<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported) March 31, 1998
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MARKET FACTS, INC.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-4781 36-2061602
- ------------------------------------------------ ------------------------ ------------------------------------
(State or other jurisdiction of incorporation) (Commission File Number) (I.R.S. Employer Identification No.)
3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
---------------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (847) 590-7000
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Not Applicable
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(Former name or former address, if changed since last report)
<PAGE>
The undersigned Registrant hereby amends Item 7 of its Current Report on Form
8-K dated March 31, 1998. Item 7, as amended, appears below in its entirety.
Item 2. Acquisition or Disposition of Assets.
Pursuant to an Asset Purchase Agreement by and among Market Facts, Inc.
("Company"), TRA Acquisition Corp., a wholly-owned subsidiary of the Company
("TRA"), Donald E. Rupnow, Daniel W. Fish and Tandem Research Associates, Inc.
("Tandem Research") dated March 31, 1998, TRA acquired certain assets and
assumed certain liabilities of Tandem Research. Tandem Research is a 16 year-old
firm providing specialized custom and multi-client research products and
services to leading pharmaceutical companies and emerging biotech firms.
The purchase price for the acquired assets and liabilities of Tandem Research
was an amount equal to (i) $14,424,000 in cash paid at closing, (ii) the
assumption of approximately $590,000 of customer deposit liabilities, and (iii)
additional contingent payments based on TRA exceeding certain earnings targets
for the period April 1, 1998 through March 31, 2001 (the "Additional Purchase
Price"). The Additional Purchase Price equals (i) 3.25 multiplied by the amount
by which TRA's aggregate earnings before interest and income taxes ("EBIT")
during each year in the three-year period after the closing exceeds certain
specified amounts, up to a maximum aggregate payment of $9,000,000, plus (ii)
fifty percent of TRA's aggregate EBIT during the three-year period after the
closing in excess of $9,931,000. At the election of Tandem Research, up to
twenty-five percent of the Additional Purchase Price may be payable in shares of
the Company's common stock with the specific number of shares to be determined
based on the closing price of the stock on the last twenty trading days prior to
the issuance of such shares. The terms of the transaction were determined
through arms' length negotiations between the parties.
The acquisition will be accounted for under the purchase method of accounting
and was financed with a portion of the proceeds from the Company's public stock
offering in October 1997.
Page 1
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Item 7. Financial Statements and Exhibits.
(a) Financial statements of business acquired.
Independent Auditors' Report
The Board of Directors
Tandem Research Associates, Inc.:
We have audited the accompanying balance sheet of Tandem Research Associates,
Inc. as of December 31, 1997, and the related statements of operations and
retained earnings, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tandem Research Associates,
Inc. as of December 31, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
New York, New York
May 5, 1998
Page 2
<PAGE>
TANDEM RESEARCH ASSOCIATES, INC.
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Assets
<S> <C>
Current assets:
Cash $ 245,512
Trade accounts receivable 580,404
Revenue earned on contracts in progress in excess of billings 96,450
Prepaid expenses and other assets 25,279
---------
Total current assets 947,645
---------
Property and equipment 74,723
Less: accumulated depreciation (34,052)
---------
Property and equipment, net 40,671
---------
Security deposits 4,914
---------
Total assets $ 993,230
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 239,805
Billings in excess of revenue earned on contracts in progress 749,711
---------
Total current liabilities 989,516
---------
Stockholders' equity:
Capital stock, par value $1 per share;
authorized 200 shares; issued and
outstanding 20 shares 20
Retained earnings 3,694
---------
Total stockholders' equity 3,714
---------
Total liabilities and stockholders' equity $ 993,230
=========
</TABLE>
See accompanying notes to financial statements.
Page 3
<PAGE>
TANDEM RESEARCH ASSOCIATES, INC.
Statement of Operations and Retained Earnings
For the year ended December 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Revenue $5,827,737
Selling, general and administrative 5,398,492
----------
Income from operations 429,245
Other income, net 5,280
----------
Net income 434,525
Accumulated deficit at beginning of year (30,831)
Stockholders' distributions (400,000)
----------
Retained earnings at end of year $ 3,694
==========
</TABLE>
See accompanying notes to financial statements.
Page 4
<PAGE>
TANDEM RESEARCH ASSOCIATES, INC.
Statement of Cash Flows
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income $ 434,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 13,145
Changes in assets and liabilities:
Accounts receivable (229,813)
Prepaid expenses and other current assets (25,279)
Other assets (200)
Accounts payable and accrued expenses 37,331
Billings in excess of revenues earned on contracts in progress, net 339,786
---------
Net cash provided by operating activities 569,495
---------
Cash flows used in investing activities -
purchases of property and equipment (18,000)
---------
Cash flows used in financing activities:
Distributions to stockholders (400,000)
---------
Net increase in cash 151,495
Cash at beginning of year 94,017
---------
Cash at end of year $ 245,512
=========
Supplemental disclosure of cash flow information:
Cash paid during year for:
Interest $ -
=========
Income taxes $ -
=========
</TABLE>
See accompanying notes to financial statements.
Page 5
<PAGE>
TANDEM RESEARCH ASSOCIATES, INC.
Notes to Financial Statements
December 31, 1997
(1) Organization
Tandem Research Associates, Inc. ("the Company") provides market research
services to the pharmaceutical industry. The Company operates two distinct
divisions, Cancer Audit division and Custom Research division.
(2) Summary of Significant Accounting Policies
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the related assets. The Company currently uses five years
as the estimated useful life of all assets.
Income Taxes
The Company has elected to be taxed as an S corporation for Federal income
tax purposes and has filed to be similarly taxed by certain other tax
jurisdictions that recognize such status. Accordingly, income taxes in the
jurisdictions that recognize S corporation status are the responsibility of
the stockholders.
Revenue Recognition
The Company recognizes contract revenue using the percentage of completion
method. The Company matches earned income with related costs on a
consistent basis. Income and/or expenses are either accrued or deferred
depending upon the percentage of completion of each study. The completed
jobs are reviewed by management to account for differences between
estimates and actual results. The accrued income is shown as revenue earned
on contracts-in-progress in excess of billings and unearned income for
projects billed but not earned is shown as billings in excess of revenue
earned on contracts-in-progress.
Use of Estimates
The financial statements have been prepared in conformity with generally
accepted accounting principles, which require the Company to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(3) Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, other current assets,
accounts payable, accrued expenses and other current liabilities
approximate fair value at December 31, 1997 because of the short-term
maturity of these instruments.
Page 6
<PAGE>
TANDEM RESEARCH ASSOCIATES, INC.
Notes to Financial Statements
December 31, 1997
(4) Employee Money Purchase Plan
The Company provides employees having at least two years of service with a
fully vested Money Purchase Plan whereby Company contributions are
determined as a percentage of each covered employee's salary. Company
contributions totaled $48,884 in 1997.
(5) Commitments
The Company occupies office space under various long-term operating leases.
These leases are subject to escalation based on cost of living adjustments.
The following is a summary of future minimum lease payments under these
leases at December 31, 1997:
Years ending December 31,: Amount
------------------------- ------
1998 $ 63,248
1999 64,793
2000 12,500
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$140,541
========
Aggregate rent expense for operating leases approximated $51,506 in 1997.
(6) Concentration of Credit Risk
The Company maintains its cash balances in one financial institution. The
balances are insured by the Federal Deposit Insurance Corporation ("FDIC")
up to $100,000. As of December 31, 1997, the Company's cash balances
uninsured by the FDIC totaled $173,732.
Concentration of credit with respect to trade receivables exists because
the following clients account for greater than 10% of outstanding trade
receivables at December 31, 1997:
Client 1: $ 144,450 25%
Client 2: 141,233 24
Client 3: 81,800 14
------- --
$ 367,483 63%
======= ==
In addition, concentrations in the area of large sales volume to a limited
number of clients exist. The five largest clients, in terms of volume,
account for approximately 43% of gross billings. The aforementioned clients
are Fortune 500 companies.
(7) Subsequent Event
The Company signed an Asset Purchase Agreement, dated March 31, 1998, with
Market Facts, Inc. for the sale of certain assets and liabilities of the
Company for approximately $14,424,000 in cash and the assumption of
approximately $590,000 in customer deposit liabilities. There is also
additional contingent payments based on the Company exceeding certain
earnings targets for the period April 1, 1998 through March 31, 2001.
Page 7
<PAGE>
(b) Pro forma financial information.
Market Facts, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Financial Statements
The following unaudited pro forma condensed consolidated statements of earnings
for the year ended December 31, 1997 and the three months ended March 31, 1998
present the unaudited pro forma results of operations of the Company assuming
the acquisition of Tandem Research Associates, Inc. had been consummated as of
January 1, 1997.
These unaudited pro forma condensed consolidated financial statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto previously filed on Form 10-K and Tandem Research Associates,
Inc.'s financial statements and notes thereto included in Item 7 (a) of this
Form 8-K/A. The unaudited pro forma condensed consolidated statements of
earnings do not necessarily reflect actual results which may have occurred if
the acquisition had taken place as of January 1, 1997, nor are they necessarily
indicative of the results of future combined operations.
Page 8
<PAGE>
Market Facts, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Earnings
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Market Facts, Tandem Research
Inc. Assoc., Inc.
Historical Historical Pro Forma
Statements Statements Adjustments Results
------------ --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 100,064,294 5,827,737 -- 105,892,031
- -------------------------------------------------------------------------------------------------------------------------------
Direct Costs:
Payroll 18,071,133 761,956 -- 18,833,089
Other expenses 38,321,485 1,490,115 -- 39,811,600
- -------------------------------------------------------------------------------------------------------------------------------
Total 56,392,618 2,252,071 -- 58,644,689
- -------------------------------------------------------------------------------------------------------------------------------
Gross Margin 43,671,676 3,575,666 -- 47,247,342
- -------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling 3,324,273 166,751 -- 3,491,024
General and administrative 28,702,981 2,930,786 617,364 (a) 32,254,131
3,000 (b)
Contributions to profit-sharing trust
and employee stock ownership plans 1,363,259 48,884 -- 1,412,143
- -------------------------------------------------------------------------------------------------------------------------------
Total 33,390,513 3,146,421 620,364 37,157,298
- -------------------------------------------------------------------------------------------------------------------------------
Income from operations 10,281,163 429,245 (620,364) 10,090,044
- -------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (1,131,920) -- -- (1,131,920)
Interest income 298,141 5,380 -- 303,521
Other income, net 87,714 (100) -- 87,614
- -------------------------------------------------------------------------------------------------------------------------------
Total (746,065) 5,280 -- (740,785)
- -------------------------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 9,535,098 434,525 (620,364) 9,349,259
Provision For Income Taxes 3,713,000 -- (248,146) (c) 3,638,664
173,810 (d)
- -------------------------------------------------------------------------------------------------------------------------------
Net Income $ 5,822,098 434,525 (546,028) 5,710,595
- -------------------------------------------------------------------------------------------------------------------------------
Pro Forma Adjustment to Compensation Expense:
Contractual changes to be made in officers' salaries $ 2,496,620 (e)
Related income taxes (998,648)(c)
- -------------------------------------------------------------------------------------------------------------------------------
1,497,972
- -------------------------------------------------------------------------------------------------------------------------------
Pro Forma Net Income After Adjustment
to Compensation Expense $ 7,208,567
===============================================================================================================================
Basic Earnings Per Share $ 0.80 0.99
===============================================================================================================================
Diluted Earnings Per Share $ 0.77 0.95
===============================================================================================================================
Shares used to calculate basic EPS 7,294,537 7,294,537
===============================================================================================================================
Shares used to calculate diluted EPS 7,560,498 7,560,498
===============================================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
Page 9
<PAGE>
Market Facts, Inc. and Subsidiaries
Pro Forma Condensed Consolidated Statement of Earnings
For the Three Months Ended March 31, 1998
<TABLE>
<CAPTION>
Market Facts, Tandem Research
Inc. Assoc., Inc.
Historical Historical Pro Forma
Statements Statements Adjustments Results
------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue $ 29,245,281 1,339,946 -- 30,585,227
- ------------------------------------------------------------------------------------------------------------------------------
Direct Costs:
Payroll 5,342,539 157,895 -- 5,500,434
Other expenses 11,254,038 224,279 -- 11,478,317
- ------------------------------------------------------------------------------------------------------------------------------
Total 16,596,577 382,174 -- 16,978,751
- ------------------------------------------------------------------------------------------------------------------------------
Gross Margin 12,648,704 957,772 -- 13,606,476
- ------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Selling 1,131,678 27,642 -- 1,159,320
General and administrative 8,837,614 123,286 154,341 (a) 9,115,991
750 (b)
Contributions to profit-sharing trust and employee
stock ownership plans 312,325 15,000 -- 327,325
- ------------------------------------------------------------------------------------------------------------------------------
Total 10,281,617 165,928 155,091 10,602,636
- ------------------------------------------------------------------------------------------------------------------------------
Income from operations 2,367,087 791,844 (155,091) 3,003,840
- ------------------------------------------------------------------------------------------------------------------------------
Other Income (Expense):
Interest expense (281,262) -- -- (281,262)
Interest income 331,537 1,909 -- 333,446
Other income, net 10,823 -- -- 10,823
- ------------------------------------------------------------------------------------------------------------------------------
Total 61,098 1,909 -- 63,007
- ------------------------------------------------------------------------------------------------------------------------------
Income Before Provision For Income Taxes 2,428,185 793,753 (155,091) 3,066,847
Provision For Income Taxes 1,036,778 -- (62,036) (c) 1,292,243
317,501 (d)
- ------------------------------------------------------------------------------------------------------------------------------
Net Income $ 1,391,407 793,753 (410,556) 1,774,604
- ------------------------------------------------------------------------------------------------------------------------------
Pro Forma Adjustment to Compensation Expense:
Contractual changes to be made in officers' salaries $ (52,749) (e)
Related income taxes 21,100 (c)
- ------------------------------------------------------------------------------------------------------------------------------
(31,649)
- ------------------------------------------------------------------------------------------------------------------------------
Pro Forma Net Income After Adjustment
to Compensation Expense $ 1,742,955
==============================================================================================================================
Basic Earnings Per Share $ 0.16 0.20
==============================================================================================================================
Diluted Earnings Per Share $ 0.15 0.19
==============================================================================================================================
Shares used to calculate basic EPS 8,834,939 8,834,939
==============================================================================================================================
Shares used to calculate diluted EPS 9,149,335 9,149,335
==============================================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
Page 10
<PAGE>
Notes to Pro Forma Condensed Consolidated Financial Statements
Note 1
- ------
On March 31, 1998, TRA Acquisition Corp. ("TRA"), a wholly-owned subsidiary of
the Company, acquired certain assets and assumed certain liabilities of Tandem
Research Associates, Inc. ("Tandem Research"), a 16 year-old firm providing
specialized custom and multi-client research products and services to leading
pharmaceutical companies and emerging biotech firms. The purchase price was an
amount equal to (i) $14,424,000 in cash paid at closing, (ii) the assumption of
approximately $590,000 of customer deposit liabilities, and (iii) additional
contingent payments based on TRA exceeding certain earnings targets for the
period April 1, 1998 through March 31, 2001 (the "Additional Purchase Price").
The Additional Purchase Price equals (i) 3.25 multiplied by the amount by which
TRA's aggregate earnings before interest and income taxes ("EBIT") during each
year in the three-year period after the closing exceeds certain specified
amounts, up to a maximum aggregate payment of $9,000,000, plus (ii) fifty
percent of TRA's aggregate EBIT during the three-year period after the closing
in excess of $9,931,000. At the election of Tandem Research, up to twenty-five
percent of the Additional Purchase Price may be payable in shares of the
Company's common stock.
The acquisition was accounted for under the purchase method of accounting. The
preliminary allocation of the purchase price represents an estimate of the fair
values of the assets acquired and liabilities assumed, including estimated
professional fees and other acquisition expenses expected to be incurred. The
excess of the purchase price over the estimated fair values of the assets
acquired and liabilities assumed of $15,434,088 has been recorded as goodwill.
This preliminary allocation of purchase price is subject to further adjustments;
however, the Company does not expect the estimated values to change materially
upon finalization of the allocation of the purchase price.
The pro forma adjustments reflect the following:
(a) Represents the amortization of goodwill on a straight-line basis over 25
years.
(b) Represents the amortization of the noncompete agreements on a straight-line
basis over their 5 year term.
(c) Represents the tax effect of the pro forma adjustments using a statutory
rate of 40%.
(d) Represents federal and state income tax expense on Tandem Research's
historical income before provision for income taxes using a statutory rate
of 40%.
(e) The Company entered into employment agreements with two of Tandem
Research's officers effective on the date of the acquisition. The
agreements change the salaries and bonuses previously paid to these
officers. This adjustment represents those contractual salary and bonus
changes.
Note 2
- ------
The purchase price includes contingent payments based on TRA exceeding certain
earnings targets for the period April 1, 1998 through March 31, 2001 as
described in Note 1. These contingent payments will be recorded as goodwill at
the time the Company has determined beyond a reasonable doubt that such
contingent payments will be made and will be amortized over the remaining useful
life of the goodwill.
(c) Exhibits.
See Index to Exhibits immediately following the signature page.
Page 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Market Facts, Inc.
----------------------
(Registrant)
Date: June 11, 1998 /s/ Timothy J. Sullivan
------------- -----------------------
Timothy J. Sullivan
Chief Financial Officer, Senior Vice President,
Treasurer and Assistant Secretary
(Principal Financial Officer)
Date: June 11, 1998 /s/ Anthony J. Solarz
------------- ---------------------
Anthony J. Solarz
Controller
(Principal Accounting Officer)
Page 12
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Description
- -------------- -----------
(2) Asset Purchase Agreement by and among Market Facts, Inc., TRA
Acquisition Corp., Donald E. Rupnow, Daniel Fish and Tandem
Research Associates, Inc. dated as of March 31, 1998. (1)
(4)(a) Article Fourth of Restated Certificate of Incorporation (2), as
amended. (3)
(4)(b) Rights Agreement as Amended and Currently in Effect. (4)
(4)(c) Certificate of Designation, Preferences and Rights of Series B
Preferred Stock. (5)
(10.1) Employment Agreement with Donald E. Rupnow. (1)
(10.2) Employment Agreement with Daniel W. Fish. (1)
(23) Consent of KPMG Peat Marwick LLP
__________________
(1) Incorporated by reference to Registrant's Form 8-K dated March 31, 1998.
(2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996.
(3) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1997.
(4) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996,
commission file number 0-04781.
(5) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
Page 13
<PAGE>
EXHIBIT 23
CONSENT OF KPMG PEAT MARWICK LLP
We consent to the inclusion of our report dated May 5, 1998 relating to the
balance sheet of Tandem Research Associates, Inc. as of December 31, 1997 and
the related statements of operations and retained earnings and cash flows for
the year then ended, which report appears in the Form 8-K/A of Market Facts,
Inc. dated March 31, 1998.
KPMG Peat Marwick LLP
New York, New York
June 11, 1998
