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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X])
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X]) Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
NFO RESEARCH, INC.
(Name of Registrant as Specified in its Charter)
NFO RESEARCH, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X]) No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
4) Proposed maximum agregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration No.:
3) Filing Party:
4) Date Filed:
- -----------
(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE>
NFO Research, Inc.
2 PICKWICK PLAZA
GREENWICH, CONNECTICUT 06830
---------------------------------------------
NOTICE OF 1997 ANNUAL MEETING OF STOCKHOLDERS
---------------------------------------------
To the Stockholders of NFO Research, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of NFO
Research, Inc. will be held at Hyatt Regency Greenwich, 1800 East Putnam Avenue,
Old Greenwich, Connecticut, on Thursday, the 21st day of May, 1997 at 10:00 a.m.
(Eastern Daylight Time), for the following purposes:
(1) To elect five directors to serve for a term of one year expiring
at the annual meeting to be held in 1998;
(2) To consider and act upon a proposal to ratify the appointment of
Arthur Andersen LLP as independent accountants of the Company for calendar
year 1997; and
(3) To consider and act upon any other matters which may properly come
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on March 25, 1997
will be entitled to notice of, and to vote at, the meeting.
By order of the Board of Directors,
/s/ Steven J. Gilbert
Steven J. Gilbert
Secretary
Greenwich, Connecticut
April 10, 1997
A PROXY FOR THE MEETING AND A PROXY STATEMENT ARE ENCLOSED HEREWITH. YOU
ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY, WHICH IS
SOLICTITED BY THE COMPANY'S BOARD OF DIRECTORS, AND MAIL IT PROMPTLY.
STOCKHOLDERS WHO EXECUTE PROXIES RETAIN THE RIGHT TO REVOKE THEM AT ANY TIME
BEFORE THEY ARE VOTED.
<PAGE>
NFO RESEARCH, INC.
PROXY STATEMENT
The 1997 Annual Meeting of Stockholders of NFO Research, Inc. (the
"Company") will be held on May 21, 1997 (the "Annual Meeting"), for the purposes
set forth in the accompanying Notice of 1997 Annual Meeting of Stockholders.
This statement and the accompanying proxy, which are first being sent to
stockholders on or about April 10, 1997, are furnished in connection with the
solicitation by the Board of Directors of proxies to be used at such meeting and
at any adjournment thereof. If a proxy in the accompanying form is duly executed
and returned, the shares represented thereby will be voted in accordance with
the recommendations of the Board of Directors (the "Board"). The proxy
nevertheless may be revoked prior to its exercise by delivering written notice
of revocation to the Secretary of the Company, by executing a later dated proxy
or by attending the meeting and voting in person.
The Board of Directors of the Company has fixed the close of business on
March 25, 1997 as the record date for the determination of stockholders entitled
to notice of and to vote at the Annual Meeting (the "Record Date"). As of the
Record Date, the Company had outstanding 10,404,442 shares of Common Stock, par
value $.01 per share (the "Common Stock") which constitutes the only class of
voting securities of the Company. Each share of Common Stock is entitled to one
vote at the Annual Meeting.
NOMINEES FOR ELECTION AS DIRECTORS
The Board of Directors currently consists of five members. It is intended
that the proxies in the accompanying form will be voted at the meeting for the
election to the Board of Directors of the named nominees, William E. Lipner,
Steven J. Gilbert, Walter A. Forbes, Edmund A. Hajim and John Sculley, all of
whom currently serve as directors.
The Board of Directors has no reason to believe that any of such nominees
will be unable or unwilling to serve as a director if elected, but if any
nominee should be unable or for good cause unwilling to serve, the shares
represented by proxies solicited by the Board of Directors will be voted for the
election of such other person for the office of director as the Board of
Directors may recommend in place of such nominee.
Set forth below are each nominee's name, age, principal occupation,
position with the Company, period of service as a director of the Company,
membership on committees of the Board of Directors, and other directorships
held.
<TABLE>
<CAPTION>
NAME Age Position Director Since
- ---- --- -------- --------------
<S> <C> <C> <C>
William E. Lipner(1)................ 49 Chairman of the Board, President, 1991
Chief Executive Officer and
Director
Steven J. Gilbert(1)(3)(4).......... 50 Vice Chairman of the Board, 1991
Secretary and Director
Walter A. Forbes(1)(2)(3)(4)........ 54 Director 1991
Edmund A. Hajim(2)(3)(4)............ 60 Director 1992
John Sculley(2)..................... 58 Director 1994
</TABLE>
- -----------
(1) Member of the Executive Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Nominating Committee
Mr. Lipner has been with the Company or its predecessor, National Family
Opinion, Inc. (the "Predecessor") for over 20 years, serving as its President
and Chief Executive Officer since July 1982 and as Chairman of the Board since
February 1993. Mr. Lipner has been a director of the Company since its
organization in September 1991.
<PAGE>
Mr. Gilbert has been a director of the Company since its organization in
September 1991 and served as the Chairman of the Board from September 1991 to
February 1993 and as Vice Chairman of the Board since then. Mr. Gilbert was the
Managing General Partner of Soros Capital L.P., the principal venture capital
and leveraged transaction entity of the Quantum Group of Funds, from 1992 to
1997, and was a principal advisor to Quantum Industrial Holdings Ltd. He has
also been the Managing Director of Commonwealth Capital Partners, L.P., a
private equity investment fund, since 1988, and presently is Chairman of Gilbert
Global Equity Partners, L.P., an investment firm. Mr. Gilbert was the Managing
General Partner of Chemical Venture Partners, a venture capital firm, from 1984
to 1988. Mr. Gilbert is also a director of Digicon, Inc., a marine seismic
company, UroMed Corporation, a medical device manufacturer, Katz Media
Corporation, a broadcast media representation firm, Affinity Technology Group,
Inc., a financial technology company, GTS-Duratek, Inc., a hazardous waste
conversion company, and Terra Nova Insurance Holdings, an insurance company.
Mr. Forbes has been a director of the Company since its organization in
September 1991. Mr. Forbes has been the Chairman of CUC International Inc.
("CUC"), an interactive electronic consumer services company, since 1983 and
Chief Executive Officer of CUC since 1976.
Mr. Hajim has been a director of the Company since February 1992. For more
than five years, Mr. Hajim has been the Chairman and Chief Executive Officer of
Furman Selz LLC, an investment banking, brokerage and money management firm. Mr.
Hajim is also a director of Tosco Corporation, a refiner and marketer of
petroleum products and a manufacturer and distributor of fertilizer products.
Mr. Sculley joined the Board of Directors in October 1994. In 1994, he
founded Sculley Associates, Inc. and currently serves as Chairman and Chief
Executive Officer. From 1983 to 1993, Mr. Sculley was the Chairman and Chief
Executive Officer of Apple Computer, Inc. For five months (from October 1993 to
February 1994), Mr. Sculley was the Chairman and Chief Executive Officer of
Spectrum Information Technologies, Inc. ("Spectrum"). On January 26, 1995,
Spectrum together with three of its four operating subsidiaries filed voluntary
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code in the United States Bankruptcy Court for the Eastern District of New York.
Mr. Sculley is a co-founder of Sirius Thinking Ltd., a children's educational
entertainment company. He is also the President and Chief Executive Officer of
Live Picture Inc., a digital photographic software technology and applications
company. He is also a director of LiveWorld Productions, Inc. ("LiveWorld"), an
online community programming management and distribution company.
BOARD OF DIRECTORS AND COMMITTEES
The business of the Company is managed under the direction of the Board of
Directors. The Board has established four principal committees, whose primary
functions are briefly described below. During 1996, the Board of Directors met
or acted by written consent seven times. Each director attended at least 75% of
the total number of meetings held during 1996 while he was a member of the
Board, including meetings of committees of which the director is a member.
The Audit Committee is presently composed of Messrs. Forbes, Hajim and
Sculley. The Audit Committee's functions include recommending to the Board of
Directors the appointment of independent public accountants for the Company,
subject to the approval of the stockholders, discussing and reviewing the scope
and the fees of the prospective annual audit and reviewing the results thereof
with the independent accountants, reviewing compliance with existing major
accounting and financial policies of the Company, reviewing the adequacy of the
financial organization of the Company, and considering comments by the
independent accountants regarding internal controls and accounting procedures
and management's response to those comments. In 1996, the committee held one
meeting and acted by written consent once.
The Executive Committee is composed of Messrs. Lipner, Gilbert and Forbes.
The principal functions of the Executive Committee include exercising the powers
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<PAGE>
of the Board of Directors during intervals between Board meetings and acting as
an advisory body to the Board by reviewing various matters prior to their
submission to the Board. The committee did not meet during 1996.
The Compensation Committee is composed of Messrs. Forbes, Gilbert and
Hajim. The functions of the Compensation Committee include reviewing and making
recommendations to the Board regarding salaries, compensation and benefits of
executive officers and key employees of the company. In 1996, the committee held
one meeting and acted by written consent three times. A subcommittee of the
Compensation Committee, the Stock Option Committee, has been established by the
Board. The Stock Option Committee is presently composed of Messrs. Forbes and
Hajim and is responsible for administering the NFO Research, Inc. Stock Option
Plan.
The Nominating Committee is composed of Messrs. Gilbert, Forbes and Hajim.
Its principal function is to consider and nominate persons for election to the
Board. The committee acted by written consent once in 1996. The Nominating
Committee may consider nominees recommended by stockholders. In order for the
Nominating Committee to do so, written notice must be given and received by the
Secretary of the Company at the principal executive office of the Company no
later than 60 days prior to the anniversary date of the immediately preceding
annual meeting. Such notice shall set forth (i) the name and address of the
nominee; (ii) any arrangements or understandings between the stockholder and the
nominee or any third party with respect to the nomination; (iii) any other
information required to be included in a proxy statement pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and (iv) the
consent of the nominee to serve as a director if so selected.
EXECUTIVE OFFICERS
In addition to Mr. Lipner, the Company's executive officers are as
follows:
<TABLE>
<CAPTION>
NAME Age Title
- ---- --- -----
<S> <C> <C>
Charles B. Hamlin.......................... 50 Executive Vice President - Interactive
Business Development
Patrick G. Healy........................... 41 Executive Vice President - Finance and
Chief Financial Officer
Richard A Spitzer.......................... 52 Executive Vice President - Operations
Lawrence D. White.......................... 52 Executive Vice President - Marketing
</TABLE>
Mr. Hamlin joined the Company as its Executive Vice President -
Interactive Business Development in February 1996. From 1994 to 1996, he was
Vice President of Marketing for Lotus Development Corporation, a computer
software company. From 1992 to 1994, Mr. Hamlin was Corporate Vice President of
the Harvard Business School Publishing Company. Prior to that he served in
various capacities with Mercer Management Consulting (formerly Temple Barker and
Sloane/Strategic Planning Associates) from 1978 to 1992, most recently as Senior
Partner.
Mr. Healy joined the Company as its Executive Vice President - Finance and
Chief Financial Officer in November 1993. He was Executive Vice President and
Chief Financial Officer of The Interep Radio Store, a national radio advertising
sales firm, for the previous nine years. From 1983 to 1984, Mr. Healy was
Assistant Controller of Scali, McCabe, Sloves, Inc., and from 1977 to 1983, Mr.
Healy served in various capacities with Arthur Andersen LLP, an independent
public accounting firm, lastly as an Audit Manager.
Mr. Healy is a certified public accountant.
Mr. Spitzer has been with the Company or its Predecessor since June 1985
and has served as its Executive Vice President - Operations since May 1987.
3
<PAGE>
Mr. White has been with the Company or its Predecessor since August 1985
and has served as its Executive Vice President - Marketing since October 1986.
EXECUTIVE COMPENSATION
Shown below is information concerning the annual compensation for services
in all capacities to the Company for the years ended December 31, 1996, December
31, 1995 and December 31, 1994, of those persons who were, during the calendar
year of 1996 (i) the chief executive officer and (ii) the other four executive
officers of the Company (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
-----------
Annual Compensation Number of
------------------------------------- Securities
Name and Other Annual Underlying All other
Principal Position Year Salary Bonus Compensation(3) Options Compensation(4)
- ------------------ ---- ------ ----- --------------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
William E. Lipner 1996 $350,000 $330,399 - 90,000 $13,950
Chairman of the 1995 349,933 314,230(2) - 90,000 11,030
Board, President 1994 346,500 209,463(2) - - 18,575
and Chief
Executive Officer
Charles B. Hamlin(1) 1996 186,058 101,250 - 85,000 69,045
Executive Vice 1995 - - - - -
President- 1994 - - - - -
Interactive
Business
Development
Patrick G. Healy 1996 227,077 112,500 - 40,000 10,175
Executive Vice 1995 214,717 111,500 - 45,000 17,817
President- Finance 1994 200,000 90,000 - 22,500 76,376
and Chief
Financial Officer
Richard A. Spitzer 1996 205,000 95,000 - 30,000 12,253
Executive Vice 1995 194,750 92,750 - 37,500 10,798
President- 1994 182,000 63,700 - - 3,718
Operations
Lawrence D. White 1996 227,000 102,150 - 30,000 11,861
Executive Vice 1995 212,750 111,500 - 45,000 11,030
President- 1994 200,000 70,000 - - 14,529
Marketing
</TABLE>
- -----------
(1) Charles B. Hamlin joined the Company as Executive Vice President -
Interactive Business Development on February 26, 1996.
(2) Portions of Mr. Lipner's annual bonus amounts included in the table were
deferred pursuant to a Deferred Compensation Agreement between Mr. Lipner
and the Company in the following amounts: $60,399 in 1996, $51,730 in 1995
and $34,463 in 1994.
(3) Personal benefits for each executive officer named in the table did not
exceed $50,000 or 10% of such executive officer's total annual salary and
bonus in 1996, 1995 or 1994.
(4) Includes contributions made by the Company pursuant to the NFO Research,
Inc. Profit Sharing Plan on behalf of Messrs. Lipner, Healy, Spitzer and
White in 1996 in the amounts of $8,669 each, in 1995 in the amounts of
$8,864, $8,864, $8,840, and $8,864, respectively; in 1994, $10,722, $1,500,
$8,889, and $10,461, respectively; and in 1993, $9,096, $0, $7,829, and
$9,096, respectively. Also includes life insurance premiums paid on behalf
of Messrs. Lipner, Healy, Spitzer and White in 1996 in the amounts of
$5,281, $1,506, $3,584, and $3,192, respectively; in 1995 in the amounts of
4
<PAGE>
$2,166, $767, $1,958, and $2,166, respectively and in 1994, $7,853, $1,842,
$4,829, and $4,068, respectively. The amounts set forth for Mr. Healy in
1995 and 1994 include disbursements made by the Company in the amounts of
$8,186 and $73,034, respectively, for relocation expenses. The amounts set
forth for Mr. Hamlin in 1996 include disbursements made by the Company in
the amounts of $29,045 for relocation expenses and a sign-on payment of
$40,000.
OPTION GRANTS
The Company's executive officers and certain other employees participate
in the Employees' Stock Option Plan. The table below sets forth the stock
options granted to the Named Executive Officers during 1996. The Company did not
grant SARs to any employees during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
----------------------------------------------
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of Stock
Securities Options Price Appreciation for Option
Underlying Granted to Exercise or Term
Options Employees Base Price Expiration -----------------------------
Granted During 1996 $/sh Date 5%($) 10%($)
------- ----------- ---- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William E. Lipner....... 90,000(1) 20.34% $21.75 2006 $1,231,054 $3,119,746
Patrick G. Healy........ 40,000(1) 9.04% 21.75 2006 547,135 1,386,553
Richard A. Spitzer...... 30,000(1) 6.78% 21.75 2006 410,351 1,039,915
Lawrence D. White....... 32,500(1) 7.34% 21.75 2006 444,547 1,126,374
Charles B. Hamlin....... 35,000(1) 7.91% 21.75 2003 309,904 722,210
50,000(2) 11.30% 18.25 2006 573,863 1,454,287
</TABLE>
- -----------
(1) These options were granted on December 12, 1996. Options with respect to
one-third of the shares subject thereto will become exercisable on June 12,
1997, options with respect to the second one-third of the shares will become
exercisable on January 1, 1998 and options with respect to the last
one-third of the shares will become exercisable on January 1, 1999.
(2) These options were granted to Charles B. Hamlin on February 26, 1996.
Options with respect to one-third of the shares subject thereto became
exercisable on January 1, 1997, options with respect to the second one-third
of the shares will become exercisable on January 1, 1998 and options with
respect to the last one-third of the shares will become exercisable on
January 1, 1999.
FISCAL YEAR END OPTION VALUES
The table below presents information with respect to both exercisable and
unexercisable options to purchase the Company's Common Stock held by the Named
Executive Officers at December 31, 1996 and the value of such options at
December 31, 1996. The Named Executive Officers did not exercise any options
during 1996.
5
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at December 31, 1996 at December 31, 1996 (1)
---------------------------- ---------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William E. Lipner..................... 99,001 168,749 $1,178,338 $647,661
Patrick G. Healy...................... 60,000 92,500 708,332 529,165
Richard A. Spitzer.................... 52,500 60,250 683,058 262,278
Lawrence D. White..................... 63,750 70,000 831,630 330,190
Charles B. Hamlin..................... 0 85,000 0 196,250
</TABLE>
- -----------
(1) Based on the closing price on the Nasdaq National Market of the Company's
Common Stock on Tuesday, December 31, 1996 ($22.00).
EMPLOYMENT CONTRACTS
On March 15, 1995, the Company and Mr. Lipner entered into an employment
agreement. The agreement provides for Mr. Lipner's employment as the Chairman,
President and Chief Executive Officer of the Company through March 15, 1997,
with an unlimited number of two-year extensions unless either party provides 13
months' advance notice not to extend the period of employment. The agreement
provides for an annual base salary of $350,000, subject to annual discretionary
increases (currently $360,000) by the Board of Directors. Mr. Lipner is also
entitled to certain fringe benefits and incentive compensation as determined by
the Board of Directors.
Under his employment agreement, Mr. Lipner's employment may be terminated
by the Company for cause (as defined in the agreement) or without cause. If the
Company terminates Mr. Lipner's employment without cause, or if Mr. Lipner
resigns for good reason (as defined in the agreement) after the occurrence of a
change in control (as defined in the agreement), Mr. Lipner is entitled to
receive his base salary and annual bonus payments through the second anniversary
of the termination. If the Company elects not to extend the term of Mr. Lipner's
employment, Mr. Lipner is entitled to receive his base salary and bonus payments
for one year following the end of the term. Mr. Lipner's agreement also provides
that Mr. Lipner's stock options granted under the Employees' Stock Option Plan
shall become immediately exercisable in the event of a change in control of the
Company or in the event Mr. Lipner's employment is terminated without cause. Mr.
Lipner's stock options will remain exercisable for a period of two years after
termination of his employment in the event of termination by the Company without
cause or resignation by Mr. Lipner for good reason following a change of
control. Under the agreement, Mr. Lipner has agreed not to own, or engage in any
manner in, a business competing with the Company for a period of two years
following his termination for cause or resignation (other than resignation for
good reason following a change in control).
On September 12, 1995, the Company entered into employment agreements with
each of Messrs. Healy, White and Spitzer and on December 12, 1996, the Company
entered into an employment agreement with Mr. Hamlin. The employment agreements
for Messrs. Healy, White and Spitzer provide for employment until September 12,
1998 and in the case of Mr. Hamlin, until December 12, 1999. The agreements
provide for base salaries of $213,000 for each of Mr. Healy and Mr. White,
$195,000 for Mr. Spitzer and $240,000 for Mr. Hamlin, in each case subject to
annual discretionary increases by the Board of Directors. The salaries of
Messrs. Healy, White, Spitzer and Hamlin have been increased to $240,000,
$240,000, $216,000 and $240,000, respectively. The agreements also provide for
certain specified fringe benefits, incentive compensation as determined by the
Board of Directors, and certain stock option grants under the Employees' Stock
Option Plan. Under each of the employment agreements, the executive's employment
may be terminated by the Company for cause (as defined in each agreement) or
without cause. If the Company terminates the executive's employment without
cause, the executive is entitled to receive his base salary and benefits, in the
6
<PAGE>
case of Mr. Healy, Mr. White and Mr. Spitzer, through September 12, 1998, and in
the case of Mr. Hamlin, through December 12, 1999. If the executive resigns for
good reason (as defined in each agreement) after the occurrence of a change in
control (as defined in each agreement), he is entitled to receive: (i) his base
salary and benefits until the later of (a) in the case of Mr. Healy, Mr. White
and Mr. Spitzer, September 12, 1998, and in the case of Mr. Hamlin, December 12,
1999 or (b) the first anniversary of the resignation, and (ii) a pro-rated
portion of his bonus for the year in which the termination occurs. The
employment agreements also provide that the executive's stock options granted
under the Employees' Stock Option Plan shall become immediately exercisable in
the event that the executive's employment is terminated without cause or in the
event of a change in control of the Company. The stock options will remain
exercisable for a period of 12 months after termination of employment in the
event of termination by the Company without cause or resignation by the
executive for good reason following a change in control. Each of Messrs. Healy,
White, Spitzer and Hamlin has agreed not to own, or engage in any manner in, a
business competing with the Company for a period of two years following his
termination for cause or resignation (other than resignation for good reason
following a change in control).
PENSION PLAN AND EXECUTIVE DEFERRED BENEFIT PLAN
NFO RESEARCH, INC. PENSION PLAN
The Company maintains the NFO Research, Inc. Pension Plan (the "Pension
Plan"), which it assumed in connection with the acquisition of substantially all
the assets of its Predecessor in 1991 (the "Acquisition"). The Pension Plan is a
noncontributory trusteed plan that provides for fixed benefits to employees and
their survivors in the event of normal (age 65) or early (age 55 and 10 years of
credited service) retirement. Participants become 20% vested in their benefits
after two years of service and vest thereafter at a rate of 20% per year of
service, becoming fully vested after six years of service. Early retirement
benefits are subject to reduction to reflect early commencement.
<TABLE>
<CAPTION>
Years of Credited Service
------------------------------------------
Compensation 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<C> <C> <C> <C> <C> <C>
$150,000......................................... $24,522 $29,442 $33,297 $36,317 $38,684
200,000.......................................... 32,696 39,256 44,396 48,423 51,579
</TABLE>
The Pension Table set forth above illustrates the estimated annual pension
payable as a single life annuity upon retirement pursuant to the current Pension
Plan formula for various levels of compensation and years of service, assuming
retirement after attainment of age 65. The benefits set forth above are not
subject to any reduction for Social Security or other offsets.
Compensation taken into account for the purposes of calculating benefits
under the Pension Plan for 1996 is limited to $150,000, which limit is subject
to adjustment in accordance with the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code"). Compensation for purposes of the Pension Plan
includes salary and bonus as set forth in the Summary Compensation Table.
The 1996 compensation taken into account for Pension Plan purposes was
$150,000 for each of Messrs. Lipner, Healy, Spitzer and White, who had 23, 2, 12
and 12 years, respectively, of credited service under the Pension Plan as of
December 31, 1996.
NFO RESEARCH, INC. EXECUTIVE DEFERRED BENEFIT PLAN
The Company also maintains the Executive Deferred Benefit Plan (the
"Supplemental Plan"), which it assumed in connection with the Acquisition. The
Compensation Committee of the Company's Board of Directors determines which
executives are eligible to participate. Currently, all four Named Executive
Officers participate in the Supplemental Plan. The Supplemental Plan entitles an
eligible executive to a benefit that, when added to his benefit under the
Pension Plan, the Profit Sharing Plan (to the extent attributable to Company
7
<PAGE>
contributions) and Social Security, equals 40% of his highest five-year average
annual compensation (prorated if the executive has fewer than 15 years of
service). Vesting under the Supplemental Plan is the same as under the Pension
Plan but is accelerated if a participant is terminated within two years after a
change of control of the Company. Benefits payable under the Supplemental Plan
are reduced if payment commences before age 60.
Compensation taken into account under the Supplemental Plan includes base
salary and bonus as described in the Summary Compensation Table. The 1996
compensation taken into account for purposes of the Supplemental Plan was
$690,399 for Mr. Lipner, $352,500 for Mr. Healy, $311,000 for Mr. Spitzer and
$342,150 for Mr. White.
The Supplemental Plan only recognizes service after December 31, 1991 for
benefit accrual purposes. Messrs. Lipner, Spitzer and White each had 5 years and
Mr. Healy had 2 years of service under the Supplemental Plan as of December 31,
1996 for benefit accrual purposes.
LIFE INSURANCE ARRANGEMENTS
The Company provides life insurance coverage to each of its executive
officers. In 1996, Mr. Lipner was provided with $1,206,175 of term life
insurance coverage. Messrs. Healy, Spitzer and White were each provided with
$400,000 of term life insurance coverage.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The three-member Compensation Committee (the "Committee") of the Board
makes compensation decisions regarding compensation of the Company's executives.
Each member of the Committee is a non-employee Director. The Board reviews all
decisions by the Committee relating to such compensation except for decisions
about awards under the Employees' Stock Option Plan, which have been made solely
by the Committee, and effective March 1996, was made by the Stock Option
Committee. This is a report of the Committee addressing the Company's policies
governing the compensation of the executive officers of the Company for the
Company's fiscal year ending December 31, 1996 ("Fiscal Year 1996").
COMPENSATION POLICIES AND COMPONENTS OF COMPENSATION
Generally, the Committee's executive compensation policies are designed to
base pay on the Company's annual and long-term performance goals by rewarding
above-average corporate performance and recognizing individual initiative and
achievements; furthermore, these policies assist the Company in attracting and
retaining qualified executives. The Committee believes that stock ownership by
management is beneficial in aligning management's and shareholders' interests in
increasing the value of the Common Stock; therefore, the Committee includes a
stock-based element in the Company's compensation packages for its executive
officers, although the Committee does not have target ownership levels for
equity holdings by executives.
The three primary components of executive compensation are base salary,
annual bonus and stock options. The Committee believes that the cumulative
effect of these three elements is to provide the Company's executive officers
with levels of total compensation consistent with the Committee's executive
compensation policies set forth above.
The Committee attempts to keep the Company's executive base salary
increases as low as possible, thus limiting the Company's exposure if
performance targets are not met. Executive salary levels are subjectively
determined by the Committee based on the experience of each of its members and
are intended to be consistent with competitive practices and levels of
responsibility (with salary increases reflecting competitive and economic
trends, the overall financial performance of the Company and the performance of
the individual executive).
8
<PAGE>
The Committee subjectively determines annual bonus amounts paid to each of
the Company's executives in respect of each fiscal year. Generally, bonuses are
set within a specified percentage range of base salary, and do not exceed 100%
of the base salary. For the executive officers named in the Summary Compensation
Table, bonuses averaged approximately 57% of Fiscal Year 1996 total salary.
Factors taken into account in awarding annual bonuses are described below under
"Relationship of Corporate Performance to Executive Compensation."
Before March 1996, stock options were periodically granted to the
Company's executives under the Employees' Stock Option Plan based upon the
subjective determination of the Committee. Effective March 1996, all authority
to administer the Employees' Stock Option Plan has been vested in the Stock
Option Committee, a subcommittee of the Committee. No specific formulas or
executive stock ownership targets are employed in determining stock option
grants. The number of options previously awarded to and held by executive
officers is considered in determining the size of each option grant. Factors
taken into account in awarding stock options are described below under
"Relationship of Corporate Performance to Executive Compensation."
An additional factor the Committee focuses on in its consideration of
compensation matters is the tax implications of various payments and benefits to
the Company and to the individual executive officers. Certain types of
compensation payments and their deductibility depend upon the timing of vesting
or exercise of awards granted. In addition, interpretations of and changes in
the tax laws and other factors beyond the Committee's control also affect the
deductibility of compensation. The Committee will not in all circumstances limit
executive compensation to that deductible under section 162(m) of the Internal
Revenue Code. The Committee will consider the various alternatives to preserving
the deductibility of compensation payments and benefits to the extent consistent
with its other compensation objectives and to the extent reasonably practicable.
RELATIONSHIP OF CORPORATE PERFORMANCE TO EXECUTIVE COMPENSATION
The factors that the Committee considered in awarding annual bonuses and
options under the Employees' Stock Option Plan were based on the performance of
both the Company and the individual executive. With respect to the Company, the
Committee considered targeted versus actual annual operating performance,
after-tax earnings-per-share growth over the last fiscal year and increase in
operating income over the last fiscal year. With respect to the individual
executive, the Committee considered the individual's ability to undertake
special projects, to facilitate strategic acquisitions and alliances, to execute
the Company's strategic business plan and to develop new custom research methods
and concepts. While the Committee considered all of the foregoing factors, the
Committee subjectively made its determinations and recommendations based on the
experience of each of its members.
Targeted versus actual operating performance was a major factor considered
in determining the extent to which annual bonuses were paid and awards made
under the Employees' Stock Option Plan to the Company's executive officers. The
performance of individual executives was reviewed either as to the Company as a
whole, or, for those executive officers in charge of an operating unit, as to
such officer's particular operating unit. Performance targets were based on
business plans developed by the Company's management and approved by the Board
at the start of Fiscal Year 1996. In developing the business plans,
consideration was given to integrating the business of any recently acquired
subsidiaries, divisions or businesses and expanding the Company's mix of
services and clients. The Committee also took into account the executives'
performance in special projects undertaken during the past fiscal year,
contribution to strategic acquisitions and alliances (e.g., joint ventures) and
development of new custom research methods and concepts. In addition, the
Committee considered the growth in after-tax earnings per share of Common Stock
over the last fiscal year in determining executive compensation. Another
consideration in determining executive compensation was the improvement in the
Company's operating income over the last fiscal year. Also, the executives'
satisfaction of certain subjective performance criteria (including initiative,
contribution to overall corporate performance and managerial ability) was
9
<PAGE>
evaluated after informal discussions with other members of the Board and, for
all of the executives other than Mr. Lipner, after discussions with Mr. Lipner.
COMPENSATION OF CHIEF EXECUTIVE OFFICER FOR FISCAL YEAR 1996
In addition to the factors mentioned above, the Committee's general
approach in setting Mr. Lipner's annual compensation took into consideration the
Company's earnings and sought to reward Mr. Lipner's strategic management
abilities in the Company's expansion efforts. The Committee also considered Mr.
Lipner's role in the development and implementation of strategic business plans
for building the Company, identifying niche markets, and developing new
proprietary custom research methods and concepts.
The annual bonus paid to Mr. Lipner for Fiscal Year 1996 was based on the
Committee's subjective evaluation of Mr. Lipner's performance in that year.
Specifically, the Committee considered Mr. Lipner's roles in pursuing and
completing selected acquisitions and joint ventures, further developing and
improving the Company's management team, developing relationships with
stockholders and analysts, developing and executing the Company's strategic
business plan, encouraging the development of new research technologies,
increasing operating income and increasing after-tax earnings per share. In
assessing the Company's overall performance, to determine Mr. Lipner's annual
salary and bonus, the Committee considered all of the factors above but did not
use any formula with respect to the factors.
The grant of options to Mr. Lipner in Fiscal Year 1996 under the
Employees' Stock Option Plan was based upon the Committee's compensation policy
of promoting management retention while further aligning management's and
stockholders' interests in increasing the value of the Company's Common Stock.
Walter A. Forbes
Steven J. Gilbert
Edmund A. Hajim
10
<PAGE>
PERFORMANCE GRAPH
The following graph sets forth the Company's total stockholder return as
compared to the CRSP Index for Nasdaq Stock Market (U.S. Companies) of the
Center for Research in Security Prices, and as compared to a peer group selected
in good faith by the Company, for the period from April 7, 1993, when the
Company's Common Stock was first registered under the Exchange Act, through
December 31, 1996, the last day of the Company's last completed fiscal year. The
peer group consists of the Company and five other companies in the market
research industry: Market Facts, Inc., M/A/R/C Inc., Total Research Corporation,
Opinion Research Corporation and Audits & Surveys Worldwide, Inc. The returns of
each component company in the peer group have been weighted based on such
company's relative market capitalization.
COMPARISON OF CUMULATIVE TOTAL RETURN/1/
FOR THE PERIOD FROM 04/07/93 THROUGH 12/31/96
AMONG NFO RESEARCH, INC., THE CRSP INDEX FOR
NASDAQ STOCK MARKET (U.S. COMPANIES) AND THE PEER GROUP
[GRAPH]
The graph above assumes $100 invested at the beginning of the period in
the Company's Common Stock/2/, the CRSP Index for Nasdaq Stock Market (U.S.
Companies) and the Peer Group, and was plotted using the following data:
<TABLE>
<CAPTION>
04/07/93 06/30/93 09/30/93 12/31/93 03/31/94 06/30/94 09/30/94 12/31/94
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NFO Research,
Inc.......... $100 $105.00 $130.00 $125.83 $160.00 $150.00 $172.00 $145.00
CRSP Index for
Nasdaq Stock
Market (U.S.
Companies)... 100 105.22 114.08 116.22 111.43 106.22 115.02 113.71
Peer Group..... 100 103.17 124.10 125.75 142.06 143.33 153.96 137.62
<CAPTION>
03/31/95 06/30/95 09/30/95 12/31/95 03/31/96 06/30/96 09/30/96 12/31/96
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NFO Research,
Inc.......... $195.00 $202.50 $235.00 $265.00 $378.75 $354.38 $322.50 $330.00
CRSP Index for
Nasdaq Stock
Market (U.S.
Companies)... 123.96 141.79 158.86 160.80 168.31 182.05 188.53 197.79
Peer Group..... 173.71 173.92 190.30 192.64 272.31 292.63 251.57 262.60*
</TABLE>
- -----------
/1/ Total Return Assumes Reinvestment of Dividends.
/2/ Based on the initial public offering price.
* Intelliquest Information Group Inc., a competitor of the Company, became a
public Company in March 1996 and is now included in the Company's Peer Group
for the periods since such time. If Intelliquest Information Group Inc. had
not been included in the Peer Group, the Peer Group's return at December 31,
1996 would have been $260.39.
11
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company is composed of Walter A. Forbes,
Steven J. Gilbert and Edmund A. Hajim. Mr. Gilbert served as the Company's
Chairman of the Board in 1992 and has served as Secretary since 1993. Mr.
Gilbert has never been an employee of the Company, and Messrs. Forbes and Hajim
have never been officers or employees of the Company. Commonwealth Capital
Partners, L.P. ("Commonwealth"), of which Mr. Gilbert is a Managing Director,
and Mr. Forbes each purchased equity securities from the Company in September
1991 in connection with the Acquisition. The Company, Commonwealth and Messrs.
Forbes and Hajim are parties to the Stockholders Agreement, dated as of
September 27, 1991, as amended (the "Stockholders Agreement"), among the
Company, Commonwealth and certain other stockholders of the Company prior to the
Company's initial public offering of its Common Stock (the "Offering"). Pursuant
to the Stockholders Agreement, the Company pays Commonwealth $10,000 per month
as a non-allocable expense reimbursement, and will continue such payments until
Commonwealth no longer holds 5% of the outstanding Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 25, 1994, John Sculley joined the Company's Board of Directors
and entered into a consulting agreement with the Company. The agreement provides
that Mr. Sculley will serve as a consultant, particularly in the areas of
technology, idea development for new services and ventures, and international
expansion. Under the agreement, as consideration for his services to the Company
as consultant and as director, Mr. Sculley will receive an annual fee of $50,000
so long as he is a director of the Company, plus out-of-pocket expenses. In
addition, pursuant to the agreement, the Company granted Mr. Sculley an option
to purchase 37,500 shares of the Company's Common Stock, with an exercise price
of $11.17 per share, the exercise price being equal to the market price on the
date of grant. The option is exercisable in whole or in part at any time before
October 25, 1999. Pursuant to the agreement, the Company filed a registration
statement with the Securities and Exchange Commission to register the issuance
by the Company of the shares subject to the option. Moreover, as a director of
the Company, Mr. Sculley received options to purchase 37,500 shares of the
Company's Common Stock pursuant to the NFO Research, Inc. Directors' Stock
Option Plan, which is described below.
On September 27, 1996, the Company made a bridge loan to Mr. Hamlin in the
amount of $450,000 for a downpayment on his home, which was repaid, in 2
payments, on October 10, 1996 and December 31, 1996.
Messrs. Lipner and Sculley are each minority shareholders of LiveWorld
and, in addition, Mr. Sculley is a director of LiveWorld. On February 10, 1997,
the Company and LiveWorld announced an agreement to jointly provide online
market research services that combine LiveWorld's Talk City community/chat
services with the Company's panel-based market research services.
The Company pays Commonwealth $10,000 per month in non-allocable expense
reimbursement payments. See "Compensation Committee Interlocks and Insider
Participation."
COMPENSATION OF DIRECTORS
The Company does not pay any additional remuneration to officers of the
Company for serving as directors. Directors who are not employees of the Company
are paid an annual fee of $20,000, and a fee of $1,000 for each committee
meeting of the Board they attend. Additionally, non-employee directors are
reimbursed for out-of-pocket expenses associated with attending meetings of the
Board of Directors and committees. Mr. Gilbert will not receive annual or
meeting fees for his services as director or as a member of committees during
the period that Commonwealth receives its non-allocable expense reimbursement
payments described above. Mr. Sculley's annual director fee is included in his
fee under his consulting agreement with the Company described above. See
"Certain Relationships and Related Transactions."
12
<PAGE>
Non-employee directors also receive annual stock options under the NFO
Research, Inc. Directors' Stock Option Plan (the "Directors' Stock Option
Plan"). Under the Directors' Stock Option Plan, each new non-employee director
receives an option for 15,000 shares upon his initial election to the Board, and
each non-employee director receives an option for an additional 7,500 shares
upon each re-election to the Board. The exercise price of each option granted
under the Directors' Stock Option Plan is equal to the market price of the
Common Stock on the date of grant. Each option is exercisable, either in whole
or in part, at any time after the six-month anniversary of the date the option
was granted and each option will expire on the fifth anniversary date of the
date on which the option is granted. The Directors' Stock Option Plan is
designed to be self-governing in order to comply with certain requirements of
Rule 16b-3 of the Exchange Act.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership, both direct and
indirect, reported to the Company as of March 25, 1997, of Common Stock of the
Company including shares as to which a right to acquire ownership exists (for
example, through the exercise of certain stock options). The information is
presented for beneficial owners of more than five percent (5%) of the Company's
Common Stock, for each director and nominee, for each executive officer and for
the group comprised of all directors, nominees and executive officers.
Management knows of no persons other than those identified herein who owned
beneficially more than five percent (5%) of the outstanding shares of Common
Stock as of March 25, 1997.
13
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
<TABLE>
<CAPTION>
Number of Shares
NAME AND ADDRESS of Common Stock Percentage of
OF BENEFICIAL OWNER (1) Beneficially Owned Common Stock
- ----------------------- ------------------ ------------
<S> <C> <C>
Commonwealth Capital Partners, L.P. (2).................... 599,598 5.76%
245 Park Avenue
New York, NY 10167
William Blair & Company (3)................................ 1,848,518 17.77%
135 South LaSalle Street
Chicago, IL 60603
HLM Management Co., Inc. (4)............................... 570,000 5.48%
222 Berkeley Street
Boston, MA 02116
Granahan Investment Management (5)......................... 560,500 5.39%
275 Wyman Street, Suite 270
Waltham, MA 02154
Walter A. Forbes (6)....................................... 75,675 *
707 Summer Street
Stamford, CT 06901
Steven J. Gilbert (2)(7)................................... 637,098 6.12%
245 Park Avenue
New York, NY 10167
Edmund A. Hajim (8)........................................ 39,500 *
230 Park Avenue
New York, NY 10167
Charles B. Hamlin (9)...................................... 16,666 *
2 Pickwick Plaza
Greenwich, CT 06830
Patrick G. Healy (10)...................................... 97,950 *
2 Pickwick Plaza
Greenwich, CT 06830
William E. Lipner (11)..................................... 612,891 5.89%
2 Pickwick Plaza
Greenwich, CT 06830
John Sculley (12).......................................... 67,500 *
90 Park Avenue, 32nd Floor
New York, NY 10017
Richard A. Spitzer (13).................................... 151,484 1.46%
2700 Oregon Road
Northwood, Ohio 43619
Lawrence D. White (14)..................................... 131,917 1.23%
2 Pickwick Plaza
Greenwich, CT 06830
All executive officers and directors as a group
(9 persons) (15)......................................... 1,830,681 17.60%
</TABLE>
- -----------
* Represents less than 1% of the outstanding shares of the Common Stock.
(1) Except as indicated in the notes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
14
<PAGE>
(2) Commonwealth owns 599,598 shares of Common Stock. As Steven J. Gilbert,
Barry A. Schwimmer and Elliot Stein, Jr. are each Managing Directors of
Commonwealth, each of them may be deemed to own beneficially the 637,098
shares of Common Stock held by Commonwealth. Each Managing Director shares
voting and investment power with respect to such shares. Mr. Schwimmer, a
former director of the Company, also holds options to acquire 22,500 shares.
(3) According to a statement on Schedule 13G dated February 14, 1997 filed with
the Securities and Exchange Commission by William Blair & Co. William Blair
& Co. is an Investment Advisor that owns 1,848,518 shares of Common Stock of
the Company on behalf of its clients.
(4) According to a statement on Schedule 13G dated February 10, 1997 filed with
the Securities and Exchange Commission by HLM Management Co., Inc. HLM
Management Co., Inc. is an Investment Advisor that owns 570,000 shares of
Common Stock of the Company on behalf of its clients.
(5) According to a statement on Schedule 13G dated January 31, 1997 filed with
the Securities and Exchange Commission by Granahan Investment Management,
Inc. Granahan Investment Management, Inc. is an Investment Advisor that owns
560,500 shares of Common Stock of the Company on behalf of its clients,
including 522,750 shares of Common Stock on behalf of Vanguard Explorer
Fund, Inc. Vanguard Explorer Fund, Inc. separately filed a statement on
Schedule 13G dated February 4, 1997.
(6) Includes 4,500 shares held by Mr. Forbes' children and 4,500 shares held by
his spouse in custodial accounts for his children, for which Mr. Forbes may
be deemed to share voting and investment power and thus may be deemed to own
beneficially. Also includes 37,500 shares issuable upon the exercise of
options granted to Mr. Forbes pursuant to the Directors' Stock Option Plan.
(7) Includes 599,598 shares held directly by Commonwealth. See note (2) above.
Also includes 37,500 shares issuable upon exercise of options granted to Mr.
Gilbert pursuant to the Directors' Stock Option Plan.
(8) Includes 37,500 shares issuable upon exercise of options granted to Mr.
Hajim pursuant to the Directors' Stock Option Plan.
(9) Includes 16,666 shares issuable upon exercise of options granted to Mr.
Hamlin pursuant to the Employees' Stock Option Plan which have already
vested.
(10)Includes 97,500 shares issuable upon exercise of options granted to Mr.
Healy pursuant to the Employees' Stock Option Plan which have already
vested.
(11)Includes 147,750 shares issuable upon exercise of options granted to Mr.
Lipner pursuant to the Employees' Stock Option Plan which have already
vested. Also includes 208,950 shares indirectly owned by him, 152,250 of
which are owned directly by his wife, Deborah Lipner; and 56,700 of which
are held in custodial accounts and trusts for their sons Justin Drew Lipner
and Wesley Edwin Lipner. A trust holds 3,375 shares of Common Stock of the
Company for the benefit of Deborah Lipner; however, since the trustee of the
trust has sole voting and investment power with respect to the shares, Mr.
Lipner does not beneficially own such shares.
(12)Includes 37,500 shares issuable upon the exercise of options granted to Mr.
Sculley which are exercisable in whole or in part at any time before October
25, 1999. Also includes 30,000 shares issuable upon the exercise of options
granted to Mr. Sculley pursuant to the Directors' Stock Option Plan.
(13)Includes 69,999 shares issuable upon exercise of the options granted to Mr.
Spitzer pursuant to the Employees' Stock Option Plan which have already
vested.
(14)Includes 86,250 shares issuable upon exercise of options granted to Mr.
White pursuant to the Employees' Stock Option Plan which have already
vested. Also includes 337 shares held by Mr. White's children, for which Mr.
15
<PAGE>
White may be deemed to share voting and investment power and thus may be
deemed to own beneficially.
(15)Includes 142,500 shares issuable upon exercise of options granted pursuant
to the Directors' Stock Option Plan, 37,500 shares issuable upon exercise of
options granted to Mr. Sculley and 418,165 shares issuable upon exercise of
options granted pursuant to the Employees' Stock Option Plan which have
already vested.
SELECTION OF INDEPENDENT ACCOUNTANTS
The directors of the Company have selected the firm of Arthur Andersen LLP
as the auditors of the Company subject to the approval of the stockholders.
Arthur Anderson LLP has acted for the Company as auditors since March 1995.
Before the Audit Committee recommended the appointment of Arthur Andersen
LLP, it carefully considered the qualifications of that firm, including their
performance during the year and their reputation for integrity and for
competence in the fields of accounting and auditing.
Representatives of Arthur Andersen LLP are expected to be present at the
meeting to respond to appropriate questions and to make a statement if they
desire to do so.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who may be deemed to own beneficially more than ten
percent of the Common Stock of the Company, to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange
Commission ("SEC") and Nasdaq. Officers, directors and greater than ten percent
beneficial owners are required by SEC regulation to furnish the Company with
copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such Forms it has
received and written representations from certain reporting persons that they
were not required to file Forms 5 for 1996, the Company believes that all its
officers, directors, and greater than ten percent beneficial owners complied
with all filing requirements applicable to them with respect to transactions
during 1996 except for Lawrence D. White, who inadvertently failed to file a
Form 4 with respect to his dispositions of an aggregate of 22,765 shares of
Common Stock; Mr. White reported such dispositions on Form 5.
PROXIES
STOCKHOLDERS HAVE THREE CHOICES ON THE PROXY/VOTING INSTRUCTION CARD (THE
"PROXY CARD") WITH RESPECT TO THE ELECTION OF DIRECTORS. BY CHECKING THE BOX ON
THE PROXY CARD A STOCKHOLDER MAY: (I) VOTE FOR ALL OF THE DIRECTOR NOMINEES AS A
GROUP; (II) WITHHOLD AUTHORITY TO VOTE FOR ALL DIRECTOR NOMINEES AS A GROUP; OR
(III) VOTE FOR ALL DIRECTOR NOMINEES AS A GROUP EXCEPT THOSE NOMINEES IDENTIFIED
IN THE APPROPRIATE SPACE. CONCERNING THE PROPOSALS TO AMEND THE EMPLOYEES' STOCK
OPTION PLAN AND TO RATIFY THE APPOINTMENT OF INDEPENDENT ACCOUNTANTS, BY
CHECKING THE APPROPRIATE BOX ON THE PROXY CARD A STOCKHOLDER MAY: (I) VOTE "FOR"
THE ITEM; (II) VOTE "AGAINST" THE ITEM; OR (III) "ABSTAIN" FROM VOTING ON THE
ITEM.
The cost of soliciting proxies will be borne by the Company. The Company
expects to solicit proxies solely by mail.
UPON THE WRITTEN REQUEST OF ANY STOCKHOLDER OF RECORD ON MARCH 25, 1997, A
COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1996 (EXCLUDING EXHIBITS), AS FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, WILL BE SUPPLIED WITHOUT CHARGE. REQUESTS SHOULD BE
DIRECTED TO MR. PATRICK G. HEALY, NFO RESEARCH, INC., 2 PICKWICK PLAZA,
GREENWICH, CONNECTICUT 06830.
16
<PAGE>
VOTE REQUIRED
To be elected as a director, each nominee must receive the affirmative
vote of a plurality of the votes cast by stockholders present in person ore
represented by proxy and entitled to be voted at the Annual Meeting. An
affirmative vote of a majority of the votes cast by stockholders present in
person or represented by proxy and entitled to vote at the meeting is required
for all other matters including the ratification of the appointment of Arthur
Andersen LLP as independent accountants of the Company for calendar year 1997.
The vote occurring at the meeting will be overseen by an inspector. The
inspector's duties include ascertaining the number of votes outstanding and the
voting power of each, determining the number of shares represented at the
meeting, counting all votes and ballots, determining and retaining for a
reasonable period a record of the disposition of any challenges made to any
determination by the inspections, and certifying the determination of the number
of shares represented and the outcome of the balloting. The aggregate number of
votes cast by all stockholders present in person or represented by proxy and
entitled to vote at the meeting will be counted for purposes of determining the
minimum number of affirmative votes required for the election of directors, for
the amendment of the Employees' Stock Option Plan and for the ratification of
appointment of independent accountants. Abstentions and "non-votes" will be
counted as present in determining the existence of a quorum. However, an
abstention from voting (or withholding authority to vote for directors) will
have the same effect as a vote against. "Non-votes" will be considered unvoted
and will not have the effect of a vote against. A "non-vote" occurs when a
nominee holding shares for a beneficial owner votes on one proposal, but does
not vote on another proposal because the nominee does not have discretionary
voting power and has not received instructions from the beneficial owner.
1998 STOCKHOLDER PROPOSALS
To be eligible for inclusion in the Company's proxy statement, stockholder
proposals for the 1998 Annual Meeting of Stockholders must be received at the
Company's corporate office, NFO Research, Inc. 2 Pickwick Plaza, Greenwich,
Connecticut 06830, Attention: Secretary, on or before December 1, 1997.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Directors of the
Company is not aware of any matters that will be presented for action at the
Annual Meeting other than those described above. Should other business properly
be brought before the Annual Meeting, it is intended that the accompanying proxy
will be voted thereon in the discretion of the persons named as proxies.
17
<PAGE>
NFO RESEARCH, INC.
2 PICKWICK PLAZA, SUITE 400, GREENWICH, CT 06830
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 21, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of NFO Research, Inc. (the "Company") hereby
appoints William E. Lipner and Patrick G. Healy, and each of them, with full
power of substitution in each, as proxies to cast all votes, as designated on
the reverse side, which the undersigned stockholder is entitled to cast at the
1997 Annual Meeting of Stockholders of the Company to be held on Wednesday, May
21, 1997, at 10:00 a.m., at Hyatt Regency Greenwich located at 1800 East Putnam
Avenue, Old Greenwich, Connecticut, and at any adjournments thereof, upon the
following matters:
1. Proposal to elect as directors of the Company the following persons, to
hold office for a term of one year expiring at the annual meeting to be
held in 1998.
[ ] FOR the nominees listed below (except as marked to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all the nominees listed below
NOMINEES: William E. Lipner, Steven J. Gilbert, Walter A. Forbes, Edmund
A. Hajim and John Sculley.
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
please cross out that nominee's name.)
2. Proposal to ratify the appointment of Arthur Andersen LLP as independent
accountants of the company for calendar year 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder(s). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES UNDER PROPOSAL 1, "FOR" THE
PROPOSAL TO RATIFY THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT
ACCOUNTANTS OF THE COMPANY UNDER PROPOSAL 2, AND WILL BE VOTED IN THE DISCRETION
OF THE PROXIES WITH RESPECT TO ANY OTHER MATTER THAT IS PROPERLY PRESENTED AT
THE MEETING.
(Please Sign on Other Side)
<PAGE>
2
Please execute this proxy as your name appears hereon. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated , 1997
--------------------------
-----------------------------------------
Signature
-----------------------------------------
Signature if Held Jointly
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING
THE ENCLOSED ENVELOPE.
<PAGE>
NFO [LOGO]
NFO Research
1996 Annual Report
When you think of NFO...
THINK
INSIGHT
<PAGE>
THINK
GROWTH
<PAGE>
FINANCIAL HIGHLIGHTS
[REVENUES GRAPH]
[EPS GRAPH]
CONTENTS
To our Shareholders and Employees
When you think of NFO...
Financial Information
NFO Research, Inc. is a leading provider of custom and syndicated marketing
information to America's largest corporations as well as the international
business community. Through its pre-recruited consumer panel and other
specialized databases, NFO offers its clients access to over half a million
households and 1.3 million consumers.
NFO's goal is to help its clients test, launch, and market their products
and services for competitive advantage. Each year, through over 4,300 studies,
more than 1,100 leading marketers take advantage of NFO's full range of consumer
information services, databases, and the outstanding marketing, technical and
operational support offered by its creative, skilled professionals.
NFO is being developed into a diversified, multinational marketing
information business as we provide our clients in the United States and
worldwide with increasingly innovative, results-oriented solutions to their
information needs.
1
<PAGE>
To Our Shareholders and Employees,
What an exciting year of growth 1996 proved to be for NFO! We celebrated
our 50th anniversary and were recognized by Forbes magazine as one of "America's
200 Best Small Companies." While continuing to build our dominant position in
key niche markets, we crossed the $100 million threshold in annual revenues. We
expanded our core panel and experienced a substantial increase in new business
in our growth markets.
In 1996, we significantly expanded NFO's capabilities within the
pharmaceutical, travel and financial services sectors via the addition of
Migliara/Kaplan Associates and their sister company Chesapeake Surveys, Inc.,
Plog Research Inc., and The SpectrEm Group. Migliara/Kaplan is the nation's
largest custom market research firm serving the pharmaceutical industry, and was
recently ranked number one in that category in a study conducted by a leading
university. Plog Research specializes in the travel and leisure industries
through its work for airlines, hotels, car rental companies and cruise lines.
The SPECTREM Group, Inc., specializes in financial services research and
consulting. All these companies have performed very well during their first year
as part of NFO and helped fuel our overall growth.
We began delivering on our plans for horizontal and vertical global
expansion. We launched "Select Panels of Europe," our joint venture with IPSOS
S.A., which includes almost 100,000 households. NFO also captured a leadership
role in ushering in a new era of market information: After 18 months of
intensive effort, NFO Interactive, with its panel of now over 75,000 households,
began delivering high-speed consumer insight through projects for new as well as
long-standing clients.
Not surprisingly, we've chosen to focus on "pathways for growth" in this
annual report. It took 47 years for NFO to become a $52 million company and only
36 months to double our revenues and grow into a $109 million enterprise. Our
sales and earnings in 1996 reached record levels. This performance is especially
important in light of the major investments we made in our joint venture in
Europe and in our interactive initiatives. Overall, our revenues increased by 49
percent, reflecting the rapid growth of our newly acquired companies as well as
growth in our core businesses. Earnings per share increased 20 percent, to 83
cents and would have been much higher without the start-up costs associated with
our European and interactive programs.
NFO is continuing to evolve into a multidimensional, worldwide
marketing-information enterprise. Through our commitment to provide clients with
the critical market insights they need to make better decisions, we continue to
strengthen our leadership in core and niche markets. Time and again, we have
responded to our clients' changing needs with innovation and new resources. Our
expansion into Europe, our further penetration into high-growth niche markets,
and our recently launched interactive initiatives all reflect NFO's
single-minded focus on delivering exceptional value to our clients.
We anticipate that NFO will reap major benefits from its new ability to
conduct market research via the Internet. For decades, our industry has relied
on four methods for gathering information: mail, telephone,
2
<PAGE>
mall interviews, and personal interviews. A mail survey typically can take up to
seven to eight weeks, and a telephone survey from two to five weeks, to complete
and analyze. Our on-line services offer the potential to cut market research
cycles to eight days or less. By delivering results more quickly and enabling
our clients to make faster decisions, our interactive initiatives promise
greater benefits to our clientele and powerful competitive advantages to NFO.
- --------------------------------------------------------------------------------
IT TOOK 47 YEARS FOR NFO TO BECOME A $52 MILLION COMPANY AND ONLY 36 MONTHS
TO DOUBLE OUR REVENUES AND GROW INTO A $109 MILLION ENTERPRISE.
- --------------------------------------------------------------------------------
Clients have responded enthusiastically to our interactive initiatives.
While most of our interactive start-up projects are being conducted for clients
in high-tech companies, leaders in the packaged goods industry also are
exploring this new technology with us.
As reflected in the pages of this annual report, NFO Interactive is just
one of the pathways for growth that NFO is pursuing. We continue to build our
core market research business and to seek out and expand our presence in
high-growth niche markets such as pharmaceuticals, financial services, travel
and leisure, and high technology. We are also actively exploring the potential
offered by the global marketplace.
As we headed into 1997, we took steps to significantly expand NFO's
capabilities in the high-technology arena. On April 1, 1997 we announced the
addition of Prognostics to the NFO group. Prognostics is a leading provider of
survey-based quantitative customer satisfaction research to information
technology companies worldwide. With offices in Palo Alto, Boston and London,
Prognostics will help drive our penetration into this rapidly expanding part of
the worldwide marketplace.
To lead the marketing-information industry, one needs scale, a wide range
of services, and a compelling vision for the future. NFO is unique and unmatched
in its panels, analytic methods, industry expertise, client trust and relations.
Our people are distinguished in their commitment and industry expertise. We have
a strong presence in the right market segments in the right countries. We have
the technological expertise to offer fast, accurate, and insightful decision
support. NFO is positioned and ready to lead its industry into the next
millennium, to a future where speed, efficiency, scale, and keen insight will
dominate the marketing information arena.
/s/ William E. Lipner
William E. Lipner
Chairman and Chief Executive Officer
3
<PAGE>
[GRAPHIC]
THINK
INFOR-
MATION
4
<PAGE>
LEVERAGING OUR CORE BUSINESS
In 1996, our core research business continued to grow, evolve, and deliver
exceptional client value as we benefited from the changing requirements of our
consumer packaged goods and services clients. Increasingly, these clients have
focused their business on finer and finer segments of the market, developing and
targeting products and marketing strategies to specific demographic, geographic,
and product-usage groups.
- --------------------------------------------------------------------------------
OUR TEAMS ACT AS VIRTUAL EXTENSIONS OF OUR CLIENT'S MARKET RESEARCH
DEPARTMENTS FOR STUDY DESIGN, ANALYSIS, AND INTERPRETATION.
- --------------------------------------------------------------------------------
In anticipation of these trends, we increased the size of the NFO Consumer
Panel from 475,000 to over 525,000 households. While maintaining the panel's
representativeness, we targeted our recruitment to reach high-demand consumer
segments, such as affluent families and young buyers. We expanded our Chronic
Ailment Panel and with NFO Interactive, developed panels of computer and on-line
households. These steps increased our ability to quickly and efficiently access
hard-to-reach consumers.
In 1996, we also expanded our program of providing comprehensive marketing
services through our "Research Support Groups" strategy. Under this program, we
assign clients a team of "specialists" which includes an account supervisor, a
research manager, an account representative, a statistician, and a software
developer from AMS, our "expert systems" software company. Using a systematic
five-stage process, NFO support groups assess each client's current information
needs, develop a formalized plan, conduct the research, provide tailored
business solutions, and continuously evaluate the effectiveness of the program.
This integrated, solution-oriented approach allows our teams to act as virtual
extensions of our clients' market research departments. As a result, in 1996,
more and more of our clients used NFO as a total research support resource for
study design, analysis, and interpretation.
Clients also increasingly turned to us for help in projecting future demand
and forecasting the success in the marketplace of products still in the early
development stage. This rising need led to strong growth in our Targeted Copy
Testing service, SCREEN-TEST, and in our volumetric concept screening service.
Throughout 1996, we enhanced our market position by expanding and updating
our core panel, creating new products and services to meet our clients' evolving
needs, and by leveraging our resources to broaden and deepen our client base. As
we enriched the breadth and depth of our client relationships and initiated
creative new ways to segment and leverage our panel resources, we built strong
business momentum for the future.
5
<PAGE>
[GRAPHIC]
THINK
PHARMA-
CEUTICAL
6
<PAGE>
DIVERSIFYING INTO FAST-GROWING MARKETS
Aggressively pursuing high-growth niche markets hungry for custom and
syndicated research data has been one of the keys to NFO's rapid expansion. We
have entered these markets by carefully identifying and acquiring dynamic market
research and consulting firms. Since 1994, NFO's family of companies has grown
to include PSI in financial services, Migliara/Kaplan (M/K) in pharmaceuticals/
health care, Plog Research in travel/leisure, and most recently, The SPECTREM
Group, Inc., a firm specializing in financial services research and consulting.
Through these outstanding acquisitions, we have "hit the ground running" in
high-growth markets and transformed our overall business: Today, our clientele
is broader than it has ever been and our research services markedly more
diverse.
- --------------------------------------------------------------------------------
THE HUNGER FOR DIRECT-TO-CONSUMER MARKET RESEARCH AND BRAND EQUITY
DEVELOPMENT FUELS OUR IMPRESSIVE SUCCESS IN THE HEALTH CARE INDUSTRY.
- --------------------------------------------------------------------------------
The impressive growth of Migliara/Kaplan, founded in l981, offers a prime
example of the success of NFO's strategic decision to diversify into
fast-growing markets. Specializing in new-product development, M/K is the
largest custom market research company in the United States, serving the health
care industry. In the past 36 months, M/K's revenues have almost tripled,
increasing to $22 million. In 1996, M/K was selected by pharmaceutical companies
as the country's top market research firm in a national "vendor assessment
survey" conducted by the University of Mississippi.
Fueling M/K's success are far-reaching changes in its target market, the
major pharmaceutical companies. Managed care is radically redefining what M/K
calls the "Market Research Triad." The dynamics of the physician-patient-payer
relationship are changing. Direct-to-consumer market research for ethical drugs
is booming, and drug firms are seeking ways to develop stronger brand equity as
a differentiating characteristic in an industry growing more fragmented and
competitive.
In this volatile environment, M/K's outstanding account teams have created
indelible relationships with many clients by adopting a life-cycle market
research strategy. Using this approach, they become part of their clients' brand
teams, from the prelaunch stage of a product through tracking and market share
development.
During 1996, M/K utilized NFO's Chronic Ailment Panel as a proprietary
resource in its direct-to-consumer research with excellent results. In the near
future, M/K is planning to leverage its new-products expertise globally.
Payment Systems, Inc. (PSI), NFO's financial services research company also
faced far-reaching industry changes and market volatility in 1996. Responding to
the latest wave of bank mergers and industry consolidation, PSI met the
challenges it faced with a threefold strategy: First, it broadened its
syndicated product base and expanded its consulting services through acquisition
of The SPECTREM Group, Inc., the premier consulting organization in the private
banking/trust, investment and retirement services arena. It also launched the
first comprehensive study of the most compelling issue facing financial services
providers -- brand equity. Second, PSI broadened its market research by offering
sophisticated data to smaller banks. Finally, PSI began to develop its
international business more fully by offering clients global card services and
brand equity research services. This comprehensive approach to changes in the
financial services industry has considerably strengthened PSI's long-term
positioning.
7
<PAGE>
[GRAPHIC]
THINK
GLOBAL
8
<PAGE>
EXPANDING INTO INTERNATIONAL MARKETS
During 1996, NFO took several steps to accelerate its growth in global
markets. One avenue we pursued was the international expansion of our
niche-market businesses. PSI spearheaded this strategy by intensifying its
efforts in South America, Europe, and the Far East. In 1996, PSI strengthened
its European presence by expanding its London office. In Latin America, PSI
developed both syndicated research and consulting businesses. In 1997, PSI
intends to expand to the Asian Pacific region by establishing a local office to
provide research and consulting services.
- --------------------------------------------------------------------------------
IN 1996, NFO LAUNCHED ACCESS TO MORE THAN 200,000 CONSUMERS IN EUROPE'S
THREE LARGEST MARKETS: GERMANY, THE UNITED KINGDOM, AND FRANCE.
- --------------------------------------------------------------------------------
Going global is an immensely challenging -- and rewarding -- process. In
launching our IPSOS-NFO "Select Panels of Europe" program , for example, we
entered not just three new countries, but three new worlds, each with its own
unique consumer patterns and customs. In 1996, Select Panels of Europe offered
access to almost 100,000 households representing more than 200,000 consumers in
Europe's three largest markets: Germany, the United Kingdom, and France.
IPSOS has proven to be a valued partner in orchestrating our European
strategy. Both NFO and IPSOS have contributed clients to this new joint venture,
and our combined strengths have created a powerful synergy. IPSOS brought
extensive resources, including a strong client base, established facilities,
knowledge of local markets, and new business contacts. NFO, in turn, provided a
seasoned team of its panel experts to create uniform panel standards and ensure
a common "report card" for the data delivered. Together, NFO and IPSOS have
established marketing offices which are run by experienced managing directors
who are citizens of the countries in which they operate. In every respect --
recruitment, management, and motivation -- our European panels mirror the
quality and capabilities of NFO's U.S. panel program.
We view our efforts in Europe as a long-term investment and springboard to
further expansion: In 1997, we plan to introduce a panel program in Italy, and
in 1998, we expect to launch a panel in Spain. This plan reflects our belief
that serving our multinational clients on a global basis is critical to NFO's
positioning as a leader in the worldwide marketing information industry.
9
<PAGE>
[GRAPHIC]
THINK
INTER-
ACTIVE
10
<PAGE>
OUR ON-LINE CAPABILITIES
Imagine: You are a manufacturer with a "hot" new product concept you want to
test. You switch on your PC, sign on to NFO's Web site, and watch as prospective
customers, viewing three-dimensional, photographic quality images of your
product, discover its benefits and flaws, suggest improvements, and gauge its
price and value. This is not a dream; it is real; it is NOW.
Enter NFO Interactive, NFO's division dedicated to delivering clients --
worldwide -- insights into the burgeoning interactive market and the benefits of
high-speed research conducted over the Internet.
We see a bright future for NFO Interactive, as four key factors drive the demand
for ever-faster consumer research: Product development cycles are shrinking in
real time, competition is intensifying, consumer choices are multiplying, and
marketing costs are rising. In this environment, testing and launching products
more quickly is absolutely critical to business success -- and survival.
- --------------------------------------------------------------------------------
OUR MORE THAN 75,000 COMPUTER-USING HOUSEHOLDS OFFER THE ONLY TRULY
REPRESENTATIVE SAMPLE OF TODAY'S INTERACTIVE CONSUMER MARKETPLACE.
- --------------------------------------------------------------------------------
Differentiating NFO Interactive from its competitors is NFO//net.source, our
on-line panel of over 75,000 house-holds and over 175,000 interactive consumers,
the world's largest. This group represents a subset of more than 200,000
computer-using households, all of which come from our core panel of over 525,000
households. NFO//net.source panelists have been rigorously selected and balanced
to offer the only true representative sample of today's interactive consumer
marketplace.
As a result, NFO Interactive can provide Internet-focused companies with access
to a unique, data-rich source of accurate, up-to-the-minute information on the
usage patterns, attitudes, and buying behaviors of on-line consumers. It also
enables companies in every industry sector to gather reliable, high-speed
consumer data and insights.
Using NFO//net.source, companies ranging from soft-ware and hardware developers
to packaged goods and financial services firms can conduct a wide array of
market research projects, including concept, product, and design testing; market
strategy assessment; attitude, usage, and tracking studies; and market research
and share penetration analyses. NFO also has created NFO//net.gauge. Through
NFO//net.gauge, companies, for the first time, can assess Web site design and
performance with representative users of the Internet.
The response to our highly flexible, user-friendly interactive services has far
exceeded our expectations. Today, more than ever before, companies in every
industry are looking for market research tools that offer quality, speed, and
value. Our interactive program provides all three. As soon as NFO//net.source
was launched, we began conducting on-line projects for both new and
long-standing clients, ranging from Proctor & Gamble to J. Walter Thompson to
U.S. Robotics.
As computers enter more and more homes, interactive research will expand
dramatically. By delivering insights into the interactive marketplace and
offering our clients a powerful competitive advantage, NFO is not just on-line,
but out front of the interactive technology curve.
11
<PAGE>
[GRAPHIC]
THINK
VISION
12
<PAGE>
BUILDING A CREATIVE MANAGEMENT TEAM
As NFO grows and evolves into a global marketing-intelligence enterprise,
we have come to appreciate more and more fully the importance of nurturing our
entrepreneurial culture and spirit. As we move toward the future, NFO is
building a diverse, highly creative management team with tremendous business
experience, industry expertise, and market research capabilities.
In the past few years, we have further enriched both our world view and our
corporate resources by gaining access to the talent and insight of the
management teams of our acquisitions and joint venture partners. Our alliance
with IPSOS in Europe, for example, has allowed us to benefit from that company's
well-established infrastructure, contacts, and credibility. By transforming NFO
into a group of interconnected businesses, we have strengthened our human
resources tremendously.
- --------------------------------------------------------------------------------
WE ACCESS TALENT BY STRATEGICALLY INTERCONNECTING WELL-ESTABLISHED AND
RESPECTED BUSINESSES, ALLOWING NFO TO BUILD ON THE OUTSTANDING TRACK
RECORDS AND EXPERIENCE OF PROVEN INDUSTRY EXPERTS.
- --------------------------------------------------------------------------------
Today, through our acquisition program, we can build on the outstanding
track records of industry experts with decades of experience. NFO now has
available M/K's Joe Migliara, Harris Kaplan, and Sheryl Olitzky in health
care/pharmaceuticals; PSI's and SPECTREM's Al DeCotiis, Martha Rea, Mark
Sievewright and Amy Errett in financial services; Stan Plog in travel/ leisure;
and AMS in custom software design, led by Herb Storck. Along with NFO's seasoned
top-management team, these highly respected professionals have enhanced the
firm's reputation tremendously in the eyes of our clients and have created
windows of opportunity for us in vibrant markets with large potential for global
growth. With these professionals and our interactive team led by Charlie Hamlin,
we are charting an exciting course for NFO. We are pursuing a strategy that
promises to make our firm a global leader in the marketing information industry.
13
<PAGE>
FINANCIAL INFORMATION
Contents
Selected Financial Data 15
Management's Discussion 16
Stock Information 19
Independent Auditor's Reports 20
Consolidated Balance Sheets 21
Consolidated Income Statements 22
Consolidated Statements
of Stockholders' Equity 23
Consolidated Statements of Cash Flows 24
Notes to Consolidated
Financial Statements 25
THINK
RESULTS
14
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statement Data(3)
Revenues $109,162 $ 73,098 $ 61,545 $ 51,888 $ 47,074
Operating Income 16,995 11,787 9,350 7,692 6,515
Net Income 9,016 6,721 5,581 3,613 2,266
Earnings per Share(1) $ 0.83 $ 0.69 $ 0.59
Pro Forma Earnings per Share(2) $ 0.43 $ 0.33
Balance Sheet Data(3)
Working Capital (Deficiency) $ 10,771 $ 7,849 $ 1,874 $ 3,604 $ (864)
Total Assets 101,457 66,764 60,246 48,807 49,557
Total Debt 5,280 2,052 3,315 4,963 23,723
</TABLE>
(1) Adjusted to reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996.
(2) Adjusted to reflect the above stock splits, and assumes the common stock
issued in connection with the Company's initial public offering in April
1993 was outstanding for the entire period.
(3) For discussion of acquisitions, see Footnote 18 to the Consolidated
Financial Statements.
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operation
Background
NFO Research, Inc. and its subsidiaries (the "Company") is a leading
provider of custom and syndicated market information to America's largest
companies as well as the international business community. Through its
pre-recruited consumer panel and other specialized databases, NFO offers access
to more than 525,000 households and over 1.3 million people.
Results of Operations
The following table sets forth for the periods indicated certain income
statement data for the Company.
<TABLE>
<CAPTION>
Percentage
Increase
Income Statements (Decrease)
Years Ended December 31, 1996 1995
--------------------------- Over Over
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $109,162 $ 73,098 $ 61,545 49.3% 18.8%
Cost of Revenues 48,329 32,356 26,783 49.4 20.8
Selling, General & Administrative Expenses 39,279 25,559 22,355 53.7 14.3
Amortization Expense 2,891 2,157 2,031 34.0 6.2
Depreciation Expense 1,668 1,239 1,026 34.6 20.8
-------- -------- -------- ---- ----
Operating Income 16,995 11,787 9,350 44.2 26.1
Interest Expense, Net 216 26 103 730.8 (74.8)
Other Expenses 453 -- 258 -- --
-------- -------- -------- ---- ----
Income Before Income Taxes 16,326 11,761 8,989 38.8 30.8
Income Tax Provision 7,310 5,040 3,408 45.0 47.9
-------- -------- -------- ---- ----
Net Income $ 9,016 $ 6,721 $ 5,581 34.1% 20.4%
-------- -------- -------- ---- ----
Weighted Average Shares Outstanding(1) 10,818 9,696 9,483 11.6% 2.2%
-------- -------- -------- ---- ----
Earnings per Share(1) $ .83 $ .69 $ .59 20.3% 16.9%
-------- -------- -------- ---- ----
</TABLE>
(1) Adjusted to reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996.
Special Note Regarding Forward-Looking Statements
As certain of the statements made in this annual report are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995), they involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, clients' timing of new product introductions and reformulations,
clients' marketing budgets, industry and economic conditions, changes in
management or ownership of a client, the effect of the Company's competition on
client purchasing decisions, the strategic decisions of the Company's management
team, the extent to which the Company is successful in developing and marketing
its interactive market research techniques and other factors referenced in this
annual report. In addition, the success of the Company's European expansion
efforts is dependent in part upon a productive joint venture relationship and
upon the successful application of NFO's methodologies to different business and
consumer environments.
16
<PAGE>
Acquisitions
On January 3, 1996, the Company acquired Migliara/Kaplan & Associates, Inc.
("M/K"), Chesapeake Surveys, Inc. ("CSI"), and Plog Research, Inc. ("Plog"). M/K
is one of the nation's leading full-service health care marketing information
companies with offices in Baltimore, MD and Princeton, NJ. CSI provides data
collection and survey services, such as focus groups and random telephone
interviews. Plog is the nation's leading travel industry marketing research
organization. On August 15, 1996, the Company acquired The SPECTREM Group, Inc.
("Spectrem"). Spectrem provides niche consulting and acquisition and divestiture
advisory services in the trust and investment products sectors.
1996 Compared to 1995
The Company's revenues increased 49 percent to $109.2 million from $73.1 million
the previous year. The acquisitions of M/K, CSI, and Plog in January 1996 and
Spectrem in August 1996 contributed $28 million to this increase. Revenues in
the Company's remaining business increased by 10 percent, led by strong showings
in its financial services and packaged goods sectors.
Costs of revenues increased 49 percent to $48.3 million from $32.4 million
a year ago. The increase was primarily the result of the first time inclusion of
M/K, CSI, Plog and Spectrem ($12.5 million), while remaining costs of revenues
increased $3.4 million, or 10.5 percent which was in line with revenue
increases.
Selling, general and administrative expenses increased 54 percent to $39.3
million from $25.6 million in the previous year. The first time inclusion of
M/K, CSI, Plog and Spectrem accounted for $9.6 million, while other principal
contributing factors included increased staffing caused by increased business
activity in both the U.S. and Europe, development of the Company's new online
interactive research capabilities, and inflationary increases.
Operating income in 1996 increased 44 percent to $17.0 million from $11.8
million in the prior year. This increase is primarily the result of the items
discussed above. Operating margins for 1996 were 15.6 percent compared to 16.1
percent a year ago. Excluding the Company's investments related to Interactive
Business Development, operating margins were actually higher in 1996 than 1995.
Income tax expense reflects the Company's combined Federal and State
statutory tax rate of approximately 39 percent, plus the effects of
non-deductible expenses, primarily goodwill. The increase in the effective tax
rate from 42.9 percent to 44.8 percent was largely due to the effect of the
acquisitions mentioned above.
The result of the items discussed above is that net income increased 34
percent to $9.0 million from $6.7 million in the previous year. Earnings per
share increased to $.83 from $.69 a year ago. The increase in earnings per share
was primarily due to increased earnings and occurred in spite of a greater
number of outstanding shares caused primarily by the issuance of additional
shares in connection with the recent acquisitions. The earnings per share have
been adjusted for the stock split effected on February 5, 1996.
1995 Compared to 1994
The Company's revenues increased 18.8 percent to $73.1 million from $61.5
million the previous year. All of the Company's business units grew at
double-digit rates for the year. The Company's telecommunications business unit,
as well as its financial services, HealthMed, and packaged goods businesses had
strong growth in 1995.
Costs of revenues increased 20.8 percent to $32.4 million from $26.8
million a year ago. The increase was primarily due to the overall increase in
business volume, a slight change in product mix, and an increase in postal
rates. Postal rates increased January 1, 1995 and the Company passed through,
without its normal markup, any incremental postage charges on projects performed
in the first quarter of 1995 that were sold prior to January 1, 1995.
Selling, general and administrative expenses for 1995 increased 14.3
percent to $25.6 million from $22.4 million in 1994. The principal contributing
factors were the first-time inclusion of Advanced Marketing Solutions Corp.
("AMS"), acquired in December 1994 ($.7 million), increases at PSI related to
the opening of a new office in London, England and the expansion of its existing
offices in Tampa, Florida, and new product development ($.5 million), increases
in marketing expenses and product development costs of $.7 million and general
inflationary increases.
17
<PAGE>
Operating income in 1995 increased 26.1 percent to $11.8 million from $9.4
million in the prior year. This increase was primarily the result of the items
discussed above. Operating margins increased to 16.1 percent from 15.2 percent
for 1994.
The result of the items discussed above is that net income increased 20.4
percent to $6.7 million from $5.6 million in the prior year. Earnings per share
increased 16.9 percent to $.69 from $.59 a year ago. The earnings per share
amounts have been adjusted for the stock split effected on February 5, 1996.
Liquidity and Capital Resources
Working capital as of December 31, 1996 was $10.8 million, an increase of
$2.9 million from December 31, 1995. The primary reason for the change in
working capital was an increase in accounts receivable partially offset by an
increase in accrued expenses.
The Company has a credit facility (the "Credit Facility") with three major
U.S. banks. The Credit Facility provides NFO with a credit availability of $45
million which declines to $35 million and $25 million on December 29, 1997 and
1998, respectively. The Company may borrow under this facility at rates based on
specific margins above the Eurodollar base rate, the Federal Fund Rate or the
Prime Rate, at the Company's option. At December 31, 1996, the Company had loans
outstanding of $4 million under the Credit Facility.
The Credit Facility includes covenants which require the Company to
maintain certain ratios and net worth levels and place certain restrictions on
investments, sales of assets, issuance of new debt, payment of dividends,
incurring of liens and the guarantee of obligations of third parties. The
Company believes that none of these restrictions will have a significant impact
on its business or operations as presently contemplated.
During the year, the Company made capital expenditures of approximately
$3.3 million. Capital expenditures in 1997 are expected to be substantially
higher than this level due to the planned expansion of the Company's operations
capacity.
The Company anticipates that existing cash, together with internally
generated funds and its credit availability, will provide the Company with the
resources that are needed to satisfy potential acquisitions, capital
expenditures, and the Company's growing working capital requirements in fiscal
1997 and subsequent years. The timing and magnitude of future acquisitions will
be the single most important factor in determining the Company's long-term
capital needs.
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 resulting from inflation.
Seasonality
The Company's business activity has traditionally reflected a modest seasonality
factor with slightly higher revenues in the Company's fourth quarter. This
seasonality reflects increased research spending in the fourth quarter by
clients seeking to complete research studies prior to the holiday season and the
close of their fiscal year. Also, the Company generally initiates several
large-scale annual projects and tracking programs during the fourth quarter of
each year.
Over the past three years, the fourth quarter has represented between 28.4
percent and 29.8 percent of the Company's annual revenues. Each of the remaining
three quarters ranged between 22.1 percent and 25.4 percent of the annual total.
18
<PAGE>
Stock Information
The Company's common stock has traded on the Nasdaq National Market tier of the
Nasdaq Stock Market since its initial public offering was completed in April,
1993. The Company's stock symbol is "NFOR."
The Company did not declare or pay any cash dividends during 1996, 1995 or
1994. The following table sets forth, for the periods indicated, its high and
low sales prices per share as reported on the Nasdaq.
The stock prices have been adjusted to give retroactive effect to a 3 for 2
stock split effected on February 5, 1996.
Sales Price
High Low
---- ---
Calendar Year 1996
First Quarter $25.50 $17.50
Second Quarter 25.25 19.75
Third Quarter 24.25 21.25
Fourth Quarter 24.25 21.50
Calendar Year 1995
First Quarter $13.00 $ 9.50
Second Quarter 13.83 11.67
Third Quarter 15.67 13.00
Fourth Quarter 17.67 14.33
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
ARTHUR
ANDERSEN
[LOGO]
To the Board of Directors and Stockholders of NFO Research, Inc.:
We have audited the accompanying consolidated balance sheets of NFO Research,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity, and
cash flows for the years 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of NFO Research, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, New York
February 18, 1997, except for Note 19, as to which the date is March 20, 1997.
- --------------------------------------------------------------------------------
DELOITTE &
TOUCHE LLP
[LOGO]
To the Board, Directors, and Stockholders of NFO Research, Inc.:
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of NFO Research, Inc. and subsidiaries for
the year ended December 31, 1994. 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, such consolidated financial statements present fairly, in all
material respects, the results of the operations and the cash flows of NFO
Research, Inc. and subsidiaries for the year ended December 31, 1994 in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Ann Arbor, Michigan
February 17, 1995
20
<PAGE>
Consolidated Balance Sheets
As of December 31, 1996 and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 4,086 $ 5,677
Receivables:
Trade, Less Allowance for Doubtful Accounts
of $143 and $139 in 1996 and 1995, respectively 24,728 14,155
Unbilled Receivables 3,963 3,188
Prepaid Expenses and Other Current Assets (Note 8) 3,309 2,734
--------- ---------
Total Current Assets 36,086 25,754
--------- ---------
Property and Equipment, Net (Note 3) 11,013 8,756
--------- ---------
Customer Lists, Goodwill and Other Intangible Assets (Notes 2 and 4) 49,412 26,501
--------- ---------
Other Assets
Deferred Income Taxes (Note 8) 2,074 4,137
Other (Note 18) 2,872 1,616
--------- ---------
Total other assets 4,946 5,753
--------- ---------
Total Assets (Note 5) $ 101,457 $ 66,764
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Current Maturities of Long-Term Debt (Note 5) $ 459 $ 643
Accounts Payable 2,182 1,543
Accrued Liabilities (Note 6) 13,568 8,700
Customer Billings in Excess of Revenues Earned 9,106 7,019
--------- ---------
Total Current Liabilities 25,315 17,905
--------- ---------
Long-Term Liabilities
Long-Term Debt, Less Current Portion (Note 5) 4,821 1,409
Accrued Pension, Postretirement Benefits and Other (Notes 9 and 10) 4,579 3,429
--------- ---------
Total Long-Term Liabilities 9,400 4,838
--------- ---------
Total Liabilities 34,715 22,743
--------- ---------
Commitments and Contingencies (Notes 7, 16, and 18)
Stockholders' Equity (Note 11)
Serial Preferred Stock, Par Value $.01 per Share;
5,000 Shares Authorized; None Issued
Common Stock, Par Value $.01 per Share; 60,000 shares
authorized; 10,280 and 9,428 shares issued and
outstanding at December 31, 1996 and 1995, respectively 103 63
Additional Paid-In Capital 40,541 27,222
Retained Earnings 26,421 17,405
Additional Minimum Liability, Net of Income Taxes (Note 9) (323) (669)
--------- ---------
Total Stockholders' Equity 66,742 44,021
--------- ---------
Total Liabilities and Stockholders' Equity $ 101,457 $ 66,764
========= =========
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
Consolidated Income Statements
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
1996 1995 1994
---- ---- ----
Revenues (Notes 2 and 15) $109,162 $ 73,098 $ 61,545
Costs and Expenses
Cost of Revenues 48,329 32,356 26,783
Selling, General and Administrative 39,279 25,559 22,355
Amortization of Intangible Assets 2,891 2,157 2,031
Depreciation 1,668 1,239 1,026
-------- -------- --------
Operating Income 16,995 11,787 9,350
Interest Expense, Net (Note 12) 216 26 103
Other Expenses (Notes 4 and 18) 453 -- 258
-------- -------- --------
Income Before Income Taxes 16,326 11,761 8,989
Provision for Income Taxes (Note 8) 7,310 5,040 3,408
-------- -------- --------
Net Income $ 9,016 $ 6,721 $ 5,581
======== ======== ========
Earnings per Share (Note 13) $ .83 $ .69 $ .59
======== ======== ========
See notes to consolidated financial statements.
22
<PAGE>
Consolidated Statements of
Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Additional Additional Total
Common Common Paid-In Retained Minimum Stockholders'
Shares Stock Capital Earnings Liability Equity
------ ----- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 9,000 $ 40 $ 23,242 $ 5,103 $ (511) $ 27,874
Acquisition (Note 18) 268 1 2,400 2,401
Stock Split (Note 11) 21 (21) --
Other Issuances 46 324 324
Reduction of Additional Minimum Liability,
Net of Income Taxes (Note 9) 178 178
Net Income 5,581 5,581
------ -------- -------- -------- -------- --------
Balance at December 31, 1994 9,314 $ 62 $ 25,945 $ 10,684 $ (333) $ 36,358
Acquisition (Note 18) 27 361 361
Other Issuances 87 1 916 917
Accrual of Additional Minimum Liability,
Net of Income Taxes (Note 9) (336) (336)
Net Income 6,721 6,721
------ -------- -------- -------- -------- --------
Balance at December 31, 1995 9,428 $ 63 $ 27,222 $ 17,405 $ (669) $ 44,021
Acquisitions (Note 18) 752 8 12,077 12,085
Stock Split (Note 11) -- 31 (31) --
Other Issuances 78 1 1,132 1,133
Reduction of Additional Minimum Liability,
Net of Income Taxes (Note 9) 346 346
Conversion of Note Payable (Notes 5 and 18) 22 -- 141 141
Net Income 9,016 9,016
------ -------- -------- -------- -------- --------
Balance at December 31, 1996 10,280 $ 103 $ 40,541 $ 26,421 $ (323) $ 66,742
====== ======== ======== ======== ======== ========
</TABLE>
The shares presented reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996 (Note 11).
See notes to consolidated financial statements.
23
<PAGE>
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 9,016 $ 6,721 $ 5,581
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Amortization of Intangible Assets 2,891 2,157 2,031
Depreciation 1,668 1,239 1,026
Write-off of Debt Issuance Costs 258
Deferred Income Taxes (99) (196) 178
Equity Interest in Net Loss of Joint Venture 453
-------- -------- --------
Subtotal 13,929 9,921 9,074
Change in Assets and Liabilities that Provided (Used) Cash,
Net of Effects of Acquisitions:
Trade Receivables (6,060) (3,072) (2,613)
Unbilled Receivables (478) (2,834) (18)
Prepaid Expenses and Other Current Assets (287) (856) (159)
Accounts Payable and Accrued Liabilities 1,962 1,677 (269)
Customer Billings in Excess of Revenues Earned (1,456) (908) 1,453
Other, Net (668) 53 (254)
-------- -------- --------
Net Cash Provided by Operating Activities 6,942 3,981 7,214
-------- -------- --------
Cash Flows From Investing Activities
Acquisitions (Net of Cash Acquired) (7,258) (361) (1,999)
Capital Expenditures, (Net of Minor Disposals) (3,326) (2,097) (1,385)
Purchase of Intangible Assets (70) (255)
Investments in Joint Venture (999) (1,290)
-------- -------- --------
Net Cash Used in Investing Activities (11,653) (4,003) (3,384)
-------- -------- --------
Cash Flows From Financing Activities
Issuance of Common Stock, Net of Expenses 769 687 324
Payments on Long-Term Debt (11,522) (1,085) (2,978)
Principal Payments on Capital Lease Obligations (127) (191) (183)
Proceeds from Line of Credit 14,000
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities 3,120 (589) (2,837)
-------- -------- --------
Increase (Decrease) In Cash And Cash Equivalents (1,591) (611) 993
Cash And Cash Equivalents, Beginning Of Period 5,677 6,288 5,295
-------- -------- --------
Cash And Cash Equivalents, End Of Period $ 4,086 $ 5,677 $ 6,288
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
Notes to Consolidated Financial Statements
For the years ended December 31, 1996, 1995 and 1994
1. Business
NFO Research, Inc. together with its subsidiaries (the "Company") is a leading
provider of custom and syndicated market information to America's largest
companies, as well as the international business community. The company gathers
information primarily using a proprietary panel of pre-recruited consumer
households (the "Panel").
2. Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
the Company and all subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition - The Company recognizes revenue on projects, which are
substantially all short-term, by generally applying recent historical
contribution margins to project costs as incurred. A provision for anticipated
losses is recorded in the period in which they first become determinable.
Cash and Cash Equivalents - The Company considers all investments with a
maturity of three months or less when purchased to be cash equivalents.
Depreciation - The Company provides depreciation over the estimated useful
lives of the depreciable assets using the straight-line method.
Intangible Assets - The Company provides amortization of these assets using
the straight-line method over their estimated period of benefit or contractual
life, principally as follows:
Years
-----
Customer Lists 15-20
Customized Software 5
Debt Issuance Costs 5
Goodwill 5-30
The Company periodically evaluates the recoverability of goodwill and other
intangible assets by assessing whether the unamortized intangible assets can be
recovered from undiscounted future cash flows from operations.
Panel - The Company enhances and rebuilds its Panel on a continuous basis,
and the related costs are charged to expense as incurred. The Company expensed
$1,347,000, $933,000, and $1,061,000 on Panel enhancing and rebuilding in 1996,
1995 and 1994, respectively.
Income Taxes - Deferred income taxes are recorded to reflect the tax
consequences of differences between the tax bases of the Company's assets and
liabilities and their financial reporting amounts at each balance sheet date.
Fair Value of Financial Instruments - The following methods and assumptions
were used to estimate the fair value of each category of the Company's financial
instruments.
Cash and Short-Term Financial Instruments - The carrying amount approximates
fair value due to the short maturity of these instruments.
Long-Term Financial Instruments - The fair value has been estimated using the
expected future cash flows discounted at market interest rates as adjusted for
conversion privileges. Fair value of long-term debt exceeded the carrying
amounts by approximately $170,000 and $400,000 at December 31, 1996 and 1995,
respectively.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management 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. Property and Equipment
Property and equipment, including equipment held under capital leases (Note 5),
consists of the following at December 31, 1996 and 1995 (in thousands):
Estimated
Useful Lives 1996 1995
------------ ---- ----
Land $ 1,663 $ 933
Buildings and
Leasehold Improvements 10-40 years 5,157 4,998
Data Processing and
Communications Equipment 3-5 years 5,979 4,485
Furniture and Other
Equipment 4-8 years 4,010 2,388
----------- -------- --------
Total $ 16,809 $ 12,804
Less Accumulated
Depreciation and
Amortization (5,796) (4,048)
-------- --------
Total $ 11,013 $ 8,756
======== ========
25
<PAGE>
4. Intangible Assets
Intangible assets consist of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Customer Lists, Net of Amortization of $6,548 and $5,299 in 1996 and 1995, respectively $14,789 $10,440
Customized Software, Net of Amortization of $1,635 and $1,406 in 1996 and 1995, respectively -- 229
Debt Issuance and Other costs, Net of Amortization of $338 and $224 in 1996 and 1995, respectively 332 386
Goodwill, Net of Amortization of $3,665 and $2,366 in 1996 and 1995, respectively 34,291 15,446
------- -------
Total $49,412 $26,501
======= =======
</TABLE>
The Company wrote off unamortized debt issuance costs of $258,000 in 1994 in
conjunction with the replacement of an existing debt agreement with a new one.
5. Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Industrial Development Revenue Bonds Due in Monthly Installments of $37 Including Interest
at 70 Percent of the Prime Rate (effective rate of 5.8 Percent at December 31, 1996 and 6.0 Percent
at December 31, 1995) through September 1997. The Bonds Are Collateralized by Real Estate with
a Net Book Value of $1,064 at December 31, 1996 $ 281 $ 672
Industrial Development Revenue Bonds Due in Monthly Installments of $10, Plus Interest at 80 Percent
of the Prime Rate (effective rate of 6.6 Percent at December 31, 1996 and 6.8 Percent at December 31, 1995)
through January 2004. The Bonds Are Collateralized by Real Estate with a Net Book Value of $1,349
at December 31, 1996 876 1,001
Note Payable to Banks under a Revolving Credit Agreement Due December 31, 1999, with Interest
Ranging Between 6.3 Percent and 6.4 Percent 4,000 --
Note Payable (Face Amount of $125 in 1996 and $375 in 1995) Due November 2004, with
Interest Imputed at 7.0 Percent. Holder Has Option to Convert All or Part of Note to Common
Stock of the Company 69 198
Obligations Under Long-Term Capital Leases, Due in Monthly Installments of $13 through January 1997,
and $6 through October 1997, Interest Ranging between 9.6 percent and 9.7 percent 54 181
------- -------
Total 5,280 2,052
Less Current Maturities (459) (643)
------- -------
Total $ 4,821 $ 1,409
======= =======
</TABLE>
26
<PAGE>
The Company has a revolving line of credit agreement with three major banks
which provides for borrowings up to $45 million. The agreement expires on
December 31, 1999, and is secured by substantially all assets of the Company. At
December 31, 1996, there was $4 million outstanding under this agreement. There
were no borrowings outstanding under this agreement at December 31, 1995.
The available line of credit under the revolving credit agreement was reduced
by $5,000,000 in December 1996, and will be reduced by $10,000,000 on December
29, 1997 and 1998. The credit agreement also has certain mandatory reductions
due to excess cash flow (as defined), asset sales in excess of specified amounts
and a portion of the net proceeds received from any public issuances of
securities of the Company.
Interest is payable quarterly on the outstanding balance at variable rates
depending on the Company's leverage ratio as defined in the agreement. The rates
are based on specified margins above the Eurodollar Rate, the Federal Funds Rate
or the Prime Rate, at the Company's option. Commitment fees are payable
quarterly at varying rates depending on the Company's leverage ratio (as defined
in the agreement).
The revolving credit agreement includes covenants which require the Company
to maintain certain financial ratios and net worth levels and place certain
restrictions on investments, sales of assets, issuance of new debt, payment of
dividends, incurring of liens and the guarantee of obligations of third parties.
Required principal payments on long-term debt and capital lease obligations
are as follows at December 31, 1996 (in thousands):
Capital
Debt Leases
---- ------
1997 $ 405 $56
1998 125
1999 4,125
2000 125
2001 125
Thereafter 377
------ ---
Total 5,282 56
Less Amount Representing Interest (56) (2)
------ ---
Present Value of Minimum Payments $5,226 $54
====== ===
6. Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Accrued Compensation and Payroll Taxes $ 3,659 $ 2,064
Income Taxes Payable (Note 8) 1,231 1,078
Accrued Vacation 1,032 849
Purchase Price Payable (Note 18) 3,733 1,047
Accrued Pension (Note 9) 350 667
Accrued Profit Sharing (Note 9) 719 626
Other Accrued Liabilities 2,844 2,369
------- -------
Total $13,568 $ 8,700
======= =======
7. Operating Leases
The Company leases office space and equipment under noncancelable operating
leases that expire at various dates through 2002. Certain of these leases are
subject to rent review and contain escalation clauses. Future minimum annual
payments required under the noncancelable leases as of December 31, 1996, are as
follows (in thousands):
1997 $2,325
1998 2,328
1999 1,644
2000 1,434
2001 1,269
Thereafter 133
------
Total $9,133
======
Rental expense for the years ended December 31, 1996, 1995 and 1994,
including leases on a month-to-month basis, was approximately $2,638,000,
$1,744,000, and $1,470,000, respectively.
Certain of the Company's subsidiaries rent space in office buildings owned or
partially owned by officers of the subsidiaries. Such rents, which are
approximately $.5 million in 1996, are believed to be consistent with arms
length transactions.
27
<PAGE>
8. Income Taxes
The provision for income taxes is as follows for the years ended December 31,
1996, 1995, and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Current Provision:
Federal $ 6,249 $ 4,100 $ 2,479
State and Local 1,160 1,136 751
------- ------- -------
Total 7,409 5,236 3,230
------- ------- -------
Deferred Provision (Credit):
Federal (85) (167) 119
State and Local (14) (29) 59
------- ------- -------
Total (99) (196) 178
------- ------- -------
Total Provision $ 7,310 $ 5,040 $ 3,408
======= ======= =======
Temporary differences giving rise to the recorded deferred income tax asset
at December 31, 1996 and 1995, are as follows (in thousands):
1996 1995
---- ----
Depreciation and Amortization $ 610 $2,997
Pension, Postretirement Benefits and
Deferred Compensation 907 1,047
Vacation 341 305
State and Local Taxes 364 282
Other 652 147
------ ------
Total $2,874 $4,778
====== ======
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate at December 31, 1996, 1995 and 1994, is as follows:
1996 1995 1994
---- ---- ----
Statutory Rate 34.6% 34.2% 34.0%
Nondeductible Expenses 2.9 1.7 3.9
State and Local Income Taxes,
Net of Federal Benefit 4.6 6.1 5.9
Section 197 Election (see below) (4.4)
Other 2.7 0.9 (1.5)
----- ----- -----
Effective Tax Rate 44.8% 42.9% 37.9%
===== ===== =====
In July 1994, the Company elected to adopt Section 197 of the Internal
Revenue Code, which relates to the amortization of intangible assets. This
election allows the Company to deduct some previously nondeductible
amortization, including some goodwill, for tax purposes. As a result, the
Company's effective tax rate for 1994 was reduced by 4.4 percent. Also as a
result of the election, the Company recorded a $2.7 million reduction of
goodwill and a reduction of tax expense of approximately $.5 million in 1994,
relating principally to the deductibility of previously nondeductible intangible
amortization for prior periods. In connection with the election, the Company
made tax payments related to changes in intangible asset tax lives for prior
periods of approximately $1 million during 1994. Those payments were provided
for in prior periods, and therefore had no impact on 1994 earnings.
9. Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all its
employees. Benefits provided by the plan are based on salary and years of
service. The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheets at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation
Including Vested Benefits of
$5,087 and $4,588 at December 31,
1996 and 1995, respectively $ 5,680 $ 5,135
======= =======
Projected Benefit Obligation for
Service Rendered to Date $ 5,908 $ 5,248
Plan Assets at Fair Value (Principally
Invested in Equity Securities and
Guaranteed Fixed Income
Insurance Contracts) 5,113 3,554
------- -------
Projected Benefit Obligation
in Excess of Plan Assets 795 1,694
Unrecognized Net Experience Differences (809) (1,286)
Prior Service Cost 34 40
Adjustment Required to Recognize
Minimum Liability before Income Taxes 547 1,133
------- -------
Accrued Pension Cost $ 567 $ 1,581
======= =======
The Company's required minimum funding amounts of $350,000 and $667,000,
which are included in the above accrued pension cost, are included in current
liabilities as of December 31, 1996 and 1995, respectively.
28
<PAGE>
Pension expense for the years ended December 31, 1996, 1995, and 1994
consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Service Cost $ 502 $ 405 $ 410
Interest Cost on Projected
Benefit Obligation 411 347 303
Actual (Gain)/Loss on Assets (740) (488) 16
Net Amortization and Deferral 485 315 (180)
----- ----- -----
Net Periodic Pension Cost $ 658 $ 579 $ 549
===== ===== =====
Assumptions used in determining pension plan amounts were
as follows:
1996 1995 1994
---- ---- ----
Discount Rate 7.75% 7.75% 8.5%
Rate of Increase in
Compensation Levels 4.75 4.75 5.0
Expected Long-Term Rate
of Return on Assets 9.0 9.0 9.0
The Company maintains a profit sharing plan, established under Section 401(k)
of the Internal Revenue Code, which covers substantially all full-time
employees. Profit sharing contributions to the plan are at the discretion of the
Company's Board of Directors and are generally tied to annual profit
performance. The plan also contains a 401(k) feature whereby all eligible
employees may contribute up to 15 percent of their basic compensation. The
Company makes a matching contribution equal to 25 percent of the first 6 percent
of each participant's voluntary contribution. The Company's total contributions
related to the plan amounted to approximately $931,000, $801,000, and $700,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
The Company has an unfunded, nonqualified deferred compensation plan for
certain key executives. The plan provides, among other things, for certain
deferred compensation to take effect on the employee's retirement, disability,
death or other termination of employment. Long-term liabilities include
approximately $692,000 and $314,000 at December 31, 1996 and 1995, respectively,
representing the present value of the benefits expected to be provided based on
the employees' service to that date.
10. Postretirement Benefit Programs
The Company sponsors two defined benefit postretirement programs that cover
salaried and nonsalaried employees. One program provides medical benefits, and
the other provides life insurance benefits. The postretirement healthcare
program is contributory, with retiree contributions adjusted annually; the life
insurance program is noncontributory.
The health care program currently requires the retiree to pay 50 percent of
the cost of coverage for the retiree and dependents both before and after
attaining age 65. For those retiring on or after January 1, 1994, the co-pay
increases at age 65 to 75 percent of the cost of coverage for the retiree and
100 percent of the cost of coverage for dependents. In addition, an employee
must complete 10 years of service after age 45 to be eligible for postretirement
medical coverage. The Company does not fund its postretirement health care or
life insurance programs.
The following sets forth the programs' status reconciled with the amount
shown in the Company's balance sheets at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Accumulated Postretirement
Benefit Obligation:
Retired Participants and Beneficiaries $ 392 $ 367
Fully Eligible Active Program Participants 417 324
Other Active Program Participants 309 228
------- -------
Accumulated Postretirement Benefit
Obligation in Excess of
Plan Assets 1,118 919
Unrecognized Net Loss (125) (21)
------- -------
Unfunded Accumulated Postretirement
Benefit Obligation, Included in
Long-Term Liabilities in the Accompanying
Balance Sheet $ 993 $ 898
======= =======
Net periodic postretirement benefit cost for 1996, 1995, and 1994 includes
the following components (in thousands):
1996 1995 1994
---- ---- ----
Benefits Attributed to Service
During the Period $ 72 $ 46 $ 48
Interest Cost on Accumulated
Postretirement Benefit Obligation 76 61 50
Net Amortization and Deferral 4 (2)
----- ----- -----
Net Periodic Postretirement
Benefit Cost $ 152 $ 105 $ 98
===== ===== =====
29
<PAGE>
The assumed discount rate used to measure the postretirement benefit
obligation is 7.5 percent, 7.5 percent, and 8.25 percent, in 1996, 1995, and
1994, respectively.
The health care trend rates assumed in the above estimates include an initial
assumed rate of 10 percent, grading down to a level 5 percent over 8 years.
The effect of a 1 percent increase in the assumed healthcare trend rates
would be to increase the obligation at December 31, 1996, by approximately
$145,000, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by approximately
$23,000.
11. Capital Stock
Common Stock - In September 1996, the Company's Certificate of Incorporation
was amended to increase the number of authorized shares of Common Stock to 60
million shares from 15 million shares.
Stock Splits - On February 28, 1994, the Company's Board of Directors
authorized a 3 for 2 stock split of the Company's common stock effected on April
5, 1994, for stockholders of record on March 15, 1994. As a result,
approximately 2,063,000 additional shares were issued in 1994. Additionally, a 3
for 2 stock split was authorized on January 5, 1996, and effected on February 5,
1996, for stockholders of record on January 22, 1996. As a result, approximately
3,375,000 additional shares of NFO Common Stock were issued. All per share and
share amounts in the accompanying financial statements have been restated to
reflect both stock splits.
Preferred Stock - In connection with the initial public offering, the Company
authorized 5,000,000 shares of Serial Preferred Stock to be issued in one or
more series, with the Board of Directors to have the authority to fix
designations, preferences, powers and relative participating, optional or other
rights and restrictions thereof.
Stock Options - The Company has adopted the NFO Research, Inc. Stock Option
Plan (the "Stock Option Plan"), the Directors' Stock Option Plan (the
"Directors' Stock Option Plan"), and a Consultant's Plan. The Plans provide for
the grant of "nonqualified" options to purchase shares of common stock. The
exercise price of the options is the market value of the Company's common stock
on the date of the grant. The number of shares of common stock reserved for
issuance under the Stock Option Plan, the Directors' Stock Option Plan, and the
Consultant's Plan is 1,875,000, 360,000, and 37,500 shares, respectively. If, as
to any number of shares, any option granted pursuant to the Plans shall expire
or terminate for any reason, such number of shares shall again be available for
grant under the Plans.
Under the Stock Option Plan, options become exercisable at such time or times
as determined at the date of grant and expire not more than 10 years from the
date of grant. Options granted under the Stock Option Plan generally become
exercisable over a three-year period at the rate of one-third of the shares
awarded each year.
The Directors' Stock Option Plan provides that options on 15,000 shares be
automatically granted to each nonemployee director upon initial election and
that options on 7,500 shares be granted upon each occasion thereafter that the
director is elected or reelected to such position. Under the Directors' Stock
Option Plan, options become exercisable at any time after the six-month
anniversary of the date the option was awarded and expire not more than five
years from the date of grant.
Under the Consultant's Plan the options are exercisable any time after the
six-month anniversary of the date the option was awarded and expire five years
from the date of grant.
The Company applies Financial Accounting Standards Board Statement No. 123
(SFAS 123) in accounting for its stock-based compensation plans. In accordance
with SFAS 123, the Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition. All stock options issued by
the Company are exercisable at a price equal to the market price at the date of
grant. Accordingly, no compensation cost has been recognized for any of the
options granted under the Plans.
A summary of the status of the Company's plans that issue options as of
December 31, 1996 and 1995, and changes during the years ending on those dates,
is presented below:
Number Weighted
of Shares Average Price
--------- -------------
Outstanding at December 31, 1994 778,950 $ 8.01
Granted 283,500 14.70
Exercised (76,200) 7.13
Cancelled/Expired (21,000) 7.58
--------- ---------
Outstanding at December 31, 1995 965,250 10.06
Granted 442,505 21.28
Exercised (66,550) 7.55
Cancelled/Expired (10,250) 11.36
--------- ---------
Outstanding at December 31, 1996 1,330,955 $ 13.91
========= =========
Exercisable at December 31, 1995 415,250 $ 8.62
Exercisable at December 31, 1996 676,447 $ 10.01
Weighted-average fair-value of options
granted during 1995 $ 8.17
Weighted-average fair-value of options
granted during 1996 $ 12.04
Available for Grant at December 31, 1996 758,745
30
<PAGE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------------
Weighted-Average
Number ------------------------- Number Weighted-
Range of Outstanding Remaining Exercise Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Exercise Prices
- --------------- ----------- ---------------- ----- ----------- ---------------
<S> <C> <C> <C> <C> <C>
6.67 - 11.15 553,950 3.7 $ 7.89 466,950 $ 7.78
11.16 - 15.83 336,000 7.3 14.15 167,002 13.40
15.84 - 22.75 441,005 9.3 21.28 42,495 21.12
</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 by year:
1996 1995
---- ----
Risk-Free Interest Rate 6.1% 6.0%
Expected Life 6.8 years 6.6 years
Expected Volatility 46% 46%
Had compensation cost for the Plans been determined based on the fair value
at the grant dates for awards under those Plans consistent with the method
described in SFAS 123, Accounting for Stock-Based Compensation, the Company's
net income and earnings per share, would have been reduced to the pro forma
amounts indicated below:
(in thousands of dollars, except per share data) 1996 1995
---- ----
Net Income
As Reported $9,016 $6,721
Pro Forma $7,337 $6,236
Earnings Per Share
As Reported $ .83 $ .69
Pro Forma $ .68 $ .64
The Company cautions that the pro forma net income and per share results in
the initial years of adoption are overstated due to the recognition of pro forma
compensation cost over the vesting period.
12. Interest Expense, Net
Interest expense, net, consists of the following for the years ended December
31, 1996, 1995, and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Interest Income $(242) $(292) $(151)
Interest Expense 458 318 254
----- ----- -----
Total $ 216 $ 26 $ 103
===== ===== =====
13. Earnings Per Share
Earnings per share has been computed using the weighted average number of shares
outstanding during each year including common stock equivalents, when dilutive,
using the treasury stock method. Common stock equivalents include stock options,
contingent acquisition consideration and convertible debt. Earnings per share
have been restated to give effect to the Company's stock splits.
14. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31, 1996, 1995,
and 1994 consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Cash Paid During the Period for:
Interest $ 462 $ 307 $ 269
====== ====== ======
Income Taxes $6,674 $4,510 $4,208
====== ====== ======
Noncash Investing and Financing
Information:
Increase in Goodwill Resulting
from Contingent Purchase
Price Earned (Note 18) $3,733 $1,047 $ 722
====== ====== ======
Notes Payable Assumed
in Acquisitions (Note 18) $1,018 -- $ 795
====== ====== ======
Capital Lease Obligation Incurred
on Leases for New Equipment $ 173
======
31
<PAGE>
15. Major Customers
The Company's operations are conducted within one business segment, and revenues
attributable to international customers are approximately 4% of total revenues.
Net revenues from one major long-standing customer were approximately
$12,843,000, $12,200,000, and $10,873,000 for the years ended December 31, 1996,
1995, and 1994, respectively.
16. Commitments and Contingencies
The Company has employment agreements with its principal executives and certain
other key employees. These agreements generally do not extend more than three
years and contain renewal options.
The Company has an agreement with a stockholder requiring the Company to
reimburse that stockholder $10,000 per month as a non-allocable expense
reimbursement.
17. Quarterly Results of Operations (Unaudited)
Quarterly results were as follows (in thousands, except per share data):
First Second Third Fourth
----- ------ ----- ------
1996:
Revenues $24,106 $25,644 $26,838 $32,574
Earnings before Taxes 3,165 4,167 4,471 4,523
Net Income 1,701 2,240 2,475 2,600
Earnings per Share $ .16 $ .21 $ .23 $ .24
1995:
Revenues $16,218 $17,353 $18,564 $20,963
Earnings before Taxes 2,258 2,998 3,163 3,342
Net Income 1,285 1,728 1,782 1,926
Earnings per Share $ .13 $ .18 $ .18 $ .20
Earnings per share were computed giving effect to a 3 for 2 stock split
effected on February 5, 1996 (Note 11).
18. Acquisitions and Joint Ventures
On January 3, 1996, the Company acquired Migliara/Kaplan Associates, Inc.
("M/K") and substantially all the net assets of Chesapeake Surveys, Inc.
("CSI"). M/K is a full-service health care marketing information company with
offices in Baltimore, Maryland and Princeton, New Jersey. CSI, a sister company
of M/K, provides data collection and survey services such as focus groups and
random telephone interviews. Of the total purchase price, approximately $11.45
million was paid at closing, approximately 31 percent of which was paid in cash
and 69 percent in newly issued shares of NFO common stock. Additional portions
of the purchase price are due based on M/K earnings, as defined, during the
three years following the date of acquisition and payable approximately 30
percent in cash and 70 percent in NFO common stock. For the year ended December
31, 1996, the amount of additional purchase price actually earned was
approximately $3.6 million.
On January 3, 1996, the Company acquired Plog Research, Inc. ("Plog"). Plog
supplies syndicated market research products, as well as marketing and
forecasting services to the travel and tourism industries. Of the total purchase
price, approximately $5 million was paid at closing, 50 percent in cash and 50
percent in newly issued shares of NFO common stock. Additional portions of the
purchase price are due based on Plog's earnings, as defined, during the three
years following the date of acquisition and payable equally in cash and the
Company's common stock. For the year ended December 31, 1996, the amount of
additional purchase price actually earned was approximately $.1 million.
On August 15, 1996, the Company acquired The SPECTREM Group, Inc.
("Spectrem"). Spectrem provides niche consulting and acquisition and divesture
advisory services in the trust and investment areas to U.S. banks. Of the total
purchase price, approximately $2.4 million was paid at closing, 50 percent in
cash and 50 percent in newly issued shares of NFO common stock. The remaining
purchase price is due based on Spectrem's earnings, as defined, during the three
years following the date of acquisition.
The 1996 acquisitions include allocations to goodwill and customer lists of
$20.1 and $5.6 million, respectively. Spectrem's initial purchase price
allocation was based on preliminary estimates of fair market value and is
subject to revision.
32
<PAGE>
Effective January 1, 1994, the Company acquired Payment Systems, Inc.
("PSI"), a syndicated market research provider to the financial services
industry. Of the total purchase price for PSI, $4.8 million was paid at closing
in equal proportions of cash and NFO common stock (268,159 post-split shares).
Additional portions of the purchase price were due based on PSI's earnings, as
defined, during the two years following the date of acquisition and payable
equally in cash and the Company's common stock. For the years ended December 31,
1995 and 1994, the amount of additional purchase price actually earned was
$1,047,000 and $722,000, respectively. The excess of the pur-chase price over
the fair market value of the net assets acquired resulted in allocations to
goodwill and other intangibles of approximately $5.8 million.
Effective November 30, 1994, the Company acquired Advanced Marketing
Solutions, Inc. ("AMS"), a provider of custom "expert" computer software systems
to the market research industry. Of the total purchase price for AMS, the
Company paid $875,000 in cash and issued a non-interest bearing convertible
subordinated note with a face value of $375,000 at closing. The note was
converted in 1996 into 22,124 shares of the Company's common stock and a new
non-interest bearing convertible subordinated note was issued with an eight-year
life and a face value of $125,000. The note has been discounted to a net present
value of $69,000 in the accompanying financial statements. The remainder of the
purchase price is payable over the first three years after the acquisition,
approximately 57 percent in cash and 43 percent in non-interest bearing
convertible subordinated notes, subject to annual adjustments based on AMS's
actual earnings, as defined, each year. During 1996 and 1995, no additional
consideration was earned or payable. Substantially all of the purchase price was
allocated to goodwill based on the fair value of the net assets acquired.
All of the acquisitions described above were accounted for as purchases and
their results of operations have been included in the accompanying financial
statements from their respective dates of acquisition.
The unaudited consolidated results of operations on a pro forma basis as if
M/K, CSI, and Plog had been acquired as of the beginning of the Company's fiscal
year 1995 are as follows (in thousands, except per share amounts):
1995
----
Revenue $90,174
Net Income 6,771
Earnings per Share $ .65
The pro forma effects of Spectrem and AMS are not material, and therefore,
are not included.
The Company entered into agreements in 1995 with IPSOS, S.A. ("IPSOS"), a
major European marketing research firm, and LT Participations ("LT"), an IPSOS
affiliate, to launch access panel activities in Europe. Under the terms of the
agreements, the Company, IPSOS, and LT have agreed to launch joint venture
companies in five western European countries of which three are currently
operational. The Company initially will have approximately an 18 percent
interest in each joint venture but has the option, at its own discretion, to
increase its ownership interest to 50 percent during the next seven years by
purchasing LT's interest. LT has the right to sell its joint venture interests
to the Company anytime after three years. As part of these agreements, the
Company has purchased a comparable portion of IPSOS' existing access panel
businesses in Germany and France.
During 1996 and 1995, the Company invested approximately $999,000 and
$1,290,000 respectively, in these joint ventures, which is included in other
assets in the accompanying balance sheets. This investment has been accounted
for using the equity method of accounting. NFO's portion of the joint ventures'
1996 activities resulted in a loss of $453,000, which is reflected in other
expenses on the consolidated income statement.
19. Subsequent Event
On March 20, 1997, the Company signed an agreement and plan of merger to
acquire 100% of the stock of Prognostics, a leading provider of survey-based
quantitative customer satisfaction research to information technology companies
worldwide. Founded in 1981, Prognostics is headquartered in Palo Alto,
California and has additional offices in Boston and London, as well as an
affiliate relationship in Japan. The purchase will be consummated on April 1,
1997 when the Company will issue 1,726,480 shares of NFO Common Stock. The
purchase will be accounted for as a pooling of interests.
33
<PAGE>
Board of Directors
William E. Lipner (1)
Chairman, Chief Executive Officer and President of the Company
Walter A. Forbes (1) (2) (3) (4)
Chairman and Chief Executive Officer, CUC International, Inc.
Steven J. Gilbert (1) (2) (3)
Vice Chairman of the Board and Secretary of the Company,
Managing Director, Soros Capital
Edmund A. Hajim (2) (3) (4)
Chairman and Chief Executive Officer, Furman Selz, Incorporated
John Sculley (4)
Chairman and Chief Executive Officer, Sculley Associates, Inc.
Corporate Officers
William E. Lipner
Chairman, Chief Executive Officer and President
Charles B. Hamlin
Executive Vice President, Interactive Business Development
Patrick G. Healy
Executive Vice President, Finance and Chief Financial Officer
Richard A. Spitzer
Executive Vice President, Operations
Lawrence D. White
Executive Vice President, Marketing
group company Officers
Allen R. DeCotiis
President, Payment Systems, Inc.
Amy J. Errett
President, The spectrem Group, Inc.
Joseph M. Migliara
President, Migliara/Kaplan Associates, Inc.
Stanley C. Plog
President, Plog Research, Inc.
Herb E. Storck
President, Advanced Marketing Solutions Corp.
J. B. Wood
President, Prognostics Corp.
Corporate Information
Corporate Headquarters
Two Pickwick Plaza
Greenwich, CT 06830
203-629-8888
203-629-8885 FAX
Corporate Counsel
Paul, Weiss, Rifkind,
Wharton and Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Auditors
Arthur Andersen LLP
1345 Avenue of the Americas
New York, NY 10105
Registrar and Transfer Agent
Fleet Bank
111 Westminster Street
Providence, Rhode Island 02903
Form 10k
A copy of the Annual Report on Form 10K, filed with the Securities and Exchange
Commission, can be obtained through the Company's website at http://www.nfor.com
or by writing to:
Patrick G. Healy
Executive Vice President, Finance
NFO Research, Inc.
Two Pickwick Plaza
Greenwich, Connecticut 06830
Shares Listed
The company's common stock trades on the Nasdaq National Market tier of The
Nasdaq Stock Market under the Symbol: NFOR
(1) Member of Executive Committee
(2) Member of Nominating Committee
(3) Member of Compensation Committee
(4) Member of Audit Committee
34
