<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
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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 0-04781
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MARKET FACTS, INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-2061602
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(State or other jurisdiction of (I.R.S. Employer 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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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES /X/ NO / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
8,944,701 common shares as of May 11, 1999
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 18,889,961 $ 28,475,066
Bank certificate of deposit 50,000 50,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,182,731 in 1999 and $1,177,460 in 1998 21,060,189 20,287,698
Other 36,091 49,269
Notes receivable 150,000 500
Revenues earned on contracts in progress in excess of billings 7,950,227 5,724,794
Deferred income taxes 676,083 675,499
Prepaid expenses and other assets 645,302 539,859
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Total Current Assets 49,457,853 55,802,685
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PROPERTY AND EQUIPMENT, AT COST 37,379,703 36,118,687
Less accumulated depreciation and amortization (16,676,724) (15,636,212)
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Net Property and Equipment 20,702,979 20,482,475
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OTHER ASSETS:
Goodwill and other intangibles, net of accumulated amortization
of $1,396,149 in 1999 and $1,036,545 in 1998 28,980,444 27,818,619
Deferred income taxes, noncurrent 789,891 789,881
Investment in affiliated companies 596,535 560,814
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Total Other Assets 30,366,870 29,169,314
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Total Assets $100,527,702 $105,454,474
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</TABLE>
See accompanying notes to condensed consolidated financial statements
Page 1
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued expenses $ 10,054,499 $ 14,074,491
Billings in excess of revenues earned on contracts in progress 9,612,069 9,760,679
Accounts payable 2,144,884 4,988,039
Income taxes 717,615 673,879
Current portion of obligations under capital leases 297,157 295,893
Current portion of long-term debt 114,149 150,396
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Total Current Liabilities 22,940,373 29,943,377
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LONG-TERM LIABILITIES:
Long-term debt 10,008,714 10,008,714
Obligations under capital leases, noncurrent portion 1,121,869 1,188,416
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Total Long-Term Liabilities 11,130,583 11,197,130
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Total Liabilities 34,070,956 41,140,507
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STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares authorized;
Series A - none issued; Series B - 100 shares issued - -
Common stock, $1 par value; 15,000,000 shares authorized;10,910,058 shares
issued in 1999 and 1998 10,910,058 10,910,058
Capital in excess of par value 46,174,709 46,172,329
Accumulated other comprehensive loss - foreign currency translation adjustments (212,137) (234,062)
Retained earnings 23,691,741 21,682,109
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80,564,371 78,530,434
Less treasury common stock at cost; 1,966,557 and 1,970,557 shares
in 1999 and 1998, respectively (13,597,065) (13,612,265)
Less other transactions involving common stock (510,560) (604,202)
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Total Stockholders' Equity 66,456,746 64,313,967
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Total Liabilities and Stockholders' Equity $100,527,702 $105,454,474
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 1998
----------- -----------
<S> <C> <C>
REVENUE $36,274,332 $29,245,281
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DIRECT COSTS:
Payroll 6,741,639 5,342,539
Other expenses 12,495,162 11,254,038
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Total 19,236,801 16,596,577
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Gross Margin 17,037,531 12,648,704
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OPERATING EXPENSES:
Selling 1,538,201 1,131,678
General and administrative 12,090,669 9,149,939
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Total 13,628,870 10,281,617
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Income from Operations 3,408,661 2,367,087
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OTHER INCOME (EXPENSE):
Interest expense (276,908) (281,262)
Interest income 239,486 331,537
Other income, net 40,308 10,823
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Total 2,886 61,098
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Income Before Provision For Income Taxes 3,411,547 2,428,185
Provision For Income Taxes 1,401,915 1,036,778
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NET INCOME $ 2,009,632 $ 1,391,407
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BASIC EARNINGS PER SHARE $ .22 $ .16
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DILUTED EARNINGS PER SHARE $ .22 $ .15
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------
1999 1998
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,009,632 $ 1,391,407
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,363,147 821,131
Deferred income taxes - (92,049)
Vesting of restricted stock and demand notes receivable 13,857 13,858
Change in assets and liabilities, net of effects from acquisition:
Accounts receivable (746,831) 5,667,469
Prepaid expenses and other assets (104,543) (11,734)
Revenue earned in excess of billings on contracts in progress (2,370,831) (5,736,615)
Accounts payable and accrued expenses (6,027,452) (1,442,214)
Income taxes 42,128 256,768
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Net cash provided by (used in) operating activities (5,820,893) 868,021
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CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of acquired cash - (15,591,392)
Contingent payments for acquired businesses (2,145,725) -
Purchases of property and equipment (1,432,970) (1,789,530)
Investment in notes receivable (150,000) -
Proceeds from notes receivable 80,285 16,118
Investment in affiliated companies (35,721) -
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Net cash used in investing activities (3,684,131) (17,364,804)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings - (1,205,864)
Proceeds from short-term borrowings - 1,055,864
Reduction of obligations under capital leases and long-term debt (108,148) (85,515)
Proceeds from exercise of stock options 17,580 24,612
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Net cash used in financing activities (90,568) (210,903)
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EFFECT OF EXCHANGE RATE CHANGES ON CASH 10,487 1,926
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NET DECREASE IN CASH AND CASH EQUIVALENTS (9,585,105) (16,705,760)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 28,475,066 36,444,256
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $18,889,961 $ 19,738,496
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CASH PAID DURING THE PERIOD FOR:
Interest $ 276,908 $ 280,331
Income taxes, net of refunds 1,360,548 836,145
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</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Market Facts, Inc. and Subsidiaries ("Company") have been prepared in
accordance with the instructions to Form 10-Q. The results of operations for
interim periods are not necessarily indicative of the results to be expected
for the entire year. For further information regarding the Company's most
recently completed fiscal years, refer to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
Effective January 1, 1999, the Company adopted Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" ("SOP 98-1"). SOP 98-1 requires capitalization of certain costs
of computer software developed or obtained for internal use, provided that
these costs are not research and development.
NOTE 2 - ADJUSTMENTS AND RECLASSIFICATIONS
The information furnished herein includes all adjustments, consisting of
normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the interim financial statements.
NOTE 3 - REVENUE RECOGNITION
The Company recognizes revenue under the percentage of completion method of
accounting. Revenue on client projects is recognized as services are
performed. Losses expected to be incurred on jobs in progress are charged to
income as soon as such losses are known. Revenue earned on contracts in
progress in excess of billings is classified as a current asset. Amounts
billed in excess of revenue earned are classified as a current liability.
Client projects are expected to be completed within a twelve month period.
NOTE 4 - EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the three months ended March 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999
-----------------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $2,009,632 8,941,630 $ .22
---------
---------
Effect of Dilutive Securities
Stock options -- 336,231
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders plus
assumed conversions $2,009,632 9,277,861 $ .22
---------- --------- ---------
---------- --------- ---------
</TABLE>
Page 5
<PAGE>
<TABLE>
<CAPTION>
-----------------------------------------------
Three Months Ended March 31, 1998
-----------------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $1,391,407 8,834,939 $ .16
---------
---------
Effect of Dilutive Securities
Stock options -- 314,396
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Diluted Earnings Per Share
Income available to common stockholders plus
assumed conversions $1,391,407 9,149,335 $ .15
---------- --------- ---------
---------- --------- ---------
</TABLE>
NOTE 5 - COMPREHENSIVE INCOME
The Company's comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
1999 1998
---------- ----------
<S> <C> <C>
Net income $2,009,632 $1,391,407
Other comprehensive income:
Foreign currency translation adjustments $ 21,925 $ 10,750
---------- ----------
Comprehensive income $2,031,557 $1,402,157
---------- ----------
---------- ----------
</TABLE>
NOTE 6 - SUBSEQUENT EVENTS
On April 29, 1999, the Company entered into a definitive merger agreement
(the "Merger Agreement") providing for the acquisition of its common stock by
Aegis Group plc ("Aegis"). Under the Merger Agreement, on May 4, 1999 a
subsidiary of Aegis ("Purchaser") commenced a cash tender offer for all of
the Company's shares of common stock at an offering price of $31.00 per
share, net to the seller in cash. Following the cash tender offer and subject
to the terms and conditions of the Merger Agreement, Purchaser will be merged
into the Company and the remaining shares will be converted into the right to
receive $31.00 per share. As a result of the merger, the Company will become
a wholly owned subsidiary of Aegis. The tender offer and merger were
unanimously approved by the Company's Board of Directors.
In connection with the merger agreement, Aegis has entered into an
irrevocable Option and Voting Agreement (the "Option Agreement") with certain
Company stockholders owning an aggregate of approximately 30% of the
Company's shares under which such stockholders have, among other things,
granted Aegis an irrevocable option to purchase their shares at a price of
$31.00 per share. Pursuant to the Option Agreement, Aegis is required to
purchase such shares on the day after Aegis purchases shares pursuant to the
tender offer.
The transaction is subject to certain conditions, including a requirement
that the shares acquired in the tender offer, together with the shares
subject to the Option Agreement, constitute at least a majority of the
Company's outstanding shares. The tender offer is also subject to compliance
with certain covenants and requires that no material adverse changes with
respect to the Company occur, and that all applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976 expire.
Page 6
<PAGE>
Also in connection with the Merger Agreement, the Company has amended the
Rights Agreement dated as of July 26, 1989 between the Company and First
Chicago Trust Company of New York, as amended (the "Rights Agreement") so
that (i) the execution and delivery of the Merger Agreement and the Option
Agreement, and the consummation of the transactions contemplated thereby will
not result in Aegis, Purchaser or any of their affiliates becoming an
Acquiring Person (as defined in the Rights Agreement), or (ii) the occurrence
of a Distribution Date or a Shares Acquisition Date (each as defined in the
Rights Agreement).
On April 23, 1999, the Company entered into a licensing agreement with Harris
Black International ("Harris Black"), whereby Harris Black will provide
access to its Harris Poll Interactive Panel under a preferred pricing
arrangement. The Harris Poll Interactive Panel is an Internet market research
database of over three million cooperating persons in the United States. The
Company also acquired 4 percent of the common stock of Harris Black on a
fully diluted basis for an investment of $4,123,000. This investment will be
accounted for using the cost method.
On April 9, 1999, the Company acquired all of the outstanding stock of
Marketing Strategy and Planning, Inc. ("MS&P"), a custom marketing research
company that specializes in the development, integration, marketing and
execution of sophisticated consulting services using proprietary simulation
software. The purchase price was an amount equal to (i) $5,250,000 in cash,
(ii) the assumption of $750,000 of additional employee obligations, (iii) up
to $4,000,000 of possible contingent payments based on MS&P exceeding certain
earnings targets through March 2002, and (iv) additional contingent payments
based on fifty percent of MS&P's aggregate earnings before interest and
income taxes in excess of $5,242,000 through March 2002.
The acquisition will be 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 will be recorded as goodwill and amortized on a
straight-line basis over 25 years.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity depends primarily upon its net income and management
of its working capital, principally accounts receivable, accounts payable and
accrued expenses. Historically, the Company has financed its operations
through cash generated from operating activities and bank lines of credit.
In October 1997, the Company generated $36.9 million in net proceeds from a
public offering of its common stock. At March 31, 1999, the Company had cash
and cash equivalents of $18.9 million. The Company intends to utilize this
cash for working capital and other general corporate purposes, including
acquisitions, investments in technology, new product development and joint
ventures.
During the first three months of 1999, cash and cash equivalents decreased by
$9.6 million. Net cash flow used in operating activities was $5.8 million in
the first three months of 1999 compared to cash provided by operating
activities of $.9 million in the same period of 1998. The decrease in 1999
compared to the same period in 1998 was due primarily to the timing of
collections of accounts receivable and the reduction of accounts payable and
accrued expenses during the first quarter of 1999. Cash used in investing
activities was $3.7 million in 1999 compared to $17.4 million in 1998. The
decrease in 1999 compared to the same period in 1998 was due primarily to the
fact that no new acquisitions were made in the first quarter of 1999. During
1999, the Company made $2.1 million of contingent payments for acquired
businesses. Cash used in financing activities was $.1 million in 1999
compared to $.2 million in 1998.
Page 7
<PAGE>
The Company's available borrowings under established bank credit facilities
were $13.7 million during 1999 and 1998. There were no borrowings outstanding
at March 31, 1999 and December 31, 1998.
The Company believes that its cash on hand 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 its cash
on hand, cash expected to be provided from operations and cash available from
existing bank arrangements.
RESULTS OF OPERATIONS
COMPARISON OF FIRST QUARTER 1999 TO FIRST QUARTER 1998
The Company had revenue of $36.3 million in 1999, an increase of 24.0% over
the same period in 1998. Approximately $3.7 million or 53% of the increase in
revenue was due to revenue contributions from BAIGlobal, Inc., Strategy
Research Corporation, Tandem Research Associates, Inc., and Product
Intelligence, Inc., the businesses acquired over the past two years.
Approximately $3.3 million or 47% of the increase was due to the growth of
our core business. Of the growth in core business, 55% was from business with
clients for whom the Company did not perform any research services during the
previous fiscal year and the remainder from business with existing clients.
The Company experienced revenue growth across most of its major industry
groups as follows:
<TABLE>
<CAPTION>
First Quarter Change from
1999 Revenue % of First Quarter
Industry (000s) Total 1998
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<S> <C> <C> <C>
Consumer package goods $11,347 31% 23.4%
Healthcare 6,509 18 81.6
Financial services 5,117 14 69.2
Business services 3,787 10 (13.3)
Consumer durables 2,691 7 (11.2)
Retail and restaurants 2,485 7 2.1
Telecommunications 1,759 5 20.1
All other 2,579 8 20.5
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Total $36,274 100% 24.0%
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</TABLE>
Gross margin for 1999 was $17.0 million, an increase of 34.7% over the same
period in 1998. Gross margin as a percentage of revenue was 47.0% in 1999
compared to 43.3% in the same period in 1998. The increase in the gross
margin percentage is the result of improved rates from large multi-million
dollar research programs and the favorable impact of recent acquisitions
which yield higher gross margin rates than Market Facts' traditional rates.
Operating expenses for 1999 rose by $3.3 million, an increase of 32.6%
compared to the same period in 1998. Operating expenses as a percentage of
revenue increased during the quarter to 37.6% from 35.2% for the same period
in 1998. The increase in operating expenses was due primarily to higher
operating expenses to support the growth in core business, including higher
personnel-related expenses and investments in information technology, and the
inclusion of operating expenses from recent acquisitions.
Net income rose 44.4% to $2.0 million or 5.5% of revenue compared to
$1.4 million and 4.8% of revenue during the same period in 1998. Basic
earnings per share increased 37.5% to $.22 for the first quarter of 1999
compared to $.16 for the same period in 1998. Diluted earnings per share
increased 46.7% to $.22 for the first quarter of 1999 compared to $.15 for
the same period in 1998.
Page 8
<PAGE>
YEAR 2000
The Company recognizes the need to identify and correct problems associated
with its existing computer systems and certain non-information technology
systems as the Year 2000 approaches. Both internal and external resources are
being used to identify, to correct, and to test these financial, information
and operational systems for Year 2000 compliance. The Company has assessed
its internal systems for Year 2000 compliance and has made inquiries of its
suppliers to assess the potential impact on the Company's operations if key
third parties are not successful in converting their systems in a timely
manner. The Company's assessment of its internal systems has been completed.
All inquiries of third parties have been made, however, the Company is
awaiting some responses. The Company expects its full review of Year 2000
issues, including its review of third party compliance, to be completed by
June 30, 1999.
The Company has incurred approximately $183,000 of costs and expenses through
March 31, 1999 in addressing the Year 2000 issue. Based on its assessment
efforts to date, the Company does not believe that its operations will be
materially impacted by a failure of its internal systems to be Year 2000
compliant and has identified approximately $425,000 in additional costs to be
incurred in 1999 in order to replace certain of its telephone systems and
computer equipment and its human resource/payroll information system that are
not Year 2000 compliant. The Company expects most of these costs will be
capitalized.
Although the Company does not at this time believe that its business
operations or financial condition will be materially impacted by a failure of
its suppliers to be Year 2000 compliant, it is difficult for the Company to
assess the likelihood, or the impact on its business, of such entities'
failure until its assessment is completed. The Company currently anticipates
that additional expense and capital expenditures associated with its Year
2000 compliance plan will be necessary, although the Company does not expect
such costs to have a material adverse effect on its financial position or
results of operations. The actual amount of these costs will not be known,
however, until the Company's review of the Year 2000 issue has been completed
and tested.
The Company anticipates that its remediation efforts and necessary testing
related to the Year 2000 issue will be completed by September 1999. The
Company is in the process of developing contingency plans in the event of
Year 2000 failures, and anticipates that these contingency plans will be in
place by September 1999.
The Company's expectations about future costs necessary to achieve Year 2000
compliance, the impact on its operations and its ability to bring each of its
systems into Year 2000 compliance are subject to a number of uncertainties
that could cause actual results to differ materially. Such factors include
the following: (i) The Company may not be successful in properly identifying
all systems and programs that contain two-digit year codes; (ii) The nature
and number of systems which require reprogramming, upgrading or replacement
may exceed the Company's expectations in terms of complexity and scope;
(iii) The Company may not be able to complete all remediation and testing
necessary in a timely matter; (iv) The Company has no control over the
ability of its key suppliers and customers to achieve Year 2000 compliance;
and (v) The impact of the Year 2000 problem on key customers may be of such
magnitude that it may adversely affect their demand for the Company's
products and services.
SUBSEQUENT EVENT
Please see footnote 6 to the Financial Statements for information regarding
the merger agreement dated April 29, 1999 between the Company and Aegis Group
plc providing for the acquisition of all of the Company's outstanding common
stock.
Page 9
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's cash equivalents and long-term debt obligation.
The Company does not use derivative financial instruments. The Company places
its investments with high credit quality issuers and limits the amount of
credit exposure to any one issuer. As stated in its policy, the Company is
averse to principal loss and ensures the safety and preservation of its
invested funds by limiting default risk, market risk and reinvestment risk.
The Company mitigates default risk by investing in high credit quality
securities. The portfolio includes only securities with active secondary or
resale markets to ensure portfolio liquidity. All cash equivalents held at
March 31, 1999 mature in 28 days or less.
The Company has no cash flow exposure due to rate changes for its long-term
debt obligation as the rate is fixed. The Company has primarily entered into
short-term debt obligations to support acquisition and general corporate
purposes including capital expenditures and working capital needs.
The Company is exposed to potential gains or losses from foreign currency
fluctuations affecting earnings denominated in Canadian dollars. The Company
also transacts business in various foreign countries and pays vendors in
foreign currencies. The Company currently does not hedge such foreign
currency transactions with forward contracts as any potential losses are not
material and are typically passed on to clients.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
FORWARD-LOOKING STATEMENTS
Certain statements made from time to time by the Company, including
statements in the Management's Discussion and Analysis section above,
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 growth through
acquisition opportunities and statements relating to the Company or its
operations that are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. The Company's actual results, performance or achievements
could differ materially from the results, performance or achievements
expressed in, or implied by, these forward-looking statements as a result of
various factors, including without limitation, the following:
RELIANCE ON KEY CLIENTS. Our five largest clients accounted for approximately
23%, 25% and 26% of our revenue in 1998, 1997 and 1996. In 1998, no single
client accounted for over 10% of revenue. One client, Procter & Gamble,
accounted for approximately 11% and 10% of our revenue in 1997 and 1996. We
cannot assure you that we will be able to maintain our current level of
revenue from Procter & Gamble or any other client in the future.
We do not usually enter into long-term contracts with our clients. Clients
normally hire us on a project-by-project basis. Our clients generally have
the right to terminate their relationship with us with little or no notice.
In addition, most of our clients also use the services of other marketing
research companies. Once a project is completed, there can be no assurance
that a client will hire us to perform future services. The termination of our
relationship with any of our significant clients or a material reduction in
the services provided to such clients could adversely affect our business and
future financial results.
Page 10
<PAGE>
FLUCTUATIONS IN DEMAND FOR MARKET RESEARCH. Demand for our research services
can be affected by a number of factors outside our control, including the
following:
- changes in the management, budgets, spending patterns or business
cycles of our clients;
- competition within our industry; and
- changes in general economic conditions.
As a result of these and other factors, the amount of market research we
conduct for our clients has varied from period-to-period in the past and is
likely to continue to vary in the future. These variations may contribute to
changes in our financial results from period-to-period.
VARIABILITY OF QUARTERLY FINANCIAL RESULTS. Our quarterly financial results
have fluctuated in the past and may continue to fluctuate in the future. Our
future quarterly financial results will depend on many factors, including the
following:
- the timing and number of new projects;
- reductions, cancellations or completions of projects;
- the number, scope, terms and degree of completion of current
projects;
- our costs and any delays in connection with current projects;
- the loss of a major client;
- changes in our pricing or the pricing of our competitors;
- employee utilization rates;
- the adequacy of our provisions for losses; and
- general economic conditions.
As a result of these and other factors, we believe that period-to-period
comparisons of our financial results are not a good predictor of our future
performance. If our future financial results are below the expectations of
stock market analysts, our stock price may decline.
RISKS ASSOCIATED WITH ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED
BUSINESSES. We have acquired five businesses over the past two years. We
intend to acquire additional businesses as part of our growth strategy.
However, we cannot assure you that we will be able to identify suitable
businesses to acquire or that we will be able to acquire such businesses on
acceptable terms. In addition, some of our competitors are also seeking to
grow through acquisitions and there is significant competition for attractive
businesses. The purchase price for such businesses may be greater than the
book value of the business.
We may have difficulty integrating acquired businesses without substantial
costs, delays or other problems. We may require the assistance of the senior
management team of an acquired business to successfully integrate the
business. However, some or all of the members of the management team may
decide not to work for us or may not work for us long enough to complete the
integration. Difficulties in integrating acquired businesses may disrupt our
ongoing business, distract our management and employees and increase our
expenses. In addition, we may not be able to manage the acquired businesses
as profitably as their prior owners.
Page 11
<PAGE>
COMPETITION. The market for our services is very competitive. We face direct
competition from many smaller organizations that serve niche markets and from
a few larger organizations who have greater resources. We believe that as our
industry consolidates we will face more competition from these organizations
for clients and for acquisition candidates. Also, we face indirect competition
from the marketing research departments of clients and potential clients,
advertising agencies and survey research departments affiliated with
universities and government agencies.
We believe the principal methods of competition include the following:
- 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 services.
If we fail to compete successfully based on these or other factors, we may
lose clients to our competitors or fail to recruit new clients and our
business and future financial results could be materially and adversely
affected.
ABILITY TO CONTINUE GROWTH; MANAGEMENT OF GROWTH. For the three year period
ended December 31, 1998, our revenue and net income increased at a compound
annual growth rate of 28% and 45%, respectively. We cannot assure you that we
will be able to sustain this rate of growth. In addition, this growth in our
business has placed increased demands on our management, operating systems
and internal controls. Our operational, financial and information systems and
controls may not be adequate to support the continued growth of our business.
Consequently, we may need to hire new employees, acquire new office space,
invest in new equipment and update our systems, procedures and controls. Our
business and future financial results will be materially and adversely
affected if we are unable to effectively manage our expanding operations.
RISKS OF INTERNATIONAL EXPANSION. An important part of our business strategy
is to be able to provide market research services to our clients globally. We
intend to seek acquisitions, joint ventures and strategic alliances globally.
As we expand internationally, we will be subject to increased risks which may
include the following:
- - our ability to maintain an international data collection network which
meets our quality standards;
- - currency exchange or price control laws;
- - currency translation adjustments;
- - political and economic instability;
- - unexpected changes in regulatory requirements;
- - tariffs and other trade barriers;
- - longer accounts receivable collection cycles; and
- - potentially adverse tax consequences.
Page 12
<PAGE>
Also, we may have difficulty enforcing agreements and collecting accounts
receivable through a foreign country's legal system. In addition, there is no
assurance that we will be able to successfully meet the needs of our clients
through our international operations.
VOLATILITY OF STOCK PRICE. Our common stock has experienced wide price
fluctuations in the past, and such fluctuations may continue in the future.
In addition, the stock market has been extremely volatile in recent years.
These broad market fluctuations may adversely affect the market price of our
common stock. In addition, the following factors may have a significant
effect on the market price of our common stock:
- - fluctuations in our financial results;
- - the introduction of new services or products by us or our competitors;
- - announcements of acquisitions, strategic alliances or joint ventures by
us, our clients or our competitors;
- - changes in analysts' recommendations regarding our common stock;
- - general conditions in the market research industry; and
- - general economic conditions.
There can be no assurance that the price of our common stock will increase in
the future or be maintained at its recent levels.
DEPENDENCE ON PROPRIETARY TECHNOLOGY. We consider most of our software,
database management methods, modeling techniques and other database
information strategies to be proprietary technology. We believe our success
and ability to compete depends in part on this proprietary technology. We
rely on a combination of trade secret, trademark, copyright and other
intellectual property laws, as well as contractual agreements, to protect
this proprietary technology. However, we may have difficulty monitoring the
unauthorized use of our proprietary technology and the steps we have taken to
protect it may not be adequate. Also, we cannot be sure the courts will
enforce the contracts we have entered into to protect our proprietary
technology. Any misappropriation of our intellectual property could have a
material adverse effect on our business or future financial results.
RISK OF DECLINING RESPONSE RATES. We must be able to collect high quality
data in order to service our clients. We collect data using our Consumer Mail
Panel-SM-, random telephone interviewing, and other sources. Response rates to
data collection efforts in our industry have generally declined in recent
years. Lower response rates could lower the quality of data we collect and
increase our project costs. If we are unable to recruit and maintain
appropriate members for our Consumer Mail Panel-SM-, or if consumers are not as
receptive to our attempts at data collection, or if we can't rely on the
integrity of the data received, our ability to market and sell our research
products would be materially and adversely affected.
RELIANCE ON KEY PERSONNEL. Our success depends significantly on our key
personnel who have expertise in custom market research and have established
relationships with our clients. Although we manage client relationships at
many levels, the loss of a key employee could have an adverse effect on our
relationship with the clients served by that employee. Our success also
depends on our ability to hire, train and retain skilled personnel in all
areas of our business. Competition for qualified personnel in our industry is
substantial. There can be no assurance that we will be able to recruit,
retain and motivate a sufficient number of qualified employees to compete
successfully.
Page 13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits immediately following the signature page.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended March 31, 1999.
Page 14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Market Facts, Inc.
------------------
(Registrant)
Date: May 13, 1999 Timothy J. Sullivan
-------------------
Timothy J. Sullivan
Chief Financial Officer, Senior Vice President,
Treasurer, Assistant Secretary and Director
(Principal Financial Officer)
Date: May 13, 1999 Anthony J. Solarz
-----------------
Anthony J. Solarz
Vice President and Controller
(Principal Accounting Officer)
Page 15
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
(3)(a) Restated Certificate of Incorporation (5), as amended. (14)
(3)(b) By-laws as Amended and Currently in Effect. (11)
(4)(a) Article Fourth of the Company's Restated Certificate of
Incorporation (5), as amended. (14)
(4)(b) Rights Agreement as Amended and Currently in Effect (3), as
further amended. (21)
(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 Lawrence Labash. (4)
(10.2) Term Note dated February 23, 1995 between Market Facts, Inc.
and Thomas Payne. (4)
(10.3) Term Note dated February 23, 1995 between Market Facts, Inc.
and Timothy Sullivan. (16)
(10.4) 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), as
amended.
(10.5) 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)
(10.6) 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)
(10.7) Employment Agreement with Thomas H. Payne. (13)
(10.8) Employment Agreement with Lawrence W. Labash. (13)
(10.9) Employment Agreement with Timothy J. Sullivan. (13)
(10.10) Employment Agreement with Sanford M. Schwartz. (17)
(10.11) 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
(10.12) Term Note dated March 29, 1996 between Market Facts, Inc. and
Thomas Payne. (5)
(10.13) Term Note dated March 29, 1996 between Market Facts, Inc. and
Lawrence Labash. (5)
(10.14) Term Note dated March 29, 1996 between Market Facts, Inc. and
Timothy Sullivan. (16)
(10.15) Indemnity Agreement with Timothy Sullivan dated September 3,
1997. (16) Substantially identical agreements were also
entered into with Ned Sherwood and Jeffery Oyster.
(10.16) Investment Agreement dated June 6, 1996 among the Company, MFI
Investors L.P. and MFI Associates, Inc. (7)
(10.17) Financial Advisory Agreement dated June 6, 1996 between the
Company and MFI Investors L.P. (8)
(10.18) Convertible Note dated June 6, 1996 in the principal amount of
$8,250,000 issued by the Company to MFI Investors L.P. (9)
(10.19) Market Facts, Inc. 1996 Stock Plan, as amended. (12)
</TABLE>
Page 16
<PAGE>
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
(10.20) 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)
(10.21) Employment Agreement with Kathleen Knight. (15)
(10.22) Employment Agreement with Robert Skolnick. (15)
(10.23) Employment Agreement with Gunilla Broadbent. (15)
(10.24) Underwriting Agreement dated October 21, 1997 by and among
Market Facts, Inc., MFI Investors L.P. and the several
underwriters named therein. (16)
(10.25) Promissory Note dated April 1, 1994 between Market Facts, Inc.
and Timothy Sullivan. (16)
(10.26) Term Note dated December 12, 1997 between Market Facts, Inc.
and Sanford M. Schwartz. (17)
(10.27) Asset Purchase Agreement by and among Market Facts, Inc. TRA
Acquisition Corp., Donald E. Rupnow, Daniel Fish and Tandem
Research Associates, Inc. dated as of March 31, 1998. (18)
(10.28) Termination Agreement dated June 4, 1998 between ZS Fund L.P.
and the Company (19)
(10.29) Financial Advisory Agreement dated as of January 1, 1998
between ZS Fund L.P. and the Company (20)
(10.30) Financial Advisory Agreement dated as of August 1, 1998
between ZS Fund L.P. and the Company (20)
(10.31) Agreement and Plan of Merger, dated as of April 29, 1999, by
and among the Company, Aegis Group plc and Aegis Acquisition
Corp. (21)
</TABLE>
- ------------------
(1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended September 30, 1994.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1992.
(3) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996,
commission file number 0-04781.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1995.
(5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996.
(6) Incorporated by reference to Exhibit No. (b) of Registrant's Schedule 13E-4
dated June 11, 1996, commission file number 5-20859.
(7) Incorporated by reference to Exhibit No. (c)(1) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(8) Incorporated by reference to Exhibit No. (c)(2) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(9) Incorporated by reference to Exhibit No. (c)(3) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(10) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1996.
(12) Incorporated by reference to Registrant's 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.
(17) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1997.
(18) Incorporated by reference to Registrant's Form 8-K dated March 31, 1998.
(19) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 1998
(20) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1998.
(21) Incorporated by reference to Registrant's schedule 14D-9 dated May 6, 1999.
<PAGE>
EXHIBIT 10.4
(AMERICAN NATIONAL BANK LETTERHEAD)
April 30, 1999
Mr. Timothy J. Sullivan
Senior Vice President and Treasurer
c/o Market Facts, Inc.
3040 West Salt Creek Lane
Arlington Heights, IL 60005
Dear Mr. Sullivan:
I'm writing to inform you that the bank has renewed Market Facts'
$3,000,000.00 line of credit for another year. All terms of the original
agreement shall remain the same and the new maturity date will be 04/30/00.
If you should have any questions at all, please feel free to contact me at
the extension below. Thank you very much for your time and business.
Sincerely,
/s/ Peter M. LeSueur
- --------------------
Peter M. LeSueur
Vice President
(815) 356-2803
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1999 AND THE STATEMENT OF EARNINGS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 18,889,961
<SECURITIES> 50,000
<RECEIVABLES> 22,242,920
<ALLOWANCES> 1,182,731
<INVENTORY> 0
<CURRENT-ASSETS> 49,457,853
<PP&E> 37,379,703
<DEPRECIATION> 16,676,724
<TOTAL-ASSETS> 100,527,702
<CURRENT-LIABILITIES> 22,940,373
<BONDS> 11,130,583
0
0
<COMMON> 10,910,058
<OTHER-SE> 55,546,688
<TOTAL-LIABILITY-AND-EQUITY> 100,527,702
<SALES> 0
<TOTAL-REVENUES> 36,274,332
<CGS> 0
<TOTAL-COSTS> 19,236,801
<OTHER-EXPENSES> 13,628,870
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276,908
<INCOME-PRETAX> 3,411,547
<INCOME-TAX> 1,401,915
<INCOME-CONTINUING> 2,009,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009,632
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
