effect on the
Company's earnings.
Inflation
Inflation has historically had only a minor effect on the Company's
results of operations and its internal and external sources of liquidity and
working capital because the Company has generally been able to increase prices
to reflect cost increases due to inflation.
3
<PAGE>
Forward-Looking Statements
Certain statements contained in the Message to Shareholders and in this
Management's Discussion and Analysis section constitute "forward-looking
statements" made in reliance upon the safe harbor contained in Section 21E of
the Securities Exchange Act of 1934, as amended. Such forward-looking statements
include those relating to anticipated growth, levels of capital expenditures,
acquisition opportunities, the addition of staff, the development of new
products and services, the need to acquire additional real estate and the
effective tax rate in 1998. The Company's prospects for growth are subject to
significant economic and other uncertainties, some of which are beyond the
Company's control. Factors which could adversely impact the Company's revenues
include: (i) a downturn in general economic conditions which could cause a
decrease in spending on market research projects, (ii) a change in client
management personnel which could cause the client to lower its purchases from
the Company, and (iii) the impact of competitive pricing and products which
could cause a reduction or loss in client business. In addition, should the
technology used by the industry change so as to differ materially from the type
of technology relied upon by the Company, the Company's business could be
adversely affected. Further, the Company's ability to grow through acquisitions
will be dependent upon, among other things, the availability of suitable
acquisition candidates and related financing on terms deemed reasonable by the
Company, and the Company's ability to successfully integrate future
acquisitions into its existing business. Finally, expansion into global markets
is subject to the ability to fully understand cultural differences, the
availability of suitable joint venture or acquisition candidates, risks of
foreign currency fluctuations and other uncertainties. Any of these factors
could cause the Company's actual results to differ materially from those
described in the forward-looking statements.
Recently Issued Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("Statement 130"). Implementation of Statement 130 is required for
periods beginning after December 15, *1997. Statement 130 establishes standards
to report and display comprehensive income and its components in a full set of
general purpose financial statements. The standard requires all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed in
equal prominence with the other financial statements. The Company is currently
evaluating its options for disclosure under Statement 130 and will adopt the
Statement during the year ending December 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Implementation of Statement 131 is required for periods
beginning after December 15, 1997. Statement 131 establishes standards for the
way companies are to report information about operating segments in annual
financial statements and requires those companies to report selected information
about operating segments in interim financial reports issued to shareholders. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers. The Company is currently evaluating its
options for disclosure under Statement 131 and will adopt the Statement during
the year ending December 31, 1998.
4
<PAGE>
<TABLE>
<CAPTION>
Consolidated Balance Sheets
Assets
1997 1996
------------ ------------
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 36,444,256 $ 129,428
Bank certificate of deposit 50,000 50,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,101,551 and $1,007,243 in 1997 and 1996, respectively 20,085,658 14,630,041
Other 60,189 94,846
Notes receivable 188,844 48,037
Revenue earned on contracts in progress in excess of billings 4,618,736 3,886,057
Deferred income taxes 1,136,254 979,298
Prepaid expenses and other assets 514,323 339,829
- ------------------------------------------------------------------------------------------------------
Total Current Assets 63,098,260 20,157,536
- ------------------------------------------------------------------------------------------------------
Property, at cost:
Land 1,221,459 1,221,459
Building and building improvements 13,242,699 12,974,017
Computer and office equipment 10,108,298 8,632,940
Furniture and fixtures 3,910,442 3,607,685
Leasehold improvements 1,735,739 1,596,015
Vehicles 137,572 226,438
- ------------------------------------------------------------------------------------------------------
30,356,209 28,258,554
Less accumulated depreciation and amortization (13,274,711) (10,776,931)
- ------------------------------------------------------------------------------------------------------
Net Property 17,081,498 17,481,623
- ------------------------------------------------------------------------------------------------------
Other Assets:
Goodwill and other intangibles, net of accumulated amortization
of $229,772 and $497,544 in 1997 and 1996, respectively 4,959,752 536,068
Deferred income taxes, noncurrent 1,063,833 --
Investment in affiliated companies 688,404 210,000
- ------------------------------------------------------------------------------------------------------
Total Other Assets 6,711,989 746,068
- ------------------------------------------------------------------------------------------------------
Total Assets $ 86,891,747 $ 38,385,227
======================================================================================================
See accompanying notes to consolidated financial statements.
5
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Market Facts, Inc. and Subsidiaries as of December 31, 1997 and 1996
====================================================================================================================================
Liabilities and Stockholders' Equity
1997 1996
------------ ------------
<S> <C> <C>
Current Liabilities:
Accrued expenses $ 10,052,639 $ 6,148,582
Billings in excess of revenues earned on contracts in progress 9,267,185 4,569,609
Accounts payable 2,380,596 3,137,798
Income taxes 945,449 884,686
Current portion of obligations under capital leases 154,991 198,698
Current portion of long-term debt 136,546 363,971
Short-term borrowings -- 1,750,000
- ------------------------------------------------------------------------------------------------------------
Total Current Liabilities 22,937,406 17,053,344
- ------------------------------------------------------------------------------------------------------------
Long-Term Liabilities:
Long-term debt 10,159,110 10,295,656
Obligations under capital leases, noncurrent portion 249,978 447,332
Deferred income taxes -- 63,685
- ------------------------------------------------------------------------------------------------------------
Total Long-Term Liabilities 10,409,088 10,806,673
- ------------------------------------------------------------------------------------------------------------
Total Liabilities 33,346,494 27,860,017
- ------------------------------------------------------------------------------------------------------------
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;
10,875,258 and 8,966,258 shares issued in 1997 and 1996, respectively 10,875,258 8,966,258
Capital in excess of par value 44,707,038 9,497,671
Cumulative foreign currency translation (133,632) (75,319)
Retained earnings 12,672,160 6,850,062
- ------------------------------------------------------------------------------------------------------------
68,120,824 25,238,672
Less 2,042,550 shares of treasury common stock at cost (13,891,966) (13,891,966)
Less other transactions involving common stock (683,605) (821,496)
- ------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 53,545,253 10,525,210
- ------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 86,891,747 $ 38,385,227
============================================================================================================
6
</TABLE>
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31, 1997,
1996 and 1995
- --------------------------------------------------------------------------------
Consolidated Statements of Earnings
<TABLE>
<CAPTION>
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
Revenue $100,064,294 $83,795,562 $64,608,724
- --------------------------------------------------------------------------------------------------------
Direct Costs:
Payroll 18,071,133 16,167,308 13,853,642
Other expenses 38,321,485 32,015,577 22,459,675
- --------------------------------------------------------------------------------------------------------
Total 56,392,618 48,182,885 36,313,317
- --------------------------------------------------------------------------------------------------------
Gross Margin 43,671,676 35,612,677 28,295,407
- --------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling 3,324,273 2,600,727 2,292,190
General and administrative 28,702,981 23,562,810 20,005,436
Contributions to profit sharing and employee
stock ownership plans 1,363,259 1,051,192 803,002
- --------------------------------------------------------------------------------------------------------
Total 33,390,513 27,214,729 23,100,628
- --------------------------------------------------------------------------------------------------------
Income From Operations 10,281,163 8,397,948 5,194,779
- --------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (1,131,920) (1,214,445) (1,137,728)
Interest income 298,141 126,008 77,636
Other income, net 87,714 75,145 85,432
- --------------------------------------------------------------------------------------------------------
Total (746,065) (1,013,292) (974,660)
- --------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 9,535,098 7,384,656 4,220,119
Provision For Income Taxes 3,713,000 3,107,000 1,994,000
- --------------------------------------------------------------------------------------------------------
Net Income $ 5,822,098 $ 4,277,656 $ 2,226,119
========================================================================================================
Basic Earnings Per Share $ .80 $ .57 $ .29
========================================================================================================
Diluted Earnings Per Share $ .77 $ .55 $ .29
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended December 31,
1997, 1996 and 1995
================================================================================
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning and end of year $ - $ - $ -
================================================================================================
COMMON STOCK:
Balance at beginning of year $ 8,966,258 $ 8,090,012 $ 7,524,160
Impact of stock splits - (1,707,614) 33,868
Common stock issued during the year 1,909,000 2,583,860 531,984
- ------------------------------------------------------------------------------------------------
Balance at end of year $ 10,875,258 $ 8,966,258 $ 8,090,012
================================================================================================
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year $ 9,497,671 $ 2,328,137 $ 1,765,776
Common stock issued during the year, net 35,024,396 7,169,434 562,361
Tax benefit from stock related awards 184,971 - -
Preferred stock issued during the year - 100 -
- ------------------------------------------------------------------------------------------------
Balance at end of year $ 44,707,038 $ 9,497,671 $ 2,328,137
================================================================================================
CUMULATIVE FOREIGN CURRENCY TRANSLATION:
Balance at beginning of year $ (75,319) $ (69,144) $ (100,391)
Current year adjustment (58,313) (6,175) 31,247
- ------------------------------------------------------------------------------------------------
Balance at end of year $ (133,632) $ (75,319) $ (69,144)
================================================================================================
RETAINED EARNINGS:
Balance at beginning of year $ 6,850,062 $ 3,541,626 $ 2,470,147
Net income 5,822,098 4,277,656 2,226,119
Dividends declared on common stock:
Cash--10c per share in 1996 and
9-1/2c in 1995 - (738,939) (721,784)
Impact of stock splits - (230,281) (432,856)
- ------------------------------------------------------------------------------------------------
Balance at end of year $ 12,672,160 $ 6,850,062 $ 3,541,626
================================================================================================
TREASURY COMMON STOCK:
Balance at beginning of year $ (13,891,966) $ (1,189,029) $ (1,310,134)
Treasury stock purchased - (12,702,937) -
Treasury stock issued - - 121,105
- ------------------------------------------------------------------------------------------------
Balance at end of year $ (13,891,966) $ (13,891,966) $ (1,189,029)
================================================================================================
OTHER TRANSACTIONS INVOLVING COMMON STOCK:
Balance at beginning of year $ (821,496) $ (651,795) $ (603,373)
Payments received on
demand notes receivable 82,459 19,867 55,896
Vesting of restricted stock and demand
notes receivable 55,432 55,432 55,432
Issuance of demand notes receivable - (245,000) (159,750)
- ------------------------------------------------------------------------------------------------
Balance at end of year $ (683,605) $ (821,496) $ (651,795)
================================================================================================
TOTAL STOCKHOLDERS' EQUITY $ 53,545,253 $ 10,525,210 $ 12,049,807
================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Market Facts, Inc. and Subsidiaries for the years ended
December 31, 1997, 1996 and 1995
================================================================================
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,822,098 $ 4,277,656 $ 2,226,119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 2,882,935 2,495,354 2,164,114
Deferred income taxes (79,970) (374,049) 43,783
Vesting of restricted stock and demand notes receivable 55,432 55,432 55,432
Net gain on disposal of property (17,336) (27,715) (39,297)
Changes in assets and liabilities, net of effects from acquisition:
Accounts receivable (3,126,707) (5,176,560) 31,518
Prepaid expenses and other assets (189,607) (30,386) 126,853
Billings in excess of (less than) revenues earned on
contracts in progress 3,658,353 242,447 (875,035)
Accounts payable and accrued expenses 1,062,386 2,552,391 1,364,902
Income taxes 175,217 496,878 (297,918)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,242,801 4,511,448 4,800,471
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Acquisition of BAIGlobal, net of acquired cash (3,918,677) -- --
Purchases of property (2,068,536) (3,234,009) (1,570,259)
Payment for acquisition of MFCL -- (339,126) (339,127)
Investment in affiliated companies (478,404) (210,000) --
Investment in notes receivable (165,000) (246,200) (238,945)
Proceeds from notes receivable 106,652 52,244 114,914
Proceeds from the sale of property 24,798 38,297 65,559
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (6,499,167) (3,938,794) (1,967,858)
- -----------------------------------------------------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock, net 36,893,841 -- --
Repayment of short-term borrowings (14,237,672) (12,100,000) (2,000,000)
Proceeds from short-term borrowings 12,487,672 13,850,000 2,000,000
Repayment of notes payable to BAIGlobal's selling shareholders (2,250,000) -- --
Reduction of obligations under capital leases and long-term debt (543,689) (96,628) (323,719)
Tax benefit from stock related awards 184,971 -- --
Proceeds from exercise of stock options 39,555 386,250 676,605
Purchase of treasury stock -- (12,702,937) --
Proceeds from issuance of convertible note -- 8,250,000 --
Payment of stock issuance costs -- (820,851) --
Dividends paid -- (738,939) (721,784)
Proceeds from issuance of preferred stock -- 100 --
Proceeds from the sale of treasury stock -- -- 139,857
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 32,574,678 (3,973,005) (229,041)
- -----------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (3,484) (378) 15,376
- -----------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,314,828 (3,400,729) 2,618,948
Cash and cash equivalents at beginning of year 129,428 3,530,157 911,209
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 36,444,256 $ 129,428 $ 3,530,157
=============================================================================================================================
Cash Paid During The Year For:
Interest $ 1,142,265 $ 1,237,504 $ 1,140,464
Income taxes, net of refunds 3,452,164 2,982,379 2,215,411
=============================================================================================================================
Supplemental Schedule of Non Cash Activities:
Conversion of convertible note into common stock $ -- $ 8,250,000 $ --
Capital lease obligations incurred on lease of equipment -- 109,463 208,465
=============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
<PAGE>
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's primary line of business is the design, execution and
interpretation of market research conducted on behalf of its clients, which
include a majority of the largest 100 multinational consumer products and
service companies, as well as many government agencies. One client, Procter &
Gamble, accounted for 11%, 10% and 12% of total 1997, 1996 and 1995 revenue,
respectively.
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. 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.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are
not sufficient to recover its carrying value. The Company measures an impairment
loss by comparing the fair value of the asset to its carrying amount.
e. Income Taxes:
The Company applies an asset and liability approach to account for income taxes.
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.
f. Earnings Per Share:
Effective December 15, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share." As a result, the Company's
reported earnings per share for all prior periods presented have been restated.
Basic earnings per share were computed by dividing net income by the weighted
average number of shares of common stock outstanding during the year. Diluted
earnings per share were determined giving effect to all dilutive potential
common shares that were outstanding during the year.
g. Foreign Currency Translation:
Non-U.S. subsidiaries' 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.
h. 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 the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
11
<PAGE>
i. Financial Instruments:
The carrying amounts of the Company's financial instruments approximate their
fair values with the exception of long-term debt which has a fair value of
approximately $10,884,000 at December 31, 1997.
j. Goodwill and Other Intangibles:
Goodwill represents the unamortized cost in excess of the fair value of net
assets acquired and is amortized on a straight-line basis over the period of
expected benefit ranging from 15 to 25 years. Other intangibles are recorded at
cost and amortized using the straight-line method over their estimated economic
lives. The Company periodically evaluates the recoverability of goodwill and
other intangibles by assessing whether the carrying values can be recovered from
undiscounted future cash flows expected to be generated by the assets.
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, 1997).
3. Bank Borrowings:
The Company has established a revolving and term credit facility ("Credit
Facility") with a bank in the amount of $10,000,000. The Credit Facility bears
interest at either the lender's prime lending rate or a reserve adjusted LIBOR
rate, plus between .75% and 1.5% per annum, and expires on June 30, 1998. At any
time prior to June 30, 1998, the Company has a one-time right to convert up to
$7,000,000 of revolving debt into a five-year term loan. The Company maintains
other established bank lines of credit totaling $3,650,000 which are renewed
annually and bear interest at various lending rates. No borrowings were
outstanding under the above arrangements at December 31, 1997. At December 31,
1996, borrowings outstanding were $1,750,000 and bore interest at 8.25%.
<TABLE>
<CAPTION>
4. Accrued Expenses:
Accrued expenses consist of the following at December 31:
1997 1996
----------- ----------
<S> <C> <C>
Compensation $ 4,292,279 $3,403,704
Real estate taxes 1,005,685 913,273
Other 4,754,675 1,831,605
- -----------------------------------------------
Total $10,052,639 $6,148,582
===============================================
</TABLE>
5. Long-Term Debt:
Long-term debt relates to the mortgage loan on the office building used by the
Company as its corporate and operations headquarters. The loan bears interest at
a fixed rate of 9.7% per annum. Principal payments due under the terms of the
mortgage with the final principal amount due May 1, 2000 are as follows:
<TABLE>
<CAPTION>
<S> <C>
In 1998............$ 136,546
In 1999............$ 150,396
In 2000............$10,008,714
</TABLE>
6. Stockholders' Equity:
In 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. In 1989, 25,000 shares were designated as Series A preferred stock;
no Series A shares have been issued to date. In 1996, 100 shares were designated
as Series B preferred stock and issued to MFI Investors L.P.
12
<PAGE>
On October 27, 1997, the Company completed a public offering of its common stock
in which 1,900,000 shares were sold by the Company, resulting in proceeds of
approximately $37,411,000. The Company incurred $517,159 of stock issuance costs
associated with the public offering.
On April 28, 1997, the Company's Board of Directors approved a 2-for-1 stock
split in the form of a common stock dividend which was paid on May 27, 1997. All
common and per share amounts have been adjusted to give effect to the stock
split.
On April 29, 1997, the Company amended its Restated Certificate of Incorporation
effecting an increase in the number of authorized shares of common stock to
15,000,000.
On October 28, 1996, the Company's Board of Directors approved a 2-for-1 stock
split in the form of a common stock dividend which was paid on December 13,
1996. The stock dividend was not paid on treasury common stock. All common share
and per share amounts, unless indicated otherwise, have been adjusted to give
effect to the stock split.
Pursuant to a self-tender offer commenced in June 1996, the Company purchased
1,677,614 shares of its common stock from its stockholders at an aggregate
purchase price of $12,162,701. The Company incurred $354,610 in related
transaction costs.
The self-tender offer was made pursuant to an Investment Agreement dated June 6,
1996 among MFI Investors L.P., MFI Associates, Inc. and the Company ("Investment
Agreement"), whereby MFI Investors L.P. purchased from the Company a ten-year,
7% convertible subordinated note in the principal amount of $8,250,000
("Convertible Note"). Immediately prior to the purchase of the shares in the
self-tender offer, the Convertible Note automatically converted at a rate of
$3.625 per share into 2,275,860 shares of the Company's common stock. The
Company incurred $820,851 in stock issuance costs associated with the Investment
Agreement. A new class of Series B preferred shares was issued to MFI Investors
L.P., granting it the right to elect 3 directors, subject to decrease as its
ownership interest decreases.
In 1996, independent of the self-tender offer, the Company purchased 60,000
shares of its common stock at a cost of $185,626. In 1995, the Company sold
67,736 shares of its common stock, previously held in treasury, to its employee
benefit plans and received proceeds of $139,857.
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 $493,606, $583,996 and $366,795 as of
December 31, 1997, 1996 and 1995, 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 of
compensation expense relating to the forgiveness of debt in 1997, 1996 and 1995.
All other notes are due in varying installments through 2001.
Unearned restricted stock amounted to $190,000, $237,500 and $285,000 as of
December 31, 1997, 1996 and 1995, respectively, and relates to a 1992 restricted
stock grant of 400,000 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 1997, 1996 and 1995.
In 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
entitled stockholders, upon occurrence of certain events, to purchase one one-
hundredth of a share of Series A preferred stock, at an exercise price of $20
per one one-hundredth of a preferred share, subject to adjustment.
Giving effect to the December 1996 and May 1997 stock splits, each share of
common stock is entitled to purchase one four-hundredth of a Series A preferred
share at $5 per one four-hundredth of a preferred share.
13
<PAGE>
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-fourth 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 four-hundredth
of a share of Series A preferred stock per right. The rights will expire on
August 7, 1999.
Pursuant to the Investment Agreement, MFI Investors L.P. agreed not to allow its
holdings of Company voting securities to exceed 37.5% (the "Standstill
Percentage") of the Company's total voting securities outstanding at any time.
The Standstill Percentage will be reduced to 20% if at any time MFI Investors
L.P. holds less than 15% of the Company's total outstanding voting securities.
The stockholders rights agreement was amended in June 1996 to provide that the
rights would not become exercisable by reason of MFI Investors L.P. acquiring
more than 20% of the Company's voting securities, unless and until its holdings
exceed the Standstill Percentage then in effect.
7. Employee Stock Option Plans:
Under terms of the 1982 Incentive Stock Option Plan (1982 Plan) which expired as
of May 1, 1992, options to purchase shares of the Company's common stock had
been granted at a price equal to the market price at the date of grant. Options
from the 1982 Plan were exercisable on or after the first anniversary of the
date of the grant and expired four years after the date of the grant.
Under terms of the 1996 Stock Plan (1996 Plan), the Company may issue to select
officers, directors and key employees any or all of the following: incentive
stock options within the meaning of Section 422 of the Internal Revenue Code of
1986, non-qualified stock options, stock appreciation rights and restricted
stock. The Company has reserved 1,000,000 shares of common stock for issuance
under the 1996 Plan. Except as otherwise provided, awards are granted at a price
equal to the market price at the date of the grant, expire ten years after the
date of the grant and vest 20% per year over a five year period.
Stock option activity during the years ended December 31, 1997, 1996 and 1995
was as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning
of year 664,000 $ 4.40 328,000 $1.27 1,174,000 $1.27
Granted 132,500 12.68 664,000 4.40 -- --
Exercised (9,000) 4.40 (308,000) 1.25 (531,984) 1.27
Canceled (16,000) 4.41 (20,000) 1.53 (314,016) 1.28
-------- ------- ---------
Outstanding at
end of year 771,500 $ 5.82 664,000 $4.40 328,000 $1.27
======== ======= =========
Options
exercisable
at year-end 120,600 -- 328,000
======== ======= =========
</TABLE>
14
<PAGE>
<TABLE>
<S> <C> <C>
Weighted average
fair value of
options granted
during the year $4.98 $1.72
===== =====
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ------------------------
Number Weighted-Average Number Weighted-
---------------------
Range of Outstanding Remaining Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/31/97 Life Price 12/31/97 Price
- --------- ---------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
$ 4.40 -- 4.42 639,000 8.8 years $ 4.40 120,600 $4.40
$10.69 -- 12.88 132,000 9.4 12.65 -- --
$19.58 500 10.0 19.58 -- --
------- -------
771,500 8.9 $ 5.82 120,600 $4.40
======= =======
</TABLE>
The Company applies APB Opinion No. 25 and related Interpretations in accounting
for the 1996 Plan. Accordingly, no compensation expense has been recognized. Had
compensation cost for the Company's stock-based compensation plan been
determined consistent with FASB Statement No. 123, the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
-------------------------------------
1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income As Reported $5,822,098 $4,277,656
Pro Forma $5,437,548 $4,244,528
- ------------------------------------------------------------------------------
Basic Earnings As Reported $.80 $.57
Per Share Pro Forma $.75 $.57
- ------------------------------------------------------------------------------
Diluted Earnings As Reported $.77 $.55
Per Share Pro Forma $.72 $.55
- ------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1997 and 1996, respectively: expected volatility
of 40% for both years, risk-free interest rates of 6.4% and 6.3% and expected
lives of four years for both years. The Company does not expect to pay dividends
in the future.
15
<PAGE>
8. Earnings Per Share:
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the years ended December 31, 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------
Per-Share
Income Shares Amount
---------- ---------- -----------
<S> <C> <C> <C>
Basic Earnings Per Share
Net Income $5,822,098 7,294,537 $.80
===========
Effect of Dilutive Securities
Stock Options -- 265,961
---------- ----------
Diluted Earnings Per Share
Income available to
common stockholders
plus assumed conversions $5,822,098 7,560,498 $.77
========== ========== ===========
1996
--------------------------------------
Per-Share
Income Shares Amount
---------- ---------- -----------
Basic Earnings Per Share
Net Income $4,277,656 7,447,700 $.57
===========
Effect of Dilutive Securities
Stock Options -- 63,122
7% Convertible
subordinated note 40,029 286,037
---------- ----------
Diluted Earnings Per Share
Income available to
common stockholders
plus assumed conversions $4,317,685 7,796,859 $.55
========== ========== ===========
1995
--------------------------------------
Per-Share
Income Shares Amount
---------- ---------- -----------
Basic Earnings Per Share
Net Income $2,226,119 7,593,108 $.29
===========
Effect of Dilutive Securities
Stock Options -- 175,716
---------- ----------
Diluted Earnings Per Share
Income available to
common stockholders
plus assumed conversions $2,226,119 7,768,824 $.29
========== ========== ===========
</TABLE>
9. Employee Benefit Plans:
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 $1,163,259, $951,192 and $753,002 in 1997,
1996 and 1995, respectively.
The Company also maintains an Employee Stock Ownership Plan (ESOP), which covers
substantially all U.S. 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 cash contributions of $200,000,
$100,000 and $50,000 in 1997, 1996 and 1995, respectively.
16
<PAGE>
10. 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 $1,631,000, $1,496,000 and $1,331,000 in 1997, 1996 and 1995,
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 $1,141,403 and $1,300,071 in 1997 and
1996, respectively, of computer and other equipment acquired under capital
leases. Accumulated depreciation and amortization include $757,555 and $650,965
in 1997 and 1996, 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 $199,397, $236,019 and $274,704 in 1997, 1996 and 1995,
respectively.
The minimum future rentals under capital and operating leases with an initial
term of one year or more as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Operating Leases
-----------------------------
Capital Office Equipment
Year Leases Facilities & Vehicles
- ------------------------------ ---------- ----------
<S> <C> <C> <C>
1998 $180,183 $1,807,892 $455,906
1999 76,129 1,585,281 431,606
2000 63,001 1,340,994 318,573
2001 63,001 1,066,535 69,565
2002 63,001 846,364 24,293
2003 and thereafter 42,001 764,363 --
- ------------------------------------------------------------------
Total minimum
lease payments $487,316 $7,411,429 $1,299,943
Less amounts
representing
interest 82,347
--------
Present value
of minimum
lease payments 404,969
Current portion 154,991
--------
Long-term portion $249,978
==================================================================
</TABLE>
17
<PAGE>
11. Provision for Income Taxes:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal $3,073,000 $2,676,000 $1,422,900
State and local 680,000 649,000 349,000
Foreign 41,000 157,000 178,700
Deferred:
Federal 80,000 (181,000) (44,000)
State and local (138,000) (173,000) 110,000
Foreign (23,000) (21,000) (22,600)
- -------------------------------------------------------------------
Total $3,713,000 $3,107,000 $1,994,000
===================================================================
</TABLE>
The following is a reconciliation between the statutory Federal income tax rate
and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Statutory Federal
income tax rate 34.0% 34.0% 34.0%
State and local income
taxes, net of Federal
income tax benefits 3.8 4.3 8.0
Foreign income taxes .1 .6 1.3
Amortization of intangibles 1.0 .2 .3
Other -- 3.0 3.6
- ----------------------------------------------------------
Effective income tax rate 38.9% 42.1% 47.2%
==========================================================
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1997 and
1996 are presented below:
<TABLE>
<CAPTION>
Significant deferred
tax assets (liabilities): 1997 1996
---------- ----------
<S> <C> <C>
Doubtful accounts $ 405,385 $ 408,856
Vacation 198,708 162,968
Rent abatement 87,474 92,371
Net operating loss carryforwards 1,324,731 155,459
Other 329,844 289,747
Depreciation (146,055) (193,788)
---------- ----------
Net deferred tax asset $2,200,087 $ 915,613
========== ==========
</TABLE>
The Company has net operating loss carryforwards at December 31, 1997 of
approximately $5,248,000 which are available to offset certain future Federal
and state income through 2012. Utilization of approximately $2,974,000 of the
net operating loss carryforwards is limited to approximately $338,000 per year
due to the change in ownership resulting from the acquisition of BAIGlobal, Inc.
At December 31, 1997, all deferred tax assets are considered realizable in view
of past, current and the expectation of future taxable income.
18
<PAGE>
Federal income taxes and foreign withholding taxes have not been provided on the
Company's share of the undistributed earnings of Market Facts of Canada, Ltd.
($1,394,433 at December 31, 1997) 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.
12. Acquisition of BAIGlobal, Inc.:
On July 31, 1997, the Company completed the acquisition of all the outstanding
stock of BAIGlobal, Inc., an international market research and information
company. The purchase price was an amount equal to (i) $3,700,000 in cash, as
adjusted based upon BAIGlobal's closing net worth, plus (ii) the assumption of
$2,250,000 in debt payable to two of BAIGlobal's selling shareholders, and (iii)
up to $5,000,000 of possible contingent payments in the form of cash and stock
based on BAIGlobal exceeding a certain earnings target for the period July 31,
1997 through December 31, 1999. Twenty percent of the contingent payment is
subject to the continuous employment of the selling shareholders through
December 31, 1999, with certain specified exceptions, and is considered a
compensatory arrangement. The Company has determined that payment of the
compensation is probable, therefore $1,000,000 is being recorded as compensation
expense on a straight-line basis through December 31, 1999. The Company recorded
$172,414 of expense in 1997. The remaining $4,000,000 is considered additional
purchase price and will be recorded as goodwill at the time the Company has
determined beyond a reasonable doubt that such contingent consideration will be
paid.
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 has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years.
The operating results of BAIGlobal 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 1997 and
1996 as though the Company had acquired BAIGlobal at the beginning of the year
being reported on:
<TABLE>
<CAPTION>
Unaudited
-------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Revenue $106,531,656 $94,216,372
Net Income $ 5,839,619 $ 4,671,169
Basic Earnings Per Share $ .80 $ .63
Diluted Earnings Per Share $ .77 $ .60
</TABLE>
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
year being reported on, nor are they necessarily indicative of the results of
future combined operations.
13. Quarterly Results of Operations (Unaudited):
The following is a summary of the unaudited quarterly results of operations for
1997 and 1996 (in thousands, except for earnings per share):
<TABLE>
<CAPTION>
1997 First Second Third Fourth
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $21,581 $25,253 $24,859 $28,371
Gross margin $ 9,731 $11,168 $10,555 $12,218
Net income $ 835 $ 1,081 $ 1,280 $ 2,626
Basic earnings
per share $ .12 $ .16 $ .18 $ .31
Diluted earnings
per share $ .12 $ .15 $ .18 $ .30
======================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1996 First Second Third Fourth
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $18,659 $20,127 $20,478 $24,532
Gross margin $ 7,956 $ 8,278 $ 8,878 $10,501
Net income $ 528 $ 704 $ 1,034 $ 2,012
Basic earnings
per share $ .07 $ .09 $ .15 $ .29
Diluted earnings
per share $ .07 $ .08 $ .14 $ .29
=================================================================
</TABLE>
The increase in the Company's operating results in the fourth quarter of 1997
was due largely to the impact of the acquisition of BAIGlobal, Inc. The increase
in the fourth quarter of 1996 was due primarily to an unusually large number of
client research projects that were required to be completed before the end of
the calendar year.
20
<PAGE>
================================================================================
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 25, 1998
21
<PAGE>
Exhibit No. 21
SUBSIDIARIES OF MARKET FACTS, INC.
State of
Name Incorporation
- ---- -------------
Market Facts - New York, Inc. New York
Market Facts of Canada, Ltd. Ontario, Canada
BAIGlobal, Inc. New York
Strategy Research Corporation Florida
<PAGE>
Exhibit No. 23
CONSENT OF KPMG PEAT MARWICK LLP
Board of Directors
Market Facts, Inc.:
We consent to incorporation by reference in the registration statements (No.
33-61726 and 333-37333) on Form S-8 of Market Facts, Inc. of our reports dated
February 25, 1998, relating to the consolidated balance sheets of Market Facts,
Inc. and subsidiaries as of December 31, 1997 and 1996, the related consolidated
statements of earnings, stockholders' equity, and cash flows and the related
financial statement schedule for each of the years in the three year period
ended December 31, 1997, which reports appear in or are incorporated by
reference in the December 31, 1997 annual report on Form 10-K of Market Facts,
Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 24, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the balance sheet as of December 31, 1997 and the statement of earnings for the
year ended December 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 36,444,256
<SECURITIES> 50,000
<RECEIVABLES> 21,187,209
<ALLOWANCES> 1,101,551
<INVENTORY> 0
<CURRENT-ASSETS> 63,098,260
<PP&E> 30,356,209
<DEPRECIATION> 13,274,711
<TOTAL-ASSETS> 86,891,747
<CURRENT-LIABILITIES> 22,937,406
<BONDS> 0
10,875,258
0
<COMMON> 0
<OTHER-SE> 42,669,995
<TOTAL-LIABILITY-AND-EQUITY> 86,891,747
<SALES> 0
<TOTAL-REVENUES> 100,064,294
<CGS> 0
<TOTAL-COSTS> 56,392,618
<OTHER-EXPENSES> 33,390,513
<LOSS-PROVISION> 107,299
<INTEREST-EXPENSE> 1,131,920
<INCOME-PRETAX> 9,535,098
<INCOME-TAX> 3,713,000
<INCOME-CONTINUING> 5,822,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,822,098
<EPS-PRIMARY> .80
<EPS-DILUTED> .77
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 129,428
<SECURITIES> 50,000
<RECEIVABLES> 15,732,130
<ALLOWANCES> 1,007,243
<INVENTORY> 0
<CURRENT-ASSETS> 20,157,536
<PP&E> 28,258,554
<DEPRECIATION> 10,776,931
<TOTAL-ASSETS> 38,385,227
<CURRENT-LIABILITIES> 17,053,344
<BONDS> 0
<COMMON> 4,483,129
0
0
<OTHER-SE> 6,042,081
<TOTAL-LIABILITY-AND-EQUITY> 38,385,227
<SALES> 83,795,562
<TOTAL-REVENUES> 83,795,562
<CGS> 48,182,885
<TOTAL-COSTS> 48,182,885
<OTHER-EXPENSES> 27,214,729
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,214,445
<INCOME-PRETAX> 7,384,656
<INCOME-TAX> 3,107,000
<INCOME-CONTINUING> 4,277,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,277,656
<EPS-PRIMARY> .57
<EPS-DILUTED> .55
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<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
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<EXTRAORDINARY> 0
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<NET-INCOME> 2,226,119
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
